New territory: the transformation of New Zealand, 1984-92 9781927327500, 9780908912216

Table of contents :
Frontmatter
1. A Far Country (page 1)
PART I The Predicament (page 3)
2. Godzone Lost (page 5)
3. "A Modest Affluence for All' (page 9)
4. Fall from Grace (page 36)
5. An End to Affluence (page 47)
6. Welfare in Crisis (page 71)
7. A Different Way of Thinking (page 86)
8. Collapse of Consensus (page 93)
PART II The Quiet Revolution (page 97)
9. A Radical Frame of Mind (page 99)
10. The Push to Independence (page 112)
11. A New Social Order (page 124)
12. An Economy to Fix (page 141)
13. An Economy Fixed? (page 172)
14. A More Private Place (page 197)
15. The Politics of Pain (page 234)
16. Time Out (page 276)
PART III After the Revolution (page 291)
17. New Territory (page 293)
18. Making a Home (page 320)
Appendix 1. Consensus or Social Contract? (page 327)
Appendix 2. The Ideas Behind the Welfare State (page 330)
Appendix 3. The Intellectual Challenge to the Welfare State (page 334)
Appendix 4. Was it a Revolution? (page 340)
Notes (page 344)

Citation preview

NEW T ERRITORY

Colin James

~NEW TERRITORY oe of New Zealand 1984-92

Colin James

@®:

First published in New Zealand in 1992 by Bridget Williams Books Limited, PO Box 11-294, Wellington.

| Published in Australia in 1992 by Allen & Unwin Australia Limited, Aitchison Street, St Leonards, NSW 2065, Australia.

© Colin James, 1992 This book is copyright under the Berne Convention. All rights reserved. No reproduction without permission. Inquiries should be made to the publishers.

ISBN 0 908912 21 8 New Zealand ISBN 1 86373 463 3 Australia Cover illustration: Dichotomy by Brent Wong Cover design by Mission Hall Design Group Printed by GP Print, Wellington

Thanks

My thanks to many longsuffering people who put up in one way or another with this book over a long period. Special thanks on that count to Carla Morris, my daughter, and to another person who does not wish to be named who gave me great encouragement. My deep gratitude to the Stout Trust for its generosity, without which the project would have taken at least another year (and may have failed altogether) and to Margaret Clark and the politics department at Victoria Uni-

versity of Wellington who provided a haven for writing. Thanks to Ian Dickson for help with some of the economics. Multifarious debts are owed to people too numerous to name here, in many walks of life and positions in society and of many different attitudes and ideologies, who over the past dozen years debated with me, enlightened me and illuminated for me myriad facets of the New Zealand we were and the

New Zealand we have been becoming. I have learnt only through others. In that regard, I owe more than I can repay

to the zest for inquiry and to the wisdom of Sir Frank Holmes, against whom I have, sometimes openly, sometimes surreptitiously, tested many of my ideas and winnowed out some of the wilder ones.

And to New Zealanders, this: it has been a great privilege as a journalist to live through one of this country’s most turbulent and fascinating, if often also painful, stages in its history. I cannot think of anywhere in the world that would have been

a better place to be a journalist than here in these times. Thank you.

Contents

1. A Far Country 1 PART I The Predicament 3 2. Godzone Lost 5 3. ‘A Modest Affluence for All’ 9

4, Fall from Grace 36 5. An End to Affluence 47 6. Welfare in Crisis 71 7. A Different Way of Thinking 86

8. Collapse of Consensus 93

PART II The Quiet Revolution 97 9. A Radical Frame of Mind 99 10. The Push to Independence 112

11. A New Social Order 124 12. An Economy to Fix 141 13. An Economy Fixed? 172 14. A More Private Place 197 15. The Politics of Pain 234

16. Time Out 276

PART III After the Revolution 291

17. New Territory 293 18. Making a Home 320

Appendix 1. Consensus or Social Contract? 327 Appendix 2. The Ideas Behind the Welfare State 330

Notes 344

Appendix 3. The Intellectual Challenge to the Welfare State 334

Appendix 4. Was it a Revolution? 340

1. A Far Country

T here is a distant country about our size. It goes hand in hand with the United States in world affairs. Inside, it is securely a European society and culture. The Government can be relied on to protect people from the economic shocks of the outside world. People are not left to rot on unemployment heaps. In this far country one-third fewer are on welfare rolls than in New Zealand today and everybody can look forward in retirement to a more generous state superannuation scheme. Only 130,000 are unemployed or on special work compared with our 215,000. It is possible to feel you have a job for life, especially in the public service where little has changed in a quarter of a century except that it has got bigger. Education is free, though one-third fewer students go on to tertiary study than here and spending overall on education is nearly one-third less. Hospital waiting lists are only three-fifths of ours and spending on health is 5% less. The state provides houses for people at low rents, though more than 10,000 are waiting. People in this distant country feel safer on the streets and in their homes: there 6.8 violent crimes are reported for every 1000 people, compared with our 9.7. There is a price for this security. Inflation is around 16%. Foreign debt is 20 times higher than a decade ago and rising at a frightening rate. The Budget deficit is 5% of gross domestic product on a conservative measure and on current policies will be 7% in a couple of years. Interest rates are high: average first mortgage rates are around 16% and rising. There seems no way to stop this spiral. Other prices are paid for the security. A 20—22-inch television set costs about

$1600 to $2500 in our money, compared with $700 to $900 here, a T-shirt $12.50 compared with as low as $7.50. Citizens of this distant country have a seven-week wait for a phone and toll calls are double the price here. ‘Though they don’t have GST,, if they earn just two and a-half times the average paypacket they pay 66% income tax, compared with our top rate of 33%. That tax is siphoned off to help sheep farmers who get an average of $40,000 each in our money in

handouts; by contrast, our farmers are expected pretty much to stand on their own feet. Manufacturers need one-third more workers to produce the same amount as here; the railways need four times the workers to move only a little more freight, the ports twice the number of workers to move the same freight. I

New Territory | | In this distant country you must get a permit from the Government to buy foreign money to travel and to buy any one of a wide range of goods. Some foreign goods you cannot buy at all, at any price. The Government has just put a freeze on prices and wages. But there is growth in this far country. Economic growth has averaged 2.8% over the past three years and on current trends will top 5% in a couple of years. The Government is investing heavily in energy-based industrialisation which it says will create 410,000 jobs in the next 10 years. People know their place better, so it is a more predictable and therefore more secure place. Women are less pushy, more prepared to stay at home. There are no women heading major Government departments or on the board of the cen-

tral bank, no women Cabinet ministers and only eight women MPs. This foreign country, like ours, is divided between two main races. But, unlike here, the majority race is secure in its knowledge that its culture will go on forever and the minority indigenous race will have to be part of it; the majority believes the indigenous race’s appalling performance in education and over-representation in prisons can be fixed if only parents will lift their game. There is no question of dividing up fish and land according to a long-dead agreement and thus putting people in fear of their livelihood. This distant country is nationally secure, too, guaranteed by a huge friend and ally. Though that ally is threatening penal tariffs against the main export, lamb,

because of the farmers’ subsidies, generally it gives special help on trade and military matters. In return, that far country gives free run of its waters to the ally’s warships which may be carrying nuclear weapons and large flotillas of yachts carry protesters to meet and confront them in the harbours. There have recently also been confrontations between police and protesters over a sports tour by the main foreign rival of the national sport, but that has been because the authorities were determined to defend a basic freedom of sports lovers to play whom they want. These protests, though, are indicators of something stirring. There is not such

universal agreement in this far country on policy as there once was. A rising minority want free of the nuclear ships and of binding alliances. ‘They have an independent streak. There have been too many protests, some violent, by the indigenous people to go on ignoring their pleas and a rising minority of the majority race are taking their side. A new class of businesspeople and bureaucrats and intelligentsia want free of economic regulation. There is terrible economic pressure from outside the country: it has had a 30% fall in its earning power. There are rending economic strains within. The economic policy settings are in danger of unravelling and the economy’s structure in danger of disintegration. A revolution is in the offing. That distant country is New Zealand a decade ago.

2

PART I

The Predicament

2. Godzone Lost

N= Zealanders have come into the 1990s shellshocked from change. To

most the foreign country is not that country across the frontier now separating us from the time before 1984. To most the foreign country is the New Zealand of now. This is not the country of their pasts and they cannot easily come to terms with being in foreign parts. Two pasts shape our view of this new territory we find ourselves in. One is the past of a battle to bury uncertainty and insecurity after the traumatising uncertainties and insecurities of depression in the 1930s and war in the 1940s. That battle was won, it seemed forever, only to be lost on a rematch in the 1980s. The second is the past of an urge to be free of the restraints of those comfort-

able years between the 1940s and 1980s. That urge for freedom — and the exhilaration and willingness to risk uncertainty and insecurity that are parts of freedom — was founded on the spoils of the battle against uncertainty and insecurity. These two different colourings tint the present. One is bewilderment at paradise lost, the descent from Godzone, the world’s special country that we had for a quarter-century from the late 1940s. That feeling comes from the first past. The other is dismay at the ravages exhilaration wrought — or delight in freedom come right: both feelings are from that second past. How, burdened and blinkered by these two pasts, can we make sense of the present and make a good future? Weare not alone. Much of what happens in New Zealand is refraction of what

happens in other countries of our sort. In that outer world in the past threequarters of a century two periods of convulsion have flanked a period of calm. We have shared in thar. Out of the great convulsions of the two world wars and world depression, our sorts of countries constructed an amazing prosperity. We in those sorts of countries — the countries on each side of the north Atlantic and in the southwest Pacific — built that prosperity on a cultural and economic supremacy, applying accumulated technical knowledge and innovation to generate wealth and then finding ways of spreading throughout society that wealth and the opportunity

5

New Territory | to participate. To varying degrees we subscribed to an idea that seemed to promise

the good life and the good society. That idea was the welfare state — capitalism and its stablemate, multi-party representative democracy, modified by socialism and keynesian economics into a kind of technocracy. This welfare state was liberal social democratic. The cornerstone was individual liberty. On that base Governments were the agents of individuals to domesticate once-wild economies and to make society fairer. From the late 1940s the idea worked: societies in Europe, north America and Australasia did become fairer, the economies tamer and it was all blessed by rapidly growing prosperity in which individuals felt secure. We seemed to have found the means to guarantee for ourselves economic improvement and individual and social security. Idea altered fact and fact made the idea credible. By the 1960s it

seemed as if we, in these ‘advanced’ societies, had solved the riddle of human perfectibility. It was only a matter of time and perfection of the idea. There was widespread agreement about the idea. It was so widespread it could be called consensus. It was consensus amid prosperity and on how to ensure prosperity: call it the prosperity consensus. So obviously right did this idea seem in those societies by the end of the 1950s that it was commonly thought that the idea had simply become practice. Daniel Bell, an American writer, pronounced ‘the end of ideology’ in a book bearing that title. Technical skill had taken over from property as a ‘determinant of occupation and political power takes precedence over economic. What then is the meaning of class?”! So much for Karl Marx’s argument that ideology served class interests. Likewise, Bell stated, ‘few “classic” liberals insist that the state should play no role in the economy and few serious conservatives, at least in England and on the Continent [of western Europe], believe that the welfare state is “the road to serfdom”. Instead, he argued, “there is today a rough consensus among intellectuals on political issues: the acceptance of a welfare state; the desirability of decentralised power; a system of mixed economy and of political pluralism. In that sense, too, the ideological age has ended’.’ Instead of revolutionary activities, young intellectuals were discharging their emotional energies and needs in ‘science or university pursuits, but often at the expense of narrowing their talent

into mere technique; others have sought self-expression in the arts, but in the wasteland the lack of content has meant, too, the lack of the necessary tension that creates new forms and styles’ .4

In New Zealand the prosperity consensus had special power. That was partly because New Zealand led the way into the welfare state in the late 1930s and remained a leader well into the 1950s. In ensuring jobs, which constituted the central pillar of the welfare state, New Zealand was unsurpassed until the late

6

| Godzone Lost 1970s. New Zealand was also a highly homogeneous society, with a secure place in the world, culturally, politically and economically. It was a society made for consensus. And the welfare state worked particularly well in New Zealand; the prosperity consensus was therefore more pervasive and was accorded special reverenice.

There were unique features of the prosperity consensus in New Zealand. New Zealand was a colonial society, dependent militarily, culturally, economically and in mentality on Britain and the United States. Its economy was agrarian-based, which gave it some features of a developing economy — though New Zealanders afforded themselves material spoils appropriate to a mature, industrialised economy. This dependency, the assurance of support from some bigger, outside force, meshed well with the quest for security and reinforced it.

In the eyes of its inhabitants New Zealand was “God’s own country’ — Godzone, for short.

Since the early 1970s the world has been going through another convulsion. Gradually, flaws began to show in the seemingly infallible idea. Prosperity continued to grow, but less rapidly and at increasing social and environmental — human — cost. Fact began to undo idea; the idea gradually lost credibility. The cultural and economic supremacy of the societies which developed the prosperity consensus was challenged by confident, aggressive and economically successful east Asian societies. The post-1970s collapse of communism, hollowed out by its adherents’ losing military and economic race with, and increasing in-

debtedness to, the north Atlantic countries,’ paradoxically did not reinforce the prosperity consensus idea but intensified already accumulating assaults on its social fairness elements. A rival idea gained credibility which insisted that there could not be such a thing as a social entity but only autonomous individuals and that the individual alone could be the basis for workable public policy (especially if the path to prosperity was to be regained). For many of those whose past was one of too much

security and certainty for comfort, this idea had a strong appeal. This gave strength to a technical argument that prosperity consensus was unworkable economically and so socially: inherent flaws meant that over time it could not work and economic structures had to be deregulated. This technical derivative appealed to many who argued that the crisis was not of the welfare state, but of capital-

ism; that the welfare state had not failed but merely stalled, that solving capitalism’s crisis would allow a return to enhancing the welfare state and the pursuit of the perfectible, fair society. These were powerful ideological currents. In New Zealand this convulsion was especially sharp and deep. Just as the prosperity consensus was deeper and more pervasive here than elsewhere, its

7

New Territory | unravelling was more traumatic. The factors that gave the prosperity consensus its special characteristics and intensity in New Zealand intensified the impact of its undoing.

For New Zealand it was not just the security of the welfare state that was undermined by the post-1970 convulsion. The security born of its dependence on colonial linkages was also lost as New Zealand was forced out of colonial dependence, forced to confront the serious and debilitating structural shortcom-

ings of an agrarian, dependent economy. The internal social homogeneity decayed. Many things changed at once during the 1970s. That portended a turbulent 1980s. By coincidence a younger generation emerged into power in business, the bureaucracy and politics in the early 1980s. The pasts this generation brought with it were forged in the experience of prosperity. Security was taken for granted. All sorts of risks could be taken and new experiences explored in private, social, economic and national life. Society could and should be changed, not concreted in unchanging consensus, especially if that consensus no longer seemed to work.

The members of this emerging generation did not agree what form or direction the changes should take. But they agreed something had gone wrong; they agreed that values, and so policies, had to change. The unifying thread — if unifying is the right word — was a shared temperament, an impatience with the status quo and with constraints, openness to new ideas, to change, to risk, to trying things out. Confronted with New Zealand’s predicament amid a world convulsion, this mentality was explosive. By the early 1980s this unusual coalition was poised, part wittingly, part unwittingly, to part-lead, part-push New Zealanders into new and uncharted territory. For many this was to be, to paraphrase Milton, Godzone lost.

8

3. “A Modest Affluence for All’

I’ 1950 New Zealand was a tightly integrated society, confident it had cracked the secret of affluence with security. A consensus! had formed and would continue to firm during the next half-decade, confirmed by its success in practice. That ‘prosperity consensus’ would last until the 1970s. At its height it seemed as if it could go on forever. New Zealand’s version of this prosperity consensus, which it shared in some degree with other rich, European-derived societies, was particularly strong. That was because New Zealand society was homogeneous, allowed for easy social mobility and was secure in a colonial British culture that removed many issues from the national debate. Other conditions which facilitated, and in some cases demanded, consensus were the desire to avoid a repetition of the searing experiences of depression and war, a practical utilitarian individualism subscribed to widely and an intellectual mainstream which meshed with that. The principles on which society operated and policy was made were consonant with widely held social instincts. And it worked. The social and economic structures and the policy line to which the consensus gave rise delivered what the consensus demanded. Liberal social democracy was installed in the welfare state that saw to individual prosperity and social equity, with technical help from keynesian economics. Peace

and prosperity reigned. |

Consequently, there was very wide endorsement of the consensus, perhaps wider in New Zealand than anywhere else. It was subscribed to by a broad majority of academics, bureaucrats, politicians, business operators, social service providers, unions and ordinary people. There were always dissidents from this consensus and people whom the consensus did not encompass. But the dissidents and misfits were exceptions. Most fitted the reality. Most policy debate took place within known and accepted boundaries and in pursuit of broadly agreed societal and national objectives. More than 90% of New Zealanders in the 1950s (92% in the 1951 census) were of British descent. This made New Zealand ethnically near-uniform and gave it a strong cultural identity and widely shared values, which were underpinned by continuing strong ties with the mother culture.’

9

New Territory | | All but 1% of the rest were Maori, but most Maori lived out of sight and out of mind in the countryside and the rest were recent immigrants into the cities where they appeared to be, and in most cases essentially were, accommodating to the dominant cultural values. Many of the Maori were quarter-caste and so three-quarters British in any case. New Zealand society in the 1940s and 1950s also did not exhibit great ex-

tremes of wealth and poverty. Though people were by no means equal, the divisions between classes or socioeconomic strata were not as obvious or as marked

or felt as keenly as in other countries.

That homogeneity centred in a large ‘middle’ in society. By the 1950s New Zealand society had long since ceased to resemble the pyramid (volcano might be a better analogy) of eighteenth and nineteenth century analysis,’ with a large ‘working class’ beneath a small middle class all beneath a still smaller elite of capitalists, landowners and rulers. It resembled much more a diamond, or ‘rugby football’, on its side, with a small rich merchant and farmer group at the top and a bigger but still relatively small number of outsiders at the bottom. In the middle was a huge middle class, much more in the American than the British mould. This middle class encompassed those in small and medium business, those on salaries and wages and their dependants. ‘There were considerable differences in personal wealth and social status but its members all had a sense of belonging to the same society, with broadly shared values. In addition, there was easy social mobility within this ‘rugby football’-shaped New Zealand society. A tradition of practicality in a ‘new’ land valued manual work and often paid it well. Manual workers could own cars and holiday shacks, play sport as equals alongside managers and professional people. Education was a mechanism for any reasonably intelligent and determined New Zealander to

join or be on nodding terms with decision-makers. | New Zealand was also drawn towards consensus by a cultural confidence. By virtue of its colonial establishment, New Zealand had a close-to-the-throne place at court in one of the world’s most powerful nations — at a time when European values and European economic imperatives ruled the world. Even when in the 1960s it had increasingly to transfer its allegiance to the (Europe-derived) United States, it was still among cultural and economic likes, in the inner court. Being close to the centre of cultural and economic power reinforced confidence

in the superiority, or at least the correctness, of the values of the culture and economic organisation of the British-descended majority. New Zealanders could believe easily in themselves. They also could, and did, remain comfortably dependent. New Zealand and New Zealanders maintained strong institutional, sentimental, trade and military ties with Britain. The legislative and legal systems were closely modelled on the 10

A Modest Affluence for All’

British in structure and procedure and followed British precedent almost slavishly. If New Zealanders travelled or settled overseas it was likely to be ‘home’, as many still called Britain. Most exports went to Britain. British brand names dominated many consumer goods choices. New Zealand was locked into a re-

gional five-power defence arrangement with Britain (involving Australia, Singapore and Malaysia) and it bought British frigates. This determined Britishness both reinforced ethnic and cultural homogeneity within New Zealand and perpetuated the colonial mentality, an inclination towards dependency. New Zealanders of the 1950s were also united by the powerful memory of two recent searing experiences: the 1930s depression which had devastated the poor (many of whom it made so) and shocked the well-off; and the Second World War of the early 1940s in which the proportion of New Zealand’s young men killed was among the highest of any combatant country and during which for three years the country was at risk of alien takeover. There was an abhorrence of upheaval or change and so a predisposition towards, or at least not to challenge, consensus. There was also a very widely shared tradition of what historian Bill Oliver in 1960 called utilitarianism, a sort of practical test of usefulness applied to everything from government to the arts.* The point here is not that it was ‘utilitarian’ — about which more is said below — but that it was already a tradition and that it was very widely shared. It bound together and was approved by the large ‘middle’ of society.

And there was a strong intellectual basis for the policy positions embedded in the consensus. Again, the point here is not what that intellectual position was but that it existed and that as an ideology academics, bureaucrats and decisionmakers widely subscribed to it in intellectual form and to a considerable extent translated it into practical policy. The consensus was also self-reinforcing. It seemed to work in practice. It delivered prosperity and stability. Prosperity dulls rebellious urges. In retrospect, given the conditions of social and cultural homogeneity coupled with a mechanism enabling easy social mobility which checked any divergent tendencies, the comfort of dependence on an acknowledged motherland, a widely shared way-of-life tradition, an agreed ideology that was part of a worldwide in-

tellectual trend and an underpinning prosperity, it would have been surprising if consensus had not developed. There was in the 1950s little pushing people apart. There was even a statistical basis of sorts for the peace and prosperity that accompanied consensus and even for the leaning towards consensus. Nikolai Kondratieff has suggested there are long cycles of economic growth and social

stability, that after the wars and economic upheavals of 1910-45 a 35- to 11

New Territory | | 40-year period of growth and stability was predictable. In New Zealand, very open to the tides of international economics and politics, periods of change and stability, economic uncertainty and economic advance have alternated in about 45- to 50-year cycles since 1840. What was this prosperity consensus? First there was agreement to conform. This is not a simple truism. It is arguable that the American way of life, which, during the period of the New Zealand post-1940s prosperity consensus, was so widely subscribed to by Americans as to seem also to qualify as consensus, explicitly allowed and even encouraged diversity, necessarily so because of the great geographical and demographic diversity

of the country. New Zealand, much smaller and demographically homogeneous, allowed a great deal less diversity. Indicative of that is the tight control maintained by politicians throughout the 1950s and 1960s on radio and television, which until the late 1960s was entirely in state ownership, with the exception

of only one small non-commercial co-operative station in Dunedin. This may explain why some libertarians in New Zealand shudder at consensus as if it automatically means the crushing of diversity and initiative. But consensus is about boundaries to values and norms, not precise prescriptions. It is about agreement to agree on what shall not be in dispute. _ Even the presence of the Maori minority did not seriously challenge this agreement to agree. Maori values persisted on the marae, but they were either actually irrelevant to the dominant value system or treated as irrelevant. Maori values were not evidence of diversity so much as a sideshow, bound for absorption into the

mainstream value system where practicable (hakas by All Black rugby union teams, for example, or concert parties and hangi feasts for tourists or Maori place names) or for extinction as inappropriate deviations. Maori who migrated into the cities were expected to adopt and conform to the prevailing value system and

most expected and wanted to. Maori born in the 1950s and 1960s to those migrants say their parents went to great lengths to make English the spoken language in the home and otherwise to live like surrounding British-descended people. The 1.5% of other ethnic groups were even more marginalised.’ A mild antisemitism infected immigration policy. Immigrants (refugees) from non-British Europe in the late 1930s and 1940s have talked of a powerful pressure to conform and being ostracised for their oddity,® which helped prompt a number of intellectual heavyweights, among them Karl Popper, to leave once the Second World War was over. The novelist Janet Frame described this pressure: “The New Zealand aim was to have people who would “fit in”, readily and painlessly (painless for those already there). Like invisible mending. Or like an insect that moves 12

| ‘A Modest Affluence for All’ to another tree and is given a new camouflage and is told, stay on that bough, blend, and all will be well...” Nor could immigrants retreat. They were expected to ‘look in the eyes of people. It is the English way’.

If there was an expectation of conformity, there was also the corollary, that everyone should have a fair chance to conform. The second element of the prosperity consensus was that education, social welfare and economic management systems should be designed to ensure no one would unnecessarily be shut out of the New Zealand way of life. Each person should have a ‘fair go’. Thus, for example, the profound change in Maoridom wrought by the mass migration to the cities in the 1950s in search of economic survival was facilitated and stimulated by the prevailing consensus. A ‘fair go’ was for all. The first La-

bour Government had explicitly set out to eliminate differences in living conditions, education and health between Maori and British-descended people so that they became a full part of the economy, polity and society. In the 1950s and 1960s the policy response to the Maori migration into mainstream New Zealand urban society was to put the state to work to level up Maori in land development, education, housing, health and general welfare, to make them equal with Europeans in the terms of the consensus. In 1960 an official report on the future of Maori? was couched against an almost unconscious — because it was so unexceptionable — expectation that Maori would become in effect brown Europeans and it recommended greatly expanded spending on economic and social programmes to accelerate ‘integration’ — meaning, eventually, assimilation — of Maori as ‘just about the most important objective ahead of the country today’.’® Far from detracting from the prosperity consensus or calling it into question, Maori — in fulfilling (in the eyes of the British majority) the role of the best-treated indigenous race in the world — were intended to reinforce it. The third element in the prosperity consensus was cultural and racial confidence among the dominant British majority. This came only partly from numerical

dominance. It was greatly reinforced by the dominant place in the world of European (including American) culture and economic organisation. Until the 1960s there was no serious economic challenge and not until late in the 1970s did Europeans and Americans begin to worry that Asians would wrest from them the economic impetus and so, in time, cultural pre-eminence. New Zealanders, close in at court in both Britain and the United States, could feel securely part of that dominant world cultural and economic system. Any consensus that was informed by and incorporated the values of that system would automatically be strengthened by New Zealand’s close ties with it.

13

New Territory , Bn This in turn encouraged the fourth element in the prosperity consensus: dependence — or, rather, a lack of urgency for national independence. This was evident in the perpetuation of the colonial relationship with Britain in sentimental, institutional, trade and military terms long after Britain had pressed full independence on New Zealand. Oliver in 1960 underlined the sentimental aspect: ‘It remains true that hardly anything said or done in England is a matter of indifference to New Zealand. A play is produced in London and young New Zealanders look back in anger.’"! Major local artists such as poet Allen Curnow, novelist Janet Frame and painter Colin McCahon, who did express a distinct and independent New Zealandness,’? had to wait another two decades before acceptance outside a small circle of the intelligentsia. The British Broadcasting Corporation was the model for radio and television. Institutionally, New Zealand did not adopt until 1947 the 1933 Statute of Westminster formally severing the colonial legislative link. It enthusiastically retained the British civil honours system and a special reverence for the British monarchy (even though formally the Queen was Queen of New Zealand). Economically, New Zealand remained a colony of Britain, firmly in the sterling area, discriminating against non-British countries in its tariffs and import licensing procedures. In military terms, New Zealand tried to join the British-co-sponsored North Atlantic Treaty Organisation and to re-establish the pre-Second

| World War British defence umbrella. It accepted as only second best the United States-inspired South-east Asian Treaty Organisation and a tripartite defence pact with the United States and Australia. In the 1950s New Zealand was willingly

drawn into wars in the British Commonwealth and in a distant British sphere of influence, the Middle East. When British military capability faltered in the Second World War and in its ability to maintain forces east of Suez from the 1960s, New Zealand did not strike out in an independent direction, but attached itself to the United States. As a result it found itself dragged into a war in Vietnam about which even the conservative Government of the time had profound reservations, in terms of both military strategy and international political implications.'? But by then New Zealand was also becoming increasingly dependent on the United States as an export market, as Britain became less reliable as a

14 |

destination or a source of trade. |

As in military and trade matters, so in culture. Films and radio and television programmes, ideas about clothes, popular music, food and house design, were sourced increasingly from the United States. Few plays or works of fiction or music or art or craft were generated internally. There was a very strong sense that

‘New Zealand’ meant ‘inferior’ in consumer goods, taste, design and creative expression. The ‘mother country’, then out of necessity ‘Uncle Sam’, were the arbiters of quality and taste.

‘A Modest Affiuence for All’

This does not mean New Zealanders simply recreated a replica of Britain, or, later, the United States. In many respects they saw the society they had created as superior (particularly in social justice, the lack of sharp class divisions and the emphasis on outdoor activities and lifestyle) to the British (a ‘Super-Pom’, in James Belich’s words'*) and they resisted some aspects of American culture, preferring, for example, British and European cars to huge, garish “Yank tanks’. Nevertheless, New Zealanders in the first two decades after the Second World War seemed content to forgo full national independence and to remain under others’ wings. This lack of desire for independence may seem at odds with the fifth element of

the prosperity consensus, New Zealanders’ understanding of themselves as individualists. Individualism implies independence of attitude. A nation of individuals would logically want to be independent as a nation, to mark itself out as self-reliant, self-defining and distinct in its self-expression. Not so, for three major reasons. First was the convenience and comfort of being in the inner circle at the court

of the dominant economic and cultural powers. Second was the impact of the 1930s depression and the 1940s world war. For a decade and a-half unpredictability had been equated with hardship. After that New Zealanders wanted predictability and security. That meant holding to established values and inheritances, reinforcing existing institutions, making firm trading alliances with trusted partners (so much the better when it was ‘mother’ or ‘uncle’), setting up solid military alliances — and internally, to draw on collective resources to protect individuals against the outside world’s armoury of shocks.

Third was the nature of those individuals. Though New Zealanders liked to think of themselves as independent-minded, self-reliant, hardy adventurers of the frontier, the reality by the 1950s was different.’? Migrants of the nineteenth century, as W B Sutch has pointed out, did not so much strike out boldly for New Zealand to make their fortune as flee from the social disaster of contemporary England, the fact or fear of starvation, unemployment and homelessness.’° The 1950s ‘utilitarian’ individual described was certainly concerned to defend his or her patch against intruders, but was also greatly concerned about security and was uninhibited about joining with others to obtain it.” The criterion of ‘utilitarianism’ is usefulness (utility) towards a chosen end and, given that the end was security, the continuation of a secure ‘maternal’ or ‘avuncular’ relationship was a useful guarantor of security.

But both the myth and reality played a part in New Zealanders’ value system. 15

New Territory | | New Zealanders, believing their myth, were individuals foremost, who demanded to be free from unnecessary constraints. ‘It’s a free country’ was a common refrain, as familiar to children as to adults. In economic life this individualism was manifested in a high proportion of people who worked on their own account or owned small businesses or farms: in 1984 Professor Harvey Franklin found that, of 14% of the occupied labour force he identified as ‘managers’, four-fifths were self-employed or owned businesses or professional practices employing others.'* New Zealanders lived in single-unit (nuclear) families span-

ning two generations. New Zealanders owned, or aspired to own, their own home, surrounded by a cordon sanitaire of land and a fence — in 1961 69% of households were owner-occupied, giving substance to the National Party catchcry

that New Zealand was a ‘property-owning democracy’. They maintained and improved those homes with their own hands. They were practical people. They spent a lot of time outdoors and played a lot of sport, whose foremost exponents they venerated as the epitome of national expression. Mixing with other people was in places of choice, clubs and pubs, rather than through everyday street life as in some countries. Grandparents, uncles, cousins and other relatives were safely

across town or out of town. These individualists founded and joined clubs, societies, associations and interest groups in profusion as if requiring that everyone should ‘belong’ and not stand out or stand aside. Commentators of the period remarked on this trait.” Some were examples of genuine collective action, such as credit unions, educational associations and friendly societies which offered mutual self-help. But by and large the individual did not submerge in groups or operate them in a genuinely collective way: the group was a collection, rather than a collectivity, of individuals. They were to provide the individual with company, distraction or means to advance his/her private interests. The individual remained autonomous, not a cipher subject to the dictates of a greater entity. To the extent that the individual did agree to be subordinate to the collective, it was for strictly limited ends. Unions, for example, which did demand unanimous conformity to majority decisions, were accepted as mechanisms for ensuring good wages and conditions but, with rare exceptions, not as instruments of collective action in health, education, superannuation, recreation, banking and retailing. They did not demonstrate a collective way of running economic life generally. So their influence on political, social and individual life was strictly quarantined by legislation and practice to wages and conditions.” Individual autonomy resisted absorption into a collective. Though more recently we have come to associate women’s decision-making with collective decision-making, women’s organisa-

tions in the 1950s and 1960s were run along much the same majority-vote principle as men’s. Other types of co-operatives and collectives were rare. Maori,

16

‘A Modest Affluence for All’

whose tradition was collectivist (of a tribal and somewhat authoritarian kind), were either sequestered on the marae or fragmented within the cities and in any case were a small minority who did not challenge the prevailing individualism. This autonomous individualism grew out of and fostered a sense of equality. The opportunity for self-improvement — in contrast to the rigidity of English class-based inequalities and barriers — was a strong motivator for many, probably most, early British migrants and put them, in a sense, on an equal footing, that of responsibility for their own success or failure. This intrinsic personal, and therefore social, equality skirted inequalities in wealth and income and, to a considerable extent, presumed social status. On sportsgrounds managing directors might unselfconsciously compete alongside mechanics, farmers alongside labourers. It did not translate into equality of wealth or social status; Maori were usually excluded and women were attached symbiotically to males rather than equal participants in their own right; there was always an economic underclass; Chinese were denied full citizenship until the 1960s; many people did not actually feel the equal of others; there were clubs and schools which accepted only the well-to-do from the ‘correct’ occupational or social rank. But there was a sort of (male) egalitarianism, or at least a belief among New Zealanders that they were egalitarian, that was very much alive well into the 1960s.” That sense of equality was the sixth element of the prosperity consensus. This was underlined by another aspect of individualism. Few individuals, even among those who own small businesses, have the means to weather external shocks — a depression or cut-throat economic competition — or to bargain a good wage off an employer or secure a full education or a guarantee of health care or an adequate income in old age. Price shocks to a small economy dependent

on fluctuating international commodity prices translated into an existence that for the majority often varied from the precarious to the unpredictable. As a result, as Sutch demonstrated,”! much of New Zealand history has been characterised by a long quest for national and, in parallel with that, individual security. That was the seventh element of the prosperity consensus. Thus New Zealanders of the prosperity consensus were security-seeking individuals. Their egalitarianism was a means of ensuring their individual security. ‘Equality’ in this sense probably amounted to little more than ‘fairness’, the right of everyone to a ‘fair go’, a concept directly related to the (mutual) self-interest of individuals. In practical terms that supported the idea of equal rights to economic and personal protection, and so comfortably accommodated 1940s-70s social democracy. But it was a far cry from marxist or socialist notions of equality, which subordinated the autonomy of the individual to the collective interests of all in the state. 17

New Territory A ‘fair go’ required, for the benefit of each individual, an active state. But, as with New Zealanders’ enthusiasm for clubs, the state, as a sort of big club, was for the individual’s benefit. Given the small size of New Zealand society, it would also have been surprising if politicians, easily accessible and therefore easily called to account, had not responded with the means at their disposal. This was not the ‘nanny’ state — telling people how to conduct themselves. Though some nannyish interference was tolerated in some areas of individual moral behaviour, such as alcohol, betting and sexual expression, it was tolerated on the ‘only wrong if found out’ principle and generally, particularly in the individual’s economic pursuits, it was resented and evaded. The state’s role was defined not by the mythical rugged frontier New Zealander but by the reality that that individual was mightily concerned with security. In pursuit of security, individuals turned to the state as a useful (utilitarian) ally in their individual interests. The smallness of New Zealand, in which the ‘Government’ retained an almost personal quality, meant that ally need not be feared

but could be regarded as a ‘friend’. | This was the eighth element of the prosperity consensus. This ‘friend’ state was expected to, and did, protect their economic and personal interests from undue or unfair encroachment by others.” The ‘friend’ state was also expected to, and did, relieve individuals of burdens, such as sick or old relatives. And it was charged with ensuring equality of opportunity though nearfree education and with removing the financial and physical risk of shocks such as illness, accident or unemployment. In other words, the state was expected to, and did, intervene actively on behalf of individuals, to enhance their individual wellbeing. The individual was not to be the servant, or the prisoner, of the state; the state was to be the agent of the individual. The ‘friend’ state had also to be demonstrably a ‘friend to me’ and not just to others. Security was the sum of individual searches for individual security rather

than a communal search for communal security. One person’s ‘friend’ was, of course, often another person’s ‘nanny’. An obvious example is the divergence of views between manufacturers and farmers over protection. This theme also ran right through the complex web of regulations

that grew during the 1940s and 1950s, protecting some individuals and businesses from internal competiton and thus loading costs on to other individuals and businesses. The spending of taxes enhanced some individuals’ access to public goods such as health care or old age pensions, but raising taxes interfered with the freedom of taxpayers to spend their earnings and profits as they chose. Censorship of sexual material in films and books, strict laws on alcohol consumption and legislation against homosexuality satisfied some people's ideas of correct and proper behaviour and so enhanced their individual wellbeing, but denied 18

| ‘A Modest Affluence for All’ others the right to do things they valued. Nevertheless, through most of the period of the prosperity consensus, most people saw the state as a ‘friend’ more than a ‘nanny’. That is evident in the willingness to tolerate the extensive and often petty regulation that developed from the 1940s on. Any tension between ‘friend’ and ‘nanny’ was tempered by the notion of fairness central to egalitarian individualism. If there was to be a fair go for oneself, there also had to be for others. However individualistic the New Zealander was, there was also a sense that other people should not starve, be jobless, homeless or ill without need or go uneducated and that people should not be exploited by their fellows. That meant give and take on a large scale. New Zealanders’ pragmatic, individualistic approach to the role of the state fit-

ted easily with the prevailing international intellectual tide of liberal social democracy coupled with keynesian economics. Graduates poured out of universities imbued with that thinking and in turn influenced the bureaucracy and so policymaking. That intellectual underpinning of and symbiosis with the prosperity consensus was its ninth element. Even if there had not been three-quarters of a century of pragmatic state intervention in New Zealand which enabled an easy take-up, or at least tolerance, of social democratic ideals, it would have been astonishing if New Zealand had held aloof from the international tide. Liberal social democracy was an admixture of liberalism, modified from classical British liberalism, and social democracy, a mild form of socialism. Keynesian economics taught that governments could smooth the business cycle and regulate capital flows and so protect jobs and optimise economic growth. Liberalism promised representative democracies and a high degree of personal freedom. Social democracy promised a fair distribution of wealth and planned use of resources in the national interest. Keynesian economics promised smooth growth. For low-wealth economies, development economics, an offshoot of keynesianism, promised rapid industrialisation and therefore wealth creation.” As it emerged during the 1940s, New Zealand’s brand of liberal social democracy was a rights-based system of social security underpinned by keynesian and development economics but with a strong subsisting sense of individual freedom. Social democracy ensured all citizens had a right to a job, a decent living wage, income maintenance in adversity, shelter, education to the individual’s highest potential, access to health care and support in old age. The state was to secure those rights by: facilitating individuals’ achievement of their highest personal and economic potential through education and health care; ensuring individuals’ incomes through work by directly developing or indirectly stimulating industry, protecting industry against import competition and controlling competition 19

New Territory | | | internally through regulation; absorbing external shocks to the economy and smoothing the business cycle by manipulating its own taxing, borrowing and spending to keep employment and other economic conditions relatively stable; giving state authority to unions and to wage contracts; directly providing cash benefits for the unemployed, ill, widowed or deserted, houses at low rent or subsidised mortgages to beneficiaries and low-wage earners and education for all; indirectly providing hospital care through elected local boards and subsidising doctors’ fees and ancillary services; and providing pensions for the elderly. Social democracy was ‘universal’ in that everybody was expected to contribute according to ability and everybody had a right in appropriate circumstances to the protections, benefits and services the state provided. Earners were taxed in proportion to their income and the proceeds were used to provide cash or services according to need or other entitlement (reminiscent of Karl Marx’s dictum: ‘from each according to . . . abilities, to each according to . . . needs’). Entitlement was by citizenship, independent of contribution. Because everybody, no matter how rich, had a right to at least some state services without charge other than their taxes and almost every adult contributed to the state’s revenue through

some form of tax or other, either directly or through a spouse, the state was a social binding agent. It was an instrument to ensure the general welfare of all in society.

It came close at one point to being an instrument of control. During the Second World War the Labour Government assumed extraordinary powers of direction of capital, labour and production in order to maximise the war effort and to control inflationary pressures. The catchword was ‘stabilisation’. In 1947, mistaking the quest for security for a desire for extensive state control, the Labour Government proposed to entrench this regulatory system in legislation. Had it done so, the economy would have been closer to eastern European than western European systems and nearer to socialism than social democracy. In the event it backed off and passed a milder form of legislation, the Economic Stabilisation Act, still giving the Cabinet far greater powers (for instance, of price and wage control by Cabinet decree) than in any other comparable ‘western’ country but leaving the way open for a reinjection of liberalism later. One way of viewing the Labour Party’s history since then is of a long, lurching, but largely unsuccessful retreat from that position to one that could appeal to the majority individualistic New Zealanders. The democratic element of social democracy was that the state activity was under the ultimate control of elected politicians. But this was tempered by two constraints. One was the inescapable need of the system for a bureaucracy, which possessed superior knowledge to elected politicians and had more — in fact, nearabsolute — security in office. These people not only debouched in increasing

20

‘A Modest Affluence for All’

numbers from universities and other institutions imbued with the social democratic ideal, but depended for their careers on maintenance of that ideal. ‘The other constraint was that most New Zealanders, including many in business which was assisted, protected or regulated by the state, came to have a stake of some sort in maintenance of the ideal as well. When a National Government in the early 1950s attempted to dismantle some of the state apparatus it discovered, through defeat at the ballot box in 1957, that there were clear limits to how far it could go. The National Party nonetheless strengthened the liberal element of the liberal social democratic state. It (gently) reduced economic regulation, (slightly) opened the economy to international forces, reinforced some constitutional procedures in the electoral and parliamentary system, installed an Ombudsman, liberalised some moral laws, distanced radio and television from ministerial control, even if only reluctantly allowing limited private ownership of radio in the 1960s, and initiated the abolition of the death penalty. If this was a long way from the modified liberal state that preceded Labour’s accession to power in 1935, it was also light years away from the centralised command economies of eastern and central Europe. The National Party firmly placed New Zealand in the mainstream of liberal social democracy.

The shift did not make the National Party social democratic, as some commentators argue. To the extent that the National Party could be said to subscribe to an ideal, it remained liberal and individualist and projected that stand in its propaganda. A minority strand within the party continued to argue liberal principles; more widely the individualism was manifest in unanimous opposition within the party to compulsory unionism and widespread distaste among members for the activities of unions in general. The party was functionalist in its orientation, not ideas-driven or theorydriven: its mission was not to carry into reality an idea (as had been the Labour Party's mission), but to govern successfully and in accordance with its active supporters’ interests and to stay governing. In office the National Party, therefore, ran the apparatus of the state with careful attention to its active supporters and to widening and deepening the range of those active supporters but also to maintaining a majority of votes among the wider public without which it could not attend to its active supporters. If some measures which appeared ‘socialist’ on the scale of ideas were part of that process — and National in government did expand aspects of the welfare state* — the National Party was little bothered because if its supporters were doing all right the measures could not be wrong, by definition. In any case, the Labour Party was much more ‘socialist’ by reputation and where it could do so uncontroversially the National Party in 21

New Territory | office from time to time explicitly chose a liberal-individualist course of action over a ‘socialist’ one.

At the heart of this functionalist approach was the construction by the National Party of extensive networks through a large subscribing membership which was recruited annually through face-to-face canvassing by elected officials and other active members. The large subscriber membership meant there were National Party members in almost every society, association, club and special interest organisation that conducted the quest for state-backed security for individuals — ranging from national and regional business lobby groups such as Federated Farmers, the Manufacturers and Retailers Federations and the Cham-

bers of Commerce, through professional associations such as the Law and Accountants Societies to local business and ratepayers associations — and throughout the less formal local business network organisations such as Rotary and Lions clubs and informal sports and other clubs. These networks both informed a wide pool of people outside the party of government actions and reasoning and kept the party hierarchy and parliamentarians in touch with an extensive range of people of widely varying views and special interests. They provided a wide recruitment base and were in turn recognised by the National Party through appointments to a vast range of boards and organisations (many of them established in the first place by the Labour Government). This two-way interaction affirmed National as the party of power and legitimacy to which people seeking decisions or a political career would naturally turn and, as a simple imperative of maintaining such varied and far-reaching networks, restrained National from an ideological approach to decision-making and reaffirmed its. pragmatic, functionalist approach. By contrast, the Labour Party’s membership was, by design, much smaller, the networks accordingly limited and the tendency towards taking an ideological position stronger and less restrained.

Political sympathy with the existence of and the desire for consensus and response to it was the tenth element of the prosperity consensus. The National Party’s great political skill — and the basis for its 35-year domination of New Zealand politics from 1949 — was to exploit its networks to read accurately the instincts of the New Zealand people, built as they were around notions of indi-

vidualism, equality and security, and tailor its administration to them. Security-seeking individuals of the 1940s-70s (once depression and war were behind them and the economy prospered) were more at home with the individualistic National Party once it had adopted social democracy than with the Labour Party, with its socialist antecedents. The National Party’s functionalism was also inherently conservative (in the English sense, of preferring to conserve established values and the status quo and

to countenance at most small, fine-tuning change done in a deliberate, meas22

‘A Modest Affiuence for All’

ured, slow way; not in the American sense of believing in right-wing market economic policies). That fitted the mentality of the prosperity consensus generation. Change was upheaval and upheaval, after depression and war, was to be avoided. Note, mentality, temperament, not political philosophy.” The individualism reflected liberal political values and philosophy (and so, for example, valued free-

dom to play rugby with apartheid South Africa). In attitude, the prosperity consensus generation was for very little change once the welfare state was in place

and working. A party which respected that desire for little change by running the show rather than trying to change it to conform to an idea virtually automatically commanded a very strong following. Having accommodated to social democracy and turned it to its own ends, National could thus play on its individualistic heritage and its conservative attitude to change to secure an almost permanent parliamentary majority until the prosperity consensus ran out of steam in the early 1980s. In the hands of the practical security-seeking individuals of the post-1945 New Zealand prosperity consensus, liberal social democracy plus modified keynesian economics became the welfare state. The welfare state did not, at least at first, aim to dispense ‘welfare’. It aimed to ensure security: of income, of housing, of treatment for ill-health and of educational opportunity. Social security, not welfare, was the phrase. The central pillar of the welfare state was security of jobs. In keeping with their individualism, New Zealanders were to be guaranteed the ability to make their way in the world, to look after themselves, household by household, supplemented with assistance when children were young and assistance to obtain a good education and keep good health. The original welfare state aimed at independence, not dependence. Social security did not aim to diminish individuality, but to enhance it. It aimed to do that by giving all individuals, rich and poor, intellectually bright and limited, commercially skilled or unskilled, a stake in the wellbeing of everyone else. Everybody was to contribute and everybody was to be rewarded with an integrated, well, unified society. That is not the same as ‘self-reliance’, which came to be a catchcry of the libertarians who tried to reshape economic and social policy in the 1980s; the ultimate reliance of New Zealand’s utilitarian individualists if the going got hard was not on themselves but on the collective, the state. Making one’s way in the world in the wake of the horror of 25% or more unemployment in the 1930s amidst potential riches amounted in the 1950s to having the dignity of working for one’s own sustenance at valued work. It bears repeating, because it is sometimes overlooked: the welfare state rested 23

New Territory | | | principally on jobs, not handouts. Guaranteed jobs guaranteed social harmony and wellbeing. The handouts were supplements, not substitutes. That welfare state was built on the economic strength of pastoral farming. New Zealand was believed to be blessed with ideal climatic and other conditions for growing grass for conversion into meat, wool and dairy products. In fact, the belief was to some extent misplaced because New Zealand soils lacked a range of important minerals, which had to be added, and grass growth was also dependent on heavy application of fertiliser. But by the late 1940s New Zealand had developed an efficient pastoral production system of owner-occupied and owner-worked family farms. Farming was extensive, relying on the relatively cheap input of grass, rather than intensive, relying on grain-feeding, as did producers in Europe. Additional labour, provided mostly by the farmer’s wife and family, was costless (in money, if not in wear and tear on the family). New Zealand pastoral farming’s strength was in the efficient use of that labour, partly because it was free and partly because New Zealand farmers proved enthusiastic and adept at taking up and applying new technology and new techniques developed in the main by state-run research institutes and advisory services which were free of charge to the farmer. The research institutes developed high reputations for scientific innovation.

In the food-short world of the immediate post-Second World War years, producing food seemed a secure occupation offering good earnings. Furthermore,

production could be expanded for two major reasons besides the technical in-

novations of the scientists. One was that as late as the 1970s there was a considerable amount of land not in production that technically could be farmed. Large numbers of ex-soldiers were settled with government help on new or newly

subdivided land. The second was the development of aerial application (‘topdressing’) of fertiliser which made it possible to farm remote (“back country’) hill land much more productively. So even if prices stagnated, which the builders of the prosperity consensus did not expect, farmers would still be able to generate increasing national income. This backstop position was emphasised in 1963 in a special agricultural development conference called to examine ways to ensure continued expansion of pastoral output. Because of their central place in the economy, farmers’ security and welfare

were underwritten by the state through guaranteed price schemes and pricesmoothing schemes which applied, or were available in hard times, in different ways in different parts of the pastoral industry. They had access to state-subsidised interest rates on loans through the State Advances Corporation (later the Rural Bank) and a range of other subsidies to deal with weeds, pests, fertiliser and other additives, accumulated during the 1950s, then more rapidly in the

24

‘A Modest Affluence for All’

1960s many tax concessions and benefited from a number of other free-of-charge state-provided activities, for example, to control rabbits which competed for grass

and to monitor and control meat quality standards in meat processing plants. There were tax concessions for schooling and a wide range of public services provided to remote districts at high cost to taxpayers or other consumers of the services.

To buttress the national security of pastoral farming, the Government after 1945 converted arrangements made during the Second World War, in which all produce was taken by the British Government at set prices, into a series of five-yearly trade agreements determining access and prices. In return New Zealand allowed British manufactured exports favoured access to the New Zealand market through its import licensing system and by tariff concessions. This was a qualified benefit, because at the same time New Zealand was building up its own manufacturing industries behind heavy protective walls that limited access for finished goods. But since many of those manufac-

turers were offshoots of British manufacturing companies which found it

worthwhile to set up in New Zealand to maintain their market share, componentry tended to be British-sourced. New Zealand’s membership of the sterling reserve currency area gave British (and Australian) companies an advantage over those in the dollar area. These imports were paid for out of the export earnings of pastoral products. In effect, pastoral earnings provided a secure basis for local manufacturing. Im-

port licensing severely limited the availability of foreign products, so New Zealanders had little choice but to buy from New Zealand manufacturers.

Import licences were steered towards raw materials and componentry for manufacturing which New Zealanders processed into finished goods. In that way,

pastoral exports indirectly paid for jobs for the great and growing majority of New Zealanders who did not work on the land or in pastoral products processing industries. This picture is oversimplified. The interaction was much more complex and varied, Even in 1950 British imports were 60% of the total and by 1960 only 44%. An increasing proportion came from the United States and Australia, which

also owned an increasing proportion of the protected local industry, and after about 1955 from Japan (3% in 1960). Pastoral exports likewise increasingly went to other countries as Britain gently tried to wean New Zealand from its economic colonial dependency. By 1960 53% of exports went to Britain, compared with more than 70% in the late 1940s. Furthermore, pastoral products’ share of exports also began to fall — from 96% in 1950 to 93% in 1960 — as New Zealand

diversified production. Forestry products emerged in the 1950s and by 1960 accounted for 3% of exports. In 1960 the Government arranged to sell a block 25

New Territory | of electricity to the Japanese-Australian consortium, Comalco, to process Australian alumina at Bluff. But the general point holds true. Resources exports, of which pastoral prod-

ucts still formed a high percentage, were exchanged for raw materials, componentry and finished goods and that way jobs, and so good livelihoods, were secured for New Zealanders. And even if the general point needs qualification,

that was how New Zealanders saw the central operating mechanism of their economy. It was an integral part of their consensus about the way things should be run.

Jobs were protected from the ravages of foreign competition through import licensing. Importers from 1939 could import only what they had a track record of importing and were licensed individually for each category of imports. If a company could demonstrate it could make some item, it was granted blanket protection against foreign competition. Farmers also had their whack. A variety of foodstuffs, from cheese to chickens, could not be imported. Margarine could not only not be imported, but could not even be made locally, to protect butter in its home territory. The same went for carpets made from cheaper wool-competing synthetic yarn, to protect the woolgrowing industry (and, of course, makers of wool carpet). Much of the rest of business was protected by internal regulation. Lawyers, accountants and doctors had long had legislation giving them the absolute right to decide who could work in their professions and on what terms and employed that right with a communistic ruthlessness. A vast range of other occupational groups or industries secured a degree of state or self-regulation to control the amount of competition and so prices and service: taxis, film distribution, egg production, pharmacists — there was a very long list. This web of regulations was held together by a tightly controlled and segmented financial system. Banks, being thought dangerous after the 1930s, were regulated precisely in what they could and could not do, depending on whether they were a trading or savings bank, and in the interest rates they could pay and charge. Interest rates were low. In this way, not only were jobs guaranteed, but also profits. Guaranteed jobs required a guarantee that there would be employers. Guaranteeing profits was how the National Party in government could accept the welfare state: it helped its friends. Politics became a sort of bazaar in which sectional interests competed with each other for state recognition and favours.” To the ordinary New Zealander, who might as a consequence of regulation find taxis in short supply, old and dirty and their drivers surly, there was matching assurance. A plethora of regulations governed working hours and conditions.

26

| A Modest Affiuence for All’ Shops, for example, could not open on weekends, except to sell a very limited range of items. That was to protect the five-day working week and give New Zealanders a leisure weekend. Most approved: sport, generally played on a Saturday, was played by a high proportion of New Zealanders. And there was a trade-off: state backing for wages. Unions were registered by the state on application by a handful of people. Employers were required by law to negotiate with them in state-financed and state-chaired conciliation meetings and if no agreement was reached had to accept the dictate laid down by an Arbitration Court. Workers were required by law to join the appropriate registered occupational union. Wages and conditions were determined by a combination of central decrees from the Arbitration Court moving all wages up, awards negotiated nationally or regionally and ‘house’ agreements negotiated by unions with individual employers. A complex but rigid set of relativities between awards was established by the Arbitration Court in the late 1940s and this ensured uniform movements in wage rates that only the ‘house’ agreements varied. The unskilled went up with, and in some occupations exceeded, the skilled. State wages and salaries were related to private sector rates in a process that gradually became automatic, but still allowed some upward variation. The whole interlocked and centralised process ensured a steady upward movement in wage rates, invariably by more than inflation and often by more than productivity improvements as well. Not only jobs were guaranteed, but also wages. Security and prosperity were locked together in a splendid and generally stately procession. ‘Friend’ state was very active. It intervened at nearly all points in the economy to ensure a continuing and orderly production and distribution of goods and services and regulated exchange. The ‘socialisation of the means of production, _ distribution and exchange’ advocated by early socialists (and retained by the Labour Party as an explicit aim until 1951) had under the prosperity consensus become the ‘social democratisation’ — state regulation rather than state ownership. This active state created a large clientele. Interest groups competed with each other for government attention, favours and protections. Government became by the 1960s a sort of never-ending arbitration among those interest groups. This process reached its apogee in a National Development Conference in 1968-69 which brought all interest groups together in sectors with senior ministers in

attendance to set ‘indicative’ targets and flag to the Government the policy changes needed to meet each target.

The key word in economic management from the 1940s on was stabilisation. The aim of the regulation was a stable economy. Import licensing fostered the development of industry (manufacturers were

27

New Territory a granted licensing protection for any product they could prove they could make),

not just to provide jobs, but to diversify the economy. This was a version of development economics, which became fashionable in the 1950s for application in poor countries which had begun to emerge from colonialism to march them rapidly towards north Atlantic conditions of wealth. Diversifying and deepening the economy in this way was intended to secure it and so New Zealand society against the damaging swings in the international trade cycle.

Import licensing was also intended to insulate the economy from foreign banks. The original reason for introducing import licensing in 1939 was to conserve overseas funds when British bankers refused to renew maturing debt because of disapproval of the ‘socialist’ experiments of the first Labour Government. Debt raised the awful spectre of domination by foreign bankers who took no account of New Zealand’s particular social needs. Governments in the early years of the prosperity consensus took care to contain debt within tolerable limits. The annual licensing statement in March-April became one of the Govern-

ment’s economic centrepieces, as important almost as the annual Budget. It determined not only what quantity of goods not made in New Zealand could be imported, but the general level of activity in the manufacturing system. In good years the amount of licences could be expanded and in bad years contracted to conserve funds.

For good measure, especially to discourage the purchase of ‘luxury’ or ‘bigticket’ goods, punitive tariffs were applied as well to such consumer goods as were allowed in — even when, as in the case of cars, they were assembled in New Zealand. Consequently these goods were rationed; people waited years for them.” Only those who possessed funds in foreign currencies could jump the queue by _ surrendering the funds to the Government and then only under strict conditions. Smaller items could be bought by accumulating 5-shilling British postal notes, which were sold, one a day, by the Post Office Savings Bank.”

Foreign exchange dealing was very tightly controlled by the state-owned Reserve Bank, to which purchasers of foreign exchange had to apply under very strict rules. Even people travelling on export-development business were allowed daily allowances of foreign exchange that barely covered hotel bills, let alone all expenses. The rate of exchange was fixed by the Minister of Finance. The aim was balance in the external account or at most to run small deficits. That way debt could be contained and internal stability maintained. Budgets, too, were to be balanced or kept in small deficit. These constituted an integral and critical element of stabilisation and thus of the prosperity consensus. This, plus strict monetary controls, was important in allowing the extensive system of regulation to work tolerably well.

28

A Modest Affiuence for All’

‘Friend’ state backed this with a diplomacy geared to the same ends of security and prosperity of New Zealanders. The five-yearly trade agreements with Britain were coupled with an almost slavish devotion to British interests in other international forums and in military choices to maintain New Zealand’s place as the favourite colony. When the need developed to diversify markets and make alternative national military security arrangements, the diplomacy turned to enthusiastic cheerleading for the United States. And, of course, ‘friend’ state also heavily supplemented jobs and wages and insured New Zealanders for those times when they did not have wages. Prosperity consensualists wanted children; they were evidence, after the low birth rate of the 1930s, of prosperity — a family benefit was paid to parents for every child. Prosperity consensualists needed roofs over their heads and good ones — state houses were built for those who could not afford private rents and state-

subsidised loans made to those who could not afford market interest rates. Prosperity consensualists wanted the education for their children which they had been denied by lack of money — education was free and universal to the age of 15 and very nearly free from then on. Prosperity consensualists wanted access to good health care — doctors’ fees were subsidised and hospital and nearly all other treatment supplied free. Prosperity consensualists wanted a guarantee of a reasonable income when sickness, accident, unemployment or old age intruded — a range of benefits was provided, almost all requiring no more qualification than citizenship. The first Labour Government aimed to provide security for all ‘from the cradle to the grave’. By the 1950s New Zealand’s utilitarian individualists had made good use of the state to do just that. Good, but not unduly expensive. Tax was up dramatically on 1938-39, when it equalled 17% of gross national product.” In 1949-50 the tax take was 25% of gross national product and in 1966-67 still 25%. The way it was levied followed social democratic guides: most government revenue (52% in 1947-48, 67% in 1966-67) came from a progressive tax on income — that is, the rate of tax was higher on higher incomes — so that those who could better afford it paid more. Social democrats argued that indirect tax — tax on goods and services, excise tax, customs duty and so on — was regressive, that is, it took a higher proportion of poor people’s income than of rich people’s because each paid the same amount on any particular good or service. So indirect tax on goods and services contributed only 30% of total government income in 1966-67, down

from 43% in 1947-48.°° In addition, many items that were necessary to daily life, such as food and clothing, were free of indirect tax, while many ‘luxury’

items, which the rich were more likely to buy than the poor, carried tax. That way, the rich were expected to pay more of both the indirect tax take and the income tax take.

29

New Territory

That this did not lead to a revolt among the ‘haves’ was partly because of the universalist tenor of the social democratic state (everybody put in and everybody got out) and partly because the tax systems were arranged so that the better-off did not pay as much tax as they appeared to be up for on paper. Farmers and those in business had a range of income tax concessions and exemptions from indirect tax on inputs. In addition, income from capital gain was left untaxed. While the ambitions of the welfare state remained modest and while prosperity reigned, paying for the welfare state was not a great problem. The combination of jobs plus supplementary social services gradually absorbed into the ‘middle’ the destitute, the unemployed and the very-low-income people who had been at the base of the bulgy volcano-shaped society of the pre-1930s. The vast majority was presumed to, and did, participate in the society in which they lived. The prosperity consensus aimed also to match economic and social stability and security with moral stability in the narrow, churchy, sense of that word. The state maintained tight controls on alcohol and displays of nakedness and through its benefit system frowned on sexual practices that did not fit within the norm

of the nuclear family. But in that area the state too easily slipped from being ‘friend’ to ‘nanny’. Much of its moralising was honoured more in the breach than in the observance.

Mostly conditions turned out much as the prosperity consensualists hoped and intended. ‘The welfare state worked. That underwrote the consensus. There was prosperity. On the back ofa relentlessly rising world economy, New Zealand’s national output (gross domestic product) rose 42% in the decade after 1945 in real terms, rose by another 51% in real terms in the decade after that and another 44% in the decade after that. Since wages tagged along, the average New Zealand family was much better off in 1975 than in 1950 — average incomes rose by around two-thirds more than inflation over that time. It was better off in other ways, too. Over those three decades hardly anyone did not have a job. Unemployment did not rise above 1% of the workforce in that time. In 1975, the number of university students was 35,000 in a population of 3.1 million, compared with 12,000 in 1950 in a population of 1.9 million; in a country where the illiteracy rate was measured in tenths of one per cent, all who wanted to and qualified were able to go to university; fees were very low and holiday jobs abundant. Spending on education in 1975-76 was six times the amount in 1950-51, adjusted for inflation, and on health seven and a-half times. Life expectancy rose by four years for men and seven for women. There was social stability, too — until 1965 at least (but arguably for the decade after that as well, though the cracks were beginning to show). People more

30

‘A Modest Affiuence for All’

or less lived their value-system. Divorces averaged around 1600-1700 a year in the 20 years to 1965. The nuclear family was not just an ideal, but the norm; so

was the property-owning democracy epitomised by ownership of the family home. The ideal of a classless society was honoured as much in the observance as in the breach: 95% of incomes were two and a-half times average earnings or less in 1960. Crime was low: a total of 286 people were convicted in the Supreme Court of serious offences in 1960. Once a left-wing (partly communist-driven) challenge by some unions was beaten off in several battles between 1948 and 1951, days lost from industrial action averaged 57 a year for every 1000 wage and salary earners for the next 15 years (though then rose in the early 1970s). Until New Zealand’s participation in the Vietnam war brought newly politicised students out into the streets, dissent was confined to polite writings. By the early

1960s, so settled had the racked and turbulent society of the strained 1930s become that politicians felt able to relax some of the stifling legal strictures against consumption of alcohol, gambling and the display of nakedness. New Zealand,

it was felt, could loosen up a bit without fear of falling apart. Amid prosperity and stability, consensus took the place of religion. In its accent

on individual autonomy and on social concern for fellow-citizens, the prosperity consensus was a sort of secular christianity. But if vaguely christian virtues infused the value system of the prosperity consensus, they were driven more by political principles than by the churches, which from the 1950s on were progressively honoured more in ritual than in conviction of the heart and spirit and consequently lost members and influence. Material prosperity and social stability in the here and now substituted satisfyingly for spiritual salvation in the hereafter. There were dissidents from this consensus: political groupings subscribing to a variety of theories and ideologies — communists, socialists and free-marketeers; groups and individuals at odds with an element of domestic, civil rights, moral, economic or foreign policy or with an axe to grind in their particular interest; poets persisting in a hostile landscape, striving, along with writers and other artists, for a more distinct expression. There were also people whom the consensus did not encompass. Maori — fleeced, forgotten and fobbed off — were not part of it. There was a sort of sub-

terranean anger among women; they tagged along rather than shaped the consensus. People did get divorced or bore babies out of wedlock and so shattered the nuclear family. A large segment could not ever hope to own their own houses.

And there were voices raised against the economic policy settings. Oliver worried about rising inflation in the 1950s in his 1960 history and also saw 31

New Territory — | oe considerable difficulties ahead in a dependence on agriculture with uncertain prices and a growing population. ‘It is hard to see how the country can continue to prosper as it has in the years since the war’.*! In fact, the truly fast growth years

were already over. The Monetary and Economic Council under Frank Holmes

warned repeatedly through the 1960s that the macroeconomic settings and microeconomic structures were out of balance. As the 1960s wore on, those warnings articulated sotto voce rumblings of a growing, though still small, number of economists and bureaucrats. So can we talk of a consensus? Some argue that there was not 4 consensus and that at most there was a number of consensuses, interacting and overlocking, representing different segments and competing interests in society. That there are such segmented consensuses is a truism, but a truism of all societies. What marked the 30 years in New Zealand after 1945 and particularly the 1950s and 1960s was the degree to which people did have a general consensual view of the way society should be. Consensus did not depend on unanimity. What makes it possible to talk of consensus in the decades after 1945 is that the country was relatively harmonious, lived for the most partin conformity with the established norms and was not seriously or persistently challenged in its main operating assumptions. The prosperity consensus was a tendency to draw the boundaries of disagreement relatively tightly, a tendency of a high proportion of people to see themselves

as belonging to the society around them and to share a set of values — by contrast with countries or societies where the boundaries of disagreement are drawn widely and there are competing value systems or where relatively large numbers of people feel at odds with the majority set of values. When in 1970 a quarter of a million people signed a petition to save Lake Manapouri from the depredations of maximum hydro-electric development, politicians were taken aback not just by the popular environmentalism the petition represented among the normally National-supporting middle classes, but equally by the unexpected display of dissent in a society that had asumed such activity was by misfits and agitators for alien ideologies and powers. Consensus did not depend on precise agreement about its terms. Consensus set the scene, not the action. Within the general boundaries there was room for argument and deviation. Thus, farmers (providing most of the exports) and manufacturers (providing a large proportion of employment) could argue about the precise levels of protection and subsidy; unions and industrialists could argue about distribution of a company’s earnings; moralists and ordinary folk after the pleasures of life could argue whether wine should be available in restaurants. But none of these crossed the boundaries of the prosperity consensus. There was agreement as to what could not usefully be debated.

32

A Modest Affiuence for All’

For example, no one was seriously listened to who proposed no or even low protection for manufacturing or who suggested pastoral farming could not remain our dominant foreign exchange earner or who wanted telecommunications or milk delivery deregulated or the Ministry of Works turned into a commercial corporation or the Post Office Savings Bank sold off. Mainstream (which meant overwhelmingly majority) opinion believed it was possible for even a small

country to protect itself and its people from the shocks to which an unpredictable world had subjected them for decades and so to ensure a rising standard of living and quality of life. Mainstream opinion assumed the exchange rate would (and could) be fixed and that a graduated income tax would raise the great bulk of state revenue. The state was accepted as supplier of a wide range of services, particularly of an institutional or monopoly nature, and profitability was not a central or even important issue. So the state logically provided the vast bulk of education and hospital care, though doctors generally stayed in the private sector because they had the muscle to break the first Labour Government’s will and they had the community respect once reserved for priests. There was a widespread

presumption that over time, as the economy raised the finance for it, the state, as agent of a society of security-seeking individualists, would become more generous both in extending income maintenance to more categories of people and in providing services. Mainstream opinion scarcely ever heard, and then did not seriously entertain, arguments for honouring the Treaty of Waitangi, for mainstream opinion (including much Maori opinion) assumed Maori would simply adopt mainstream opinion. Only a minority, and then only from the mid-1960s, seriously challenged the defence alliance with the United States. No commanding voices were raised against maintaining the colonial links with Britain through trade and limits on immigration. Keynesian development economics within a fixed social and geopolitical order governed according to liberal social democracy was the overwhelmingly dominant view. The boundaries of political debate between the two main parties were tightly drawn. While there were important differences of perspective, both parties subscribed broadly to the liberal social democratic policy framework settled in the 1950s. Arguments between them were about detail, often quite small detail, rather

than fundamental policy issues. That is in stark contrast to the situation in the 1930s or the 1980s. Moreover, argument between interest groups and within the bureaucracy was also muted, compared with the deep divisions of the 1930s and of the 1980s. In terms of the political process, this reached its apogee in 1969 with a compromise at the National Development Conference over border protection, effectively

drawing the sting from the major outstanding divisive economic policy issue.

The bureaucracy came progressively to be dominated by adherents of the 33

New Territory | liberal social democratic policy line and there was a strong sense that policy should

be co-ordinated across departments. The universities from which most bureaucrats who later reached senior positions were recruited in and after the late 1940s did not challenge that line. Minorities were also small or silent. Whatever women might have thought privately about their lot, there was little agitation* to change it radically, a state of affairs which persisted into the 1970s. Maori were a very small proportion of the population, and were either out of sight in the countryside or trying to assimilate in the cities. The unions, once the radicals were shattered in the 1951 waterfront lockout, pursued a mild ‘“economism’, concentrating on wages and conditions within an accepted industrial, social and political system. Even students were quiescent until the mid-1960s, putting their energies into stunts rather than agitation. Consequently, there was little public debate. Newspapers supported the con-

sensus, political commentary was bland and such publications as carried contentious debate on political, economic, social or moral issues were few, sporadic and small. If society was fragmented, as the existence of several consensuses

would suggest, it did not show on the record. This contrasts with the union, communist and other pamphleteering and leftish radio commentaries of the 1930s and the willingness of newspapers and the availability of alternative means of publication and broadcast to carry the sharply disagreeing arguments of po-

litical and other commentators in the 1980s. This lack of debate reflected the conservative mentality of the people, a deep desire for ‘mildness’ and lack of controversy or shocks. As M K Joseph wrote in Islands in 1979: On the whole .. . we were happy . . . the fifties were . . . in spite of some dark | patches, a time of mildness and hope. We had seen enough of wars and ruins; we married happily, built homes, raised families and built careers.”

And, whatever may be thought now, there was a belief among contemporaries that there was something akin to consensus. The writing of both Keith Sinclair and Bill Oliver at the time is infused with an unspoken assumption of broad social agreement.* The widespread assumption of a sort of intrinsic ‘equality’ suggests that the ordinary New Zealander, too, had a sense of consensus, of general agreement about the way the world was or should be. That is in sharp contrast to the differentiations of significant segments of the population from the mainstream

in other periods: the drifting poor of the 1930s and the yuppie elitism of the 1980s, for example.

34

‘A Modest Affluence for All’

The consensus was demonstrated in voting habits. Voting for the two main political parties was high throughout the quarter-century after 1945: National and Labour together got an average of 93% of the vote, an average of 92% of those who were eligible registered to vote and an average of 90% of those registered voted. (The corresponding figures for the seven elections from 1970 to 1990 were 84% for the two main parties, 90% registration and 87% turnout of those registered.)°° The willingness to vote and, in voting, to vote for the two main parties, which very rarely®* strayed beyond the boundaries of the prosperity consensus, showed

a high level of acceptance of the path being followed by politicians and a high level of trust that they would not deviate down an unacceptable route or produce unacceptable results. Only a handful of New Zealanders objected to the removal in 1950 of one of the very few checks and balances in the political system, the Legislative Assembly, the upper house. There was, it seemed, an enduring

understanding between those who made decisions and those who held them to account on the way things should be. To suggest there was universal agreement in a wholly united, prosperous and contented community would be absurd. But divisions and tensions were markedly lower than in the 1930s and 1980s. There was consensus. Social homogeneity and consensus were mutually reinforcing. Both were reinforced and given credibility by stable and prosperous international conditions and rising internal prosperity. Oliver wrote in 1960 that “New Zealanders are not bent on gaining a mere hand-to-mouth security; they seek a modest affluence for all’.3” By then New Zealanders thought that was what they had achieved and guaranteed for the future with their enduring prosperity consensus.

35

4. Fall from Grace

M colonies strive to be independent. Most children cannot wait to grow

up. New Zealand, secure in the childlike dependency that gave the prosperity consensus special strength, was through the 1950s and 1960s in no hurry to grow up, in no hurry to claim independence. Then changes within and abandonment from without brought the reluctant nation face to face with impending adulthood, with all the attendant fears, challenges, opportunities and hopes and rapid changes of mood. By the early 1980s New Zealand was being pitched into

adolescent independence, like it or not. |

Many did not. When New Zealand was finally thrown out of the British empire it promptly and persistently went in search of surrogates in a world which was not interested. The international order changed constitutionally, politically and strategically, in finance, investment and trade flows, in relative prices and in the dominant intellectual currents. These shifts profoundly affected the cultural, psychological, economic and theoretical underlay to the New Zealand consensus. At the same time the neat social homogeneity which bound the prosperity consensus so tightly together, decayed. Maori, women, political dissidents, people in many walks of life challenged the consensus from within. Artists, writers, historians, performers assumed both right and duty to speak for a growing-up New Zealand. Unselfconsciously they demanded and began to deliver a distinctively national expression at odds with the colonial dependency of the prosperity

consensus. |

The external changes and pressures — which included a catastrophic drop in the country’s earning power — generated internal economic strains and exposed economic flaws, which undermined individuals’ economic security in a variety of ways. These strains also made it increasingly difficult to sustain the more general economic and physical security provided to individuals by the welfare state through protection of jobs from external economic pressures and through income maintenance, education, sickness and other care. It became increasingly difficult to maintain the economic and social conditions that the prosperity consensus both demanded and depended on. The difficulty was intensified by the fact that the welfare state had been expanded in concept and practice in the 1970s to the point where its sustainability

Fall from Grace

might have been in doubt even in a strong economy in a stable world order, let alone in the shifting sands of the 1980s. New inequities, some of them generated by the welfare state and others lurking unnoticed deep in the prosperity consensus itself, struck at the heart of the consensus and provided raw material for a range of analyses arguing that it had failed and that alternatives had to be

found. |

Simultaneously, the intellectual underpinning of the consensus came under increasing pressure from a new wave of international theories questioning social democracy. These theories re-emphasised the primacy of the self-reliant individual, freedom from state interference in the economy and in social affairs and a quest for efficiency in an internationalising and globalising economy. ‘The real, apparent and, in some cases, imagined failures in the economy and the welfare state encouraged the adoption, according to personal taste, of a smorgasbord of these theories by members of the elite of a generation emerging into positions of power who were less concerned with security than their predecessors. Implementation of policies and practices derived from the theories added to the social and economic upheavals and further undermined people’s spiritual security. New Zealanders in the 1980s, therefore, faced the awesome predicament that the conditions under which the prosperity consensus was developed and sustained had one by one weakened or disappeared. To expect the consensus to survive those strains intact was unrealistic. So the prosperity consensus lasted little more than a generation. By 1984 it was in tatters, gnawed at from within, hacked at by events. Eight years later it is recognisable as a misty memory, for some a golden age we need not have lef, for others an illusion that carried within itself the seeds and nourishment for its own destruction. The prosperity consensus was neither golden age nor illusion. It neither gen-

erated prosperity nor was responsible for the end of prosperity. It simply accompanied prosperity. A number of elements of the consensus had nothing to do with prosperity, which was an underwriter and sustainer of consensus, not its progenitor. Its collapse was the result of complex and interacting changes. Most of those changes were external to the consensus but some were internal to it. Homogeneity went. In the 1981 census the percentage of New Zealanders of European descent was 86%, compared with 92% British alone in 1951. The percentage stating Maori ancestry had risen to 9% and was set to continue rising, since the Maori birthrate was far higher. Pacific islanders, scarcely visible in 1951, were 3%. It was no longer possible with confidence to repeat Governor Hobson’s catchphrase at the first signing of the Treaty of Waitangi in 1840,

37

New Territory

‘He iwi tahi tatou’ — ‘we are one people’ — and to mean by that one people marked by gradations, not a division, of skin colour. More important, Maori from the late 1960s on began to reject Hobson’s ‘one-people’ expectation that Maori would be assimilated into the British-inherited value-system of the prosperity consensus. Maori, in other words, increasingly became Maori. Maori intellectuals at university, frustrated by their parents’ de-

nial of Maori culture and their own alienation from it, began to stimulate a recovery in the study of language and crafts, then to organise in increasingly radical ways to have the Treaty of Waitangi recognised and its obligations to Maori acted on. During the 1970s this reacculturation and claim to treaty rights

moved outside the universities in steadily widening circles. There were land marches, occupations, protests and other forms of direct action and the claims became bolder and more insistent, seeking not just redress for past wrongs but an equal say with pakeha in administrative decisions. Though often the tactics were opposed by Maori elders, their goals were not and gradually the elders became more open in their support. In 1979 a Maori party, Mana Motuhake, was formed aiming for Maori control of Maori society and interests, a ‘bicultural social order’! and, in its manifesto, to ‘liberate the people from domination and manipulation so that Maori society is a being for itself and not a colony inhabited by another’. It would be wrong to suggest that all Maori subscribed to this view. A number preferred the pakeha way of life and pakeha values. A large proportion simply got on with their lives, little touched by the drive for self-determination. But over

time the activists attracted increasing numbers to their ranks and heightened consciousness among other Maori of their Maoriness, including many who had only one-eighth or even one-sixteenth Maori blood. There was not a sharp division between Maori and pakeha. There was, rather, a continuum along which were found people of both races with varying degrees of sensitivity to and sup-

port for the ambitions of the activists. And at the Maori pole of this line the numbers were growing. Asa result, by 1984 the rising numbers of the Maori population and the increasing intensity and confidence of demand for cultural recognition and a share in resources had created too big a block of opinion outside the prosperity con-

sensus for it to survive other than as a majority, and therefore only partial, agreement. The homogeneity of the population also began to splinter in other ways that did not affect the ethnic make-up but did affect the unitary quality of the valuesystem at the heart of the prosperity consensus. Women began to come out from the embrace of their husbands. The quiet anger of the 1950s translated in the 1970s into a celebration and pursuit by some

38

Fall from Grace

women of women’s perspectives, values, aspirations and ambitions. This was essentially a phenomenon of educated and professional — what some called ‘middle class’ — women, and only a minority of them. It took many forms. Radical feminists, declaring “all men are rapists’, marched to ‘reclaim the night’ from men. Reformist feminist groups organised for an adequate benefit for women bringing up children on their own, for a woman’s right to abortion, for more attention and response to women’s specific health needs. ‘They agitated for

changes to selection procedures in political and business life to ensure more women in decision-making positions and changes to wage determination to deliver to women-dominated occupations wages comparable with similar mendominated occupations. Within the Labour Party women mounted an assault on high positions and made considerable headway, thus ensuring a Cabinet post1984 which, while still male-dominated, was much more aware of and to some extent responsive to women’s needs. Other women took practical steps outside the political system, organising ‘consciousness-raising’ conferences and groups and refuges to which women physically abused by husbands or partners could escape and gather the strength to make a life on their own resources.’ The numbers of activists were small, but the important implication for consensus was that there was momentum, which was irreversible. As with Maori, the women’s momentum was not a temporary or transitory phenomenon, but an enduring one destined to grow and deepen. By the 1980s a degree of consciousness of the validity and achievability of women’s objectives was reaching . some less-educated, ‘working class’ women, causing small but important changes in the way they conducted their lives. The linguistic and legislative assumption that had dominated British and British-inherited culture for three centuries, that ‘man embraces woman’, while far from being over, appeared by the 1980s visibly headed for extinction. There was also a cultural shift among the young. From the 1950s young New Zealanders turned increasingly to the United States and away from Britain for

their music, films and role models. This developed into a trend through the 1960s, evident in house design and lifestyle, apeing the spacious, outdoor orientation of popular American culture (by contrast with the crowded, more stratified popular culture of Britain and Europe) so that by the early 1980s New Zealand could be said to be more American than British. “Today . . . in their way of life, the New Zealanders belong to a branch of New World civilisation the main centres of which are Sydney, San Francisco and Auckland,’ historian Keith Sinclair wrote in 1980.° The population was divided by race, gender and generation to a degree that would have alarmed the New Zealanders of the 1950s.

39

New Territory | By the early 1980s a new generation was coming to power which thought and acted differently from its elders. It was not of a mind to conform — at least not to its elders’ wishes. The most important dimension to the generational division was one of temperament.* The subscribers to the prosperity consensus were conservative in temperament. Change was generally unnecessary and unwelcome. The generation which reached its 20s in the 1960s and began to enter positions of influence and then power in the 1980s was in temperament liberal — welcoming change — or radical — revelling in change, and big change at that. Born and bred in

affluence and security, it was freer in mind than the prosperity consensus generation to take risks and to adventure, in personal expression, in exploring ideas, in lifestyles and, in due course for some, in business (where the freedom to fail was almost as important as the freedom to succeed). This generation felt stifled by the morals, customs and practices of its elders. It was more susceptible to idealistic or romantic visions of what could and should be done in public and private life (so valued the freedoms of South African blacks over the free-

dom to play rugby with South African whites). Their upbringings partly influenced by the liberal advice of the American child specialist, Dr Benjamin Spock, this ‘gimme’ generation expected quick and full gratification. So moral freedoms were important. What divided the gimme generation most from the prosperity consensus generation was its sense of containment represented by the quest for security that was temperamentally at the heart of the prosperity consensus. If one had the certainty of a job (and so a livelihood) and the certainty of choice of a job and the certainty that the rate of pay for the job would be pro-

tected by unions and the state, why invest work with monetary, rather than self-fulfilment, value — or, if jobs could not provide self-fulfilment, why put effort into a job when effort could be put elsewhere for self-fulfilment? If one had the certainty of health care free of charge from the state, one would concentrate on where it fell short of the ideal rather than being grateful for its mere existence. If there was an assured abundance of goods, then put energy into preserving the physical environment from the ravages of industrialism. Or, to take a different tack, if there was space to make a dollar, remove the barriers to making

it. Or, if civil and political freedoms are guaranteed, concern yourself with freedoms for oppressed peoples elsewhere. Or break free from the stifling nuclear family and live, unmarried, with a succession of people or a group of people.

Burst the rigid social structures and strictures that promised (even delivered) security in emotional and social life but at the cost of suppression, constraint and hypocrisy. And so on. The quest for security had created a buffer of space around

all New Zealanders, between them and discomfort and danger. The gimme 40

Fall from Grace

generation, knowing little of insecurity, wanted full run of that space. Change was welcome and desirable to the gimme generation. In politics that meant more freedoms (which made most of them liberal) or a maximum of free-

dom (which made some of them libertarian, opponents to moral and/or economic regulation by the state). In temperament, they were liberal (for some change) or radical (for lots of change). For the radicals, change was not just welcome for the content of the change, but for its own sake. Challenge and change had their own intrinsic value.

This psychology of radicalism began to show up in the behaviour of a minority of students and some other young people in the mid-1960s, in opposition to the Vietnam war? (opposing one set of freedoms to the prosperity generation’s freedoms), in a search for social perfectibiliry by extending the welfare state beyond ‘modest affluence’ to a guarantee of full participation in society for all citizens, in a concern to preserve the physical environment and in a morally freer lifestyle that experimented with sex and drugs. It spread more widely as the 1960s progressed. Among a minority, particularly in opposition to the Vietnam war it spilled over into anarchism. The gimme generation’s preferences and its members’ tendency to find expression on the ‘left’ in politics were important in-

gredients in the rise to power in 1972° of a Labour Party that promised movement in the direction the gimme generation wanted. But since the Labour Cabinet was of the prosperity consensus generation, it largely misinterpreted the ambitions of its young activists and voters and so delivered little to those ambitions and instead set about reinforcing large chunks of the prosperity consensus — with, as it turned out, counterproductive results. During the 1970s, as more young people joined the gimme generation and as its older members developed confidence and skill in expression, the push for _ change went in a number of directions. There was, as noted below, an outpouring of creativity in crafts and arts. As noted above, Maori and women, mostly of the rising generation, joined or helped by sympathetic whites and men of the same generation, increasingly used extraparliamentary methods to make their points and to win concessions. Some joined the major political parties, mainly the Labour Party. By the early 1980s they were approaching positions of influ-

ence and power. Others chose the pinstripe route to influence, through the government bureaucracy and through business, often on the fringes, where also by the early 1980s they were reaching positions of influence and approaching real power.’ They were going in a multitude of directions; they were expressing the same desire for and at-homeness with expression, challenge and change. Their distinguishing feature was not the subscription to an ideology or a new social and political order; it was their temperament, their urge for big change. Such people were not the whole of the younger generation. But they were a

4]

New Territory a large minority at least. And they were the active part of it, the elite, the definers of it in the way that any group is defined by its elite. And their radical or liberal psychology undid consensus at its very centre, the agreement to agree, to con-

form. Radicals are unlikely consensualists. Liberals have nothing against consensus but are more concerned with individuality.

So the agreement to conform, a vital element of the prosperity consensus that was facilitated by the homogeneity of the population and the singularity of its value-system, could not persist. It was not just disagreement over what to conform to, which habitually divides generations. It was disagreement over whether to conform. A rising generation that doubted the value of conformity was hardly likely to sustain or to continue consensus. Consequently — even setting aside the challenges from Maori and from women — the singularity of the value-system, which was a defining element of the prosperity consensus, weakened as the proportion of non-conformists grew and became more expressive. Competing value-systems claimed adherence, for example, ending the all-pervasiveness of the nuclear family in divorce and rising numbers of solo parents. Declining respect for the value-system showed up also in steadily rising crime. The ‘modest’ affluence that was the object of the prosperity consensus was an anachronism to a generation to whom boundaries (of rules, of appetite, of ambition, of endeavour) were lines to explore beyond, not take shelter within. ‘Modest’ was a comforter for conservatives; gimme radi-

cals suffocated under such a blanket. Unsurprisingly, the income range began to stretch, weakening the sense people had had of New Zealand being a population homogeneous by virtue of a lack of extremes of wealth and income.

Between 1981 and 1984 that movement gathered pace: among wage and salary earners the highest-earning fifth had a 3.7% increase while the lowest fifth had a 5.9% decrease That development further undermined the homogeneity and with that one of the facilitating conditions of consensus. The singularity of value-system in the prosperity consensus had helped underpin in the New Zealanders of the 1950s a cultural confidence — as British and so members of the pre-eminent culture. But the gimme generation ferreted out what was wrong or failing in European culture, particularly, in the wake of the Vietnam war, the American dimension of it. This generation in New Zealand did not talk of Britain as ‘home’. Though many still went there for overseas experience, increasing numbers went instead to the United States or simply moved to Australia. They questioned both British and American values and their appropriateness for New Zealand. The cultural confidence (even if narrow) of their parents was replaced by a cultural uncertainty and a search for a New Zealand cultural expression that would take its place. That search was made more 42

| Fall from Grace complex by the strong restatement by Maori of their culture. Three other developments challenged the cultural confidence that was part of the value system of the prosperity consensus. One was the growing numbers who were either themselves migrants or born in New Zealand to migrants from New Zealand’s former South Pacific island mini-empire (the Cook Islands, Western Samoa, Niue and Tokelau) and other island states, notably Tonga and Fiji. This compounded in a small way the challenge to homogeneity in culture. Another was the unavoidability of dealing with neighbour Australia. Until the mid-1960s Australia and New Zealand had paid each other little attention, dealing directly with and through ‘mother Britain’ more than with each other, except when they had to, for example, in military issues in both world wars and in developing international air services in the 1950s. While each country’s exports and imports were primarily with Britain and not with each other, that had some logic. But as increasingly each found itself having to deal with other countries and with each other, New Zealand gradually began to feel some cultural pull from Australia, which was well on the way to developing a distinct cultural expression. It was not easy or credible to remain a cultural extension of Britain with that example near at hand from which New Zealanders could no longer avert their eyes.

Third, the international order changed dramatically from the 1960s on. European culture and economic organisation ceased to dominate unchallenged. During the 1970s Japan emerged as a rival to the United States in economic power, with other east Asian nations in tow — and the clear prospect, realised in the 1980s, of east Asia being the engine of world economic growth and increasingly the generator of capital and innovation. Experts in management studied Japanese methods for lessons to improve European and American performance. Psychologists and sociologists probed the Japanese psyche and social structures and behaviour for clues as to where Europe and north America had gone wrong and Japan had gone right. The Japanese custom of operating in teams and taking the long view of investment and planning particularly intrigued analysts from a culture which had risen to world pre-eminence on a belief in and practice of individualism. Historians began to discern patterns that appeared to

indicate an irreversible shift of influence and motive power from the Atlantic (Europe and north America) to the Pacific, by which increasingly was meant east Asia, and did not include the west coast of north America, powerful as that con-

tinued to be in computer electronics. China had only just begun to stir economically and a foretaste of its eventual power was evident in the success of

the offshore Chinese in the economies of Singapore, Hong Kong, Taiwan, Thai- | 43

New Territory | a land, Malaysia and Indonesia. This new centre of world economic development and cultural pre-eminence was closer than Europe to New Zealand geographically, but far more distant in almost every other way. Asian languages were not much taught in New Zealand. Asian cultures were little studied, interacted with or understood. New Zealand’s own small Chinese minority (beginning, among its under-30s, to display a little of its economic success after a century of living in the shadows) was little understood. Culturally, New Zealand was not even in the outer courtyard of the emerging cultural and economic ‘empire’. It was a rude shock to a country used to

being in the bosom of empire. New Zealand found itself on the edge of an alien sphere from which its future prosperity would largely have to be drawn. This happened within a decade of the wrench that ruled out for New Zealand the perpetuation of the economic colonialism of the 1950s: Britain’s entry into the European Community in 1973 and the end of assured outlets for large proportions of New Zealand’s primary produce exports. The old emperor was changing the seating at court and relatives of the new European bride would have prior claim. Sentimentally, it shocked the clinging colonials in the antipodes; culturally it was a shocking message to an overdependent adolescent to get out into the world. So the easy assumption of inherited cultural pre-eminence that had been at the heart of the prosperity consensus evaporated. New Zealanders could still cling to itand many did. But whereas in the 1950s it was part of the natural order of things, by the late 1970s it was increasingly a memory or a wistful artificial construct. New Zealand’s military umbrella began to leak and had to be exchanged. Britain withdrew in the 1960s from active presence east of the Suez canal, that is, from the geographical region in which New Zealand was (inconveniently for the persistence of a colonial mentality) situated. New Zealand was able to hop un-

der another umbrella, also held by a distant country, the United States, an umbrella which it had leased as insurance by joining Anzus (the Australia, New Zealand and the United States pact) in 1951 and the American-inspired South-

east Asian Treaty Organisation in 1951. But it would never again be able to delude itself it was a strategic outpost of Europe. When the United States’ demand for payment on the lease of the umbrella came in the mid-1960s as Britain was departing, it was to duty in Vietnam in south-east Asia. New Zealand, which had consigned its troops overwhelmingly to Europe in the Second World War even when its own territory was threatened by the Japanese, was forced by the Vietnam commitment to think of south-east

44

Fall from Grace

Asia as a part of its own frontyard. New Zealand had sent troops to fight com-

munists in Korea in the early 1950s and Malaya in the late 1950s. But the Korean war was at the height of the post-Second World War stand-off between the great powers and in some ways an extension of that conflict, while the fact that Britain was an active participant gave a lead to a ‘where Britain goes, we go® New Zealand. And Malaya was a member of the British empire, with the accent on the word ‘British’. Neither caused the wrench of attitudes that marked

involvement in Vietnam, with the British absent, fighting what many in New Zealand saw as an American war, interfering in the internal affairs of a small Asian nation. There were several dimensions to the impact of Vietnam on New Zealand. It anchored New Zealand psychologically where it was factually — to the south-east of Asia, not just offshore from Europe. For example, aid, especially educational aid, was directed towards, and so began to develop linkages with, Asia and it became increasingly necessary to look for export markets there, too. The growing Pacific island component of New Zealand’s population had a similar effect of anchoring New Zealand in the South Pacific. Aside from its aid and other responsibilities (for example, for foreign policy and defence) as a former administrator of these remnants of empire, New Zealand had to take account of the concerns of islanders for their ‘home’ countries. Increasingly from the 1960s New Zealand had to focus on its own pond, over which it had previously looked to ‘home’. And the growing unavoidability of dealing direct with Australia, both on economic issues and over defence concerns as Britain withdrew and Anzus became the only operative defence mechanism, anchored New Zea-

land in the Tasman. After a century and a-quarter of geographical split personality, New Zealanders were at last inescapably home at the bottom of the South Pacific, beside Australia and on the fringe of Asia.

The second dimension was military. The Vietnam commitment marked a turning point in New Zealand’s willingness to go to war on someone else’s say-

so. The world wars and the empire engagements had been to defend ‘our’ country or extensions of it, as if New Zealand and Britain were indivisible. If the engagement in Vietnam was to be valid, given that Britain was not involved, it had to advance ‘our’, meaning New Zealand’s, interests. Anti-communist ral-

lying calls, used as the official explanation by the Americans and the New Zealand Cabinet, were convincing only to the paranoid. This was not (except indirectly) an imperialist superpower Soviet Union or China against whom New Zealand troops were ranged (as in Korea), but a small, backward country, whose potential to export revolution to neighbouring countries was real (and realised

in Cambodia in the 1980s) but limited. The direct interest was not in southeast Asia, but in New Zealand’s meat trade with the United States. But the 45

New Territory

Cabinet felt to advance that reason to the public would be indelicate and might be rejected. The Cabinet’s ambivalence was demonstrated in its sending the smallest con-

tingent it could get away with under American pressure. That hesitancy communicated itself to the war’s opponents within New Zealand. Vietnam strengthened the hitherto minority anti-American and anti-militarist sentiment which, added to a strengthening anti-nuclear, environmentalist sentiment, was to develop over time into the 1985 rupture with Anzus and the United States. As part of that, Vietnam also gave impetus to New Zealand’s groping towards independence by confronting it with the need to make a military decision on

its own account instead of by reflex within a symbiotic relationship with a combatant. Britain’s entry into the EC pushed the process abruptly along. The economic rise of Asia kept the accelerator depressed. Bit by bit New Zealanders were denied the national dependency that was embedded in the pros-

perity consensus. Ready or not, willing or not, New Zealand was being decolonised.

46

5. An End to Affluence

[° the 1970s international economic changes begun in the 1960s irrevocably

removed a critical assumption on which the prosperity consensus was based. By the 1980s it was clear only major economic change could restore prosperity and that, however that change was implemented, it would shake the consensus

to its core. The economy stopped delivering the goods on which the liberal democratic social welfare state was based. A usual marker for New Zealand’s economic decolonisation is Britain’s en-

try into the European Community (EC) in 1972. Thenceforth New Zealand was on notice that its agricultural exports to Britain were to be phased down to negligible levels, that is, its status as farm to Britain’s industrial cities was at an end. New Zealand was also on notice that selling agricultural produce to other markets would become more difficult, once British farmers expanded output in response to EC subsidies. In fact, the process had begun during the 1960s. Britain had phased out the five-year access agreements that replaced the wartime guaranteed purchase agreements and its take of those exports had fallen. In any case its economic strength had waned. Simultaneously, New Zealand’s terms of trade began to fall. New Zealand itself had taken the first halting steps to encourage manufacturers to export through the heavily managed trading arrangements it established with Australia in the New Zealand Australia Free Trade Agreement (Nafta), signed in 1966. As important was the rise of Japan to major economic status during the 1960s

and then to economic great power status during the 1970s. That fed into the rise of other east Asian economies during the 1970s, so that by the early 1980s it was clear that Asia would by the 1990s be much more important a trading source and outlet than Britain or Europe. Asia was promising, but offered noth-

ing like the comfortable economic security of being among fellows that the British colonial connection had offered. There were, however, deeper changes under way which gathered pace during the 1970s and made the economic policies of the prosperity consensus unworkable.

World business increasingly internationalised and then began to globalise.'

47

New Territory | | Companies established themselves in more than one country, that is, they multinationalised. This was often to obtain sales behind that country’s protective barriers, as with the establishment of subsidiaries of many British, Australian and American companies in New Zealand during import licensing. More gen-

erally it was to take advantage of or better respond to local conditions, particularly to base production where the combination of factor costs (capital, labour and knowledge) was lowest. A radio bearing the label of Dutch-based electronics giant Philips was by the late 1970s likely to be made in Singapore to take advantage of a workforce that was well-educated but relatively cheap, a good manufacturing infrastructure and Singapore's strategic position on the trade routes for export. By the early 1980s such moves were more likely to be into Taiwan or Korea and by the late 1980s Malaysia or Thailand. The units did not operate in national isolation, however. ‘There was usually at least a degree of common sourcing of raw materials and components (for example, in New Zealand cars were assembled from packs made by the parent company and there was only a minority of local components; consumer electronics goods, such as televisions, were likewise assembled mostly from parts packed by the parent company). There was often some trading between subsidi-

aries in different countries. The headquarters determined financial and production strategies. Multinationals, in other words, were also international, expanding trade between nations. During the 1970s and 1980s some firms began to globalise. That is, they operated as if they were one company with specialised branches in a number of countries, much as companies may have several plants in one country producing different product lines or components. They spread design, parts-making and assembly all across several countries, sometimes in complex alliances with other

companies that might mean the mix of parts in the final product varied from country to country.” A car with the American name Ford was by 1980 more than half Japanese and parts might be made in a number of countries and assembled in a number of others. A computer bearing an Apple label was by the mid-1980s

part-made in Taiwan, with other parts made in Japan and the United States. Globalisation did not recognise national boundaries. Countries with complex, difficult or restrictive border controls or with high factor costs were less attractive to global businesses than open or low-factor-cost economies and so tended to miss out on their investment, innovation, efficiency improvements and price reductions. In these conditions, attempts to protect local jobs often meant not only that consumers’ choices were less broad and up-to-date but also that prices to consumers stayed higher than they might have been. This in turn meant fewer units of that particular good were bought than might have been and so some jobs were 48

An End to Affiuence

lost anyway, or it might mean a plant disappeared for reasons that had nothing to do with the protected market but much to do with considerations in other countries. New Zealand felt this in textiles and garments, an industry which operated behind almost blanket protection from imports but nevertheless lost

18% of jobs between 1974 and 1982. ,

If New Zealand manufacturing businesses were to win a slice of the benefits

from the internationalisation and globalisation of manufacturing, they were going to have to join in. But under the insular economic rules of the prosperity consensus New Zealand factor costs, related to output, were high. Other factors, such as population base, infrastructure and, increasingly, the skills base, compared unfavourably with other countries. The high degree of internal regulation meant that would-be exporters were less flexible in adapting to change as the international market demanded. Protection of locally-oriented manufacturing was therefore a cost to exporting manufacturers. Gradually, as a result, some manufacturers began to question the benefits of protection and regulation. The factor cost problems were well illustrated in the pulp and paper industry. Fletcher Challenge, having bought into Canadian pulp and paper companies in the early to mid-1980s, found it could produce pulp and newsprint at a lower cost in Canada than at its own Tasman mill in Kawerau in New Zealand, despite wages in Canada being considerably higher and New Zealand electricity and wood supply costs being lower. This raised serious questionmarks over potential investment in New Zealand in any manufacturing activity (and to some

extent other business) by foreign, and even by New Zealand, companies — Fletcher Challenge backed off a planned fourth newsprint machine, for example — except to supply the protected local market which, being small and growing slowly, had limited appeal compared with large, fast-growing markets elsewhere. That was partly behind Fletcher Challenge’s decision early in the 1980s to locate some of its investment overseas. When the National Government sought investors for its energy-based heavy industrial projects in the early

1980s, it found it could entice them in only by heavily investing taxpayers’ money and assuring foreign investors of high returns at the expense of those taxpayers. If New Zealand was to obtain development investment, the changes in the way business was organised worldwide increasingly suggested big changes would be needed in the policy environment that had grown out of the prosperity consensus. Price, range and up-to-dateness of consumer goods are not the only consid-

erations in setting national economic policy. Quality of life and protection of local customs and conditions are important. Albanian authorities considered the virtues of self-sufficiency and ideological purity far outweighed any losses in com-

forts from not having foreign goods available. The New Zealand prosperity 49

New Territory , | | consensus had cheerfully traded consumer choice and price against security of income in jobs and protection of a way of life built round the 40-hour week. In a static world, this might conceivably have held good for generations. But the decades after the Second World War were marked by a dramatic expansion of international trade. World trade expanded much faster than world output.

This reflected and facilitated increasing specialisation, innovation and cost efficiencies. To be outside this system meant to forgo gains to the consumer. And, unfortunately for the prosperity consensus and for those who argued that those gains were of lesser value to New Zealanders than security and maintenance of our way of life, New Zealand consumers became increasingly eager for them. They saw what was available elsewhere. The entry into service of wide-bodied jet aircraft in the 1970s enabled people of quite ordinary means from quite ordinary countries to become citizens of the world. They could buy direct from cheaper foreigners. New Zealanders, travelling in rapidly rising numbers to Australia, east Asia and the United States, ‘compared the price and range of goods with what they were restricted to at home. The value of heavy protection of local industry, intended by the policies of the prosperity consensus to ensure local jobs, was increasingly questioned by consumers, the very people whose commitment to the prosperity consensus was _ essential to its continuation.

In any case another type of internationalisation and globalisation was making it increasingly difficult to keep national barriers in place. Money, always a slippery commodity and prone to leaking through the tightest controls, went global from the 1970s. And when money talks, it talks loudly. United States dollars began to accumulate in foreign, mainly European, banks

as a result of United States aid and investment and the position of the dollar, the currency of the world’s strongest economic power, as the world’s reserve currency for settling trade accounts. Communist countries holding dollars as reserves or to finance imports preferred to deposit them in Europe to ensure the United States could not block access to them. A ‘Eurodollar’ market began to develop from the 1950s, initially through European funding of an IBM European subsidiary with dollars held in Europe. Eurodollars could be lent and repaid independently of the dollar’s national base. Over time this came to be the case with other ‘Eurocurrencies’. A global pool of funds developed which could be tapped by borrowers from anywhere and added to by depositors from anywhere, provided their own countries’ exchange control regulations permitted it. As in-

ternational business of multinationals increased and as international trade boomed, an increasing amount of money was earned outside national markets which could be left and used outside those markets.

50

An End to Affiuence

Until 1971 this process was limited by the Bretton Woods system of fixed exchange rates and controls on the movement of foreign exchange. But the rapid

growth of world trade in the 1960s, rising inflation and American balance of payments problems broke the system. The United States in 1971 removed its guarantee to exchange a given amount of gold for the dollar and the dollar floated free in relation to gold. That ushered in the era of floating exchange rates as first

major trading countries and then others tried to find the appropriate level for their own currencies. In the wake of that came a progressive deregulation of national exchange controls by major trading countries and deregulation of their internal money markets. ‘The Euromarket took off, especially when the first oil shock of 1973, which enriched oil-exporting, mostly underdeveloped, countries at the expense of major trading nations’ balances of payments, created a need for a mechanism to recycle ‘petrodollars’ to fund the balance of payments deficits.

Deregulation was boosted by technology. Computers made it easy and cheap to transfer information. Communications technology improved dramatically and cheapened. “Together, these made possible 24-hour financial trading (that is, a truly global financial marketplace) and a vast range of new financial products for round-the-clock traders to buy and sell (index trades and portfolio insurance are some of the simplest ones).’* Technology exploited deregulation, encouraged and enabled innovation and in turn drove deregulation. All three elements interacted to globalise and spectacularly increase capital flows. Individuals (the legendary ‘Belgian dentists’) and financial institutions invested in shares and loans round the world. In the 1980s these flows came to be many times the size of trade flows? as computers and vast improvements in telecommunications made it easier for investors to chase the best deals literally second by second. ‘Sovereign’ countries with floating exchange rates found they had limited control over their own currency and interest rates. Even countries with exchange controls found money ‘leaked’ out of or into national financial systems. At the simplest level, credit cards in the hands of overseas travellers made it increasingly difficult to maintain exchange controls on consumer spending. By the early 1980s the credit card system had become a global industry, provid-

ing international credit to cardholders regardless of their host countries’ regulations. At the corporate level a wide range of instruments developed by which companies could hold and trade funds held in foreign countries. These ranged from carrying suitcases out of New Zealand to trade on an illegal market in Hong Kong (the costs of negotiating a major industrial deal were met this way) to falsifying invoices for imports that inflated the price and enabled more money thus to be remitted overseas. New Zealand had sealed off its financial system in the 1930s, partly in the 51

New Territory | ne belief that British banks were dictating financial conditions which were inappropriate to New Zealand’s needs and that in any case being beholden to foreign banks was incompatible with economic and social sovereignty. As part of the prosperity consensus, banking practice was strictly and narrowly regulated. As part of that regulation, interest rates were held at negative real rates — that is, below the rate of inflation — so that depositors lost money year by year in terms of what the deposit, even with interest added, would buy in goods and services. Investors preferred to chase capital gain in property and shares instead.° Since every now and then, if New Zealand’s inflation rate exceeded the inflation rates of its main trading partners, as it did through the 1970s, the exchange rate would have to be devalued to stop the balance of payments deficit getting so large that

foreigners would not finance the difference, depositors’ funds could be held within the national financial system in circumstances of negative interest rates only by direct controls to stop investors depositing them elsewhere to get bet-

ter returns through a combination of interest and capital gain on the devaluations. As it was, foreign-exchange-earning companies and individuals in New Zealand could, and often did, hold part of their earnings in overseas accounts either to fund travel or imports or to bet against the next devaluation by delaying repatriation of the funds. This could have a big influence. At the time of the 1984 election this practice caused a major foreign exchange crisis for New Zealand until devaluation allowed the bettors to take their gain. There were other costs. New Zealand companies could not invest overseas, which meant they could not internationalise and globalise and so were at a dis-

advantage compared with their competitors in world markets — which hampered efforts to increase exports. But when these controls were eased in the eatly 1980s big companies began to put new investment overseas to get the advantage of better factor costs than in New Zealand.’ Thus New Zealand’s sealed financial system was squeezed between competing preferences. To keep it sealed meant restrictions unacceptable to consumers (who would have had to give up credit cards) and posed increasingly heavy economic costs by putting business at a disadvantage with international competitors. But each opening let in a part of the financial flood sloshing round the world and forced yet another opening. In effect, New Zealand would lose control of its own finances. That went to the heart of the prosperity consensus. Worse, the new controllers would impose a stiff price.

The internationalisation and globalisation of finance developed at much greater speed than that of goods and other services because of the ease with which money can be traded. During the 1980s financial markets round the world began to merge. This in turn accelerated the impetus towards globalisation of other business by reducing, then virtually eliminating, differences in the real cost of

52

An End to Affiuence

capital between countries, at least for larger firms. Cross-border integration of ‘real’ economies, the part of the economy in which people make goods and perform services, developed, both formally through trade and services agreements — the European Community (EC), the Closer Economic Relationship free trade. apreement between New Zealand and Australia (CER) and the North American Free Trade Agreement (Nafta) — and informally, as through heavy Japanese investment in and transfer of technology and lower-level manufacturing to east Asian countries. Economies not part of this integration missed out on the benefits of efficiencies and product diversity it brought. The effects of insulation elsewhere — the decay in Russia, barely able to feed itself, and the fact that a whole raft of African countries fed less well than under colonialism, some to the point of widespread starvation, for example — still lay largely invisible to the public in 1980. But to careful analysts it was clear New Zealand’s particular form of insular economic organisation behind high protective barriers was coming under serious strain. The general implication for New Zealand from British entry into the EC, the shift in the locus of economic energy to Asia and the internationalisation and globalisation of business and finance, was that the world, in which New Zealand had to do business if it was to remain prosperous, was rapidly becoming in many ways unrecognisable from the place in which the prosperity consensus had been developed. That meant a detailed reappraisal and adjustment of the economic rules developed under that consensus. There was another important influence: technology. Technology helped globalise the financial markets — arguably may well have made that globalisation inescapable. Technology lowered the real price of travel so that more New Zealanders

could compare, increasingly unfavourably, their situation with that in other countries. And technology was an important decider of who got richer and who did not. In general, the higher the technological content of a product or service, the higher the return from it, either through higher prices or through lower labour content. Technology went where the best return could be got. New Zealand was by the late 1970s not a good bet. The application of new technology also was most appropriate for heavy industry, mass production and science-based industries, in all of which New Zealand was weak. The industrial structure was not well suited to taking up technology.®

The bulk of the exports on which New Zealand remained dependent, that is, agricultural produce, was relatively low in technological content. The application of technology to agriculture, so successful in the 1940s and 1950s in increasing output per person, hectare and dollar of investment, proved less suc53

New Territory | cessful in raising real returns in the 1960s, 1970s and 1980s than what could be achieved for manufactured goods or for knowledge-based goods and services which dominated imports. So agricultural prices fell in real terms against the prices for manufactured goods. They fell even further behind the new knowledge-based goods and services, for which prices were stronger than for manufactured goods. While Japan during the 1970s and then, progressively, Singapore, Taiwan and South Korea moved from commodity manufacturing (for example, basic steel) and low-price manufacturing into progressively more sophisticated consumer and computer electronics industries, New Zealand remained heavily dependent on agricultural exports for the foreign exchange it needed to keep its economy running and pay its people. So there was a decline in New Zealand’s terms of trade (export prices versus import prices). The terms of trade fell slowly from an abnormal peak in 1951 to the mid-1960s. Then the fall steepened, broken only by a temporary blip in the early 1970s, until the late 1970s. By the second half of the 1970s, the terms of trade were roughly 30% lower than in the first half of the 1960s. At the farm level, it was much worse, because no one down the line adjusted their prices and wages to reflect the drop in earning power. In simple terms, it took 529 lambs to buy a tractor in 1962; in 1982 it took 1445 lambs. And there weren’t enough

lambs. |

This factor more than any other convinced careful analysts from the late

1970s on that there had to be change — if New Zealand was even to stand still. The direct result of the fall in the terms of trade was that the balance of pay-

ments current account — the balance between New Zealand’s earnings and purchases from the outside world — went into deficit. That deficit was made worse by rises in the price of oil in 1974 and 1979, then almost all imported, which pushed up the price of imports, both directly in the price of oil and indirectly in the prices of goods made in countries which used imported oil for energy for their manufacturing industries. In itself, a balance of payments deficit was not important; there had been balance of payments deficits before without serious damage to the economy or the way it was organised. If the deficit was the result of a boost in the imports of capital goods for investment in new

export-earning industries (as to some extent it was in the early to mid-1980s) or was caused by a fundamental restructuring of the economy to boost exports, it could be sustained on the expectation of higher exports later. But the dramatic and prolonged slide in the terms of trade made the deficit large and enduring, and current spending was a large portion of the problem. From 1974 to 1984 the deficit averaged 30% of exports and 6.2% of gross domestic product (GDP, or total national output).

54

An End to Affiuence

This blowout in the external deficit contravened one of the critical ingredients of stabilisation and so of the prosperity consensus. Brief periods of high deficits could be tolerated, but not a prolonged period. The direct spinoff from balance of payments deficits was a rise in foreign debt. The mere addition to debt was not in itself a vital concern, provided it did not grow as a percentage of GDP. If the balance of payments deficit over time was no greater than the growth in GDP debt as a percentage of GDP did not grow. Provided debt was not too high to start with, there was no problem. But from 1974 on the deficit invariably exceeded growth in GDP and so foreign debt went from 6.7% of GDP in 1974 to 47.6% in 1984, around half of it government debt. Higher debt meant interest payments to foreign debt holders went up — the interest on government debt alone went from 2.5% of exports in 1974-75 to 6.7% in 1984-85. This added to the balance of payments deficit and so created a vicious circle. Debt had another impact. If it rose too far, as it did in the late 1970s, international credit rating agencies would downgrade New Zealand, pushing up the price of borrowing either to finance the balance of payments gap or to finance development investment. These were simple arithmetical facts and projections. Just as a family can for a time live on credit cards, bank loans and additions to its mortgage to make up a gap between earnings and spending, a country can live on loans. But, as with the family, there comes a time when creditors either stop lending, demand re-

payment or push up the cost of more borrowing. Many Latin American countries, chronic borrowers, reached that point during the 1980s and paid a terrible price in economies that were stagnant at best and in many countries went backwards through that decade. Former communist countries are going through an even more terrible adjustment, partly driven by debt, in the 1990s. The warn-

ing of damage to come was issued to New Zealand in 1975, when the country was issued with a credit rating of AA+. It pulled up to AAA in 1978 but dropped

to AA+ again in 1983. New Zealand was by then set on the path to its current slot as one of the world’s highest debtor countries in relation to GDP and to population. (Its rating is now at the bottom of the AA range.) The choices for New Zealand, as for a family, were simple: to cut imports (family spending) and/or to increase exports (family earnings), or both; or change the way it went about its business. These were not choices dictated by ideology, as some critics of subsequent attempts to address the issue have seemed to think.

They were present in the simple arithmetic of earnings and spending. If not corrected, the rise in debt would have similar real, and damaging, effects as in Latin America, which, when banks stopped lending in the 1980s, suffered a wretched decade of stalled or declining economies. New Zealanders had the 55

New Territory | | choice of making the correction off their own bat or having someone impose it. That this was inescapable is evidenced by the fact that three Governments from 1975 have set out in different ways to make that correction. Cutting imports meant cutting demand for consumer goods and travel, which meant in some way cutting real personal incomes — which cut across the prosperity consensus assumption of rising real incomes — and/or cutting spending on capital goods, which reduced investment and so reduced the scope for expanding exports. Expanding exports meant producing more from the same investment (working harder for less) — again at odds with the prosperity consensus — and/or investing more, which temporarily pushed up imports and — which required either current income to be forgone to provide the savings for investment or future income to be diverted into interest or dividends on loans or capital from overseas. In simple terms a 6% balance of payments deficit meant

that every wage, profit, dividend and benefit was 6% higher than the nation earned to pay them and if the deficit was to be cut immediately to, say, 3% to match economic growth, wages, dividends, profits and benefits would have to be cut by the equivalent of 3% of GDP. There was not even the option of standing still. Not finding ways of increasing export earnings meant the standard of living would have to be cut. And in any case, the ‘modest affluence’ envisaged by the prosperity consensus did not just mean standing still but delivering modest rises year by year in New Zealanders’ individual purchasing power. The revelation of the awful backwardness of Albania, stuck in early 20th century poverty, lay a decade in the future in the early

1980s. New Zealanders had long made it clear through the ballot box they wanted to keep up with foreigners’ rising standards of living. Other solutions were needed. In the longer term a chronic balance of payments deficit, induced largely by falling real prices for exports, posed deep questions about the correctness of the mix

of exports. From 1970 to 1980 Japan’s terms of trade deteriorated more than New Zealand’s. The difference was that Japan’s exports were in products in which huge technology-driven productivity gains could cancel out the fall in the terms of trade. New Zealand’s were not. If New Zealand was going to remain largely dependent on primary resources exports, it was going to have find ways of producing increasing quantities of those exports year after year, decade after decade. From the late 1940s there had been huge increases in primary resources production, largely through skilled applica-

tion of new scientific knowledge to already productive or previously unproductive land and through switching from low-yielding to higher-yielding products. Productivity per member of the workforce in agriculture rose 4.5% a

56

An End to Affluence

year between 1955 and 1965.’ But there were scientific, financial and labour limits to how fast and how far that could be continued. The story was told in an export performance which was only half that of the main manufacturing countries: 3.1% a year from 1954 to 1967, 5.2% from 1967 to 1972 and minus 3.9% from 1972 to 1975, compared with the OECD average of 7.6%, 10.1% and 3.7% respectively. Farming simply could not expand as fast as foreign manufacturing. Moreover, despite their increase in output, farmers’ real incomes fell by around 6% between the mid-1960s and the late 1970s along with the drop in prices and because of higher input costs as a result of protection and regulation of manufacturers and other suppliers. Each additional lamb or pound of butter cost more to produce, because it was coming from more intensive use of existing land or the use of newly productive marginal land which yielded less from inputs than established land. So the profit on additional output was lower. As incomes fell in real (cost-adjusted) terms, real profits out of which to finance new investment fell. ‘The only way investment could be kept up with output needs to bridge the balance of payments gap was by government-subsidised loans, tax concessions, free government advice and other help and other forms of subsidy. The payment for that had to come from taxes, which cut the disposable incomes of those who paid the taxes, mostly by the 1970s those in middle New Zealand. In fact, lack of investment had not been at fault. Investment in New Zealand from the 1940s on matched that of other ‘rich’ countries as a percentage of its

national output. But the return on that investment had been lower, because it went largely into agricultural products, for which prices had fallen, or into industries that were inefficient by world standards because factor costs were bad and/or there was no incentive (because of the security of profits afforded by protection against imports) to perform well. Overall productivity per workforce member from 1955 to 1965 was 1.7%, far below agriculture and below the OECD average." In consumer electronics products assembly, for example, the cost of the packs from Japan from which the products were assembled was lower than the finished product because the Japanese suppliers made up the packs by

disassembling finished products (on to which the cost of New Zealand labour and some componentry was added). New Zealand also poured a high propor-

tion of investment into social capital (houses, hospitals and schools), an inescapable demand of political preferences, and into transportation, an inescapable necessity of geography and topography. Even allowing for the political and geographical arguments, economic historian John Gould concluded, ‘New Zealand has something of a genius for wasting capital.’’

The result was lower growth than other ‘rich’ countries. On a per capita basis, New Zealand’s growth rate was half the average for the OECD countries.

57

New Territory , In the 1950s and 1960s this was not a problem: year-by-year increases of around 2% were still delivering ‘modest affluence to all’. But in the decade after 1974, the increases were smaller and in 1977 and 1982 there were decreases. From 1975 to 1982 per capita average yearly growth was only one-fifth the OECD average. And this was at a time when increasing numbers of New Zealanders were travelling abroad and could measure the difference between their standard of living and those of other countries, could feel their dollar buying fewer Aus-

tralian or American or Singaporean or Hong Kong dollars each time they travelled. In addition, because of other factors surveyed below, GDP per capita overstated the ‘improvement’ for large numbers of New Zealanders. This unfavourable comparison suggested that over the longer term the balance of payments and growth problem could be solved only by changing the mix

of exports to ones with better prices, so that each dollar of new investment yielded more foreign earnings. New Zealand did diversify its markets. Britain took only 11% of exports in

1983-84, compared with 13% by the United States, 16% by Japan and 15% by Australia. The Muslim Middle East emerged as the main market for lamb and some progress was made in Asia. This was a considerable achievement. The range of exports was also slowly diversified in an attempt to escape the tightening noose. Traditional agricultural exports of meat, dairy products and

wool were down to 67% of total export earnings in 1975 and 62% by 198081. But this diversification was mainly to other primary resources exports: horticultural products, fish, timber and so on. Wood pulp and paper and the processing of Australian alumina, both using huge amounts of relatively lowpriced electricity (a New Zealand factor cost which compared favourably with that of other countries), made up the rest, but further investment in those areas, as was shown above, was doubtful unless other factor costs changed sub-

stantially. Manufactured exports had been gradually growing from the late 1960s, partly as the result of special article 3:7 arrangements under the New Zealand Australia Free Trade Agreement (Nafta) which by the late 1970s had reached the limits of its potential for facilitating new exports, and partly, from the late 1970s, as the result of very generous tax write-offs which were in effect a cost to other producers. But to change the mix of exports from low-priced primary resources exports to high-priced manufactured and knowledge-based exports implied some awful choices and huge wrenches to the way of life New Zealanders had grown used to during the time of the prosperity consensus. Either investment was going to have to be diverted away from agriculture and into new activities or money was going to have to be diverted from people’s disposable incomes, immediately by way of voluntary savings or forced savings through taxes or in a delayed form 58

An End to Affiuence

to pay interest or dividends on overseas loans or capital. If those activities were to be in manufacturing, then management and labour practices were going to have to change dramatically so that manufacturers could compete on world markets. After 40 years of protection, most manufacturers were by the late 1970s in no fit state to do that.

Even worse was the implication of such restructuring for the crosssubsidisation principle at the heart of the economic rules of the prosperity consensus. Agricultural exports were supposed to generate enough earnings to finance imports and also, in effect, indirectly pay for the gap between New Zealand manufacturers’ prices and the lower prices of foreign products which were ~ excluded from the New Zealand market and so finance jobs. As farm incomes fell, they were not only unable to finance imports, but could finance less of the manufacturing price gap and so jobs. Insecurity, banished by the welfare state, returned. Moreover, the method of governing by arbitrating among interest groups that developed during the period of the prosperity consensus made it difficult, once a favour had been granted, to withdraw it. The process ratcheted favours up. The wheel could not turn in reverse — unless it was first removed from its axle. The subsidies were circular. Farm earnings in effect subsidised jobs, but workers in those jobs were taxed to subsidise farmers to keep farm output and earnings up. As the squeeze went on farm earnings, this threatened to develop into an-

other vicious circle. In addition, each person subsidised many others’ jobs through paying higher prices than would have been the case for comparable imported products. When export tax incentives were instituted for manufacturers, those on average incomes who bore the brunt of taxes found their burden even higher to make up for the forgone taxes. And if the government borrowed to pay for higher subsidies or make up forgone tax instead of paying for them out of current taxation, that only delayed the tax impact, since the interest payments which had to be paid on that borrowing in future years had to be funded from somewhere — unless government spending on benefits and social services was to be cut in contravention of expectations under the prosperity consensus. Higher interest payments on foreign debt accumulated by the Government to pay for balance of payments deficits had the same effect. In practice, by raising government interest payments, a balance of payments deficit added to future Budget deficits (so contravening an important principle of stabilisation). This set up another vicious circle because Budget deficits helped keep economic activity higher than it would otherwise have been which helped maintain demand for imports which helped widen the balance of payments deficit. Running Budget deficits also helped push up inflation. Part of the Budget 5D

New Territory - | deficit was financed by foreign borrowing which added to the supply of money

within New Zealand (‘monetised’ the deficit, in economists’ jargon). More money chasing goods and services caused prices to rise. Wages followed prices up and in turn added to costs of production and so to price rises: another vicious circle. Wages were fixed by a three-tier process: centrally, by general wage orders with the force of law laid down by a tribunal, the Arbitration Court, which more than compensated for past inflation, thus building it back into all wages; occupationally, on top of general wage orders through national or regional awards negotiated between unions and groups of employers; and at the enterprise level on top of awards through ‘house’ agreements negotiated by unions with individual employers or small groups. Legislation requiring workers to belong to and employers to bargain with unions and in the final resort accept Arbitration Court rulings allowed little flexibility to accommodate wages to falls in profitability. But in any case high levels of protection from imports ensured that manufac-

turing companies, few of which exported any of their output, and other locally-oriented businesses could pass wage increases into endproduct prices without fear of being undercut by foreign competititon. Since these businesses accounted for the great bulk of jobs and there was from the 1940s a complex set of ‘relativities’ recognised by the Arbitration Court linking wage rates across almost all occupations, wages moved up relentlessly at a rate that usually exceeded both inflation and increases in productivity. In other words, real wage costs steadily rose and were compounded still further by increasingly rigid rules demarcating which workers could do which tasks. This whole system was linked to state wages

through a formal, legislated indexation procedure, with, again, provision for periodic special (invariably upwards) adjustments.'* There was thus a self-fuelling wage spiral which constantly pushed prices up. The spiral defied several attempts — most earnestly in 1971-72 and 1982-84 — to impose wage freezes, simply picking up the lost ground when the freezes were removed. It was arguable that this was not a big issue in the internal economy since wages and inflation kept compensating workers and producers. But it had serious effects on the ‘tradeables’ sector of the economy — farms and businesses which exported or competed with imports — by eating into the returns through, for example, costs of meat and dairy processing, internal transport and wharf costs. Since for most exporters the final prices were determined overseas, higher processing and handling costs simply meant lower returns to the producer, so less money for investment, so less dynamic growth in export volume. In order to recover the returns to farmers and other exporters in New Zealand dollar terms, the Government was forced into periodic devaluations — but with only short-term gains because the devaluations pushed up the cost of 60

An End to Affiuence

imports and so inflation which was recouped in subsequent wage rounds and built back into costs. Inflation robbed some of the very people the prosperity consensus was supposed to protect. Middle New Zealanders, whose aspiration of “modest affluence’

was at the heart of the prosperity consensus, found the higher wages paid to compensate for inflation pushed them into higher income tax brackets, which meant that tax rose as a percentage of their wages, for the tax brackets were not

adjusted down far enough or often enough to cancel out the ‘bracket creep’ effect. Among the various reasons for this was that benefits were adjusted for inflation and state wages rose faster than inflation. Income tax on the average wage

and salary earner rose from 14%, including social security tax (8% net of the then generous family benefit) in 1950-51 to around 24% in 1983-84. Moreover, as tax rates became steeper and the higher rates cut in at a smaller and smaller margin above the average wage (the 66% top rate cut in at two and a-half times average weekly earnings in 1983-84), a greater share of the burden was borne by the middle New Zealander, whose tax was taken directly out of wages and salaries. By contrast farmers had a wide range of concessions. ‘There were deduction allowances, write-offs and loopholes available to the better-off which enabled many of them to pay far less tax than the tax tables suggested they should. Evasion also became progressively easier for the well-off as the internationalisation of world finance developed. In addition, the tax system was further

skewed against the middle New Zealander and to the advantage of the betteroff by the absence of a capital gains tax. That absence also lumped rising housing costs on to middle New Zealanders because it made property investment, espe-

cially in times of high inflation, much more attractive than investment that generated taxable earnings. One result was that increasing numbers of wives went out to work where they could to supplement family income. This undermined the nuclear family ideal which was the base social building block of the prosperity consensus.

Sir Robert Muldoon was both Finance Minister and Prime Minister during the late 1970s when the economic predicament became inescapably apparent. Employing acute analysis, cunning and bluff, he remained loyal to the prosperity consensus and operated by its economic assumptions even when changes in base operating conditions made that inappropriate. No reputable economist thinks he could have succeeded. Muldoon understood well the implications of a chronic balance of payments deficit. He identified it, and its visible symptom, rising debt, as central problems

in his election campaigning in 1975 and then in power in 1976 set about trying to fix it. 61

New Territory Essentially he tried to grow New Zealand out of deficit by expanding exports, all the while tiding the country over by heavy borrowing. That was in keeping with the prosperity consensus which presumed that the country could be insulated from overseas fluctuations and that internal living standards did not have to be cut, or at least not cut savagely as in the 1930s depression. Progressively over the next eight years from 1976 Muldoon poured a lot of

government money and support into exports. First, he stimulated traditional agriculture exports principally by concessionary loans for bringing marginal land into production, tax concessions on farm ‘investment’ (some of which was actually maintenance) and a grant for maintaining stock numbers. This did boost production (meat went up by 9%, wool by 27%

and milkfat by 27% between 1974-75 and 1984-85). So important did he regard maintaining and expanding the flow of these traditional exports that in early 1978 he ended a prolonged strike of workers in export meat processing plants by settling part of their claim with $1.8 million of taxpayers’ money. This was breathtaking intervention even by the standards of the first Labour Government.

Muldoon’s second initiative was to stimulate non-traditional primary resources exports — horticulture and fish, notably — with the usual panoply of tax concessions and other assistance. Horticulture exports, riding on the back of a new strain of Chinese gooseberry developed in New Zealand and called kiwifruit, rose from 738,000 trays in 1974-75 to 13.7 million in 1984-85. In manufacturing he applied a handsome 150% tax deduction for export market development and 100% for the actual exports. Manufacturing export volume tripled over that decade. Muldoon’s third initiative was to look for a new bonanza. This was in keep-

ing with New Zealand experience of periodic rescue from depression or doldrums by a leap in technology. In the 1890s, the invention of refrigerated transport technology the previous decade provided a bonanza return in meat and dairy exports from the 1990s. From the 1940s aerial topdressing dramatically increased hill country production. In the 1980s an expected electricity and gas ‘surplus’ was to be turned into industrial production generating directly and indirectly a total of 410,000 jobs over the next decade or so. Again, government money was lavishly available. In 1979-80 the Government decided to develop, either by direct investment or assuming the risk of private sector investment, a new range of industries based on natural gas from the Maui field and electricity from the planned Clyde dam.

The strategy assumed these would both expand exports, mainly of steel and methanol (a proposed second aluminium smelter at Dunedin could not attract a firm partner), and cut imports through the expanded steel production, through the conversion of gas to petrol to cut oil imports and by expanding the capabil62

An End to Affiuence

ity of the oil refinery at Marsden Point near Whangarei. Thereby, Muldoon hoped, a new plateau of export earnings would be reached. And in fact, the new projects did in time add to exports and cut imports. The strategy was to get to the new plateau first before dismantling or recon-

structing the uncompetitive industries and enterprises that operated through much of the economy. Jobs and exports were to be preserved in the meantime. For Muldoon, restructuring the economy, which was necessary to provide a long-

term solution to the economic predicament, was a matter of putting a new structure in place first before dismantling the old. The expense of maintaining the old while developing the new would be borne by the Government in accord-

ance with the primacy accorded social and individual security under the prosperity consensus. That was what governments were for. Muldoon did recognise that the excesses of protection, regulation and crosssubsidisation were a hindrance to getting the economy on a long-term sustainable footing. He took some steps in that direction. But the steps were small, hesitant and in the event negligible, though they started boldly. The bold start was the removal of most controls on interest rates in 1976. From 1978 price controls were over time removed from goods and services which were in adequate supply, not subsidised and subject to competition. In 1983 seven institutions other than the Reserve Bank were permitted to trade in foreign exchange. These moves were later to be swamped during the 1982-84 freeze. Elsewhere in the internal economy there were, from 1979 to 1983, cautious reductions in regulation: in film distribution, land transport, meat processing plant licensing, shopping hours and compulsory unionism. In agriculture Muldoon started in 1978 to replace a wide range of complex and distorting subsidies on inputs. These encouraged farmers to use the inputs that were subsidised instead of others which were not and so discouraged innovation, experimentation and diversification. In place of input subsidies, Muldoon introduced a simple supplementation of income, to bring prices for favoured products — principally meat and dairy products — up to the level of a defined ‘supplementary minimum price’, or SMP. SMPs were linked to actual overseas prices and, though intended to smooth prices from year to year, they were also intended to approximate the trend of actual overseas prices over time so that farmers would be encouraged to produce less of products with lower returns and more of those which generated higher returns. In manufacturing, starting in 1976, an Industries Development Commission began studies into industries, with the aim of developing plans gradually to reduce protection and regulation for some of the most protected and therefore most uncompetitive industries. Textiles and clothing, tyres, plastics and cars were among the most prominent of the 27 industries studied by 1985. In a landmark 63

New Territory | 7 | Budget move in 1979 Muldoon permitted importers to tender for a small quantity of additional import licences for some products, to determine the real value to importers of licensing (and so the appropriate level for a tariff eventually to replace licensing) and aimed other measures at reducing to manufacturers the cost of components (‘intermediate goods’) by reducing protection for local component-makers. These measures represented a substantial shift from the presumption under the prosperity consensus that, if something could be made in New Zealand, it should be protected from import competition and that competition between internal producers and suppliers of services should be regulated to smooth profits

and so supplies, guarantee minimum standards and avoid wasteful overinvestment and business failures. In different ways lan McLean, an economist backbencher in the National Party who favoured economic liberalisation, and Ian Douglas, the (liberalising) director-general of the Manufacturers Federation,

which had profoundly opposed liberalisation, recognised the fundamental nature of the shift. But, in McLean’s words, they were only a ‘small step’ in the new direction, a toe in unfamiliar and unfriendly waters. In 1980 Muldoon unhooked SMPs from market prices — turning them into a sort of fair wage for farmers based on effort and the cost of land and production. This move had some point in that farmers could not alone fairly be expected in an insulated, distorted and uncompetitive economy to make their living unaided on the international market while around them the protected parts of the economy kept pushing up farmers’ input costs. But it was a purely defensive move and maintained the drive to bring into production land on which a competitive return could not be made on actual overseas prices. The liberalisations of manufacturing protection stalled only , a short distance from their inception levels. Internal deregulation went at a snail’s pace, leaving infrastructural and other costs high. The economy was therefore by the mid-1980s carrying a dual burden, on top of lower export prices: rising debt and the cost of uncompetitive business. The one significant exception to Muldoon’s continuation of the insular approach to industry was to sign the CER free trade agreement with Australia in 1983. The prospect of lower, and eventually no, protection against Australian imports did provide some stimulus to improve competitiveness and so rewards from a bigger market and in the mid-1980s some manufacturers responded aggressively. But Muldoon’s agreement to CER was not bold or visionary. It was hesitant and tentative, forced on him because the Australians, fed up with haggling over microscopic details and deals, had made it clear Nafta had outlived its usefulness.!5 A measure of the absurdity that Nafta had become was that sea water was added in 1980 to the list of goods on the free trade schedule A® — 64

, An End to Affiuence one might have thought a higher authority would have had something to say on the movement of sea water between countries. It can be argued that in time Muldoon’s managed export expansion might have worked. When prices for primary products recovered at last in the late 1980s, the higher volume would have generated strong export earnings. The energy-based projects by then were also earning or saving substantial amounts of foreign exchange. Though debt would have been higher, measured in relation to national output, it would still have been well below nineteenth century levels and below those of some other development economies at crucial periods. The external current account might have been in balance or even surplus, holding or even reducing debt. At that point, the argument runs, liberalisation might have proceeded with relatively low impact on jobs because the expanded export industries would already have created new jobs and would have continued to

create them. So the removal of rigidities and uncompetitiveness within the economy could have taken place with relatively little disruption either to people’s lives or to the fundamentals of the prosperity consensus. The argument is unconvincing on several counts. First, against the export earnings and import savings of the energy-based projects had to be laid the cost of servicing debt and capital invested in them. In 1986 the Government wrote.off $5.75 billion of debts incurred by the energy-based industrial projects: $940 million for an expansion of the New Zealand Steel plant committed by the National Government on the eve of the 1981 elec-

tion, $800 million in a capital reconstruction of the Petroleum Corporation (Petrocorp), $2050 million in a similar capital reconstruction of the Marsden Point refinery, the extension of which had incurred serious cost overruns, and $1850 million for losses on the synthetic fuel project. By 1987, according to the Auditor-General, the New Zealand Steel write-off was $2205.3 million, that for

the refinery $2435 million, the synthetic petrol project $2085 million and Petrocorp $743.4 million (all either sold off by then or since). Together with the write-off of debts incurred by primary producer boards in stabilising prices ($1529.8 million) and by the loss-making Shipping Corporation and “contin-

gency costs’, the total was $9.228 billion. | Since that amount could otherwise have been paid off foreign debt (it more than cancelled out the proceeds of asset sales in 1984-90), in effect New Zealand taxpayers were paying around $700 million a year in overseas funds in interest for the privilege of obtaining these exports and import savings, without taking into account the costs of production. Reliable figures are hard to come

by but most economists do no doubt the return on the ‘investment’ was low. That did not take into account private interest and dividend payments, which reduced the net contribution to the balance of payments still further. 65

New Territory | a Taking into account the prices paid for gas and petrol, the gas-to-gasoline project has run at a heavy loss and would run at a profit only if oil prices rose to levels which would have other damaging effects on the balance of payments. The ex-

port mix was changed by the new industries, but the new part of the mix did not raise the yield on total funds committed and so perpetuated the pattern of investment since the 1950s. In addition, by denying capital resources to potential investment in more desirable higher-yielding activities, it delayed them. Second, the rise in agricultural prices in the late 1980s was to a point above the long-term terms of trade trend line for such products and was the result of the prolongation of a long world economic upswing which was bound to, and did, falter in 1990, bringing prices back down again. Marginal land and marginal capital invested in farms under those circumstances would have become uneconomic again and would have required resubsidisation from 1990. Supplementation of farmers’ incomes, coupled with the concessionary interest rates, had pushed land prices far higher than the underlying product prices justified. Between 1972 and 1982 farmland rose 574% (or six times), more than twice the rate of inflation — at a time when product prices were falling.”” Third, prospects for a big shift to manufactured and other high-priced ex-

ports remained low while manufacturers remained uncompetitive and had to be subsidised. ‘This, plus the limited contribution to the balance of payments overall from the energy-based projects because of their debt, meant that even well into

the 1990s exports would remain heavily dependent on primary products, for which there was no evidence that prices would return to 1950s levels in real (im-

port-related) terms. To return to 1950s terms of trade was going to require a substantial change in the product mix towards exports with higher prices — but that mix would not change unless there was innovation and product improvement, for which there was limited impetus while producers remained behind protective walls. Those walls, plus subsidies, shielded manufacturing businesses and businesses which serviced them from pressures to improve their management, including their management of labour. Fourth, the dollar was overvalued in relation to the earning capacity of exports, as evidenced in the continuing chronic balance of payments deficits, and was almost certain to remain overvalued for some time. Since under prosperity consensus expectations and mechanisms devaluations were quickly dissipated in compensating wage increases, any attempt to lower the exchange rate for the dollar in real terms invariably failed and only returned it to its previous level of

overvaluation — with inflation racked up another notch each time. This favoured inefficient domestically-oriented businesses at the expense of exporters and further reduced the impetus to improve competitiveness. In any case Muldoon preferred selective assistance to industry to trying to

66

| An End to Affluence establish an appropriate exchange rate. In 1979 he did devalue, by 5%, but by half Australia’s devaluation earlier that year, thus raising the exchange rate in relation to Australia.

Fifth, the macroeconomy was by the early 1980s out of balance and the measures Muldoon took to try to restore balance only worsened it. Once unhooked from world product prices, SMPs became very costly, peaking at $438 million in 1982-83 — 1.4% of GDP — and totalled $1244 million in the four years to March 1985."* Manufacturers’ export tax incentives were also very expensive in revenue forgone: $586 million in 1984-85. These, plus the borrowing for the energy-based projects, added to existing Budget deficits and so to debt and future Budget debt servicing costs and thus compounded the defi-

cit and debt implications of simply maintaining living standards. The energy-based projects also worsened the balance of payments deficit in the early

and mid-1980s through the massive importation of the capital equipment to build them. The balance of payments deficit rose to 6.3% of GDP in 1982-83, the Budget deficit at 7.0% of GDP in fiscal 1983-84 (9.0% on the old, ‘table 2’ measure of total cash in out and cash out, including investments and asset sales). And, because the Budget deficit was ‘monetised’ and so encouraged consumer demand, the strategy added to inflation, the wage push (to catch up with inflation) and the loss of competitiveness as a result of rising labour and other costs. The high Budget deficit posed Muldoon an awful choice. To maintain stability in keeping with the prosperity consensus demanded a lower Budget deficit and preferably a balance. Running both external and Budget deficits, as he was doing, seriously threatened stability. But the prosperity consensus also demanded no cut in employment or incomes. It was impossible to deliver both. Muldoon responded to the second demand. He did not, for example, respond to the Budget blowout by cutting government spending, because that would have added to unemployment (anathema under the consensus) and cut the state element of people’s welfare. He did institute a number of schemes to hold down state service staff numbers and cap cash spending, but, except in health where George Gair did impose some discipline, rendered them largely cosmetic by failing to carry through the state sector administrative and financial reform urged by both bureaucrats and junior ministers that might have made them workable.

State spending net of interest and capital charges went up 14% in real terms between 1979-80 and 1983-84. Instead of forcing industry to cut costs, particularly wage bills, through competition, Muldoon opted for continuous devaluation. In 1979 he introduced a ‘crawling peg’ for the dollar, by which the dollar was devalued in small, frequent steps by the amount by which our inflation exceeded other countries’. That kept

67

New Territory | the real value of the dollar, as measured by competitiveness, roughly constant. But it also set up a spiral, on which each small cut in the dollar added to import prices which were compensated for by increased wages, which added to business costs and so reduced competitiveness and so required more small devaluations. The Government had, in effect, institutionalised inflation and devaluation. Having reached that point, Muldoon again responded in terms of the prosperity consensus, resorting to a mechanism that had been sanctioned by that consensus as a short-term corrective. In July 1982 he froze wages indefinitely and prices and rents till February 1984. The results were remarkable. Inflation came down from 15.8% in the year to March 1982 to 3.5% in the year to March 1984. Average weekly earnings rose 7.7% — that is, below the 16.6% inflation (most of that in the first year before the freeze bit) over those two years. So manufacturing competitiveness improved. On the back of that and the world’s climb out of recession in 1983, exports grew by 28% in nominal terms. So did gross domestic product, by 5.4% in real (inflation-adjusted) terms in the 12 months to June 1984 compared with the 12 months to June 1983. This gave some basis to Muldoon’s subsequent

claim that his strategy was working. .

In fact, inflation was already rising, promising a new fall in competitiveness.

The freeze bottled up rather than banished inflationary pressures. When the freeze was lifted price rises quickly accelerated, from 0.9% in the March quarter 1984 to 2.0% in the June quarter and 3.2% in the September quarter. In effect that was a more than tripling in six months and pressures were building up, portending still higher rates. Part of the problem was that, to sweeten the freeze for wage workers and persuade them to acquiesce in it, Muldoon gave away $1 billion worth of tax cuts. Pressures built up under wages for two reasons. The prosperity consensus required wage freezes to be at most temporary and not to deny workers cost of living compensation. Under the freeze real disposable incomes of those in work initially fell by 3.1% on average in the calendar year 1982, a drop only partially countered by the tax cuts — real disposable incomes rose only 1.7% in the calendar year 1983. Also in contravention of the consensus, as noted above, the span of income widened during the freeze, because many were paid on individual contracts with a range of special payments, which were much more difficult to control than lower incomes, which were fixed by awards and other general documents. Consequently, pressure was building up and when the wage freeze was lifted, workers would have successfully set out to reclaim, in their gross wages,

ground lost against inflation (as eventually they did in 1986, after a fall in 1985 reflecting the fixed, below-inflation wage order of 7% in late 1984).” 68

An End to Affiuence

Competitiveness would have fallen again. Economic growth, in other words, was heading for another stall or slowdown, even as Muldoon was claiming victory. Falling competitiveness directly contributed to another transgression of the prosperity consensus: rising unemployment. Until the freeze really began to bite into real wages, unemployment had risen steeply, to peak in January 1984 at 131,723.”

There was another questionmark over the sustainability of the 1983-84 growth: finance. During the year to June 1984 broad money (M3) grew 15% and private sector credit 21%. This was partly because of the monetisation of the Budget deficit but also because Muldoon in 1983 added interest rates to his freeze (to keep down the cost of house mortgages to wage-frozen New Zealanders), which increased demand for money, which increasingly found its way to borrowers through uncontrolled sources. More money meant more demand for goods and services, which not only fattened local producers’ order books but pushed up imports and so the balance of payments deficit. The 1983-84 growth was partly chimerical — based on borrowed money. Finally, the dollar remained overvalued. Its overvaluation and the speculative flight of capital in June-July 1984 in expectation of a Labour win in the July 1984 election leading to a devaluation ran overseas reserves down to dangerous levels.

The picture of Muldoon’s last years as Minister of Finance is tragi-comic. He was a hands-on manager by instinct and preference, not content to set the general environment but determined to fiddle with the settings for each segment of the economy. When things started going wrong, he focused policy on one

item, then another, no sooner dampening one erupting volcano than finding another rumbling. Each attempt to cap a volcano stoked up the others. By 1984 the whole ring of fire was on the verge of going up. It is doubtful he could have written a coherent Budget that year. Despite Muldoon’s best efforts to stay true to the prosperity consensus, the

economic outcomes on which the consensus was predicated were becoming undeliverable by 1984. If real incomes of those in work were to be maintained in the face of low terms

of trade, it could be only at the cost of unacceptably high unemployment. If unemployment was to be contained, it would be at the cost of real incomes of those in work. Either outcome transgressed important expectations of the prosperity consensus. Jobs and wages could be delivered simultaneously at 1950s terms of trade levels, but not at 1980s levels. Most of the available evidence sug-

gested strongly that the attempt to escape that predicament by using the prosperity consensus mechanism of managed export expansion would not succeed while the impetus to innovate and diversify was kept low by other prosperity 69

New Territory | consensus mechanisms. The available evidence in 1984 suggested strongly that only a deep change in the export mix, demanding radically and painfully different policies at odds with the prosperity consensus, stood any hope of returning New Zealand to the terms of trade, and so the earning capacity, of the 1950s, the pinnacle years of the prosperity consensus. As Professor John Gould of Victoria University has written, ‘by the 1980s the industrial and service base of the economy had been sufficiently broadened, the range of skills and entrepreneurial talent sufficiently widened and deepened, to make it desirable to move to a more free market environment’. He added: It is impossible for all major sectors simultaneously to subsidise the rest, for then what each sector gains through the subsidies it receives it loses again in the extra

taxes it pays or costs it bears in order to subsidise the others . . . Had nothing else done so, the rise in subsidies to farming in the 1970s and 1980s would therefore have provided a compelling argument for reviewing the whole structure of industry assistance.”!

More generally, by the early 1980s the economic spiral was working in exactly the opposite way it was intended to. People were becoming less secure, not more secure. The economic policy settings were unable to protect New Zealanders from international pressures. Worse, they were compounding those pressures. The sense of personal financial wellbeing that had validated the prosperity consensus and caused people to believe it worked evaporated. Jobs were no longer ©

guaranteed. Money incomes were losing ground compared with countries New Zealand used to regard as equals. And as jobs were lost, a growing number of people dropped out of the middle. For some that was temporary, so they retained their sense of belonging in society, even if a little battered. For increasing numbers, however, unemployment became a way of life and the sense of belonging went. The ‘rugby football on its side’ ceased to be an accurate description of New Zealand society. The cohesion that marked the society of the prosperity consensus was splintered. Nor could security-seeking individuals turn to the social policy designed in

the context of the prosperity consensus to underpin security. Not only did Budget pressures caused by the faltering economy reduce what those individu-

als could expect from the ‘social wage’ but by the early 1980s there was a developing crisis of social policy. That crisis in turn intensifed Budget pressures,

which in turn further undermined the ability of the economy to perform well. The prosperity consensus was turning in on itself.

70

6. Welfare in Crisis

Th return of unemployment undermined the central pillar of the welfare

state, the guarantee to each household that it could earn an adequate income. That put pressure on income support which the welfare state had not originally been intended to carry. Instead of supporting people outside working age, it was carrying increasing numbers of the able-bodied. The cost rose rapidly, outstripping both inflation and economic growth. This could not continue indefinitely. Weaknesses or inconsistencies in the structure

were exposed. By the early 1980s the welfare state appeared to be failing to meet its objectives. In the eyes of critics from both ends of the political spectrum, the welfare state needed either radical remedies or outright surgery. A number of major difficulties were evident: —TIn the 1970s the concept was widened from a frugal safety net to attempting to ensure everyone of a right to full participation in society. This added both to the numbers supported by the welfare state and to the level of that support. —New technology expanded what could be done, especially in health, and so increased the burden of what the welfare state was expected to do.

—Management systems were rigid and programmes were fragmented and overlapping, which gave rise to costly inefficiencies and caused differential and therefore inequitable treatment between individuals and groups. —A serious problem arose at the interface between benefits and taxes. People on income support were steeply ‘taxed’ on earned additional income by a combination of income tax and cuts in their benefit which made it harder to get themselves off state support — the so-called poverty trap. In addition, people on low wages found themselves often little better off than their leisured neighbours on income support. —A serious problem of intergenerational equity developed as different age groups were treated differently. Overall, a system intended to bring people together was found by the early 1980s often to be driving them apart. And it was providing support and services less efficiently. These developments gave growing weight to criticisms of the theory and prac-

tice of the welfare state and its theoretical underpinnings and encouraged a growing belief that extensive and perhaps fundamental change was necessary. 71

New Territory | | They also accompanied a growing sense of fragmentation within society. The ex-nuptial birth rate was 4% in the 1940s, but 38% in the early 1980s. Divorces climbed from 1600 in the 1950s to 9000 in the early 1980s. Convictions in the High Court for serious criminal offences tripled over the same period. These were not only signals of fragmentation, but added to the strain on the welfare State.

The prosperity consensus required an active state, ensuring and usually providing education for all, access to sickness care at no or low charge, housing for those in need and income for those without income through sickness, loss of job, lack of family support or old age. In 1949-50 the total cost, (excluding housing) was 13% of GDP. By 1979-80 that figure was 21%, by 1984-85 22% and it climbed over 25% during the 1980s.

To some extent the steep climb in spending as a percentage of GDP from 1980 on was a result of low economic growth. Faster GDP growth could have accommodated continued rises in real spending on social services without that spending rising as a percentage of GDP. This provided a simple response to those who argued that social services could not be sustained in their present condition

and needed radical pruning or that at least change was necessary: just get the economy growing. In the circumstances of the 1980s, with high twin deficits and high debt, that was not a realistic response. As Charles Waldegrave, a persistent and vociferous chronicler of the growing failure of the welfare state to deliver as intended, bluntly said in 1987: ‘It’s very unlikely that such prosperity is around any corner in this decade or the next.”! In any case, banking on growth did not address a number of underlying issues.

The number of people on benefits kept on growing. This was partly a result of economic circumstances: slow economic growth cost jobs and increased the numbers on the unemployment benefit. Slow growth

probably also swelled the numbers of sickness beneficiaries and domestic purposes beneficiaries who in more generous times find it easier to get at least part-time jobs. But the growth in numbers was not wholly due to economic sluggishness. Partly the growth was due to changing mores and social practices. For example, the readier sanction of divorce, separation and women bringing up children alone increased the number who left marriage. So did increasing awareness and intolerance of maltreatment of women by partners and approval of feminist activists encouragement of and help for women to leave violent relationships. 72

| Welfare in Crisis As these numbers grew the practical case for a special benefit grew and as social

disapproval waned the moral barrier to such a benefit faded. These factors interacted over time to increase the numbers on the benefit beyond what they would have been had the benefit existed in the stricter moral and social codes of the 1950s. Partly the growth in numbers was also due to the changing relative economic status of the increasingly numerous beneficiaries and low-income workers in the 1980s, which led to thousands of families receiving the newly introduced income supplementation benefits. Even some farmers qualified during the first years of their desubsidisation in 1985-86. In some cases the mere availability of a benefit created new beneficiaries. The income supplementation benefits, family support and family care, made a new class of beneficiary, for example. The creation of the domestic purposes benefit made it much more practicable for women to leave unsatisfactory (or unsatisfying) relationships in which otherwise they might have stayed. There is some (possibly overstated) anecdotal evidence suggesting that some young women chose a life on the domestic purposes benefit as an alternative to marriage or fulltime work. Anecdotal evidence suggests also some young people chose life on unemployment benefit, at least in preference to low-paid work. And partly the growth in numbers was due to an important conceptual shift in what was expected of the welfare state. In 1938, when the social security legislation was introduced, the accent was on need and the benefit levels aimed to ‘provide for the normal needs of beneficiaries’ and was geared only to ‘banishing distress and want’.* The benefits were not overgenerous. The state pension, for example, was £149 10s ($299) a year in 1951, at a time when the average

wage was in the region of £500 ($1000) a year. David Thomson could thus correctly write in 1991 of ‘the darker, meaner, pettier, more judgmental and vindictive side of the welfare state, even in the favoured Liberal and Labour heydays’.’

The underlying principle was that people disadvantaged through no fault of

their own should not be destitute but should have a minimum personal and social dignity. In 1972, however, a Royal Commission on Social Security took as the underlying principle of the welfare state that it should “ensure . . . that everyone is able to enjoy a standard of living much like that of the rest of the community and thus is able to feel a sense of participation and belonging to the community’. Where income maintenance alone was insufficient, as for a physically disabled person, the aim should be ‘to improve by other means and as far as possible the quality of life’. And the commission thought that “the objectives

of the social security system may quite properly be expanded to cover a much wider field of public welfare than hitherto’.* The state was no longer a 73

New Territory | guarantor of security against unforeseen or unavoidable misfortunes. It became an agency for the promotion of the welfare of every one of its citizens.

In a sense this was in keeping with the base concept in the prosperity consensus that the state, as a ‘friend’, was an agent of the individual in that individual’s pursuit of his or her interests. The wider concept had in fact been progressively introduced on a selective basis in relation to state assistance for young families from the 1950s on, as Thomson has shown. But it was a dramatic extension of the original concept, involving the establishment of a social norm by some criteria other than the sum of individuals’ search for security. Social security was to become social welfare.

It was a noble idea, considerably extending the concept of the state as a liberator and guarantor. Both the range and generosity of benefits and grants accordingly expanded. For example, the domestic purposes benefit and the income supplementation benefits were introduced. A national superannuation scheme introduced in 1976 linked pensions to the average wage and created a notion of universal entitlement on the basis of past contributions to the country. A swag of special needs grants was added to other basic benefits to enable beneficiaries to live more nearly like at least low-income earners. Tertiary student grants were increased and accommodation subsidies made more freely available to enable students to leave home even if the university they were attending was in their home town, which particularly helped students from poorer families. A range of special benefits was gradually added. More generally, beneficiaries were not expected to live only a basic life, but to share at least some of the conveniences of people in wage-work: television sets, videocassette players, automatic washing machines, cars, at least some travel. No one could say a beneficiary confined to the benefit and special grants was well-off. Also, arrogant, arbitrary and demeaning behaviour by Social Welfare Department staff could make a beneficiary feel a second-class citizen. But the meanness and pettiness of earlier years diminished. All of which had a cost. In 1950 the married pension was 35% of the aver-

age wage; in 1980 it was 80%. This much more generous treatment of superannuitants added heavily to the total cost of the welfare state so that by 1983 it was taking 8% of GDP on its own, compared with 3% in 1963 and a little over 3% in 1973. Because it was much more generous than other benefits, this also strained the general goodwill necessary for the welfare state’s political legitimacy. Some other benefits were also made more generous. Overall, social welfare income maintenance, net of unemployment benefit, went up from 6% of GDP in 1963 to 7% in 1973 and 11% in 1983. The conceptual shift also led to an expansion of free-of-charge services. If ‘welfare’ was to be the objective instead of mere ‘security’, more than basic 74

Welfare in Crisis

income and shelter, core education and physical and mental sickness care should

be available. Counselling and additional medical services, for example, were added. A wider range of services obviously added to the cost. More services and special benefits also added to the administrative costs, since

someone had to decide whether applicants were eligible. Staff numbers in the Social Welfare Department rose from 1429 in 1960 to 4499 in 1980. This greater complexity also added to the total cost of the benefits, because it opened up opportunities for multiple claims from a fragmented and inadequately cross-checked range of benefits and grants. This was compounded by a further fragmentation between departments: in addition to the Social Welfare Department, the Health and Education Departments also paid some benefits. As late as 1991 Social Welfare Minister Jenny Shipley complained that she could not find out the total cost of accommodation payments by the state. Fragmentation bedevilled other elements of the welfare state. Sickness services grew ad hoc, which resulted in duplication or fragmentation of facilities and services, adding to overall cost. Some services were inappropriate to need: many old people ended up in expensive hospitals when less costly ‘homes’ would have been adequate. Health Minister Simon Upton detailed many of the effects of fragmentation in the president’s lecture at the Christchurch School of Medicine on 11 September, 1991. ‘Different activities have been funded by different agencies, using different sorts of funding mechanisms. It makes no difference who is running what. It’s their sheer multiplicity that causes the difficulties,’ he said. At another level there was dual accountability. Hospital boards, later area health boards, were elected by people in their areas and saw their responsibility to their electors as providing the maximum state hospital services possible. The boards originated in an era when public hospitals were funded by a local rate which the boards levied on local ratepayers. Thus, like central or local governments, the boards had to account for their management decisions directly to the funders. But the welfare state shifted the funding from the somewhat hit-andmiss local sourcing to reliable, uniform sourcing from general taxation raised by the central government. Boards were no longer directly accountable to the pro-

viders of the funding’ and so any motivation to keep costs down or even to pursue greater cost-effectiveness was outweighed by a motivation to deliver on promises to their electors of maximum services. Some boards overspent in the confident expectation that the Government would pay up rather than face the odium of cuts in services.

Actual management of the hospitals reflected a similar split in priorities. Medical staff decided treatment, with attention to medical need and with little 75

New Territory

, or no attention to cost or cost-effectiveness. Surgical facilities were under-used and beds in wards over-used as patients waited for their turn on the operating table or spent more time convalescing than they needed to. Different clinicians applied different treatments, involving different drugs and different lengths of stay in hospital. The actual cost of most medical interventions was not quantified, often not even quantifiable, which made cost containment very difficult and

encouraged a cost-plus mentality. When savings were demanded of hospital authorities they tended to make across-the-board cuts regardless of appropriateness or the potential for genuine savings. The compulsory state-run accident compensation scheme (ACC) added to that cost-plus push. The money did not come from the health vote, so charges to the Accident Compensation Corporation could be raised without upsetting the Health Minister. The money came from levies on employers and the Gov-

| ernment could, and did, raise the levy rate to cover the cost. Private health insurance also added to the cost-plus push. These inadequacies reflected part of a more general approach to state sector management and administration. Financial management in the state sector was limited to ensuring a department consumed only the inputs — wages, salaries, rent, goods and services — for which it had been voted money. There was little focus on what that consumption was intended to achieve. Objectives were poorly defined and often not defined at all. Even when they were defined, there were no reliable means of measuring a department’s effectiveness, nor of ranking what it did by priority nor even of uncovering activities that did not need doing at all. A programme of activity, once started, developed a momentum of its own, usually expanding over time. Similarly, there was no reliable means of measuring the cost, because financial management systems were cash-based and related to inputs, not to what the department did. There was therefore no way of assessing whether an activity, even if desirable and objective-achieving, was efficiently carried out. Most state sector managers could not be meaningfully called to account for what they did. The result was inefficiency. Even the most determined defender of the system as it stood conceded that the same volume of services could be delivered for less cost. Some critics argued that there could be enormous savings with no loss of services — or alternatively, that for the same money more services could be delivered. The rising real cost of new technology also contributed to the rise in the cost of social services.

If sickness care was to be available to all, for example, an unspoken corollary was that it should be the best available, which included the latest in high-cost machinery and medicines. Education by the 1980s had to include computers

76

Welfare in Crisis

and other much more sophisticated equipment than had been available in the 1950s. To this was linked rising expectations of the social services. As medical tech-

nology developed, more people with more previously untreatable or partially treatable conditions expected to be restored to full health. As economic activity consumed higher levels of technology, higher standards of skill were expected of workers, which placed heavier demands on teaching institutions, in numbers and quality of teachers, in the quality and extensiveness of what was taught and in equipment. Basic literacy and numeracy for a lifetime in low-skill work was not enough; young farmers went as a matter of course to universities or other tertiary institutions; the public sector could no longer be staffed by clerks, but needed analysts with degrees. If standards of health and real wage-earning capability were to be maintained at levels comparable with other societies with which New Zealanders habitually compared themselves, health and education services had to be more sophisticated and to consume higher technological inputs. The cost of labour also added an upward push to the cost of social services. From 1945 onwards wages and salaries rose faster than inflation in the economy generally — by two-thirds from 1945 to 1975. Even without any upgrading of social service providers’ wages and salaries relative to general wages and salaries, this would have hit social services particularly, since they were more labour-intensive than the economy as a whole. Moreover, the mix was slanted increasingly towards expensive specialists and, in health services, doctors often continued to do work that could have been done by less expensive, but highly trained, nurses. The percentage of doctors fees covered by the Government subsidy went down until it was only a small fraction of the total. Another cost-push factor was moral hazard. A service that is free of charge attracts not just those in genuine need of the service but people who do not need it or might benefit equally from something less costly. ‘Free’ prescriptions encouraged generous prescriptions by doctors and consequential waste. ‘Free’ (but actually expensive) hospitals often treated ailments easily treatable by (less ex-

pensive) general practitioners. People with conditions that could possibly be classified as accidents were so classified to qualify for ‘free’ treatment under the accident compensation scheme, pushing up its costs. Some doctors in general practice added a dimension of their own, filling in claims for fees to the Accident Compensation Corporation for bogus consultations or for consultations which more correctly should have been sickness rather than accidents. Moral hazard was a stone’s throw from corruption. On top of all this, economic decline itself probably contributed to the rising cost of social services in ways other than simply adding to the numbers of

//

New Territory | unemployed and sickness beneficiaries. People in straitened circumstances tend to get ill more; if they cannot afford a doctor's subsidised fee or a prescription charge, they may neglect a condition until it reaches the point where far more

expensive, but ‘free’, hospital treatment is needed. Such people are also more likely to commit crimes, adding to cost of policing, the court system and prisons. The rising cost of the welfare state raised doubts whether it was financially sustainable. The changing age profile of the population, with rising numbers of old people in relation to those of working age, raised particular questions about the sustainability of the state pension. The far-above-inflation rise in sickness care costs raised the same questions in that field. During the 1980s it became increasingly obvious that something was going to give. But there was another serious question for the welfare state. It did not just cost more. Its effectiveness was increasingly questioned. Was it improving, or even maintaining, the welfare of New Zealanders generally? Was it delivering even the more basic security required of the original concept? During the 1980s evidence began to mount suggesting to some people the answer to both questions was no. Thomson, reviewing the evidence in 1991, wrote that New Zealand had failed to devote as large a fraction of national income to government social spending as many other nations and concluded that: ‘By international standards this country’s range of state welfare provisions has been curtailed in the 1970s and

80s, the incomes of New Zealanders are now modest, our health poor, our

education levels questionable.” | The result of perceived and actual failures of the system to deliver as intended and as expected was an increase in private individuals’ own funding of sickness care. To a small extent people needing treatment and faced with a long wait in the state system paid for private treatment out of their own pockets. Much more widespread was the private purchase of ‘gap’ insurance to pay for some types of operations and for the unsubsidised part of doctors’ fees. By 1980 12% of spend-

ing on health came from private sources. |

This was not at odds with the prosperity consensus which always allowed individuals to provide for their own security in addition to the state’s provision. But to the extent that an increasing number of New Zealanders regarded such insurance as a necessity it chipped at the prosperity consensus tenet that the state was an automatic, reliable provider.

In education, too, the results were not up to expectations. | Teaching methods developed in New Zealand won increasing international acclaim during the 1980s, most notably for remedial mathematics and reading but also for positive approaches and classroom methods. But by the early 1980s 78

Welfare in Crisis

New Zealand was second bottom among OECD countries in the proportion of young people going on to tertiary education. Partly because the guarantee of jobs under the prosperity consensus, coupled with the narrow income span and high wages for some unskilled work (meat processing, for example), had made it unnecessary to get skills, some 30% left school with no formal qualification, many barely literate or numerate. As the market for unskilled work diminished, these people usually passed directly into unemployment. Despite a good — ar-

guably excellent — education system, a large and growing percentage of New | Zealanders were not getting educated and were being imprisoned on welfare as a result. A good deal of quackery resulted. There were demands for returns to the ‘basics and complaints about ‘social engineering’ in ‘useless’ subjects such as social studies — though educational research suggests those subjects, properly taught and actively received, prepared children more effectively (and economically usefully) for life in the real world than the more stilted ‘basics’ teaching of earlier decades which in any case was serving a society in which the proportion of labouring work needing only basic education had been much higher. There were demands for ‘standards’, meaning examinations at which some passed but also (uselessly for the good of either the economy and society thereafter) many failed. ‘Standards’ in Japan meant raising the skill and learning level of the average. Other people wanted docile pre-trained (and so cheap) machine fodder.

What was going wrong was not in the output from educators, but in the reception by students and society generally. And two of the major reasons for that stemmed from internal flaws of the prosperity consensus. The narrower of the two reasons was the impact on urbanised Maori in the 1950s and 1960s of the prosperity consensus assumption of British cultural dominance. Deprived of their own cultural roots and confidence, victims of racial discrimination in housing and job-hunting, Maori drifted into a separated brown economic underclass. Alienated, dispirited and culturally adrift parents encouraged failure in children when confronted with an education system that through most of the period of the prosperity consensus devalued or did not even notice, except as a curiosity, Maori culture or cultural values. Many Maori chil-

dren the education system simply did not touch except as a period of alien discipline, an apprenticeship to economic and social failure and so to become an economic millstone. The other reason was the devaluation of knowledge. Economists have identified the application of knowledge as a critical factor in economic growth, leading to better understanding of market preferences, technical product and service improvement, doing the same work for less human effort and less of other inputs, improving co-operation between managers and workers and between 79

New Territory | workers and workers. New Zealand’s own economic prosperity after 1945 was to a considerable extent the result of its farmers applying technical knowledge to increase output from their land and their labour. New Zealand in effect sold knowledge, not climate and grass, just as Japan now sells knowledge that only happens to be embedded in brilliant consumer and computer electronics. The compression of wages in a system that guaranteed continually rising real wages and guaranteed jobs to all told young people not to bother learning, not to become skilled at acquiring skills. The near-guarantee of profits for manu-

facturing through protection from imports and for many service industries through regulation against too much competition told managers not to put themselves out in finding and applying market, technical and organisational knowledge. (The minority who did scored some amazing successes both inside New Zealand and around the world. Some of that minority simply left, so other economies got the benefit.) The issue was not education. The prosperity consensus valued education highly, spent generously on teachers, techniques and equipment, made higher education the freest to students in the world and developed world-renowned methods of classroom teaching and of reading and mathematics recovery for first-

time failures. An alert, educable, willing-to-be-educated New Zealander of whatever native intelligence had available at most levels one of the best educations in the world. That was consistent with the individualism at the centre of the prosperity consensus.

But the prosperity consensus did not value the acquiring and applying of knowledge to improve economic life. The cycle between individual and education was relatively well developed; but the cycle between education and the economy was neglected in favour of a security that that neglect helped make illusory through failing economic performance. The welfare state failed at a more basic level: it did not eradicate poverty. The grinding poverty of bare subsistence (if that) and truncated life expectancies evident in many Asian or African nations was not present in New Zealand. But standards of living and health for an increasing number fell far below what most would consider the barest decent minimum for New Zealand.’ That was not what the prosperity consensus intended. Some slipped through the cracks. Helen Clark while Minister of Housing from 1987-89 found that the state system of housing assistance was not searching out all who wanted help, or was incapable of helping some people in the ways they thought appropriate. Clark’s solution was to turn to informal local organi-

sations and agencies both to find those who needed help and to deliver appropriate help. 80

Welfare in Crisis

This was partly an issue of rules. A voluntary agency can choose whom it helps

and tailor its help specifically to that person’s needs or deserts. The state — at

least one operating by the rules of a liberal society — must treat all people equally. State welfare agency staff must operate by explicit and precise rules which

minimise scope for favouritism, discrimination or corruption, but also for individual discretion. The rules create rights and if someone fulfils the criteria assistance automatically follows. But rules can and did create perverse anomalies that both denied assistance warranted on the facts of the case (as distinct from the rules) and gave assistance where the facts did not warrant it. Such anomalies were grist to the mill of advocates of voluntary welfare replacing part or all of state welfare.?

Anomalous treatment under necessarily precise rules highlighted another serious problem that by the early 1980s was bedevilling the welfare state. Set up to reduce (even eliminate) inequity, it created new inequities. Under accident compensation, accident victims were treated more generously both in income maintenance and in the range of free-of-charge treatment than people who fell sick. ‘Thousands of young children, many of them Maori, had their lives blighted with untreated glue ear, a simple and cheap ailment to fix, while a few old people received extremely expensive heart transplants and a few hundred triple or quadruple heart bypasses. (This was also stupid economics, costing vast sums in the loss of economic contribution in later life by children denied a good start in education against a minimal economic return from the heart patients.) Beneficiaries, who got add-ons for dependants, could finish up with more spendable money than a family dependent on one earner in wage-work — and might get help to buy big-ticket items on top of that. To some extent the generation of new inequities was nothing more than the natural outcome of ironing out old ones. Each removal of an inequity made the welfare state more complex and at the intersection of the multiplying lines of increasingly finely aimed equitable measures were bound to be new divisions between the requited and unrequited deserving.

One such was that the burden of paying for this rising demand on the welfare state for income support increasingly fell on middle New Zealand. Yet, as manu-

facturing shrank during the 1980s, people in the middle found themselves swapping relatively well-paid manufacturing jobs for much less well paying service jobs.

The result was a major new social division between the lower middle and a growing number of people dependent on their taxes. Moreover, those people found it difficult to reduce their dependency. The

combined effect of taxes on income earned in addition to their benefit and 8]

New Territory | a the progressive removal of those benefits as earned income rose meant that they were in effect paying very high marginal ‘tax’ rates which made the extra effort pointless. At some points and in some cases those marginal ‘tax’ rates were higher than 100% — that is, earned extra income reduced the amount the would-be self-helping beneficiary got in the hand.

Growing numbers of people were locked in this so-called ‘poverty trap’, divided from their hard-pressed fellows in work paying taxes. And as this happened the language subtly changed. The prosperity consensus envisaged state action to enhance the independence of individuals through ensuring their security. By the 1980s the language was not of independence but of dependence — as if the welfare state was a sort of growing canker on society. Security had become dependence. An ameliorative concept had been turned into a pejorative one. For all this, it is important to remember the welfare state still did deliver on much of its promise and continues to do so. Despite its failings, the welfare state continued through the 1970s and 1980s to deliver near-free education and health care to all, housing and income main-

tenance to the needy and pensions to the old. Furthermore, the quality was in general relatively high. At a time when the welfare state was under attack it was still performing an immensely valuable stabilising and sustaining role in society. The question for all but a few ideologues was — and is — not whether the functions of the welfare state should be performed, but how. Indeed, without mechanisms of social support provided by the welfare state, the capitalist market economy would not survive because conditions would be intolerable to the great bulk of the people. If the welfare state had not existed, it would have had to have been reinvented in some form.

But there was a major new inequity brewing from the 1970s on — one between generations. [he prosperity generation got off with the loot and left leaner pickings for the subsequent generations. This was in two ways. One was by piling up debt to keep incomes, benefits and social services up which then became a charge on subsequent generations.

Interest has to be paid on the debt. That interest comes out of resources that could otherwise be available for use by subsequent generations. The standard of living of New Zealanders in the 1990s is diminished by the selfish refusal in the 1970s and 1980s to lower their living standards to match their earnings. This is not so bad for the gimme generation, who shared in the benefits of the borrowing in the years when they were at their most vulnerable — that is, bringing 82

Welfare in Crisis

up young families. The next generation has not had that and now faces the bill. The prosperity consensus generation has also got off with the loot in a more specific sense, according to historian David Thomson. It, or, rather, it plus a

chunk of the gimme generation, cornered the proceeds of the welfare state throughout its lifespan. Thomson elaborated this thesis in a book, Selfish Generations?,” and in a chapter entitled ‘Society and Social Welfare’ in a book on new themes in New Zealand studies of history."' The book is worth reading for its detailed argument and extensive statistical analysis; the chapter is a succinct summary. Thomson somewhat overstated his case, imputing dark motives to a generation born between 1920 and 1945 that may actually have acted unconsciously. His statistics also did not quite bear out his case, since some of the decisions that disadvantaged the next generation were made by members of it — Labour Government Associate Finance Ministers David Caygill and Richard Prebble, both born after 1945, were heavily complicit in raising interest rates which attacked the living standards of the after-1945ers and a raft of ministers born before 1945 made decisions that undermined their own pre-1945 generation’s expectations

for state superannuation.

Nevertheless the broad facts of his analysis were compelling. While the

pre-1945ers were growing up as children, going through the education system and bringing up their own children, pensions remained niggardly and child allowances high, education was readily accessible, health charges were tiny, interest rates were kept low and there was generous state assistance to buy a house and jobs were guaranteed. But as the older of the 1920-45ers moved towards retirement and the younger ones moved beyond child-rearing, state pensions were dramatically improved, the child benefit was allowed to wither and then abolished, education and health became less accessible and progressively more costly, housing assistance was reduced, interest rates were raised to prohibitive levels and jobs were deprotected. And at the same time as the welfare state had delivered less than to the post-1945ers, they were taxed more, with the result that in the last 20 years the real purchasing power of the population under 40 has

fallen by 20%, is now back to mid-1950s levels and is set to fall further. Thomson found that: ... the welfare state has not managed the interests of different generations evenly. The extension and revision of the welfare state through the twentieth century has worked — for whatever reasons — to the repeated advantage of those born between about 1920 and 1945. When that group were young adults in mid-century the welfare state was intent upon protecting employment, bolstering family incomes, giving free or subsidised health services to young families, granting future

83

New Territory | | superannuation entitlements at favourable contribution rates and with tax deductions, keeping taxes away from young adults, using public money to give private

| housing and new business assistance, forcing older savers to lend to younger | borrowers at low interest rates, holding old age pensions down and making the middle-aged pay the heaviest taxes.

| But as that generation moved into middle age and now into old age, the nature and purpose of the welfare state has been inverted. A welfare state for youth has since about 1970 been refashioned into a welfare state for the ageing — and the benefits continue flowing to the same people. Pensions for the elderly have been greatly enhanced and the age for entitlement lowered, laws on private superannuation payouts and taxation changed to favour the aged, income tax rates for the middle-aged have been cut, interest controls lifted and the sustaining of high interest rates made central to government policy. The counterparts for their youthful successors were much-increased tax rates, the loss of favourable superannuation provision, high unemployment or the risk of it, fewer free or subsidised public services, little house-buying assistance, high interest rates, falling rates of ‘real’ pay, shrinking cash allowances, looming public debt awaiting repayment. Moreover, the revision goes on and is hastening.”

Thomson’s analysis suggested the welfare state by the 1980s was not delivering to today’s under-45s in the way the consensus presumed it should. At the very time that its architects thought they were broadening and deepening social security into social welfare from the late 1960s, for the next generation it was on the brink of getting meaner. For them prosperity consensus, however desirable, was becoming a sham because its elders had in effect been breaching its terms. That was one more large nail in the coffin of consensus. The prosperity consensus was a captive of its creators and immediate beneficiaries. And maybe it could not be otherwise. Turn to Thomson again. He argued that periodic debates about levels, sources of provision and targeting of welfare have been going on over the whole period of the development and flourishing of capitalism. This is in sharp contrast to the “Whiggish’ mid-twentieth century belief that there has been an upward evolution from a dark lack of communal care for the poor and the destitute to the modern welfare state — and a concomitant belief on the ‘left’ that this ‘advance’ should continue for as long as there are needs. In fact, Thomson argued, ‘collective welfare provisions were not small in past times’. The fractions of the total national income being redistributed in the early nine-

teenth century through the [statutory] Poor Law and military pensions, for instance, were as great as those handled by the mid-twentieth century welfare state

84

Welfare in Crisis

and in rural districts they were greater. .. . Moreover, these pensions were regular, continued until death and were not small by twentieth century standards: weekly payments to single elderly persons commonly equalled 70% or more of the average incomes of non-elderly persons, while in the present century they have

been around 40%. The minority not receiving assistance were the affluent, with | private means of support in old age. '°

This finding for England was replicated in similar research elsewhere in Europe, Thomson wrote, showing that *. . . large-scale collective welfare assistance is a fundamental co-requisite of the unique demographic and economic patterns displayed in western Europe in recent centuries. A heavy commitment to social welfare underpins and makes possible the family patterns, fertility levels, mobility and other aspects of the capitalist market economy which have been evident for at least five centuries: the individual risk-taking involved in living in

this way is otherwise unthinkable.’ But, Thomson said, those longstanding public welfare systems were ‘never immune from change and debate, advance and regress. Instead .. . communities appear constantly to renegotiate their many welfare relationships between individuals and collectivity, now giving recognition to some, now denying others, giving them one form for a time and another shape later, in an unceasing debate about the rights and deserts of this and that group. The debates .. . wax and wane, reaching peaks every 40 or 50 years when significant shifts in sympathy occur. Rights and obligations accepted and acted upon in one era are fiercely denied and curtailed in another. A wave pattern, or a series of cycles, is more evident than one-directional advance.”

So there is nothing unusual in the generational inconsistencies of treatment of pensions, benefits and tax rates, nor in the questioning of the welfare state that developed during the 1980s. It was part of a more or less regular cyclical ‘renegotiation . If there are such regular renegotiations, then no consensus is durable. Even

without the temperamental difference outlined above between the gimme generation emerging to power in the 1980s and its predecessor generation, the consensus formed by that generation would have been at least re-examined. Given the external pressures of a changing world, a changing population makeup and internal flaws within the welfare state which developed the contradictions described above, that re-examination was inevitably going to be intense.

85

7. A Different Way of Thinking

A t the very time Daniel Bell was proclaiming the end of ideology in 1960 ilton Friedman was publishing a book containing a theory that was over the next 25 years to be a seminal element in a powerful ideological challenge to the consensus Bell described. That challenge fed on the elements of failure in the liberal social democratic welfare state. It was to be reflected in the thinking of those seeking alternative economic prescriptions to Muldoon’s failures. Two strands of intellectual development came together in the 1970s. Empirical studies of the performance of the protective welfare state that liberal social democracy had constructed throughout the western world highlighted deficiencies: many of the objectives for which the welfare state was constructed were not

being met and looked increasingly unlikely to be met and in some cases the welfare state may have been accentuating the problems it was supposed to solve;

in addition, economic growth was being stunted. Theoretical and philosophical studies re-emphasised the primacy of the individual and the social and economic efficiency of unrestricted interaction between individuals; and, in international trade, between nations. An industry developed that popularised the two, fusing them together to conclude from partial failure of the welfare state a fundamental philosophical flaw in liberal social democracy. The two strands were not separate developments. Many who studied the welfare state for deficiencies often did so from some, even if relatively unformed,

base belief that it was inimical to the interests of the individual and to the primacy of the individual. Such empirical studies provided raw material for and reinforcement for the theoretical arguments. Economics provided the major factual linkage, and the liberty of the individual the major theoretical linkage, between the two. Market-liberalism, neo-liberalism, libertarianism (henceforth used here) were the polite labels for these assaults from this individualistic direction on the liberal social democratic welfare state. Opponents talked of the ‘new right’. The first response to the apparent failures of the welfare state, however, came from an entirely different direction: an intensification of collectivist theories and social and economic prescriptions, intended to carry the welfare state through to meet liberal social democratic ideals. This was a prominent feature of the ‘gimme’ generation’s early disagreements with and attacks on the status quo in

A Different Way of Thinking

the 1960s. It gave rise to extreme left groups within social democratic parties, an absorption into a sort of romantic revolutionism built around Chinese or Latin American examples or often violent demonstrations or revolts against authority (represented internationally by the United States), most notably in 1968 at the Democratic Party convention in the United States and in the Paris stu-

dent revolts — and in New Zealand in demonstrations against the visit of American Vice-President Spiro Agnew in early 1970. This tendency largely dampened down during the 1970s, though it persisted among some on the left in a romanticisation of some Latin American revolutionary movements (as in Nicaragua and El Salvador).

There was also a milder version of the assumption that the welfare state remained perfectible which had wide currency in the gimme generation. As we shall see, it infused much of what the Labour Government was to do in office after 1984. A second development, which gained strength during the 1970s and 1980s as collectivist arguments seemed to some to be heading up a cul de sac, was in environmentalism and ‘green’ philosophical constructs of widely varying sorts, ranging from naive or scientific visions of an approaching apocalypse to a retreat to small-scale community co-operation. A third development was a hotchpotch of theories and near-religions that emphasised the spiritual liberation of the individual within social contexts, some of which went loosely under the appellation ‘new age’. In some cases these proposed personal, rather than economic, social or political, solutions of extreme individualism; others butted on to elements of the libertarian ideologies. These developments all were at odds with liberal social democracy in different ways. They weakened the vigour of the welfare state at the very point it was coming under sustained libertarian assault. Not only the ‘new right’ thought the welfare state was failing; some who in the 1950s probably would have been liberal social democrats did so, too, in various ways and to various, though by no means so thoroughgoing, extents. Indeed, the history of political, economic and philosophical thought from around 1965 to the present could be written in terms of the crisis of the mature welfare state. It was that crisis, or the perception that there was such a crisis, that gave the disparate strands of libertarian thinking the appearance to opponents of a unified body of thought. In fact, just as various socialists attacked each other often with more dedication than they attacked their agreed common enemy, the capitalists, so various libertarians have devoted a lot of energy to attacking each other.

As one commentator has said, ‘similar policy conclusions rest on quite different philosophical premises’.' The various strands are briefly summarised in appendix 3.

87

New Territory | | , | There are, however, as with socialism, some unifying threads. The central concern is the liberty of the individual ‘to live according to his own choices, provided that he does not attempt to coerce others, and prevent them from living according to their choices.” Libertarians say there is no social entity, but only autonomous individuals, whose actions are the product of choice and purpose. Their spontaneous, self-fulfilling individual activity accidentally maximises so-

cial, including economic, wellbeing more effectively than any deliberate rationalistic plan could. Unlike socialists, who see morality in restraint of selffulfilment, libertarians see this spontaneous market activity as morally neither good nor bad. Production and distribution are not separate, as socialists say (rearranging the distribution to equalise outcomes between individuals), but operate according to the same principles. One person’s gain is therefore not necessarily another’s loss. In economic terms, as between individuals’ outcomes of (or incomes from) spontaneous, self-fulfilling activity are a reflection of the price paid by other individuals. There is no conflict between commerce and virtue. Libertarians differ on whether there is any role for the state. An ‘anarcho-capitalist’ minority says there is not. The majority who do see a role see it as small, confined to a few ‘public goods’ which spontaneous markets will not adequately provide. Laws are a function of the state for most libertarians, but most also allow that there are deeper sources of law — common law and natural law. Laws secure the liberty of the individual, particularly with reference to property, which libertarians all say (though using a variety of justifications) is inseparable from the individual in terms of the individual’s liberty. The liberty to acquire and dispose of property is central to economic activity and leads libertarians invariably to a defence or celebration of capitalism. Contrast that view with the dictum of the early French socialist, Pierre Joseph Proudhon, that ‘Property is theft’. In this context libertarianism is qualified by some as ‘libertarian right’, mostly just to position it in the spectrum of political thought but also to distinguish it from the libertarian ‘left’, which gained some prominence in the 1960s. The two agree that in individual self-fulfilment there is no moral right or wrong but only self-fulfilment. They disagree in that the libertarian applied that amorality mainly to sexual activity and some other forms of individual activity such as drugtaking and regarded capitalism either as immoral or as an inhibitor to individual liberty, not a reflection or progenitor of it. In this, they reflect something of Proudhon’s condemnation of private property. But Proudhon also declared, to the approval of the libertarian ‘right’, that: “Liberty is the mother, not the daughter, of order.’ This shared sense of the amorality of individual self-fulfilment has enabled some ‘left’ libertarians of the 1960s to become ‘right’ libertarians in the 1980s on efficiency grounds by a logical extension of the amorality standpoint — providing yet one more reason to discard ‘right’ and ‘left’ as useful political 88

, A Different Way of Thinking terms. Partly for that reason, but also because the libertarian ‘left’ is a less forceful presence than in the 1960s since the challenge to the sexual mores of the 1950s

it represented is less an issue now, ‘libertarian’ is used here only to refer to the standpoint described above and not to the libertarian ‘left’. Both are radical in the attitudinal terms described in chapter 3.

The major influences on New Zealand came from the Austrian and Chicago schools and the public choice theorists of the Virginia school. An important element of the first two was their insistence that they were ‘value-free’. Friedrich

von Hayek, the best-known of the Austrian school and for a time in the late 1980s influential in the development of MP Simon Upton’s thinking and through him in that of some of his National Party colleagues, argued that if individuals were left to their own devices, a market system would emerge by natural

selection. It was thus not good or bad, but a morally neutral social inevitability (unless politicians got in the way — and they should not, because that would

curtail freedom). |

The Chicago school, of which Friedman is the best known, were more limited and pragmatic, simply arguing that as a matter of observable fact markets maximised economic welfare and political intervention diminished it. Simply changing the interventions would not solve the underlying problem of the welfare state and the route to improvement lay in removing interventions. This was the mainspring of economic theory and analysis in the Treasury from the late 1970s. Particularly influential was Friedman’s monetarist technical prescription that the money supply should be controlled to curb inflation. This theory was very influential in the United States and Britain in the 1970s and, secondhand, was influential in the thinking of economic policymakers in New Zealand from 1984, though it was eventually discarded in practice when no direct link could be established between any measure of money and economic growth. The public choice analysis and theory developed by James Buchanan had considerable influence on Upton during the period in which he was developing the basis of the National Party’s social policy in the lead-up to the 1990 election and was explicitly followed by Mark Prebble of the Treasury in leading that department's formulation of social policy initiatives in the mid-1980s. Buchanan argued that states got taken over by their operators, who promoted social ends which obliterated individual preferences. The empirical analyses that led him to those conclusions influenced New Zealand policymakers from 1984 onwards in their reform of the state sector — Sir Roger Douglas’s constant charges that social services had been subject to ‘provider-capture’ are an example. (Also influential in the reform of the state services were transaction cost analysis theory, managerialist theory and agency theory, which are not part of 89

New Territory | the libertarian intellectual thrust, but came to be seen by critics as allied to it.) All three schools attempted to present their analyses as ‘value-free’, that is, as

excluding moral judgments. They saw their work as more about ends than means. These qualities held a strong appeal to an educated elite brought up on rational argument. Economics became a technical, not a social issue. Consequently, the idealistic analyses of Ayn Rand and Robert Nozick, who theorised that there were natural laws and individuals had intrinsic rights, were rejected by policymakers. Their theories appealed to a few intellectual aficionados and, in an instinctive sense, to some in business who saw any state activity as barriers in the way of economic gratification. An example is Alan Gibbs, an economist with a private fortune who became chairman of the conglomerate Ceramco, who articulated something close to the anarcho-capitalist position with some eloquence. Gibbs for a time chaired the New Zealand branch of the Australian-based Centre for Independent Studies, which promoted a libertarian approach to the study of economic and social issues within New Zealand, and befriended both Sir Roger Douglas, first Finance Minister in the post-1984 Labour Government, and Ruth Richardson, his National successor in 1990. But rights-based libertarianism was little discussed among those commonly thought to be of the ‘new right’. For example, Mark Prebble, who drafted the social policy segments of the Treasury’s celebrated briefing to the Government in 1987 which urged the extension of market disciplines into the welfare state, explicitly rejected Nozick in a paper circulated within the Treasury in 1986: ‘Nozick offers us one of the best reads since Tolkien with many fascinating insights. However, I disagree with his conclusions because | disagree with his premise.’ Prebble also summarily dismissed natural rights in the 1987 Treasury briefing to the incoming Government: ‘It is clearly not possible to establish that individuals have any transcendental or natural rights. Rights are things we give each other.”* Roger Kerr, a key figure in the development of Treasury market-oriented policies in the early and mid-1980s and subsequently director of the Business Roundtable, which during his directorship took mostly libertarian positions, declared to me in 1991 he had not read Nozick. It is also important to note that libertarian intellectual thought had limited reach. The Treasury explicitly rejected libertarianism as a sufficient guide for development of social policy. In its 1987 briefing, the Treasury stated that: “Because the individual is regarded as the appropriate basis for analysis [of social policy], then it is conceivable that individualism or libertarianism could be proposed as the right approach to social policy. . . that is not correct . . . an ethical approach to social policy requires a much wider ambit than a selfish pursuit of personal concerns.” All theories were explicitly rejected in favour of a ‘synthesised’ approach.

90 |

A Different Way of Thinking

Nevertheless, libertarian intellectual thought of other varieties was highly influential in the development of economic policy and therefore budgetary policy (which butted on to social policy). Younger economists coming into the Treasury in the 1970s were versed in libertarian economic argument of the Chicago and public choice schools. Some were ‘finished’ in American universities. The influence was much less a matter of philosophy than of analysis of the real, apparent and imagined failures of the liberal social democratic welfare state. The ideas of allowing price signals to become visible to guide economic activity, of limiting

state regulation and maximising competition in markets, of assuming that individuals left to their own devices make the best and most rational choices in their own interest and so private sector activity is to be preferred to public sector activity, took strong root in key points of influence in the bureaucracy. They also struck a strong chord with the new breed of business operators emerging into power in the early 1980s who wanted greater freedom (especially from taxation) and challenge or who saw opportunities to make money in a freer economy. For politicians confronted by economic failure and commanded by a discontented electorate to fix it, the analyses had practical appeal, especially when the collectivist solutions of the late 1970s and early 1980s had apparently failed. In-

tuitively to politicians and a widening range of other people, including many non-economists, libertarian-inspired analyses, as an apparent opposite of what had failed, seemed to signpost a practical policy route, correct in tendency if not in detail — a matter of technique, not philosophy. Geoffrey Palmer, Deputy Prime Minister, was able to say in 1986 that the Government was merely correcting from excessively regulated policies to an ‘orthodox’ stance, by which he meant a stance which, even if market-oriented, was consistent with liberal social democracy.

It is important to distinguish the small number of adherents to libertarian solutions as a body of thought from the much larger body of people who began to graze from a smorgasbord of elements of libertarian analyses as a way out of what was felt to be a dead end of poor economic performance and a welfare

state not living up to the demands on it or the expectations of it. The former wanted to remake the economy and society in a different image. The latter were looking for and thought they had found merely a means to the end of repairing the welfare state — and were reassured by the Chicago scholars’ assertion that

means, not ends, were the point of their work. The Chicago scholars traded ‘heavily on the notion that in most communities there is agreement about ends and that [libertarianism] informs us only of the means towards those ends’. Libertarianism was, Chicagoans alleged, ‘simply the science of economics applied to social and political questions’.® But the influence was unmistakable and deep. It was all the deeper for the 91

New Territory | failure of the defenders of liberal social democracy to generate adequate intellectual defences of their position in the face of the exposed practical failures of the political and economic systems liberal social democracy had given rise to, or effectively to attack libertarianism on intellectual grounds — even, for example, on one of its weakest points, the inadequate explanations of the unequal distribution of property which was central to libertarians’ concepts of liberty. By the early 1980s the tide was flowing strongly, sweeping up a widening number of people round the world; by the mid-1980s it was translating into policy prescriptions of a rapidly widening range of countries. Among them was to be New Zealand. Most New Zealanders, however, remained security-seeking, rather than freedom-

maximising, individuals. The huge missing ingredient from libertarian

individualism was security. | But by the early 1980s a large proportion of those reaching positions of influence and power in business, the bureaucracy and politics were themselves much less concerned with security. Though few had more than the most rudimentary acquaintance, if even that, with libertarian theories, their temperament was in tune with the psychology of individual freedom from constraint implied by libertarian theories. So when they came to untangle the distortions and remedy the failures of the protective welfare state constructed under liberal social democracy they were susceptible to libertarian prescriptions or at least prescriptions influenced by libertarian tendencies.

92

8. Collapse of Consensus

I" the study of revolutions there has been found often to be a period of concessions to change by the authorities, then a tightening which builds frustration to breaking point.’ In New Zealand that tightening role was performed by Sir Robert Muldoon. The forces for change had by the late 1970s built up con-

siderable momentum. Growing numbers of those wanting change had during | the 1970s moved into positions of advice and influence, though still not power.

Muldoon stopped change and the momentum built up irresistible strength. Those for change, moderate, liberal and radical, came together behind the dam he thus erected. But for him there might have been a steady flow of reform, not a tidal wave of radical change. The 1972-75 Labour Government had initiated changes in defence and foreign policy by banning nuclear ships, taking more heed of and interest in the South Pacific and taking black Africa’s side against white-ruled South Africa — enough to permit some observers to detect a degree of independent-mindedness in foreign policy.* Labour had also established the Waitangi Tribunal and begun the journey from assimilation of Maori to recognition of the treaty and equality of status for the two races. Muldoon himself from 1975 to 1981 took some tentative liberalising steps in the economy — and carried forward, or at least did not undo, Labour’s enterprise in the South Pacific and did not block the evolving role of the Waitangi Tribunal. An inkling of the new territory we were eventually to enter was evident in those 1970s initiatives.

Then in 1982 he clamped down on the economy and on almost all other reform, driving together the forces for change, moderate, liberal and radical. As Prime Minister and Minister of Finance and holding his Cabinet ministers in a mesmeric grip, Muldoon possessed commanding powers over all areas of public policy. And the record shows overwhelmingly that he defied the forces building for major policy change. Many of Labour’s initiatives were reversed. In 1982 he clamped down on the economy. In foreign affairs he restored centrality, and then remained loyal, to the co-

lonial archetype embedded in prosperity consensus, offering frigates in the memory of empire to assist in Britain’s Falklands war and welcoming United States nuclear-armed warships. By pronouncing that ‘foreign affairs is trade’, he sidestepped the far-reaching implications for New Zealand of the shattering of 23

New Territory

European economic, cultural and strategic supremacy. Though he was often belligerent in pushing New Zealand’s trading case, most notably in 1978 telling the Japanese they would have to be brought ‘kicking and screaming into the twentieth century’, a demeanour with some of the characteristics of independence, he still saw Britain’s enemies as New Zealand’s enemies in 1982, offering the British use of a frigate during the Falklands war. His internal public policy assumed a continuing homogeneity of society, race and culture and ideas. He willed upon a younger generation with new ideals and

ideas the values of his own youth. Women remained in public policy much where they had been when he first came into Parliament in 1960. In Maori policy, the tribunal and a soft spot for the gangs notwithstanding, he clung to the assimilationist paternalism of his predecessors, assuming cultural homogeneity where, by the early 1980s, it had patently ceased to exist. He would countenance only the most minor constitutional tinkering, resisting even substantial reform of parliamentary procedure. He massively extended the welfare state’s contribution to the incomes of the old and otherwise changed it little beyond putting pressure on hospital spending. In economic policy he clung to protection, regulation, public enterprise, subsidies with public money and deficit-

financing in the belief that these policies would protect jobs. He relaxed only in tiny, safe ways and in crisis reverted to control. Muldoon was quintessentially of the prosperity consensus: a child of depression, a young man buffeted by war, a young married battler benefiting from social democratic interventions in the 1940s and 1950s. He upheld the prosperity consensus with fierce devotion. Because his personal power enabled him to dominate his Cabinet and the bureaucracy and to cow interest group leaders, he held back reform longer than might otherwise have been the case and so may have deepened and intensified the rush of radical change that followed. Paradoxically, his provocative, abrasive conservatism helped rebuild the credibility of the Labour Party and with that the political strength of the advocates of radical change whom he blocked within his own party. His colonial instincts in foreign policy, which dammed the pressures that were developing for greater

independence, helped swell the ranks of the Labour Party with a mixture of people who wanted independence in foreign policy, people who opposed nuclear arms on ‘peace’ grounds and people who were environmentalist opponents of all things nuclear. By failing to move with changing attitudes on environmental matters generally Muldoon intensified environmentalists’ lean to Labour. His blockage of substantial reform on policy affecting women and Maori and his freeze on wages pushed women, Maori and union members closer to Labour. His rejection of all but timid economic reform encouraged reform advocates in the state service and business to establish links instead with the Labour Party and

94

Collapse of Consensus

thus to strengthen and channel the interest in reform which developed within Labour in the early 1980s. Moreover, his attitudes on foreign policy, issues of personal freedom and economic regulation helped encourage the formation of the New Zealand Party which further assisted Labour by siphoning large numbers of votes off National in search of a route to ‘freer’ policies in keeping with the temperament of the gimme generation. All of those elements contributed to his defeat and ensured it was on a scale that virtually ensured two terms of a reform-minded Labour Government composed largely of gimme generation people with ideas of independence and freedom in all spheres of policy. The Muldoon years were, in all but at the margin, a denial of the changes that were going on in and around New Zealand. Huge seas of change were pounding at the political, social, economic and intellectual dyke New Zealand had built around itself — the land behind the dyke meanwhile had subsided. By 1984 the social and cultural homogeneity had gone, under the impact of massive shifts in world politics and economics and the reclamation by Maori of their culture and their mana. The external props for colonial dependency had been removed and in any case the very idea of such dependency was being made anathema by a generation determined to tell its own and the nation’s story in a wide variety of ways from pottery and films to new ways of doing business. The

prosperity consensus had been battered and worn by a powerful assault on its intellectual foundations and its own internal failures in practice. To these huge shifts in New Zealand’s condition Muldoon had no answers but those of the prosperity consensus itself — a fist thrust into an ever-widening hole in the dyke. The answers of the Muldoon years drove the self-fulfilling prophecy of the prosperity consensus into reverse. By 1984 New Zealand was neither prosper-

ous (in the way prosperity was understood by the consensus makers and upholders), nor at peace. New Zealand knew where it had come from, but was no longer sure where it had come to and argued increasingly bitterly about where it should go to. The liberal social democratic prosperity consensus was at an end. It had lasted little more than a generation. For a way forward New Zealanders had to look elsewhere. The gimme generation was waiting with other ideas.

D5

PART II

The Quiet Revolution

9. A Radical Frame of Mind

T he tributaries of change which for 20 years had eaten away at the banks of the prosperity consensus came together in a powerful torrent in the mid1980s. The last stopbanks of consensus were breached in 1984 and the flood swept out into new territory. What few expected was that it was about to sweep them into a long economic tunnel. For most of the eight years since 1984 an increasing proportion of New Zealanders have been pounded by the currents against the walls in unrelenting darkness. Most long for a past or future calm. In that eight years there has been deep change across a wide front of public policy. Of all the changes, the one most people feel most keenly at a personal level is the change in economic policy. Hundreds of thousands of New Zealand-

ers have gone backwards in living standard at some time since 1980. The economy is much more efficient and internationally competitive, but at the cost of widespread personal misery in job upheavals, unemployment and, since 1991, meaner social services. Most would, if they could, go back to the way things used to be at the height of the prosperity consensus. But they can't. But to focus on the economic changes is to miss deeper and more important changes. An independent gesture over nuclear arms has forced us out of colonial sta-

tus. Recognition of the Treaty of Waitangi has changed forever the formal relationship between the two main races and also changed the constitution. The constitution may be changed further by impending referendums on voting, ini-

tiatives and an upper house of Parliament. The approach to the environment has been fundamentally changed with deep reforms in resource management law. The universalist welfare state is being retargeted to the needy and thus radically transformed. Economic policy has been reversed to resemble in a number of ways the pre-consensus position of the early 1930s. The relationship of the state and the individual has been changed in important ways.

The 1980s were a time of radical policy change — part driven by and part driving a deep change throughout New Zealand society. The agent of that radical policy change was the intellectual and economic elite of the gimme generation (described in chapter 4). By 1984 many of the gimme generation had reached positions of influence 29

New Territory | | | | and power in business and the bureaucracy. In the Labour Party, too, the high positions were in the control of the gimme generation. On election day, 1984, the leader, David Lange, was 41. The deputy, Geoffrey Palmer was 42. Mike Moore, the No 3, was 35. Roger Douglas, shadow finance minister, was the oldie among the top six at 46. The two men who joined him as associates in finance, David Caygill and Richard Prebble, were 35 and 36. They made up the top six, both in ranking and influence. Of the other 14 members who were to make up

the first Cabinet in July 1984, five were under 45 — that is, had been born in or after 1940. Phil Goff was only 31. The average age was 42. Also under 40 were a number of key backbenchers, most notably Helen Clark, 34, who had chaired the caucus foreign affairs committee, and Peter Neilson, 30, who had chaired the economic committee. In the party organisation, the incoming presi-

dent, Margaret Wilson, was 37, and she was soon to be joined in the secretaryship by Tony Timms, who was 41. So Labour as it headed for office was firmly in the hands of people whose formative political years were in or shortly after the 1960s. The 1960s were, for those emerging into adulthood, the years of questioning and iconoclasm, experimentation, independent and impatient self-expression, reform and radicalism. In office in the 1980s these people put that radical temperament rapidly and energetically to work in economic, international, social, race, environment, local government and constitutional policy. No significant policy area remained unquestioned; most were ploughed deep. In area after area the Labour reformers made changes of such major proportions that any one on its own would have stamped its record as a major reforming administration. They acted as if they had to look everything over and change it wherever there were imperfections, imagined or real, or a hint of oldfashionedness. And when they came to make changes, they seldom tinkered. They went deep. Environment policy is one example. Though environmentalists still found much in 1990 to criticise the Labour Government for failing to do (notably for settling, as chair of long-running international negotiations, for a lower level of protection for the Antarctic than eventually proved possible), it was during its six years the ‘greenest’ Government in the country’s history. It was certainly the first Government of which a Prime Minister could say at its demise that of all the ‘many important offices’ he held, ‘none. . . gave me more satisfaction than being Minister for the Environment’.' In 1984 it banned logging of virgin indigenous forests in the North Island. In 1989 it created a huge conservation park in south Westland, banned all logging of native forest in state ownership in the South Island and barred the felling of privately owned beech forests for wood chips. A forest heritage trust fund was 100

A Radical Frame of Mind

set up to preserve indigenous forests of high ecological value. The Labour Government made mining consents more difficult to obtain and rejected a number of applications. Conservation was separated into a distinct department to act as advocate for environmental protection, uncomplicated by the problem of bal-

ancing that with economic resource use. The Government appointed an independent Parliamentary Commissioner for the Environment who issued a number of embarrassing reports and became a sort of official environmental conscience. Some movement was made towards restricting the use of ozonedepleting chemicals. There were some minor initiatives on waste recycling. There was also a number of high-profile international initiatives aimed successfully at getting drift net fishing banned and less successfully at getting whales

and other marine mammals protected. New Zealand was also prominent in conferences on the greenhouse effect.

Most important, the Labour Government initiated a radical change to resource law.

In opposition Labour had in 1979 opposed the National Government’s fasttrack legislation, the National Development Act, used to override the normal resource planning procedures to speed planning approvals for the Government’s proposed ‘think big’ heavy industrialisation projects. The National Development Act was the more repugnant to environmentalists and professional planners in that the National Government had completed a lengthy revision of the Town and Country Planning Act only two years before. It also untidily complicated a legislative backdrop which was messy anyway. The Town and Country Planning Act had needed major revision within a year of its passing.

There was also a constitutional dimension. Some Labour MPs, notably Palmer, who had been a constitutional lawyer before entering Parliament, had objected strongly to the way the National Development Act bypassed due process through the planning authorities. They had also objected to special legislation in 1982 to override a refusal by the Planning Tribunal to grant a water right for the hydroelectric dam on the Clutha river at Clyde, which was a crucial element in generating ‘surplus’ power for the proposed “think big’ projects. Labour was also sensitive to environmental issues partly because many of its younger members had absorbed a greener attitude as part of their growing to political maturity during the 1960s and early 1970s when conservation of the physical environment became a live issue among the young. This was a powerful element in the party’s rigid anti-nuclear stance. There was an electoral threat, too, to which Labour had to respond. The green movement of the 1960s-70s had in 1972 given birth to the world’s first national ‘green’ party, the Values Party. In 1975 the Values Party siphoned most of its 5% of the nationwide vote off Labour.’

101

New Territory | , So in office Labour set out to tidy up the legislation, make it more constitutionally correct and to give it a greener slant. Palmer, as Deputy Prime Minister, assumed special responsibility for the revision, in 1987 taking over the environment portfolio to see to it personally. The Resource Management Bill emerged late in the fourth Labour Government’s life and was passed by the National Government in 1991. The new legislation swept away a century of planning and pollution control legislation totalling 54 statutes and more than 20 regulations. That law had been based on land and resource use, with local authorities deciding what activities (particularly building and construction) could be performed where, subject to appeal to the Planning Tribunal (and, on points of law, up to the Appeal Court). Land was zoned by local authorities for one use or another (for example, industrial, commercial or residential, usually with several subcategories each). Provided

one did what the land was zoned for and had the necessary pollution consents, that was the end of the matter. But getting planning approval, especially if one wanted to use the land for a purpose for which it was not designated, often involved long and costly legal processes. Under the new legislation obtaining consents for industrial and other activ-

ity is simpler, but the test is more difficult. Individual projects are judged acceptable or not according to their impact on the environment in terms set regionally. The criterion is ‘sustainability’, a formula developed by environmen-

talists and given a United Nations stamp by the Bruntland Commission. For the first time in the world a country has attempted to write into its law a criterion that economic growth must be environmentally sustainable. This is defined as the sustainable management of natural and physical resources — that is, management which enables people to meet their needs now without unduly compromising the needs of future generations. Social and economic considerations are part of that calculation, but do not override the concern for the physical environment. Consents for use of land, water, subdivision, discharges and activities on the coast are integrated, by contrast with the previous fragmented, costly, slow and often conflicting separate consent system. The law is administered regionally and locally to allow for variations in needs and also to encourage local involvement, though there are provisions for national policy

statements to guide regions and for the central Government to override the regional or local authorities. Local authorities have to examine all available methods of control, including service delivery, provision of information and regulatory

rules before determining how resource issues should be resolved. Company directors and officers are personally liable for contraventions of the legislation, which has encouraged companies actively to assess the environmental impact before obtaining consents. Consents are reviewed every five years. 102

A Radical Frame of Mind

The Resource Management Act (even though eventually passed by its successor) ranks as one of the most radical and one of the most important of the Labour Government's initiatives. It was a conceptual and administrative shift of great importance. That sort of radicalism came easily to the Labour Cabinet.

The development of the resource management law illustrates another element of the Labour Government’s reform process: the willingness to follow radicalism where it led. Frequently one radical act led to another, then another. For example, as will be shown in the next chapter, banning nuclear ships forced a full reappraisal of defence policy and has led to a much more independent foreign policy stance, from which there is now no possible return to the colonial comfort of the past. Similarly, as will be shown in the next two chapters, the extension of the scope of inquiry of the Waitangi Tribunal to deal practically with festering grievances led unexpectedly to a shift in the standing of the two main races from which there has also proved to be no way back to the comfortable monoculturalism of before 1984. Similarly, the town and country planning shift led to the most important environmental policy innovation since Maori control over the land, forests and fisheries was all but extinguished in the 1860s. Moreover, it partly shaped the Labour Government’s proposed local government reorganisation. The third Labour Government had set out to force a rationalisation of New Zealand’s myriad local, regional and ad hoc authorities (such as those dealing

with water, drainage and weed and pest eradication) which carried out subnational administration, often haphazardly and very unevenly. That attempt foundered when the Government was defeated, partly because of entrenched local opposition to the proposed changes, in 1975. The fourth Labour Government carried through the reforms. More than 600 regional, local and ad hoc authorities were reorganised into 14 regions and 74 districts. Regional councils took over many of the ad hoc authorities’ functions, such as water control, farm drainage, pest control and the ports, which were turned into companies majority-owned by local authorities in 1989.3 They now draw up regional plans, with special emphasis on resource use. District authorities do much as the former cities, boroughs and counties from which they were fashioned did. Within district boundaries there are community boards designed to provide a local input, particularly into planning. This reorganisation in itself was of major importance. It was the first substantial reorganisation — though there had been some voluntary amalgamations of territorial authorities (as, for example, the joining of Whakatane borough and

county) and some rationalisation of resources between authorities (as, for example, between Waimate borough and county) — since the abolition of the 103

New Territory | provinces in 1876. It was long overdue: there was a tangle of anomalies and many local authorities had been preserved that lacked adequate size and management skills to handle the complexities of a modern economy and society. Apart from

short-changing their constituents, the low competence of these small authorities hindered attempts to devolve functions from central government closer to the people affected. Smaller councils had also often skimped on public works, particularly in water and sewerage, to keep rates down, with worrying implications for public health.* New district authorities found huge backlogs awaiting them. The reorganisation was also of some self-interest to the Labour Party and of direct value to its social policy ambitions for local authorities. Most local authorities had been elected at large, with better-off areas usually swamping less-well-off areas with a higher turnout and so making it difficult for Labour candidates to win office. In smaller local authorities party politics was frowned on, with the result that those with most stake in planning outcomes, construction companies,

real estate agents and the like, dominated elections in the guise of ‘independents’, keeping local authorities largely to planning-related activities and barring an extension into the social activities Labour wanted. In the reforms Labour instituted a ward system in which Labour candidates found it easier to prevail in ‘Labour’ areas of the larger authorities. And, with smaller authorities amalgamated, ‘Labour’ ideas for social policy could be extended into what they did, at least in urban areas. The concept of local authority reform was the 1972-75 Labour Government’s, driven mainly by the voting and social policy motives. But the final shape of regional government owed much to the resource management law. Regional councils draw up and administer resource plans under the act and local authorities work within those plans in making planning decisions (with provision, so far sparingly applied, for local community boards to have an input).

Thus reform in the constitutional, local administration, planning and environmental law were all intertwined. As ministers worked through one reform in one area, they frequently found themselves enticed or pitched into reform in another, then another. Most governments encountering that would draw back and limit their reforms. The gimme generation of the fourth Labour Government were of a quite different mind. They plunged further in, relishing reform, almost for its own sake.

The biggest constitutional change, for example, came not out of initiatives in the strictly constitutional area, in which few Labour gimme generation ministers beyond Palmer had much interest.’ It came from economic policy and Maori policy. 104

| A Radical Frame of Mind Labour's constitutional intentions were limited and driven largely by Palmer, as befitted his background as a constitutional lawyer and author of a critical book on the constitution and political system.® His success was mixed. A partial victory was his drive to get a Bill of Rights. His attempt to introduce an overarching Bill of Rights along Canadian lines, incorporating the Treaty of Waitangi, was defeated by a hostile Opposition and sceptical colleagues who did not want the courts pronouncing judgment on Parliament, which under the constitution is the supreme legal authority. Palmer was, however, able to rescue a watered-down version. This does not incorporate the treaty, but does specify a range of individual civil, though not economic and social, rights which are to be upheld by the courts. If another act can be given a meaning that is consistent with the Bill of Rights Act, the Bill of Rights version is to be given legal preference. The revised measure has the status of an ordinary act of Parliament. Normally, an ordinary act is overridden automatically by contrary provisions in subsequent legislation. But that will only be able to be done in the full glare of publicity because Palmer got written into the Bill a requirement on the Attorney-General to table a report on any bill the provisions of which are inconsistent with the Bill of Rights. The Justice Department vets all bills for this purpose. In 1991 the National Government’s first version of new bail laws was withheld for such an inconsistency and three other minor bills had provisions deleted.’ The Bill of Rights has also caused problems for police by requiring stricter procedures in dealing with suspects, some of whom in 1992 got off charges as a result of the police’s failure to follow those procedures.’

Palmer argues that the Bill of Rights is much more potent than it first appeared to legal and political commentators. ‘It changes a great deal. The full flowering of the Bill of Rights plant will take a long time in the New Zealand legal garden . . . the Court of Appeal has not misjudged its significance in appropriate appeals when they reached that court.” He argues that a number of freedom-abridging measures in the past (for example, at the time of the 1951 waterfront dispute) would have been stopped by the Bill of Rights procedure. Time will tell. But there remains nothing to stop a determined Government, with public opinion behind it, overriding the Bill of Rights in real or manufactured emergencies. Its status as an ordinary act of Parliament leaves it subject to the rule of legal construction that in the event of inconsistency a later act overrides an earlier one. It would be surprising if it is not whittled away at the edges over time. The Bill of Rights therefore falls into the category of law reform, rather than constitutional change — though it is an important law reform and will leave its mark as an example of Labour civil liberalism. Elsewhere in law reform Palmer,

as Justice Minister, was not very successful. A rewrite of the Crimes Act 105

New Territory | | foundered on wall-to-wall criticism from judges — a rare intervention by the judiciary in parliamentary business. Desperately needed reform of business law stalled amid ideological battles in the bureaucracy and drafting paralysis and only began to move when the new National ministry banged heads together.

Palmer had more success with procedural reforms of Parliament. A timetable was set in advance and closely adhered to. All bills except very urgent bills and some to do with the Budget were sent automatically to select committees,

which were given wider powers of inquiry and a greater proportion of whose hearings (though not deliberations) were opened to the media. A regulation review committee, chaired by an Opposition MP, was set up to systematise the scrutiny of regulations. Administration of Parliament was removed from ministerial control into a Parliamentary Commission. More financial support was granted to the Opposition, which improved its access to and analysis of information and so, potentially, its performance — though Labour itself has made more effective use of this than National did. But these reforms left Parliament essentially as it had been, dominated by two major parties and in the grip of the Cabinet, a rubber stamp for one party’s pref-

erences while it holds office. The select committee process has been slightly enhanced, which should improve the technical quality of legislation. But there has been no significant improvement in non-Cabinet MPs’ ability to call the Cabinet and departments to account, nor to check the Cabinet if it is hellbent on a particular course. The institution of Parliament is intact, very little changed

from 1984. |

More important is the possibility of voting reform. Though Labour stalled on the issue, Palmer did manage to set up a Royal Commission which, despite strenuous submissions from both the Labour and National Parties to the con-

trary, in 1986 recommended a change to the German mixed-member proportional (MMP) system of voting.’° This seemed set to disappear into the limbo reserved for embarrassingly non-compliant commission reports, when David Lange misread his notes during the 1987 election campaign and prom-

ised a binding referendum, which Palmer immediately backed up, though neither had the authority of his party. After the election the issue was shuffled off to a parliamentary select committee in 1988 which recommended retention of the existing system for existing seats but also an ‘indicative’ referendum at the time of the local body elections in 1989 to determine whether the number of MPs should be expanded to 120 and whether those extra MPs should be elected by the existing method or by proportional representation. This referendum was not held but both National and Labour, mindful of the bad odour into which the Labour Government, and established politicians generally, fell during the

1980s, promised referendums in their 1990 election manifestos, National 106

A Radical Frame of Mind

declaring the referendum would be binding. In office, National devised a twostage process. A first referendum on 19 September, 1992 produced a majority for change among those voting and narrowed the choice to one between the existing first-past-the-post system and MMP. That choice will be put to a second referendum simultaneously with the 1993 election at which time voters will also decide whether to establish a senate, with minor delaying powers. The momentum for voting reform is not evidence of revolutionary fervour among the public. It is evidence of profound disenchantment with both major parties. This disenchantment is with actual and imagined broken promises and with policies that were not approved by, or even in many cases put to, the voters in advance and which many voters feel have made their lives much less economically and physically secure and caused a lot of damage. In that light, voting reform would amount to little more than a vote against both major parties. If governments begin again to act consistently with pre-election promises and this coincides with improving economic and physical security, enthusiasm for voting change will recede. Still, even if the Labour Government did not intend to precipitate a change in the voting system and so in Parliament, it did open up the debate. That was consistent with the questioning, iconoclastic mentality of its ministers. The voting system is important in determining the party make-up of Parliament and so the structure of governments. MMP would probably force coalition or minority government more often than not, which would be a considerable change from the almost invariable single-party government thrown up by the existing system.'' So a change to MMP would probably loosen slightly the grip of the Cabinet on Parliament, depending on the degree of cohesion between coalition partners, though the near-hermetic intra-party cohesion which New Zealand parties have demonstrated since 1935 would strongly suggest that if coalition partners agreed at Cabinet level the Cabinet would still command Parliament much as it does now. Changing the voting system would have little

effect otherwise on the institutions of government. The Cabinet would still dominate (even if no longer command) Parliament, with no other formal checks and balances on its power. Setting up a senate would give the form of institutional change. But, as proposed in September 1992, the senate would have a delaying power of only up

to six months, with no influence on the Budget and subject to the Cabinet’s urgency requirements. Such a senate, even if elected by single transferable vote semi-proportional representation as proposed, would no more significantly alter the effectual institutional arrangements of representation and power than a

change in the voting system. A measure of the significance of setting up a senate is the lack of significant effect when the previous upper house, the 107

New Territory | | Oo Legislative Council, was abolished in 1950. More significant as institutional changes have been those driven from economic and Maori policy. The Reserve Bank Act in 1989 institutionalised the responsibility handed by Douglas to the Reserve Bank for monetary policy. The single objective of the bank is now the ‘stability of the currency’ which is defined in the contract be-

tween the Minister of Finance and the Reserve Bank Governor as zero-2% inflation. The Government can override the policy settings chosen by the goveror to achieve and maintain that level of inflation only by an Order-in-Council (effectively, a Cabinet decree) that is debatable in Parliament, which is a strong disincentive to meddle. ‘The bank is now one of the two or three most independent monetary authorities in the world. Economic policy also drove a far-reaching reform of the public service (see also chapters 12 and 14 for comments on non-constitutional matters). Since 1912 the public service had been almost wholly independent of politicians in recruitment, pay and career structures and allegiance to any particular policy line. The State Services Commission appointed ‘permanent’ secretaries and other senior public servants and operated an elaborate appeal procedure on all appointments which laid heavy weight on seniority and experience and so severely circumscribed attempts to recruit people from outside the service or from elsewhere in the service at the expense of career public servants. The career path and salary gradings were uniform throughout the public service, which was therefore ‘unified’. Safe from dismissal at the behest of politicians except in the most extreme circumstances, public servants were expected to deliver frank advice to ministers on the economic and other non-political consequences of proposed courses of action and to present policy options without concern for political preferences or implications. They were expected to act, not just in obedience to ministers (who had always to prevail), but with a sense of national or public interest. Advice was not to second-guess ministers’ interests but to serve the

nation. :

The State Sector Act in 1988 and the Public Finance Act in 1989 aimed to improve the quality of management of departments so they worked towards clearly defined objectives. They were given more flexibility in how they did that work and in what resources, including labour, they used and so to do what they did for less money. Embedded in this was much greater operational independence for ministers. Permanent secretaries became chief executives on five-year terms, recommended by the State Services Commission but appointed by the Cabinet. They have a contractual relationship with their ministers, who have a direct say in who their chief executive is and can both review and, if necessary, 108

A Radical Frame of Mind

have removed a chief executive who is not performing to expectations. In 1989 a battle between Foreign Minister Russell Marshall and External Relations and Trade Minister Mike Moore over who should head the department for which they were both responsible was resolved only after long Cabinet wranglings.’” In 1990 the Cabinet rejected the commission’s suggested appointment as chief executive of the Ministry of Defence of a former head of the Prime Minister’s

Department, Gerald Hensley, ostensibly on the grounds that he did not have expertise in resource allocation but actually because he was considered too ‘hawk-

ish’. He was subsequently appointed by a more ‘hawkish’ National Cabinet. Before the 1990 election there was much talk by senior National politicians of rolling some heads, including that of the Secretary to the Treasury, Dr Graham Scott. In the event no heads rolled. This change was of considerable constitutional significance. It opened the way

to ‘politicisation’ of the public service — that is, the appointment of political cronies by ministers who would in turn (having been given the power in the new act) appoint their cronies to lower positions. It also raised the spectre of tailoring advice to the political preference of ministers. A former chair of the State Services Commission, Dr Mervyn Probine, saw a “time bomb ticking away’. One very senior chief executive candidly acknowledges in private that he expected the politicisation to go quite deep through departments. A former public servant at deputy secretary level says that in the third major restructuring of the Health Department in 1992 there was evidence that quite lowly public servants were seeking to secure their jobs by proclaiming allegiance to the health reforms proposed by the National Cabinet while secretly regarding them as unworkable and withholding practical advice as a result. Another former very senior public servant confirms that that attitude is widespread through the public service.“

The politicisation of the service was more noticeable in ministers’ offices. Once secretaries, including press secretaries, moved from one administration to another, serving the same minister even after a change of party in power. Increas-

ingly during the term of the fourth Labour Government, ministerial advisers, press secretaries and even administrative secretaries were political appointments, directly responsible to and loyal to the minister — even in some cases not just in

opposition to the National Party but in opposition to other ministers. This minister-specific loyalty was evident during the stand-off between Roger Douglas and David Lange in 1988-89. In some cases, notably in health when Helen Clark became minister, advisers have acted as a filter to departmental advice. Ministers’ offices, once essentially components of a ‘corps’ that was part of the wider

public service and shared its sense of national interest, came to resemble baronial retinues. In practice, the politicisation has been limited. The National Government 109

New Territory , has re-established greater Cabinet control without resort to politically-motivated sackings or appointments. There remains a high degree of devolved managerial authority, with professional civil servants in charge of departments.

That amounts to an important change in the institutional and so constitutional arrangements of the country. Ata lesser level, the commercialisation of trading departments (see chapters 12 and 14) and their establishment as companies rather than statutory corporations removed them from ministerial control — and accountability for any social duty they may owe to voters. This, too, was a change to the constitution and, given that around 12% of the gross domestic product of the country was affected, one of significance.”

The most profound change, however, came out of Maori policy. The Waitangi Tribunal joined the institutions of power. Though its power was persuasive rather than formal (with one exception, explained in chapter 11), it came to wield considerable influence over resource allocation. ‘This arose from a deeper change:

the elevation of the Treaty of Waitangi to the status of ‘the founding document of the nation’, a formula accepted by both major political parties. In 1988 Palmer, then Attorney-General, declared the treaty to be ‘part of the basic law’ of New Zealand. ‘It always has been in constitutional terms because the legitimacy of government in these islands flows to a substantial extent from it.” '© In a High Court judgment Mr Justice Chilwell declared the treaty occupied ‘a fundamental place of some constitutional significance in New Zealand’s legal system’.!” In an Appeal Court judgment, Mr Justice Richardson specifically evoked a constitutional role for the treaty, calling it a ‘solemn compact’.’”* Sir Robin Cooke, president of the Court of Appeal, in 1990 described it as “simply the most important document in New Zealand’s history’.” In 1980 it was a brave constitutional lawyer who argued, in the wake of more than a century _ of legal tradition that it had no force, that the treaty even had legal standing — one who notably did was Victoria University law lecturer Alex Frame. By 1990 it was brave to argue it was not a founding document of the constitution. This was not intended in advance by the Labour Cabinet. Ministers thought they were attending to land grievances, not making an important change to the constitution. But it was in character that when they found where it was leading, they followed it through. The outcome has also been profound. Maori activists and sympathisers can point to the slow and halting progress on settling grievances and to continued blocking of any real sharing of power. Maori do not have and will not get equal political power until they have the numbers. Numbers determine power and

European-descended New Zealanders have the numbers. At any time this 110

A Radical Frame of Mind

majority could undo the policy changes. But there is a deep current, fed by a powerful underground stream of Maori recovery of confidence, sweeping in the other direction, towards reaffirming and building on the policy changes over time. The treaty now speaks. It tells the majority that to undo the 1984-92 policy changes would involve serious, perhaps catastrophic, social disruption. It is a constantly present reference point for policymakers: departments must take the treaty into account when framing policy advice and in their administrative practice. That reference point may be rejected — and in the next 10 years or so, in reaction to the recent rush of change or as a rest after deals are negotiated on the grievances, may well be rejected so often as to seem at times like, and even amount to, a backlash. But the treaty can no longer be ignored. The pressure for genuine partnership will remain. It is built into the law and consciousness of the country. As Maori increase as a pro-

portion of the population, the treaty is available to extract commensurate influence.

This is a radical change in the institutional and constitutional arrangements. And radical change to the constitution is part of the stuff of revolution. Much of what the 1984-90 Labour Government did was not plotted in advance. Instead it flowed from policy moves that were intended to be limited in scope or were intended to operate in a different policy area. But the Labour Government did intend to be radical.

Their design was not for a world first in resource policy or for profound change to the constitution. The design was elsewhere: in a push for independence, in an attempt to remould the social order in favour of minorities and the disadvantaged, in fixing a broken economy to work in a changed world economic order, in seeking to enhance personal freedom in terms the Labour Party’s found-

ers would have understood. But at least equally important with design was attitude. The fourth Labour Government above all was radical, determined to ask searching questions and to make deep and lasting changes and unafraid of the consequences — and, when the consequences were unexpected, prepared to ride with those consequences, in many instances to the limit. In that mentality above everything else the Labour Government showed its origins. Such a mentality, given the right conditions, can uncork revolution.

111

10. The Push to Independence

ID“ Lange’s first public act as head of the new Government-elect in 1984 was to dash to Wellington by air in atrocious weather the day after the election to catch a word with the American Secretary of State, George Shultz, on the future of Anzus. Prophetically for the breakdown of alliance between the two countries that was to follow, Shultz, who was in town for a meeting of the

Anzus council (attended on New Zealand's behalf by the outgoing Foreign Minister, Warren Cooper), did not recognise Lange and walked past him. The

previous night Jim Anderton, party president and new MP, had declared (a little to the leadership’s annoyance) that the South African consul should be packing his bags because as soon as it took power the Labour Government would kick him out if he was not gone. Foreign affairs was centre stage right at the start.

The incoming Government intended to change direction. A number of the Cabinet had cut their political teeth in the anti-Vietnam movement.’ Lange was refused a visa to the United States in 1967, in his esti-

mate because of his anti-Vietnam activities and his defence of prominent anti-Vietnam protesters.” A number of ministers were active in the various organisations seeking to end sporting contact with South Africa. Michael Bassett, a close associate of Lange, Douglas and Prebble, had been prominent in Labour Party debates in the late 1960s and early 1970s as an advocate of stronger opposition to New Zealand’s sending troops to Vietnam, of severing sporting contacts with South Africa and of withdrawal from military treaties. The ministers’ independent-mindedness led swiftly, in office, to an independent gesture: the banning of nuclear-armed and nuclear-powered ships from New Zealand waters. It was not a gesture of independence in the sense that it was part of and precursor to a pre-stated comprehensive and coherent foreign and defence policy centred in Wellington. The nuclear ship ban did not so much light the way down a new path as draw back the veil on a large hole where the replacement foreign policy might have been expected to be found and which was still only partly filled when the Labour Cabinet went out of office in 1990. What the ban did was to destroy the made-in-London-or-Washington mould in which foreign policy had been cast for 40 years. Norman Kirk’s complaint of nearly 20 years earlier that “all too often we have heard American policy announced in Wellington with a New Zealand accent’ was still to some extent valid in 1984 112

The Push to Independence

and could be read in the minutes of the council of the Australia, New Zealand and United States (Anzus) pact or in the voting line-up in the United Nations. After 1985 a return to Muldoonist colonialism was impossible. This foreign policy iconoclasm was partly by accident — a feature of much of the policy change of the 1980s. Much of the drive for the anti-nuclear policy within the Labour Party at large and among sympathisers sprang from peace (disarmament, or antimilitarist) or environmentalist motives (that, incidentally, had their roots in 1960s concerns), not from wider foreign policy or national independence concerns. Without the peace and environmentalist elements, the

anti-nuclear drive would have remained a minority strand even within the Labour Party. Much of the huge public support for the policy (which was par-

ticularly noticeable among women and among members of the gimme generation and younger) was on those grounds.* There was a broad and deep revulsion even at nuclear power and in 1977 the country had decisively closed the door on the option of nuclear-generated electricity. Peace and environmentalism were also the main defence policy motivations in the minority parties, the Social Credit Political League and New Zealand Party, which in the 1984 election opposed defence alliances outright. In effect, a major foreign and defence policy move was taken in pursuit of objectives that were not, or not directly, elements of foreign or defence policy. Nevertheless, there was a foreign policy target in the motivation of a minority in the Labour Party for a ship ban and this objective was also pursued by some whose primary motive was peace. The motivation for the ban was in part antiAmerican. This anti-Americanism was complex. For a smallish minority it was

an ideological expression of antipathy to the capital of capitalism and archopponent of socialism or, more commonly, an expression of antipathy to the backer of authoritarian, right-wing regimes in the Americas and Asia. This antipathy was for some based on leftist grounds, a sort of anti-anti-communism, as one Oxford commentator has described it.’ For probably as many others it was on liberal grounds, driven by keynesian distaste at the excesses of capitalism at home in the United States and at the United States’ economic exploitation of other countries. This brand of anti-Americanism featured at length at every Labour Party conference in remits sympathetic to regimes and rebels across the third world which proclaimed some brand of opposition to the United States or United States-backed regimes. But for many in the Labour Party and among people outside the Labour Party who sympathised with the ship ban policy, the unease with the United States it represented was milder — more of the ‘what-your-best-friend-won 't-tell-you variety. This was an expression of disappointment that a country from which New Zealand drew so much of its inspiration and cultural leads was falling short 113

New Territory | of some ideal. For some it was nothing more than that the United States, as a friend and treaty partner, was a practical target for protest or friendly advice in a way that the Soviet Union, officially an enemy, was not. A recent example of that mindset came in 1991 when National ministers asked why there were demonstrations only against American initiatives in the Gulf crisis and not against the aggressor Iraq, the reply was that New Zealand could have no influence in remote and alien Baghdad but might in friendly, allied Washington: it was the United States with which New Zealand was linked in that conflict, not Iraq. That illustrates one almost tautological sense in which the ship ban — which also applied to other nuclear-armed navies and so in practice affected Britain and

in theory affected also the Soviet Union, France, China and India — was antiAmerican. New Zealand could not assert independence without that assertion being by definition anti-American, since New Zealand's close alignment with the United States over 35 years meant that any independent gesture was automatically and inescapably a gesture independent of the United States. But merely expressing independence from someone is not to express antipathy. A number of people who previously supported Anzus complete with its nuclear implica-

tions supported the Government out of a sort of patriotism once the United States in 1985 began to apply sanctions, suspending military training of New Zealand personnel, joint military manoeuvres, the supply of security intelligence and discount terms for military equipment. Sir John Marshall, National Party

Prime Minister in 1972 and a member of the Cabinet when the Anzus treaty was signed in 1951, said that the United States’ hard line over ship visits was ‘a high-handed uncompromising attitude which has antagonised many New Zealanders who are in other respects pro-American’ .°

It bears restating, however: the ship ban sprang more from positive motives of a desire for peace and a non-nuclear environment than from antiAmericanism. But acting independently of a previously dependent relationship does not equate

with being independent. While for domestic consumption ministers made a virtue of the environmental, personal safety and ‘peace’ implications of the nuclear ship ban, for external consumption they went to some lengths to play down its importance. They declared repeatedly the nuclear policy was not for export, that it was the action of one country in pursuit of its own interests — an inter-

nal matter, not a foreign policy cornerstone. Aside from a misjudged foray by David Lange on Anzac Day in 1989, when he suggested in a speech at Yale University that the time had come to consider formally withdrawing from the Anzus council, the Cabinet stated persistently (if somewhat disingenuously) that New Zealand wanted to continue to play a full part in Anzus with the single 114

The Push to Independence

exception of accepting nuclear ships in New Zealand waters. In 1985 and 1986

there were many statements, including, from the ‘left’, Helen Clark as chair of the Government caucus foreign affairs committee, that the country’s commitment to defence, including spending, would have to increase and in

some respects it did for a time. This, too, was for external, not domestic, consumption. Of course, a country can be independent within an alliance. An alliance does not make even a small country a client of a big country. That depends on the demeanour of the small ally. But none of the initial positions the Government took over the nuclear ban rift with the United States was that of a country supremely confident of and confident in its independence. Moreover, in some ways senior ministers continued to act in such a way that it gave the appearance of New Zealand being still a client state of the United States. The Cabinet took every chance to find common ground with the United States on non-military matters, including co-operation in the Uruguay round of the Gatt (General Agreement on Tariffs and Trade), joint sponsorship of a United Nations resolution calling for a ban on drift net fishing and a hasty and vigorous endorsement of the United States’ military intervention in Panama to remove General Manuel Noriega from power, which angered liberals and the left. This tactic worked. The United States quarantined the military breakdown (closing down intelligence, military training and joint manoeuvres and ending preferential purchases arrangements). Generally, with some minor reservations, the relationship otherwise was little changed. New Zealand was declared, in effect, a ‘friend but not an ally’” and the United States generally made good that friendship. By ironic contrast, Australia, which stayed loyally inside the nuclear alliance, thereby straining the unity of the governing Australian Labor Party, complained that Australia was being treated as ‘an ally but not a friend’ when the United States dumped wheat on world markets in 1986, depressing the price for a key Australian export industry. Nothing comparable happened to New Zealand. A countervailing duty applied to meat exports because of SMPs had been well signalled during the period of the loyal Muldoon Government. The most significant non-defence loss was that the administration was no longer able to use, in arguing against Congressional proposals for trade restraints on New Zealand goods (casein was a regular example), the lever that New Zealand was a friend and loyal ally and should therefore not be damaged. In addition, the New Zealand Government applied an antidote to its breach with the United States by explicitly intensifying its defence relationship with Australia. That included in 1989 committing itself to buying expensive naval frigates from Australia. So enthusiastically did the Cabinet push the continued deepening of CER, the closer economic relationship free trade agreement with 115

New Territory | Australia, that for a time it almost gave the impression of replacing past dependencies with a new one. In fact, as became clear, that was not the case. The points of the co-operation with the United States and Australia were all matters of direct and usually pressing importance to New Zealand and would have been pursued anyway. There was no new client status, whatever the impression.

CER posed a different question. By the late 1980s the implications for sovereignty always implicit in CER were looming hazily through the mist. The economies integrated rapidly in the half-decade after the formal signing, so that by the time of the formal 1988 review, the timetable for full free trade in goods was telescoped from 1995 to 1990 and free trade in most services was agreed in 1989 and introduced at the beginning of 1990. There had long been a common market in labour and by the late 1980s in practice investment was treated very much as if there was a single economy. The two countries moved on to issues of rendering compatible standards, business, securities and competition law and, in 1992, in aspects of tax. This identification and removal of disharmonies in the business operating environment increasingly required regular consultation between Wellington and Canberra, and to some extent Wellington and major state capitals, not only between ministers but in some departments between state servants several ranks below the top. To enable New Zealand business to operate to its best advantage in the expanded Australasian ‘home’ market, New Zealand policymakers had increasingly to concern themselves with Australian government and legislative practice and proposals and to try to eliminate significant differences. This gradually came to constitute an additional, though not unbreakable, constraint on the freedom of action of policymakers in New Zealand, as much the smaller partner, and also required them to intensify efforts to gain respectability, goodwill and so credibility, creditability and influence with their Australian counterparts who, wrestling with their own internal difficulty of getting agreement between the states, otherwise had only limited reason to take account of New Zealand concerns. The clinching reason for buying Australian frigates was to gain respectability and goodwill in the CER process.’ During the early 1990s the CER issues have become complex ones involving the business environment: competition, companies, securities, futures, consumer protection and copyright law, mutual enforcement of court orders and co-operation between regulatory authorities, Government purchasing, shipping, dividend imputation tax, rules of origin, investment, standards, border control procedures, professional qualifications. In the later 1990s, some analysts think, issues will arise which go to the heart of economic sovereignty: a common tariff, management of the money supply, the Budget, tax and the exchange rate. 116

The Push to Independence

In dealing with them, this analysis argues, no matter how independent-minded New Zealand is, its policymakers will have limited scope for independence of action in economic, military or foreign policy. Other analysts disagree: they say that those matters will remain off the agenda precisely because they do go to the heart of sovereignty. Which analysis is correct will only be known over time. The faltering of European integration over currency issues in 1992 is perhaps a portent, but CER has constantly surprised analysts by going farther faster than most expect. Perhaps the most likely answer is that, simply by being in the background, the issues will be a reminder of the limitations of sovereignty and that over time some items now thought to be at the heart of sovereignty will not be thought so in a decade or two.

In a sense the CER posers do no more than reflect the limitations on all small countries. Big countries, with economic and military muscle, can pursue their interests with very little constraint other than their own sense of what is proper. Small countries must focus on issues of direct regional or economic importance and rely on international law and economic and military alliances to defend their

interests.’° To some extent the Labour Cabinet, in appearing to fail to break entirely free from the old colonialism, was bumping up against the constraints that apply to all small countries. In addition, as was described in chapter 5, the globalisation and internationalisation of world production, distribution, consumer information and trade and financial flows have limited the economic sovereignty of all countries.'’ New Zealand’s experience with CER was a localised variant of that. Thus, even if there are limits on New Zealand policymakers’ independence of action, that is not the same as sliding from one version of colonial dependence to another. The mentality of the policymakers of the 1980s was materially different from that of the policymakers of the 1950s. John Henderson, political scientist and from 1987-89 head of the Prime Minister's Department, has written of the period up the 1960s that ‘the reason why New Zealanders have fought and died in Africa (during the Boer war), Europe, the Middle East and the Pacific (through the world wars) and Korea, Malaya and Vietnam was because of an identification with the needs of its great power allies, the United Kingdom and later the United States’.!? By contrast, he argued, banning war-

ships, buying frigates and finding a way of feeding into the Canberra decision-making process was in accordance with what policymakers identified as New Zealand’s needs. It could be argued that New Zealand’s needs have been the determinant for some time and that the difference lies in the avenues through which those needs 117

New Territory

have been expressed. For example, New Zealand had no choice but to work through Britain for protection of its trading interests during Britain’s negotiations for entry into the European Community in 1970-72 and for some time thereafter during periodic reviews of New Zealand’s permitted trade access to the community. A few years earlier, the Holyoake Cabinet did not in fact join the Vietnam war in 1965-66 because it identified with the United States’ needs. It did so partly because it saw its own needs for a non-communist south-east Asia to its near north-west as coinciding with the United States’ global containment of communism. More important in the decision, however, were New Zealand’s direct economic interests: the United States applied pressure over New Zealand’s meat exports there which were under quota.’? This, however, was not the case in Malaya in the late 1950s. Though New Zealand did have an interest in the

general containment of communism in the region, even then, Britain’s imperial needs were the prime determinant. As late as 1982 Robert Muldoon’s offer of a frigate to Britain during the Falklands war was driven by sentiment, not by New Zealand’s direct interests.

The post-1984 policymakers were light-years away from that mentality. They may have fallen short of the full exercise of independence in the sense big countries are able to, and they may have struggled to assemble a convincing foreign policy in the vacuum created by the ship ban. But they have been guided by New Zealand's interests alone. The 1987 Defence Review focused on self-reliance in

the South Pacific and the South Pacific Policy Review in 1990 looked to a Pacific island community of which New Zealand was a sovereign part.'* The May 1991 Defence Review under the National Government did not revert to an alliance-dependent stance, but proposed ‘self-reliance in partnership’ which explicitly gives priority to New Zealand’s direct interests in its aim ‘to protect the sovereignty and advance the wellbeing of New Zealand by maintaining a level

of armed forces sufficient to deal with small contingencies affecting New Zealand and its region and capable of contributing to collective efforts where our wider interests are involved’. Though the National Government has expressed a strong desire to restore the military links with the United States, the ban remains on nuclear-armed ships. Only in one relatively minor dimension, the acceptance of nuclear-powered warships in the wake of the United States’ decision in October 1991 to remove nuclear weapons from surface ships, was there any evidence — and that pigeonholed for fear of losing votes — of a willingness to accommodate Washington and that is primarily an environmental issue rather than a defence or foreign policy issue. Though the National Cabinet exhibited an explicit desire to please the United States in its decision to contribute a small non-combatant force to the United States-led United Nations force in the Gulf war in early 1991, that commitment lacked the slavishness of

118 ,

The Push to Independence

the Vietnam decision and without the United Nations imprimatur may well not have been taken. In 1992 New Zealand can no longer accurately be described as a satellite.

This growing expression of nationhood is evident elsewhere in policymakers’

initiatives after 1984, Muldoon had pursued New Zealand’s direct trading interests at times belligerently and with an almost reckless disregard for protocol. Much of the rest of his foreign policy he in effect left in the hands of his

superpower ally, the United States — joining the United States ban on the Moscow Olympics was a case in point — and to a lesser extent, his sentimental

home, Britain, offering (often gratuitous) advice, warnings and insights and occasionally seeking modifications but striking out on his own only where there was no conflict or where British and United States interests were, as in the South Pacific, very limited. By contrast, the post-1984 Labour Cabinet widened the scope of its foreign initiatives, both geographically into areas where New Zealand’s interests were at odds with those of Britain and the United States and in subject-matter beyond trade, which inevitably meant that when New Zealand’s perceived interests differed from those of Britain and the United States, there would be clashes.

The Labour Cabinet injected global and political dimensions, particularly during the period from mid-1987 to early 1990 when Russell Marshall was Minister of Foreign Affairs. For example, though Africa’s share of New Zealand

exports was less than 1% during the 1980s and had been almost ignored by Muldoon, Lange toured southern Africa in 1985 and Marshall carried out patient, low-key personal diplomacy through 1988 and 1989 aimed successfully at ensuring African participation in the Commonwealth Games in Auckland in February 1990 when continuing difficulties with sporting links with South Africa, including a renegade rugby tour by All Blacks in 1986, threatened to trigger a repeat of the 1986 boycott of the Edinburgh games. Political links were also strengthened in Asia. For example, Lange became friends with the Indian Prime Minister, Rajiv Gandhi, and reinforced the relationship with the inspired appointment of Sir Edmund Hillary as high commissioner (ambassador); Marshall became friends with Indonesian Foreign Minister Ali Alatas. These were lim-

ited initiatives but they indicated a desire to play a wider role, one more consonant with independence. Under Geoffrey Palmer’s prime ministership international environmental initiatives also played a bigger part, notably in successful co-sponsorship with the United States of a United Nations censure of drift net fishing. International environmental initiatives were not new — New Zealand from 1982 chaired a consultative committee to develop rules to protect the Antarctic environment 119

New Territory

(which ended in agreement on a tough regime in 1990, but was overtaken by French and Australian demands for a total ban on prospecting and mining, which New Zealand had unsuccessfully advocated in the time of the third Labour Government). But under Labour such initiatives featured more. This broader approach to foreign policy has to some extent been continued by the National Government. Foreign Minister Don McKinnon, in a series of speeches in 1991, while voicing a formula close to Muldoon’s trade equation, nevertheless in fact and action distinguished a political dimension, particularly in contacts with Asia. In the National Cabinet, as for five of Labour’s six years,

the foreign affairs and trade ministerial portfolios were split. McKinnon unblushingly attended the non-aligned conference in September 1992 seeking support for New Zealand’s successful bid for a seat on the United Nations Security Council. In the Muldoon era the non-aligned movement was treated as a subversive influence and shunned.

Thus the 1984-85 move had independence ramifications far beyond the intentions of the time. New Zealand has since become much more consciously responsible for devising its own foreign and defence strategy and to that extent may be said to much more independent-minded — and nearly as independent in action as a small country can be. Certainly, it can no longer be spoken of as colonial, as it could even 10 years ago.

New Zealand has also become much more accommodated to its geographical position. Muldoon did take seriously New Zealand leadership among the South Pacific ministates and microstates. Lange’s empathy with Polynesians, of whom there were large numbers in his Mangere electorate, and the 1987-90 Foreign Minister Russell Marshall’s strong belief that the South Pacific was New Zealand’s primary foreign interest sharpened the focus. Diplomatic representation was extended to Melanesia. Three events encouraged that sharpening of focus. One was the violent overthrow of the legitimately elected mainly Indian Government in Fiji by native-Fijian army officers in 1987, stating that they did not want to become dispossessed in their own land as Maori had in New Zealand. This made New Zealanders suddenly aware that their own lake could be choppy. There was tension in New Caledonia, the nearest foreign territory to New Zealand, as imperial France tacked back and forth on the issue of independence. And on the edge of the region, Bougainville tried to take independence from PapuaNew Guinea by armed force. Both the 1987 Labour Government statement of defence policy’® and a review of policy towards the South Pacific in 1990” supported the South Pacific focus. And, while the National Government has relaxed the focus and redefined

New Zealand’s direct interests as being wherever its trade flows go, Foreign 120

The Push to Independence

Minister Don McKinnon made a special point of burying any lingering illusions from the past about our geographical status: “As far as I’m concerned that endless debate over whether or not New Zealand is a South Pacific nation is over. This is home.’®

If the South Pacific is ‘home’, however, some questions might continue to be asked about the immediate environs. Is Asia ‘next door’? Yes, trade flows told us during the 1980s. East Asia accounted for minimal trade in 1960, but a quarter of New Zealand’s exports in 1980 and a third in 1990. Japan emerged during the 1980s as challenger to Australia as the biggest single trading partner. In 1992

Korea was close to pushing into fourth place, behind the United States. With growth rates ranging from 6% to 12% in all but a few countries in east Asia, the trend was unmistakable. The southern China provinces of Guangdong, Fujian and Hainan were by 1991 clearly headed for high ranking on New Zealand’s list of trading partners. As indicated above, foreign policy responded creakingly to this during the 1980s, even if ministers still weighted their travel heavily to Europe and North America. It is noteworthy that Don McKinnon’s first overseas visits beyond the South Pacific on taking office at the end of 1990 was to an Asian country, Indonesia. Trade Negotiations Minister Philip Burdon, though tied to Europe because of European Community and Gatt multilateral trade negotiations business, made a point of going into Asia, leading both trade and investment-seeking missions.

There were other indicators of a growing recognition of and interest in Asia. By 1981 the total number per capita of Japanese language courses was among the highest in the world. In secondary schools the proportion of students taking Japanese language class went from 0.7% to 7% from 1981 to 1991, second only to French and closing the gap.'’? Chinese courses expanded, though they were still sparse. Though aid tailed off (New Zealand made many friends now

in high places by paying for students from Commonwealth Asian countries, especially Malaysia, to study here from the 1950s), sales of education to Asian students grew during the 1980s (though in some unfortunate cases, in English language schools which collapsed, causing a strain in official relations with China). The number of migrants, particularly those with investment funds, doubled in the second half of the 1980s to the point where east Asia (mainly Hong Kong and Taiwan) supplied 15% of migrants, eclipsing Europe, and the National Government actively (and successfully) sought to rebalance the mix in 1991.” Investment by east Asians in property expanded rapidly, though from a small base, in the late 1980s and in the early 1990s there was a widening of

that investment, particularly by Singaporeans, into productive ventures — though the total remained low. New Zealand companies began cautiously to 12]

New Territory | invest in Asia during the 1980s and in the early 1990s to expand manufactured exports there. Even the firmly Euro-cultural Fletcher Challenge moved into construction and oil exploration in east Asia.”! This did not make New Zealand Asian. In 1990 a nagging theme at National Party conferences at regional and national level was antipathy to and fear of Asian purchases (actually minuscule) of residential and rural properties. This reflected

a wider community phobia about Asians. Eurocentrism still reigned in television: going into the 1990s, Television New Zealand appointed a British chief executive and appointed its first and (so far) only fulltime correspondent beyond Australia in London. Radio New Zealand continued to maintain regular stringers in Washington, New York and London, but not in Tokyo, Singapore, Hong Kong and Jakarta, which were sparsely reported. The Press Association of daily newspapers did keep a correspondent in Asia through much of the 1980s, but when it retrenched late in the decade the retrenchment came first in Asia. A moderate train smash in London was worth four ferry sinkings in Indonesia. The 1980s nevertheless did mark a decisive step away from the illusion embedded in the prosperity consensus that New Zealand was an island just offshore from Britain. Ata minimum the reality of the geographical distance and the reality of shifting trade patterns were at last understood, even if culturally most New Zealanders remained European.

Independence is not measured just by what a country presents to the outside world. Some of the signals of independence are to be found in the way a country organises its internal society and policies. One indicator of independence is that the economic policy changes detailed in chapter 12 have prompted in a stratum of New Zealand business operators a confidence in their ability to foot it in the outside world that was almost entirely lacking during New Zealand’s period of economic colonialism. They do not see their country as a dependency of someone else’s economic power, even if New Zealand has very little economic power. They see New Zealand’s economic solutions as lying in New Zealand. A second indicator is our growing acceptance of our history. Scholars have

re-examined and reinterpreted our history: the history business is buzzing. Claudia Orange's dry book on the Treaty of Waitangi was a best-seller, with sales

equalling 1% of the population. European New Zealanders flocked to genealogists, Maori mana revived: two races becoming more confident of their roots. In the wake of the 1980s there is less need for veils over the early colonial years. The grievances began to be addressed. The Treaty of Waitangi, hidden in shame for a century and a-quarter, has become in policy terms (even if not yet firmly

so in the popular consciousness) the cornerstone document of the nation. The 122

The Push to Independence

Labour Government initiated or greatly accelerated those developments. The acceptance of the treaty is the most important affirmation of nationhood since the reluctant acceptance from Britain of legal independence in 1947. Newly independent nations usually acquire a new constitution or rewrite the one they have to mark their emergence from colonial status. In the sense that the Labour Cabinet made its new constitution somewhat by accident, thinking it was merely righting some readily definable past injustices and not expecting the depth of change it was unleashing, that cannot be called a conscious act of independence. But it was in keeping with the Labour ministers’ iconoclasm and willingness to take risks in the name of a new world to come — and that temperament is shared with independence movements. The restoration of the treaty was also an act of independence in another sense. Independence is not just the cutting of old ties, guidances and oppressions. True independence requires a sense of what makes up and binds together the independent entity. In the case of a country that implies a sense of nationhood, some widely accepted idea of what binds the nation and a sense that the various seg-

ments of a country in some way fit together into a recognisable whole. Independence means dealing with the hard issues on one’s own, fashioning an identity and a wholeness out of a conflict no one else can resolve. The restora-

tion of the treaty has confronted us with that requirement and demanded ‘partnership’ as a mechanism of resolution. Little England has passed into history. There are now no comfortable colonial myths to retreat to. Whether they like it or not — and many do not like it, so resentments, backlashes and attempts to reverse the process will mark the next quarter-century and maybe longer — all European New Zealanders now know they live inescapably alongside a South Pacific race and they are inescapably part-defined by that. Labour’s gimme generation, cheerfully, energetically, unconcernedly smashing the icons of a century and a-half in the name of independence, has freed us from old constraints. In doing so, it has confronted us with ourselves. We are not yet bound together as well as a nation requires. Our history is fragile and, for European New Zealand though not for Maori Aotearoa, shallow. Vestiges of nostalgic colonialism linger in our flag and the monarchy’s continued role, the supine cravenness of the national anthem which enjoins us not to stand up for ourselves but to leave it all to God. The independence is still too new to be strong. But it is now in front of us.

123

11. A New Social Order

T he young radicals of the 1960s wanted a society of equals: equals among

races; equals between the sexes; equal freedoms for private moralities; equal-

ity of opportunity in education; and equality of citizenship in a sustaining income, assurance of housing, health care and social support. The affluence of the 1960s swept away old excuses for failure to achieve those equalities. Labour’s gimme generation Cabinet brought to office instincts formed in that generous and radical time. They arrived in office with a lot of special interests in tow. Women had become a force in the party, organisationally and in policy development. Maori had long allied themselves to the party and as the land rights push gathered strength that transmitted itself to the party councils. Other minorities, for example, homosexuals, fitted into a party increasingly dominated by people with liberal or libertarian views of morality. And, of course, there was the powerful tradition of equalising and liberating social support by the state to which the Labour Party had subscribed since birth, and which was given direct influence within the party by the presence in numbers of educationalists, health professionals, sociologists and social workers. In office, the party duly set out to respond to those interests.

The Treaty of Waitangi was restored to legal centrality. That was perhaps the most important of the changes wrought by the fourth Labour Government. In 1975 the third Labour Government passed the Treaty of Waitangi Act, setting up a Waitangi Tribunal to hear and advise the Government on Maori claims of contravention of the principles of the treaty by government action from

1975 on.’ The tribunal was not expected to do much and was a reluctant indulgence by the Cabinet of the Maori Minister of Maori Affairs, Matiu Rata. But the tribunal and its founding legislation developed lives of their own. Rata was much influenced by two Auckland University lecturers, Ranginui Walker and Pat Hohepa, who had been at the forefront of the resurgence of Maori consciousness in the 1960s. They were well aware, as all but a handful of pakeha were not, that Maori leaders had never given up hope of having the treaty fully honoured — for example, Maori leaders had attempted to present an ‘address’ to the Queen when she visited the marae of the Maori king at 124

A New Social Order

Turangawaewae during her tour of the country in the summer of 1953-54. Walker and Hohepa were also well aware of numerous ministerial and court decisions, from the notorious Wi Parata decision of the New Zealand Supreme Court in 1877 on, that denied the treaty legal status except where it had been explicitly incorporated into legislation. Even in the Fisheries Act, the one piece of legislation in which it was explicitly referred to, the courts denied Maori rights. Walker’s and Hohepa’s solution was to have the treaty written into the Treaty of Waitangi Act and to have the act focus the tribunal’s work on the ‘principles’ of the treaty, not its text. In 1840 when it was signed, the treaty served two principal purposes. It assured pakeha of Maori peacefulness and submission to British order — a safe conduct pass for the struggling colonists when they could easily have been wiped out. To the Maori the treaty was an assurance they would run their own affairs. The British were guests in the land, welcome (to some chiefs) for their technology and trade but not welcome as overlords. Chiefs lent land and provided wives to favoured British. The twin assurances were incompatible. Under article I of the treaty in the English version, sovereignty was transferred from Maori chiefs to the British Crown. Under article ITI Maori became British subjects. They thus became subject to British laws — for instance, relating to killings, which caused one of the first frictions over the treaty when a Maori was arraigned on a murder charge in 1842.? The transfer of sovereignty meant that anything could be done by the British Government or its local delegated government in New Zealand and it was legal, regardless of Maori custom or chiefly control. Article II’s reservation to Maori of ‘full, exclusive and undisturbed possession of their lands and estates, forests, fisheries and other properties which they may collectively or individu-

ally possess so long as it is their wish and desire to retain the same in their possession’ became subject to whatever the colonists, hungry for land and resources, decided through their Government. But under article IJ in the Maori version, the language of almost all the copies Maori signed, chiefs were guaranteed ‘tino rangatiratanga’ — full chiefly authority (though only over lands, villages and ‘taonga’, or treasures). And article I in the Maori version transferred to the Crown only ‘kawanatanga’, a transliteration of ‘governorship’ which to Maori was the shadow of authority, not its substance, assuring them the ‘kawana’ (governor) would impose order on the British riff-raff but leaving them to run their tribes as they saw fit, with full control over their land and fisheries. If overriding authority had been meant by article I, Maori would have expected the word ‘mana’. Each race could be forgiven for thinking the treaty had left it in charge. Not surprisingly, in retrospect, some Maori leaders took it to permit separate Maori 125

New Territory

jurisdictions; equally unsurprisingly, in retrospect, the British colonists, as soon as they had the numbers, enforced their rule. The colonists soon had the numbers and the force to prevail and the treaty was relegated to a ‘nullity’, a ‘fiction’ and a mere symbol, not the instrument, of the birth of the legal New Zealand state. The Treaty of Waitangi Act restored legislative status to the treaty. It still did not have legal recognition in the courts and its purview was strictly limited, in scope to acts by the Crown and in time to acts after 1975 (Walker and Hohepa had sought a starting date of 1900). But after 135 years in which the treaty had been denied status in every forum — the Royal Court at Windsor, Parliament

and the legal courts — in which redress had been sought, it now had status. Maori could evoke the treaty and Europeans had to respond. It is very doubtful that, apart from Rata, the ministers who approved the legislation had any idea how momentous this change was.

Nor did the National Government which inherited the legislation in 1975 have any idea until Eddie Durie, a Maori, became Chief Judge of the Maori Land Court and ex officio took over the chair of the tribunal in 1981. In Durie’s unassuming but skilful hands the focus on the principles of the treaty provided the

tool to widen the tribunal’s purview. In 1982, hearing a claim brought by Te Ati Awa against the positioning of a waste outfall pipe from the proposed synthetic petrol plant at Motunui in Taranaki, Durie had the tribunal sit on the claimant tribe’s marae and the tribunal accorded Maori values on the disposal of human waste equal weight with scientific evidence. The report in March 1983, recommending legislation to designate and protect Maori fishing grounds and the rerouting of the outfall away from the tribe's fishing reefs, was at first rejected by the then National Cabinet, which wanted as rapid and untrammelled progress

as possible on the synthetic petrol plant, but was subsequently acted on in respect of the specific outfall provisions (the legislation came in 1989). In a series of other claims in the early to mid-1980s — notably on pollution of the Manukau Harbour, disputed land at Bastion Point at Orakei in Auckland and for Maori to be an official language — the tribunal decided that while it was legislatively barred from investigating pre-1975 events it could, and did, consider them in coming to its conclusions. Moreover, it decided that it could review acts or omissions by the Crown before 1975 if they were still in force. In hearing the Orakei claim, for example, the tribunal took extensive evidence on a century and a-quarter of shabby treatment of Ngati Whatua by successive governments. This process says much about the shifting ground in Maori-pakeha relations. Typically in the early 1980s the tribunal consisted of Durie, Sir Graham Latimer

and Paul Temm QC. Latimer was Maori vice-president of the National Party and as such might have been expected by the National Cabinet to have resisted 126

A New Social Order

any radical or even reformist initiatives. Likewise, Temm, a well-established Queen’s counsel and so a very senior lawyer, could logically have been expected to uphold establishment values and to combat looseness in interpretation of the Treaty of Waitangi Act. Instead, Latimer reflected the strong and persistent view of Maoridom at even the highest and most conservative levels that the treaty should be honoured —

that is, that Maori control over Maori interests should be restored and that breaches of the treaty by governments since the 1850s should be redressed. The prevailing view in Wellington was that ‘radicals’ were a tiny and unrepresentative minority, unsupported and condemned by Maori elders and unappealing to the vast majority of Maori who were adjusting to and becoming part of mainstream New Zealand life. But in fact, while the radicals’ methods — protests, disruption and confrontation — were deplored by Maori elders as indecorous, their objectives were broadly shared. This was brought home vividly to me during a two-week tour of Maori elders in Rata’s Northern Maori constituency in the wake of his resignation from the Labour Party in late 1979 and his formation, with Hohepa again at the centre of the action, of the Mana Motuhake Party to give stronger voice to Maori aspirations. Many openly supported both Rata’s methods and objectives. Those who objected to his methods nevertheless all, including Sir James Henare, paramount chief of the north knighted by a National Government, agreed with the objectives and restated their commitment to full implementation of the treaty. Decades of demoralising futility in pursuit of those objectives in the face of successive governments’ cultural blindness, coupled with traditional Maori deference to protocol and the mana of the Crown and its representative, had led elders into a deceptive silence which governments took for abandonment of treaty objectives. But the minor successes by radicals in the 1970s and early 1980s — in protests demanding the return of land taken during the Second World War for

an airstrip at Raglan and of land taken for state houses and a park at Bastion Point (a dispute ‘settled’ but reopened before the tribunal when its authority was extended) — coupled with a growing sympathy among some liberal pakeha, began to fortify elders’ preparedness to restate their objectives. The Maori radicals also changed non-Maori liberals’ focus on Maori issues,

moving it from social disorientation and economic underperformance to the claims for redress of past wrongs. Logically and morally, the Maori claims at Raglan and Bastion Point were compelling. From the 1970s academics and lawyers revisited the history and legal standing of the treaty and a persuasive school of thought began to argue that the treaty was intended by the British Government in 1840 to have legal force as between sovereign peoples and had been illegally flouted by the colonial government. In those circumstances, it was not 127

New Territory , | surprising that Temm, enjoined by the 1975 act to apply the ‘principles’ of the treaty and confronted by some strong moral and legal argumentation, joined Durie and Latimer in widening the purview of the tribunal beyond that intended by the 1975 Labour Cabinet. Liberals were legion in the Labour Party. So were lawyers. And after Rata’s departure and his 38% second place in a by-election in Northern Maori on 7 June 1980, the party was eager to shore up its grip on the Maori seats. It went into the 1984 election committed formally to extend the tribunal’s jurisdiction back to 1840. It passed the necessary legislation in 1985. This had a chain of results, some foreseen and others not. Claims flooded in: 88 by mid-1987 and 216 by mid-1991. The membership

of the tribunal was expanded to 16, but even so by mid-1991 it had reported on only 27 — and of 86 recommendations only 54 had been implemented in whole or part by the Government.’ Some of the claims were massive, most notably those in respect of the raupatu (confiscations of land from Taranaki and Waikato tribes in the nineteenth-century conflicts), in respect of the denial of land to Ngai Tahu in the South Island in accordance with the sales contracts and in respect of the $1 billion commercial fishery. Settlement of such potentially ruinous claims, the justice of which the Crown acknowledged, has proved complex and taxed the ingenuity of ministers and bureaucrats in setting up new structures that could reduce the settlements to practical outcomes while staying true to the newly rediscovered ‘principles’ of the treaty. Some of the claims were for taonga, or treasures, far beyond what the legislative reformers had even remotely considered — for control of the radio spectrum (as part of the existing natural environment in 1840), for example. The tribunal process encouraged six other major developments.

One was to embolden Maori to claim institutional equality on the basis that Maori were sovereign signatories to an international treaty rather than sub-

ject peoples and that therefore Maori retained equal sovereignty. A range of propositions based on tribal tino rangatiratanga surfaced in the late 1980s that few had before 1985 considered open for discussion — for example, suggesting a legislative body with equal weight to Maori and non-Maori (a decision-mak-

ing procedure adopted by the Anglican Church in 1991), a separate legal procedural system for Maori and state-funded or subsidised Maori-language television and radio channels. These claims were not met, but after more than a century of deferential presentation of modest claims for redress of documented land injustices, the bold strike for equality and a claim on resources generally pushed the boundaries of the debate far beyond previous ambitions. After the 1980s changes assimilation ceased to be an option, not just for policymakers 128

A New Social Order

but for Maori themselves. The second development was related to the first: the reinforcement of selfconfidence among a much wider group of Maori in doing things for themselves and on their own terms. The best-known example was the kohanga reo move-

ment of Maori language pre-school centres catering now for 12,500 Maori children.

The third major development was to change the courts’ interpretation of the treaty.

In the Wi Parata case in 1877 the New Zealand Chief Justice, Sir James Prendergast, defined it as a ‘simple nullity’ on the ground that it had not been incorporated into the general law by Parliament.‘ Legal redress by appeal to the treaty after that was impossible. The last word was by the Privy Counail in a 1941 decision restating the need for incorporation into the general law for the treaty to have legal effect.° Even the inclusion in the 1877 Fish Protection Act of a statement that nothing in the act affected the provisions of the treaty or any Maori fishing right secured by the treaty was not enough. The specific right claimed had to be secured by legislation. This position was restated as late as 1965 by

Mr Justice Hardie Boys.° |

Twenty years later, however, in 1986, Mr Justice Williamson quashed a conviction of a Maori, Tom Te Weehi, for taking paua illegally on the ground that Te Weehi was exercising a Maori right under the Fisheries Act (even though by then the act did not include the specific reference to the treaty that was in the 1877 act).’ In 1987, ordering a halt to implementation of a system of individual transferable quotas for fishing which created a property right in fish and so ne-

gated Maori fishing rights (which forced the Government to negotiate with Maori to share the fisheries resource), Mr Justice Greig said that, even though the Fisheries Act did not specifically incorporate the treaty’s preservation of Maori fishing rights under article II, that article was important in deciding what redress there should be.® In other words, the treaty was part of the social background against which legal decisions were to be made. In November 1987 Mr Justice Chilwell, requiring the Planning Tribunal not to exclude Maori spiritual and cultural values from consideration of a case involving the Waikato river, said that ‘there can be no doubt that the treaty is part of the fabric of New Zealand society. He added that ‘it follows that it is part of the context in which legislation which impinges upon its principles is to be interpreted in accordance with the principles of statutory interpretation, to have resort to extrinsic material’. He also noted that a treaty, as an international instrument, may be used in the interpretation of parliamentary legislation. ?

The Chilwell judgment followed a momentous Appeal Court case in which the President, Sir Robin Cooke, specifically invoked changing opinion

: 129

New Territory _ as a basis for changing the courts’ attitude. ‘For more than a century and a-quarter. . . integration, amalgamation of the races, the assimilation of the Maori to the pakeha, was the goal which in the main successive governments tended

to pursue, he said. ‘Now the emphasis is much more on the need to preserve Maoritanga, Maori land and communal life, a distinctive Maori identity.’ The treaty needed to be interpreted in the light of that change. “The Government, as in effect one of the treaty partners, cannot fail to give weight to the “philosophies and urgings” currently and, it seems, increasingly prevailing.’!° The case stemmed from a section inserted into the State-Owned Enterprises Act by the Government very late in its passage in early 1987 to bar any action done ‘in a manner that is inconsistent with the principles of the treaty .. .’. The treaty was also written into the Conservation Act and the Resource Management Act, acknowledging the importance of Maori values in conservation, planning and resource use. These legislative acts gave Maori a basis for legal challenge — though only against the Crown for a Crown action and in no instance against a private individual, company or group, regardless of past injustice. Maori duly challenged, through the Maori Council, a Government-sponsored non-tribal body chaired by Latimer. The issue was the transfer by the Crown to privatisable state-owned enterprises land that was or could be the subject of a claim to the Waitangi Tribunal. The Appeal Court found for the Maori Council and the Government later legislated accordingly. More important than the specific finding, however, which seriously affected some state-owned enterprises’ commercial flexibility, were the court’s general pronouncements on the treaty. Cooke said in his judgment that it ‘created responsibilities analagous to fiduciary duties’ which required ‘active protection’ by the Government ‘of Maori people in the use of their lands and waters to the fullest extent [reasonably] practicable’."' Mr Justice Richardson talked of the Crown’s duty as a partner to ‘the settled principles of equity as under our partnership laws’.’? On the other side of the partnership compact, Cooke said, ‘the Maori people have undertaken a duty of loyalty to the Queen, full acceptance of her government and reasonable co-operation’.’° A moral duty or a legal one? The references to fiduciary duties and the law of partnership suggested almost a legal one — which opened a huge

legal hole through which to challenge the principle that the treaty had to be specifically written into law before it could be used for redress by Maori. The partnership concept developed in the judgment was also an important ingredient in a fourth development — a move towards devolution by the Gov-

ernment to Maori control of matters directly the affair of Maori. There were proposals, later aborted because they posed difficult problems of organisation and

auditing, and subsequently rejected as inherently undesirable and unworkable by the National Government, to devolve first to individual departments then 130

| | A New Social Order to tribes the administration of state spending on Maori. There was more extensive use of the Maori language in official communications. The Cabinet instructed departments to develop programmes and monitoring systems to ensure they were acting in accordance with treaty principles and many bought deep immersion crash courses in Maoritanga for executives; the 14th floor committee room at the Treasury was converted into a quasi-marae. Provision was made in legislation for Maori advisory committees for area health boards and regional councils. Maori ran their own ‘Maccess’ (Maori Access) skills training schemes for the unemployed, using money from the state. The state also provided money to tribal or regional committees to oversee new small business, with much suc-

cess but also some headline-grabbing failures, including a misguided plan to build prefabricated houses for Hawaii. In west Auckland some Maori criminal offenders were dealt with by Maori authorities in an attempt to rehabilitate them. This was concrete recognition of the tino rangatiratanga principle — but within the sovereignty of Parliament. Waitangi Tribunal chief Eddie Durie likened it to the devolution of functions and some power to local authorities. The Appeal Court judgment, and to some extent the devolution moves, con-

tributed heavily to the fourth development from the treaty legislation and the tribunal’s work: non-Maori took serious notice. This was in two forms. One was a reaction ranging from irritation at to rejection of a serious challenge to British cultural, commercial and legal supremacy and to the unity this supremacy was thought to underpin. A One New Zealand organisation sprang up to argue for a return to assimilationist policies and an end to special considerations for Maori. But there was little evidence of aggressively racist, fascist or neo-Nazi organisations, as has developed in Europe in response to migrant minorities in recent years. The other reaction was that non-Maori institutions and organisations outside the Government, including business, began to take seriously Maori complaints, demands and issues they had been able simply to ignore for 130 years. Fletcher Challenge assigned an executive at corporate headquarters to Maori issues in 1988 and made Claudia Orange’s book"* on the treaty required reading for senior executives.

There were two other downstream developments. One was, as outlined in chapter 6, a contribution, through confronting New Zealanders with their history and the inescapable need for the races to come to terms with each other, to the development of a sense of national identity, and so independence, of the 1980s. The second was, as outlined in chapter 9, that the treaty acquired constitutional status. Though the treaty move was initially opposed by the National Party, in office it accepted the process with little change. At the time of writing a major deal

appeared likely to be concluded ensuring Maori access in time to nearly 50% 131

New Territory | of fish quota. Progress also was being made on major land claims. Maori in 1992 are no longer, as in 1984, officially honorary and poor pakeha.

They remain for the most part poor by comparison with other New Zealanders, an underclass. Pakeha hold the economic and political power and continue to mould those systems to their preference. But Maori are Maori again, not just where they have always been Maori, on the marae, out of sight, but in the eyes of pakeha. There are political and economic levers for Maori to pull. What Maori make of that in the next quarter-century will profoundly influence the shape of Aotearoa.

The changes were not so dramatic for women, the other great ‘minority’ in society. Nevertheless, the Labour Government was active with a wide variety of measures. Policy for the advancement of women had a special place, the product of the work of the women’s council of the Labour Party which by the early 1980s had developed both numbers and clout. A Ministry of Women’s Affairs was set up to provide a continuous stream of advice to and monitoring of government activities. The ministry fell far short of the objective intended for it: a mainstream ‘control’ department which would, along with the Treasury and the State Services Commission (and the Maori Affairs Ministry), have a crucial input into all significant government decisions. But it did develop a presence for women in decision-making that has endured a change of government to a party deeply suspicious of the ministry and of the

feminist sentiments which the party believed had caused the ministry to be founded. The failure was more in the ministry itself than in the Cabinet's intentions and expectations of it: the ministry, under its first head, Mary O’Regan, spent a great deal of effort getting itself politically correct in feminist terms instead of getting its hands on the levers of power and influence available to it. Possibly one of its most useful contributions was the development of a women’s appointment file, that is, a register of women qualified for appointment to _

government authorities and private sector boards. The Cabinet did appoint many women to such positions, including, for example, Suzanne Sniveley, as the first woman on the Reserve Bank board, a preserve thitherto of male stuffed shirts

and party hacks. The Labour Government appointed Dame Catherine Tizard as the first woman Governor-General and Dame Silvia Cartwright as the first Chief District Court Judge. Margaret Bazley was appointed chief executive of the Ministry of Transport in 1988. And within its own ranks, it elected a woman,

Helen Clark, as Deputy Prime Minister in September 1989. By 1990 it was becoming increasingly unremarkable that women should hold high positions once the exclusive domain of men. These appointments constituted a quiet but important reform by the fourth Labour Government, accustoming men to 132

| A New Social Order women’s presence in their boardrooms and committee rooms. A cadre of women developed who could influence subsequent appointments and so maintain and

build numbers in influential positions. So not only were men encouraged to appoint more women, though this was limited; women were also put in a position to begin making such appointments themselves. These changes had more impact on women of the salaried middle classes than

on women of the wage-worker classes, but a sort of trickle down began in the late 1980s. Women increasingly began to seek further education and once in the education system, say for some safe subject such as flower arranging, were encouraged by staff to go on to sterner stuff. People working with suburban women married to wage-worker husbands have reported a growing willingness among those women to take control over a greater amount of their own and their family life. It may take another generation to translate that into the upbringing given

to girl children, but it marks what may be a profound subterranean change in New Zealand society. Whatever the effect of the fourth Labour Government's economic policies on women, it may well be remembered for having hurried up the long-drawn-out process of equalisation of women and men. It put funds and other help into the process, for example in women’s sport, refuges and child centres for public servants. Just before it went out of office the Labour Government passed legislation to provide a process for ‘pay equity’, that is, for getting women-dominated occupations paid the same as comparably dangerous, difficult or skilled men-dominated occupations. (This was, however, immediately junked by the National Government in 1990.) The attention to women was unsurprising in view of their considerable presence and influence within the party. Equally unsurprising was that during the 1980s the gimme generation Cabinet gave practical effect to one of the strongest themes of the politics of the young 1960s along with environmental conservation and peace — that morality is a matter for the individual and not for repressive laws by the state.

In the term of the fourth Labour Government homosexuality was decriminalised, sex education freed, censorship laws on indecency liberalised and many restrictions removed on alcohol sales and gambling. It was not the free society of the left libertarians’ dreams of the 1960s — marijuana was only partially decriminalised, alcohol could not be bought on Sundays, there remained decency censorship, with the prospect of more as a result of inquiries set up by the Labour Government itself. But it was much closer to the 1960s dream than those libertarians had dared two decades earlier to expect of any government. That dream was not just of freedom. The issue of civil rights was a recurrent motif. The Labour Party arrived in office with a wide range of commitments to

133

New Territory

affirm or develop rights on behalf of groups that were oppressed or discriminated against. This was a good part of the reason for decriminalising homosexuality.

Discrimination on the basis of age was brought under the Human Rights Act and the Human Rights Commission’s purview; a human rights commissioner was appointed for children, among other moves. The Bill of Rights Act was in a similar vein.

Also unsurprising was that the gimme generation arrived at the 1984 election with a strong concern to improve the social environment by reducing inequalities of both opportunity and outcomes. That, too, was a theme of the politics of the young in the 1960s, who thought the authorities were too niggardly. Ironically, the Cabinet ended up being thought niggardly itself. The 1984 manifesto contained a long wishlist of social assistance measures compiled in a 1960s-type belief that the welfare state could and should be continuously expanded as a critical element in the progressive improvement of a perfectible society. Aside from the Waitangi Tribunal process, the party aimed to expand social and economic assistance to Maori and similarly for women. In office, the fourth Labour Government spent heavily on education and social assistance. Yet it was abused for parsimony. Despite its measures for women, the Labour

Government was widely accused of being anti-women. In part that was the reaction of ‘extremists’ who wanted a lot more change. More important, it was the result of a tightening and in many cases a deterioration in the standard or quality of life of many women under the impact of deregulatory economic policies which constrained wages, converted many fulltime jobs into part-time ones and pushed up unemployment. The squeeze affected women in two ways — directly, in that they lost wages or work and were more likely than similarly placed men to lose out, and indirectly, in that if their menfolk lost wages or jobs their home lives were affected.

The same goes for Maori. Maori unemployment rose much more steeply than general unemployment because Maori were on average less educated and less skilled than the population as a whole and low-skilled jobs were the first to go

in an economy being opened up to competition from abroad. Among young Maori unemployment rates topped 50%. Because the lives and livelihoods of large numbers of Maori deteriorated, it was easy to see the Labour Government as anti-Maori, despite the treaty and devolution reforms. Even the expansion of assistance with housing, education, job-skills training and job-creation and business development and the other reforms attentive to Maori needs and sensitivities did not overcome that. Much the same inversion characterised the Labour Government’s relations

134

_A New Social Order

with unions. It promoted trade union education through a new publicly funded authority and restored compulsory unionism and many union rights that had been removed by the Muldoon Government (and have since been removed again). The Labour Government also appointed unionists to state corporations and committees. But in pursuing its economic objectives it rejected a managed

wage round in 1986 when unions were on the defensive. In 1987 it forced through some flexibility in labour legislation which was not to unions’ advantage, including the removal of compulsory arbitration, which left some unions, notably clerical workers, unable to conclude new awards to raise pay for their members and the introduction of an element of contestability among unions for members. It generally followed economic policies which caused widespread job losses in both the public and private sectors and made it increasingly difficult for unions to defend living standards and working conditions. Overall, unions were weakened both organisationally and in morale so that, when the National Government in 1991 deregulated the labour market with legislation hostile to unions, there was little unions could do but protest vocally and ineffectually. This conflict between social policy intention and economic impact pervaded social assistance policy generally. It was in this area that the Labour Government was least radical. Ironically a party which had buried itself in mountains of remits on social policy issues year after year at its conferences could generate no coherent social policy in office.” Its social policy was driven to a large extent by the budgetary imperatives its economic policy dictated. Its first attempt, through a Royal Commission on Social Policy which reported in 1988 in five thick volumes of research, analysis and recommendations, ended up as doorstops for ministerial and press gallery offices. Only Geoffrey Palmer in the Cabinet claimed ever to have read all of it. That was unfortunate, because its research and analysis, including a huge survey of attitudes, contained some valuable but unsurprising material: it was infused with the mentality of the 1960s and early 1970s that the state could, with enough resources, make all people full citizens. At a time when the state’s failure to do that even with greatly expanded resources was becoming evident, and when in addition a faltering economy had set a limit to resources for expanded state activity, that mentality was felt by ministers to be incompatible with the reality facing them. An alternative attempt to develop a coherent social policy by establishing and working up from base principles bogged down in a maze of 18 committees set up by Geoffrey Palmer while Deputy Prime Minister after the 1987 election. A set of guiding principles for social policy reform promised for late 1987 never appeared. So, social policy was ad hoc, heavily influenced or constrained by economic policy and the state of the economy. Because extension into social policy of the concepts underlying economic policy required a different objective from 135

New Territory | | | the social democratic policy most Labour politicians still subscribed to, that option could not be taken far. From 1987 on, especially after the departure of Roger Douglas from the Cabinet at the end of 1988, the Labour Government groped for mechanisms of reform which would fit the new economy but also be consonant with old social democratic objectives. The result was an awkward hybrid of policies: a massive increase in, but in the end a cap on, spending, some managerial and structural reforms to try to get more from the same resources, some devolution of decision-making but overall retention of the state as dominant funder and provider of social assistance. In income maintenance, something of the ‘citizenship’ approach delineated by the 1972 Royal Commission on Social Security and endorsed by the Royal Commission on Social Policy was evident in a proposal for a universal benefit to replace the complicated net of benefits and special add-ons. This was to come

into effect in 1992 but was overtaken by the 1990 election. A recasting of national superannuation as a guaranteed retirement income was short-lived for the same reason. In the more-from-the-same-resources mould, more vigorous policing of benefit fraud was attempted, with the beginnings of success by the 1990 election. In health policy, structural reform was evident in the amalgamation of the 29 hospital boards into 14 area health boards and the conversion of the Health Department into a policy advisory body, funder and policer of providing agencies. The new boards had limited primary health care functions but otherwise were not dramatically different from the previous structure. Funding and provision of secondary health care remained unified under the Health Department, despite a report from an official taskforce under businessman and free market advocate Alan Gibbs recommending otherwise.’® Gibbs had been appointed by Michael Bassett while he was Minister of Health and his selection reflected the influence of Bassett’s friend Roger Douglas’s drive to extend some of the economic policy concepts into social policy, a drive which came to an abrupt halt in late 1987. The farthest the Labour Cabinet would go was to set up contracts between the department and the area health boards for provision of specified services within the terms of a national charter. General practitioners remained private, so the integration of primary with secondary care did not take place. An attempt to entice general practitioners into contracts with the state under which the fee patients paid would be capped at no more than $10 above the state’s contribution was also scalped by the 1990 election. The Government lent moral support but not much else to union and community health centres. Perhaps the most important change was managerial. The Government devolved more responsibility to area health boards for their own management and supply of services, requiring them to operate within strict budgets and to field 136

| A New Social Order the political flak from any diminution of services that resulted. This to some extent addressed the problem of accountability noted in chapter 6 — the Government acted in a sense as reluctant ratepayers or taxpayers might have, had the boards still had to raise their funds from electors within their regions, as was originally the case, instead of regarding themselves as principally, and in the case of some board members only, responsible for delivering the maximum possible services to patients in the area, regardless of cost, efficiency and relative need. The same principle of devolution of management responsibility but preser-

vation of centralised funding and state-owned provision of the services was applied to education. This closely followed a report by supermarket chief Brian Picot, the choice of whom was likewise heavily influenced by Douglas as part of his policy drive. “Tomorrow's Schools’, as the programme was code-named,

transferred much administration from provincial education and secondary schools boards to individual boards of trustees elected by parents. A proposal to extend this to the payment of salaries (‘bulk funding’) was abandoned by the Labour Government after Douglas’s departure from the Cabinet. Similarly, a proposal to turn the Housing Corporation, which rents houses to and provides mortgages for low-income people, into a commercial enterprise was reversed. In fact, in social policy the Labour Government operated in accordance with that strand of 1960s thinking which argued that the social policy element of the prosperity consensus was right and proper and was perfectible if the right amount of money and the right quality of effort were applied. It spent heavily. Between 1984-85 and 1990-1991 (as projected in Labour's last Budget), education spending rose by 45% and health spending by 18%. The number of state houses built or bought more than doubled. Assistance to Maori doubled. This binge did expand social services. Tertiary student numbers rose dramatically — from 66,696 equivalent fulltime students to 109,575 between 1984 and 1990, or 59%. The average pupil-teacher ratio in primary schools dropped from 20.9 to 17.7 and in secondary schools from 19.3 to 15.7. Housing almost disappeared from the political agenda. The number of hospital operations rose 15% from 1988 to 1991 (though to some extent that may have been doctors choos-

ing faster operations to give the impression of better management). Some benefits had their criteria for application widened and some new benefits were introduced, such as family care for low earners to raise their living standard and ease the ‘poverty trap’; this was then incorporated into family support which was added in compensation for the introduction of GST. This was a Labour Government doing exactly what Labour Governments had been expected to do since 1935.

137

New Territory | Ironically, the Labour Government got a reputation for doing exactly the opposite. This was for six principal reasons. First, except in housing, demand continued to outstrip supply. For example, spending per student in universities actually went down in real terms — by 12% between 1984-85 and 1989-90 — as student numbers rocketed. Waiting lists for operations in hospitals went up by 37% over the same period, only in part because of changes in the way the lists were compiled. Partly as a result, private health spending per head went up by 34% more than inflation between 1984-

85 and 1988-89." The second reason was that the increased spending did not all go into expand-

ing the volume of services. Much of it went instead into big wage and salary increases for teachers, who got 23%-35% wage increases in 1985-86, and nurses and junior doctors in hospitals, who got a similar amount. Russell Marshall, then

Minister of Education, complained in 1986 that of the substantial increase in education funding that year only a tiny amount hd gone on expanding education — the rest had gone in salary rises. Professor Michael Cooper of Otago University, chair of the Otago Area Health Board, calculated that real spending on health had increased only just over 3% between 1984-85 and 1989-90 because health costs had risen far faster than inflation generally. In any case, some

of the increased spending was making up for cuts in the early 1980s. Thus, at least in health, ordinary citizens were probably correct in their belief that health services available to them as individuals had diminished over the decade as a whole. The third reason for the Labour Government's reputation for stinginess in social policy was that, in a stagnant economy, the binge could not be continued indefinitely because tax revenue was not growing fast enough to pay for it. So in 1989 health spending was cut 4% in real terms and education spending stalled. The rules for adjustment of benefits, particularly superannuation, were changed in 1989 so that they tracked whichever of wages or inflation grew more slowly. Over time this was intended to reduce benefit levels by comparison with wages and salaries. There was also a degree of targeting to those most in need, most notably a surtax on private incomes of people drawing the national superannuation. Budget constraints also forced policymakers to put more emphasis on getting more from existing resources by improving managerial efficiency. Again, this was most notable in hospitals where the consultancy firm Arthur Anderson had calculated in 1987 a potential for $450-$600 million of savings with no reduction in services'® and where even staunch defenders acknowledged savings were possible. The attempt to drive through such efficiencies, however, initially met strong

resistance from board and health professionals who claimed efficiencies must 138

| A New Social Order unavoidably lead to cuts in services and were in any case evidence of cold-hearted technocracy in contrast to the previous focus on care. Managerial efficiency also

led in turn to a degree of privatisation: school and hospital cleaning contracts began to be let out to private cleaning agencies; Helen Clark, as Minister of Health, acknowledged that ward management might be contracted out. While privatisation did not mean the state was not meeting the bill, it helped build an impression that it was cutting back its contribution and commitment. The financial ceiling also led to user-charges: a $1 fee had been imposed on drug prescriptions as far back as 1984 and subsequently raised to $2; in 1990 Associate Education Minister Phil Goff imposed a fee for tertiary students to generate revenue to pay for extra places. For much of the period from 1987-90 social policy seemed driven more by the need to cut the Budget deficit than anything else. That was a foretaste of a drive to ‘reshape’ the welfare state by the National Government after 1990. Usercharges, benefit cuts, more private sector managerial techniques, the introduction of bulk funding of teachers’ salaries at the school level had a certain logic after the Labour Government's initiatives, even if going far beyond them. The fourth reason for the Labour Government's reputation for stinginess in social policy was that the managerial changes exposed some structural distortions in earlier spending patterns. Earlier politicians had taken the easy way to spend-

ing constraint by deferring capital spending and maintenance, particularly on hospitals and schools. This backlog piled up. As a result, when schools became responsible for their own maintenance and capital budgets in 1989, their budgets

were in many cases initially far short of what they needed. The headlines screamed that schools were underfunded. That added to impressions of meanness. Fifth, the managerial changes introduced a new and, to many, uncomfortable or threatening terminology of ‘businesses’, ‘efficiency’, ‘contracts’ and ‘consumers’ and ‘clients’ in place of the service-orientation of earlier terminology. Helen Clark, then Minister of Health, taxed with this shift in terminology in an interview in 1989, said thar: I don’t think there is anything wrong with the use of the term consumer in the

health system. The old term used was “patient” and that implied a very hospi- : tal-based notion of what the health system is about. I have tried very hard to think of words other than consumer, but I can’t. I can’t think of another word that generically describes the people like myself who are very, very occasional visitors to a general practitioner, the people who patronise the well-women’s clinic, the people who participate in non-smoking programmes, right across to the person

139

New Territory | | | in the hospital bed. In the end I come to the conclusion that we can probably only all be described generically as consumers of the health system. '

The sixth reason was more general: the impact of economic restructuring. In some ways the less-well-off benefited from the restructuring through a variation on the sort of redistributive effect that Labour Governments’ policies were supposed to have. Reduced taxes and protection for local producers cut the price of small family cars, a near-necessity in sparsely populated New Zealand, by about one-sixth in real (inflation-adjusted) terms between 1984 and 1990, mak-

ing them more affordable; more important to the lower-paid, permission to import secondhand cars from Japan lowered used car prices by even more. The same went for much clothing and other items of daily life such as T-shirts and television sets (cut by around half in real terms) and videocassette recorders, which could be found for a fifth of the price (adjusted for inflation). Overall, goods were probably more than 10% cheaper in real terms, thanks to lower protection alone. This was socialisation of a sort, even if not what the founders of the Labour Party had had in mind. But these gains on the cost side of everyday life were outweighed on the income side by the constraint on wages from 1986 on and, for a persistently rising number of people, the loss of all wages through unemployment or, as unemployment numbers rose, the fear of that loss. Protection of income had not only been at the heart of the prosperity consensus but was also a core expectation of the Labour Party which had laid the foundations of that consensus. Failure to live up to that expectation created a sense that the Government was unsympathetic to the less-well-off. This perception was intensified by the visibly improving standard of living of executives and professionals. The top 20% of earners improved their real disposable incomes by 8% between 1984 and 1990, more than than the overall rise of 4%. This curious inversion was the enigma of the fourth Labour Government. Whereas in other areas of policy — particularly in foreign affairs, the environ-_

ment and social assistance — it more or less followed in the tracks of its predecessors and was at least in general terms predictable from both its roots in the 1960s and its 1984 manifesto, the economic policy was a radical departure

from what had gone before. |

140

12. An Economy to Fix

BasZealand swirls from downinthe plughole in the opposite direction in New the northern hemisphere. That was the joking reply of Bernie Galvin, Secretary to the Treasury during the first two years of the Labour Government, to northerners bemused by the liberalising tack of his ‘socialist’ political masters. Most New Zealanders were equally bemused that the Labour Party was acting out of character in economic policy. The puzzle deepened when various members appeared also to go in and out of character. Richard Prebble, once declared by a Treasury boss to be too dry even for the Treasury and handpicked by Roger Douglas as Associate Finance Minister to help him bulldoze opposition to deregulation, complained, after he had been fired from the Cabinet, at the unfairness of the 1989 Budget to beneficiaries. Prime Minister David Lange himself revelled in deregulation in his Government’s first term but reviled it in the second. Helen Clark, left out of the first Cabinet for being too leftwing, as minister instituted tough cuts in the health budget in 1989.

The party as a whole indulged in this curious division of mind, in 1985 resolving it was ‘socialist’ but approving at the same time a tax switch that would have made the party’s socialist founders’ hair curl.

Part of the solution to the riddle lies in the mentality of the gimme generation. This was the generation in charge of the Cabinet. All of them were generally in accord with social democratic ideals and objectives (though as modified by their own passions of the 1960s in which they challenged their parents’ genera-

tion’s morality, materialism, colonialism, racism, sexism and obsession with security). But all of them were also the product of that 1960s iconoclasm and

search for freedom and independence. |

, In the way they approached issues and problems, and in the way they conducted their lives, they were breakers of old moulds, independent-minded, valuing freedom. So in attitude, mentality or temperament (as distinct from ideology or belief) they were liberal and in some cases libertarian. Moreover, while most of them (deputy leader Geoffrey Palmer was a glaring exception) were born of parents who were in and of the working class, they were not themselves

of the working class. With few exceptions — notably the third-ranked Mike Moore — they were members of the professional middle classes: lawyers, 141

New Territory | accountants, lecturers, teachers, bureaucrats and the like. This was the elite in an educational meritocracy which awarded a good life to those with the intelligence to get a university degree. Their identification with the less-well-off and the disadvantaged was a matter of the head rather than the gut. They thought about what the disadvantaged needed, mostly with genuine compassion, and were reminded in their weekly clinics for constituents; they did not fee/ it as an integral part of their own lives and livelihoods and the lives and livelihoods of those in their immediate circles. Beer and chips in the Labour Party had long since given way to wine and cheese by 1984. They were part of the ‘seminar culture’.! The correct answer could be found through earnest and intelligent inquiry and debate. They were almost Whiggish by temperament, even if they were social democratic by inheritance and habit. During the 1970s and 1980s this inquiry and debate progressively led them to some uncomfortable conclusions. Interviewing leading figures of the first term of the Labour Government uncovers closely similar experiences in most of them: a discovery that some policy mechanism or other in the social democratic panoply did not work according to prescription and so did not achieve the intended objective or, worse, actually hampered progress towards that objective. This discovery was most pronounced in Roger Douglas. Douglas was of Labour stock — his father had been a union official and then a Labour MP and his maternal grandfather had been a minister in the 1957-60 Labour Government. In his 20s he was Auckland regional president of the Labour Party and he entered Parliament in 1969. But Douglas’s trade was accountancy and as company secretary to a manufacturing company, UEB Industries, he was exposed to other influences — those of management, of private sector methods and objectives, of entrepreneurialism, competition and profit. From the early 1970s Douglas began to question the efficacy of state interventions which had been taken for granted. In opposition in 1971-72 he devised a scheme of compulsory contributory superannuation which was intended largely to replace the tax-funded scheme that dated back to 1898. This was enacted in 1974. As Minister of Broadcasting, he displayed qualities that were to mark his tenure of the finance ministry: the self-confidence and individuality to produce off his own bat a radical plan for restructuring the state broadcasting services which incor-

porated a belief in the value of competition by requiring the two television channels to compete, even though both were state-owned. Frustrated in oppo-

sition after 1975, he turned his entrepreneurial energies to developing his grandfather’s backroom herbal remedies business into a substantial health prod-

ucts manufacturing unit.” By 1978 he had concluded, using ideas and a catchphrase developed by Barrie Saunders, press officer for leader Bill Rowling,

that there were ‘no soft options’ and that a programme of initially painful 142

An Economy to Fix

adjustment lasting longer than a parliamentary term would be necessary to get the economy on a sustainable footing. In a series of speeches he called for removal of unnecessary state regulation “because it costs too much’ and ‘consumes resources that should be put to more productive use’ and demanded a reduction in the public sector’s share of the gross domestic product ‘before it collapses the entire economy’.? From 1979* he was breaking with Labour tradition by welcoming foreign investment, proposing a more commercial approach for state businesses which could be opened up for competition with private sector businesses and arguing for a tax shift from direct to indirect tax (but accompanied by a minimum living wage’), charges on industry for government services and a shift in resources from the public to the private sectors. Next year he went further into heretical territory, advocating ‘Government intervention via the market mechanism’ instead of by direct control, opposing increased levels of protection, advocating a flexible exchange rate, selective overseas investment and the development of an internationally competitive export sector and control of inflation by increased competition in the domestic economy.® He also argued that transport services should be charged to users at the long-term economic cost. Douglas put a lot of this down in 1980 in a slim book, the title of which,

There’s Got to be a Better Way!’ encapsulated his developing attitude to policymaking. Douglas’s ‘better way’ was recognisably ‘Labour’ in many respects,

most notably in a proposal to control interest rates by compelling financial institutions to lend a proportion of their deposits to the Government at a modest interest rate® and a proposal for a Government Savings Corporation which would direct capital into industries pinpointed to have a good future: ‘No successful business does everything. It chooses priorities. So should a nation.” During the 1981 election campaign Douglas followed his own advice and offered some likely winners: 16 carpet factories to add value to wool exports.'° But overall the book

heralded a radical break with most Labour thinking: a flexible exchange rate; market mechanisms, not direct controls, to keep down prices and, except for the proposal above, interest rates; the removal of import licensing; a shift to indirect tax (though his first preference, an assets tax, was bizarre and impractical); the killing off of unnecessary government departments; the killing off of ‘sick industries’ instead of subsidising them; flexible wages and work practices and a workforce able to move from decaying industries to rising ones. It was not a paean of praise to supply-side economics, but it did owe a lot to supply-siders’ thinking as an alternative to traditional Labour methods. That is not surprising: among Douglas's friends at the time were people like Don Brash (subsequently Governor of the Reserve Bank) and Alan Gibbs, both vigorous advocates of the market economy. Other Labour MPs also found incongruities between intention and outcomes. 143

New Territory | a Typically, one experience triggered in the MP a process of questioning. For example, David Caygill innocently asked the head of the Mines Department at a parliamentary select committee in the early 1980s which mines were contrib-

uting most to that year’s loss by the department. He was struck by the bureaucrat’s reply: that the department did not keep figures on individual mines and did not know what it cost to extract coal from each one or what its surplus or deficit was.'’ Peter Dunne believed in the intent of import licensing (to protect jobs and develop industry) and in its efficacy in achieving that objective. But when he took up a job in the mid-1970s in the import licensing section of the Department of Trade and Industry he found that licensing was administered in a way that bore tenuous relation to the rules. He gradually came to the conclusion that it did not achieve the objective.’? Peter Neilson came from a strong Labour background and even took up employment in a ‘soft’ department, the Labour Department. There he watched unemployment become ‘a growth industry’ and gradually came to conclude that existing policies, which aimed to guarantee no one would lose, in fact were locking out large numbers of New

Zealanders who could not take advantage of the internationalisation of the economy that was seeping through the protective barriers. He concluded that going to a more centrally planned economy was not an option and so was led towards market prescriptions. % Phil Goff, noted for his firebrand ‘socialist’ speeches at party conferences when in his 20s and still considering himself as on the ‘left’ of the party in 1984, found Muldoon’s rent freeze was not keeping rents down and rental accommodation available for the poor. He also worried that televisions cost four times as much in New Zealand as overseas." One thing led to another. For example, Caygill’s coal mines experience and subsequent experiences of a similar kind had led him by 1984 to favour some

degree of commercialisation of state trading departments, the exact form of which was determined by Palmer in late 1986. At that time Caygill did not expect or favour privatisation and until late in the Government's period of office approved it only as a means of reducing debt and avoiding capital outlays on state enterprises that could be afforded only by raising debt. Ownership, he considered, was not important as a determinant of the efficiency or profitability of an

enterprise. But he changed his view on that when in 1989 one after another of the state-owned enterprises chairs informed him how well their enterprises were doing but that dividends would not be possible for some time because considerable capital investment was needed. Only because they were owned by the

state, Caygill concluded, could they afford to contemplate such empirebuilding.” In addition, three of them (Caygill, Neilson and Butcher) had economics degrees and a number of others had studied some economics. There is some basis

144

| | An Economy to Fix to David Caygill’s claim'® that ‘we were the most economically literate caucus’ New Zealand had seen. Caygill said this did not just equip them to read T'reasury papers in due course with a degree of comprehension that exceeded that of previous Cabinets, but added a dimension to their approach to problem-solving: economists were trained, he said, to examine the impact one change in one area has on conditions in another area. So, for example, education (spend more

to get better education) could not be considered in isolation from the impact of taxation on wealth-generation — as both parties and governments had tended to do in the past. It should be added that even in the 1960s economics at university argued the merit of markets over administered economic solutions. Importantly for the development of economic policy within the Labour Party in the early 1980s, Caygill (from 1979) and then Neilson chaired the Labour parliamentary caucus economic committee. The conclusion these economically literate professional middle class iconoclasts of the 1960s reached was that if existing economic management policies were not generating sustained economic growth and might instead be hindering it, then the social democratic social objective of a steadily improving society

via an active state, which required sustained economic growth, could not be achieved under existing economic management policies. Peter Neilson has summed up the options as being between more or less state intervention in and

regulation of the economy.” |

The logic of their own experiences, especially in the wake of the lengths to which Sir Robert Muldoon had taken regulation and the discredit into which that had brought such regulation even among people who favoured regulation, drove them towards deregulation. A growing body of academic and popular economic and management literature pushed them in the same direction. So did the advice of the Treasury-seconded economic advisers attached to the office of the leaders, Sir Wallace Rowling and later David Lange. So did the comments of business chiefs who increasingly began to talk to (and promise finance to)

Douglas and others as Muldoon tightened the regulatory screws. Roger Kerr in the Treasury quietly developed contacts with business, particularly Douglas Myers of Lion, which fed into the mix. No direct advice went from the Treasury to Labour.

Others were also pushing for deregulation. There was an outburst of deregulatory demands in the National Party in 1979 which died away only in 1982 when Muldoon imposed the wage-price-interest freeze, and then found new political voice in the New Zealand Party in 1983-84. A younger generation of state servants, some of them trained in the United States, increasingly began to air deregulatory views in the Treasury and to some extent the Departments of Trade and Industry and Customs and the Ministries of Foreign Affairs and

145

New Territory

_ Agriculture and Fisheries. Blocked by Muldoon, though backed in their views if not their actions by their own chief, former Prime Minister’s Department head Bernie Galvin, lower-level Treasury officials began quietly to propagate their views to journalists and others. Even in the trade unions, bastions of regulatory philosophies, a few younger officials, most notably Alf Kirk and Rob Campbell, were arguing for more flexibility in industrial relations and wage bargaining. All of this could have been resisted by the Labour policymakers if they had been of a mind to stick to old ways, as Muldoon was, and if they had been wary of freedom. But the liberal/libertarian iconoclasts of the 1960s were of exactly

the opposite frame of mind. Whatever their inherited, acquired, adopted and adjusted policy stances, their iconoclasm drove them towards change (in every field of policy, as we have seen) and their liberalism and libertarianism drove them towards or at least did not hold them back from the freer approach. Ann Hercus (who later did join the resistance to deregulation) began a drive against red tape. Caygill, a liberal convert to social democracy from a brief student stint as a Young National, in May 1980 could say without any sense of incongruity that the Labour Party shared the National Government’s ‘enthusiasm for restructuring so that our economy is more market-oriented’."® And in late 1982 he could say: ‘I want to see central government off the backs of private enterprise.” Geoffrey Palmer had learnt his economics as part of postgraduate law studies at the University of Chicago, home of Milton Friedman and the Chicago school. Others were carried along on the logic or the momentum. The group of MPs who, with Douglas, had conspired to put David Lange into the leadership from 1978 on, including Richard Prebble and Michael Bassett, bought fully into the policies. The partial exception among this group, ‘socialist’? Mike Moore, ac-

cepted an important element of the freeing up, the improvement of national competitiveness through opening up the economy. David Lange, having declared himself ignorant of economics, learnt his economics from Douglas and accepted

that his methods were intended practically to improve the lot of the least-well-off.

Consequently in 1983-84 Douglas, Neilson and the caucus economic committee began to devise a deregulatory economic plank for the 1984 election manifesto. It was at first only a cautious move, with many qualifications and hangovers from

the previous policy stance. But during 1983 this process was given a decisive deregulatory kick. Douglas went through a substantial policy shift, jettisoning or toning down ideas of picking winners, blocking monopolies and government influencing of investment that were still present in early 1983 and becoming much more tolerant than he had been of free-market mechanisms and of their (temporary) impact. The key influence was that of two bureaucrats with strong 146

An Economy to Fix

free-market views who were on secondment to the Opposition.” In his 1987 book, Toward Prosperity’ Douglas described putting together a think tank comprising the current Treasury officer in the leader's office, Doug Andrew, an economist in the Opposition parliamentary research unit, Geoff Swier, ‘two businessmen and several academic economists from Victoria University’. Douglas also ‘constantly tested’ his ideas with Jim Holt, an historian and Labour Party activist who had moved from Auckland University to be chief historian at the National Archives. Over time this group effectively came down to Douglas, Andrew and Swier, with Caygill contributing ‘considerably’ and lesser

contributions from other economists on the caucus committee. They reached the conclusion early on that there would have to be acceptance of an initial ‘downturn in both output and employment’ for restructuring to work.” On 24 November, 1983 a 51-page paper was presented to the party policy council, which ‘included every step subsequently taken by the fourth Labour Govern-

ment’ and ‘in many ways went beyond what we have so far [mid-1987] attempted or accomplished’.* The paper proposed a 20% devaluation, the removal of most export incentives, SMPs and other subsidies and concessions to agriculture and industry, full charges for state raw materials (such as logs from state forests) and services (such as electricity), reduced import protection coupled with retraining assistance for displaced workers when, in accordance with the paper’s own forecast, output and employment in protected industries shrank, firm monetary controls (with, for a time, high interest rates) to get inflation down, a shift from income tax (which at the top marginal rate of 66% was discouraging employment and channelling investment into capital gain) to a new retail or value-added tax of around 15%, targeting of social assistance to those in need, the rationalisation of all benefits into one and a new wage-fixing system which related wages to the ability of the national economy to pay. Douglas’s own account recorded a ‘trade union economist’ (whom he did not name but who was Peter Harris of the Public Service Association) as saying, ‘Christ, if you introduce these policies the only way you'll enforce them will be to line people up against the wall and shoot a few of them the way they do in Korea and Taiwan. Harris was joined in his opposition to the paper’s broad thrust by the president, Jim Anderton, and Ann Hercus, shadow minister for consumer affairs. Douglas claimed in Toward Prosperity that the ‘majority [of the policy council] accepted the broad thrust from the start’. According to him the split on the council was not over detail, but whether equity was achievable only by comprehensive government control over the detail of the economy or only by ascribing a more important role to the market to boost growth.” This proved prophetic of later battles in the party. The economic platform which emerged from this debate was capable of 147

New Territory | | | | being read in a variety of ways. For the Labour traditionalist the statement proposed a highly interventionist policy on incomes and investment (for exam-

ple, a government-established central fund to help finance industrial development) and aimed at full employment, fairness and social justice and ‘greater control by New Zealanders over their own economy’. But it also aimed for economic growth and permanent reduction of the external and internal defi-

cits, inflation and interest rates, and proposed those should be pursued principally through a firm monetary policy and competition. The economic package even explicitly stated that ‘existing financial regulations will be reviewed with a view to eliminating as many as possible’.*” The tax reform section was so loosely worded that almost anything could have been done in its name. From this, and especially given a knowledge of the trend of thinking among

senior Labour economic policy MPs and a knowledge of the thinking of the Treasury, the Reserve Bank and influential business leaders, it was logical to infer there would be liberalisation. It was, in the words of economist Ian McLean in

a book he published in 1978 before he became an MP, a ‘more-market’ approach.” The broad strategy of the Labour Government would be to rely more on markets to determine prices and thereby to determine what would be produced. This required the economy to be opened up somewhat to competition both from outside and within and subsidies to be cut to reduce distortions, to reduce impediments to business imposed by the state through taxation and regu-

lation, to improve the performance of state business departments on which business depended, and to improve the efficiency of the core state sector. This the Government duly did.

But the extent to which the Cabinet subsequently went down this deregulatory track was not predictable at election time in 1984. The words of the economic platform were ambiguous. The induction of leading figures into deregulation was recent (even of Douglas, given much of what he had written in his 1980 book and was saying as late as early 1983), varied in degree from figure to figure and in any case (as illustrated by Douglas’s lingering interventionist instincts even at election time in 1984) was more a gradually intensifying tendency of thinking in response to practical economic issues in specific circum-

stances than a conversion to a desirable and universally applicable theory and for that reason logically likely to be limited to provable gains. That in fact these novitiates put into practice one of the most radical programmes of deregulation before the coming of capitalism to ex-communist eastern Europe after 1989 was partly a result of the unusual (and unpredictable) circumstances under which the Cabinet took office and partly the product of the novitiates’ instinct for change and freedom and their willingness to take risks — big risks. And the Treasury had in waiting a theory that promised adrenalin and exhilaration for those people 148

An Economy to Fix

who were prepared to take risks. Muldoon created the unusual circumstances — a delicious irony in the light of his subsequent campaign against deregulation. During the election campaign, partly because of Muldoon’s disintegrating monetary management and partly

because Muldoon predicted a Labour Government would devalue the New Zealand dollar, there had been a run on the dollar. Muldoon had refused to intervene, despite dire warnings by the Treasury and the Reserve Bank. By election day there was a desperate shortage of foreign reserves. Foreign posts’ bank accounts were even pressed into service. Lange and Douglas devalued the dollar by 20% as soon as they could get Muldoon, still in office until the formal handover due 12 days after the election, to agree — which he did four days af-

ter the election but only after all but Bill Birch of his Cabinet threatened to resign. Though precipitate, that was traditional stuff and so was the reimposition a week later of a three-month price freeze. But by then Douglas had a window opened: he got through the removal of interest rate controls. That set the tone in two ways — pace and direction. In an interview two years later, Lange said that those first few days of being in government ‘determined the entire course of this Government. . . In fact, we would not have had the Government we have now if we had been elected in November 1984. We would not have had the policy. We would have celebrated through December, gone on holiday, come back and had a formal opening of Parliament and tried out our new seats — and then the party would have got stuck in. The first Budget would have been drawn up in circumstances of great party orthodoxy and we would have had a very different Government ... It was a very quick series of decisions, compared with the normal three-year time scale. They were taken between the Monday and the Wednesday of that first

week, before we were first sworn in... By the Wednesday we had .. . got the devaluation. And that sealed it, because once we had devalued there were certain inexorable outcomes. They were that we would float the dollar, because we were never going to spend $797 million of taxpayers’ bucks ever again to compensate the wealthy. It was then absolutely illogical to carry on with an eastern European-

style regulatory structure with what had become a more market-oriented economy. So those first days created an inexorable path.”

On another occasion, Lange said the ‘circumstances of those first few days in government gave Roger the opportunity to do what he had always wanted to do anyway... When the crisis hit in July 1984 it was Roger Douglas who, above all, had thought through the economic issues — so, when the Cabinet needed to fall back on an economic philosophy it was Douglas who had one.*° 149

New Territory | Lange was right about the logic but disingenuous about the degree to which the crisis was the determining factor. He had specifically intervened in September 1981 to persuade Douglas to stay in politics when Douglas was on the point of leaving and had assured him of the finance portfolio in the event he (Lange) became leader. Since Douglas was one of a tight circle of mainly Auckland MPs which from early 1978 worked to propel Lange first into the deputy leadership

in 1979, then into the leadership in early 1983, Lange could not have been unaware of Douglas’s position and ambitions. Lange also had access to the Treas-

ury officers advising Douglas since they were stationed in his office. And he chaired the policy council at which the detail of economic policy was discussed, including an initial devaluation. ‘Great party orthodoxy’ was not what his inner team had in mind and he knew that. Nevertheless, in opposition, denied Treasury papers or access to officials other

than those in his office, Lange could not know the full extent of what the Treasury was proposing. And, despite Douglas's claim that everything the Government subsequently did was in the November 1983 paper to the Labour Party policy council, the Treasury was proposing a more deregulatory line than even

Douglas was privately contemplating as he went into office, and certainly more than the Labour Party policy council had been prepared to agree to in its manifesto. The Treasury’s plans were laid out in Economic Management, a book-like brief-

ing prepared, as is customary after elections, for Douglas as the incoming minister.>’

nomic performance. |

The briefing painted a gloomy picture of New Zealand’s past and current eco-

... Lhe economy is beset with serious structural difficulties and . . . we have continually failed to make the best of the circumstances we find ourselves in. ..» Over the 10 years to 1983, New Zealand real gross domestic product grew by less than half the average for all OECD countries. For the same period prices increased by nearly one and a-half times the OECD average, while the registered unemployment rate increased markedly compared with other OECD countries. This relatively poor employment and growth performance occurred despite a dramatic increase in external borrowing which had the effect of supporting ac-

tivity during this period. ... The return on... investment has been disappointingly low. ... [The] attempt to cushion the economy from the effects of the deteriorating terms of trade did not prevent the community having to face a real relative income loss and a dramatic increase in the rate of unemployment. *”

150

An Economy to Fix

The Treasury blamed this on the failure to develop a co-ordinated economic management programme. The price and wage freeze, for example, had succeeded in (temporarily) cutting wages and improving international competitiveness. But it had been bought with personal tax cuts in the 1982 Budget which added $1 billion to the deficit. This contributed to monetary growth much of which was mopped up by high-interest stocks, but this was blamed for unacceptably high

interest rates.

Concern to reduce interest rates in line with the rate of inflation produced by the freeze led to a reversal of that monetary policy and a consequent expansion in money and lending. The response in turn has been a system of penalties on financial institutions through compulsory Government stock holdings. Lending nevertheless continued. The monetary expansion, fuelled by the increased defi-

cit... is now a serious inflationary threat itself. The interest rate controls hamstring the monetary policy action which should be counteracting that threat. Further, at the time the freeze was imposed, the crawling peg exchange rate was abandoned. The subsequent drop in inflation broadly preserved international competitiveness, but the concern to stop the exchange rate from adversely affect-

ing the consumer price index led to a minimal devaluation at the time of the Australian devaluation in March 1983, when conditions were reasonably favourable for the more sizeable move needed to rectify our large external imbalance. It is therefore fair to say that monetary, fiscal and exchange rate policies were all given as hostage to the freeze. A reduction in domestic inflation has been achieved at the cost of the other objectives of economic policy. It is in this sense that our economic management has not displayed the essential balance seen in more successful countries..*?

The Treasury urged a ‘mutually reinforcing balance’ of policies across a wide front and consistently maintained over time. Specifically, “policies for faster ad-

justment allow changes in international prices to be reflected in the domestic economy’ .*4 That is, the economy must be liberalised. ‘Markets generally offer an efficient means for reconciling competing demands so that the Government is more likely to achieve its ends [of greater general welfare] by harnessing and supplementing markets than by suppressing them,’ the Treasury advised.* The advice was wide-ranging. It included a change in Cabinet committee structure and recommended ‘agreed frameworks’ for major areas of policy, which

included health, education, welfare, wages and employment. Interest rate and

exchange rate controls should be removed and tight control imposed ove the money supply, with a reduction in the Budget deficit, principally on the spending side but with extensive tax reform broadening the income tax base 151

New Territory | , (with lower rates) and a switch to a broad-based consumption tax. The labour market needed to be made more flexible. Social spending should be more precisely targeted, there should be some shift from delivering services to providing cash to buy them with and there should be more incentive to work and save. State-owned trading enterprises should be focused on commercial activities, subject to competition, set targets and made more directly accountable. Sale should be considered. Departmental managers should be given greater freedom of action and greater responsibility and work to clear objectives with flexibility of inputs. Industry assistance should be reduced and protection moved towards tariffs and reduced. It was a radical programme — though, looked at from the perspective of 1992, it is much less radical than what has taken place since. The Treasury did not propose rampant free markets throughout society, only a greater role for markets in allocating resources and outcomes where they could work well; for the most part reform, not revolution. Economic Management explicitly accepted that Governments intervened and that the debate was about what interventions there should be.** Both the language and in many cases the proposed courses of action were suggestive rather than imperative. These policy proposals met a senior Cabinet mostly converted to them already

and with a risk-taking, radical mentality, who believed that the economy was in such serious difficulty that major, deep and temporarily painful surgery was needed. When Douglas and his associate ministers met Treasury and Reserve Bank officials on the Tuesday morning after the election the agendas each group had for the economy were very closely similar.” On 9 August he wrote to the Treasury setting out an agenda which Ian Dickson, then of the Treasury, has summarised as: “complete overhaul of the tax system, extensive deregulation, removal of farm subsidies, export incentives, import licensing and other industry assistance measures, the raising of electricity and coal prices to market levels and the introduction of a 12.5% retail tax to take effect immediately.’** Five days

later Douglas turned up at the Treasury, ‘shed his jacket and tie, rolled up his sleeves and asked us what we had for him’.*? The Treasury was most unused to such vigour and informality. The bobsleigh then took off at an exhilarating and frightening speed. It was even, according to Dickson, ‘frightening to some in the Treasury [which] was continually attempting to restrain and limit the scope of the reforms he was proposing — especially on fiscal policy’.Treasury officers feared such sudden action would cause the economy to ‘hit the wall’. Within eight months the foreign exchange and domestic financial markets were well on their way to complete deregulation, a phase-down of subsidies to agriculture and business got under way, a radical tax restructuring announced 152

, | An Economy to Fix and the intention to commercialise state business enterprises foreshadowed. The main guiding principle of the reforms was to remove as many distortions as possible in prices so that resources went to the people who could make the most use of them — in the jargon, the resources were allocated in the most efficient way possible. Any inefficiencies meant the economy was operating below potential. The deregulation of the financial markets was intended to unveil the real cost of borrowing and encourage capital to flow to the most efficient investments. Deregulation of prices of goods and services would allow those prices to match what buyers were willing to pay and sellers willing to sell at. Removing subsidies, border protection and internal industry regulation would force pro-

ducers to match competitors’ prices at home and abroad. New Zealand businesses would then focus on what they got the best prices for — in theory, what they could do best. So New Zealand as a whole would get more from the resources those businesses consumed. Growth would therefore be higher, wages would rise and the quality of social services could be improved. For this to follow through effectively the business operating environment had to be free of obstacles, roadblocks and unnecessary or excessive costs. Wages had to be matched to the profitability of employing enterprises. The Government must consume no more resources than necessary to do its agreed job. The tax system had to be efficient — that is, a very high proportion of the tax due had to be collectible and collected — and must not skew investment or spending in inefficient directions. This thinking had profound implications for how social services were to be paid for and supplied and thus for how much of them the Government should fund and supply. Interest rates were freed 10 days after the election. Controls on foreign exchange, including investment and borrowing overseas, were progressively removed, culminating in the floating of the dollar on 5 March, 1985. Controls on banks and

other financial institutions were reduced until early in 1987 any organisation could be registered as a bank which met certain minimum criteria of size, capitalisation, experience and proven commercial probity. Banks are now subject only to ‘prudential surveillance’ by the Reserve Bank, plus limits on the amount a bank may lend to any one borrower (35% of the bank’s capital in 1992) and to the ratio of capital to lending set by the Bank for International Settlements in Basle.

Both the foreign exchange rate and interest rates have since 1984 been set by

demand and supply. Interest rates are set by the demand for and supply of money. The level of interest rates in New Zealand has been an important determinant of demand for New Zealand dollars. Through much of the time since 1984 high interest rates in New Zealand attracted foreign lenders which helped 153

New Territory | keep demand for New Zealand dollars, and so the exchange rate, high. Partly, this was influenced by fiscal policy: the higher the Budget deficit, the more the Government’s demand for money (if the deficit was to be fully funded) and the higher the interest rates at a given monetary policy setting. Monetary policy implementation was made the responsibility of the Reserve Bank in 1985, with little interference from the Government. In late 1989 the scope for that interference was very greatly limited. ‘The Reserve Bank was made independent, subject only to a public order by the Minister of Finance, debatable in Parliament and therefore likely to be used only rarely. Initially, the Reserve Bank set out to control ‘primary liquidity’. This is made up of ‘settlement cash’ — cash balances held at the Reserve Bank by the banks to settle day-to-day demands for the transfer of funds between the private sec-

tor and the public sector and which must always remain in credit — and ‘discountable securities’ — Reserve Bank bills (short-term loans) held by the banks

which, when they run short of settlement cash, they can sell (discount) to the Reserve Bank for cash when they have less than 29 days to run to the due date, but at a penalty related to the cash interest rate in the market (the “discount margin’). It was thought controlling primary liquidity would have a direct lev-

ering effect on bank credit because banks would want to keep a stable relationship between their liquid assets and their stock of loans.“ But a range of factors clouded this relationship — particularly as the newly deregulated banks pursued new business to maintain or build market share against competitors — and the Reserve Bank shifted to influencing wholesale interest rates and in turn the exchange rate, monitoring a number of factors to assess whether its settings were achieving the object of bringing inflation down. After a 10% depreciation

of the currency in 1988 added to inflationary pressures, the bank elevated the exchange rate to its main monitoring factor. In 1991, faced with a sharp recession bordering on depression, it put more attention on the state of the domestic economy. Now it monitors four sets of prices: consumer prices, wages, and export and import prices. Monetary policy has since 1985 also been the primary mechanism for controlling inflation. After a three-month reimposed price freeze in 1984, prices were freed completely. Under the economic theories of the prosperity consensus, inflation was the lesser of two evils, the other of which was unemployment. Under the influence

of analysis by a New Zealander at Cambridge, Bill Philips, who devised the Philips curve to demonstrate the point, it was believed inflation and unemployment could be traded off against each other. In the 1970s this theory came into doubt as much of the industrialised world experienced both high inflation and rising unemployment. The fashionable theories of the 1970s and 1980s argued 154

An Economy to Fix

that allowing higher inflation (by loosening money supply) could temporarily stimulate growth and jobs, but not generate permanently higher growth. The implication was that to keep the jobs coming would require a series of compounding rises in inflation. Thus the social objective of lower unemployment would at some point be denied by inflation. Inflation was deemed the greater evil because it stunted growth in two main

ways. To the extent that it was higher than in countries with which New Zealand traded it made New Zealand producers less able to compete with exports abroad and against imports at home if the exchange rate did not change. In other words, the ‘real’ exchange rate went up. Inflation also encouraged lenders to require higher interest rates to preserve the real value of their loans after tax and encouraged staff to demand higher wages and salaries to compensate for the higher prices. Inflation tended to divert investment into capital gain instead of productive enterprise. Individuals sank such savings as they did make into houses, with the prospect of capital gain or at least capital maintenance, rather than into fixed-interest securities or other forms of saving which did not keep pace with inflation. Otherwise, they spent to beat next month’s price rise, piling up debt. Countries with high inflation had in common poor economic performance. An exception was Israel, but it had massive American government and private aid. The most successful economies of the 1960s-80s, Germany, Switzerland and Japan, had low inflation, high savings, high investment and rising incomes. So inflation had to go.

Long before 1984 it had become widely accepted in New Zealand that direct controls did not permanently lower inflation, but merely bottled it up temporarily, only to recover lost ground when the cork came out. In 1984 itself that was demonstrated by the steep upward rise of inflation after the freeze was lifted

in February. Moreover, longterm price controls (as in air fares and beer, for example) tended to become a cost-plus mechanism with a price rise granted on proof of higher costs. This guaranteed profits to producers but denied them the prospect of raising profits above a government-determined level: the first discour-

aged them from holding down costs and the second discouraged them from investing in efficient machinery. Both over time worked against the interest of the consumer. So the analysis went. The ‘monetarist’ theories of the 1960s and 1970s which were firmly in resi-

dence in the Treasury by 1984 held that inflation was principally — some versions said only — a result of too much money chasing the goods and services available. Putting an end to that has since 1985 been the Reserve Bank’s job. The 1989 legislation gave the Reserve Bank the single objective of ‘stability in the general level of prices’. That is defined in a formal contract between the 155

New Territory | | bank’s governor and the minister as zero to 2% inflation. Ministerial orders themselves are in effect limited to altering that definition or the target date and intermediate targets on the way to its achievement. Before 1984 it was scarcely possible to say New Zealand had a monetary policy. The money supply was influenced mainly through requiring banks and other registered financial institutions to place a specified proportion of their total

lending in government and local body stock at low interest rates — a proportion the Minister of Finance raised when the money supply was thought to be too loose and dropped when economic growth was thought to be too slow (as, for example, close to an election). A subsidiary mechanism was a set of regulations on hire purchase lending. The banks were constrained in the range of things they could do. But a great deal of lending was done through unregistered sources. Most mortgages, for example, were lent by solicitors from funds invested

with them by clients. There were no controls on the amount of lending they could do, nor, until 1983-84, any controls on their interest rates. Hire purchase controls lost their potency as credit cards came to be widely used in the 1970s (their use abroad also undermined the Government's strict limits on the amount of foreign exchange travellers could use).

In addition, the money supply was boosted by the Government’s habit of borrowing overseas to fund part of its Budget deficit. The new policy adopted

in 1984 required the Government to fund its deficit fully from the New Zealand money markets. The more it had to borrow, the higher interest rates would go. At a time when interest rates were already high in the attempt to limit money supply and get inflation down, Budget deficits compounded an already serious difficulty. Thus, freeing the financial markets imposed a discipline on the Government

to get and keep its Budget deficit down. If it did not, the penalty was high interest rates, slower-growing incomes and slower economic growth. Thus, the Government’s strategy aimed for a gradual return to balance in the Budget over the medium term. This was attempted on both sides of the ledger. Tax was broadened, lowered and tightened. The aim was that tax should be fairly distributed across those who could pay with some sensitivity to ability to pay, that the rates should (and could) be correspondingly lower on everybody

| if more were paying tax and more were paying the tax that was due and that all tax that was due should be collected. This was a major argument used by ministers in persuading a sceptical Labour Party rank and file to support their 1986 tax switch: that the existing heavily graduated system was leaving the better-off relatively unscathed and burdening the lower-middle of society with higher taxes than they would pay under direct and income tax combined. 156

_ An Economy to Fix

So the tax base was widened — that is, more activities and items were taxed. A new value-added tax (GST, or goods and services tax) was introduced in October 1986 on all goods and services except financial services and charities. This replaced a 19-level, 20% to 60% wholesale sales tax from which myriad exemptions had been granted in the five decades of its existence so that it collected tax on only one-third of its potential base. A fringe benefit tax was introduced to catch income that had been given in kind to employees to evade high rates of personal income tax. Concessions and loopholes, which enabled both individuals and, more important, companies (the effective tax rate on companies was 5%

in 1984-85) to pay less tax than was nominally due were attacked as they emerged. This aggressive approach intensified from 1988 with the introduction

of a tighter international tax regime, further tightened in 1992. Another notable move in 1991 was to tax intercompany dividends by means of which group companies, including the state-owned Electricorp, managed to reduce or elimi-

nate tax bills. Individuals’ concession on superannuation contributions was removed in 1988. Withholding tax was applied in 1990 to interest so that cheats could not escape tax by hiding money in their children’s savings accounts. Partly to balance off this widening of the tax base, income tax rates were low-

ered, eventually in 1988 to a top marginal rate of 33% compared with a top marginal rate of 66% under Muldoon. The company income tax rate, 45% under Muldoon, was aligned with the 33% rate. The Government also aimed to improve the efficiency of tax collection so that more of what was due was collected. ‘This was a major reason for lowering personal income tax rates. At 66% the incentive to find ways out of paying income tax was high — for example, small businesspeople often traded through companies to pay the lower 45% company tax rate. At 33% the incentive to put time,

money and effort into evading or avoiding tax was much reduced. GST, to a large extent self-policing, was also a much more efficient tax than wholesale sales tax. Greater effort was also put into tracking down tax evaders, though this was

hampered by the difficulty the Inland Revenue Department had in recruiting and retaining qualified accountancy staff in the boom years that followed financial deregulation. And the rules for provisional tax, paid by companies and the self-employed, were tightened to ensure more tax was collected in the year in which it fell due. A more aggressive approach was taken to closing loopholes and thus ‘maintaining’ the tax base. Some of the international and intercompany tax moves were of this ilk.

Overall, tax revenue went up from 30.7% of gross domestic product in 198384 to 34.9% in 1990-91. This was despite some narrowing of other elements of the tax base to eliminate items that were either expensive to tax in relation to the returns (the main reason given for not introducing capital gains tax) or were 157

New Territory

a cost to business or were anachronistic. Land tax, for example, which raised $43.7 million in 1984-85, was progressively abolished from 1989. And a great deal of customs duty was lost through the reduction and elimination of tariffs: customs receipts dropped from $795 million in 1984-85 to $544 million in 1991-92. The third revenue-boosting device was to charge for government services or charge more. Farmers, for example, were required to pay for technical advice and inspection of carcases in meat processing works. Industry was expected to pay

some of the cost of development of new technologies by the Department of Scientific and Industrial Research. Regulatory fees were increased to cover the full cost of processing them. ‘The Statistics Department charged for figures it used to give out free. Every department that could possibly do so was required to raise

a proportion of its budget through charging users. Between 1984-85 and 199091 those charges — most of them taxes in all but name since those paying them had little choice whether to pay them or not — roughly quadrupled to around $1.3 billion. The National Government since 1990 has vigorously continued this process. These charges were not just to business. In health, $2 charges were introduced for prescriptions. A fee of $1250 per tertiary student was introduced in 1990 to part-fund the universities and polytechnics. In 1991 the new National Government dramatically extended this concept in health and housing and converted the tertiary student fee from a national one to one based on each institution. On the spending side the Government used four main mechanisms. First, subsidies to farming, manufacturing and other business were almost all eliminated, and quickly. Complaints were brushed aside on the ground that the devaluation made up the difference — claims which were to ring very hollow within 12 months of the subsidy-cutting 1984 Budget when the dollar rose again. Second, loss-making state trading departments and some bits of departments which were deemed capable of funding themselves by selling their services (for example, in the Ministries of Agriculture, Education and Works) were converted into stand-alone corporations (state-owned enterprises, or SOEs), headed by boards of nationally known businesspeople charged with one overriding objective — to make a commercial return on the Crown’s assets. This boosted revenue (through dividends — Telecom, which ran the phone system, complained in 1989 it was being milked) and eliminated a spending item, the making good of losses.

Third, these SOEs were progressively sold off, partly (in terms of budgetary policy) reducing government debt and so spending on the interest on that debt (in 1989-90 debt servicing was equivalent to 7% of gross domestic product) and 158

An Economy to Fix

partly eliminating another drag on taxpayer funds, the provision of capital for investment. By July 1990, when the Labour Government announced it was ending asset sales for the purpose of retiring debt, sales had totalled $8.3 billion. By September

1992 after the National Government had resumed sales, the total was $10.8 billion with another $850 million to come from the Bank of New Zealand due to be sold in November 1992. The roll call is: New Zealand Steel Ltd in 1987 for $327 million, Petrocorp for $801 million, the Health Computing Service for $4 million, Air New Zealand for $660 million, DFC New Zealand for $111 million and PostBank (formerly the Post Office Savings Bank) for $678 million, the Shipping Corporation for $34 million, Landcorp financial instruments for $50 million (Landcorp by early July 1990 had also sold 340 farms worth $66 million), the Rural Bank for $550 million, the Government Printing Office for $22 million, the National Film Unit for $2.5 million and Communicate New Zealand for $64,000, State Insurance for $735 million, the Tourist Hotel Cor-

poration for $74 million, the Telecommunications Corporation (Telecom, formerly the telecommunications part of the Post Office) for $4250 million and the Government’s 75% holding in the Synfuels project plus the gas supply to it for a net $80 million, forestry cutting rights for a total of $1238 million, Tel-

ecom for $4250 million, Export Guarantee Corporation for $16 million, Government Supply Brokerage Corporation for $3 million, some Housing Corporation mortgages for $502 million and a number of petroleum licences for $119 million. Fourth, the state departments which remained were radically reformed in two major pieces of legislation: the State Sector Act 1988 and the Public Finance Act 1989. The intention was principally to change administrators of ministerial decisions into managers of large operations which shared a number of characteristics with businesses. Decentralisation, greater autonomy for managers, better financial information and modern financial management techniques were intended to lead to greater efficiency — and so more from the same, or even less, resources. Essentially, private sector practices, which were thought necessarily to be concerned with efficiency, were the model.” The State Sector Act put chief executives, as permanent heads were renamed, on five-year contracts with greatly devolved responsibility for achieving objectives spelt out in business plans agreed with the respective minister. ‘This principle of devolution is applied down the line, giving divisional and regional managers much greater discretion than in the past. The intention was to promote flexibility

in the use of resources and greater room for discretion at middle management levels. Incentives were switched from empire-building to achievement of defined objectives which might include running a department down. In July 1990, John 159

New Territory | | a Belgrave, chief executive of the Ministry of Commerce, said the Government was already getting more value for money and that would continue. In his department the number of tiers of management had been ‘reduced significantly’ and ‘while it does put staff under much more pressure it makes the place much better to work in and I hope the work environment is more challenging’. The Public Finance Act changed the focus from what money departments should get to what the departments do with the money. In the Treasury jargon, departments agree with ministers on outcomes their work is intended to produce, then devise the outputs (goods, services or advice) intended to achieve those

outcomes and the inputs they think necessary to produce those outputs. They are also to produce balance sheets against which their performance can be measured in terms of their use of resources and they are charged a nominal rate of return on assets by the Treasury to encourage them to dispose of assets they do not need and to maintain other assets in good order, instead of postponing maintenance to keep up other spending. ‘These balance sheets have since the end

of 1991 been consolidated into a Crown balance sheet, a world first. The first one, as at 31 December, 1991, showed an excess of liabilities over assets of $14 billion, though another $8 billion of assets (including, for example, universities) should probably be included under the Crown account. Though departments are not completely free to agree wages and salaries with staff (the State Services Commission has a varying role as advocate depending on the department), departments no longer have to accept accommodation provided by the central authorities. They have moved from cash accounting to accrual accounting, with control over their own cheque writing, to enable better financial management and management of resources and to end the farcical procedure of spending all money allocated to ensure it is not lost for the ensuing year. The parliamentary focus has changed from one of voting inputs — fixed amounts for salaries and goods and so on — to requiring outputs for a given vote of resources. Instead of simply using up resources voted to them, departments are supposed to produce the outputs from only the necessary resources. If another organisation, perhaps a community organisation or private sector business, can provide the outputs at less cost, the way is open for the Cabinet to switch from the department to an alternative or for the department to buy in services or goods from outside instead of producing them itself — a sort of minor privatisation visible mainly so far in ancillary services such as cleaning and in expert consultancy. A combination of decentralisation, application of managerial principles and better financial management was at the heart of the motivation for much of the

160 , ,

Labour Government's social services structural changes. Boards of trustees oversee schools, through a contractual arrangement with their principals, who have wide discretionary powers once jealously guarded in regional education boards

An Economy to Fix

or Education Department offices. Area health boards signed contracts with the Minister of Health and were told to get on with running efficient hospitals. The National Government is attempting to drive the model further into private sector practices, creating half-pie state-owned enterprises (with a social as well as a com-

mercial objective) out of the area health boards to run hospitals and aiming to give schools power over salaries (known as “bulk funding’ and the subject of strikes by secondary teachers in 1992), with the universities next on the list for a form of corporatisation.

The principle was also applied to local government which, after it was reformed in 1988-89, was instructed to follow the state example in its administration, financial controls and running of its trading enterprises (such as buses). All this did not cut spending enough to balance the Budget. In fact, net central government spending (with major project refinancing and asset sales taken

out) went up from 37.4% of gross domestic product in 1984-85 to a projected 40.6% in the 1990-91 Budget. If the impact of taxing benefits and applying GST, fringe benefit tax and accident compensation to Government spending is removed (since they are balanced by an equal amount on the revenue side), adjustment is made for the removal of state-owned enterprises from the consolidated account and debt servicing and unemployment benefits are deducted, the rise was from 28.6% of gross domestic product to a projected 30.7% in 1990-

91.

Eventually, the Labour Government was pushed into the fifth mechanism to cut spending — constraints in resources supplied to departments. Crude mech-

anisms such as a ‘sinking lid’ on staff numbers in the late 1970s and across-the-board 3% cuts in the early 1980s, had been tried before with very limited success. Exemptions for humanitarian or political reasons or for reasons of

a minister’s weakness, the “expenditure creep’ of programmes which, once started, gradually expanded under their own steam, the incentive to departmental executives to increase their empires, thereby gaining promotion and pay, a bi-

zarre disincentive to savings through the likely removal from the next year’s departmental allocation of any allocations still unspent at the end of a year, an antiquated financial recording system which denied managers vital information on what was being spent, where and at what speed, and limited or non-existent discretion for managers over large chunks of their budgets (most notably wages and accommodation) together conspired to take ‘savings’ out of departmental managers’ hands or otherwise cancel them out. The Labour Government started with a similar approach. In 1988-89, departments were required to absorb a third of the previous year’s wage round and virtually all price increases and reduce their grants by 5%. In 1989-90, no allowance was made in the amount allocated for departments’ operational costs 161

New Territory | | for either price rises or the 2.5% rise in GST in that year. This was applied with

few exceptions, one being a liberal approach to education, which was in the process of what turned out to be a very costly administrative restructuring. Consequently there were cuts in hospital budgets in real terms (6% in real terms came

out of the health budget) and cuts in many services. From 1990-91 there has been no allowance for price rises and in 1992 the Cabinet pushed for cuts in wage payments. The reforms in the State Sector Act and the Public Finance Act, however, underpinned these broad-brush cuts by changing the incentives to managers, rewarding them for savings and giving them the greater autonomy and finan-

cial management tools that better enabled them to do so. In 1991 the new legislation enabled cost-cutters to move to the next stage: more precise cuts by relating each activity of a department to the department's stated objectives. But, though some services suffered, these constraints were aimed at efficiency,

not cuts to social support. By and large the Labour Government aimed at least to maintain the level of services (but wrest them out of fewer resources) and rejected cuts in social welfare spending. Exceptions were its imposition of a tax surcharge on income earned by national superannuitants — in effect, a cut in the superannuation payout — and its unhooking in 1989 of benefits and superannuation from the wage index, coupling them instead to the lower of the wage or price index. In 1991 the National Government bit that bullet and cut benefits and national superannuation. The Budget loomed large in the post-1984 strategy, so large that it was a — arguably the — principal driver of such social policy reform as there has been. That was a major policy cascade from the deregulation of the financial markets.

Another major set of reasons for tax reform and cutting government spending was the need to improve the operating environment for business. The Government competed with business for resources — labour, equipment, property and capital. If the Government consumed more itself, that left less for business and pushed up the cost, notably of capital and labour. If it taxed more instead of cutting spending, that came out of business profits directly in tax paid and indirectly in lower sales as individual taxpayers were able to consume less of what business made or did. Taxing computers at 40% discouraged the very upgrading other elements of Government policy claimed to want out of business. Taxing cars heavily (with high customs and excise duties) added directly to every business's costs. Furthermore, if interest rates were higher because the Budget deficit rose, that also directly increased business’s costs. And if the Government

spent up, that added to demand and so to inflation (which ultimately was bad for business). Budget deficits pushed interest rates up which were a direct cost. 162

An Economy to Fix

So, after a managed wage round of 7% in 1984-85, wages were freed from government control. In 1987 and 1990 new labour legislation made it easier to make agreements in individual enterprises that related to the needs and profits of that enterprise and removed compulsory arbitration so that unions could not force wage increases on employers with the backing of the state. The State Sector Act applied some of the same principles to state servants so that their rates and conditions would begin to approximate those of the private sector and so that departments could more nearly develop wage and salary structures which met their needs. Under the pressure of recession in the rural sector, then in the manufacturing sector, and later elsewhere in the private sector, unions began to do deals that effectively lowered wages or made working conditions more flexible. From 1988 onwards jobs became a higher priority for the Council of Trade Unions than wage increases.

But this was not enough for the incoming National Government which almost completely deregulated the labour market in its Employment Contracts Act in May 1991. In this unions, given legislative status since 1894, were not recognised nor even mentioned. They have to persuade workers at every single workplace to appoint them as ‘bargaining agents’ and even then employers are not required to bargain or reach agreement with them. The act leaves individual workers and employers in each workplace to agree wages, hours and conditions. There are formidable obstacles to workers obtaining a collective agreement if the employer does not want them, so most are moving or being moved to individual contracts. The only constraints on employers are a low legislated minimum wage

and the market, which would not supply labour if the price were too low. In recessionary times, with a large pool of unemployed waiting for jobs (and goaded to do so by cuts in benefits), this effectively has meant employers have been able to do almost what they want. Labour costs accordingly can be, and in many cases have been, cut. Moreover, the way has been opened for corresponding cuts in state wage and salary costs and in 1992 the Government has been pressing departments to do that. By holding down government spending, that is another Budget cost benefit to business.

Reducing costs to business was also an aim of the corporatisation-privatisation programme. This required a major conceptual shift, for most people — and most MPs — regarded many of the Government businesses as services, akin to the provision of education. For example, electricity, telecommunications, the postal system, the railways, the Ministry of Works and Development and even the Post Office Savings Bank were thought of in this way. Several were monopolies 163

New Territory because that was seen as the appropriate way for the Government to ensure the services. But most ran at losses which the taxpayer had to make good, thereby adding to the cost of their services. While they were run as government departments there was little incentive for their chiefs to improve efficiency or cut costs. In any case the managers did not have adequate financial information to do so, there was constant interference by politicians (for example, ensuring new post offices in the right electorates in election years) and politicians milked the departments for cash if they made a profit and starved them of funds for investment in order to pump the cash thus saved into more politically popular education, health and subsidies. Odd decisions were made to fit the peculiarities of a 12-

month cash-based system in which funds not spent at the end of March disappeared: the Post Office, which ran the post, telecommunications and the Post Office Savings Bank, had stockpiled thousands of chairs. Inefficiently run state trading departments raised business costs. A monopoly supplier such as the Electricity Department could vastly overspend on projects — $1800 million on the Tongariro system in the middle of the North Island alone — and then run the generating and distribution systems with far more staff than safety or continuity of supply required. The Post Office could similarly heavily overman its telecommunications system with raised operating charges to business, run its installation systems bureaucratically and grossly inefficiently, which denied business the right telecommunications equipment and services at the right time, and underinvest in re-equipping its exchanges to the point where in parts of central Auckland a high proportion of calls could not get through during working hours and in many rural places the crank-handle party-line still reigned. Where state trading enterprises were in competition with the private sector, as the Railways was, their inefficiency allowed others in the same business to hold prices higher than they might have. These government services were a large part of the cost of most businesses (they were also a considerable part of household budgets). If their prices could

be reduced businesses (and households) would benefit. , Corporatisation produced dramatic falls in prices. Telecom cut its telephone services charges in real terms by more than 20% in the year to September 1989 and increased the number of lines per employee by more than 22% in the nine months to August 1989. By 1990 telecommunications prices had been cut 25% in real terms, a huge investment programme had turned the system into one of the most technologically up-to-date in the world and dramatically improved equipment installation and servicing — in Wellington the time taken to install a phone line went down from an average of seven weeks to under 48 hours. The Railways Corporation cut its freight rates by 43% in real terms between 1984

and 1990 and moved 14% less freight with 60% fewer staff (and made an 164

| , An Economy to Fix operating profit in 1989-90 for the first time for many years). The Electricity

Corporation’s (Electricorp) wholesale prices increased by 5.8% less than inflation in 1988, 0.9% more than inflation in 1989 and 4.4% less than inflation in 1990; by mid-1992 the real price of electricity delivered to power boards had dropped 14%. On the ports stevedoring costs dropped by between 20% and 60% in the year after reform in 1989. All of this was done in public ownership, which lent strong support to arguments against selling off the SOEs. Critics claimed that the taxpayer was not going to get the benefit of the investment in dividends to the Government. They doubted that private owners would invest in their newly acquired enterprises to the extent necessary to ensure the public service element of their activity was maintained. They would cream the profits. Critics, notably the Public Service Association in opposing the sale of Telecom in 1990, argued that eventually a heavy regulatory regime would be needed for ‘monopolies’ and that the cost of that regime might outweigh any efficiency gains through privatisation. Public opinion polls showed voters opposed to most sales — up to 90% in Telecom’s case. This was probably on the ‘service’ grounds: most complaints against SOEs

were for perceptions (often spurious or wrong) that service had declined; and the one major exception to public opposition to sales was the Railways, which had become a joke for its inefficiency in the past and in any case had largely been abandoned for the car, buses and planes.

Supporters of privatisation argued on two grounds, apart from the need to

reduce Government debt. |

One was that over time if an SOE remained in state ownership the initial efficiency drive would peter out and the strong commercial orientation that had delivered the efficiencies would be gradually eroded as politicians (who had demonstrated themselves incompetent at running the businesses in the past) were driven by political and social considerations to interfere in the objectives and operations of the SOEs and as they replaced strong business operators on the boards with party hacks who would see their first loyalty as the preservation of

the Government’s political popularity. Both became increasingly evident in 1992. In March 1992, for example, the Government forced Electricorp to lower its price demand and accepted as a trade-off a lower return on capital and thus

a lower dividend and lower tax revenue. In addition, a corporation in which political and social objectives played a greater part might be more conservative and so not exploit new opportunities. And, finally, if the Government forced

a high dividend out of an SOE, that left less in retained earnings for future investment. The second additional ground for privatisation concerned capital. The state was skint and could not stump up more capital. Emerging technologies might 165

New Territory | radically and quickly change operating conditions in telecommunications, for example. If Telecom was not potentially to become a low-returning or loss-making drag on the taxpayer, the argument went, it needed capital injections, which in turn meant it had to be privatised. In 1992 New Zealand Post has been making just that argument for privatisation as technology is rapidly overtaking the old ‘royal mail’ concept, relegating the simple letter to a minority part of its activity and shrinking. Governments in any case had no right to risk taxpayers’ money in ventures that might lose them that money. “Think big’ was adequate testimony to that. The privatisers had three answers to the public service objections. One was that the Government could, and in the case of Telecom did, retain a special share which imposed certain conditions, in Telecom’s case the provision of phone lines to those who wanted them and a cap on the movement in residential phone rentals to no more than the rate of inflation. The second was that deregulation opened the way to competitors who could stop excessive profiteering — and this was backed by recourse to the Commerce Act which banned market dominance and so required Telecom to deal fairly with competitors needing access to local dialling networks. This argument was dented somewhat in the case of Electricorp when, in 1991, it proposed to raise prices yearly to levels above those needed

for an adequate rate of return on its assets in order to reach the level needed to justify a new power station around 2000. Until its price reached that level no competitor was going to build a competing power station.

Deregulation was therefore aimed at reinforcing the drive inherent in corporatisation/privatisation to hold down costs to business of major public services. Deregulation of the electricity retail sector is aimed at enabling business to

shop around among suppliers. Clear Communications’ entry into the deregulated telecommunications market has cut long-distance and overseas phone call costs. Partial deregulation of the postal services (complete deregulation is intended) cut the cost of parcel and letter delivery. Deregulation of land

transport, begun under the National Government, reduced freight rates by around 40% adjusted for inflation as the Railways efficiency improvements forced corresponding price cuts from its road competitors. Deregulation of air transport forced the state-owned, then privatised, Air New Zealand to lower fares (an important business cost) to counter marketing ploys by its Australian competitor. The deregulation of the petroleum industry, in which the Government had a stake through Petrocorp, was intended to cut fuel costs after cost-plus regulation (though the benefits, if any, are uncertain). Down at the local level, at arm’s length from the central Government, deregulation of the ports contributed to the cuts in stevedoring charges which greatly improved export competitiveness. The first substantial deregulation of

166

An Economy to Fix

imports, the reduction and then removal in most cases of protection on components and ‘intermediate goods’ from 1979 on, cut costs to local manufacturers who were able to buy from the most cost-effective international sources. So did deregulation of secondhand car imports. And a range of deregulations in the private sector, notably of taxis, were likewise intended to cut business costs. That was the long-term expectation of the financial sector deregulation. The lawyers

and accountants in the Cabinet were, however, unwilling to deregulate their fellows.

The concern with return on capital backed on to another, deeper reason for corporatisation and privatisation. That was the removal of distortions in invest-

ment. If state enterprises did not have to pay market returns on capital that would push up the price of investment funds to the private sector, because state enterprises could consume more of the capital than if they were required to pay a full market return. Since investment in low-yielding activities had been at the heart of the faltering New Zealand economic performance from the 1960s on, this was a potent argument with the Labour Cabinet which wanted a structural shift to a higher yield and so higher wages. At the very least, the rate of return requirement made visible — ‘transparent’, in the jargon — the cost of any so-

cial objectives built into an SOE’s activity. Even if the Government paid no explicit subsidy for the social activities (as it did, for example, for suburban train services, through regional councils), the cost was to be made reasonably clear. The same goes for the developing approach to the provision of social serv-

ices. Applying return on capital requirements to hospitals, as the National Government was considering during 1992, might not necessarily lead to them being run strictly as businesses (preparatory, critics have feared, to full privatisation), but do encourage managers to treat assets as costly items of which the maximum use must be made. Empty hospital beds (New Zealand has twice as many hospitals per 1000 people as any other developed country) become a cost to be reduced if possible, so that resources can be spent elsewhere. The same principle applies to the application of a rate of return to assets used by the core state sector, even though there it isa mere book entry compensated by the Treasury. This removes the artificial division between capital and current spending by making assets a current cost and and is intended to discourage overspending on buildings and other major assets. Land lying idle or half-used by the defence forces, for example, has become a cost that can be saved and the savings applied elsewhere to maintain activities the Treasury is always wanting to cut back. Conversely, any proposed investment in a new university or hospital or military barracks can be fully measured against the denial of those capital resources to the private sector or to some other branch of the state sector — or 167

New Territory | | | | , the denial of a commensurate future income to government activities. Saving on buildings can mean more money for delivering services or benefits. This desire to remove investment distortions was an important element in tax reform. The tax system was supposed to become ‘neutral’ (though it left capital gains untaxed). Almost all tax concessions for business were removed, thus removing the syndrome that led to farmers buying in large quantities of fencing materials at the end of their financial year, even if they didn’t need them. This was taken to extreme lengths by the removal of tax concessions for personal superannuation contributions. The removal was principally to increase the tax take, but it was also so that insurance and superannuation funds companies did not benefit from private investment more than others. This ‘neutral’ guideline became known as the ‘level playing field’. Prices of everything were to find their own level, with the Government's influence reduced to a minimum. That way people would do what gave them the maximum re-

turn. This conformed to the strong theories of rational expectations which infused the thinking of both the Virginia and Chicago schools of economic thought. The level playing field was part of the approach to wages. In economic policy wages were generally treated as a cost (to the wage-earner they are the means of sustaining life). But letting them fall where the ‘market’ drops them is intended over time to reward people for skill, quality and effort. Low levels of skill, an affliction of roughly a third of the workforce, will attract low, or no, wages. High levels of skill will, so the theory goes, attract high wages. The aim is to encourage people over time to acquire skills and to encourage businesses to move their investment increasingly into activities employing high skills. There is some evi-

dence to suggest that may be happening: the number leaving the education system with some form of tertiary or skills training has been rising.

The removal of subsidies had a similar aim. It did save the Government money. But it also removed the incentive subsidies gave to businesses to buy the subsidised inputs instead of others and to produce items whose prices were subsidised. For example, without high supplementary prices on lamb more farmers might have moved to higher-yielding activities earlier.

Import protection was another form of subsidy — but through the price system rather than the Budget. Individuals and businesses paid higher prices than they would have if they had been free to buy at world prices. Cars were about

| half as much again in 1984 as on the world market. T-shirts were two and aquarter times as high. Television sets were around double. The nation’s

ingly seen as essentials. |

less-well-off were paying a high price for items that were essentials or increas-

168

An Economy to Fix Reducing import protection put pressure on managers of protected businesses

to improve their management methods and their use of resources, particularly labour. This would not only reduce the cost of their goods and services to other New Zealanders but also improve the prospects of their exporting successfully. Just as in other deregulation, deregulating imports exposed businesses to competition and drove them to become more efficient. As cuts in import protection went deeper, and especially if import protection was removed, investment would stop in activities that New Zealanders were not as good at as people in other countries. Investors would be forced to choose ventures that could compete at world prices. That way, the theory ran, in due course

New Zealand would get the best possible return from its investment, its raw materials and its people — even if at first there was a cost in jobs. This was so even if other countries kept their import barriers. A growing body of analytical

economic literature argued the benefits of this unilateral reduction of protection.” So the Labour Government accelerated the process begun in 1979 of removing import licensing. By 1992 the last licences were gone. Then in December 1987 the Government announced a programme of reducing all tariffs by roughly

half over five years to mid-1992 (subsequently followed by a further cut of around one-third over four years to mid-1996). Higher tariffs were reduced faster than lower tariffs to narrow the span. In addition, a policy was adopted of dutyfree entry for all items not made in New Zealand —a category which expanded as lower protection forced some producers out, for example, in consumer electronics. The third leg of the deprotection policy was a series of industry-specific programmes for the most sensitive, and therefore most highly protected, industries — cars and textiles, clothing and footwear. These programmes envisaged higher continuing protection than for the economy generally, but still substantial falls.

Running parallel to this process was CER, the closer economic relationship free trade agreement with Australia, under which protection from Australian imports was rapidly being reduced and which, having been begun in 1983, had helped make general deprotection less politically difficult because it got some manufacturers used to some competition. In 1988 this process was speeded up, bringing forward the date for full free trade in goods from mid-1995 to mid1990 and removing anti-dumping protection from that date. Thenceforth, New Zealand manufacturers’ only recourse against tough competition from across the Tasman would be to the two countries’ competition laws which banned market dominance in one or both of the partner countries. Most services (major exceptions were telecommunications, post, aviation and coastal shipping) were freed from the beginning of 1989. 169

New Territory | In tandem with import deprotection went internal deregulation. This was not only intended to reduce costs to other business, but to encourage competition

and so improve efficiency. This process began hesitantly under the National Government in the late 1970s and early 1980s with the partial or entire deregu-

lation of land and air transport, movie distribution, meat processing and retailing. In all these cases the Labour Government completed the deregulation, and it deregulated a wide range of other activities. As to what activities the investor would choose in the new conditions, theory and practice left that to ‘the market’. Treasury officials in private and ministers

in public said the Government did not have the wisdom to know in advance what industries and businesses would be successful on the level playing field and therefore should not attempt to distinguish cases where protection might enable a successful transition to full international competitiveness. This sort of thinking pervaded ancillary items. Government spending on science, research and development was tightened along with all other spending, and tax concessions for research and development were refused on the ground that successful businesses would fund research in any case. If the motivation to do research was to get what in effect amounted to a subsidy from the Government

instead of to boost competitiveness and profits, the resultant use of resources would be less than optimally effective and efficient.

The Government did, however, develop the concept and practice of facilitative help to business. For example, it put up part of the funds for specific projects by individual businesses for market research, feasibility studies and so

on, both in New Zealand and abroad. It maintained and developed the trade commissioner service, which eventually became the Trade Development Board, to provide market intelligence and advice in dealing in foreign markets and, from late in the Labour Government's term, the development alongside the private sector of industry strategies. At home regional business development boards were set up to provide low-key facilitative help to small business.

In principle this did not contravene the level playing field principle. The guiding principles were that help would be to those businesses which the market chose as winners or potential winners and help would be given only to those who proved their willingness to help themselves. The idea was that the veils would be stripped back from prices throughout

the economy so that everybody could see what worked and what didn’t and concentrate on doing what worked. The Government’s job was to remove the obstacles in the way of making things work and to offer carefully limited help to those who showed they could make things work. In 1984 this was expected to take five years. There would be five years of pain while the gordian knot of cross-subsidies and regulation was cut through, then 170

An Economy to Hix

the economy would begin to grow rapidly. In 1989 the economy was heading into deep recession instead of into strong growth — in the two years to June 1991, the economy contracted a total of 2.1% on a year-on-year basis, capping a six-year record of 0.2% average annual growth

since the floating of the dollar. In 1990 the then Prime Minister, Geoffrey Palmer, said the reconstruction was a 10-year process, but the Government was aiming for a full-employment, high-wage, high-growth economy by the mid-

1990s. In 1992 the National Government abandoned its target of halving unemployment by the end of 1993; instead unemployment had climbed steeply during its term. Though economic growth returned in the second half of 1991, few economic forecasters in late 1992 were expecting during the 1990s the level of growth necessary to eliminate the continuing chronic Budget deficits and high unemployment.

171

13. An Economy Fixed?

T hrough much of the late 1980s a fierce argument raged between advocates

and opponents of the economic restructuring. As the promise of payoff ever receded into the future, opponents’ views gained increasing weight. Only in 1992 have advocates been able to gain traction in the argument. And even then they have been severely criticised for choosing the wrong and damaging means and for leaving the economy still unbalanced. The simplest criticism was that the ‘sequencing’ was wrong. The deregulators did things in the wrong order and so initially created a swag of new distortions in the economy which seriously damaged the country’s productive capacity —

more production was taken out of the economy than was needed to make progress towards international competitiveness. Specifically, financial deregulation was done first when it should have been done last.

In 1986 this complaint, which at that time was coming mainly from farmers facing near-ruin with rocketing interest rates and plummeting returns, was backed by a powerful international voice. Anne Krueger of the World Bank, an expert on developing economies, brought to New Zealand by the Treasury,

argued that during reconstruction it was vital the exchange rate be held at levels that enabled industry to survive. Through 1986 the New Zealand dollar traded above the pre-float level and as inflation and other costs soared the gain of the 20% devaluation in 1984 was quickly wiped out. The first response to financial deregulation was an orgy. An insular financial system met an international system itself growing spectacularly as markets round the world were liberalised. By 1987 world flows of money were many hundreds of times the flows of trade in goods and services. Interest rates and exchange rates were set by money flows, which had little relation to the underlying state of economies, rather than by trade flows, which did. That money washing round the world went where the return (in effect, interest rates minus the risk of a drop in the exchange rate) was greatest. New Zealand proved very attractive. In 1985 the Reserve Bank did not have the skills and experience to run monetary policy in a deregulated environment, with a big Budget deficit to fund and severely repressed inflationary pressures. Getting the skills and experience took around five years. Even an experienced central bank would have had difficulties in that environment. In 1985-86, the combination of inexperience and the

An Economy Fixed?

collision with the turbulent international system was explosive. Interest rates skyrocketed, driven by a combination of varying degrees of tightness in the monetary system, the determination to fully fund the Budget deficit and steeply climbing inflation as New Zealand emerged from the freeze and wages both chased inflation and contributed to it by expanding consumer demand. The 1985-86 wage round averaged 15.7%. Inflation in the year to June 1985 was 16.6% and averaged 13% in the three years to 1987. High inflation drove investors to demand higher returns to maintain the real value of their investment and returns. Ninety-day bills averaged 23.3% in 1985 and 19.3% in 1986. The figures for five-year Government bonds were 18.5% and 17.1%. These were far above the rates investors could get anywhere else, so they poured money into New Zealand. At those interest rates banks were keen to lend, too. So was anybody who could muscle into the action. Faced with this new competition, some banks abandoned long traditions of cosseted conservatism and scrambled for market share in their newly deregulated market. They showed as little skill and experience at this new game as the Reserve Bank was showing at its. Companies and individuals had loans pressed upon them, often for very large amounts and at times on security so flimsy some bank lending was seriously negligent of their shareholders’ interests.

Six booms developed simultaneously. There was a consumer spending boom which was boosted by the wage blowout, falling prices of imports and the banks’ eagerness to extend credit to grab market share in the deregulated market, plus the new freedom to spend money anywhere in the world with the removal of foreign exchange controls. There was a takeover boom, as investment companies bought companies that traded in goods or services (that is, in the real, as distinct from the financial, economy) and either stripped them of their assets for quick capital gain or rode up their rising share prices. A large number of established manufacturing and processing companies, among the most notable of which was Fisher and Paykel,

ended up in investment company portfolios. At one point the giant Fletcher Challenge was targeted. Some that escaped, such as Forest Products, used dubious methods, including setting up their own investment companies, to preserve

themselves. Even conservative companies with solid share backing began to switch to debt to finance their expansion.' The sharemarket boomed. Share prices, pushed up by the takeover boom, then began to climb on expectations that they would rise still further — that is, shares were bought and traded for capital gain, not for the underlying profitability of their companies. Investment companies’ shares rose the most dramatically, 173

New Territory a | stimulating yet more bank lending on the basis of their higher share prices. The number of investment companies proliferated as more and more get-rich-quick artists got into the act: Equiticorp, Judge Corp and a host of others, some with the flimsiest of asset backing, joined the long-established Brierley Investments in the game. The Barclays share index climbed from 1261 in June 1984 to 3639 at the peak on 18 September 1987. New issues of shares were snapped up, enabling companies to raise equity with great ease and qualify for still more bank lending. A common phrase in 1986 and 1987 was that ‘you could float a brick’. Commercial property followed suit, as banks showered loans on developers in the mistaken belief that new buildings at least offered more real security than shares. Construction of new office blocks rose 32% in 1984, 24% in 1986 and 39% in 1987 in inflation-adjusted terms. Share prices of property companies, such as Chase Corporation, Richmond Smart, Cromwell and Robt Jones Investments rose as dramatically as those for investment companies.

The takeover, share and property booms fuelled a boom in financial and ancillary services. Banks could continue to charge the fat margins between deposits and loans that deregulation was partly intended to shave. Other lending institutions could do the same. This was the time to be in merchant banking, raking fees out of financing takeover deals, or in foreign exchange or money market trading, or in sharebroking. Lawyers and accountants got lots of new and lucrative work. They filled up many of the new office blocks, keeping the build-

ing boom going. Stupid rents were paid just to get office space in a market chronically short of supply. Opulence was the hallmark. Zealcorp, a specialist arm of the Development Finance Corporation, luxuriated in a first-floor suite of offices opening on to a broad indoor avenue of silver trees. Fay, Richwhite in Auckland decked out its foyer in black marble at staggering expense. Vast

salaries were paid to people who spent them on expensive imports such as Mercedes and BMW cars, travel and other conspicuous consumption. They could afford the interest rates to trade up houses, too, counting on inflation and capital gain to outpace the rates. That dragged up house prices for everybody. Average prices rose 14% in 1985, 7% in 1986 and 22% in 1987 — smaller rises than in the early 1970s and early 1980s house price booms, but substantial nonetheless, especially given that underlying conditions were tightening. The sixth boom was at the sleazier end of the financial business, in high-yield retail deposit companies. Companies offered investments in gold, in contributory mortgages, in trusts of doubtful backing. The rates to the investors were good. The operators varied from novices and incompetents to crooks. A lot of greedy people put small savings into these schemes. A lot of old people, desperate for a way to keep their nest-eggs up with inflation, put in part or all of their life’s savings.

174

An Economy Fixed?

Everybody made money — except for those who did not have enough money or enough nerve or enough foolhardiness to get in on the act. The other exception was that huge group of businesses on whom in the long term the country’s wealth depended, those who sold goods and services to the world, the people struggling in the ‘real’, as distinct from the financial, economy.

Interest rates are not just income. They are a cost to producers. Investment and property companies could pay the rates with ease because capital gain outpaced interest. Producers’ profits did not keep pace with the rates. Their profits, already under pressure from the wage explosion, were squeezed. And they could not get relief because the investment and property companies were hungry for money to keep their spiral going. Producers were squeezed from another direction. High interest rates, by sucking in foreign investors, kept the exchange rate high. After the 1985 float, the dollar quickly regained the 20% by which it had been devalued in 1984 and then climbed well beyond that. In addition, with inflation and internal costs running well above those of our main trading partners, the ‘real’ exchange rate climbed even more steeply. The rise between March 1985 and March 1988 in the real exchange rate was 27.7%.’ In addition, the rate was very volatile, which made planning very difficult for traders. For farmers, losing their subsidies and assailed by high interest rates and rising input costs that accompanied high inflation, the high exchange rate was seriously damaging and caused widespread distress. Net farm incomes on average dropped from about a third in real terms between 1984-85 and 1987-88. The number of lambs slaughtered dropped from an average of 35 million in the five years from 1982 to 1986 to 27 million in the three years 1988-90. For other exporters, having lost their export tax incentives and reeling under high wage increases and high interest rates, the high dollar cut competitiveness and foreign sales were lost or returned a loss. In addition, wide fluctuations in the rate for the dollar made it impossible to plan ahead. The average monthly fluctuation in the exchange rate between 1984 and 1987 was 6.4%. Exports of general manufactures (that is, excluding chemicals, aluminium, iron and steel and forest products) stalled between 1985 and 1990. For local producers, affected by the start of the lowering of import protec-

tion on top of the cost rises, the high dollar made imports cheaper and so squeezed the domestic market. This added to exporters’ problems at the very time when a strong domestic market was needed to sustain them through difficulties or losses on their exports. Worse, from the point of view of securing the future, investment in farming and manufacturing dropped: general manufacturing investment was 20% lower 175

New Territory | in real terms in 1988-89 than in 1981-83 and farming fertiliser application dropped 36% between 1981-83 and 1987-89. In early 1989 Alan Bollard, director of the New Zealand Institute of Economic Research, summed the problem up as ‘two things going on in tension against each other. We have had micro liberalisation, generally removing entry barriers, increasing competition, giving out a general picture of a set of incentives inviting businesspeople to invest and to repay the rewards of that investment. At the same time the macro environment has put out completely opposite signals — broadly, high interest rates and a high exchange rate. And those are saying, first, that capital is costly, so don’t invest, and, second, that New Zealand is not competitive, so don’t invest here.” In the three March years 1988-90, general manufacturing investment, adjusted for inflation, was 8.2% below the three March years 1981-83. In fact, there was a good deal of disinvestment as manufacturers relocated to cheaper-labour countries such as Fiji and Malaysia (and so boosted ‘exports’ of machinery as they shipped it out), as others took rational decisions to locate at least some of their production in Australia as CER progressed and as Australian-based companies and multinationals closed down New Zealand production (established in the first place only to get round import licensing) and concentrated production on their Australian plants. It began to look as if manufacturing was in free fall and some,

like Rob Campbell, a prominent unionist turned economic consultant, wondered whether, as deregulation peeled one layer of uncompetitive activity after another, it might turn out, like an onion, to have no hard core. Farmers objected to losing their subsidies while manufacturers were still heav-

ily protected and thus still holding up farmers’ costs. Both farmers and manufacturers objected to the pressure of high interest rates and a high exchange tate while wages remained sticky under a centralised wage-fixing system. Both said the financial markets should not have been freed until the internal economy

had been deregulated and efficiencies driven through the economy. | The result was a peculiarly lopsided economy. Superficially, up to 1987 it appeared to be avoiding depression and even growing a little. Growth was 1.4% in 1985, 2.0% in 1986 and 0.9% in 1987. But the ‘real’ economy was under siege, with little evidence of conditions emerging that would encourage new activities. The ‘growth’ was built on debt, as it had been for a decade and a-half.

Only the mechanism was different after 1984: instead of the Government doing the borrowing, corporations were. Douglas defended the decision to deregulate the financial markets first on two grounds. One was that he had a ‘window of opportunity’ of which he had to take advantage for fear of losing it. In addition, getting manufacturing protection down would take a long time and wage deregulation, given the historical links of the Labour Party to the unions, would take even longer. Reforming 176

An Economy Fixed?

momentum could be lost in the process and the restructuring stalled. Getting the sequence right was less important than getting the thing done. The second defence was that even if there were imbalances in the financial markets, that was beneficial as it was forcing adjustment faster than would otherwise be the case and it was far better to reform quickly, and so get it over with (rather like a can-

ing) than to prolong the pain (rather like having to do lines) and postpone the gains correspondingly. What Douglas did not know in 1987 was that the ‘real’ economy was about to be struck a blow from behind. What goes up comes down — so what went up spectacularly came down spectacularly. In October 1987 the sharemarket collapsed, falling over the next few months to half its peak level and subsequently to around one-third (in mid-1992 it was still not back to half). After the crash the heavy borrowers could not service their loans because the capital gain they depended on to do it turned to capital loss. Their assets fell in value to below their debts, with no prospect of returning to a positive balance. Dozens of listed companies collapsed. The most spectacular was Equiticorp on January 22, 1989, an investment company which had climbed comfortably into the top 10 companies and included in its portfolio New Zealand Steel, the highly successful whiteware manufacturer Fisher and Paykel and a British investment and banking house, Guinness Peat. A few weeks later the Smart group of property companies followed Equiticorp into statutory receivership and then on July 3 the $1.3 billion property arm of Chase Corporation joined them. By early 1989 four major property companies had failed. A wide range of smaller companies and construction companies, including Wilkins and Davies and Angus Construction, which were dependent on these big companies, collapsed in their wake. The next to suffer were those who had lent the collapsed companies their money. The Bank of New Zealand lost $649 million in 1988-89 alone after making provisions of $1294 million for bad or doubtful debts and, to avoid collapse, had to be restructured and largely privatised, into the control of mer-

chant bankers Sir Michael Fay and David Richwhite’s Capital Markets (subsequently reverse-merged with their merchant bank, Fay, Richwhite). In October 1990, when its Australian portfolio of reckless lending turned sour, the BNZ had to be rescued again The taxpayer stumped up $670 million to cover the doubtful loans and the tens of thousands of ordinary New Zealanders who had bought shares in the 1987 part-privatisation took a bath as the share price plummeted. The much smaller NZI Bank wrote off $719 million and forced its parent, NZI Corporation, the insurance arm of which had been the leading 177

New Territory ; insurance company in much of east Asia, into 100% foreign ownership. The merchant bank DFC New Zealand Ltd collapsed into statutory management on 3 October, 1989 — bringing with it a temporary withdrawal of Japanese bank lending to New Zealand in protest at the Government's failure to bail the DFC out. Some other banks also made losses but were able to absorb and conceal them. In August 1988 the United Bank suffered a severe run on its funds as a result of rumours that it was in trouble. United, its fellow ex-building society bank Countrywide, the Auckland Savings Bank and PostBank and the Bank of New Zealand all ended up in foreign ownership over the next few years, leaving New Zealand without a domestically owned bank. Banks in that condition were unwilling to lend to companies to keep them afloat or permit them to invest, even if they wanted to invest. The big companies could continue to borrow overseas. Smaller companies, unable to raise equity

capital on a soggy sharemarket, had nowhere to go but the local banks. The banks retreated into a policy of not lending on anything other than real property or ventures backed fully by property: farms, whose owners were benefiting from a rise in agricultural commodity prices in the late 1980s; bricks and mortar for businesses (not their business capability or forward plans and innovations); and houses, the price of which stayed high and even rose and so squeezed the amount people had left over to spend. As a result a tertiary effect swept through business: company insolvencies rose from an average of 305 a year from 1983 to 1987 to a total of 2092 in 1988 and 1989.

Next was the impact of the fringe operators’ collapses. Thousands of people lost savings, in some cases their life’s savings, in the crashes of companies such as Registered Securities Ltd, which sold contributory mortgages, and Goldcorp, which sold gold, in which they were led to believe they had specific security. This might not have been so damaging if the collapses had been the result of incompetence only, and which would have been understandable if reprehensible. But in 1989 and 1990 evidence began to emerge of reckless, unethical and even criminal behaviour. Titles to gold and contributory mortgages turned out to have no legal weight. Evidence emerged of schemes under which directors of the failed companies had siphoned millions of dollars off for their own benefit, in many cases with legal impunity. In some cases pension funds were raided. Criminal charges against directors of other companies began to grind through the courts in 1990, but usually, thanks to the New Zealand securities markets’ ‘wild west’ lack of regulation, without convictions. Not only did business hurt, but public confidence in it and the Government’s ability to protect people from swindlers suffered too.

One effect of the sharemarket crash was to make New Zealand companies cheap targets for Australian and other foreign buyers. This was compounded by 178

An Economy Fixed?

the desperate need some holding and investment companies had to sell assets.

Among substantial companies which went into Australian ownership were Feltrax (formerly Feltex), New Zealand Steel (to BHP) and New Zealand Forest Products (to Elders XL). NZFP was bought back by Carter Holt Harvey when Elders collapsed, but CHH in turn got overindebted and went into Ameri-

can control in early 1992. The giants Fletcher Challenge and Brierley Investments (which quit $2 billion of holdings after the crash and so survived) stayed in New Zealand control and both expanded after 1988, snapping up some cheap options, at the cost of substantial minority foreign ownership of their shares. Fletcher in 1992, however, was struggling to get its debt ratio down, unable to do any major investment in New Zealand and was even in danger of break-up itself. The recession which had been expected since 1984 (and had happened in the ‘real’ economy but was masked by the financial spectaculars) arrived. Growth dropped to zero. In the four calendar years to the end of 1991 national output (real GDP) contracted by an average of 0.6%. Retail sales per head of popula-

tion dropped 4.3% in inflation-adjusted terms in the calendar year 1988 compared with 1987, did not grow in 1989 as a whole, despite a splurge in the first half to beat the 2.5% rise in GST announced in March and introduced in July, and fell in both 1990 and 1991. Lower spending weakened still further companies which laid off staff. That had a quadruple impact on jobs: jobs disappeared when companies disappeared; companies that survived often did so only by cutting back heavily on jobs; investment that would create new jobs did not happen; and sales fell and with them jobs in the suppliers of goods and services that were not bought. This happened in the wake of heavy job losses in farming and rural service industries in the early stages of deregulation and in corporatisation of public enterprises. A net 68,700 jobs were lost in manufacturing alone between 1986 and 1989, and between February 1984 and February 1990 the number of jobs in manufacturing dropped 18%. There had already been a fall of 5% between 1980 and 1984 and an 18% fall in workers in the textile industry between 1974 and 1982. But after the respite from the inflationary boom of 1985-87, from which manufacturing got some gain from the increased demand, the trend accelerated.

There were staff cuts of 50% in the Coal Corporation and 25% in the Electricity Corporation immediately on corporatisation, 30% in the Telecommunications Corporation within two and a-half years of corporatisation, 72% in the Railways Corporation between 1983 and 1990, most of that after 1984, and 40% in the ports in 1989-90. Registered unemployment went from 100,000 179

New Territory , of the workforce in the first quarter of 1988 to 182,000 in the first quarter of 1991 and 216,000 in the first quarter of 1992 (the more widely defined ‘jobless’ figure was higher at 249,000 in March 1991 and 265,000 in March 1992 in a workforce of 1.6 million). It would have been worse, but for heavy net emigration (an average of nearly 17,000 a year in the five years to March 1989) through most of the period. Unemployment brought associated ills: more people dependent on the state,

more crimes against property reported (53,949 in 1984), and of dishonesty (364,321 compared with 306,960), more crimes of violence (31,358 compared with 24,113), so more people in prison (38,000 compared with 2600 in 1982); more people with low self-esteem and more illness. This countered the attempts to cut spending: spending on all benefits except national superannuation went — up by 75% more than inflation between 1984-85 and 1989-90. There was distress even among those who escaped unemployment. Reorganisation of government departments, particularly in education, health and science, created an unstable environment for many state servants, sometimes lasting several years. Health and science, for example, were still going through upheavals in 1992. Scared people don’t usually work as well as confident, contented people, which compounded the reorganisation problems and flowed on to people who had to deal with departments. Efficiency gains were therefore limited. In some cases reorganisation actually added to spending. The number of staff em-

ployed in the various education authorities that spun out of the Education Department and education boards went up after the reorganisation. Unemployment and the cost of reorganisation held government spending up. Despite the cuts in industry assistance, government spending net of debt servicing went up from 28.6% of gross domestic product in 1984-85 to 34.8% in 1990-91. Only when the National Government cut benefit rates in 1991 did it flatten and begin to fall — to 35.4% in 1991-92 and a projected 34.3% in 1992-93. Prolonged recession meant also that revenue did not grow enough to bridge the gap. Companies did not make profits. Individuals’ incomes flattened out or contracted. Spending stalled. Tax receipts went up from 30.7% of gross domestic

product in 1984-85 to 35.0% in 1990-91, but that was not enough to balance the Budget. Overall, public debt rose from $26 billion (67% of gross domestic product), after the July 1984 devaluation had increased the New Zealand dol-

lar value of the foreign component, to $42 billion (68% of gross domestic _ product) in March 1988 and to $43 billion in June 1990, after around $4.5 billion of asset sales. Interest on public debt peaked at 23% of total taxation in 1987-88 and was still running at 16% in 1990-91. That other, critical, deficit in the overseas account, the balance of payments, 180

An Economy Fixed?

also remained a problem. Imports grew as reduced protection allowed more goods into the country and as local production ceased or was relocated overseas

and its output replaced by imports. An open door to the importation of secondhand cars from Japan produced a flood: in 1990 more such cars were registered than new cars (which were mostly assembled in New Zealand). As the balance of spending power shifted towards the better off the pattern of buying also shifted in favour of imports. In 1986-87 New Zealanders were among the

biggest consumers of French champagne per head. BMWs proliferated. Free access to overseas exchange encouraged overseas travel. Total travel overseas went

up from an average of 503,800 a year in the first half of the 1980s to 750,150 a year in the second half. Import penetration rose to 41% of gross national expenditure before easing back a little. The import boom impact on the overseas account was to some extent masked by rising prices for agricultural commodities in the late 1980s. Thus total export receipts rose, despite the high dollar. A trade surplus of $2.4 billion was recorded in the year to June 1989. The full impact on the balance of payments was also masked by inadequate recording of money flows in and out of the coun-

try after the floating of the dollar. It took the Statistics Department five to six years to develop reasonably reliable surveys of those movements and there were frequent large and confusing revisions of the balance of payments figures. For example, in November 1989 there was a $900 million downward revision. Overall foreign debt rose correspondingly. The Government component fell as assets were sold and the proceeds mostly used to retire foreign debt and as the policy of fully funding the Budget deficit within New Zealand puta halt to new overseas borrowing (except to refinance existing debt). Borrowing by New Zealand companies and individuals and private lending by overseas investors took up the slack. In effect, large chunks of the foreign debt were ‘privatised’. That didn’t alter the fact that the country was deeply indebted — even after private and Government overseas assets were offset against the debt. Interest on foreign debt was consuming about one-fifth of export earnings. That was a critical factor in the two influential American credit rating agencies downgrading the

country’s rating to the bottom of their AA range. When the National Government took office at the end of 1990 one of the agencies, Standard and Poors, was on the point of dropping the rating below AA, that is, into third world status —a fate averted only by the new Government’s quick action on Government spending and a crisis dash to New York by Finance Minister Ruth Richardson. That could have had a profound effect on the ability of New Zealand-based companies to borrow from foreign banks and might have forced the biggest company,

Fletcher Challenge, to relocate its head office overseas, despite the strongly nationalistic sentiments of its chief executive, Hugh Fletcher. 18]

New Territory

Falling retail sales, low investment, inflation still above 5%, unemployment at 7% of the workforce and rising, a seemingly unbridgeable gap in the Budget and a serious balance of payments deficit: it was a depressing picture after six years of restructuring that was supposed to turn the country round in five years. A year later it looked even worse after the National Government had extended —

the assault on government spending into social policy, cutting welfare benefits

and superannuation by roughly $1.6 billion in early 1991. This helped turn recession into depression. The economy contracted 2.6% and 3.5% in the two quarters to June 1991 and unemployment climbed to 11% by the end of 1991. In April, the depression was biting so deeply that the Treasury privately feared the country might go into a deflationary spiral from which it might not easily pull out. There were serious fears for the survival of two major companies, Carter Holt Harvey and Robt Jones Investments, which might have precipitated a new banking crisis. Falling revenue from taxation more than matched the Budget

cuts. The Budget deficit expanded from 1.3% of gross domestic product in 1989-90 to 4.4% in 1991-92 and another $8 billion of cumulative deficits have been projected through to 1995. Some analysts, most notably Infometrics, were talking of a ‘structural’ deficit in the Budget which economic recovery would not eliminate unless it reached east Asian levels, well above the most optimistic forecasts. Foreign debt climbed to 84.2% of GDP in March 1992.

Unemployment was not the only social impact of restructuring and economic contraction. On many fronts social conditions worsened. Constraints in social services funding meant that hospital managements, still learning the job of managing resources efficiently and lacking even basic information to do it with, had little option but to cut services. Small hospitals were closed, often on the best of logical grounds but disrupting and unsettling small communities. Similar disruption and unsettlement was caused by New Zealand Post’s closure of 500 post offices in February 1988 that did not pay their way (many because PostBank decided not rent space in them) and another 100 subsequently. This touched a deep nerve in a country in which isolation and distance are a continuing reality for many and a part of the recent culture for many others. The Post Office Savings Bank had been something more than a banking business: by handling benefit and pension payments and delivering them to the remotest places through the post offices, it was an integral part of the social, and social welfare, structure. The withdrawal of both from many communities caused widespread upset and inconvenience. Over the following two years New Zealand Post developed a wide range of sales outlets for stamps which tripled the number of stamp selling places, many

182 :

| An Economy Fixed? of them in places that were open much longer, and greatly improved the service. It also built its remaining post offices into stationery and related goods shops as well as stamp selling points. But by the time those improvements were made,

a lot of social unease had been created and New Zealand Post’s standing seriously damaged. Deregulation also stretched the income span. Some people got immensely rich on the booms and got off with their riches while leaving damage behind them. People in certain occupations flourished while those in others languished. Deregulation struck at the homogeneity of New Zealand society. The benefit cuts by the National Government intensified this development. The benefit cuts also caused much misery. Cuts in pay as a result of the pre1991 squeeze on business, particularly manufacturing, profits and then as a result

of labour market deregulation have made life much more difficult for many. Unemployment is not only socially counterproductive, but carries an economic cost, particularly in greater pressure on health services. Unofficial studies have found widespread distress.* Even the normally conservative and quiet Anglican Church was moved in 1991 to complain that the policies were unjust and called for the benefit cuts to be reversed and the economy to be expanded. Deregulation also undermined some of the legislative and administrative advances made for minorities and women. Maori bore the brunt of the SOE layoffs and the heavy cuts in low-skill jobs in industry. Women, being the weak-

est and most vulnerable, are the most affected by labour market deregulation: some have new opportunities to work at least some hours a week, but others have

had their wages squeezed, their hours cut and work time fragmented and, if dependent on the income of a man, have been most affected in a family if that income is cut. What was it all for?

The theory is that in time there will be an economic and so a social payoff. And there are some facts to support the theory. For the most part they are visible only to a few or are seen as worthless achievements by most people, not worth the pain. But they are real gains. The operating infrastructure for business is, from a business’s point of view, vastly improved. Inflation has come down and there is growing confidence that it will stay down. By mid-1992, the dollar had fallen 19% from its March 1988 peak, notably in two falls in the second half of each of 1988 and 1991. The

Manufacturers Federation and the Dairy Board, two of the most outspoken complainants that the dollar has been too high, have both declared they can live with it at 1992 levels. The dollar has also become less volatile as the Reserve Bank gained skill at monetary policy and focused more attention on the exchange rate 183

New Territory | | in its basket of indicators. During severe world currency fluctuations in September 1992 the New Zealand dollar scarcely moved. These stabilisations have made forward planning, particularly planning for investment, more practicable. The cost of a wide range of essential services has fallen dramatically in real terms as a result of corporatisation and deregulation as noted above. The cut in long-distance phone call charges in 1988 alone was the equivalent of about 0.5%

of gross domestic product, a negative on the national accounts, but a plus to business.

State trading enterprises have not only cut costs to business, but have ceased to be a drag on the Budget and so reduced the Government’s claim on resources

in competition with the private sector. Though direct comparisons are not strictly relevant because some non-commercial activities were hived off and re-

main a charge on the taxpayer, there were some striking turnrounds: New Zealand Post from a loss of $6 million in 1986-87 to a profit of $141 million in 1987-88 and $43 million in 1988-89; PostBank went from a loss of $46 million in 1986-87 to a profit of $113 million in 1988-89; the Coal Corporation went from a $14 million loss in 1986-87 to a $6 million profit in 1989-90; the Forestry Corporation converted a $70 million loss in 1986-87 into an operating surplus of $138 million in 1989-90. Even the Railways crept into profit in 1991-92 in tough trading conditions. These spending gains have been less spectacularly emulated over the past two years in the core state sector as a result of the structural and financial reforms. Departments are beginning to demonstrate some improved use of resources, though that was preceded by some early excesses under the new freedoms, especially in office rentals and property management. The Treasury talks of a ‘change of culture’ at the Ministry of Defence and the bosses there have begun to think very differently about the way they manage resources, which may lead

to more defence for less money over the long term. (The generals talk of a ‘change of culture’ at the Treasury.) Departments generally are looking more closely at everything they do in the context of explicit statements of the department’s purpose and no longer automatically assuming everything they have done should go on being done (which usually also meant expansion). This so-called line-by-line examination of their budgets should eliminate or rejig activities that do not fit within the stated purposes and so over time yield genuine reductions in spending in the Budget — but without in all cases necessarily yielding also a reduction in useful services to the public. As in the administrative side of the core state sector, so on the ‘provider’ side — where services actually get delivered to people. In health the emphasis on managerial improvements in hospitals over the past half-decade or more has also begun to yield Budget results. Because for decades the system has been falling 184

An Economy Fixed?

short of expectations, the managerial efficiencies have been of the getting-more-

for-the-same-money variety but if they succeed in approximating service to expectations, they may in time produce real savings. The number of operations went up 15% between 1988 and 1992, despite the financial constraints — though this figure should be treated with caution because there are some reports that quicker-throughput operations were getting priority to get the numbers up. Businesses’ wage bill has stalled and in many cases dropped, work practices have become much more flexible and workers much more responsive to the need for efficiency and quality. At the Tasman pulp and paper mill workers now come to management with ideas for improvements in production and work practices whereas once there was something close to open war between the management and unions. Labour productivity of manufacturing has risen around 30% since 1984. Tasman again is a good example: in 1984 it was near the bottom of the world league; in 1992 it is in the top quartile. Tasman has been able to export its new managerial skills to Australia, where it has improved productivity in mills

it now jointly owns with Australian Newsprint Mills in Tasmania and New South Wales. There have also been big productivity gains in service industries such as banking. The marked improvement in quality is notable, for example, in a defect rate in New Zealand-assembled Toyotas that is second only to that in Toyota's home plants. Consequently, business in New Zealand is far more internationally competitive. As a guide, compared with a country like itself, New Zealand factor costs

— labour, cost of money, land and so on — are about 70% of Australia’s. Wattie, for example, is able to land canned tomatoes in Sydney below the local

canners’ prices, despite the fact that tomatoes are grown under glass in New Zealand while outdoors in Queensland and despite having to overcome the high cost-barrier of Australia’s inefficient ports. The grind towards international competitiveness has been a four-stage process. Different companies are at different stages. First there was cost-cutting: labour-shedding, cuts in perks and all the stand-

ard methods, plus better stock, finance and currency management. Few companies have found this enough for survival, except (so far) in sectors that are relatively new to hard times — law and accountancy, for example.

The second step has been much smarter management. One dimension is in improving relations with workers, innovating work methods and streamlining production. A second dimension to smarter management has been to concentrate on producing a smaller range of items that will stand up to international competition at home and abroad. That means shutting small or distant plants and concentrating production near support services, as, for example, Lane Walker Rudkin, which nearly collapsed after the withdrawal of export incentives, 185

New Territory | , | has done. Ceramco has slimmed down from a sprawling conglomerate to just four manufacturing operations, including Bendon and New Zealand China Clays. “We are operating with business conditions that are real,’ Ceramco managing director Charles Bidwill has said, ‘and we are competing in Australia and against imports . . . That was never the case previously.’> Anecdotal evidence suggests an increasing number of manufacturers have moved to this second stage.

The third step has been to go aggressively into export. As the domestic economy stalled, then contracted, after 1987, profits could be made only in exports. Desperation, coupled with the increased competitiveness, has produced some unlikely successes in some unlikely companies against stiff world competition. One interesting example is Hume Industries’ export of large diameter pipes to Malaysia from its new Wanganui plant. The result is a much more internationally streetwise management. Companies have been able to “export’ management improvements. Tasman’s success in Australia is one example. Lion Nathan Corporation’s acquisition of around 40% of Australia’s brewing industry in 1991 was followed by a rise from 39% to 41% of market share in its first 12 months.

The fourth step, which produces the real payoff, higher real wages, is new investment. In the end, as Len Bayliss, the cassandra of New Zealand economists, has pointed out tirelessly, continuing gains in competitiveness, especially if they are to outstrip the gains highly competitive countries themselves make, will come from innovation and new investment because there is a limit to what extra can be squeezed out of workers. Here the examples are fewer because most companies have been surviving, not looking to future growth. Notable exceptions have been Fisher and Paykel, Bendon and Lane Walker Rudkin which have invested heavily in new equipment. If locals cannot invest because they are strapped for cash or banks won’t lend

to them, foreigners can. There has been a growing if unspectacular appeal to foreign investors. Bell Atlantic and Ameritech bought into Telecom partly because of the improvements in efficiency which they see as a base for potential export of services into east Asia. United States food giant Heinz bought Wattie Industries in the spring of 1992, stating that economic conditions were highly propitious for expanding Wattie’s food processing exports. A handful of Asian companies is beginning to buy into New Zealand companies for export back to Asia of specialised items. Cadbury Schweppes has increased its production for Australasia in New Zealand while winding back in Australia. Australian textile and garment makers are seeing opportunities for production for both markets. A terrible fire swept through manufacturing as deregulation bit. But by the end of the 1980s and certainly in 1992 conditions for manufacturing were rapidly improving and in many respects were better than they had been for decades. 186

An Economy Fixed?

High-value-added firms such as Gallaghers, Tait Electronics and Interlock, which are overwhelmingly export-oriented and depend for survival on technical innovation, have all put behind them initial doubts about deregulation. In July 1992 Interlock executive chairman Stuart Young said exporters were now ‘leaner, meaner and well positioned to take advantage of improved economic conditions’. Asa result of this improvement, the volume of general manufacturing exports rose 24% from the year to 1990 to the year to June 1992. Farmers have learnt survival, too. The fall in the number of lambs slaughtered

overstates the case. Tonnages of lamb in the late 1980s were still above the 353,000 average in the second half of the 1970s and beef output rose steeply during the late 1980s: an average of 547,000 tonnes in the three years from 1986-87 to 1988-89 (and 600,000 tonnes in the last of those years), compared with 446,000 tonnes in the three years from 1983-84 to 1985-86.° Total stock units fell only 2% between the first and second halves of the 1980s.’ In addition, they continued to diversify. Despite dire warnings, few farmers more than normal were sold up by creditors, who themselves learnt a lesson in self-reliance when the Government refused to intervene and financiers had to develop their own restructuring and rescue packages for farmers. Farm debt rose and farm-

ers net income dropped, but the great bulk of those who wanted to survive survived. To some extent this was because world prices for agricultural exports rose in the late 1980s — but when they turned down in 1990, farmers were still able to weather the reverse. And in surviving that they regained pride lost during two decades of creeping dependence on the state. Their arguments against continued protection of other segments in society gained corresponding force. Tourism has recovered as indebted hotel chains have been re-sold at lower prices from which a reasonable return can be made and as the dollar fell. The long-pursued target of 1 million annual visitors was passed in early 1992. And export diversification continued. More wine is now exported than imported. Moreover, the quality of the wine was winning top prizes in Europe and the United States, acclaim from wine writers, space on wineshop shelves and curiosity, then admiration, from wine buffs.

Overall, this improved the balance of payments on the country’s external account, the critical indicator of economic health. In the year to March 1992 the account was very nearly in surplus. This was misleading in that it was partly due to a savage drop in imports as the recession cut spending power which re-

covery would reverse. But there is some reason, based on higher household savings and changing spending patterns, to think the deficit need not become

serious again and that it can be held below the growth in gross domestic 187

New Territory | product, a generally acceptable position, even if foreign debt remains worryingly high. The Planning Council, in a major report in late 1989, said that ‘there is clear

evidence that the policies are working. At the microeconomic level, there has been a significant acceleration of change and at the macroeconomic level very substantial progress has been made towards the achievement of the intermediate objectives of low inflation, fiscal balance and external balance’. A ‘large part’ of the stagnation ‘can be explained as an inevitable result of earlier policies and some of it should be seen as evidence of desirable change in the structure of the economy. . . Provided the integrity of the policy framework is maintained, New Zealand will be well placed to benefit from the changes that have taken place.”®

The Organisation for Economic Co-operation and Development (OECD) argued in April 1989 that ‘four years of extensive reform have put New Zealand in a better position to achieve sustainable, non-inflationary growth than at any

time for decades’. Three years on those comments look to have a firmer foundation. Another cause for cautious economic optimism is the change of attitude in both the private and state sectors. There has been a qualitative shift as well as a quantitative one.

Area health boards have been appointing statistics and planning staff to extract the financial and other information needed to make choices as to where limited resources should go and improve the cost-effectiveness of treatment. Small high-cost hospitals that in any case were limited in the range of high-quality treatments they could offer (patients were better off at bigger base hospitals) have been closed down or restricted to lower-level units that more effectively meet the needs of patients for which they, as distinct from base hospitals, are appropriate. Flexible and innovative arrangements involving general practitioners and local nurses are being explored. This process has been interrupted by the post-1991 restructuring, but when it resumes should generate improvements in overall health care. The issue is rather like the post offices. Hospital closures generate genuine fears for access to health care. But if a wider range of more flexible and more appropriately targeted organisations is developed, access to health care and the quality of the care then delivered may be improved. The process has some similarity with what happened to manufacturing. The fierce pressure of interest rates, a high exchange rate, competition and a tight domestic market forced manufacturers to learn lessons they thought were beyond them and which, under a gentler regime that waited for improvements before applying each new pressure, they might never have learnt. Hospital 188

An Economy Fixed?

lessons. |

managements under ever-tightening financial constraints are learning similar

They are also, like manufacturers, learning a new culture. Manufacturers thought they were important to New Zealand society because they employed large numbers of people and deserved protection for that reason alone. Hospital managements thought their job was to maximise the quantity of treatment of health care and their main concern was to get more money from the Government to do that, not to change the way they did it. Manufacturers were brutally taught their job was to make profits on a hostile market. Hospital managements have been (less brutally) taught their job is to get the most treatment for the most appropriate patients with the least amount of money. Manufacturers’ first response to the process they went through was to frighten the public with job losses and expect that would frighten the Government back into its old ways; a frequent second response was actually to shut up shop. Their more re-

cent response is to look for opportunities (as described above). Hospital managements’ first response was to frighten the public with drastic cuts in services and when the Government stood firm they did carry through less drastic cuts and laid off staff so other services deteriorated. Their more recent response has been to begin to look for efficiencies, greater cost-effectiveness and innovative ways of delivering health care. But the hospitals are some way behind the manufacturers. Universities, where academics have been largely protected from the cuts in jobs and take-home pay that have affected nearly everybody else, are next up. Teachers complain about extra work with no extra pay, but that has been the case even for private sector executives whom state servants often eye enviously. There have been some social pluses. Ordinary New Zealanders have benefited,

though not to the same extent as businesses, from the cuts in the real cost of telecommunications, postal services, electricity, air travel and other transport under corporatisation and deregulation. The cost of their cars, televisions, other consumer electronics, clothes and a wide range of other goods has dropped dramatically, compared with wage rates, under the impact of import deprotection

and internal deregulation. The Labour Government can argue at least that it ‘socialised’ many consumer items by bringing them within the budget of ordinary New Zealanders. They can count on prices not rocketing every year, wreaking havoc on household budgeting and leaving their wages always lagging.

The cost of their mortgages is now well below that ruling in 1984 as inflation has fallen and left leeway for interest rates to fall. There has been a wider cultural change. Generally, New Zealanders would rather

not have come to where they now are. But there does appear to be a growing 189

New Territory

recognition that some adjustment had to be made. That adjustment has been to cut our cloth according to our means. The country has been going through a massive asset devaluation, dragged down by lower incomes. It has been rather like owning a farm we think is worth $750,000, taking out a fat mortgage on the strength of that valuation and expecting an income that will pay the mortgage interest and leave some over — only to find that the income that can be got from the farm will pay much less interest and so service a far smaller mortgage. New Zealand farms, when the state stopped topping up incomes, dropped in value by a third to a half and in some cases more. The country as a whole reached the point where the top-up by overseas creditors was going to become more and more expensive and might in time have stopped, as in parts

of Latin America. Roger Douglas and his fellow restructurers pulled out the blocks that were shoring the show up. Down came the asset value. The issue now is not whether there should have been an adjustment, but when, how and how fast. As to when, in the late 1980s it used often to be said that we should not have been restructuring in tight times, but few would now argue that we should have put it off. There is a lingering sympathy for the view that we should have built up the new structure before dismantling the old, as Muldoon insisted he was doing. But our indebtedness left little room for that and in any case it was not (and still is not) obvious what we should build up. Muldoon’s ‘think big’ choice proved disastrous. The argument now has centred on the how. The method chosen was to remove as many distortions as possible as fast as possible, see what survived and hope that it would grow. Aside from the myriad criticisms of the detail and the technicalities, there are three main criticisms.

The first comes from the likes of Roger Douglas himself. That is that the process was too slow. The faster and deeper the pain, the quicker the gain, he reckoned. A number of countries from the former Soviet empire and in Latin America have chosen a ‘big bang’ approach. The Labour Government could not, for two reasons. First, it had some no-go areas (such as the labour market) which made that impossible and in any case was in part learning as it went along (the

idea of corporatisation of state trading operations is a notable example) rather than operating a grand plan thought through in advance. Second, conditions were not as dire as in the old Soviet Union and it would therefore have been next-

to-impossible to gain enough political tolerance to get through the one re-election necessary to carry the programme through. Faster, deeper was never a realistic option. Douglas acknowledges this himself when he says that he scram-

bled through the window of opportunity open to him (interest rates and the exchange rate) after the 1984 election. In any case, the liberalisation was not slow.

It was much faster than in many other countries, for example, Australia. And it 190

An Economy Fixed?

was much faster than the cautious, halting and hesitant liberalisation Muldoon was following, starting (after liberalising interest rates but not foreign exchange) with inputs to manufacturers who were exporting. The second criticism is related to the sequencing issue. This was not just a matter of pain before gain for farmers and manufacturers. The asset and income adjustment was uneven across the board. For example, beneficiaries lost income before the houses on which they paid rent began to drop in value and so bring rents down. Some people’s standard of living has dropped much more than others’, partly because their true economic value was further below the price they were being paid for their labour. But it was also partly because of the often arbitrary way the restructuring took place. These critics argue that the process should have been managed so that the sequence was ordered and so that people suffered commensurately with their ability to do so. The criticism is not so much that the management was wrong — after all, the Labour Government did expand the social services and maintain benefit rates — as that there was no real attempt at management. The prevailing economic orthodoxy was that the Gov-

ernment should not only keep intervention to a low level in its general supervision of the economy, but during the restructuring process as well. Many of the detailed criticisms — for example, that by Jan Whitwell of Victoria University that the early anti-inflationary measures actually pushed inflation up — flow from this general strand of criticism. The third criticism is related to the second. That is, that far more damage was done than necessary to the ‘real’ economy, that agricultural and manufacturing production in particular dropped more than was needed for the degree of restructuring that has taken place. More sensitive and more sensible policy design (for example, to avoid the financial and property markets boom which left devastation in the wake of their collapse) would have left us with more of our economy intact than has been the case. This criticism especially focuses on the mishandling of macroeconomic management, particularly of the exchange rate and the money supply, a failure by ministers to recognise the value of farming and manu-

facturing and their refusal to even up inequalities between New Zealand producers and their counterparts in other countries, particularly Australia. On this view, the Government was not creating a level playing field but one tilted against local producers — or, if level, New Zealand producers were expected, in the words of Ken Douglas, to play ‘into a 60-mile-an-hour gale’. These critics often pointed to Australia, with its accord between the Government and the unions and its cautious deregulation, Germany, with its ‘social market economy’

according a major role to unions and with deep government intervention and subsidisation, and various east Asian countries where in varying ways governments controlled elements of the economy and/or worked hand in hand with 191

New Territory

industry to develop in agreed directions. The left’s favourite was Sweden, which

seemed to have found a way in which 60% of GDP could be in the hands of the government and a vastly more extensive welfare state than New Zealand’s maintained, all the while keeping in healthy profit a highly competitive, hightechnology business sector that included some of the world’s most impressive multinational companies and, as a result of that profitability, keeping unemploy-

ment enviably low. During 1991 a study of east Asian countries economic management systems by New Zealand-born economist Robert Wade’? was widely read and extensively quoted. Wade's study was important in exposing the simplistic and therefore misleading or false analogies drawn by advocates of the free market from east Asian economic success. He found evidence of extensive guidance and assistance to selected industries by governments in Japan, Taiwan and South Korea during their industrialisation. This went beyond simply helping firms and industries which had already identified themselves as successful or at least promising success, which libertarian analysts identified and accepted as tolerably consistent with free-market theory. This theory argues that the firms would have done what they did anyway, with or without government assistance, which is kept light. Wade argued from the evidence that in many cases the private sector acting alone

would not have done what they did without government guidance and intervention. Wade also identified a ‘correct’ prescription for deregulation, or liberalisation, of a developing economy: first, get the macroeconomy in balance (Muldoon did

not; nor did Douglas); financially assist firms through the transition from stabilisation to liberalisation; liberalise imports of export inputs before deprotecting

domestically-oriented production by allowing imports (Muldoon began with this; Douglas attempted both together); ‘a large promotional role for public agencies’ (Muldoon’s export tax incentives; Douglas ignored this); follow a gradual path (neither Muldoon, going in lurches, nor Douglas, going fast, did this); and deregulate finance ‘late in the queue’.'’ If New Zealand was a deyeloping economy, and there is much to suggest it was — and is — Wade's analysis of success in east Asia suggests it was domg its deregulation wrongly under both

Muldoon and Douglas. Wade even argues that Hong Kong, often held up by free-marketeers as a model, was growing less fast and deepening its manufacturing less rapidly, than the managed economies of Taiwan and South Korea — and in any case exhibited a great deal of informal management through the tight

personal and institutional linkages between the authorities, the banks and business.

192 |

There is a more general criticism. It is not of the rightness or wrongness of any particular prescription, but of the general wrongness of rigid adherence to

| An Economy Fixed? doctrine, any doctrine. History demonstrates that in countless cases from the stagnation (for the most part) of Catholic medieval Europe to the communist nationalism of Albania. Douglas’s economic restructuring policies were heavily doctrinal in concept and application and administered by people who were themselves sheltered (in bureaucratic or ministerial offices and salaries) from the damage. The economic and social impact of the policies was uneven, inequitable, damaging and harsh. But the criticisms do not automatically provide better models of what should have been done.

Analogies with Australia, Germany and east Asian countries ignore the differences. Australia was and is far richer than New Zealand, with a huge income stream from minerals, and was much less regulated than New Zealand to start with. Germany was a mature, stable and prosperous economy, not one going through a massive restructuring (now that it is restructuring the new, eastern part, the ‘social market economy’ is increasingly under attack as complicating and slowing that restructuring). In some ways (for example, its low tariffs and its obsessive anti-inflationary monetary stance) Germany was a model of what New Zealand policymakers were introducing and Geoffrey Palmer was able several times to claim, with some validity, that the New Zealand reforms were not radical or doctrinally rigid but merely returning us to orthodoxy. Of the east Asian countries, Japan is a mature, settled economy (though now going through the aftermath of its own financial and property markets boom). Moreover, while New Zealand is in some respects a developing economy, it is in other respects, particularly its well-developed welfare state, akin to a mature one which has needed to “undevelop’ its uncompetitive development mistakes at least as much as it has needed to develop competitive industries. That is substantially different from Taiwan and South Korea, where the issue has recently been how to share out gains while in New Zealand’s restructuring the issue has been how to

share out (temporary?) losses. Wade explicitly ducked the question of the aptness of east Asian interventions for mature industrialised economies.’ Wade also pointed out that the east Asian economies benefited from assistance in a variety of forms from the United States which wanted strong economies on the perimeter of communist mainland Asia. That assistance is not available now; nor is the more general assistance of booming world trade that applied in the 1960s and 1970s but has been tapering off since. So ‘this throws doubt on the possibilities for other countries at other times to emulate east Asian success’.'? And in any case, the east Asians’ experience is not a prescription for keeping protections and interventions designed to shelter existing uncompetitive industries (as many of Douglas’s critics wanted), but for developing new competitive ones. Finally, there are cultural differences: what works in one culture, for example, 193

New Territory

one infused with confucian principles and placing a high value on family connections, may not work in an individualist, contract-based culture. Furthermore, each country’s interventions were different. Thus they say less about intervention in general and still less about what interventions would be — most appropriate to New Zealand than about what interventions worked in their particular countries at a particular stage of economic development or maturity. A prominent theorist of the left has pointed out that in many cases the interventions have had little to do with ‘socialism’.™ There were also questionmarks as to how successful the interventions were. By the early 1990s Australia’s gradualist approach to restructuring was coming into question, with persistent external account imbalances and unemployment nearly as high as New Zealand’s amid at best modest and uneven growth. Germany got into fiscal and inflationary difficulties in 1992. Italy, often cited as an example of success in combining a high Budget deficit and growth over the long term, was forced into an austerity package in mid-1992. In September-October 1992 the left’s favourite model, Sweden, went the same way, forming a grand coalition of left and right to cut back the welfare state and government spending amid crisis conditions. This followed years of analyses pointing out the growing strains in its economic system as a result of economic internationalisation from which it found it could not stand aside. In mid-1992 a study found that every dollar invested in free-market Hong Kong generated the same rise in GDP as two invested in tightly managed Singapore — Singapore had maintained its growth rate only by siphoning off large amounts of private income into a superannuation fund which provided enormous investment funds.” Nevertheless, the critics had a valid question: should not New Zealand have tried to adjust its own interventions to those most appropriate to its economic needs instead of trying to move out of as many interventions as possible? This is, in fact, where the economic debate has now turned. Both major po-

litical parties are focusing on what governments can most usefully do to encourage or work alongside the tender shoots still growing after the Rogernomics hurricane. This has been the focus of much of the work of the Minister for Industry and for Trade Negotiations, Philip Burdon, and is the raison d’étre of the Prime Minister’s Enterprise Council. Peter Dunne for Labour has followed a similar theme, arguing that leaving growth to newly unveiled price signals is not enough; as a party, Labour proposes loose multi-party strategic sectoral plans for industry. Keynes is making a tentative re-entrance, with

a belief that governments can and should engage in infrastructural investment

(for example, in our roading system, which is dangerously and probably uneconomically inadequate to the demands of a deregulated transport system)

when the economy is in recession. This is miles away from the distorted 194

An Economy Fixed?

keynesianism of the 1950s-70s which allowed government spending to keep consumption up in recession and then did not wind it back down again in boom times. But it is also miles away from rigid monetarism and non-intervention. So is the expansion now going on in both parties of the concept of facilitative assistance to business mentioned above. But interventionist criticisms do not fully acknowledge the dynamics of New Zealand’s peculiar circumstances during, as distinct from after, restructuring. New Zealand’s economic adjustment was no simple rejig. Policymakers were faced with a rapidly changing international economy which New Zealand had sheltered itself from. They had to deal with the impact of integration with the Australian economy. And a tight web of regulation and subsidies made it extremely difficult to see just what was going on in New Zealand. It is that triple adjustment, cutting three ways through the ‘real’ economy and its struggling producers, which made the process, in appearance and actuality, often chaotic

and capricious, with unpredicted and damaging effects and side-effects. Policymakers faced with that triple adjustment could be at least partially excused for deciding to cut through the tangled skeins rather than painstakingly unpick them. Was there anyone wise enough to have succeeded at such an unpicking? Furthermore, the adjustment is not over, as a persisting heavy Budget defi-

cit and a worrying fragility in the external account demonstrate. Getting the interventions right so that in five years they are building rather than blocking the final stages of the adjustment would still require great skill and flexibility.

In any case, picking over what went right and wrong during the restructuring up to now is academic. The more appropriate issue is where we now find ourselves and what is the appropriate policy prescription henceforth? Pessimists say we have cut back our economy and caused social misery without commensurate gains in the sense of a firm foundation for future economic growth and social gains. The macroeconomic stance, by overvaluing the ex-

change and undervaluing the importance of exports to the economy, compounded the problem during the 1980s and has left the economy out of balance. The external account remains fragile; in recession it should be surplus, not the low deficit of 1992, so that higher imports during recovery do not push it into deep deficit. There is also little prospect in the medium term of getting the Budget back into the sort of sustainable balance that denotes an economy back in good health. A spell of good growth would do that temporarily, but as Thatcher’s Britain demonstrated in the late 1980s, that may merely mask a persistent problem that shows in periodic upsets. This last criticism comes from both the right — who say the solution is to cut government spending, especially social spending, still more — and the left 195

New Territory , | | — who say taxes should be raised to eliminate the deficit. Both are mistaken. Cutting spending significantly more is not a viable political or social option after eight years of austerity. And raising taxes is a severely limited option in an internationalised economy because it risks a flight of foreign lending and investment and thus higher interest rates and a rerun (though maybe in milder form) of the late-1980s cycle. Optimists think the external account is near enough to a desirable position and will be boosted by a big bulge in forest products due from maturing trees from the mid-1990s on. They think the Budget deficit is tameable so that foreign and public debt at least do not grow as a percentage of gross domestic product. So optimists think we may be within reach of a virtuous circle of low inflation, low interest rates, an exchange that sustains exports and is stable, sustainable growth with manageable deficits in the Budget and the external account. Some focus on higher household saving (partly in reaction to the bad experience of the past five debt-ridden years and partly in fear of inadequate health and superannuation provision by the state in the future). Higher savings means there is a greater possibility that growth will not simply fuel another balance of payments deficit.

The actual position may be somewhere in between. There is a stronger base to the economy, built on much more skilled and adventurous management and higher labour productivity and buttressed by low inflation. But the Budget deficit remains problematic. Debt is dangerously high. And a boom in world trade can-

not be counted on. Unless we are lucky, the 1990s are probably going to continue to be hard slog. But at least that will be in the knowledge that the worst is now arguably behind us.

So is the worst of the economic debate. As indicated above, there is now emerging a common ground between the major political parties that some intervention is desirable, at least to promote self-selecting successful industries.

But there is a deeper issue. The economic restructuring was not a quarantined affair. It had deep social effects. And it has resulted in a readjustment, a ‘privatising’ of the relationship between the individual and the state. The changes in economic outcomes would have had the most impact on the public consciousness regardless of the methods chosen to generate them. But the impact was all the greater for this deeper change.

196

14. A More Private Place

I’ 1991 David Lange, once Prime Minister of a reforming Government, started a new diversion as a newspaper columnist. His fortnightly columns in The Dominion were witty, wounding and woven through with intriguing and occasionally intricate insights. But the insights were not into the value of the reforms. They were into the damage he thought the reforms had done and were continu-

ing to do. They were the insights of a man who appeared tortured by his reforming past which he seemed to ascribe, though he never quite said so, to his being led innocently astray by a devious and scheming Roger Douglas and the ‘new right’. Yet this was a man who had described Douglas as a ‘national treasure’ and said in 1986 that his Government stood or fell with Douglas. Lange’s recoil was understandable. What he did not realise when he set out arm in arm with Douglas in 1983 was that he would preside over a Government which altered the half-century-long relationship between the individual New Zealander and the hitherto friendly state, that he would privatise much that had been the province of the collective and throw individuals much more on their own resources. Of all the changes wrought by the Labour Government, wittingly and unwittingly, this privatisation may well have the greatest long-term impact on the society and politics of New Zealand. Though the extent of the change initiated

by the Labour Government was limited, its nature was important. After the Lange Government’s reforms the signpost had been planted in the political land-

scape to mark the way for policymakers who were of a mind to end the easy friendship New Zealanders had had with their state since early colonial times. Economic policy dictated that change. Social objectives, which had driven public policy through governments of both parties since 1935, were put on the top shelf, to be brought down on suitable rhetorical occasions. Nuclear, race, constitutional and environment policy all attracted in their own right the gimmegeneration Cabinet’s reforming enthusiasm. But, with the notable exceptions detailed in chapter 11, most social policy, which had been the raison d’étre of the Labour Party since its birth, was, during Lange’s prime ministership, driven more by economic policy imperatives and outcomes than by the equalisation instincts of decades of Labour tradition. Once the logic had been accepted of the need to remove distortions from the 197

New Territory | economy, including those caused by government interventions, an awesome ‘privatising’ momentum developed. Lange may have thought — and, from what his collegial advisers were telling him, could be excused for thinking — that there would be a three-year pullback to see how the economic land lay and then the Government would set about reinjecting the state into the economy in judicious, constructive ways and, more important, pick up the threads of the equalisation drive of the first, second and third Labour Governments that had been frayed by long periods of National rule. The objectives were unchanged from those eras; there was just going to be, first, one economic step back before two social steps could be taken forward. Those social steps were not to be simply more of what Labour had done in previous periods in government. Labour’s social policy did carry a lot of bag-

gage from earlier decades, often inadequately re-examined in the light of changing circumstances even within its social democratic framework. Much of the 1984 election platform represented a largely, though not entirely, altruistic wishlist of people active in each area, the ‘providers’ as they came to be known in the jargon of the economic reformers. The education policy particularly dis-

played that characteristic and Russell Marshall, Education Minister from 1984-87, freely acknowledged that as shadow minister he had faithfully collected,

collated and compiled such a list in preparing his 1984 election platform. But there was also a considerable amount of forward and innovative thinking, notably on issues such as full employment equity between the sexes and other enhancements of social provision for, and the status of, women, an enlightened role for workers’ unions, the extension of equitable access to health care and to educational excellence. In all four of those fields specific institutional reforms were in fact made by the Labour Government. In institutional, although not in economic, terms women’s status and assistance were improved during the 1980s.

The same went for unions (though not for their members). Hospitals became _ more efficient and doctors were dragged towards a contractual system that might have delivered much greater equity in health care access if it had not been aborted

by the National Government. Far more young people stayed longer at school and went on to polytechnics and universities. Intent, however, foundered on money. Once Marshall had paid teachers their 30%-odd increases in 1985, he found he had little in the kitty for educational enhancement and the subsequent huge increases in spending barely outstripped rising demand. Once Michael Bassett as Health Minister had recouped the real drop of 5% in health spending between 1979-80 and 1984-85 and had paid big salary rises to junior doctors and nurses, there was very little over for David Caygill and Helen Clark who followed him to expand health services. The ‘providers’ who had compiled the wishlists had got off with much of the loot for their 198

A More Private Place

own personal enjoyment. In the flush 1960s that would not have mattered because the growing economy would have left plenty over for expansion. In the lean late 1980s what was left were leftovers. In the end, the attempt to set up a long-term resolution of the money constraint through the mechanisms described in chapter 12 forced not just one step back by the Government, but many. Lange and others who had fellow-travelled through the first step or two began to fear that so many steps back would be taken that it would be hard, perhaps impossible, to reclaim the lost ground. That fear has been deepened by the social policy initiatives of the National Government aiming at much greater individual and family self-reliance. In the early 1990s New Zealanders are more on their own, more left to their own devices, than they have been used to in a long while — or, judging by opinion polls, wanted. The state seems to have betrayed a friendship that went back more than a century. This was not just in individual life. Business felt the hand withdraw that had been part of business life through the prosperity consensus decades. New Zealand and the individuals who make up New Zealand have in the past eight years been progressively ‘privatised’. | This ‘privatisation’ has taken many forms: —applying private sector business management and financial management models to state businesses and state departments —selling state assets or businesses (for, up to mid-1992, about $11 billion) —selling state services that used to be free —contracting in work by consultants and other professionals such as real estate agents, merchant banks and even former professional state servants that used to be or cannot be done in-house —contracting out activities to private enterprise —turning over some social support activities from the state to private or nonstate providers —pushing private sector business back on its wits and devices by removing regulations, protection and subsidies; this has a spin-off effect of taking the state out of a key element of the welfare state, the assurance of jobs for individuals —pushing responsibility for their own upkeep and decisions back on to private individuals by cutting benefits and other assistance, by switching from provision in kind to provision of cash to buy from the private sector and by severely reducing the influence of unions (once backed by state arbitration) over wage and salary levels —extending the range of choice in social services to private individuals (that is, shifting the choice from bureaucrats deciding for people to people deciding for themselves) and encouraging them to choose private or non-state alternative to state providers. 199

New Territory | , These privatisations are of four types: privatisation of resource use; privatisation of ‘public’ services; privatisation of choice; privatisation of business, jobs and individual activity. This drive towards privatisation, as did economic management, owed much to Treasury thinking. Introducing private sector management principles into trading enterprises was an element of the 1984 briefing to the new Government. In 1987, the Treasury’s brief went much wider, as its title showed: Government Management.' A chapter was devoted to social policy formation generally, with specific suggestions for policy on each area; a chapter analysed the implications of Treaty of Waitangi policy; a whole additional volume was devoted to educa-

tion: ‘New Zealand appears to have relatively well-paid teachers giving below-[OECD]average teaching hours . . . in a system of low flexibility.’* An annex summarised intellectual bases for social policy. Even the constitution was considered a proper subject for the Treasury to have a policy on. Government Management was breathtaking in scope and fuelled already rampant theories of a libertarian conspiracy. The conspiracy theorists might have been surprised to come across the pronouncement that ‘in a society such as New Zealand, preservation of basic living is not a sufficient standard. Dignity and the ability to participate are values of importance that imply that the state should guarantee more than a minimum income. In modern economies a cash income provides not only the means to meet essential material needs, but is also the key to wider participation in society by providing the individual with the opportunity to exercise choice.’ Shades of the 1972 Royal Commission on Social Policy. Conspiracy theorists may also have been surprised to find the Treasury categorically stating that ‘redistribution of resources towards those in the community who are disadvantaged is a worthwhile aim’.* The background papers argued not for libertarian solutions but for a ‘synthesis’ of libertarian, contractarian and utilitarian prescriptions. The synthesis was, however, unmistakeably a lean towards the market and private sector influences. ‘Government failure can be every bit as real as market failure,’ the briefing stated at the outset,’ then went on to state as an advantage that markets co-ordinate activities even in the absence of any agreement on priorities or ends. Governments tend to rank their objectives or ends in hierarchical order; markets do not.’® Property rights were considered central to society. The briefing warned against a ‘risk-averse’ society that ‘tries to protect and insulate its members from all adverse consequences of a changing external environment or changing technology is unlikely to adapt constructively to change and is much less likely to take up the opportunities that could provide additional jobs and higher incomes.” Given that “the main means available for the state to support

, 200

A More Private Place social wellbeing is through the promotion of sound economic management’,® this was clearly an important point to address. The briefing urged reform of the public sector as ‘clearly the single most important item in the Government’s agenda for the next three years’.? Critical to that was the separation of the functions of policy advice, regulatory and funding activities and operational activities, a changed managerial structure and better management techniques and financial control mechanisms. The state did not, for example, need to own hospitals to ensure health care was delivered. Policy advice should be contestable. Equity was not only ‘who gets it’ but ‘who pays for it’. There was much talk of opportunity costs, efficiency, provider capture, targeting (instead of universal provision) and other concepts which became fa-

miliar during the late 1980s. Much of that was summed up in a sentence condemning the national superannuation scheme: ‘Instead of empowering the poor, the programmes are disabling of taxpayers, restrict the choice of the users of social services and empower the public servants involved in their delivery.’ While the briefing stated that markets failed as well as governments and explicitly rejected personal concerns as too narrow a basis for an ethical social policy, it clearly urged the government down a generally privatising path. The state now takes a far less active role in using resources and in determining who might use them and how they might be used. Markets, in which businesses operate either in the private sector or, if in the public sector, on private sector lines, now decide to a much greater degree. The state’s core role has narrowed towards one of setting the overall policy, a degree of indicative planning and general environmental guidelines to regional issuers of approvals for resource use. The most obvious example of this category of privatisation has been the sale

of government-owned assets and enterprises to private individuals, companies and institutions. But that is only one facet of a thoroughgoing privatisation: more important has been the introduction of private sector objectives and principles of management and operation into state-owned organisations and their subjection, where relevant, to the disciplines of the private sector market principles of competition. From the early years of formal British rule, New Zealand governments had got involved in ownership and operation of services and enterprises. This was for a variety of reasons."! One set of reasons was to make good the private sector's inability to provide an essential or important service in conditions of sparse, often isolated settlement. The Public Trust Office, the Post Office Savings Bank and the Government Life Insurance Office were examples. The Government from 1894 ran a scheme of advances to land settlers (later the State Advances Corporation, then the Rural 201

New Territory | a | Bank) to ensure a continued supply of funds at reasonable interest rates for farming development at a time when private banks were in difficulties. ‘The National

Provident Fund was set up to provide a means for small companies and individuals to set up superannuation schemes. A second set of reasons involved the more general assurance of the supply of, uniform public access to and fair prices for essential services. The post was an early example, followed by telegraph and then telephone services. Railways, electricity and, later, air services were others. In some countries strict regulation of

private sector operators was the means of government involvement. In New Zealand there were early examples of regulation — for example, railways were initially developed by private companies which were limited to a 3% return on capital. But in a colonial settlement with limited capital, government ownership proved a simpler and more effective means of regulation. This was particularly the case when a service was thought to be naturally a monopoly, such as telephone networks and electricity. A related set of reasons was co-ordination or influencing of a whole indus-

try in the public interest. Goverment-owned railways with a monopoly on long-distance land freight provided a means of co-ordinating domestic transport, competing with coastal shipping and maximising scarce capital investment in road and rail. The State Fire Office was set up to compete the insurance industry out of alleged price-rigging and to ensure people whom the private companies rejected had access to insurance. Nationalisation of the Bank of New Zealand was partly intended to keep other banks honest. State Coal Mines’ establishment in 1901 grew partly out of concerns about pricing (and also to improve wages for miners). A fourth set of reasons was development of the infrastructure and industry in a colonial country. Only the Government in the end had the borrowing (and taxing) power to build an adequate railway system in the early years and hydroelectric dams this century. The Government had the financial strength to buy out big estates or develop wide tracts of virgin lands for lease to smallholders. Likewise from the early 1900s and more actively from the 1920s the Government began to replant deforested areas with pines and, when they matured in the 1950s, established the Tasman Pulp and Paper Company to process them when no private company could be found to take the commercial risk. As late as the early 1980s the Government heavily underwrote and/or invested directly in large elements of the ‘think big’ energy-based heavy industrialisation programme when private companies would not do it on their own. A smaller, but important, example of this stepping into the breach was the 1960s development of the Cook Strait roll-on-roll-off ferry service when coastal shipping companies

would not. Financing of risky business ventures through the Development 202

| A More Private Place Finance Corporation, set up in the 1960s, was another example. Scientific research and technical advice to farmers were others. A fifth set of reasons involved strategic and/or sovereignty issues or issues of national culture. Major resource development, such as of the Maui gas field or oil exploration, was too important to be left entirely to private interests. In prac-

tice, those interests were overwhelmingly foreign and massive in size and international economic power. Strategic concern about an essential commodity was part of the motivation for setting up State Coal Mines. The Reserve Bank was set up, then nationalised, to control the currency in the 1930s, a decade in which British banks did not treat New Zealand kindly. A strong belief that the Government had to be actively involved in the banking sector, as a special determinant of business conditions, was the principal motivation for nationalising the Bank of New Zealand. The third Labour Government’s establishment of the

Shipping Corporation was to contest the hold of the British Conference lines over New Zealand’s exports. Radio and television broadcasting were nationalised because they were thought too important to the national culture and to the formation of public opinion to be left in private hands. Finally, a sixth set of reasons revolved around provision of services to the Government itself, such as the Government Stores Board and the Government Office Accommodation Board, which supplied most materials and accommodation to departments. (These developments paralleled a tendency in the private sector to bring many services in-house.) This extensive government ownership was not ‘socialism’. Almost all came about during periods of conservative, not Labour, rule. Government ownership was to meet and solve practical issues and problems, not for reasons of ideology.

By the 1980s three problems had become evident with government ownership and operation of such an extensive range of activities. _ One centred on the fact that in many cases the original reasons had diminished or disappeared. Late twentieth century New Zealand society and economic organisation were different economically, socially, demographically and organisationally from nineteenth century New Zealand and even New Zealand of the 1940s or 1950s. There were plenty of lawyers for wills, plenty of deposit-taking banks to supplement or supplant the Post Office Savings Bank, plenty of sound life insurance offices to handle death cover and superannuation. State Fire had long since joined the insurance club and the Bank of New Zealand never attempted to compete banking charges down or access up. It proved one of the banking system’s worst miscreants in the boom-induced lowering of professional

standards in the mid- to late 1980s. Railways had long since ceased to be a monopoly or an essential service, except for taking state servants to work in 203

New Territory oe Wellington, and the Railways Department’s operational inefficiency was helping to keep land transport prices up, not down. Commuter airlines had emerged to provide services to small centres and free Air New Zealand from that duty. Couriers were contesting the postal system. Private enterprise had from the 1960s gradually been allowed into radio, then television, without any greater disaster than a decline in ‘standards’ as defined by an effete elite. Some big companies were keen to generate their own electricity. Coal was no longer a strategic commodity and had for decades been superseded by diesel, electricity and natural

gas for most uses. |

Logically, there was no compelling reason to keep these activities in government hands other than inertia. There was also a muddle of commercial, social and other objectives. The Railways and the Post Office were used partly as employers of labour that would otherwise have been idle. Hydro-electric dams were scheduled for construction to keep a dam-building workforce together. State forestry planting was as much to provide employment as to develop a saleable resource. The trees were sold at heavy discounts to pulp and paper processors. The telecommunications division

of the Post Office and the dam-building division of the Ministry of Energy seemed more interested in getting the engineering right, whatever the cost, than in serving needs defined by the people who used their products and services. Since the departments were run by bureaucrats, whose job was administration and who might last year have been running social welfare and might next

year be running agricultural advice, the focus was on correct administration according to the public servants handbook rather than efficient delivery of the product or service. Public servants served ministers whose objectives were political, not commercial, and who saw consumers as voters, buyable with their own taxes through subsidies. A new post office or telephone exchange, in the gift of the minister, was a useful weapon in election year. This was as New Zealanders had wanted it. The social and other objectives were their concern. The fact that there was a commercial element in what these

departments did was submerged. The result was that the trading departments were grossly inefficient users of resources. A study published in 1987 found that by the early 1980s government trading departments and companies accounted for 20% of gross investment, but

only 12% of gross domestic product. In 20 years up to 1985-86 $5 billion (in 1986 dollars) had been invested in just six of these bodies whose assets were valued in total at $20 billion — but there was no net after-tax return to tax-

payers. This had an economic effect and a budgetary effect. The economic effect, as shown in chapter 12, was that investment, labour and

204

A More Private Place

other resources consumed by the trading departments were not available to private sector businesses, which were mostly more efficient. The low return on investment in trading departments lowered the overall performance of the economy. Living standards and eventually jobs suffered as a result. The budgetary effect, also detailed in chapter 12, was that poor performance meant either losses or low surpluses. The trading departments were a drain on the Budget. The poor state of the Budget in turn limited politicians’ ability and willingness to fund investment in the trading departments. That limited their scope to become more efficient and to make profits, especially those departments that were under competitive pressure from the private sector and/or were in activities in which new technology was developing fast.

Privatisation aimed to put an end to those constraints. Commercial activities

were to be separated out from non-commercial ones and the latter either dropped, hived off to other bodies or explicitly funded by tax money. That meant the commercial operations would pursue commercial objectives only. ‘The trading departments would become ‘businesses’, selling goods or services to the public.

Since commercial objectives are what drive private business, logically the newly commercially-oriented state trading entities should behave as private busi-

nesses, competing in markets and following profit-oriented management principles. That was the first stage, known as corporatisation. Nine state-owned enter-

prises were created on 1 April, 1987, out of seven trading departments, and others added as time went on. Government-owned businesses that were already companies (for example, Air New Zealand and the Railways Corporation) were instructed to sharpen their profit focus. Competition was introduced to reinforce that focus. Competition was regarded as critical to departments making the transition to businesses. “The regulatory environment that we create is far more important, Finance Minister Roger Douglas told an interviewer in September 1987. ‘Floating off a monopoly is exactly the wrong thing to do. Therefore, in an area like Telecom or Electricorp one would want to be absolutely convinced one had the regulatory regime right before one considered the disposal of shares.’? David Butcher, Minister of Commerce in the last year of the Labour Government, who has since advised a number of countries on reform of government organisations under World Bank auspices, underscores that and accordingly has made recom-

mendations to retain activities in SOE form." Partly, the degree to which competition can be effective depends on the strength of the private sector. 205

New Territory | Peter Ross of accountant KPMG Peat Marwick, who has advised Sri Lankan authorities, says in some countries the private sector is too weak.” If there had not been private sector competitors able to take on Telecom and Air New Zealand, deregulation would have had no effect. In fact, just the threat of possible competition drove some of the early Telecom efficiency gains. Establishing competitive conditions enabled New Zealand to adopt a light regulation model. By contrast, Britain imposed heavy regulation of what remained monopolies or duopolies. New Zealand preferred to rely on competition and strengthened anti-competitive measures under the Commerce Act barring dominance of any market by any enterprise. Under those provisions Telecom was required to make its local network available to Clear Communications and any other competitors, Electricorp to allow access to the national grid for any competing generator. The result was extraordinary, in investment, development, efficiency, customer-orientation and profits. Though even in 1992 vestiges of the bureaucratic orientation could be found at lower levels of, for example, Telecom, which infuriated customers, the level of service improved dramatically — telephone installations and repairs by appointment, fast responses to directory inquiries — and the improvements far outweighed the failures (for example, mistakes in phone book directories). Lower fares, airbridges, meals and smiles accompanied airline deregulation. There are now around 4000 places one can buy stamps and post mail, three times as many as in 1987, and many of those places are open in evenings and at weekends, long after post offices are closed. The profit improvements and price cuts detailed in chapter 8 were spectacular. Why not rest there? Should not taxpayers now reap profits on their investments? And, by keeping the corporations in government ownership, ensure the ‘public’ service element is not totally submerged in pursuit of profit. In the winter of 1992 Electricorp was under suspicion of pursuing profit to the extent that it was caught out by a drought and could not maintain supply. The policymakers didn’t stop. By April 1986, before even the major corporations were set up, ministers were publicly canvassing the idea of floating part of the Bank of New Zealand and the Petroleum Corporation (Petrocorp). The reason they gave at the time was strictly limited. The country’s debt was

high and so was the Budget deficit. Both the Bank of New Zealand and Petrocorp needed capital. The Government could not supply it without irresponsibly adding to debt. Better to raise the capital by floating shares to the public. The Government explicitly denied it would sell off the whole of enterprises. Richard Prebble, who was to become State-Owned Enterprises Minister in 1987, said the Government would not sell off enterprises because ‘the Government is

206

A More Private Place

not the owner [but] is the guardian on behalf of the people’. Specifically, Prebble

said ‘only an idiot . . . would sell off Air New Zealand’. As late as September 1987 in an interview Roger Douglas was talking in terms of share floats to the public, not outright sales. But by the end of 1987 the Government had changed its mind. Several factors drove that change. One was its experience with New Zealand Steel. The expansion of the partstate-owned New Zealand Steel was one of the central elements of the ‘think big’ industrialisation programme. The project ran into horrendous cost overruns. In 1986-87 the Government bailed it out. All in all it spent $2.3 billion in the capi-

tal restructuring and ended up as owner. To ministers, on the best advice they could get, New Zealand Steel was a ‘dog’, unlikely to trade out, at least under their ownership. They wanted shot of the plant to guard against more losses at the taxpayers’ expense. On the day of the stockmarket crash, 20 October 1987, they sold it off to Equiticorp — for a mere $327 million. For similar reasons, the Government put the rest of Petrocorp up for sale, only weeks after they had floated 15% of it and sold 15% more to Brierley Investments in August on a prospectus that committed the Government to retain majority ownership. Apart from an initial decision to sell only 25% of Air New Zealand in September 1988, thereafter they went for outright sales and by tender, not public float. The reasoning went roughly this way. Floating off bits of government businesses to raise capital still left the Government owning the business. That meant

it was still left with a possible need for future capital raisings — and having minority shareholders in tow could complicate that, as was the case when the Bank of New Zealand had twice to be recapitalised. As the Bank of New Zealand case demonstrated, selling only a minority of the shares to the general public

left the Government with the risk of running a business that could fail in the face of competition. More important, selling part of the enterprise diminished the price because shareholders were powerless over its performance. A single buyer, with power to bring capital, experience, management skills, technology, international contacts and other benefits to bear, would be likely to put a higher price on the enterprise. This would be more likely to extract new efficiencies and profits than continued government ownership would (as the new owners worked to extract an adequate rate of return on their investment). And it would bring down government debt more because the price was higher. Bringing down debt was valuable in itself because the high debt level was an important focus for credit rating agencies. But technically, the Government’s balance sheet was not improved by sales, since though some debt was wiped off the liability side, an equivalent value of asset was wiped off the other. Likewise, the cut in interest payments on debt was, initially at least, matched by a loss of

207

New Territory | | oo a dividend stream to the Government as shareholder. The real value, ministers came to believe, with help from their advisers and outside analysts, lay in the better economic use of resources. An enterprise that was performing better would lift overall economic performance. There was a budgetary spinoff to the Government in that tax revenue would be higher if the enterprise made a higher profit in private hands than it would have under con-

tinued Government ownership. But that was incidental to the much greater overall economic benefit. But why should ministers believe that enterprises would perform better in private hands? The performance of the corporations seemed to indicate otherwise. Statistics of improved efficiencies and profits when corporations were sold proved nothing, because those same efficiencies and profits could conceptually have been made in government ownership. The answer lies in intangibles. Directors and managers of private sector businesses have a direct personal stake in the business, related to profits and losses. They do not have the spectre of a political dimension in the background which over time diverts even highly focused managers from a strictly commercial orientation, even if the spectre does not turn into actual intervention. Consistently, managers of former government businesses sold to private owners say, this has enabled them to sharpen their customer focus and to plan strategically with greater confidence. Air New Zealand chair Bob Matthews told a seminar in July 1992 that in private ownership

there had developed ‘a greatly improved management understanding of and adherence to commercial disciplines based on financial indicators and targets’.'®

In public ownership Air New Zealand found it difficult to shed loss-making provincial routes that might have upset MPs in marginal provincial seats. In private ownership it has passed them over to part-owned provincial airlines. The service has improved. Another constraint transfer to private ownership removes is the inherent risk-

aversion of the Government as shareholder. Governments traditionally have proved willing to invest to meet a social service need, but not to meet or preempt business competition, especially where it involves new technology. That, ministers firmly said in the late 1980s and continue to say now, is not their strong point. Ministers’ task is to develop policy in response to voter needs and aspi-

rations, not take commercial punts on their behalf. But not investing can also be risky commercial practice. For example, with 70% of its business fully contestable and that percentage steadily growing, New Zealand Post by the early 1990s needed capital to develop new products and services to meet competition. But it was constrained by having to finance that development out of retained earnings. Without extra capital it was at risk of becoming uncompetitive and 208

A More Private Place

therefore undermining the taxpayers’ already sunk investment. But the businesses it wanted to expand in were high-tech, risky businesses, unsuitable for a Government to invest taxpayers’ money in. A similar two-way risk hangs over the taxpayers’ heavy investment in Television New Zealand, which is in a rapidly changing business.

This is not confined to the domestic economy. Exports may be involved. Telecom, for example, reported to the July 1992 seminar that as an SOE it was restricted in its ability to diversify or to do significant offshore business, one of the ambitions of its American part-owners eyeing the deregulating Australian and expanding east Asian markets nearby. A significant amount of Telecom’s rev-

enue growth now comes from new ventures, such as cellular phones and directory publishing. In addition, businesses sold to a single owner or tightly held consortium have access to capital, technology, skills and contacts their new owners are able to provide. The ANZ Banking Group, for example, was able to draw on its international experience to develop new products for PostBank. The same goes for ANZ’s expertise in marketing, credit and management techniques. There have also been economies of scale. Access to the new parent’s management experience has been important to both the Rural Bank and Petrocorp since their transfer to Fletcher Challenge. They have noted a factor common to most transfers to private ownership: executive and worker pay scales are no longer linked to public sector rates and conditions and higher quality people (on higher sales) have been hired. In any case, selling to a single buyer or consortium did not rule out share floats. For public relations reasons the Government required as conditions of sale that the new owners float off a minority of shares in Air New Zealand (30% to public and staff as soon as practicable) and Telecom (40.1% within three years).

But if the price was to be maximised the sale had initially to be to private tenderers who then had effective control.

There was also in ministers’ minds a huge negative reason driving them towards sale. That was that there was a time limit to the gains that could be made by SOEs under government ownership. Ministers were good managers only by

taking themselves entirely out of management. Eventually, politicians would want to meddle. Ministers have dual and conflicting objectives vis-a-vis trading entities: commercial (making money) and political (keeping constituents happy) and in the crunch politics get the upper hand. This, the Labour ministers felt, would undo what they were trying to achieve. Furthermore, the quality of board ap-

pointments would over time be corrupted by political favouritism and commercial performance and profits would suffer. Such appointees would, by

209

New Territory | virtue of being appointed for political reasons, see their role as at least partly to see to their political masters’ electoral interests and so dilute the commercial focus with other concerns. The National Government in office has broadly agreed with the Labour ministers’ conviction. But it has proved less committed. Party loyalists of doubtful quality have been appointed to SOE boards. And, while it refused to intervene

to force New Zealand Post to revise its doubling of the charge for rural mail delivery, it has backed away from selling the SOE because more such embarrass-

ing events might surface. It intervened in a proposed price rise by Electricorp in 1991 and in early 1992 explicitly accepted a trade-off of a lower dividend in return for a smaller price rise. When the power crisis loomed in June 1992, the first reaction of Prime Minister Jim Bolger was to say the ‘SOE model’ might need to be changed. In short, politicians should run politics, but businesses should be run by business operators. This point was made, paradoxically, in the very sales process itself. Ministers and bureaucrats proved to be inexpert sellers.

Within 18 months of the 1987 stockmarket crash cash-strapped Brierley Investments sold off $2 billion of assets quietly, for good prices — excellent prices for some of them, such as for NZI Corporation and New Zealand News, in the light of their subsequent failures. The Government got into continual public hot water in its sales. The New Zealand Steel sale aroused opposition on two counts. One was the paltry return on such a huge taxpayer commitment. Thereafter there was a widespread suspicion that enterprises and assets were being sold too cheaply. The price Fletcher Challenge paid for Petrocorp ($787.5 million) was roughly equivalent to the capital injections by the Government over the previous 18 months.

In addition, Fletcher Challenge got around $280 million worth of tax losses when it bought Petrocorp. It was able to extract an immediate capital gain in its purchase of the Rural Bank (though there is a clawback). Air New Zealand, executives said, could have fetched another $100 million or more if the industry had not been deregulated before sale. But when ministers rejected a bid by Brierley Investments, at $1.75 a share,

for the Bank of New Zealand a few days before Christmas in 1988, on the grounds that the price was too low (there were also political difficulties in that the bank was seen by the public as having an iconic position in the New Zea-

land financial system and so the economy), they only stored up more embarrassment for themselves when they had to rescue it within six months. After that, ministers did not try to second-guess the right price or the right 210

A More Private Place

timing — until, that is, Ruth Richardson, decided to hang on to the Fletcher

Challenge shares she had to buy (see below) and got caught out by their precipitate fall. Caygill now says that, in economic terms, there is no best time to sell. Any delay in sale, whether because economic recession is thought to reduce the selling price below true long-run value or in order to improve the price through restructuring of the enterprise, forgoes those gains, Caygill says.’” In addition, Douglas has said, restructuring expenses may not be recouped — that is, they are a risk a government is ill-equipped to manage but commercial experts (in theory) are skilled at managing. Prebble said in 1988 that ‘there are plenty of examples... where the amount of money that has been spent by the government to get a business back in good shape is vastly more than the experts

in the game would have spent’. Other experts with close knowledge of the process agree.

The second objection to arise out of the New Zealand Steel sale was to the choice of purchasers. Equiticorp was a paper entrepreneurial company which went bust along with the sharemarket. ‘The Government got its money, but New

Zealand Steel was in limbo for months. Worse, the mechanism used by Equiticorp to finance the New Zealand Steel buy landed its principals in court in 1992, which gave added weight to the doubts. The sale of Government Print to the previously unknown Rank Group, which then took a very long time to settle the payment, was criticised on the same basis. ‘There was widespread disquiet that the company brought in during the first recapitalisation of the Bank

of New Zealand — with a 30% and therefore controlling interest — was a merchant bank of only a dozen years standing, Fay, Richwhite, which had no experience in standard commercial banking and had a reputation for white shoe plitziness. Co-managing director David Richwhite in effect made the point about experience himself when, after the Bank of New Zealand’s second, costly, recon-

struction in 1990, he apologised to the 1991 annual meeting of his company for failing to do the homework adequately before buying into the bank. There were other public concerns about chosen buyers. Fletcher Challenge ended up with a raft of purchases. Brierley Investments had a hand in several. Were Fletcher Challenge and Brierley, then the country’s two biggest firms, with seats on the Business Roundtable, simply being handed valuable taxpayer assets to play with? Public disquiet was intensified by the fact that when Brierley In-

vestments won the bidding for the Bank of New Zealand, Sir Ron Brierley, Brierley Investments chair, also held the BNZ chair (though he stepped aside during the latter stages of the bid). For those of a mind to see conspiracy at high levels, this was a juicy bite of circumstantial evidence. There was concern about secrecy, which raised suspicions of skulduggery. The

sale of Petrocorp to British Gas was announced in February 1988 only to be

21]

New Territory aborted a few weeks later (after a public outcry about selling to foreigners) and the company was sold to Fletcher Challenge instead. Ministers’ explanation, which appears to have been valid, was that after the announcement British Gas demanded warranties which the Government was not prepared to give. Yet it did give Fletcher Challenge generous tax losses and agreed to Fletcher Challenge having the option to require the Government to buy back Fletcher Challenge

shares at a price of $400 million, which the Government had to do in 1992 at a time when the shares were worth far below that on the open market and continued to fall through the year. Thereafter, ministers generally avoided special conditions after-sales warranties

— the major exception being in the sale of the Bank of New Zealand in 1992. By the time of the Telecom sale the shortlisted bidders were taken right through to the point of agreeing the terms of the sale before the final choice was made — so that there could be no nasty surprises. The reasoning was that the Government was not good at managing commercial risks and was therefore better to take a lower price and leave the risk with the new buyer. In the Bank of New Zealand’s case, some legal contingencies were assumed by the Government, but in this case the Government was better placed than the buyer to manage the risk and had the buyer been required to assume the contingencies the reduction in price it would have required was greater than the Government’s calculation of the risk to itself. But avoiding warranties was not enough in itself. The sale of DFC New Zealand in 1988 (80% to National Provident Fund and 20% to Salomon Brothers) was a ‘clean’ sale. But when it collapsed a year later, Japanese banks claimed there

was an implicit government guarantee and in fact, Finance Minister David Caygill had extolled DFC’s virtues in a speech in Hong Kong only a few weeks before the collapse. The Japanese banks applied pressure by withholding new

lending to New Zealand and forced the Government to intervene. | And yet another sale in 1988 yielded an unsightly and unsettling spectacle. The Cabinet announced in September that Qantas was the preferred bidder for 25% of Air New Zealand. But a rival bid, involving British Airways and partaided by Murray Smith, a former Labour MP and personal friend of Douglas

(which itself raised cries of cronyism), derailed that sale while the Cabinet argued whether to go up to 60% or, as eventually settled on, 100%. Only in De-

cember was the matter settled for a consortium of Qantas (25%), American Airlines and Japan Air Lines (7.5% each) and Brierley Investments, with 30% reserved for public investors and staff. This ghastly mess prodded the Government to clean up the act. State-Owned Enterprises Minister Richard Prebble lost his job after a bitter war of words with Lange. The sales process was clarified, tightened and ministerial involvement 212

A More Private Place

reduced. Among the changes were that after that details were finalised before announcing a sale. In the Telecom sale in mid-1990 shortlisted bidders had to negotiate the fine details of terms of sale before a recommendation was made to the Cabinet. That there were mistakes, upsets and suspicions was not surprising. Apart from widespread sales by Chile in the 1970s of state enterprises, many of which subsequently went bust, New Zealand was in the first wave of countries selling assets and enterprises. Consequently, there were no well-honed overseas models to follow and ministers and Treasury officials had to learn as they went along and develop their own process. It would have been surprising if they had got it right first off. Some argue that the process went surprisingly well and assets fetched credit-

able prices. In a detailed report on 28 July, 1992, the Business Roundtable argued that ... given the extensive buyer search process, the absence of bias in favour of particular bidders (for example, New Zealand residents) and the competitive element inherent in the tender process, there is every reason to believe that the prices achieved were the best obtainable at the time. The values realised for PostBank and Telecom surprised many market participants. Subsequent to sale, some assets rose in value; others did the opposite — just as would be expected from a fair, competitive, sale process. Inevitably, elements of the popular press and some economists have used the wisdom of hindsight to argue that the former group were sold too cheaply. Such critics have, however, failed notably to address the only point which is relevant, namely, identifying

what prevented anyone who held this opinion at the time from submitting a higher bid. Despite the enormous political pressures to subvert the sale process, sufficient integrity was maintained to encourage genuine bidders in subsequent sales to come forward and to invest significant resources in preparing bids in the belief that those bids would be considered on their merits. The quality of the privatisation process generally followed in New Zealand has been acknowledged internationally. In particular, the World Bank and the International Monetary Fund have independently cited New Zealand as a country which has benefited from properly executed privatisations. '?

Sir Ronald Trotter, who for a time chaired the state-owned enterprises steering committee, said at a seminar at which the report was launched that in every case the sale price was higher than independent consultants had assessed as the

value of the enterprises. Sir Ronald said that the state also got private sector 213

New Territory

consultants’ advice for lower fees than private asset sellers could have done. He was speaking from experience: as chair of Fletcher Challenge he had to preside over a selldown to reduce debt.”

The Roundtable was being a little starry-eyed, given the problems detailed

above, some of which it acknowledged. But the prices for PostBank and Telecom were well above market expectations — Telecom fetched $4.25 billion, $2.5 billion above book value and up to a $1 billion above private analysts’ calculations. And the process as reshaped after the Air New Zealand sale has gone far more smoothly, with much more public acceptance or at least acquiescence (except for Telecom). Landcorp got good prices for its assets with minimal fuss.

The National Government’s asset sales in 1992 attracted little opposition, except for the special case of the Bank of New Zealand. The sales process is now very close to what is now generally held to be best international practice: —The Government predetermines the regulatory environment, with maximum possible competition. —Private sector consultants ‘scope’ the enterprise, assessing its present value,

the degree to which its value would be enhanced by potential private owners whom they identify and assess whether its market value exceeds its theoretical value. Special public policy factors that may inhibit, delay or complicate the sale or provide good reason not to sell are assessed by public servants and a full sale report prepared.

—The availability of the enterprise for sale is widely notified at home and abroad to companies thought likely to be interested and able to bid. —Interested bidders are invited into a competitive tender, with equal information available to all bidders at each stage in the process, and a shortlist of bidders selected on the basis of indicative bids to make final binding bids. —Commercial advisers and public servants, at arm’s length from ministers, prepare sale documents, screen bidders, monitor the due diligence by shortlisted bidders, evaluate the relative merits of bids and make final recommendations to the Cabinet. —hMinisters decide the post-sale regulatory environment, decide on the basis of advisers’ recommendations whether and to whom to sell and settle any special conditions. Post-sale guarantees or special conditions are usually avoided, and a cash purchase is required, to ensure a clean sale, with no subsequent recourse to the Government by the buyer or others. Preferences by the enterprise’s board or management are ignored. There was another reason why sales went more smoothly from 1989: grow-

ing expertise among local merchant bankers, investment bankers, analysts, stockbrokers, accountancy consultancies and law firms, as well as bureaucrats in

214

A More Private Place

the Treasury and Cabinet ministers. Some early advice of doubtful quality by hotshot foreign (mostly American) advisers was at least supplemented and to a considerable extent supplanted in later sales by home-grown work of improving quality. Now New Zealand is an exporter of advice on corporatisation and privatisation.

There was one other huge complication. Few of the operations that were privatised — either corporatised or sold — were businesses alone. There were other factors. The actual supply of electricity or telephone services, for example, was a business. But the assurance of fair prices, access and continuity of supply of an essential service was a matter of public interest. Meeting this kind of public interest requires either very open competition or some government involvement. Competition forced improvements in services and fare cuts in air services and in some aspects of the postal services — and the public by and large applauded the results. But when Telecom was sold in 1990 a ‘kiwi share’ was retained by the Government under which it required the new owners to increase the (heavily subsidised) residential subscription fee no faster than the rate of inflation. The argument for venture capital was acknowledged in 1990 by the announcement that a government fund would be set up — the DEC, originally set up to do just that, having passed away by then. But New Zealand Post, PostBank and Electricorp, while still in government ownership, were not similarly constrained. Although the Government retained ownership, it withdrew from all but a long arm’s-length shareholder involvement, thereby privatising them in all but actual ownership. The public service element in their operations was not seen to. This caused political upset when New Zealand Post and PostBank closed down post offices and banking services

(as detailed in chapter 13) and when there were power shortages in the drought- | stricken winter of 1992. New Zealand Post’s expansion of the number of outlets and improvement in their range of services were blindingly obvious things to do as good commercial practice before the closures, had the corporation been

concerned with maintaining public goodwill as an element of longterm profitmaking. The public service dimension also caused trouble during sell-offs. The sales of PostBank and Telecom were examples: polls showed opposition to the sale of Telecom in 1990 ranging from 75% to 95%. A proposal to give away power boards to their customers raised not gratitude but an outburst of fear that higher prices would follow. The National Government has as a result proceeded with preat caution over the possible sales of Electricorp and New Zealand Post. Opposition to privatisation of the ‘businesses’, whether by actual sales or government withdrawal from active involvement, took other forms. One was 215

New Territory | self-interested opposition by workers in the organisations who feared less favourable working conditions and staff cuts. Another was a desire, if the corporations were profitable, to get the benefit of past investment rather than to

see private owners cream off profits developed out of that investment. T’o Caygill’s counter that taxpayers would get a higher income stream from private

owners, critics said heavy regulation would be necessary in some cases, for example, Telecom, to protect the public interest and the cost of that regulation would outweigh the other budgetary gains (so far only very light regulation has been applied). There were fears private owners would not keep up technologi-

cal investment, to which the Government countered that in some cases, for example Telecom, only a big foreign company could do that (a claim that seemed

to be underlined by the American part-buyers’ stated intention to use the unregulated New Zealand environment as a testing ground for new ideas and new products) and it could be kept up to the mark through deregulation and resultant competition. In 1991-92 Telecom is investing $700 million (1% of gross domestic product) anyway. There was nationalistic or xenophobic resistance to foreign ownership of big service businesses and assets such as forests. ‘That sort of concern, for example, played an important part in prompting the Government to switch the sale of Petrocorp from British Gas to Fletcher Challenge. In some cases, the original reasons for Government involvement persisted: the argument for venture capital was acknowledged in 1990. Another strand of opposition sprang from the Labour Government's duplicity in seeming to say in campaigning for re-election in 1987, and in the case of some enterprises explicitly saying, it would not sell off the businesses.

And there was habit. People often feel uncomfortable when longstanding practices are changed, even if the underlying reason for them has changed or disappeared. Habit of ownership built up over a century or more was a powerful emotional block to sales and especially to sales to foreigners — and furnished

automatic emotional suspicion of Government motives. But gradually divestment became the norm and the public became, even if unwillingly, habituated to it — which may account for the diminishing public opposition to recent sales. Habit dies hard and only when it cannot be perpetuated. Motorised transport on sealed roads brought the backblocks closer to town, small towns closer to larger towns, larger towns closer to cities. Inhabitants, often dwindling in number and so undermining the economic base of nearby services, could go three or four times the distance in the same time as had been the case half a century earlier. The need diminished to have close at hand facilities such as post offices, a range of shops, small hospitals. Yet opposition to closures on hard-headed ‘privatised’ calculations of need, supply and efficient and effective use of resources was fierce. As the public has become habituated to the new arrangements — air

216

A More Private Place

services is an example — earlier emotions have cooled.

Habit was matched on the other side of the argument by fad: privatising, whether by sale or by importing private sector concepts into state management, was fashionable. Not only had the right-wing Government of Margaret Thatcher in Britain begun selling large enterprises, but the Spanish Socialist Government was doing it and later Malaysia, a country with a heavily interventionist Government, began to do so, too. Japan part-sold its telecommunications company. The Chinese Communists allowed a degree of private business in the second half of the 1980s. By the early 1990s, with much of the former Soviet empire seeking ways to privatise their economies and with many Governments in central and south America joining the trend, not to mention the French Socialists, who had begun their period in office in the 1980s by nationalising banks and extending state ownership of industry, were also in on the act. Austria, the model of heavy government involvement with industry through ownership and a ‘negotiated economy’, began to reverse out in the late 1980s. In mid-1992, the tiny, backward kingdom of Bhutan joined the ball. As the Economist magazine put it, selling state enterprises has been ‘all the rage with economic reformers’, with sales totalling an estimated $US250 billion in eight years from Britain’s pioneering sales in 1984.7! There was safety in numbers.

Selling off businesses or running them along private sector lines even if they stayed in state ownership was not the only method of transferring state activity to the private sector — that is, of ‘privatising’ use of resources. In many cases the job was simply moved from state employees to an outside agency. The work was contracted out or in. Contracting out to and in from private sector business and individuals was not a new phenomenon. A wide range of state activities had always been car-

ried out by private contractors, for example, school buses and rural mail deliveries. The non-profit Intellectually Handicapped Society provided the great bulk of care for intellectually handicapped people. Private operators ran most

old people’s homes both as part of church and other charitable groups or for profit. But after 1984 the practice was greatly expanded and whole new vistas began to be opened up for consideration: for example, the management of hospitals and prisons. This was following a trend in the private sector. During the 1980s companies increasingly concentrated on their core activities and contracted out ancillary activities to specialists outside the company or contracted in outsiders to perform a service in-house that had been performed by staff. This accounted for part of the apparent shift in established industrial economies to service activities. An inhouse design, publications or cleaning team or software developer or cafeteria

217

New Territory : | management in a manufacturing company was counted as manufacturing. If those functions were contracted out to ‘service’ companies, they counted as serv-

ices. Companies of all sorts contracted in a good deal of consultancy work to help with a wide range of public relations, planning and other activities and in some cases individuals left direct employment to act as those consultants, ini-

tially mainly to their former company but gradually to a wider clientele. Sometimes employees of other sorts became contractors. For example, oil com-

pany tanker drivers bought tankers and operated under contract to the companies. This practice became widespread in trucking and in the courier business.

State departments increasingly did likewise. Government-employed cleaners were replaced by contracts with private cleaning companies, including for schools

and hospitals. Similar arrangements began to be made for other functions previously performed in-house, such as car repairs. Departmental managers made newly responsible for their own accommodation in many cases went to private real estate agencies and rented from private landlords. This use of outside agencies was followed by New Zealand Post in its replacement of closed post offices with agencies run by private shops. The idea of contracting out management of hospital wards surfaced, with ‘socialist’ Helen Clark as Minister of Health declaring she was not opposed to it. Departments and state-owned enterprises hired in consultants for a wide range of jobs, notably to advise on asset sales, depart-

mental reorganisation and objectives and personnel. The bill for the Treasury alone in 1989-90 was $107 million in 1990-91, mostly for advice on asset sales, though $9 million went on policy work. Some staff privatised themselves, giving up fulltime jobs with a department, then contracting back to the department on a part-time or fulltime basis. On a different tack, Maori authorities have set up their own kindergartens (kohanga reo, or ‘language nests’) and some schools partly with state funds and have been contemplating a branch of Waikato University.

The notion of contract is an import from the way private sector companies do business with each other. It lies at the heart of capitalism. One of the barriers, and a critical one, to the privatisation of the former communist economies was the lack of adequate contract law. In New Zealand state servants served ministers according to sets of duties and obligations which were set out in legislation and rules of conduct. From 1988, with the passing of the State Sector Act, they operated under contract to their ministers. In this way ‘public service’ began to

be ‘privatised’. ,

To the notion of contract were added two other closely intertwined imports from private sector theory and practice. 218

| A More Private Place One was agency theory. The actual delivery of a service or some advice or money to the public was held to be different in concept from the funding of it and the policymaking around it. In this thinking delivery was a matter for skilled managers, not for people skilled in social analysis and political responsiveness. Logically, private sector ideas, models and practices and even ownership could be applied to delivery of these services to ensure delivery was done at the least cost. The important issues of conformity with policy and the public interest could be dealt with by other means. Provided the state retained control over the equity of access to the services, quality control and policy, ‘agents’ could be ‘con-

tracted’ actually to deliver the services — and these agents could be either publicly or privately owned. The second was ‘managerialism’, that is, the adoption of private sector managerial principles into the core state sector as it had been into state business. State departments had until the mid-1980s been administered by their bu-

reaucrats rather than managed. Management was in principle the job of the ministers, operating according to objectives derived from their dialogue with the electorate. Bureaucrats’ job was to offer their expert advice on likely outcomes and on means to achieve the ministers’ objectives but then to do the ministers’

bidding. They were guided by a sense of the national or public interest — of ‘service to the community’, as the 1962 State Services Act spelt out — and were expected by ministers to work together, to produce a unified ‘departmental’ view rather than competing departmental views.” The state service was itself ‘unified’, with one grading and salary system ranging across all departments and a single appointments procedure that was carefully sanitised of any political influence except for an extreme last-resort option for a minister to press against the ap-

pointment or for the removal of a departmental head who was highly incompatible.” The State Services Commission oversaw the state service, appointed permanent secretaries and senior staff, decided objections to appointments and generally set the rules within which the whole service operated. The State Sector Act and Public Finance Act turned that on its head.** Chief executives ceased to be administrators only and became the managers of their departments, including of their staffs. Each department defines its own service structure (though the State Services Commission still provides advocacy services for wage negotiations with the Public Service Association). The transfer from one department to another has become akin to moving from one private sector employer to another. This is a logical corollary of putting state-sector wage fixing on a similar footing to that in the private sector. Chief executives are responsible for deciding what staff, accommodation, raw materials and other resources they need to generate the outputs within the agreed price. They thus have an incentive, as proof of their capability, to generate the

219

New Territory | outputs for the least resources (‘inputs’) practicable — without thereby generating a quality of output that denies achievement of the intended outcome. Under the old system departmental heads were responsible to their minister. But there was also a sense in which they were responsible to the greater entity of the Cabinet as a whole. A web of interlocking departmental committees work-

ing to Cabinet committees underpinned that concept. Under the new arrangements the chief executive was explicitly contracted to the minister. The Labour Government, dealing with big political issues in a massive reform process, relied much less on interdepartmental committees and tended to resolve issues at Cabinet level, usually without bureaucrats present. Departments were therefore called on less to resolve their differences before presentation to the Cabinet and departments developed as fiefdoms, often at odds with each other, not just in secret but in the open. This intensified interdepartmental rivalries, particularly with the Treasury, which many in the public service as well as in the public at large felt was too powerful, or at least influential, in policy development. Departments offered competing advice and there was a sense in which a parallel could be seen in the way companies compete with each other. Under the National Government interdepartmental committees have been revived with

explicit instructions to resolve issues before they reach the Cabinet but the basic “managerialist’ tenets remain. Those tenets, aimed at efficiency, logically ‘sit uncomfortably with . . . public service obligations like [sic] maintaining the rule of law, upholding citizens’ rights of access to fair and equitable government administration and providing high-quality community services’, according to one Australian commentator.” Another has said that the public interest injunction on state servants required them at times to ‘disengage’ their duty to the Government ‘where the Government contravenes the public interest’. John Martin has argued that ‘almost any policy advice or act of discretion involves some weighting of values other than efficiency’.”” There is also a big difference between the scale of the social, economic and other big-picture outcomes that result from a department's outputs — and often a long time lag — and the micro outcomes that result — usually quickly — from a private company’s outputs. Moreover, where departments were required to charge for services, as, for example, in the case of the Ministry of Agriculture and Fisheries (MAF) and the Department of Scientific and Industrial Research (DSIR), the potential conflict between efficiency and public interest was heightened. The Acting DirectorGeneral of Agriculture and Fisheries, Royce Elliot, noted in his 1989 annual report to Parliament that ‘the new partnerships MAF is forging with private enterprise represent an actual or at least potential transfer of “ownership” from the Crown to industry . . . an evolution of bureaucracies which the user-pays 220

_A More Private Place

policy is putting more directly in the hands of New Zealanders’.** This is, however, becoming less of an issue as the user-pays parts of such departments

are being split off into stand-alone ventures or the departments are being restructured. Private sector management principles were also imported in the new financial management arrangements. Departments have adopted accrual accounting techniques and must produce balance sheets of assets and liabilities, with what amounts to a parallel to the private company’s profit and loss account, although obviously there are differences. The notion is that state servants and others in charge of state activities, such as school boards of trustees, must account for the efficient use of cash and assets and must keep those assets in good repair. The monitoring mechanism is contract. Chief executives work to contracts. The Labour Government wrote contracts between the Minister of Health and area health boards, a concept being refined under the National Government which has proposed that four regional health authorities will ‘buy’ health services from

various providers, including hospitals, on behalf of the population in their region. Agencies work to contract. This opens up a whole area of potential privatisation by splitting the fund-

ing of social services from their delivery. The regional health authorities are expected in time to buy services from whichever providers can deliver them most cost-efficiently. They may be co-operative, community, tribal or private institutions. The important issue from a public policy point of view, policymakers argue, is not how the delivery is managed, provided it is cost-efficient and delivers the contracted services. Delivery is, they argue, a ‘business’ and should be run on business lines, much the same as electricity, post and so on. The important issue from a public policy viewpoint is that everybody has access to a defined set of services, paid for, at least in good part, by the state.

If this point is accepted and followed through, the argument for keeping hospitals in public ownership diminishes. The contracting out of hospital clean-

ing and, possibly, ward management could logically eventually extend to contracting the management, and even the ownership, of whole hospitals — that is, whole hospital ‘businesses’. In any case, almost all general practitioners have always operated as private businesses in New Zealand. The argument extends logically to schools, now being given full control over

their budgets, including maintenance and replacement of buildings and staff hiring, firing and pay (though this last is still at the pilot stage). If all the state is concerned about is funding and educational standards, why should it be concerned who owns and runs the schools? In fact, the National Government is keen for more parents to send their children to private schools, which at the moment 221

New Territory a it only part-funds, thereby getting more children educated for its money. Why not buy prison services from private companies? Why should not private companies run the social welfare payments system? Why not deliver more social services through non-state organisations or private companies? State services, by the very constitutional constraints they operate under, have to observe rules. The greater flexibility available to private welfare agencies arguably could, and in some cases demonstrably does, meet welfare needs of individuals more precisely and

perhaps thereby save money while being more effective in some instances.” Labour’s Helen Clark recognised that the state-owned Housing Corporation could not reach all those in need of housing and dispensed some assistance through local housing groups that could reach those people. Some advocates of privatisation argue that it has a long way to go yet in the delivery of social services, now that it has been set in motion. Australian James Cox, who advised the National Government on elements of social policy in early 1991, argues that while only governments can ensure a ‘minimum welfare safety net’ (and should on moral grounds do so), ‘private sector involvement in the provision of government welfare is often advantageous. This is particularly so with programmes that are based on clear objectives, are directed to need and allow for competitive tendering for the right to provide the service’.*° Cox argues that if the delivery of welfare services is made ‘contestable’, to use another jargon word (meaning, open to competition), it will be better. Here we are back

to agency theory: privatisation ‘can be a useful concept if it is understood to include the active role of the state in the use of the private sector to achieve the ends of public policy. In this context, privatisation refers to the use of private institutions for the realisation of public ends.’*! Cox goes beyond this and argues that the more the state provides services it-

self, the more it crowds out private welfare and beyond a certain point total welfare rises less and less for each extra dollar spent by the Government and may

actually fall.? In this Cox is paralleling the point made above about the Government crowding out economic resources. How far privatisation of government social and welfare services will be allowed to go will turn on two points. One is efficiency and effectiveness in delivering the services to public expectations and demands. If the utilitarian New Zealanders Bill Oliver described in 1960 reckon they are still getting the services they want and pay for through their taxes, they will be little worried about how those services are delivered. They are already less fussed about telephone services than they were before Telecom was sold. The other is public fear and politicians’ fear of that fear. In chapter 16 it will be argued that the high tide of privatisation of social services has been reached

222

A More Private Place

and public resistance is growing. But that is a high tide of Government driving policy change through. The policy framework now in place will allow the possibility of a continuing organic growth of privatisation, without any more direct pushes from the Government. How far that might go is anybody’s guess.

Which brings us to the privatisation of choice. Government involvement in a wide range of businesses and services placed choice as to what was provided, and

where, how, when, to whom and at what price, to a great extent in the hands of the Government. The concept was that thereby the national, public and community interest would be served on the basis of meeting the needs of the greatest number without distinguishing between them. The new state talks much more of clients, consumers and customers. The aim is to get managers and workers in the service departments to focus on the peo-

ple whom the service is supposed to be for. The Employment Service, for example, has turned from being a register of unemployed to an employment agency with jazzy offices. So it is less the national good that is being ministered to than the individual good of those clients, consumers and customers. Choice is passing more to the individual, which is where choice lies in the marketplace for privately produced goods and services. In other words, choice is being privatised. The 1986 tax switch illustrates the point. Tax on goods and services was dra-

matically increased. Staple items, which had not been taxed, went up 10%. Overall, the increase in prices was about 7%. But more money was left in the hands of private individuals through reductions in income tax or put in their hands through a family support top-up benefit for low earners. Private individuals had more discretion over how much they spent and therefore how much tax they paid. If they saved their money, they did not pay goods and services tax. Under the previous system the state saved it (by charging income tax) out of their incomes. Privatisation of choice was a powerful element in the National Government’s removal of zoning for schools under which pupils had to go a school in the zone

where they lived. Opponents of the move in the Labour Party and in teacher organisations claimed this would increase the disparities in educational opportunities between areas according to their wealth and so perpetuate and intensify social inequalities. For National Party proponents of the move parents would have more choice and that was all to the good of the individual. It is also a powerful element in the National Government’s thinking on health care. Individuals are intended to have more choice over time as to who will look

after them. They are to be able to choose between health care plans put up by state institutions, non-profit organisations, private companies and tribal 223

New Territory a | organisations. Instead of one option, decided on by ministers and bureaucrats in Wellington, they will be able to choose among several. Much the same applies to the National Government's policy shift in hous-

ing. Since the mid-1930s the main method of providing housing to the lowest-income groups was by building houses for those people to live in on very low rentals. The National Government is providing, through the benefit system,

funding for rent instead. The individual (or family) then rents on the market and the rents for state houses are being raised to the level private landlords charge.

The idea is that individuals are better choosers than the state of the right sort of house and neighbourhood for them. The same sort of shift has been taking place across a wide area of ‘welfare’ policy. Accident compensation funding has been partly shifted from employers to individuals through a new tax of 0.7% on their wages applied in April 1992 and a new tax on cars. ‘Socialised’ accident insurance, as accident compensation

was (though private employers paid the levy), is being pushed back along the scale towards ‘private’ accident insurance. It is easy to see from this why many fear that in health policy the National Government is aiming at forcing people into paying for health insurance (and half of people now do pay ‘gap’ or ‘topup’ health insurance to cover what the state does not) instead of paying in a generalised sense through their tax system. There is another, related, development. While individuals have always contributed to the cost of most services — payment of at least part of doctors’ fees is the classic example, payment of at least some rent another — this practice was

expanded under the Labour Government. A $2-$5 charge introduced on prescriptions and a $1250 fee for tertiary students (except those of poor parents) indicated a determination that people should pay something towards those services. The National Government has greatly expanded this trend with partcharges for a wide additional range of health services. Similar in concept to this are the stand-down periods proposed in a small way by the Labour Government

for accident compensation and introduced in a much broader way by the National Government for unemployment. Individuals (or employers on their behalf) are to bear part of the cost of mishap. This is partly a funding or saving device. But much more important is the shift in thinking it represents. It is to discourage people from excessive or irresponsible use of the service — a factor public choice theorists such as James Buchanan refer to as ‘moral hazard’. A part-charge, the argument goes, makes them think about the cost. (But who actually wants to go into hospital? Few would willingly occupy a hospital bed, even for free, when they could be fit and well in some other bed.) It is an important conceptual shift. In a sense payment of taxes can be seen 224

A More Private Place

as a sort of insurance. By paying that part of tax which goes to pay for health care, the individual in a sense is ‘ensuring’ that health care will be available when

needed. But payment of insurance to an insurance company is a contractual business: the insured person gets only what the contract provides and has a right only to enforcement of the contract. Taxpayer funding creates a general right

that is available to everybody whether they have paid tax or not. The right exists by virtue of being a member of society. It automatically results in entitlement to whatever benefits that society as a whole is prepared to provide to its members. Any rules that are laid down must also apply to everybody.* Under a rights-based system of social services and social assistance it is more difficult to control the amount of services and assistance provided and therefore their cost than it is under a contract-based approach. That partly explains the appeal of ‘social contract’ thinking to conservatives — and to ‘public choice’

theorists like James Buchanan. The claim to assistance is to be found in the notional ‘contract’ each individual has with the Government and can be made more or less specific, depending on the service to be provided, and can in some

cases be more closely related to individual contribution. Where the claim to assistance relates to contribution, individuals will help the state control the amount and cost of the assistance. What rights-based thinkers such as socialists and social democrats think of as a public good available to all becomes in contract-based thinking a private good available to individuals which happens to be supplied by a public body, the state. (The state’s role as a supplier is the reason Buchanan’s theory is of ‘public’ choice, not, as might be thought logical, of ‘private’ choice.) If you think of the service or assistance as a private good supplied according to contract, then logically private individuals should have more choice and the bureaucrats less choice as to what is provided to those individuals, where, when and in what quantities. Logically also, services and assistance should be ‘targeted’ to need. This became a feature of the post-1984 social policy development. The superannuation

surtax imposed in 1984 in effect targeted superannuation payments more to

those without other income. The targeting has been made tighter by the National Government. The tertiary education fee was an attempt to target education spending to those most in need. The removal of many consumer subsidies was to remove assistance from those who did not need it. The family benefit was allowed to wither and then was removed because it was felt assistance intended for children should go to families on low incomes. The National Government cut many benefit rates in 1991 to widen the gap between benefits and the bottom end of wages and for those made destitute by the cuts expanded the system of specific additional grants for proven need. Young solo mothers can now get the domestic purposes benefit only if they can prove they cannot live with their 225

New Territory | | parents. The same goes for students seeking help with living costs. There was always some targeting and in some fields, such as housing, the whole policy was targeted to need. The shift in the 1980s was to extend the concept into areas where it had not applied before, into ‘universal’ services such as education and in the case of some areas such as superannuation, where it had applied in the past, to widen its application. It is at this point that the distress of Labour politicians like Lange becomes most readily apparent. If private individuals who can afford to do so place contracts outside the state apparatus to supply these private goods, the resources available to the state to supply those goods to the individuals who cannot afford the full or perhaps any cost of contribution are diminished and the supply will likely diminish. Bureaucrats’ scope for cross-subsidising the second group from the first are limited or become more explicit through the tax system and look more like charity rather than meeting rights each individual is imputed to have. The recipients are then grateful dependants on goodwill instead of free equals receiving what is due to them. Public choice approaches to social policy strike at the core of the socialist heritage of Labour politicians. Once the welfare state was to free people from want and remove barriers to

full health and full participation in society. By the 1980s the language had changed. The welfare state existed to support ‘dependants’. ‘The guiding principle of public policy in relation to the welfare state is now not to free people for a full life, but to prise them off, rescue them from, ‘dependency’.

This language of dependency brings us to the fourth privatisation, pushing individuals and businesses much more on to their own devices. Individuals have more choice, whether they like it or not. They have more responsibility, whether they like it or not. And current policy intends they should have more of both. Thus, the replacement of consumer subsidies with income support measures for those on low incomes — ‘family support’ and guaranteed minimum family income — by the Labour Government required people to take greater responsibility for themselves. The superannuation surtax indicated that people above a certain level of wealth or income would, in effect, be expected to provide to some extent for themselves now and in the future. The introduction of part-charges for some services and the lengthening of the accident compensation and, more recently, unemployment stand-down periods likewise send messages to people that they should make some provision against accident and loss of work. The deregulation of the labour market has also put individuals much more

on their own. The Employment Contracts Act allows unions or other collective workers’ organisations scope to negotiate wages and conditions only on

226

A More Private Place

employers’ sufferance. Otherwise the individual is pitted against the employer in an unequal contract. Contract between individuals, the language and concept of the private business sector, has replaced an ‘award’ of a state court either arbitrating between employer and union or confirming agreements between them. Employers used to be forced to negotiate with unions and that formed the core and the foundation of the New Zealand liberal social democratic welfare state: the assurance by the state of a living income for those in work (coupled with protective mechanisms to ensure everybody could get work). Now the state has withdrawn.** Though a legislated minimum remains, individuals’ scope for enlisting help to get it enforced is severely limited by fears of losing their job. A grievance procedure against unjustified dismissal and processes for challenging contracts as harsh and oppressive have the same drawbacks for workers. Finance Minister Ruth Richardson laid out the basis for this shift in homespun terms in an interview in early 1991. “We want an enterprise culture,’ she said. “What we told you in the manifesto was that we were going to redesign the welfare state. We talked about self-reliance. %°

In this new world of self-reliance, funder/provider splits, private choice and greater individual responsibility, social service departments have radically different roles from pre-1984. They provide overall policy advice, they set and police standards, regulations and registers of providers, they monitor. They do not do. The Health Department, for example, has become largely a policy advisory body, a policer of public health and a purchaser of health services and is to lose the last two of these functions to specialist agencies. Area health boards, shortly to become Crown health enterprises with a strong efficiency (read “commercial’) brief alongside their social functions, are the main delivery agencies. (Crown health enterprises are members of a new class of organisation created in 1992, Crownowned enterprises, organisations with a social function intended to remain in

government control.) The Education Department has been renamed the Ministry of Education, which advises on education policy and administration, funds schools and other institutions and administers policy decisions. A raft of specialist agencies then register teachers, inspect teacher performance, develop early childhood education and so on. A Ministry of Housing is to advise the Government on housing policy and housing assistance will come from the Social Welfare Department — the Housing Corporation will manage its (smaller) stock of houses for rent in much the same way as a private landlord. The major exception is the Social Welfare Department and that exception may be temporary and/or limited. Now the social service departments set the framework within which other organisations and individuals operate. Much the same is the case in the ‘economic’ departments. They do not work hand in hand with segments of the private sector as some used to do. They set

227

New Territory | regulatory frameworks. Business is much more left to its own private wits and resources — and not just because of the withdrawal of subsidies, advice and protection, but because of a profound change in the nature of what used to be ‘their’ departments. Private sector business, like individuals, has been pushed back on its own devices, resources and decisions.

Under the Muldoon Government the Department of Trade and Industry (DTI) was seen as the ‘manufacturers’ ’’ department and the Ministry of Agriculture and Fisheries as the ‘farmers’ ’ department. Other departments worked with industries they regulated, either charging no fees or fees far below the true cost for their services. Now they are required to recover the full costs of services (for example, for inspection of meat at freezing works, air safety charges, weather

reports for fishers). They are required to distance themselves from those industries and to separate commercial or quasi-commercial activities from administrative or regulatory and advisory activities. So DTI has been shorn of the trade commissioners’ service (which has ended up in the Trade Development Board) and its business development activities (which are in regional business development centres) and is now mainly a regulatory and policy advice body,

renamed the Ministry of Commerce. MAF has been split up between semicorporatised activities and a policy and regulatory function. Much of the old Ministry of Works is a corporation (now being readied for privatisation), as is the old Lands and Survey Department (likewise). This broke the old lobby system under which different economic interest groups vied for ministerial favours through aid programmes, protection from external or internal competition or tax concessions. Ministers during the reform period have been much less receptive to industry entreaties, preferring policy solutions to ones that met sectoral interests. Federated Farmers, which preceded

the advent of the Labour Government with a switch from seeking specific favours to seeking a change in the whole economic policy along the lines of the subsequent reforms, have been more heeded than the Manufacturers Federation, which argued specific interests (laced with claims about ‘jobs’) in resisting many of the reforms. This is not just a factor of whether the lobby group was supporting or resisting the reforms. Supporters who asked for a delay or exception got the same rejection. The Labour Government refused to intervene to lighten the interest burden on farmers facing disaster in 1986. The Government has also reduced its role as arbitrator between competing interests in the economy. Deregulation has required businesses far more often to sort out their own disputes over resources. Business A or industry A going to

the Government to get something done about the encroachments or depradations of business B or industry B do not get much government attention. This hands-off approach was taken even further during the electricity short228

A More Private Place

age of June-July 1992 when the Government in special legislation overriding the Resource Management Act laid on the Electricity Corporation the responsibility for deciding whether to lower Lake Pukaki and thus endanger part of the tiny

population of the black stilt, the world’s rarest wading bird. Electricorp, an organisation charged with pursuit of commercial objectives only, was thereby also deputed to decide a matter of national conservation prominence. Normally such a decision between competing but very different interests would fall to the elected authorities. The primary role of politics and therefore politicians, after all, is resolution of conflicting interests within some concept of the overall public interest. In this case the Government abandoned that role. And, most poignantly for large numbers of New Zealanders, the Government has also abandoned its role as a guarantor of work and so of an adequate income for all households. A key element of the prosperity consensus and of the welfare state was the guarantee of full employment. Policy settings had been geared to ensure jobs were available for everyone who wanted to work, regardless of education, skill, ability and application. From 1984 that guarantee was withdrawn. Individuals were responsible for guaranteeing their jobs, and with their jobs an adequate household income, from then on. In that sense, the 1984-92 period has been one of the privatisation of jobs.

The history of the period 1984-92 is one of rapid withdrawal of the state from a wide range of activities. Most businesses have been sold. A growing range of activities has been contracted to private companies or individuals. Departments must manage balance sheets and assets and work to objectives in a private sector-like fashion. This encourages a search for the most cost-effective means of carrying out the do-ing part of departments’ core activities, which increasingly means the importation of private sector models, if the agency role is to continue to be performed by state servants, or the contracting of private companies and individuals to perform them or the devolution to local, community or regional boards (as, for example, in schools management).

It is not far-fetched to envisage the role of departments being limited in the | future to not much more than analysis, development of policy, monitoring and regulation, with a great deal of what is now done by people on the state payroll being done by people on the payroll of private companies or of delegated authorities with varying degrees of autonomy. The state will be smaller. It will still have a very large presence. To succeed above a fairly basic level, capitalism requires an educated, healthy (including well-housed), mobile and unafraid workforce. Markets do not produce such workers. As was shown in chapter 6 in the researches of David Thomson, that has required, throughout the capitalist period, large-scale collective welfare assistance. For some time, 229

New Territory | perhaps a long time, ahead a great deal of that welfare assistance and supply of education and health will unavoidably be financed through the state, with its power to tax and to assure access to services and assistance for the most vulnerable. It bears noting that the National Party promised in 1990 to ‘reshape’ the welfare state, not eliminate it. Mark Prebble, principal architect of the Treasury’s social policy stance, argues that the issue is not whether there is and will be a welfare state, but what sort of welfare state it will be.>” That is not fixed. Again, as was shown with reference to Thomson in chapter 6, the dominant role the state has had in thought for a century and in actuality for half a century in ensuring ‘welfare’ for its citizens is not an immutable truth. Other mechanisms have been used in the past, with varying degrees of success and equity. For example, ‘with regard to the elderly, the broad period 1650-1750 was one of limited sympathy; the years 1750-1830 saw an expansive granting of rights to public support; 1830-1900 the severe restriction of support and the insistence families fill the void; 1900-1980 collective expansiveness once more;

and since 1980 plans have been announced to cut pensions for the future elderly and to force families to do more.’* Whether the 1984-92 reforms are leading inexorably towards another such shift is a moot point. But there has been a shift. Mark Prebble distinguished three broad types of welfare state: ‘the residualist, or needs-based model . . . where the state says that social services are essentially a personal or family business and the state should only concern itself with those in need; the insurance or contributions-based approach [which] offers support to those who have contributed to social insurance schemes’ (not used in New Zealand); and ‘the citizenship, or rights-based, approach [which] identifies a series of standards of service that will be provided to all [which] tends to feature state provision, partly to foster social solidarity and a homogeneous society’.” The residualist model, he said, tends to target to need and apply means tests and the citizenship model to have universal provision of services. Prebble correctly noted that New Zealand’s welfare state had always had a mix of residualist (targeted) and citizenship (universal) elements. The mix has varied between major policies: housing and income maintenance have been more targeted than education and health, as in other countries. It has also varied within policy areas: pre-primary and tertiary education have always had an element of targeting but primary and secondary not; long-term and primary health care have had targeting elements; superannuation has always been targeted. Prebble argued that the three-model analysis was irrelevant to understanding Government policy changes (by which he meant National Government, but the same analysis applies to 1984-90). He said they were better understood in the light of three questions: 230

A More Private Place

How much assistance should we provide? To whom should we provide assistance? How should we provide assistance? At the broad level there is some consensus on many of the answers to these questions. The debate is around the detail of the answers. The Government has not made any earthshaking changes in any of these areas and therefore is probably still operating within or close to the previously existing broad consensus. However, clearly there is dispute about some of the changes that are being made and to examine this further it is necessary to look very broadly at each of these three areas to discern the nature of any direction of change.*°

On how much should be provided, Prebble argued that affordability had prompted a shift from a commitment to meet the 1972 Royal Commission on Social Security’s precept of recipients being able to ‘belong and participate’ in society to a ‘modest safety net’ providing the ‘daily essesntials’. As to who should

receive assistance, Prebble noted that ‘the Government’s decisions add up to a view that some areas of assistance could be more targeted than they were before. However, there is not an enormous shift. It is also possible that it may not be extended much further as the technical limitations of comprehensive targeting bite more deeply’.*1 On means he saw big changes in delivery of assistance in income, housing, education and health, the implementation of which ‘will be a complex and drawn-out process. It will lead to considerable disruption and may be accompanied by industrial and social disagreements.’ Prebble’s conclusion: there is still a welfare state, but there has been a shift. “There is a greater emphasis on self-reliance.’ He argued that was a shift of means,

not in concept. Gary Hawke, in the same book in which Prebble’s analysis appeared, warned against mistaking political slogans for philosophy. Asking why there had been a lowering of ambition in the years since 1972, Hawke concluded that elements of the answer .. include the discrediting of universalist approaches through national superannuation being set too high relative to other social welfare benefits and relative to the incomes of those in employment. Furthermore, rising unemployment has brought greater prominence to employment incentives, especially given our wish to raise incomes relative to those available overseas. Other elements are that social trends have produced an increased reliance on the domestic purposes benefit and that we have shared international trends towards a questioning of the role of the state. Whereas we could, in the early 1970s, believe that we could sustain a transfer programme because people would accept increased taxes which were

231

New Territory returned as welfare benefits, we now find that taxes are resisted as a dead loss since .

the transfer payments are not regarded as socially desirable. “Belong and participate’ certainly, but not at a level of comfort which is widely regarded as unfair relative to that available to those in employment.”

With Prebble we are back to the rationale for the economic liberalisation: means, not ends. With Hawke, we are asked, as we are also asked by the economic reformers, to focus on practicality, not philosophy. But there is a broader point. The original welfare state was a ‘modest safety net’. But it had a broad conceptual sweep, including assurance by the state of economic policy settings in which each household could provide an adequate income for itself. More important, as time went on the concept expanded: even if the practice fell far short, the aim was universal assurance of full participation in society. There was a tendency under both Labour and National Governments to expand services, increase the amount, widen the range of recipients, reduce targeting. The 198492 reforms abandoned that vision and retreated on all fronts. Yes, there is a welfare state, a big and expensive one, mostly paid for and run by the Government. We are not returning to a dark age of child labour and satanic mills. And, yes, the dominant issues are not concepts or philosophy, but the solution of practical difficulties and rebalancing of the focuses in the light of changing economic and social circumstances. But this amounts to more than the lowering of ambition Hawke divined. The aim has not simply got lower. It has shifted. The aim (however long-distance, unattainable and unattained) had by 1972 become and remained for the next decade an integrated society, glued together by an active and far-reaching welfare state. That was the tendency of social policy.

The aim, and so the tendency, now is (however long-distance, unattainable and qualified with a refusal to leave people ignorant, homeless, ill and destitute) the self-reliant individual and family, helped by the state to obtain education, health, housing and an adequate income only when that is beyond their own means. The quantity of state provision for people has not changed radically. It remains generous by historical standards and by comparison with the vast majority of other countries. But the direction, the tendency, has changed radically. That is what the Labour Government, faced with monumental practical economic problems, started and what the National Government, rediscovering a belief in its long-held instincts, has locked in. If there is to be no return to satanic mills, there is also to be no long march to a state-assisted society of fully participating citizens. A ‘modest safety net’ can do no more than keep people from falling to the ground. It cannot lift them to the heavens New Zealanders were for a time encouraged to believe were reachable.

232

A More Private Place

The rule now is that the Government sets the overall environment in which private people and their businesses operate and businesses make their own private decisions about their affairs. Certain services that have an investment quality about them, such as education and health, remain near fully-funded by the state

though the state’s proportion is set to diminish a little (perhaps a lot) according to the choices individuals make. People in genuine personal need of income get attended to, but sparingly. The situation is not clear-cut. This chapter has painted many of the developments in a starker light than the facts strictly warrant. There has not been a movement from white to black (or, depending on your point of view, vice-versa). The movement has been from one shade of grey to another. Here and there one can find small movements in the other direction and corrective rebalancing. For example, the public service element in state ‘business’ is beginning to be more attended to in government policy. But there has been movement. It is unmistakable and it has been in a clearly recognisable direction. On the scale that has collective decision-making at one end and individual self-reliance at the other, the movement has been away from collective decision-making and towards self-reliance. Though there may over the next few years be some movement back in the other direction, it will not be as great. It will be like the small reverse movement of a ratchet wheel back on to

the ratchet after it has gone round a notch. The marker has shifted. The great reform period of 1984-92 will be remembered as the privatisation of New Zealand. It is a terrible wrench. ‘So unfamiliar does [this shift] remain as yet,’ Thomson wrote, ‘that we lack the language to talk about it, the various perspectives from

which to view it, the tools to measure it, perhaps the maturity or social tolerance to debate it.’ Revolution was always thus.

233

15. The Politics of Pain

N? group felt more keenly the lack of language for the new world into which they were being propelled than the political parties. Their advisers presented the ‘privatisation’ they were to approve and initiate in the technical language of demographic, economic and budgetary necessity. ‘They had somehow to translate that into the language of human need, hope and aspiration. But the old lexicon had gone. Torn from the tranquil moorings of liberal social democracy, the political parties found themselves on the high seas of global ideological change. For the Labour Party the ‘privatising’ direction of this tradewind of change struck at the very heart of a century of belief and work and left the party ideologically bereft. Socialists and social democrats round the world struggled to find

a new basis for their political position. For the National Party the revolution pushed it into the unfamiliar territory of ideology; only in the past year has it been recovering its old preference for running the shop instead of governing by ideas.’

For both major parties the revolution has shattered their old comfortable command of votes. Voters are annoyed at broken promises and particularly the breach of the implicit promise of all parties in New Zealand, to maintain and enhance prosperity. Minor parties have flourished and a populist waits in the wings in case things go badly wrong and the public is susceptible to irrational appeal.

But out of that maelstrom is emerging a new policy consensus, at least between the two major parties, but also constraining the flexibility of minor parties. We have passed through Rogernomics — and National’s extension of that into Rogernomics-plus — into post-Rogernomics. There are some tentative signs of popular acclimatisation, even if grudgingly, to the new policy environment that represents. That acclimatisation will be determined by the still-large ‘middle’ of New Zealand society. As described in chapter 3, for much of modern New Zealand history the middle has in fact formed the great bulk of society less a number of small groupings around the perimeter of the ‘rugby football’ on its side that New Zealand society resembled: among others, the landed and mercantile rich, the intelligentsia and creative artists, ethnic minorities, many state dependants and

The Politics of Pain

the destitute. This middle, akin to the American ‘middle class’, was the anchor for the prosperity consensus, broadly sharing a value-system based on European ethnicity, equality, fairness, security and practical individualism even though economic and social circumstances varied. From the mid-1970s on and particularly from the mid-1980s on, it has been pummedlled, stretched by income, fractured and disoriented. Many do not feel part of any middle now or feel such a middle does not exist. Yet if there is to be

consensus or just a stable politics to reconcile competing interests, such a middle will be needed as a base. Accordingly, the middle, while a fuzzy and unsatisfying concept for political scientists, is the basis for assessing here the impact on and of politics during the period of change.

By the end of the 1980s it was common to read triumphant pronouncements by people on the right of the end of the ‘socialist experiment’. Serious leftwing journals searched for the fatal deviation in socialist thought — had there been some missed turning after Karl Marx? Latin American and Asian communist adaptations, all in retreat, collapse or decay, offered no working alternative. Revo-

lution of the left was effective as revolution against, but seemed nowhere able to create a stable, prosperous, free post-revolutionary society. “Third way’ solutions, variations on marxism offered by dissident Communists who led or helped in the 1989-90 revolutions in eastern Europe, were swamped in a stampede to market-capitalism with its promise of glitter and plenty. Increasingly during the 1970s it turned out to be regimes of the right, in Asia, which proved more capable of generating stability and prosperity. To stability

and prosperity very gradually came to be added the third ingredient: more individual freedom. Nor did social democracy any longer provide a comfortable refuge for reformist socialists. Privatisation developed from a mild reaction against perceived social

democratic excesses into something resembling a craze in the hands of regimes | of both the left, as in New Zealand, Australia, France and Spain, and the right, as in Britain and the United States and some Latin American countries. Eric Hobsbawm, doyen of British left theorists, wrote of the ‘long and ago-

nised rearguard action which the intellectual and political left has been conducting as it retreats before the advance of a capitalist liberal ideology’.* Paul

Auerbach, another prominent left theorist, has concluded that ‘the commandadministrative system never worked very well... Much of its failure is intrinsic

to its misunderstanding of the nature of modern industrial development’. Others have concluded that socialist planning was greatly inferior to the mar-

ket in allocating resources, though still had a role in ensuring equitable distribution of income.‘ 235

New Territory

By the late 1980s socialism, in the hands of its theologians in retreat, came to appear to be for the bits of social and economic organisation liberal capital-

ism could not reach. Social democratic parties had been built on the mass interests of a large near-destitute wage-worker class at the bottom of a society they thought of as a pyramid in shape, with a few rich at the top. In principle, wealth could be spread by redistributing power and money from the best-off in the upper reaches of the triangle to the mass at the bottom, directly through tax or indirectly through education and change in ownership or control of production. But, as a leftist Oxford don, R W Johnson, wrote, . . Socialists now find their traditional working-class base shrunken and shrinking, the old sub-cultures of the left in steep decline and a host of competitors in dissent (greens, feminists, gays and single-issue partisans) jostling them uncomfortably in what now seems to be a contracting political space. Like the Marx brothers, the left finds itself plunged into reverie: do you remember when we used to talk about the means of production? The commanding heights? I remember when this was all dance-floor, sighs Groucho. >

Social democrats’ instinctual support of the least-well-off ran into tax resistance from those who had moved into the middle to form the ‘rugby foot-

ball’-shaped society described in chapter 3 and were therefore expected increasingly to pay for the redistribution. A value-system which placed heavy emphasis on lifting the standard and quality of living of the ‘have-nots’ was at odds with the value-system of the ‘have-somes’ and “have-a-littles’ struggling to

pay for and maintain homes and lifestyles. Those values were closer to the instinctual position of conservative parties, which is to defend the right of the ‘haves’ to what they have. In addition dissidence fragmented, taking on internationalist, racialist, feminist, conservationist and other dimensions of direct concern more to liberals in the upper, educated, reaches of the middle than to the dispossessed or to those in the lower reaches of the middle struggling to make economic ends meet. Social democratic parties in the 1960s and 1970s increas-

ingly pursued programmes which in large part were seen by the lower middle as either little relevant or even hostile. This was poignantly demonstrated in Democratic Party candidate Michael Dukakis’s empty candidacy for the United States presidency in 1988.° When economic conditions tightened on the middle during the 1970s and 1980s the middle as a whole, including the lower middle, began to cast round in increasing numbers for other options (or to retreat into non-voting). Votes for minor parties — the Liberals and Social Democrats in Britain, the Democrats in Australia, the rightwing parties in Germany and France — rose. So did

236

The Politics of Pain

votes for other parties and candidates opposed to the establishments. In Canada the Quebec separatists did well. In the United States Jimmy Carter in 1976 and Ronald Reagan in 1980 won the presidency on anti-Washington crusades. Ref-

erendums to curb state taxes attracted wide support.’ Ross Perot’s quirky presidential non-candidacy in 1992, coming after the middle found it had stood still during the ‘boom’ years of the 1980s, scared the two main parties and congressional incumbents have begun to fare less well than for four or five decades. In some cases the search led to radicals in major conservative parties — Margaret Thatcher in Britain rhetorically slaying dragons feared by the middle, Ronald

Reagan in the United States promising a return to old values and a strong America, a number of rightwing radicals in Latin America. The intelligentsia, meanwhile, flirted with Green parties (particularly in western Europe) and antinuclear movements (for example, Australia). In New Zealand there have been huge swings between the major parties (the average two-party swing more than doubled from 2.2% in elections in the 1950s and 1960s to 4.9% and in the 1970s and 1980s, including 1990). The Labour Party has been wrenched apart by the privatising forces. The National Party has

struggled uncomfortably to adjust to and contain radicalism in its midst. Minor parties have risen and fallen spectacularly. In 1992 New Zealand has its own ‘Perot’ in the form of Winston Peters. Polls have recorded record levels of ‘don’t knows’ (up to 45%) and election turnout has fallen to 78% in 1987 and 76% in 1990 asa percentage of all those of an age to vote.® The country has been brought to the brink of a change in its voting system as people search for an end to the politics of pain. It is tempting to see a conspiracy at work. This is a common theme of much of the writing on the left.’ And there is evidence from which a conspiracy can be cooked. The Treasury and the Reserve Bank dominated channels of economic advice to the Government and had been converted to deregulatory economic prescriptions supported by a powerful clique of like-minded big business operators through the Business Roundtable. But, by definition, a conspiracy cannot destroy a strong consensus. Conspiracies dreamed up by the right of communists lurking under many, almost all

supremely innocent, beds, did not dent the prosperity consensus in all the period of the cold war, even though from time to time Cabinet ministers lent their authority to those conspiratorial chimeras. What happened in the 1980s was that the prosperity consensus collapsed and a policy vacuum resulted. A small number of people of like mentality found themselves with the task of filling that

policy vacuum. They filled it with policies drawn from theories which were at hand and which, as it happened, fitted their mentality.

237

New Territory | Consensus expresses itself in two broad ways. One is social: in the way people deal with each other, what they expect of each other, the structures and processes of the society they build. The other is political: through politics consensus is translated into rules. The big broad middle of New Zealand society from the 1940s, with its agreed value-system and with much to lose from change and challenge, locked in consensus. Few were outside that middle. The value-system gave each person in the middle a basis for relating to each other on terms everybody, even dissenters,

understood and operated in relation to. Politically, this middle locked the major parties into the value-system because without a large proportion of the vote of the middle each party knew it could not be the Government. Whatever special social interests each party wanted to attend to, they could not be in serious conflict with the interests of the middle. In non-revolutionary times, politics is to a large extent the resolution of conflicting interests between different social groupings: between rich and poor, employers and employees, moral conservatives and liberals, farmers and manufacturers, consumers and sellers, football clubs and operatic societies, drivers and pedestrians and so on. Within the broad consensus, different people had different sets of interests. By favouring different sets of interests, parties attracted different parts of the middle. The broad rules were set by the value-system. Detailed rules were set and maintained by politicians.

From the 1970s social conditions, and the value-system built up on them, changed. The numbers dependent on some state financial assistance increased, undermining the ‘friend-to-me’ principle that bound the middle to the welfare state and had created the ‘rugby football’-shaped society described in chapter 3. Other influences fragmented the middle. Maori became more visible and increasingly set apart from the middle, dependent on state assistance and/or subscribing to a different value-system. A combination of part-time work (to keep up household income net of tax, with the principal breadwinner under increasing pressure

from 1974 on) and feminism, with its set of challenges to the value-system of the middle, began to inch many women away from the middle. Conservation issues began to detach still other people, looking for a new basic principle to politics radically different from liberal social democracy. Others detached themselves in another direction in pursuit of a different principle granting more economic freedom. The ‘rugby football’ itself seemed an inappropriate picture.

Society was fragmented, not neatly contained any more. | There were two principal political outturns. One was that the middle was cut across by some new, deeply divisive, issues. Abortion accompanied the rise of feminism. Homosexual law reform grew out of 1960s moral libertarianism. Land claims and demands for partnership of the 238

The Politics of Pain

races instead of assimilation grew out of the Maori renaissance. The 1981 tour by the South African Springbok rugby team divided households and friendships as people took up intolerant positions on either side of the protest barricades. Trees were measured against jobs and a way of life. These cross-cuts divided normal friends and allies in the middle from each other, disoriented them, jumbled up the politics. Liberal people in what should have been the National Party zone in socioeconomic terms found themselves with Labourites at pro-abortionrights meetings and on anti-Springbok tour marches and moral conservatives in what should have been the Labour Party zone found themselves with Nationalists. It was more appropriate to talk of value-systems than a value-system. There was a sort of smorgasbord on offer, though to many outside the excitable elite of the gimme generation the fare was foreign and unappetising.

The second main political outturn was a sort of ‘reprivatisation’ of the middle. That is, the middle became increasingly concerned to see that it was getting value for money that it spent on the state through its taxes. As the number

of those who became partly dependent on the state grew, the pressure on the smaller number of those still in the middle rose. Their tax burden grew, but their return in social services stalled or slipped backwards. In the United States this prompted a rash of citizens-initiated referendums to cap or roll back state taxes, starting with Proposition 13 in California. Studies of this phenomenon showed people were in favour of both more spending and lower taxes, which seems an anomaly but is not — people were in favour of more spending on education, health and other programmes from which they, as taxpayers, benefited, but in favour of less spending on items from which they didn’t expect to benefit, such as on certain welfare beneficiaries.'° These findings were replicated in European studies. In New Zealand a survey of public attitudes in 1987 by the Royal Commission on Social Policy showed clear majorities thought the Government should spend more on health (34% thought it very important), education (44% thought it very important), preventing crime (50% very important), creating jobs (37%) and job training (37%). The survey also showed New Zealanders at that time generous in support of help for unemployed (79% thought they were unemployed because their workplace had closed down, that is, for a reason beyond their control, 68% thought the Government should provide enough money for them to live on and 60% thought the Government should be spending more on creating jobs) and for housing assistance (only 10% thought housing spending should be cut)."’ There was, however, also 68% support for the proposition that ‘people should have to look after themselves more with less help from the Government’, indicating that assistance should be in case of genuine need only.” As the pressure went on after the 1987 sharemarket collapse and unemployment

239

New Territory | climbed steeply, attitudes towards the needy hardened. A quantitative study of values by two New Zealand academics that year found 38% believed people who lived in need did so because they were lazy; 75% thought the solutions to need were principally to be found either in a growing economy or in greater self-help and only 22% in government welfare. By contrast, the study found 82% thought there should be at least some increase in spending on health services, 79% on education and 64% on environmental protection, but 57% thought the domestic purposes benefit should be cut and 51% thought assistance to Maori and Pacific islanders should be cut.'? Though both these studies must be treated with caution and even suspicion because they used crude quantitative techniques (add-

ing up numbers, often awkwardly pigeonholed) and lacked the depth and subtlety of sophisticated qualitative studies, they do suggest some movement in attitude, a ‘reprivatisation’ of attitude in the sense of a less generous tolerance of state spending on others. These ‘private’ individuals wanted the friend their state back in place of the rapacious beast now raiding their wages. That was not so bad when they were

getting a high proportion of it back in social services from which they could directly benefit. But bailing out farmers and subsidising owners of businesses was not of direct benefit to them. That, coupled with the rising numbers of dependants on state income assistance, raised their taxes without corresponding direct benefit to them. The individualistic New Zealander wanted ‘my’ state back for ‘me’. In that sense the middle became privatised.

First up to help the middle as the squeeze began to go on in the mid-1970s was Robert Muldoon. He talked the language of the middle. He offered continuity, a defence of their social values and economic position. Muldoon’s guiding

star was the ‘ordinary bloke’. Economics, to Muldoon, was ‘not money, or wealth, or resources, but people; their hopes, their fears, their reactions to stimuli or to adversity. Understand the people of a country and you are a long way along

the road to understanding what is needed by way of economic policy.’? This ‘ordinary bloke’ was ‘fair-minded’, an ‘individualist’, compassionate to misfits, democratic in the anti-elitist sense that Jack is as good as his master and a person of simple pleasures and practical needs who ‘wouldn’t know a [Budget] deficit if he fell over it’."* Muldoon set up enemies for the middle to join him in excoriating: communists, academics, the Japanese, militant unionists, ‘radicals’ who wanted to stop sports contests with South Africa, violent Maori, speculators, rich men and a host of others. Though he selected his targets with consummate skill, always focusing on small minorities, over time increasing numbers, including “ordinary blokes’, fell victim.!” Muldoon’s mistake was to think he could govern with only the middle. 240

The Politics of Pain

Coming from the bottom of the middle himself, he misunderstood the secret of the National Party through the 1950s and 1960s. That was to accept that the middle liked the general social democratic thrust of Labour’s reformed economic

and social policy between 1935-49 and not to challenge it, but to turn the welfare state to the advantage of most of its natural, better-off supporters. The welfare state, under National, not only guaranteed wages and paid generous fam-

ily benefit to middle New Zealand, educated their children, repaired their ravaged bodies for free and put those who could not afford otherwise in decent housing safe from rackrenters; National also converted the mechanisms of the welfare state to guarantee its better-off friends’ profits. That, however, depended on keeping the welfare state within limited bounds. Muldoon added heavily to it instead. The result was an outpouring of demands by the late 1970s for a return to National’s philosophical roots: self-reliance, thrift and private enterprise. Muldoon found after nearly losing the 1978 election (Labour, devastated only three years before, actually got more votes) that the party was in near-rebellion, both at branch level and on the back benches of his own caucus. A clever strategist would have picked the trend, shifted ideological tack and rebuilt the National alliance on that tack. Instead Muldoon abandoned National’s base vote among the well-off, business operators and pro-

fessionals and tried to govern on the support of the middle alone. Growing numbers of National’s base vote withdrew their support from National and gave it instead to the New Zealand Party, which preached freedom from economic regulation, especially freedom from high taxes.

This did great damage to the National Party. The party was reduced to a conservative rump, founded on the middle, which Muldoon called Robsmob and which to a large extent had been recruited into the party by him." The

constant evolution and regeneration of an elite which had transfused the party with reasonably vigorous new blood drawn from a wide range of backgrounds stopped. Not until 1990, and then hesitantly, did that process restart. Many of the candidates selected in 1990 were second-rate, reflecting that hiatus.

Once, Labour would have benefited in inverse proportion to National’s loss. Instead, increasing numbers of the middle drifted off, first to Social Credit, which got 16% of the vote in 1978 and 21% in 1981, denying Labour a return to power in those years’? and then responding to the charismatic populism (as distinct from the libertarian economic policies) of Sir Robert Jones, leader of the New Zealand Party, in 1984.”? Even when Labour won, in a landslide of seats, in 1984, it did so with only 43% of the vote and with a noticeable sogginess of support among the middle. This was still marked when Labour strengthened its 241

New Territory

position to 48% in the 1987 election. The middle disapproved of the economic policy direction.”

Labour by the late 1970s had become detached from the middle. It had grown up in the 1910s-1930s as representative of the ‘working class’ at the bottom of the bulgy social ‘volcano’. As those people became part of the expanded middle of the ‘rugby football’ in the 1940s, Labour moved with them, drawing its MPs and party hierarchy still mostly from among those it represented. But by the 1960s its recruits were coming increasingly from a class of people whose parentage was working class, but whose own lifestyles reflected the intellectual and material benefits of education, often university education. In a society in

which education was one of the main mechanisms for upward social and economic mobility and which was to a large degree shaped by university-educated state servants, Labour's activists increasingly came to be representative of an educational meritocracy, a perimeter grouping in the ‘rugby football’ at odds with much of the middle. By the 1980s these people were dominant in Labour ranks both in the House and in the party hierarchy. Even the union representatives increasingly came to be drawn from that social grouping. Consequently, Labour was decreasingly directly representative of the middle. This was so in more than just social connection. Education had led those educational meritocrats mostly into occupations in which they used their heads. They were rationalists rather than sentimentalists. Problems could be solved by rational analysis and reasoned proposition. This could and did lead different groups among them in different directions. They were not bound to the interests of any social groupings, classes or strata. The bonds they had with their base constituency were mental, not ties of blood.

They were also an elite. In an educational meritocracy they were the meritocrats. They accepted a leadership role and accepted the divorce from or-

dinary New Zealanders that brought with it. They were comfortable with change, even radical change. In this they showed something of the characteristics Alain Touraine has divined among leaders of political social movements.” Consequently, the Labour Party found itself at growing odds with the middle which provided most of its voting support. On moral issues Labour was liberal whereas those in the lower middle who provided the bulk of its work were conservative. On a wide range of other issues the same applied. It was a hightaxing party, which increasingly was at odds with concerns of the lower middle to keep taxes down (unless directly benefiting itself). Labour championed the growing ranks of the dispossessed and beneficiaries with whom the taxpaying lower middle found itself increasingly at odds. And it became the political vehicle for a range of single-issue campaigners, from environmentalists to peace groups, to anti-apartheid campaigners, pro-abortionists and so on. It was the 242

| | | The Politics of Pain prime political channel for women’s issues and was marked by a strong women’s council. It retained deep, if rusty, linkages with Maoridom, so was the natural vehicle for mainstream political expression of growing Maori assertiveness.

Helen Clark, who was a political scientist before going into politics, argued in 1983 that an alliance could be forged between these groups and Labour’s ‘traditional constituency’. “There is a middle ground which can be won by Labour on Labour’s terms,’ she said, which she defined as the ‘many people who want to see the development of a socially just society . . . tens of thousands of women and young people whose right to fulfilment through education, vocational training and work has been denied . . . growing numbers. . . who want a nuclear-free Pacific ... who care deeply about the environment . . . open government, fair procedures and an adherence by the Government to democratic and constitutional rules of the game... That middle ground, combined with our traditional constituency, for which our policies of redistribution offer so much, can win us political power, sustain us in office and give us a mandate for change.” But this misjudged what had happened to that ‘traditional constituency’, misunderstood the degree to which that constituency had become part of the middle, where redistribution was a cost at least as much as and often more than it was a benefit. Through the 1950s and into the early 1970s that new lower middle remained loyal to a Labour Party that had looked after it in adversity, but gradually the party’s changing nature and generational change within the lower middle took their toll. Gradually they began to drift towards National and then towards Muldoon as the gap widened between them and the educational meritocrats, with their liberal and often threatening ideas. Had Labour followed its base constituency into the middle as New Zealand society came to resemble the United States’ structure, it might have taken lessons from the past successes of the Democratic Party in the United States. Robert Kuttner’s analysis is instructive. He argued that Democrats had done best when, ‘as the party of the common people in a business-oriented society’, they had ‘stood for a philosophy of “progressive populism” ’. Populism, in my definition, articulates the economic self-interest of voters who live paycheck to paycheck and who are vulnerable to the uncertainties of a market economy. Populism generally requires the use of the state to temper the extremes of the market. Politically, it is the one philosophy that unites the di-

verse ethnic and regional coalition that makes up the Democratic Party, overcomes the social conservatism of many working-class voters and motivates them to vote for Democrats.

The successful modern Democratic Presidents — Roosevelt, Truman, 243

New Territory Kennedy and Johnson — all recognised that the party’s strong suit was its ability to champion the economic self-interest of workaday Americans. The party got into trouble when it lost that capacity — when the New Deal coalition divided, first over race and then over war and finally over cultural schisms; when the New

Deal-Fair Deal-Great Society ceased to be something for the broad working middle class and was truncated into a self-isolating safety net for the dependent poor; and when the economy became mired in ‘stagflation’ on Democrat Jimmy

Carter’s watch.”4 |

Kuttner’s prescription would have been readily recognisable to Norman Kirk as he came into the prime ministership in 1972. Muldoon came closest to it of

those in power after that. Both had come from among the disadvantaged or poorly paid and protected wage workers whom Labour propelled into the lower middle in the 1940s. But by the early 1980s Labour was not a party of the middle. It did not feel beholden to the middle. Nor was Labour a functionalist party. It did not seek to govern for the sake of governing in the interests of its supporters (though it did some of that, with attention to women’s issues and trade union support, for example). It sought to govern for ideas and ideals. It was therefore to a remarkable extent unconstrained by practical political considerations. Most of this party of elite educational meritocrats was ‘liberal-left’. They had liberal attitudes on moral issues, were conservationist, were peace-oriented and questioning of or antagonistic to the United States in international affairs, supported women’s and Maori claims to equality, took the side of other minorities, believed strongly in the efficacy and vital importance of education, health and housing programmes to construct a fair society. Some, though a diminishing number, described themselves as ‘socialist’. Overall, this liberal-left carried with

it into the 1980s the issues orientation they had grown up with in the 1960s

(described in chapter 5). | ,

A minority, however, was more ‘liberal’ than ‘left’ (‘liberal in the English more than the American, sense). That they were selected by a party dominated by the

liberal-left, in the period when Anderton, later to form the ‘left’ NewLabour Party, was president is not anachronistic. Educational meritocrats tended to select the brightest available candidates of their educational meritocratic ilk. ‘This

minority of liberals gradually acquired the real power in the House in opposition and took that into office in the Cabinet with them. And gradually, also, as explained in chapter 12, these people came to market-economics — partly because some of them were economically literate, trained in the diluted market-economics taught in the universities in the 1960s, partly because they discovered bit by bit particular policies of the prosperity

244

: The Politics of Pain consensus which did not achieve the objectives stated for them and partly because when they looked for an alternative to regulation their rationalism took them inevitably in the direction of deregulation. Being rationalist, an elite, at ease with change, they did not fear a divorce from a vote-rich middle with which they had in any event long ceased to have any significant partnership. But when the divorce was pronounced absolute by their privatising actions

in office, it came as a shock to the middle, Labour activists and supporters of social democracy among liberal professionals and many commentators. Labour had constructed the base of the prosperity consensus in its first long term of office

between 1935 and 1949, yet here was Labour apparently ripping the consensus to bits and running off with big-business capitalism, the ‘new right’ as it came increasingly to be called. A mythology naturally developed around this apparently unnatural act. Within the Labour Party this mythology was given its most dramatic expres-

sion at the conference in November 1987. A Government which had won re-election just three months earlier with an increased share of the vote and an increased parliamentary majority (though a smaller plurality of the vote) was pilloried and vilified in an atmosphere of distrust and recrimination. Eighteen months later a segment of the party split off, after failing at the 1988 conference to win the presidency in order to force a stand-off between the party organisa-

tion and the Cabinet. Under the leadership of Jim Anderton, who had been president from 1979-84 and was the unsuccessful challenger in 1988, the defectors formed the NewLabour Party dedicated to preservation of the principles of the Labour Party as they had been traditionalised and the economic policies through which they had been translated into social practice. The essence of the mythology was that the small cabal of usurpers, in order to redress economic ills which were exaggerated and/or wrongly defined, was using means which by their nature would, and were intended to, lead to a social order different in fundamental respects from that pursued by the Labour Party since its formation in 1916. The cabal was indeed small, even in the mythology. From 1984-87, it consisted of Douglas, his two Associate Ministers of Finance, Richard Prebble and David Caygill, who held the economically impor-

tant portfolios of transport and trade and industry, the Minister of Internal Affairs and Local Government, Michael Bassett, and Douglas's parliamentary

undersecretary, Trevor de Cleene, cheer-led on the back benches by Peter Neilson, who had chaired the caucus economics committee in opposition. They were wilfully aided and abetted by the Deputy Prime Minister, Geoffrey Palmer, and, for a time, the Prime Minister, David Lange, and fellow-travelled with vary-

ing degrees of enthusiasm by the likes of Phil Goff and Colin Moyle in the Cabinet and David Butcher, the brothers Jim and Bill Sutton, Annette King, 245

New Territory

Bill Jeffries, Peter Dunne and Clive Matthewson outside the Cabinet, almost all of whom came into the Cabinet at some time from 1987 on. Fellow-travelling was insidious: by early 1989 even Clark, a pillar of the left then on her way to the deputy prime ministership, was regarded as a fellow-traveller for capping health spending; so were a number of other senior MPs and eventual ministers, such as, for example, Margaret Austin, who would have been dismayed in 1987 to have been numbered among those in the cabal. But the mythology does not explain how such a small cabal was able radi-

cally to depart from past Labour policy approaches and radically alter the economy at terrible cost to Labour supporters and to both stay in power within the Government and to get that Government re-elected with a larger share of the vote. Even less does it explain how it was able to do this at a time when the party organisation outside Parliament was unmistakably in the hands of the liberalleft and in the hands of that part of it that was more ‘left’ than ‘liberal’. The president from 1984-87, Margaret Wilson, was an avowed socialist and the great bulk of senior elected and appointed officials were also. The majority of the Labour Party caucus would have been horrified at the 1984 election to have been described as ‘new right’ or even ‘more-market’, then the more common phrase. Even more mystifying was the ability of the cabal to get a 2:1 vote at the 1985 party conference for the switch to GST, which was a symbolic vote on the economic direction. And then why did so many people in the party get seduced by the cabal over time? For example, unionist Rob Campbell, a supposedly ‘left’ trade unionist who led the opposition to GST switched to strong support of the policies. He was only one of many. Part of the explanation lies in the absence of economic debate within the Labour Party. Even at the 1985 GST-debate conference remits on education outnumbered those on economics on the order paper. Economic management policy had hitherto been taken among the party rank and file almost as a given of near tablets-of-stone variety; attention was focused on what should be done with the proceeds of economic activity, not how it should best be organised to maximise, or even just maintain, the proceeds. Since little attention was paid to re-examining or updating these tablets of stone in the face of changing circumstances, they provided little guidance to people whose rational analysis of the available facts had convinced them that more of the same would compound, not cure, the economic distortion at the centre of the wreckage of the prosperity consensus and who were in any case of a mentality that was open to persuasion

to a logical alternative. Furthermore, those who opposed the deregulatory economic line did not have arguments available to them that were up-to-date and in good repair. Thus, organised intellectual resistance to the deregulatory economic policy line, either from outside the Cabinet or within it, was difficult,

246

a The Politics of Pain if not impossible. The difficulty was compounded by the style of implementation of the policy line. In the Labour Government's first term the three finance ministers would settle on a course of action, bring Palmer alongside and then carry the day in the small inner Cabinet, the policy committee. This locked in the top six (Lange

and Moore were the other two) and neutralised one of the main opponents, Russell Marshall. With the policy committee committed, the Cabinet could then be carried. Ministers who might have been of a mind to challenge the direction (and they were few in the 1984-87 Cabinet) were extremely busy in a punishing schedule of change and reform and so had little time to devote to battling the finance ministers. The Cabinet was much less collegial than Cabinets had been (and have been since) and ministers worked in semi-isolation in their portfolios rather than in committees taking genuinely collective decisions on a wide range of portfolios. In any case, proposals would often come with little warning, precluding serious debate — and sometimes not even come to the Cabinet at all. Douglas used to spring surprises, even on senior colleagues.” And there was no time for relitigation later. By the time a potential opponent had got to

prips with one initiative another was on the table. With the Cabinet, plus the undersecretaries and ministers outside Cabinet, locked in, the backbench had no show of overturning a policy decision and was given no opportunity to challenge it in advance. The party at large had then the choice of acquiescing, which it mostly did up to the 1987 election, or fighting in public, which it mostly did from the post-election 1987 conference on. Almost from the day after the 1987 election, the party was in opposition (though mainly on economic policy) to its government. An attempt in 1988 to defuse this by setting up 10 policy committees with which ministers were supposed to consult in advance of major policy decisions did work to a small degree, depending on the varying inclinations of the ministers and the varying commitments of committee personnel. But the committees were mostly left spluttering in impotent disagreement after the event. The exception was the environment and energy committee — and that was because greens within the party, organised as Labour Greens, proved determined and full

of well-researched, useable information and met a very sympathetic ear in Geoffrey Palmer, newly converted to environmentalism, aided critically by friend Philip Woollaston, a long-time conservationist. Where there was no such sym-

pathy, the committees’ unclear and tenuous constitutional position (both in party and national terms) left them at the margin, a nuisance rather than a guid-

ance to ministers. On the Government side, Palmer described them as ‘operationally . . . a mire of confusion, doubt and resentment’.” The wave-upon-wave implementation style also had another effect. Each

247

New Territory | decision led logically to the next, as described in chapter 13. By the time some ‘left’ backbenchers were added to the Cabinet in 1987 stopping was almost as impossible as reversing direction. New ministers such as Michael Cullen and Clark, if they were unwilling (as they were) to drive the bus off the road by openly splitting the Cabinet, had no realistic option but to try to turn the wheel a little. Lange himself put the whole Government into a four-wheel slide from which it never regained traction and direction when on 28 January, 1988 he took unilateral action publicly to stall a proposal for a flat 24% income tax announced on 17 December, 1987, as part of a massive package of new reforms, involving the halving of tariffs, the corporatising of local body trading enterprises, the removal of the tax deduction for superannuation contributions and a compensating negative income tax for low-earners. Yet he succeeded only in partly altering the proposal: the base tax rate was set at 24% and the top marginal rate at 33%, one of the lowest in the OECD. When on 29 June, 1988, in a hastily organised speech to the National Press Club, he attempted again to get the proposed income tax cuts rolled back by going public without Cabinet authority, Douglas publicly rebuked him, the Cabinet backed Douglas and Lange was saved from a coup attempt by a heart attack putting him in hospital. This showed a Prime Minister out of control of his Cabinet, a condition in which he remained even though he removed both Douglas and Prebble in late 1988 and beat two subsequent attempts, on 21 December, 1988 and 30 June, 1989, to topple him. Lange resigned on 5 August, 1989 after the caucus narrowly voted Douglas back into his own vacant Cabinet slot. Almost every other element of the 17 December package was implemented. Nevertheless, what did not get into the package did not get implemented. This is no mere tautology. Douglas had proposed as early as April 1987 in a letter to Lange not only most of what turned up in the package but some extensions into social policy as well, including user part-charges for health which turned up in another form in one of the National Government’s first initiatives after the 1990 election. Douglas had before the 1987 election got two social policy inquiries appointed, in health and education under business leaders Alan Gibbs and Brian Picot, which focused on restructuring of administration of both services and led to the element of privatisation described in chapter 14. But Clark stopped proposals to turn the Housing Corporation into a state-owned enterprise (subsequently done by National) and to quasi-corporatise the hospitals. In addition, Lange did succeed, in spectacularly hamfisted fashion, in steering the Douglas juggernaut into a ditch from which it never got out. Lange was a failure as a Prime Minister in terms of organising votes, developing a collegial

style and, out of that, co-ordinating ministers and putting his stamp on its direction.” He tried to split Douglas’s portfolio in August/September 1988 and 248

, The Politics of Pain shift Prebble sideways without first talking even to other ministers opposed to the Douglas line, nor to Caygill who was supposed to take over part of Douglas’s portfolio and flatly refused. Lange then retreated, displaying symptoms of a disturbing incipient paranoia, to a sort of guerrilla sniping at them. This was great fun for journalists but disastrous for Cabinet solidarity and most unfortunate for a startled and dismayed country in desperate need of a firm lead amid upheaval on all policy fronts. But it did succeed in removing both ministers. Palmer, who succeeded Lange, only to fall to a coup led by Clark in September 1990, contributed to these removals not by opposition to Douglas (Palmer early

in the Government’s life developed a habit he never lost of giving in to the noisiest and most demanding minister in an argument) but by over-emphasising process which led to grand design for a total social policy revamp being paralysed in 19 committees.

The point is — and here lies another part of the explanation of the otherwise puzzling out-of-character policy line of the fourth Labour Government — that the members of supposed cabal were market-liberals, not market-libertarians. They saw what they were doing as finding technical solutions to the renascent and, they believed, urgent problem of identifying mechanisms capable of achieving social democratic objectives. That might lead to radical measures, but that was because the radical measures were believed likely to be efficacious, not because they were intrinsically correct as ideas. They were not believers in the minimal state or rampant individualism or economic libertarianism. They all subscribed and, with one, possibly two, exceptions, still subscribe to broad social democratic objectives. As they saw it, they were at odds with their opponents

in the Labour Party and among the public, not over ends, but over means, not over their belief about the just society, but about the technique of achieving it. Mostly, though they were making a liberalising adjustment to the economy to allow price signals to be seen better and so a more efficiently wealth-producing economic mix developed which could be put to social uses in due course in accordance with social democratic objectives. The economic initiatives were technical, not the expression of deeply held values. ‘The distinguishing point between

these ‘techno-liberals’ and market-libertarians as described in chapter 7 is that the techno-liberals came to agree on a policy approach while the market-liber-

tarians were advocating a beliefsystem. The first was a matrix for finding solutions, albeit sometimes radical, solutions; the other was a charter for a new society.” Confusion of these two elements is at the heart of much of the muddle in analysis of or debate or argument about the economic reforms of the fourth Labour Government. Supporters mostly argue that what the Government set

249

New Territory

about was rational problem-solving (which may or may not have been techni-

cally correct); opponents lump all supporters of the reforms in with the market-libertarians who did want to change society. Hence many critics of the fourth Labour Government constantly saw or thought they saw a ‘new right’ Jerusalem in the making — and their people making it — when the objects of their criticism thought they were fixing up a broken social democratic machine. The dumb were talking to the deaf. This was further compounded by the existence of strands of Labour tradition that could support elements of market-economics. There had always been a minority strand of Labour thinking that favoured the free market as breaking down artificial barriers between brothers and sisters in the working classes in different countries, barriers erected by capitalists and the ruling elites to bolster their economic, social and political power.*° This internationalist dimension to socialism encouraged Peter Fraser, pre-eminent figure of the first Labour Government and Prime Minister from 1940-49, to spend a

time in jail in opposition to New Zealand’s involvement in the First World War.*’ On this construction, a government could protect infant industries to get them established, but should not protect jobs against the livelihoods of workers in other countries. Job protection should take other forms. The first Labour Government also placed great store by balanced Budgets and keeping debt down. Sir Walter Nash, as Minister of Finance throughout the first Labour Government, ended his term with the country less indebted than when he began it, despite having to finance a very expensive six-year war effort. Only later did corrupted keynesian demand stimulation lead Labour, as well as Na-

tional, Governments into permanent Budget deficits. The techno-liberals’ determination to get the deficit down had a sound pedigree. This butts on to inflation. Michael Cullen, of the ‘left’ of the party and no friend of Rogernomics generally, has argued vigorously that inflation is a tax on the poor and should be removed. If controls did not work, what option was there? In opposition as shadow finance minister since late 1991, Cullen has endorsed the 1989 move to make the Reserve Bank the independent keeper of the stability of the currency. Richard Prebble, at the Labour Party policy council meeting in November 1983 at which Douglas presented his radical liberalising paper, complained that it contemplated growth in the money supply. According to Douglas in Toward Prosperity, Prebble said: “Any growth is outrageous. The first Labour Government invented sound money. Socialism is sound money! The one thing our people want to know is, if they have a buck in the morning, it’s still going to be a buck at night.’

Moreover, the privatisation through targeting was in keeping with early Labour tradition. Universality was never achieved, nor intended. It did exist in 250

The Politics of Pain

the sense that people expected that no matter who needed state assistance, it would be available in need, but not in the sense that everybody got whatever was going. But sticking to the ‘good old days’ in 1989 would have involved much more miserly retirement benefits and would have left all students, not just those from better-off homes, paying the tertiary fee. Labour in 1935 sought the amel-

ioration of the hardships and accidental outcomes of life, a guarantee against destitution, not the elimination of hardships and a guarantee of median conditions of life.

And in any case, market-economics, although usually of a less rigorous kind than followed by Labour’s reformers, has since gained wide credence among socialists: governments were poor allocators of resources. Furthermore, the techno-liberals believed they were pursuing social democratic objectives. Even Douglas remained until late in his parliamentary career convinced he was actually helping to build the sort of society Labour had always

wanted. In the introduction to the 1987 Budget he even invoked Sir Walter Nash in support of his goals. The goals of that first Labour Government are in essence the same as those we aspire to today. The means of achieving them has inevitably changed in response to the times; but the goals themselves, the principles our predecessors stood for, have not changed. Labour’s manifesto of 1935, drafted by Walter Nash, embodted a clear acceptance of the Government’s responsibility for the welfare of all citizens — in particular the workers, the frail, the aged and the very young. It sought to restore for all, in Nash’s words, ‘a decent living standard’.*?

In a speech in March 1988, he said: Certainly, part of our job is to create an environment in which New Zealanders can increase the wealth of the nation. The other equally important bit of it is to even up the odds a bit for any sector, group or person who starts from a disadvantaged position .. . Sometimes you have to provide disadvantaged groups with extra assistance in order to get the playing fields level to start with . . . [The objectives of the Government are] a better quality of life, jobs, pay, health, housing, education, security, fair access for everyone to those benefits, a fair opportunity for people to achieve their own human potential . .. Good government should liberate people, not enslave them, either to the state or the private sector. People need a genuine guarantee of dignity, security, the ability to enjoy life even if things go wrong for them. Otherwise you end up with beggars in the street and the rich living behind barbed wire. But security alone is not enough. Nobody wants to live forever dependent on the government. Our job is to open out the 251

New Territory | | future for people at every level. Those who start behind the line need more opportunity, not less, than people who start with an advantage.4

But, whatever the protestations by the chief actors in the 1984-90 policy shift and by their fellow-travellers that they were not market-libertarians, that they were not ‘new right’ — and they all still make those protestations — there are six senses in which that label is not inapt. First, in making the shift, a ‘pure’ line was often followed that caused unnecessary economic and social damage, frequently in the face of well-founded practical warnings that the damage would occur. To some extent, the defence can credibly be mounted that stopping to heed such warnings might well have (probably would have) bogged the policy changes down and denied the longerterm benefits. Some excess, in other words, was deemed better than failure. This line was often used by Douglas to defend the sequencing of his policy changes against the valid charge that they pushed interest rates and the currency to levels that caused serious and excessive damage to production. Others put it in a slightly different, but essentially similar, way: the decks had to be cleared in

order to rebuild. |

Second, much of that rigidity and excessiveness is traceable to the fact that many of the market-based prescriptions adopted by the Labour Cabinet derived indirectly from libertarian analyses, as indicated in chapters 12 to 14. Jonathan Boston, for example, has distilled four such principal influences in the reform of state services organisation and management.” Third, this could the more readily occur because many of the policy reformers had been, or at least had lived, through a libertarian phase — not in economic thinking, but in the attitudes to moral and civil rigidities of the 1960s. There was therefore an experience of past co-existence with a libertarian approach, even if not specific current endorsement of libertarian ideas on economic and social policy. So, while they were not market-libertarians themselves, the Labour techno-liberals presided over a policy shift which included some policies that were readily describable as being, and in many cases were, market-libertarian. The overall approach to deregulation, whether of banks, financial markets and securities markets, airlines and ports, telecommunications and electricity generation, industry assistance or taxation, often had a libertarian ring. Even if asset sales were intended primarily to cut debt, they were conducted in a freewheeling manner with some decidedly shady characters. Much of the state sector reform was concerned with issues of efficiency and individual choice, overshadowing concepts of service and collective welfare. Unemployed were mostly left to lie where they fell, individuals on their own except for income maintenance and some largely cosmetic training schemes, rather than citizens of an integrated 252

The Politics of Pain

community. Industrial disputes were mostly left to the participants, no matter how tough the employers’ stance, and on the relatively rare occasions behindscenes nudges and winks were given, they usually went employers’ way. Overall, the Labour Government reduced the degree to which the state was involved in economic activity — central planning and ‘picking winners’ became anathema — and the degree to which the state actively guaranteed individual security and actively encouraged individual choice and initiative. That direction was consistent with a move towards market-libertarianism.

Fourth, some among its number tipped over the edge into market-libertarianism. Douglas wanted user charges in health, commercialisation of the Housing Corporation, social services vouchers and labour market deregulation similar to

what the present Government is now doing. Late in the privatisation orgy Prebble was candidly arguing that it was necessary because private ownership and management were more efficient than state ownership even if the management followed private sector principles. Several ministers would have been prepared to go much further than Clark’s limited acceptance of the concept of contracting out some wards to non-state, even private, management; state ownership of hospitals ceased to be seen by some as necessary to efficient, effective provision of universal access to secondary health services. De Cleene was closer to Ruth Richardson in many respects than to 90% of his Labour colleagues. Fifth, even if most stopped short of going over that edge, they did develop a bunker-like obduracy against challenges or questioning, which critics describe as a refusal to debate issues. This developed out of the general siege mentality of a Cabinet under increasing and hostile pressure rather than asa result of adop-

tion of the ideology that went with the positions; the lifting of the siege with the election defeat has brought with it a more relaxed attitude. But at the time that distinction was not readily discernible. Sixth, this rigidity in the face of opposition in turn fuelled and gave some credence to critics’ argument that means were beginning to determine ends. This remains a moot point, but if means were determining ends, some of the means could lead only to market-libertarian ends. There is therefore some truth to descriptions that Labour from 1984-90 was a Government of the ‘new right’. There is also a great deal of inaccuracy about the accusation. Most of the moves that many see as examples of market-libertarianism were no more than the introduction of some market discipline to improve state efficiency (for example, permitting social service agencies and departments to contract out to private enterprise ancillary work previously done by public employees) or to reduce moral hazard (for example, in introducing a small charge for pharmaceutical prescriptions to cut overuse of drugs — not to make people pay for what 253

New Territory

they used). It was not what was in the 17 December, 1987 package that was evidence of market-libertarianism, but what did zot get into it. In fact, the bulk of the Cabinet, once Douglas could not get his way in that package, made it clear

in the course of the first six months or so of 1988 that they would hold back from full-blown market-libertarianism. _ They explicitly rejected selling off the hospital system and schools and they kept the Housing Corporation as a provider of houses at subsidised rents. Far from cutting social spending, they massively increased spending in real (aboveinflation) terms on health, education and welfare and shifted the incidence of spending from subsidising and protecting industry to social spending. While they introduced concepts of efficiency and decentralised management (which led to some odd results as administrators attempted, with varying success, to learn to become managers) and they radically reformed state sector financial management along private sector lines, that was not to cut the size of the state but to strengthen its performance; overall state service staff numbers went up, not down. Flexibility was encouraged in industrial relations, but unions retained their state backing.

The Labour Government was also powerfully interventionist in markets in some respects. Policy on the Treaty of Waitangi, pay equity for women, union education and nuclear warship visits cut across private commercial interests. All those policies had strong support from most Labour techno-liberals. Nevertheless, the distinction between technical market-economics (technoliberalism) and market-libertarianism was lost on the public — and particularly the middle. In taking a strong direction away from state intervention in the economy, in demanding efficiency as an element in state administration and social services delivery, in introducing an element of client choice into those services, and so on, the Labour Government appeared to large numbers of New Zealanders to be market-libertarians. In addition, a great deal of what the Government did was unLabour, not just in terms of means but also of the likely ends. For example, Electricorp, Telecom and New Zealand Post were not just businesses, but public services, the equitable distribution of which to all was a Labour concern. Likewise, the distributive

outcomes of the financial deregulation contravened Labour notions of equity, with huge fortunes being made out of financial manipulation that ended up being paid for by ordinary people in lost savings, incomes and jobs — that is, the market was inequitable in a distributive role. Moreover, the distributive outcomes of deprotection had similar results. *° The general withdrawal of the Government from economic activism itself was

unLabour. This became starkly evident immediately Labour went back into opposition. It quickly became a central issue in the rebuilding of policy. Commerce and Industry shadow minister Peter Dunne told a regional conference of 254

The Politics of Pain

the Labour Party in mid-1992 that Labour had broken out of the straitjacket of unnecessary and stifling controls which held business back, ‘but we have to acknowledge that those changes were not enough by themselves. . . There is a role for the Government to both support the decisions of the market and to then

ensure that those winners have the maximum opportunity to reach their full potential, both in terms of growth and jobs.’ The Government, industry and workers ‘all have major complementary roles to play in this new environment,’ he said, talking specifically of “structural incentives’ such as tariffs, taxation, depreciation, research and development and venture capital.*’ In other words, even if it was accepted that markets must be overwhelmingly the allocative mech-

anism, there is a supporting role to business (already chosen by markets as successful and worthy) to be played by governments. This has a distributive di-

mension: of ensuring jobs for those who work in businesses that with a little assistance might thrive but with none might fall foul of market vagaries. In fact this process began in the party outside Parliament in 1989. That may prove to have been a pivotal year in the reshaping of New Zealand politics. Not only did the National Party leadership accept the new economic policy positioning, but so in a sense did the Labour Party. Shorn of the NewLabour defectors, the conference that year began to show that Labour activists were no longer interested in relitigating past changes, but in beginning to develop an approach that would eventually ‘Labourise’ the emerging market economy. That meant a base-up rethink of Labour policy so that the party did not just appear to be, like NewLabour, promising a return across the ‘new’/‘old’ divide across which Labour had dragged the country. This process was formally begun in 1990 by

Steve Maharey, the new MP for Palmerston North, with the development through extensive discussion at all levels of the party of an Aims and Values paper adopted at the conference in September. At that conference leader Mike Moore said Rogernomics, the programme of economic deregulation, had ‘had its day’. That was headlined in the media as “Rogernomics is dead’. But that was not what Moore said. He said that Rogernomics had had its day, but, he explicitly added, Rogernomics was right for its day. Both Moore and president Ruth Dyson, avowedly of the ‘left’, said the future would build on Rogernomics, not undo it. The policy marker has shifted and Labour has had to shift with it. In fact, New Zealand politics has crossed a divide. Rogernomics was a process at least as much as, and arguably more than, a set of policies. Pre-Rogernomics was the ‘old’ politics of interest groups and the prosperity consensus. PostRogernomics, into which we are now entering, is the ‘new’ privatised politics. From 1984 to 1992 ‘new’ jostled ‘old’ in a very confusing political world. 255

New Territory | In the old world, politics was a choice between two parties, divided between National and Labour on easily recognisable lines of rich and poor, owner/manager and worker, professional and manual, conservative and liberal, individualist and collective, private choice in social services and a tax-funded system for all. It was never a clear-cut division. Some well-off people had supported Labour and some poor National. Many Nationalists were liberal, as evident in a 1970 conference vote for decriminalisation of homosexuality and in their opposition to the tour by the South African Springbok rugby team in 1981. Many Labourites were conservative, as evidenced in fierce debates on that issue and on abortion at Labour conferences in the early 1980s. But there was a rough rule of thumb which divided a National from a Labour supporter that held through to the early 1980s, even with progressively diminishing accuracy.

Rogernomics hacked off the thumb. The ‘new’/‘old’ divide sliced right through the pre-Rogernomics party divisions. Most policy areas were affected. The phenomenon was starkly evident in Parliament. By 1987 there was more fellow-feeling on many policy issues across party lines than within parties. National Party politicians frequently made speeches, about the closure of hospitals or the reduction of protection for industry, for example, that put them closer to the dissident ‘left’ on the Government’s back bench. Winston Peters could easily have followed his party line from within Labour. Conversely Douglas and his techno-liberal fellows and fellow-travellers were closer to the likes of Ruth

Richardson and Simon Upton in the National Party than to their own back bench or the party as a whole which pilloried and fought them relentlessly. Even Clark, when she began forcing management changes in the hospitals, was lion-

, ised by the ‘new right’ big business operators, some of whom had openly thrown in their lot by serving on Labour’s state-owned enterprises’ boards and other bodies. Many of the best-off in the upper middle and the top of the ‘rugby football’ had moved their votes to Labour in 1987. Gilbert Myles, who became a National MP in 1990, joined the National Party in 1987 from a lifetime of La-

bour voting not only because he opposed what Labour was doing to the less-well-off with whom he identified but because he thought National’s policy was to undo or ameliorate it. Hamish MacIntyre, Myles’s fellow deserter from

National in late 1991 to form a Liberal Party in protest at its Rogernomicsplus policies, demonstrates the confusion even more poignantly: he was a son of Duncan MacIntyre, National Deputy Prime Minister from 1981-84 and a minister from the 1960s when National was running the prosperity consensus, who, in some of his policy initiatives, particularly as Minister of Maori Affairs, was quite liberal. It was common during the Rogernomics period to hear talk of re-formation of the parties on these lines of apparent like-mindedness. Douglas himself, by

256

The Politics of Pain

his own account in a speech in mid-1992, in early 1987 proposed to his senior Cabinet colleagues that if the party executive continued to select ‘left’ candidates for Parliament, they should tell the executive that ‘45-50 members of the Labour Government were moving to form another party and leave Labour with Anderton and four or five others, selecting our remaining candidates from a wide cross-section of New Zealanders’ .**

Douglas argued that to have done that would have won 80 seats. And he had at the time some basis for his argument. The ‘new’/‘old’ divide was not only slicing through the political parties, but through society. On the ‘new’ side were to be found gimme generation people with a sense of adventure and challenge and irreverence for rusty icons, rationalists who had concluded or were led to conclude that drastic economic restructuring was necessary, the new-money new breed of rip, snort and bust business operators (and, though sotto voce, some old money as well), many farmers seeing the future possibility of a better oper-

ating environment amid the present pain of desubsidisation, peace agitators, Maori and women’s rights advocates, all of whom in one way or another had something to support in the Labour Government’s broad-sweeping reform programme. On the ‘old’ side were manufacturers used to guaranteed profits, union leaders used to guaranteed wage increases, much old money, subscribers to social democratic and keynesian political, social and economic theories (including many of the gimme generation), believers in the necessity of military alliances, one-nation arguments on race issues (that is, Maori assimilation) and a traditional role for women. This ‘new’/‘old’ divide through society also cut through the social bases to the two parties. At that moment, in 1987, Douglas might have got away with a direct appeal over the heads of the two-party system. Had he done so and had the reforms then been pushed forward as fast as he was then beginning to pro-

pose, the Rogernomics period might have ended earlier and the social disorientation of politics begun to settle earlier than it is doing, But Douglas was wrong, on several counts. The ‘new’ was not an electoral majority. On any careful analysis of polls at the time there was a subsisting majority against the economic reforms which was only held back from throwing Labour out by atavistic loyalties to Labour which would have subsisted even if key Labour MPs had deserted the party. Moreover, someone on the ‘new’ side of one set of issues, say, women’s rights, might equally be on the ‘old’ side of another set of issues, say, economic reform. The ‘new7/‘old’ divide did not separate Out two neat groups of people, but chopped them up into a political stew in which the pieces were not readily distinguishable from the whole. Moreover, taken in the longer term, if the two-party system survived through the Rogernomics period (which it did) it was predictable that politics would

257

New Territory | | revert to being socially based as the country gradually adapted to the fact of the ‘new’ as the status quo. Even if the Labour Party got badly mauled in the process Douglas hoped for, the National Party would have survived as one party in relation to which another major party would eventually have emerged. And logically those two parties would have become socially based, much as National and Labour had been (and are now returning to being). Those who saw more similarities across party lines in Parliament underrec-

ognised that social division between the parties. While there were policy similarities, the MPs by and large still divided on social background. Douglas, as noted in chapter 12, descended from two Labour families. Those few Labour MPs who came from backgrounds in which they would normally have expected to vote National — the most notable examples were Geoffrey Palmer, whose father was a provincial newspaper editor, and Helen Clark, whose parents were farmers — did so for clearly defined reasons of social altruism. Peters was of a piece in background with Muldoon: poor-born, but struggling out of the ruck, social climbing in a political sense. Muldoon was often called ‘socialist’ because of his love of intervention in the economy, but he was not. He was populist and corporatist, stitching together deals with the big players, arbitrating among them, intervening for ad hoc ends identified by his reading of the ‘ordinary bloke’, not in pursuit of a vision of an egalitarian utopia. The other — and numerically dominant — sort of Nationalist came from backgrounds of economic success, farming, the professions, business operators and so on in which a qualified individualism was celebrated and could not possibly have joined the Labour Party. They were not born to rule in the English sense; but they were born to be connected in some way with the rulers. But there is another reason why Douglas was wrong. The period of reform from 1984-92 was not just one of economic reform. The reforms (as detailed in chapters 9 to 14) covered almost every facet and corner of national, social, economic and political life. Economic reform, coupled with the privatising impact of that reform on social policy and individuals’ lives and attitudes, was the largest body of reforms, but it was not necessarily the most important. The

partial declaration of national independence embedded in the anti-nuclear policy, the restatement of the relationship between the two main races that flowed from the policy on the Treaty of Waitangi and the rewriting of resource law to focus on sustainability are all arguably likely in the longer term to have as much impact on the way New Zealanders see themselves in the ‘new’ world as the economic reforms — and quite possibly more. New Zealand on the ‘new’ side of the ‘new’/‘old’ divide is not just post-

Rogernomics, though it is that. It is post-privatisation. It is post-colonial. And it is post-treaty. Douglas’s idea was rooted in economic policy. The real 258

The Politics of Pain

situation was much more complex and the politics much more tangled. Indeed, Douglas himself said of his idea in 1992: “The nature of politics would not

allow it.’ The transition posed serious problems for the National Party. As described in chapter 3, the National Party is little driven by ideas. It has instincts which coincide with the New Zealander’s instinctive individualism and it fits roughly in the tradition of liberal democracy in which individual freedom is something of a touchstone, albeit much eroded. The individualism and liberal democracy coincide roughly with the perception of their economic and social interests held by the better-off people at the core of its support. When Muldoon trampled on both, much of the core was disaffected, but this was not so much on ideological grounds as on the grounds of practical outcome. The National Party is a functional party. It exists to govern, not to put ideas into practice. It exists to govern with some attention to the interests of its core vote, businesses, farmers, professionals, better-off wage and salary workers. Politics in these circumstances was perpetual conciliation and arbitration among the

various interest groups. Each put in its bid for resources, protection or other favours and the Government decided among them. Lobbying was an intense activity. Part of running a business, especially a big business, was getting on a plane to Wellington to make a case to a minister — or, as Labour’s David Caygill

found (and discouraged) when he became Minister of Trade and Industry in 1984, just for a chat. Farmers were the first to break the mould. A new leadership under the patrician Sir Peter Elworthy got little joy from negotiating what amounted to a wage (the SMPs) with the Government each year. In early 1984, instead of concocting a list of desirable goodies for farmers, they put out a booklet arguing for deregulation and deprotection across the board.

Rob McLagan, chief executive of Federated Farmers in an interview for Management magazine in 1991, said that before 1984 the federation would ‘dash

up to the Government and ask them to throw some money at [some problem] and more often than not they did. We often didn’t have to have too strong a case.’ Under the Labour Government lobbyists had to ‘get away from the shopping list approach to macro arguments. We had to put our case in the context of the economy as a whole. It had to be able to stand up to strong scrutiny.” Before 1984 and in most cases for a long time afterwards, this approach was not replicated by other lobby groups. Though the Manufacturers Federation did put out a ‘manifesto’, it reeked of special interest on the old model. After 1984 the federation resisted much of the reform programme, tending to defend the interests of its weakest members rather than argue for an overall economic policy

259

New Territory | conducive in the long term to business generally. Labour Government ministers (and National Government ministers later) ignored this in an increasingly

irritated fashion. ,

| This response reflected a shift in attitude among a widening pool of people in business, who were impatient with regulation and a system of dispensation of fear and favours. Interviewing business leaders in 1984, the editor of the Australian Financial Review, Paddy McGuinness, found ‘an economy of fear’. When Muldoon called the 1984 election a National Business Review survey of business leaders found most had lost confidence in him. That was partly because an in-

creasing number of them were finding confidence elsewhere — in exports, in learning to own and operate overseas plants, in standing on their own feet. Muldoon’s paternalistic and extreme version of the policies of the prosperity consensus was irritating, frustrating and out of tune with their mood and aspirations. If a New Zealand beer could be judged the world’s best at a high-prestige

international competition in 1985, its makers did not want to be patted on the head by a Government. These people began quietly to throw their support and money behind the gimme generation in charge of the Labour Party in 1984. Once Labour was in office, they supported and egged on its introduction of market liberal policies. They applauded its refusal to operate the old lobby system and its preference to debate ideas instead of interests. Key people joined actively in the Government's restructuring, serving on advisory committees, inquiries and boards, most visibly those running the new state-owned enterprises from 1987. People such as Sir Ronald Trotter, John Fernyhough and Alan Gibbs were challenged to contribute ideas and business skills to the process. An important group had been detached from the National Party for the first time. In this climate the old National Party was badly disoriented. Its supply lines of political legitimation and information were cut. Its reserve troops were scattered or had gone over to the other side. The networks were in tatters. National leaders bitterly attacked Federated Farmers leadership from Elworthy down and promised score settling in due course. In this period the National Party was trapped, by its membership and its instincts, on the ‘old’ side of the emerging ‘new’/‘old’ divide. Shorn by Muldoon’s ‘ordinary bloke-ism’ of a share of support from the emerging new breed in business and the professions and still guided by its functionalist approach, National became marooned from the currents of politics. A brief attempt by Jim McLay, a timid supporter of Labour’s new economic policy direction, who was leader

for 16 months from late 1984, to get the party into the water was scotched by his abrupt removal from office in March 1986. Jim Bolger, who took over with

the turncoat support of George Gair, one of the surviving MPs from the 260

The Politics of Pain

Holyoake era (the high point of functionalist skill and success), was in the old

functionalist mould. His mate Bill Birch, architect of the ‘think big’ heavy industrialisation programme, was likewise. National expected to win the 1987 election on the ground that Labour could not hurt as many people as it was doing in pursuit of economic theory and survive. It took a shattering defeat in that election to give the ideas-people in the party the lever they needed. Ruth Richardson, with Simon Upton as theoretician and mentor, forced her way into the shadow finance role as a consolation prize after narrowly losing to Don McKinnon a post-election contest for deputy leader. She set out to bring National across the divide on economic policy to the ‘new’ deregulated economy.

By mid-1989 she had got most of the way, with general approval of a macroeconomic line similar to Labour’s, though there was to remain argument (by Philip Burdon, who yearned to meet manufacturers’ demands for fair trade) on microeconomic issues.*! At the end of 1989 she won two victories critical in planting the leadership on the ‘new’ side: the National caucus voted narrowly for the Reserve Bank Act handing over monetary control to the Reserve Bank and charging it with pursuing price stability only. At the party’s annual conference four months earlier there had been another important symbolic pivot: an overwhelming vote to recognise the Treaty of

Waitangi as the founding document of the nation. In March 1990 the party leadership flipflopped to support the anti-nuclear policy and Bolger subsequently

promised there would be no change to this policy in the 1990-93 parliamentary term, nor for the two terms after that. The resource management proposals were broadly adopted and so were the changes in state sector management. Across a wide swathe of policy, National switched from opposition to Labour's changes to qualified support. It climbed over on to the ‘new’ side of the divide. The bulk of the membership, however, still characterised largely by the conservative rump left by Muldoon, remained on the ‘old’ side of the divide. Many were getting hurt by the economic and budgetary policies of the Labour Government, which was closing hospitals and post offices, and did not like Labour's foreign affairs, defence, race, social and moral policy reforms. They looked to a

National Government to restore many of the pre-1984 conditions of assured profits and conservative social policies. Many remits passed in opposition to the policy line Richardson and the leadership were taking. Ministers at the party’s divisional and national conferences in 1990 contrived both to advocate market reforms and budget tightness coupled with a ‘redesign’ of the welfare state and to hint that somehow businesses would be protected and hospitals kept open or reopened. The manifesto, while much more detailed than any previous National 261

New Territory

pre-election statement, was also a masterpiece of veiled intentions and duality. Nowhere was this better demonstrated than in its industry policy, where macro and micro policies on the economy met in a simultaneous promise that protection would continue to be lowered but businesses would not be hurt. In office the veil and the duality were yanked suddenly aside. Within two months of taking office, ‘redesign’ of the welfare state had become savage cuts in welfare benefits totalling $1.6 billion and a promise to make the ‘top third’ pay more for their social services and a programme of tight budgeting signalled. In the July 1991 Budget the privatising momentum built up in economic policy under Labour was extended into social policy with reforms of a sort that Douglas had proposed but been refused in 1987. Reorganisation of hospitals, schools and housing assistance pushed decisions back towards the individual, focused policy on the individual as the base of policy and opened up scope for private agencies to deliver the services and, over time, channel the funding. Though the superannuation benefit proposals had to be abandoned and replaced by a version of the existing policy and many of the “user-pays’ part-charges for health

were softened or abandoned, by February 1992 National was able to hold Muldoon’s Tamaki seat when he retired, savaging the Government’s policy programme, and by the divisional conferences in May National had achieved the sort of unanimity of purpose and policy positioning not seen since the 1970s.

Henceforth, National can revert from ideas to governing. It can return to being its old functionalist self. The installation of Bill Birch in the key roles of Minister of Employment and minister in charge of the Cabinet social assistance reform committee in October 1991, plus being in command of a web of other activities of the Government, signalled the beginning of the new phase. It is now wearing in. We are back to something resembling the 1950s-60s government style in the way the Government operates. National ministers have been vigorously replacing appointees to boards and committees with safe and predictable people of mostly modest ability but of unmistakably and reliably National Party allegiance. The networks are being re-established. Given time, National will have its governing web back in place. That does not mean it has reverted to pre-1984 policies or even a pre-1984 style of governing by arbitrating and conciliating among interest groups. The Government is running the ship as it now is, which allows much less government economic intervention on behalf of specific interest groups. There is a ‘line in the sand’ (to borrow George Bush’s warning in 1990 to Iraq’s expansionist Saddam Hussein) over which it fears to step, else it will be judged Muldoonist by 1980s defectors who have rejoined its core support. But gradually this func-

tionalist National Government can be expected to respond to those specific interests in small ways. Given time the networks will operate that way. The 262

The Politics of Pain

important difference, however, is that they will operate on the ‘new’ side of the divide, to uphold the policy environment established by the 1984-92 reforms. But will National be given time? Are the voters with National on the ‘new’ side of the divide? Evidence is beginning to suggest that increasing numbers have crossed the divide to post-Rogernomics, even if in the great majority of cases reluctantly. Consequently, in any assessment of the direction of politics over the whole course of the 1990s, as distinct from the next few years, dismiss the appeal of parties that want to take people back across the divide. By and large, this is what

Anderton’s NewLabour Party wants. By mid-1992 NewLabour’s 5% in the 1990 election, drawn mainly from Labour’s core vote in the lower middle and the disadvantaged, had faded in polls to a terminally ill 1%-2%. The quintessential party of the middle of the early 1980s, the Democrats (and their nearly extinct splinter, Social Credit, which had taken over the abandoned name) came a distant fifth in the 1990 election. In 23 out of the 57 seats they both contested the Democrats gathered fewer votes than the McGillicuddy Serious Party which

makes a joke of politics. By mid-1992 the Democrats and Social Credit had vanished in the polls. The Democrats, too, essentially promised a return to pre-1984 policies. The middle is not an adventurous social grouping. It would rather a rejig of the now-existing policy position to relieve their difficulties than a trek back across the high mountain range to liberal social democracy. If the economy improves even modestly, as most commentators now think it is likely to do, the middle is likely to find its economic position gradually being relieved.

Note also the privatisation of the lower middle described above. The unenthusiasm of people in the lower middle for higher taxes that benefit others limits the scope for the sort of redistributive policies that go with a pre-1984 prosperity consensus programme, however modified (and to NewLabour’s credit, it has been much modified).

These two groupings rescued themselves from the tomb by persuading the politically naive Green Party to join them in an Alliance. The Alliance remains a substantial third force in polls. And a large portion of that is due to the appeal of the Greens. Green is pleasant and respectable, appealing particularly to upper-middle professionals disaffected from the major parties, but particularly from Labour, taking its vote in the 1990 election essentially from Labour. It offers almost a romantic notion of escape from harsh political and economic realities.

So the Alliance has being doing well. It came a close second on 15 February, 1992 in a by-election in Muldoon’s old ‘safe’ Tamaki seat, did well in some 263

New Territory

local body elections in October, ran a strong third, occasionally second and once first in major polls throughout 1992 and posed a serious threat in the Labourheld marginal Wellington Central seat, up for by-election in December 1992. It could conceivably hold the balance of power in a hung Parliament in 1993 and might score particularly well in an election on the mixed-member proportional representation system that may be introduced after a referendum in 1993. That has encouraged some senior Alliance people to suggest the Alliance could displace Labour as the second party and so form the alternative government. But the Alliance is inherently unstable. The Greens argue for a shift across yet another divide. Labour, National, NewLabour and the Democrats essentially conduct their debate within the broad parameters of the 100-year-old argument between market-capitalism and social democratic ideologies. Green politics is conducted outside that debate, looking towards a new society operating accord-

ing to different principles centred on harmony with and preservation of the physical environment, rejection of materialism and industrialism (and high energy use) and a preference for community-based economics and human-scale technology, a strong sense of personal and social responsibility underpinned by grassroots, participatory democracy and decentralised decision-making and a commitment to non-violence. Stephen Rainbow, a Green Wellington city coun-

cillor, has summarised the recurring themes in green ideology as ‘a global commitment to ecological wisdom and a reverence for nature in a non-anthropocentric social order oriented towards the future, which promotes self-reliance and decentralisation through participatory democracy and sustainable lifestyles and resource-use and which values the qualities of peace and personal growth’.” Were the Greens to be taken seriously as a governing party, voters would have to approve a shift to those new principles, across a wide gulf from their current values and preoccupations. In particular, the conservative middle, which commands the bulk of the votes, would have to make that shift. But there is no clarity about where they would be heading, were they to shift. There are widely varying versions of the green utopia. There is a broad division between ‘purist’ greens who focus primarily or exclusively on ecology, the physical environment, and those who ‘seek fundamental changes in social and political institutions and stand for a new alternative, social-radical democratic paradigm’,® called by some ‘dark’ and ‘light’ greens. Political experience often draws the former closer to the latter. That happened with the Values Party, for example, which adopted a socialist outlook on economic and social issues — but it did so at the cost of the darker greens, suspicious of too deep an involvement in the power structure, splitting off. There is also a division between those who in effect want to withdraw from industrialism (back to the land) and those who want to go through it to something better and more

264

The Politics of Pain

individually personally rewarding. Some greens have an almost mystic approach, valuing intuition over rational science and extolling wholeness and spirituality in contrast to the one-dimensional focus they see in industrial societies. In this they draw from and contribute to new social movements searching for political expression outside the established parties. Some greens seem to rely for growth

in support for the green cause on a sort of mass conversion of the populace, either spontaneously through some ultra-democratic enlightenment or nudged that way by the planet in some mystical way; others argue that tight regulation by strong government will be necessary. Some version envisage a highly decen- | tralised society (shades of Rand and Nozick) — but how then are transnational or even national issues to be dealt with, or even the resolution of competing interests of neighbouring communities? Some see it depending on a highly centralised authoritarian bureaucracy (shades of totalitarianism) — but how then is dissent to be accommodated and liberty to be maintained? With such an array of green options, it is unsurprising that Green parties have

had a chequered parliamentary career wherever they have appeared. In New Zealand the world’s first national green party, Values, peaked at 5% of the vote

in 1975 and its successor Greens got their 7% in 1990, both years in which upper-middle professionals fled from unpopular Labour Governments. Elsewhere Greens have appeared as a minority partner with social democratic parties

in some Governments but the alliances have been unstable and the Green element itself usually under severe internal strains between factional supporters of differing ideologies. Closest to home Tasmanian Greens formed a brief coalition Government with Labor between 1988 and 1991. Greens do not have a firm social base of political support. Instead, they rely on winning support for their ideas. Neither do they fit the utilitarian individualism at the base of New Zealanders’ political attitudes. Their appeal is too philosophical to have more than a narrow appeal to an electorate with strongly pragmatic instincts. This disability is poignantly and paradoxically illustrated by the strong and growing appeal of green issues groups which deal with practical matters. Greenpeace claims 150,000 members. The Royal Forest and Bird Protection Society claims 56,000. But this is not a support for green political philosophies. It is support for practical conservation initiatives. The huge petition that stopped the raising of the little-visited Lake Manapouri as far back as 1970 and the deep and very widely supported anti-nuclear mood in the country from the early 1970s on were that sort of concern for practical conservation. This is a sort of ‘greenness without doctrine’ — just as in the early 1900s a French observer called New Zealand’s social policy initiatives of the decade before ‘socialism without doctrine’. New Zealand 100 years later seems to be exhibiting the same adventurous, but practical, approach.

265

New Territory | | But that degree of greenness doesn’t need a Government run by the Greens. Just as it did not need a Labour Government to enact pioneering labour and union laws in 1894, but only a small Labour component in a Liberal Govern-

ment, so there was no need for a Greens Government similarly to pioneer the writing into law in the Resource Management Act of environmental sustainability as the principal criterion of development planning. Governments of both stripes pursued the idea of a world park in the Antarctic from the mid-

1970s. The mainstream parties always fall short, and often far short, of conservationists’ ambitions, but they also progressively adopt elements of green policies. This will be the way things are for as long as the new paradigm greens

seek remains outside mainstream politics, and that is likely to be for a long time yet.

This is not, however, much consolation to the Labour Party. In theory, the pendulum of the liberal capitalist-social democratic debate, having swung National’s

way, just as it swung Labour’s way in the 1930s, offers Labour two main options, just as confronted National in the 1940s as it climbed toward office. Labour might assemble a new majority coalition of the dispossessed, the disadvantaged and the vulnerably self-sustaining similar to that of 1935. Or it might adapt to the prevailing ideological climate, tweak it here and there and claim greater governing skill on which to build a new social voting base. The second has some plausibility in that Labour started the privatisation process National has driven on. Indeed, some of Michael Cullen’s statements as shadow finance minister during 1992 have come close to claiming credit for that in arguing (credibly) that low inflation and improved exports on the back of higher productivity were due to Labour’s initiatives much more than to National’s. But Labour is a party that runs on ideas. It is not a functionalist party that, like National, can suppress some instincts and run the show as it finds it, with a flick or two in its core supporters’ direction. Fashioning Labour ideas — that is, ideas from the social democratic tradition — within the prevailing privatised social and ideological climate has so far proved beyond human ingenuity. The painful threshings of northern European social democratic parties in the face of similar policy shifts illustrate New Zealand Labour's difficulty. In New Zealand it is doubly difficult in that it was Labour, not radicals in the opposition conservative party, that started the process. The other option highlights the point made by Kuttner about the Democratic Party in the United States. Might not Labour develop a sort of ‘progressive populism’ that unites the vulnerable self-sustaining wage-earners of the lower middle with the disadvantaged? Difficult, for several reasons. First, the 1984-92 reforms have fragmented the middle in ways that do not

266

The Politics of Pain

advantage Labour. At one end many professionals and executives have improved their standard of living as incomes in internationally saleable skills have risen nearer to international rates. To them the privatised society has worked well and their values as a result differ in a number of ways from those of the middle they

have all but left behind. At the other end considerable numbers of those who had been in the middle have become dependent on the unemployment benefit and the longer they stay in that condition the less they have in common with the values of the middle. The dispossessed are not enough to make a majority because the middle is still the bulk of the electorate. The hope for Labour is that as the middle has become stretched and the upper middle, required to contribute more through levies and user-charges to the education and health services they receive, has become separated in subtle but important ways from the lower middle (especially those with wage-supplementing support and free access to health care), there should logically be more scope for common cause between the lower middle and the dispossessed. But that is not the case. To those at the user-charges end of the middle, some of the National Government’s post-1990 rhetoric of self-reliance and a return to family has direct relevance as the distinction between paying taxes and receiving services in return is drawn more sharply through targeting services, or at least their ‘free’ provision, more precisely to need and in more types of assistance. This distinction is likely over time to forge a growing common interest between the upper middle

and those at the top and reduce the common interest between the upper and lower middles. To those at the other end of the middle, especially those in relatively low-skilled jobs and therefore under intensifying downward pressure on their wages as a result of labour market deregulation, the prospect of owning their

own house is a less realistic prospect than it used to be. More renters means a reversion of the 1935-49 process, dis-integrating the property-owning democracy and lessening common interest with the home-owners in the upper middle. The privatisation of choice in education, favouring the better-off by making it easier for them to ensure their children go to the schools with the better teachers, is likely to sharpen that division. But, while this weakens National’s appeal, it does not strengthen Labour’s.

Unlike the upper middle’s growing community of interest with the top, the lower middle, paying taxes and struggling to maintain living standards, is divided from the bottom which it sees consuming tax proceeds without any apparent contribution. In 1935 the lower middle did not pay income tax and still paid little — the levy on all wages of 1s Gd in the £ — when social security was introduced. The lower middle could much more easily then than in the 1990s form common cause with the dispossessed because the cost was low.

267

New Territory , a In addition, Labour's appeal is weakened by the fact of continuing state support of the less-well-off and the dispossessed. The retreat to a more niggardly and fragmented state assistance in the early 1990s still leaves assistance far in excess of that of the early 1930s. Penury and near-poverty were widespread in the 1930s, giving Labour’s programme of modest state support (modest by to-

day’s standards) a strong appeal. While many wage earners are under heavy pressure and the unwaged are in more straitened circumstances than five years ago, penury and near-poverty are much less widespread than 60 years ago. There are still very substantial and far-reaching social services predicated on reasonable

(if not guaranteed and perfect) access by all citizens and income maintenance support is much nearer the minimum necessary for sustenance than in 1935. The fact that the privatisers in the National Party can point to a state that is socially still very active weakens the distinctiveness of an appeal based on yet more state activity. A durable majority coalition of the vulnerable self-sustaining and the dispossessed would be difficult to assemble for two other reasons. The first is that the make-up of Labour’s ranks of activists is still heavily committed to the range of liberal positions on social and moral issues that the lower middle, vulnerable economically and therefore socially and morally conservative, finds anathema. Labour is therefore caught in an awesome dilemma: go conservative and have no activists; or stay liberal and be unable to recruit the lower middle necessary as a minimum for a durable voting coalition.

The second reason is the policy trap Labour now finds itself in. It was Labour that did the privatisation in the first place. Though a majority of Labour activists would disown that if it could, it cannot. A mea culpa by a repentant and born-again regulatory Labour Party would be cause for much mirthless laughter in the electorate. Labour can now credibly disown the excesses and sillinesses that accompanied rapid and often ideas-driven change. But if it attempts to disown the market-economics years, it will be irrelevant. Why toy with impostors when you can have the real thing in Jim Anderton? Worse, it is not a practical policy option in any case. Survey findings of the Royal Commission on Social Policy in 1988,“ the Massey study of values in

1989* and a post-1990-election study by academics Jack Vowles and Peter Aimer® all portrayed an electorate more in favour of state intervention in economic matters than the Labour Government delivered and more in favour of state assurance of social services than Labour was perceived to deliver — and this was more marked among the less-well-off.

But the fact is that the techno-liberals have set the parameters to economic debate. A number of assumptions are now embedded: the economy must be relatively open; internal regulation must be limited; budget deficits must be 268

The Politics of Pain

within limits determined by economic growth and debt must not grow; consequently resources for social services are limited; in any case, money does not equal

solutions in social policy; the state should be managed efficiently and it should by and large not try to run businesses. In the mainstream of economic debate reimposition of heavy border protection or the pre-1984 tight web of internal controls, repurchase of former state assets or massive state economic investment, recourse to large-scale deficit-financing of social services and a return to heavily progressive income taxation are off the agenda. These have all been explicitly stated by Cullen. An important indicator of the new policy constraints was the paper released by the Gamma Foundation, a centre-left think tank, on 16 October, 1991. The foundation’s alternative to current Government economic policy, accepting the need for an open economy and a floating exchange rate, for example, would have read like market radicalism in 1984. Yet a key figure in Gamma Foundation is Peter Harris, economist with the Council of Trade Unions. Thus Labour’s electoral appeal to the lower middle and bottom is weak. Its chances of doing another 1935 are very small. They are made even smaller by the fact that the parameters they established and must remain confined by are more naturally National’s and so Labour cannot more credibly than National pitch to the upper middle, where it needs at least some votes for office. The fact that the National has extended market-economics into social policy, thereby enabling Labour to differentiate itself in that area, is a help in Labour’s pitch to the lower middle and bottom and does enable it to appeal somewhat to provider groups and some of the upper middle altruists that used to be part of its electoral coalition but deserted it in 1990. But it is a watery appeal, founded on a negative to the predominant ideology which Labour's techno-liberals helped to embed. Labour also cannot turn the privatisation to the advantage of its core vote within those ideological parameters, as National was able to do with the welfare state in the 1950s. By its very nature, privatisation limits state action and the state's capacity to channel resources to its favoured few. There is another obstacle, touched on above. National in the 1950s could convert the welfare state to its core vote’s advantage because it did not much care for ideas, even those at the heart of its instincts, and cared much more for pulling the levers of power. Labour does care for ideas, to the point of denying itself office if it chinks the ideas too important. And too much of the Labour Party is ‘oppositionist’. Many of its activists are more comfortable criticising Govern-

ments for falling short of ideals than with accepting responsibility for the inevitable shortcomings of compromise in the face of economic, social and political realities. Championing causes is easier if the causes do not have to be

269

New Territory

carried through into practice. None of the above condemns Labour to permanent opposition. It is conceivable that Labour could assemble vote-winning alliances, even as early as 1993. But until it can reassemble both a credible ideology and a strong social base, such alliances are likely to prove transitory. This is especially the case if the alliances depend on single-issue groups, because of a nasty catch-22. Single-issue groups depart the alliance once their party is in office — either because their aims are met or because they are not met. To some extent this applies also to Laboursupporting idealists on a broader scale. In 1990 many Labour deserters closed their ears to warnings that a National Government would intensify the privatisation whereas Labour had halted the process. Their disgust with what they saw

| as Labour’s past apostasies outweighed any rational concern to preserve, at the level of practical government, what was left of the faith. There is, however, a defence of such desertions in the special circumstances of 1990. It is that Labour ministers had so focused on practicalities that these had become the only operational principle, each practical decision leading to another which would at most only accidentally be in accordance with Labour’s ideals. On this argument only a time in opposition could wrench the party leadership’s eyes back on to whatever endured of those ideals. But that defence only underlines Labour’s predicament as at base a party of

ideas, not practicality. To be a durable Government of a country in which a practically-minded middle is the dominant voting group, it must operate on practicalities, with ideals reduced in operational terms to not much more than instincts, that is, at most a distant lighthouse glimpsed sporadically and dimly through the squalls of day-to-day conciliation of conflicting interests. This applies to idealists of privatisation as much as to those of collective action. The National ideologues are now in eclipse. Functionalists are getting back in charge, running the ‘new’ shop as the new status quo. To be conservative now is to be in favour of the new policy environment, to fine-tune it gradually to the interests of those who back the National Party. Dissidence has accordingly faded within the National Party. During the first half of 1992 the great majority of backbench MPs, while still uncomfortable with the ideology propounded by Ruth Richardson, came in behind the Cabinet. The changes the MPs of this majority wanted were by late 1992 marginal fine tunings rather than major shifts, arguments about administration of the new arrange-

ments rather than stand-offs on ideas. By mid-1992 Winston Peters was in a

small minority of serious dissidents in the parliamentary party. The new economy is the new status quo. Something similar has been gradually working its way down through the

2/0

The Politics of Pain

party rank and file. As the policy shocks have subsided and as economic recovery, a great salve of political wounds, has developed, conservative, middleof-the-road Nationalists have gradually accommodated to the new policy line. While it was ‘their’, as distinct from ‘our’, line, that is, was run by the Labour

Party, they could not accept it. Nor could they accept it while it was a line of radical change. Now that change is nearly over and now that the line is ‘our’ line,

that is, run by a National Cabinet, it is becoming the middle of the road for National loyalists. Party conferences in 1992 were marked by an absence of criti-

cism of the economic policy stance. That was in sharp contrast with the conferences of 1991. Something of a political consensus has been developing round the new status quo. Business, including even (suddenly at the time of the Budget in early July 1992) the Manufacturers Federation, has grouped round the new policy line and business's desire to keep it in place now that it has begun to deliver some upside instead of mainly downside has lain at the heart of a tough, well-financed campaign by business against proportional representation — in actuality, a campaign to keep National in power and thus the economic policy line intact. National, then, is becoming the party of moderacy in the new policy envi-

ronment, just as it was in the 1950s and 1960s: market-led, deregulatory economics; fair settlement of Maori claims in an adjusted relationship between the races; friendships (including military friendships) rather than client alliances in international affairs; a greener, but not too green, resources policy; a more individualistic and ‘privatised’, but not too ‘privatised’, social policy. Dissidence within the party is muted. Labour, too, has shucked its dissidents. The techno-liberals are in eclipse, those who tipped over into market-libertarianism and those whose vigour in introducing market-economics earned them reputations as market-libertarians, have left. The Backbone Club, formed in 1988 to support Douglas and Rogernomics, evaporated with them. All that was swept away in the 1990 election. Now Labour is reconstructing itself (though with great difficulty, as indicated above) as the ‘centre left’ party around the new policy marker. Unity of a palpable if shaky sort has returned. Both Labour and National now operate within definable political boundaries. They don’t agree about detail within those boundaries, just as they did not agree on detail within the policy boundaries of the prosperity consensus. But they agree that there are boundaries and agree roughly where those boundaries lie.

Furthermore, both parties are intact and, if not as confident and flush with members and money as at their height in the prosperity consensus, regaining confidence in their policy positioning and their role in politics. So New Zealand politics is getting back to ‘normal’ as the parties regroup on

2/1

New Territory | | the ‘new’ side of the 1980s policy divide.

But that is not the end of the politics of pain. The people may be adjusting to the ‘new’ environment, but they are not happy about it. They are not happy at having left behind prosperity. The past eight years have been tough going for most New Zealanders: job losses and upheavals at work,

cuts in their standard of living, worries over health care and education and whether they will be looked after in their old age. Even accepting, as now they seem widely to do, that something had to be done because things were going off the rails, they remain widely unconvinced that what had to be done was what was done. That in itself is cause for widespread distrust of the two main parties. Moreover, both parties have flagrantly broken promises in office. The broken promises are at three levels. Many exact undertakings have been travestied:

for example, Labour’s 1984 promise not to cut national superannuation, breached in its first Budget with a tax surcharge of other income, and National’s 1990 promise to remove the surcharge, Labour’s promises in 1987 not to close post offices, nor to sell off state-owned companies, especially Telecom, and National’s 1990 promise, shamelessly travestied, not to introduce new taxes. At a second level fuzzy wording lulled voters before 1984 and again before 1990 to expect a different overall policy stance from what was delivered: no one

in 1984 could have predicted a goods and services tax or the radical shake-up of the school system or the corporatisation of businesses; few in 1990 could have

predicted from the National manifesto very heavy cuts in benefits, nor as thorough a deregulation of the labour market as was forced through, nor corporatisation of hospitals. Labour regional conferences in the autumn of 1984 were characterised by old-style self-congratulatory expectations of a revivified welfare state. Unsurprisingly, delegates to the full conference held only a few weeks after the Government took office, were aghast at the deregulatory turn policy was taking. National gatherings as late as the divisional conferences in May 1990 were marked by the half-statements from the top brass of MPs that could have left no impression other than that, for example, the closure of small hospitals would cease and the Government would help, not squeeze, business and farmers. Consequently, delegates at National conferences throughout 1991 were for the most part deeply discomfited by events. In both cases the parties presented themselves as departing only marginally from the prosperity consensus or allowed the misconception to linger that this departure would be marginal. In neither case did the party rank and file anticipate what was to come. No one could have predicted before 1984 the seamless privatising momen-

tum that developed under the two Governments. If party faithful found it difficult to accommodate to the unanticipated turns of events, voters have a right

2/2

| The Politics of Pain to feel at least misled (even if it turns out in the end to have been in the right direction) and at worst duped. Manifestos have come to be valueless as documents for voters. Not only have

voters been unable to hold parties to their manifestos, but the party organisations and even back benches have been unable to do so, too. Cabinets cannot be called to account — their alibi has been an economic crisis of worse dimensions than they expected before taking office, even though in Labour’s case in 1984 the crisis was thoroughly understood well in advance by Douglas, who had

devised detailed policies to meet it, and even though in National's case senior MPs (judging from some speeches) were aware enough of the state of the gov-

ernment accounts far enough before the election to have amended their manifesto to abandon at least some of the more reckless promises yet chose not to.” In 1987 the top tier of the Labour Cabinet made promises about keeping state assets that later action suggested they had had no intention of keeping. Both parties came into office with extensive secret agendas. Neither saw fit to go back to the country with a revised programme to seek endorsement. This bespoke a fear of and a contempt for the popular will and a self-opinionated arrogance that disgracefully flouted the notion of representative democracy at the core of the

constitution. Finance Minister Ruth Richardson said in an interview in early 1991 of National’s lack of clarity about benefit cuts and user charges, announced

within two months of taking office: ‘I think we have shown a lot of political savvy. We have been clear as to the principles, but we weren’t silly enough as an opposition that could not be in command of all the facts [to spell out that there would be cuts and charges]’.* The parties’ counter to the charges of breach of promise has been to argue a greater good than their specific promises: that is, adherence to a general promise to fix up the economy which transcends specifics — a return, if not to the prosperity consensus, at least to prosperity. But this has been the third level of breach of promise. Prosperity has remained elusive for eight years. Even if prom-

ises were broken or forgotten, under the unwritten rules of the politics of the prosperity consensus, Governments were supposed somehow to see to prosperity — or at least not take actions which appeared, either stupidly or ideologically, to undermine prosperity. Governments in the 1980s-1990s seemed unreliable. A return to prosperity would spread salve over the wounds of divorce from two once-reliable parties. But in 1992 that lies in the future. Instead the absence of prosperity and broken promises have combined to produce a very low level

of confidence in the two main parties and, because of that, in the institution through which they operate: Parliament. Those refusing to state a party preference to pollsters have been at all-time highs — nearly half in the Heylen poll, for example. An Insight poll in June found 81% believed politicians ‘corrupt’ 273

New Territory and though that figure should not be taken too seriously in the absence of more refined questioning, it does indicate a high level of distrust. Maverick National MP Winston Peters, who has pounded that drum, has correspondingly high personal support in polls. Heylen measures of confidence in Parliament have fallen progressively throughout the time they have been taken: the most recent showed Parliament bottom of a list of public institutions, with 4.5% full trust and confidence, well down on 32.6% in 1975 and 13.6% in 1982. Unsurprisingly, given the chance, people also appear to be preparing to vote for a change in the voting system. Unsurprisingly, large numbers of current MPs, including the Prime Minister, are fighting to hold on to a system that serves them, if not the public, well by delivering them a seat and, when their party musters a fair proportion but not a majority of the votes, near-autocratic and unchallengeable power. A move to proportional representation could, and in the current climate most likely would, have a profound effect on the structure of political parties. Provided the shift was not to the Australian preferential system, small parties could expect some representation in Parliament if they get above some minimum votes. This would not only encourage small groupings, but would make it easier and more tempting for dissidents within major parties to split off. National Party officials in 1992 have been warning party faithful that this would mean the break-up of the party as it is known. In fact, it would expose the major parties for what they are, loose and diverse coalitions held together only under the severe discipline of the two-party, first-past-the-post system which punishes most independents with political nonentity. But also, if the threshold for entry into Parliament was as has been recommended, the major parties would still predominate and it would be highly unlikely (except, perhaps in an initial phase) that more than four parties would have parliamentary representation. Experience in Ireland and Germany, countries where the two most proportional options have been long practised, have had stable, highly predictable coalitions. But that is not the point. The point is that people feel unrepresented. They feel they have been unable to get their elected politicians to listen to them. Instead, two successive Governments have just gone their own ways. Adequate representation does not depend on the form of the voting system. It depends on how well politicians can be held to account, the degree to which they can do what is expected of them (they cannot turn sow’s ears of poor economic performance into silk purses of prosperity), the degree to which they favour, or

appear to favour, special, minority interests (for example the Business Roundtable) and the degree to which they do things which they have not first thoroughly canvassed before the electorate. A return to prosperity and

a growing history of things going right for a growing proportion of the 274

| The Politics of Pain electorate would restore a sense among voters that they were once again represented. But it will be a long process. And in the meantime, they might well take the chance to change an important item in the constitution. If they do, that would be an item of peaceful revolution. And that would be

an appropriate epilogue to an astonishing period of policy change, such as Aotearoa/New Zealand has not been through since the imposition of British imperial rule on a land then under tribal law.

275

16. Time Out

Th has been a quiet revolution in New Zealand since 1984. It was a quiet revolution because violence was not used to overthrow the institutions and holders of power.! But there was some change in the value-system and in the institutions of power (the elevation of the Treaty of Waitangi to the status of ‘the founding document of New Zealand’, for example). And a generation and class of person who had run politics, the bureaucracy, business and the economy and many of the other institutions of power were replaced. The usurpers were not marxist mobilisers of the proletariat, but libertarians and radicals of the gimme generation seeking a new sort of New Zealander who is independent, self-reliant and outward-looking, bicultural and tolerant of diversity and seeking to make a new sort of New Zealand in the image of those New Zealanders. They made huge changes in almost every area of policy and deeply changed the daily life of almost every New Zealander. In 1993 the revo-lutionary momentum may alter an important part of the structure of the state, the constitution of Parliament. New Zealanders have not kept pace with the revolutionaries. Their once easy partnership with their politicians has been ruptured. The major political parties may now have something approaching a policy consensus, but the public generally does not yet share it, as bitter and probably emblematic, opposition to asset sales in 1992 illustrated. On many issues, the new policy environment is at best tolerated. From about 1987 on most New Zealanders took time out from change and from the revolution. When David Lange called for a ‘cuppa’ in 1988, most

of the population took him at his word. Nevertheless, New Zealand’s quiet revolution was not just a coup by an elite. The conditions were ripe for deep change on a wide front. There would have been big change regardless of who held power. New Zealand in the late 1970s had been hit by something approaching an economic catastrophe. The country’s earning power dropped by about 30%. This on its own would at some point have forced drastic changes in economic policy and a drastic drop in the standard of living for most New Zealanders, including that part of it that came from the state. That is not the wild imagining of rightwing ideologues, but awful fact. The issue by the early 1980s was how

Time Out

soon and how fast the adjustment would be made and whether it would be managed or happen haphazardly. Thar terrible drop in national earning power exposed weakness and profligacy in the economy. At some point New Zealanders would have had to remedy that weakness and rein in that profligacy. That, too, is not the wild imagining of rightwing ideologues, but hard fact. Again, the issue was how soon and how fast the adjustment would be made and whether it would be managed or hap-

pen haphazardly. |

The adjustments might have been made from the late 1980s and slowly, but for the fact — not wild imaginings — that New Zealand was coming under other intense pressures, as described in chapters 5 and 6. The world around New Zealand changed and so did New Zealand society within. The colonial era was coming to an end. A response to those issues had to be found. In short, New Zealanders were struck by a tidal wave that burst through the colonial, economic and intellectual defences they had erected around themselves. This tidal wave both drove the Labour Government and its gimme generation allies and gave them their opportunity to give vent to their radical temperament. In eight years New Zealand has emerged, blinking, into independence. It has confronted its deepest source of division, the fact that two races, with different cultures, live here, not one into which the other can be expected to melt. In the course of addressing that New Zealand has rewritten its constitution and begun to define itself more clearly as a nation. It has exposed its weakling economy to the harsh discplines of world economic forces. It has re-examined the role of the state and stripped it back. That has set in train a wide-ranging privatisation of much economic and social activity. The revolution has been fast and deep. It is now over, but its aftershocks are still being felkt. These changes were the more confusing because two apparently divergent influences ran through the policy shift. One set of changes, the claiming of in-

dependence, the attempt to do better by minorities and the pursuit of equalisation of the imbalances in society generally, the greater moral and civil freedoms and the greening of policy, was predictable from the preoccupations of most young political activists in the 1960s, the formative political years of the gimme generation. The other, the privatisation of the economy, the state and society, was not. The gimme generation — at least the part that turned up in the Labour Government — thought it was performing a technical fix-up job on the economy to set it back on a growth path which would permit the other initiatives. In fact, the technical mechanisms they chose also flowed from the 1960s, which was when the intellectual challenge to state-centred economic and social management was laid. But in those days Labour’s gimme generation had better things to do than pore over the economy and economic theory.

2/7

New Territory | The two divergent strands have a common starting point — a desire for free-

dom: freedom in national independence; freedom to be a full citizen in an harmonious society; freedom from moral oppression; freedom from unnecessary regulation; freedom in the world economy. The result of eight years of rapid change has been more individual freedom, a less supervisory state, a state less endowed with a collective purpose. Paradoxically for the gimme generation valuing that freedom, for large numbers of New Zealanders that freedom has meant enslavement: to fear and insecurity. That is common in revolutions: the elite’s high-minded slogans often contrast perversely with the actual condition of the people. New Zealanders who were not part of the revolutionary elite had independ-

ence thrust upon them even as the veil was stripped from their lack of sovereignty. [hey were confronted brutally with the hitherto dormant contradiction between their twin desires for security and individualism. Freed, like it or not, to be individualistic, they found themselves free also to be insecure. Their compact with the state was torn up. New Zealanders have been deeply shocked, rocked to the core. They know what it feels like to go through a revolution, even if not a single bullet was fired. Indeed, to call this revolution ‘quiet’ has, for many,

been to understate it. |

For a century these security-seeking individualists who were New Zealand-

ers had passed off on to ‘friend’ state more and more of their challenges, problems

and inconveniences. Just as in business they privatised their profits but looked to the state to socialise their losses, in their personal life they kept their ups to themselves and via friend state socialised the downs on to others. Friend state looked after their children, their sick and disabled and aged, kept their jobs safe from marauding foreigners, insured them against mishaps of all sorts, put out of mind the difficult social questions with which earlier societies had had to live

cheek by jowl. Just as death became sanitised, out of sight, an unfortunate experience in the twentieth century, so did social ills. Friend state dealt with all that. Then friend state proved inconstant. It could not keep pace with expectations except by piling up debt, the rising cost of servicing which made meeting ex-

pectations even more difficult. Some of the results proved to be perverse corruptions of the original intention. Friend state also could no longer secure New Zealanders from the pressures of the changing balance of economic power in the outside world. Simple arithmetic demanded a retreat to avoid bankruptcy. Policymakers, swinging around in an attempt to find a solution to a worsening and deepening predicament, chose to accentuate the uncertainties and insecurity by turning New Zealanders outwards to this changing and threatening world about them and calling on them to act out more of their rhetoric of self-reliance 2/78

Time Out

and independence. More independence meant less security.

Insecurity is the story of the revolution for the great bulk of New Zealanders. Revolutions seldom benefit the populace immediately (often not at all). New Zealand’s quiet revolution was no exception. Through their politics, New Zealanders have habitually sought to secure their physical, economic, social and spiritual welfare. On all four counts during the time of the prosperity consensus that welfare was by and large secured for the majority. Not so from 1984-92. Physical welfare became less secure, as the rise in crime and prison population indicated and as police, even though their numbers grew, complained they were too few to deal with minor crime. Assurance of health care was more un-

certain at the end of the period than at the beginning. There were more homeless.

Economic welfare slipped. The visible manifestation for individual New Zealanders was in the loss of jobs for some and for others the end of reliable rises in their standard of living through ordered employment and the setting of wages within national confines. But these were actually mostly a reflection of the loss of national economic security and the result of policymakers’ attempts to counter that loss. New Zealand could no longer be sure of markets for its principal exports, nor of prices for those exports that were high enough to ensure security. Not since the 1930s had the country been treated so unkindly by the world. But this time policymakers, instead of confidently offering a breakwater against the chill tides of changing world trade patterns, dragged New Zealand into those tides for a midwinter swim. In fact, policymakers, even if they had wide discre-

tion as to detail, had little choice about the general liberalising direction they took. The internationalising and globalising world economy made it increasingly difficult for economies ranging from Albania to Zambia to follow nationalistic

economic policies that denied, defied or distorted world financial and market realities. Once the barriers began to come down, New Zealanders found themselves hawking their labour not to the boss next door who had played (even if hard at times) by rules everybody agreed on for the general benefit of all, but in effect for measurement against a harsh world register of skills, ingenuity, appli-

cation and quality. This register was often distorted for the worse by policymakers’ impetuosity, purity of ideology and radical bent. Many scored low

on that international register and they paid an awful price. The assumption at the heart of the prosperity consensus that each person and each family could sustain themselves in their everyday material life crumpled. Large and growing numbers could not. Social welfare, the sense that the society around the individual was stable and

279

New Territory

the individual’s or family’s place in it was recognised, stable and secure, also waned. Fewer people felt fully members of society, felt they had their quotient of power, a fair supply of individual opportunity, acceptance as an equal in some fundamental sense. Some farmers had to give up their prized independence and take welfare payments to survive. Middle and even senior managers suddenly

found there was no employment and therefore no security of tenure in a middle or affluent suburb. Some of the organisations, such as unions, that had appeared to glue society together lost their sticking power. Families disintegrated.

Women demanded more independence and to some extent began to get it. Maori challenged the glass barriers to a full part in a society that was theirs as much as that of pakeha. Some people became ostentatiously very rich and abstracted themselves from the social circle. And spiritual welfare became less secure. That is the sense of being at one with oneself, of being truly ‘free’ and in command of one’s destiny. This is obviously

impossible to measure objectively. An indicator such as the incidence of mass murders is a rather crass example. So is the decline of traditional religion and the rise of fringe religions and cults. The shuffling of marriages is another, but inconclusive, clue. A rising proportion of discretionary income going into lotteries and other betting is perhaps another. There is a sense in which it can be said fewer people feel at one with themselves than at the height of the orderly days of the prosperity consensus. Politicians can do little about it, but people out of sorts with themselves are more likely to magnify irritations and to strike out at politicians as a target for their unease. There is no simple calculus of welfare by which politicians or their advisers and opponents can steer ideology, policy, rhetoric and action. Rather crude attempts are made by rather glossy market researchers, usually bolstered with some training in psychology, to probe the hearts, fears and minds of electors the better to define for parties what to say to them to keep or win their votes — or, nowadays, to persuade them to vote at all. But the market researchers and the political parties are a long way from much of an understanding of how welfare or lack of it is translated into political expression, nor of what weighting each of the four classes of welfare have in voters’ minds. Nothing yet can replace a good political ‘nose’, a ‘feel’ for the collective wants of individual electors. Logically, however, if overall welfare is secure or rising a government has a good chance of staying in office and if overall welfare is insecure or falling sentiment turns against a government. There were only three changes of government between 1945 and 1970 — and even then relatively small changes in policy. Ironically, the change of government in 1972 owed something to the high level of general welfare: security, or the lack of it, was not a factor. In 1975, when the government changed again, and in 1978 when it nearly did yet again, economic 280

Time Out

insecurity — in the form mainly of rising unemployment — and social insecurity — in the form of the rise of feminism and increasingly strident Maori land protests — were developing among a widening proportion of the population. As physical and spiritual insecurity emerged during the 1980s there was a further swing away from the sitting Government in 1981 and then massive swings against the sitting Government in each of 1984 and 1990. This was despite big policy lurches from 1982 aimed (unsuccessfully) at improving general welfare. The 1987 election, in which support for the sitting Government rose, was com-

plicated by temporary improvements in economic and social security for important segments of the population — for example, those benefiting from the share and property booms and from policy initiatives for women and Maori — and large pockets of enthusiasm or wait-and-see in respect of the 1984-87 policy initiatives. More to the point was a stark difference of perspective between policymakers and the people. The two were divorced in 1984. Policymakers confronted the unsustainability of the prosperity consensus; and they did so with policies that were drawn not from the people but from ideas, much of them in the form of foreign theory, and from necessity. The people mostly wished away the necessity and felt most uncomfortable about, even offended by, the ideas. So they have taken time out from their long and once-easy marriage with their politicians.

Few divorces are easy. This one has been messier than most. It has been complicated by the politicians’ showy romance with the two Tinas. Tina stands for ‘there is no alternative’. One Tina applies to the predicament, by which is mostly meant the economic predicament. Few now disagree that there was no alternative to doing something about the economy. Had there not been a policy change, and a far-reaching one, we would now be even more indebted than we are, with a debt rating that made it hard to raise funds, even for the Government. Foreign bankers, in other words, would in effect have foreclosed, forcing us into the hands of the International Monetary Fund or simply curtailing economic activity and forcing a lower standard of living on us, as happened in much of Africa and Latin America during the 1980s. Unemployment would be high and rising and industry still inefficient and uncompetitive and so unable to generate sustainable employment. The new jargon for acceptance of this Tina is that the people should ‘own the problem’.? Once people accept that there is a problem and that something has to be done about it, half the battle has been won. So goes the political line. There is a strong logic in that — except that the problem itself is the problem. Accepting that there is a problem is a long way from agreeing what the 281

New Territory

problem is. Certainly in the mid-1980s and even in the early 1990s the politicians of both major parties have a different definition of the problem from large numbers of New Zealanders. Is it the problem one of exports and imports? Is it our foreign debt? Is it the Budget deficit? Is it the reduction of protection or too little savings and investment? Is it whether children are getting enough schooling or the right sort of schooling? If so, is that the fault of the Government or parents? Is the problem illustrated by the fact that a large number of children suffer unnecessarily from glue ear in a country that is not yet so poor it cannot afford simple medicines? Is the problem our geographical position at the end of the world? Is it our racial and cultural mix? Is it something to do with our predominantly Anglo-Saxon

ethnic origins? Is it our ejection from Europe (our removal from the centre of cultural, political and economic empire)? Is it the growing influence of Australia?

Is it our part in the global rape of the physical environment, brought home to us with the hole in the ozone layer? Any month’s daily newspapers over the past eight years would yield a long and contradictory list. This babel of problems leads directly to the other, tawdrier, Tina, that there was no alternative to the policymakers’ particular solution for the problem. If people could not agree on what the problem was, how could they agree on the solution? Mediation to keep alive the marriage of politicians and people would simply have collapsed in acrimony. The Tina twins have been mostly at work in the economy. But they have been

very active elsewhere. Surreptitiously, they infiltrated much of the rest of the 1984-92 policy initiatives. Did most or even a reasonable minority of New Zealanders accept that Maori land and resource grievances and claims had to be confronted and dealt with, as policymakers decided? No. Did most or even a high minority of New Zealanders agree that a breach with the United States was an inevitable part of getting nuclear ships out of our harbours? In fact, a very high minority thought the ships should be there if there was going to be such a breach. Did even a small minority of New Zealanders think their local authorities had to be forced into arranged marriages and their hospitals boards likewise and their school committees turned into governing authorities, with budgets and all? Did they think young unemployed should be reduced to the breadline? Did they

think resource law, if they could work out what that was, had to be rewritten

to lead the world, on pain of environmental disaster? Did they think their sportspeople should be banned from playing South Africans? No. The list of such no's is very long. Who, for example, apart from a small group of politicians and policymakers, voted for economic integration with Australia? There has been widespread resistance to the charms of the Tina twins. Few

New Zealanders wanted to leave home in 1984. Maybe there was a bit of dry 282

Time Out

rot, they came to concede as the policy revolution rolled on, or a lick of paint was needed and the drains clogged occasionally. But surely it was not necessary to tear the place half down — and in winter, when the winds and rain are particularly cold! They liked the old place. It was warm and comfortable there. In the vogue language of the psychologists, they grieved for it. Many still do. So they have taken time out. It was not only the average New Zealanders who did so. Most of the thinkers were grieving alongside them, telling them constantly they were right to grieve and right to question and oppose the policymakers. There were several parts to this protest from the intelligentsia. One part is the undemocratic nature of the policy changes. This is almost a tautology in the case of a revolution, since it is by definition undemocratic, except to the degree that it purports to respond to some deeply felt but poorly articulated cry from the people. But in a democracy, with its institutions still in form much as they were in 1983, in the sense of elections and parliamentary hearings and debates, still in place and functioning, it jars badly. So part of the dislocation in the debate has been the tension between radical change and democracy. The true democrat in government will do only what the people ask to be done. A proposal might be put to the people but not acted on unless approved and only as far as it is approved. Very few people ‘voted’ in any

sense for the 1984-92 programme of radical change. Instead, a bunch of elite radicals went their own way unasked, using the cloak of democratic formality — their election to office in an antiquated and unrepresentative winner-takeall system — to claim they were acting legitimately. Only in the public unease evident in the rise of the third-party vote from 1975-84 could the radicals claim some sort of veiled public mandate to do something, but that veil was flimsy to the point of indecency. Roger Douglas justified the economic and social reform programme on the grounds of some undefined (and invisible) public mandate to get things right. “There is a deep well of realism and commonsense among the ordinary people of our community. Deep down, what they want is politicians with the guts and vision to deliver sustainable gains in living standard over time. ° That is, ‘guts and vision’ to do whatever they think right, whether or not specified in advance — and in Douglas’s case, not specified. Democrats such as Richard Mulgan, professor of political science at Auckland University, have been

rightly offended.‘ As his time in office wore on and his frustrations with colleagues grew, Douglas flirted with the idea of a separate party of like-minded reformers.’ Under the rules of our political system, a democrat would argue, the radicals should at least have been honest about their intentions.® The democrat would 283

New Territory | say they also ought to have proceeded with more sensitivity to public opinion. Otherwise the legitimacy of the political system is brought into doubt, as in fact it has been, with very low measures of confidence in Parliament and the major political parties. In a revealing comment, David Caygill, a key figure through-

out the fourth Labour Government, said in 1992, referring to sale of state enterprises, of which he was a strong proponent, that ‘it is clear we did push past the limits of public acceptance and paid a considerable price for that and what,

I guess, I didn’t appreciate at the time was that the price would be more than just personal. I never doubted that the Government would become unpopular and that might come to our personal cost. J think in fact the system of government is now paying a price. I think that is a cost that’s worth people pausing and figuring in. If you contemplated, for example, the privatisation of hospitals or schools, then the community would say, “What the hell is going on?” and there would be the most extraordinary revolt.” As it was, the public went sullen. Should anyone have expected otherwise when the Government left the very strong impression before the 1987 election that post offices would not be closed and then stood aside six months later as they were closed? Should one have expected anything but public outrage at the sale of Telecom in contravention of a specific pre-election pledge? Similarly, what should the public make of the National Government’s increase in the superannuation surcharge which it promised

to abolish or its many new taxes under the guise of levies and user-charges in contravention of an explicit and often-repeated promise of no new or raised taxes?

But if, in 1984, the policymakers had laid out in advance their plans, what would they have said? Not all of the economic and social privatisation programme was in Douglas’s mind the day after the 1984 election and much of it was vague. Nuclear freedom did not mean independence on election day 1984. Maori grievances were to be addressed, not the constitution changed. Reform led to reform, change led to change, driven by the momentum of previous change and by the radical temperament of the Labour ministers. Labour ministers thought they were applying a technical adjustment to the economy in pursuit of old social values, new means to old ends. In fact, means can redefine ends and in this case were doing so. The value-system has been changed at the policymaking level. And that has been without a discernible mandate as it is normally understood in New Zealand. A second part to the intelligentsia’s protest has been ideological. To the liberal social democrats who have dominated New Zealand thinking on economic, social and political issues since the 1930s the ends and value-system embedded in the policy changes are to a large extent wrong. If there had to be radical change

284

Time Out

amounting to a policy revolution, this was the wrong one in the eyes of the liberal social democrats — and in the eyes of ordinary New Zealanders. Expanding incomes for the better-educated and better-off at the same time as contracting

incomes for the less-educated, more vulnerable and least-well-off was simply wrong. The drive towards national and personal independence and the privatisation which infused, or at least emerged from, the 1984-92 policy changes severely bruised the old value-system. Defenders of that value-system, which in-

cluded at an instinctual level most ordinary New Zealanders, have been left profoundly upset; those wanting greater collectivisation, who included much of the liberal establishment, have had their hopes destroyed. They seem condemned to exile in their own country. A great part of the problem for the intelligentsia has been that, for its members, the economic programme has overshadowed other changes. For example,

a 1990 study of the fourth Labour Government edited by Jonathan Boston, perhaps the brightest of the analysts of that Government, and Martin Holland,

managed to avoid mentioning the ground-breaking resource management legislation, ignored in any substantial sense the foreign policy shift and dealt with the Maori policy changes as retreat before a ‘problem’.® The book as a whole

conveyed the impression that nothing — or at most little — the Government

did had merit and was almost oblivious to the international and internal forces acting on that Government which would have forced extensive public policy changes from the authorities at some point. The same goes for other general studies.’ For much of the early part of the 1984-92 period the great majority of the intelligentsia was in shocked silence at the economic policy changes. Since 1987 gradually they have begun to analyse the changes, to try to find patterns and sense in them. But even in analysis of the high quality of Jonathan Boston’s various

books" there has been a subsisting tone of personal and moral offence at the changes. This is explicitly the case with Boston’s latest anthology, assembled as a response to the National Government's extension of privatisation in 1990-91." The tone and much of the substance of the writing appeared to be tinged with a belief that prosperity consensus economic aims and outcomes were inviolate and any departure from them a heresy. As late as August 1992 Mulgan could write of the policy initiatives as if they had transgressed some fundamental law of human decency, not just in their departure from apparent pre-election prom-

ises but in their substance.!* Many critics wrote from narrow perspectives, neglecting empirical evidence from fields outside their own. Professor Ian Shirley’s social commentaries are an example." As a result attempts at a detached empirical understanding and analysis of the whole picture have often attracted name-calling, not intelligent scrutiny from the liberal establishment.

285

New Territory

The consequence has been that the actuality and in turn the validity of the emerging economic policy settings have been by implication denied — both by most ordinary New Zealanders and by most of the people to whom they might turn for guidance as to what sense they might make of them. This might be helpful if such denial was likely to reverse the changes and reinstall the pre-1984

| policy settings. Since it will not, the denial has limited the relevance and so usefulness of the intelligentsia’s contribution to analysis of the new settings in their own right and left the relevant analysis largely in the hands of acolytes and beneficiaries of the new settings. The latter have often been just as narrow as their liberal social democratic opponents, focusing on economics to the exclusion of important evidence of social damage and often arguing for extreme privatisation policies which have paid as little attention to the real world of social and individual human life as the socially driven arguments of the liberal social democrats did to the harsh economic realities. This failure of the intelligentsia to engage in practical debate has left ordinary New Zealanders, hurt and upset by the changes, largely bereft of guidance toward a critical accommodation to the new settings: they have been left largely with political rhetoric. So they have not been readily able to give leads to their politicians on how best to modify and adjust those settings in a way that will make the rooms in this radically reconstructed house more liveable. As a result the politicians, themselves feeling lonely and misunderstood, ploughed on with their unchallenged or inadequately challenged programme, addressing the problems as they saw them and applying the solutions they thought were correct and hoping ordinary New Zealanders would eventually come to see that as in their best interests. The offence taken at the economic policy changes and the social policy shift they triggered seems to have coloured the response from liberal social democrats among the intelligentsia to initiatives that might be thought nearer to their inclinations — initiatives, that is, the origins of which can be traced back to the 1960s political preoccupations of the gimme generation: race, gender, peace, independence, social equalisation and the environment. There the intelligentsia has often focused on the part of the policy vessel that remains empty rather than the part that is filled. On Maori policy, for example, Jane Kelsey, in 1990 trenchantly attacked the Labour Government for not actually delivering much that was concrete as a result of its treaty initiatives: *... after six years there had been almost no tangible gains. ... behind the rhetoric Maori remained in essentially the same position they had been in since 1940.’ Greens complained in a similar vein and so did the peace movement.” Much of the social critique of the Labour Government by the intelligentsia was of the same ilk. It is not easy to find ready acknowledgment of the huge additions to

286

Time Out

social spending by the Labour Government. An exception, but one heralded with a piccolo rather than a trumpet, was Chris Rudd’s analysis of government spend-

ing in one of Boston’s books.'® Much of the hostile critique of economic and related policy similarly focused on the negatives, with little or no attention to the positives. Thus, someone agreeing with even the mildest and most practical questioning of spending on or the organisation of the welfare state or with the smallest corrective policy measure that could be invested with Chicago school overtones, was frequently deemed by defenders of the welfare state to subscribe to the whole disparate body of libertarian thought including extreme anarcho-capitalism and to be motivated by a desire to dismantle the whole welfare state. This had some

slight basis,’ but in general was nonsense, in that the great majority of people categorised in this way had only limited concerns and objectives, which they saw not as statements of philosophical position but technical corrections. This blindness to subtleties has not been a fault only of the liberal establishment. Extreme right critics of the economic and social policy changes, though happier to note the filled part of the vessel because they like it, have nevertheless also focused much of their critiques on the empty part: cut social spending more; sell the hospitals; drive through the total decentralisation of the schools; eliminate tariffs and/or anti-dumping measures; and so on. Most New Zealand-

ers, including these days most policymakers, now see this as tiresome excess. Worse, this habit on the part of both sides in the ‘debate’ has offered little guidance to ordinary New Zealanders. It has left them confused or annoyed. The empty vessel fixation is partly a matter of static versus dynamic analysis. Would Kelsey be so critical in 1992 as some Maori grievances begin to approach settlement? (Only if her gripe was the failure to transfer sovereignty to Maori, which in the reality of 1990 was romantic or doctrinaire twaddle, because politically unrealisable.) Kelsey's complaint that Maori were in the same position as they had been for 150 years ignored the fact that mechanisms were gradually being developed to address resource issues and were gradually being used. Little of the hostile economic critique assessed what would have happened

if the pre-1984 policies had stayed in place in the face of huge deficits and mounting debt. If, as was the case in 1984, a set of policy changes is designed to take one step backwards in order to take two new ones forward, it is inadequate to judge the process after the backward step. If external forces in fact mean that two steps will be taken backward before only one step is taken forward, the view through most of the process will be even more likely to be unfavourable. Two steps back has been the case. Decades of extracting a higher standard of living than the economy

287

New Territory

was capable of delivering were bound to lead at some point to a devaluation of that standard back to a point where it could be sustained over the long term. And if, as has been the case, that devaluation falls unevenly on different people at different times because it involves a devaluation of asset prices and some

(for example, houses) are stickier than others, a snapshot at any point is likely to show disturbing inequities. It will take years of resumed growth in the overall economy and the gradual resumption of improving living standards from the lower base before the snapshots become positive. The dynamic view, by contrast,

focuses on the potential longer-term outcomes from that rebased economic improvement. This is not to say that pointing out the pain and damage was wrong or even

out of place. The outrage by many commentators, especially those in the churches or social welfare groups who saw at first hand and had to deal with the misery the brutal adjustment process caused, was not only justified but necessary in any society that is not to disintegrate. But that does not help people get a better idea of where they are going. Pain is more bearable if there is a sense of purpose and context.

For example, in the late 1980s there was a great deal of disinvestment by manufacturers, some of it accompanied by reinvestment in Australia or other countries, as falling protection, both under CER with Australia and generally with the rest of the world, made some industries unviable in New Zealand and as a high dollar damaged those which could have been viable. Manufacturers ranted; alongside them a raft of commentators warned of imminent economic catastrophe. But by the early 1990s, when surviving businesses had improved their management and the business environment in which they were operating had improved, disinvestment had stopped and some new investment from abroad was beginning. Some of it was coming from companies rebalancing their Australasian production in favour of New Zealand. In one case a manufacturer of domestic appliances that had shifted some of its activities to Malaysia, claiming New Zealand conditions were impossible for manufacturers, shifted some of it back to New Zealand. Its forward investment programme announced in September 1992 had as much being spent in New Zealand as Malaysia.’ There is an obvious deterrent to taking a dynamic view. It is unprovable in advance. A static view is provable from the plain evidence. People out of work or in near-poverty or in fear are readily produceable in the court of public opinion. Their future selves as foreseen by the reformers, retrained, re-employed, with renewed confidence, are not. That is both for the obvious reason that they are in the future and for the equally obvious reason that their future selves might _ be the opposite: even worse off physically, economically, socially and spiritually. A positive dynamic view is also not disprovable in advance. Those expecting 288

Time Out

improvement can simply argue for more time for proof to emerge — and have done so for five years.

To come to a considered conclusion on the endproduct of the reforms requires complex examination of facts and trends, not a retreat into either a favourable or unfavourable ideology as many of the debaters on both sides have

done. Facts uncomfortable to either point of view have attracted ideological condemnation and name-calling much more readily than reasoned examination. Examples have been David Thomson's uncomfortable findings on welfare on one side and on the other union evidence of serious exploitation of vulnerable

workers by employers under the Employment Contracts Act. To state that the : welfare state could no longer be afforded in its entirety has called forth condemnations for wishing to grind the faces of the poor; to state that job and welfare cuts have caused serious, widespread and genuine distress has earned abuse for economic irresponsibility. There is a reverse dimension to the static/dynamic dislocation. Revolutionaries leap rather than walk: that often means several steps forward that may well be followed by a step back. So that the policy change is installed before it can be stalled, revolutionaries dispense with niceties. Logically, at the end, when there is no real prospect of the leap being reversed, there can be some rebalancing. The Matrimonial Property Act, a measure introduced by the third Labour Government and not part of the post-1984 revolution, offers a non-contentious analogy.

Attempts to get judges to be more generous to women in apportioning property after divorce failed. The law was changed to turn the judges’ starting point around. This greatly improved the results for women but caused some new inequities for men. Gradually over time court decisions rebalanced the outcome so that these inequities were reduced without reverting to the old system that was unfair to women. Something of the same now seems to be happening to the shift in the law on Maori resources claims. The presumption that Maori were

entitled to redress and compensation according to findings by the Treaty of Waitangi roused fears and some potential for inequities. It is now gradually being rebalanced to address those potential inequities, but without retreating to the previous position that was grossly inequitable to Maori. The Employment Contracts Act may prove in time to have a similar history to the Matrimonial Property Act: the economically stultifying effects of the former centralised wage bargaining system have been swept away, with devastating and inequitable effects for the livelihoods of many people. In due course, policymakers are likely to reinject into the law safeguards for the vulnerable. Something of the same is now beginning to happen to economic and social policy. Since 1989 the Labour Party has been seeking a revitalised philosophical base on which it can apply Labour principles to the changed economy. The National Party is reverting to

289

New Territory

pragmatic type. Both will involve a softening of the hard line of 1984-92. To take a snapshot of the policy position at the extreme point in the process

of change is interesting. But it does not help develop a sense of where the endpoint will be. The gradual rebalancing that has been under way for a couple of years has not been much recognised by the liberal establishment (nor the extreme right, which continues to clamour for more).

At the policymaking level a new broad consensus has developed. The economy will remain fairly open to the world and relatively little regulated within, with constraints on inflation and Government spending. New Zealand will remain independent, but will push ahead with economic integration with Australia. Policymakers will continue to acknowledge that there are two main races, not one. They will continue to be (imperfectly) sensitive to environmental issues. Policymaking is now in the post-revolutionary phase. The changes to the value-system made by the revolutionaries are now bedding into policy. To recap, New Zealanders are now expected to be more independent, more selfreliant and more outward-looking, more accepting of biculturalism and more tolerant of diversity. But the ordinary New Zealander, made breathless by the speed of change and bereft of guidance from the intelligentsia, is still left somewhere in the midst of the revolution. Ordinary New Zealanders have come some way across the divide from the old values to those being urged on them by policymakers. But they remain to a large extent disconnected from the policymakers. They are still taking time out. In what way will people and policymakers reconnect? That is the over-

riding issue for the 1990s. |

290

PART III

After the Revolution

17. New Territory

N” we have our independence what do we do with it? Revolutionaries are

not much good at constructing post-revolutionary societies. They have led us into a new territory, for which there are few and sketchy maps. We now have to find our way round, understand the features of this new territory, draw the maps, live here. After any revolution there are three main options. One is counter-revolution, the restoration of the old values, power structure and holders of power. The sec-

ond is the establishment of a new status quo around the new values, power structure and holders of power. The third is the collapse of the revolution into populism and probable disorder or into the hands of an autocrat (a Napoleon or a Stalin) if the new status quo is unsustainable. A fourth possibility, continuous revolution, has never been successfully attempted — Mao Ze Dong tried in China to revive revolutionary momentum, with catastrophic results. After New Zealand’s quiet revolution counter-revolution is unlikely. Too

much has changed both around and within New Zealand to permit it. The people are weary of change. So the future probably lies between the establishment of a new status quo (with continuing adjustments but no major change)

and its collapse into disorder and decay. The outcome cannot be predicted with certainty. The world around New Zealand is now very different from that of the prosperity consensus years. The European cultural supremacy of the past three centuries and particularly the past 150 years is under challenge from the east Asian ascendancy, as Japan and Korea consolidate and overseas Chinese invigorate other east Asian econo-

mies and societies and mainland Chinese drive their economic growth into double figures. The family-based social and economic systems and confucian conformity are proving more vital in the last years of the twentieth century than European individualism and nonconformity. New Zealand was an integral part of the European cultural stream. Few Chinese are New Zealanders. Geographical realities have been brought home. New Zealand is on the edge of the Asian region, the sphere of activity and influence of the Chinese. Economically and in migration, the Chinese are increasingly making themselves felt. 293

New Territory

New Zealand is also an archipelago of the Polynesian south Pacific. In population Auckland is the Polynesian capital of the world. New Zealand can no longer deny, or relegate to subsidiary status, its Polynesian culture. New Zealand has also been drawn into a close social and cultural relationship with Australia. Australian soap operas play on New Zealand television, New Zealand workers treat Australia as an extension of home, Auckland is to join the Sydney rugby league competition. The mutual antipathy of most of the twentieth century has been replaced by a friendly sibling rivalry. Differences are now spats rather than stand-offs. In a number of ways New Zealand, distinct and independent as it is, is now a superstate of Australasia. Economically, this is so. New Zealand goods enter Australia with no formal barriers and few services face barriers. Standards and professional qualifications are mutually respected. A precedent has been established in competition law for courts to hear evidence in cases under the other country’s jurisdiction. In the future development of the economic relationship, the emphasis is and will remain on removing barriers to a full single market, so that eventually there will be few more barriers across the Tasman than between Southland and Auckland. Over the remaining years of the century the tax, monetary and fiscal systems will become more closely similar. This growing proximity will over time mean that a growing number of the laws governing economic activity will be written in Canberra, with only partial input from Wellington. By the year 2000, the issues between the two countries will not be New Zealanders taking Australian jobs or living on the Australian dole, as they have been in 1992, but a single currency, a single tax system and harmonised budgets. This does not mean New Zealand will be absorbed into Australia. Socially, culturally and economically, it will most likely continue to be drawn closer into the Australian sphere. The two countries can be expected increasingly to co-or-

dinate their defence systems, their trade positions, their response to the challenges, threats and opportunities of Chinese Asia and their economic initiatives in the rest of the world, as they have progressively done since 1972 and particularly since 1984. But New Zealand will have a much more pronounced Polynesian cultural dimension than Australia, because of its indigenous Maori and its status as a south Pacific archipelago and as a second home for south Pacific Polynesian peoples. Culturally, in terms of race, New Zealand will remain distinct and different from Australia. The two will remain culturally distinct as between their European populations, too: New Zealand’s markedly different physical environment, gentle, temperate and fertile compared with harsh, hot and for the large part arid Australia, will continue to shape people differently.

New Zealand’s smallness will preserve its people from the brashness of 294

New Territory

Australians. It will probably be poorer, too, simply because Australia has a huge storehouse of minerals.

Short of the sort of economic catastrophe that forced independent but para-

lysingly indebted Newfoundland into the Canadian fold after the 1930s depression, New Zealand will not in the remaining years of the twentieth century, and is extremely unlikely even in the first quarter of next century to, give up its political independence. Australians who give only passing thought to the relationship with their smaller neighbour cannot see why New Zealand stays separated. New Zealanders, who give a lot of thought to what life would be like as part of the Australian federation, can’t see why they should join (unless to farm out New Zealand’s debt — but the recent experience of some states, particularly Victoria, might make that no longer a one-way street). That formal independence is now established. New Zealand has put an end to its colonial period in which it was first child to Britain then ward of state of Uncle Sam. Its writers, artists, musicians, film-makers and craftspeople are numerous and confident in their expression. New Zealand has emerged into young adulthood as a nation. As much as a small country beside a much larger neighbour can be, New Zealand is independent now. Independence does not equate to full sovereignty. Defence realities have always precluded that for New Zealand’s small population and long coastline and still do. In the late twentieth century, economic realities, too, deny full sovereignty. An internationalising and globalising world economy has limited even large countries’ sovereignty: the United States itself can no longer ride above international economic forces. Richard Nottage, Secretary of External Relations and Trade, put this succinctly in a recent speech: Production has become internationalised and so have its supporting networks of finance, telecommunications, transport and so on. This is reflected in growing regional and interregional integration. The powerful countries are good at some things, not so good at others. The relationships between them are complex, re-

flecting these different strengths and weaknesses. What has been called ‘multi-level interdependence’ goes on, not just among governments but increas-

ingly among non-governmental players such as multinational corporations, financial houses and lobby groups. There are now more principal actors on the international scene. There are also more issues of a transnational character, such

as global environmental problems, the drug traffic, nuclear and other weapons proliferation and migration. Cross-border flows are more difficult to control. Countries cannot manage in splendid isolation. They need to co-operate. And they are finding more fluid and open ways of doing so. In this respect, the United

295

New Territory | Nations and other multilateral organisations provide a framework. The rule of international law provides a cement.’

Those internationalising forces are increasingly determining New Zealand’s internal economic and social conditions and limiting its freedom of action to counter them in the interests of one social group or another. They are also pushing New Zealand increasingly into the east Asian sphere of economic influence. That is where the growth has been most dramatic in the 1980s and seems likely to remain strongest during the 1990s. New Zealand’s exports to east Asia, including Japan and Korea, now are around a third of the total and growing each year. New Zealand has no realistic choice, heading towards the twenty-first century, but to find ways of linking into the overseas Chinese networks. ‘That is a profound cultural shock and challenge. Our reflex interest is to join our north American blood brothers and sisters. In late 1992 Prime Minister Jim Bolger and Australian Prime Minister Paul Keating and Liberal leader John Hewson have all said they would like some arrangement with the developing Americas free trade area. This is not a new idea: free trade between the south-west and north-east Pacific was mooted in the mid1980s but dropped by the United States in favour of multilateral negotiations in Gatt and then the development of north American free trade. But it has been given a boost in the early 1990s by the problems in negotiating further worldwide liberalisations through the Gatt and by the speed with which the United States has begun to move to develop liberal trade arrangements on a bilateral or limited multilateral basis. A major study released in November 1992 advocates strenuous efforts by New Zealand (preferably in concert with Australia) to join or otherwise become attached to the North American Free Trade Agreement (Nafta) being concluded between Canada, Mexico and the United States.’

But there are difficulties in the way of our attaining such a convenient bolthole. One is that we — New Zealand and Australia — do not fit into an Americas trade bloc. Culturally, we have do not have a lot more in common with America from Mexico south than with east Asia. Second, there is little compel-

ling reason for the north American initiators of American free trade to bother with two small countries across the Pacific, except only as an additional base for dealing with east Asia. Though the United States has insisted Nafta must be open

to countries elsewhere in the Pacific, north America has been looking south through an expanding web of free trade relationships with a raft of countries that

with the right economic management have enormous potential and thus are likely to offer both enough opportunities and outlets for investment for development. Europe, likewise, has abundant opportunities and responsibilities in — and potential threats from — the underdeveloped economies to its east.

296

New Territory

The third possible hindrance to blood-ties diagonally across the Pacific is that membership of an American free trade area might upset east Asians, to our detriment in our largest market, if they thought we were turning our back on Asia. This does not loom large and in any case policymakers and analysts in Australia

and New Zealand insist any closer linkage with north America must not at all detract from the developing linkages with Asia. But it highlights our geographical split personality.

Thus, in the tripolar world now emerging — the informal but tightening trading network in Asia, currently led by Japan but with the Chinese poised to take over in the next 15-20 years, ‘Germany-in Europe’, as Nottage terms it, and the United States in the Americas’ — we are on the outer. If world trade continues to liberalise, even if only through outward-looking trading blocs, that is not an overwhelming issue. But if world trade liberalisation stalls and the three regions form into competitive and defensive trading blocs, our position would be parlous. Either way, however, it is the Chinese who are most likely in the longer term, next century, to scoop us up as informal adjuncts to the east Asian economic region. They have money to spare. And they have an interest. The underdeveloped economies in Latin America and east Europe are more than a potential siphon for north American and western European investment. They pose a longer-term competitive threat. During the 1980s Chile emerged as a competitor in a variety of products New Zealand exports: forest products, pipfruit, kiwifruit. Better organised and with vigorous investment, Argentina, Uruguay and Brazil could become similarly tougher competitors for our sorts of temperate primary products during the 1990s. During the following decade the same competition could come from the huge agricultural lands of eastern Europe, particularly the Ukraine, once issues of ownership and distribution are resolved and the environmental degradation stalled. Two of our big four markets for temperate primary products, north America and Europe, will logically

be more favourable to their near neighbours than to a part-European, partPolynesian, Asianising country at the bottom of the world. Competition will also

intensify in other current export destinations, such as the Middle East. Moreover, Africa might be our next primary products competitor, as countries emerge from the dead-end of development economics and one-party rule and look to rebuild their economies on indigenous strengths, part of which are pastoral primary products. Those international, cultural and economic realities tell us that the lambs-forcars economic base of the prosperity consensus is not an option. To do better than stand still economically — a state which caused serious social damage over the past half-decade — New Zealand will have to find investment and

297

New Territory

innovation that improves the diversity of and return from its products. The export volume increases due from newly maturing forests will mask this in the mid- to late 1990s. But sooner or later that mask, too, will be stripped away.

In the old world New Zealand was a farm to Britain. As a full citizen of the empire, this was a respected position. In the emergent Chinese world in which it must make its way, New Zealand is an alien and inferior society that through its indolence and wrong-headedness squandered its enormous advantages of space, climate and resources.* Now it is a source of resources and a provider of rest and recreation for a rising middle class of Japanese, Chinese and other Asians

who are already better off than ordinary New Zealanders and are bound to become much more so and be joined in that by an increasing number of their compatriots. In order to develop trade in those raw materials and in tourism, debt-ridden New Zealand has no real alternative to welcoming investment by those who will be buying them: the Chinese and in particular the overseas Chinese.

Though it is not inevitable, the logic of Chinese investment will be growing Chinese influence over the economy and, in time, a growing Chinese presence in New Zealand society. No small country can for long stand aside from the international tides. In the nineteenth century Aotearoa, at the end of the world, was not preserved from European colonialism by its isolation. During the 1980s, migration in some parts of the world began to grow to proportions that alarmed local populations — most notably the swarm of north African Arabs pouring

into Europe. Non-Europeans account for roughly one in every 10 births in Europe and Arabs account for one of every two births in Brussels, capital of Europe.’ If the 1980s stream of Chinese outmigration develops into a wave during the 1990s and early 2000s, New Zealand will be most unlikely to be excluded. It might be argued that Mexicans pour into the United States and Arabs into Europe to join a richer society (as Pacific islanders have into New Zealand) and that New Zealand in another decade or so will not be richer than countries from which the Chinese might come. Economically yes; but New Zealand is rich in space and tranquillity. And in east Asia, as incomes rise, those commodities are becoming increasingly attractive and sought after. These are long-term issues. In the shorter term there is the uncertainty of the tripolar world into which we are emerging. Some argue that is inherently unstable, others that it is likely to be stable for some time, partly because the blocs are likely to become more equal in economic power® and partly because of the heavy investment each has in the other and the other interdependencies mentioned by Nottage. Not only can small countries not act in isolation, fully sovereign. Neither any 298

New Territory

more can the greatest. That limits the likelihood of conflict among them into which New Zealand might be drawn and which would damage New Zealand economically. It is also likely to mitigate the impact if we are excluded in the formation of more formalised trading blocs. The new world (dis)order will for a time at least be likely to be relatively fluid and open, regardless of formal progress in trade liberalisation. Unless, that is, the world financial system snags. It was new financial technology, coupled with deregulation of finance and innovation in the industry, each interacting on the other but with technology paramount, that facilitated and drove the internationalisation and growing interdependency of the world economy in the 1970s and 1980s. But the Japanese banks and other financial institutions are in serious trouble in the wake of the collapse of the share and property booms there over the past two years. The United States is struggling with intractable deficits on its external account and its budget which are partly due to the floating of exchange rates. Europe in September 1992 went through a disturbing convulsion in its monetary system. Growth in Japan, Europe and the United States has been sluggish since the exceptionally long period of growth

(in part financed by debt which now has to be paid down) ended. The end of growth has so far not tipped into slump. But that cannot be ruled out. And even if slump is avoided, there is no easy path. New Zealand has breathing space. But it does not have resting space. Nottage says we ‘have many more guyropes on our tent than when the British or American relationships were our major supports. Though some of the guyropes are thinner, the greater number should give us improved stability.” But that means greatly increased effort to tend the guyropes because New Zealand is less important to other countries than they are to it. In east Asia, he warns, ‘we are losing market share’. New Zealand’s relationship with the United States ‘still needs work’. As for Europe, “we continue to struggle with the common agricultural policy’. Many of the developments noted above can be grouped under the heading: borderlessness. Information now flows across borders increasingly beyond con-

trol of national governments because the technology is becoming cheap. Repression and war are relayed instantly on television round the world. The fax kept Russian President Boris Yeltsin in touch with the west during his facedown of the attempted coup in the Soviet Union in August 1991 — a decade earlier the coup might well have succeeded. Cheapening travel shoots refugees not just

into neighbouring countries but round the world. The number applying for refugee status in New Zealand rose rapidly from 27 in 1987 to 1162 in 1991 (483 in the first half of 1992). Information flows also often carry ‘money’. It may now be impossible to

reimpose national monetary controls. We have, as financial adviser Frank 299

New Territory

Pearson says, a ‘fifth estate’ keeping watch on national economic policy. If taxes are pushed up much or if the Budget deficit is allowed to rise much (or just not brought down) or if debt rises again or if we revert to protectionist policies, the world can, and probably would, deal us instant harsh judgment. Withdrawal of short-term and equity investment could push interest rates up and the exchange rate up or down, plunging us into an awful new deflation and denying us funds for new productive investment. For the next few years at a minimum and maybe

for some time after that, we have very limited economic room to manoeuvre. That is not ideology. It is fact. In the 1990s this borderless world is becoming an uncertain and difficult place. For New Zealand, surrounded by instability and unpredictable change, what chance is there of internal stability?

| New Zealand society is under strain. Several deep divisions run through the once homogeneous population. Society has become and will become more heterogeneous. The most dramatic change has been the redivision of Maori and non-Maori. Maori recovery of confidence and assertion of their equal cultural ranking, and the policy response to that from 1984 on, have buried for at least this decade the idea of ‘one people’. There may be one nation, but there are two peoples

spread out along a continuum between two distinct cultural poles. New Zealand is now inescapably bicultural. That does not mean a sharp split. Many Maori are comfortable in European culture; some prefer it; and some pakeha choose to assert a tiny percentage of Maori blood in preference to their European. Increasing numbers of non-Maori take an active interest and part in Maori affairs. As the treaty issues reach settlement over the next decade, some observers expect a growing together again between Maori and non-Maori, even while maintaining distinct cultures. But

for a decade or so — and much longer than that if Maori remain mostly an educational, health and economic underclass and so not the full citizens article III of the Treaty of Waitangi envisages — the biculturalism that was demanded by Maori in the 1970s and worked into public policy in the 1980s will mark out two peoples, however much intertwined they are.

The country’s internal cultural change is not just an adjustment for nonMaori. Over the next 10 to 20 years Maori will face the difficult issue of the role of tribes within Maori culture. When the Labour Government announced proposals for widespread devolution to tribes of social services delivery, Maori Affairs Minister Koro Wetere answered the question as to how tribes would be able to identify to whom each was responsible with the comfortable statement that “each canoe knows its own’. But Maori now are likely to come from many canoes as

300

New Territory

a result of intermarriage between urban Maori, decultured in the 1950s and 1960s by the mass migrations to the cities. Resource issues, requiring tribes to agree on apportionment of various treaty settlements, will strain tribal distinctiveness and peaceability.

Migration has added and will go on adding a subtext to biculturalism. Pacific islanders are now in great enough numbers and have developed enough confidence to assert theirs as a resident culture. If, as suggested above, Chinese come in considerable numbers, that will add another dimension. Already resident Chinese are growing increasingly confident of their once-hidden culture. Other European cultures have a more accepted place. The total conformity demanded in the early years of the prosperity consen-

sus is gone. New Zealand then strictly controlled numbers of non-British migrants to preserve cultural homogeneity. Economic need for entrepreneurial investment and skilled workers has forced New Zealand to seek new migrants (the bulk of whom have been overseas Chinese, but now more are coming from Europe). Those pressures will remain, tempering periodic attempts to halt the inflow, especially of Asians. As the numbers grow it has become impossible to

demand conformity. A pointer is the United States: once its migrants were absorbed into an American ethic; now increasingly they bring their own with them. The United States, it is argued, may be the world’s first truly international country; in a small way, we seem highly likely to follow. With cultural diversity will inevitably come cultural antagonisms. Culturally, we are also more internationalised. Broadcast television, satellite television and travel have plugged New Zealanders into other cultures in a way that was impossible at the height of the prosperity consensus. The developing revolution in communications will free even modest-income households from the dictatorship of the broadcast channel programmers because wide choice will be available relatively cheaply. Minority cultures within New Zealand will be able to plug directly into their base cultures. One of the most interesting developments of 1992 has been the thrust by Turkey to reach and reinforce the culture of the Turkic peoples of the former Soviet Union. Turkey, since 1918 a shrunken shadow of its former imperial self, is again being taken seriously as a rising power by European policymakers who have on their plate a longstanding, and impolitely ignored, application from Turkey for entry to the European Community.

New Zealand will be more diverse culturally. Cultural homogeneity, a cornerstone of New Zealand’s prosperity consensus, is gone for our lifetimes.

That diversity also applies vertically. There is a three-way generational split. Power resides, not with the older generation, the prosperity consensus generation now in or approaching retirement, but with the middle generation, the 301

New Territory , | gimme generation, bunched in age between the early 40s and early 50s, and so likely to stay in charge for 15 years or more yet. Because of that, the broad policy consensus that has emerged in the early 1990s (about which more below) is likely to stick for a time. In that, the youngish people in charge now are reminiscent of the coming to power in the late 1940s and early 1950s at relatively young ages of many in the prosperity consensus generation, who were then able to set the tone for the country for 40 years.* However, there is not only a sharp division between the gimme generation and the prosperity consensus generation, but also one between the gimme generation and the one coming up behind it. This generation has grown to maturity amid uncertainty, economic retreat and insecurity, so its preoccupations are likely to be very different from those of the gimme generation. As the 1990s wear on the two are likely to clash. A rough divide might put the prosperity generation as reaching the age of 20 sometime from 1925 to 1950 (in times of depression and war), beginning to come to power in the late 1940s and holding power to the early 1980s. The gimme generation is much more narrowly based: coming to age 20 from around 1960 to around 1975, coming to power in the early to mid-1980s. Some of those who came to age 20 between 1950 and 1960 (in increasingly secure times) were of a similar mentality to the gimme generation, but most were subsumed into the ethos of the ruling prosperity generation. Likewise, some who came to age 20 between 1975 and 1985 were of a similar mind to and have lent support to the now ruling gimme generation. But the disorientation of the late 1980s, in sharp contrast to the calm and prosperity of the late 1950s and early 1960s, may well have forged much greater common cause between them and the next gen-

eration, those who have come to maturity after 1985 in times of turmoil, uncertainty and contracting economic fortunes. So, whereas the prosperity generation has a large buffer, the gimme generation is likely to have a much less

comfortable ride in power over the next 15 years. The prospect of long-term policy consensus is therefore limited.

New Zealand has also been split three ways on the income scale. The old order — a huge middle with commonly held values with a small rich segment on top and a small poor segment at the bottom, each outside that value-system — has gone, torn apart by privatisation. The middle has shrunk. A new rich, grown fat on the arbitrage opportunities of deregulation, particularly in the financial markets, has split off at one end, with a value-system heavily centred on individual opportunity and self-reliance. There is also a new stratum of comfortably off professionals dealing in informa-

tion in some form or another in both the public and private sector who have prospered (many tut-tutting all the while about the policy changes that delivered that prosperity to them). At the other end, the poor have grown dramatically

302

New Territory

in number, made that way by rising unemployment or by heavy cuts in real wages through changes in the nature of employment, with much more part-time

work and broken-shift work. They, too, have less to tie them to the values of the middle. In political terms, as noted in chapter 15, they may be forming a new voting base, with a common interest in a more friendly state. The middle is still the largest group. It is still the decider of elections. But it is smaller and it is less confident. Its jobs have become less secure and less wellpaying. Its assurance of education for its children, health care for its families and superannuation for its old age has diminished. For this middle, life has become less expansive, even as choice has got wider. Its members are responding now by saving more, cutting down debt where possible (which cuts demand for goods and services and slows domestic economic recovery). They are slowly, unhap-

pily and unsteadily adjusting to the values implicit in the emerging policy consensus among the major political parties and influential political groupings. They are gradually coming to know the limits of the state’s availability to them.

They have been forced to be a bit more individualistic than they would have chosen in insecure times. Unsystematic evidence from focus group research suggests they have become wary of politicians and the state. What is given, as farmers found in 1984, can be taken away. A new and cruel divide has appeared over the past 15 years, latent for 40 years before that but veiled by full employment: between those who pay taxes on low-

to-medium wages that do not much exceed welfare payments and neighbours who get welfare payments from those taxes. To the extent that people do move across that divide as they move in and out of work and to the extent that at the low end wages have fallen to a point not much, if at all, above the standard of living on benefits, there is common interest. But between those on steady, tax-

paying low-to-medium incomes and long-term state income beneficiaries common interest is limited to access to social services and does not easily encompass income maintenance. There is tension there. Social consensus across these fragmented groupings is unlikely. The best that can be expected over the next 10-15 years will be accommodation, an agreement on where the boundaries of agreement lie and on mechanisms to hold in check the disagreements.

The income stretching reflects the new economic realities. A large number of New Zealanders have few or no saleable skills. On the

international market they might be worth 50 cents a day. The state used to employ large numbers of them in state-owned enterprises and used to see others could get jobs by protecting manufacturers or subsidising farmers. Those jobs have disappeared in the restructuring. 303

New Territory

The squeeze on the middle has been more a result of the adjustment of national income to national earning power. Incomes had to be squeezed. Much of that impact has been through jobs disappearing and benefits being cut — that is, on those now in the bottom-income groups, cut off from the middle. A chunk of it has come out of the social wage (education, health) for the middle, who

have to pay a portion of the cost — that is, their taxes have gone up. More important has been the restructuring which has forced a halt on real wage growth

for the middle as cost structures have been brought more nearly into line with what world markets pay. The squeeze on the middle has been intensified by the improvement in conditions for the new rich and the information-peddling professionals. They are also the people who fit most easily into the new, internationalised, economy. They have international, saleable skills. They get world rates. They also run economic policy. They are therefore likely to ensure that the emerging policy consensus on economic policy is not derailed. That policy consensus has formed around the success of the economic restructuring. While the restructuring has contracted incomes and caused widespread social disruption, it has also rebased the economy more securely. Labour productivity has risen dramatically. Reliable measurements are hard

to come by and highly disputable, but a rough estimate puts the improvement around 30%, with some spectacular improvements in particular industries and firms. This has been particularly evident in the infrastructural industries — electricity generation, transport, telecommunications. Much of this is due to an improvement in management. This is also very hard to measure, but anecdotal evidence is of much better management of product development, a narrowing of product and service focus, better control of supply lines, higher quality control, better labour practice. In the best firms, where management has understood the value of working with rather than ordering around the workforce, improvements are often suggested by workers themselves.

In those firms, management is approaching ‘best international practice’. That means a New Zealand firm can compete with any other. New Zealand’s total cost factor advantage over Australia is 25%-30% overall and up to 50% in some businesses, only part of which is unit labour costs. Those are very positive signs, pointing towards prosperity for at least a sizable minority of New Zealanders. Coupled with low inflation, falling interest rates and a relatively stable cur-

rency, labour and management improvements have vastly improved export potential. PDL Holdings, an electrical goods and accessories manufacturer, bit-

terly opposed deregulation and began to shift its production offshore. In September its managing director Don Sollitt projected exports in the year to 31

March, 1993, to be 50% higher than in 1991-92. As with many companies, 304

New Territory

PDL’s exports are mainly to Australia, but, also as with many companies, it is increasingly finding it can sell to Asia, north America and Europe. New Zealand is diversifying to new markets. And it is diversifying to new products and services. The drag of uncompetitive industries and businesses, which are a cost on those that are competitive, is diminishing as the uncompetitive ones close or contract. The process is gradually gathering speed. This is an international strength. Richard Nottage, taking up Bryce Harland’s ‘on our own’ theme, argued that competitiveness makes us less ‘on our own’. ‘New is both “more on our own”, in the sense of less singular dependence and with greater general external vulnerability; and “less on our own” as a competitive, outward-looking economy with an enviable diversity of markets and as a constructive, practical player in the Asia/Pacific region and on the wider stage of the new world order.” But there are important caveats. As independent economist Len Bayliss tirelessly points out, productivity improvement is not a once-for-all thing. To hold its economic place, New Zealand has to improve productivity (not just of labour, but also of capital) as fast as its trading partners. Given the constraints on agricultural prices growing more slowly than those for manufacturing and services and the fact that agricultural commodities form still the biggest segment of our export earnings, with commodity (low-value) tourism close behind, that will be a very tall order. It will also continue to impose strains on an already strained population, even though managers and workforces seem to be adjusting to that demand for constant change. Farmers, by being necessarily much of the focus of economic policy — and of tax concessions and subsidies in the past (and future?) — have been, not New Zealand’s backbone, but its Achilles heel. Resources in the 1970s and early 1980s went into propping up a farming industry beleaguered by its duty of upholding uncompetitive manafacturing and so denying resources in that period to potentially more competitive industries. They have also been slow to move to a

more competitive reorganisation of their own industries. The orientation of policy, as Denis Hussey of the ACIL has pointed out,’ has been to maximise farm gate income for farmers, not maximise national return. So far, the authorities have shown no stomach for pushing a change of focus. In addition, to the extent that manufacturers and service industries increase

productivity through new investment, this may cut jobs rather than increase them. The jobs that are created are likely to require relatively high skill. And, given that the large pool of unemployed from whom workers might be found do not have skills of the sort needed and given that our education and training system has so far not found ways of skilling them appropriately,"' that pool is not likely to be emptied quickly, if at all. 305

New Territory

If consensus depends on a large middle, then that in turn depends on unemployed being restored to the middle through jobs. Modest growth of the sort being forecast is highly unlikely to deliver that.

Therein lies both an economic and a social issue. | Gareth Morgan of Infometrics has studied firms operating in the real economy. He has found they fall into three groups roughly equal in numbers they employ. One group has become internationally competitive. Managers in these companies have narrowed the range of products or services to those in which they can be internationally competitive. Better stock control, quality control and work management practices, involving getting alongside instead of just issuing orders to the workforce, have taken over from the simple cuts to worker numbers that was the early response to deregulation. A second group is getting by, ‘marking time’, in his words, lacking strategic direction. The third group is struggling, hanging on to vestiges of protection, eating up capital and, where there is competition from imports, losing ground. On present policies that group is likely to contract and its workforce with it.” The economic issue is to move as many firms into the first group as possible. But there are capital, skills and management capability constraints which mean there is a limit to how much of the economy can be brought up to full international competitiveness. In addition, among the smaller of the competitive companies (Tait Electronics is an example) there is a reluctance to bring in outside capital, which means growth is slower than it might otherwise be. One reason for that reluctance illustrates part of New Zealand’s growth problem: there is a shortage of domestic capital available which means ownership must go substantially or wholly overseas if those companies are to be capitalised. What is to be done if, as may be the case, large numbers are not readily, and perhaps not at all, skillable to the levels required for full international competitiveness. So far policymakers have not produced answers. Some expect ‘growth’

miraculously to soak up the unemployed, which it will not. Growth in nineteenth century England still left a large ‘reserve army of the unemployed’, to use Marx’s term. Large numbers of the unemployed are surplus middle managers, dumped by the introduction of new information technology and flattening of

management structures, for whom there is no job even in a highly growing economy. Some policymakers expect ‘education’ miraculously to produce an answer. But, without radical changes of attitude on the part of educators, including business managers, and, more important, on the part of parents, education will not do it. In any case, ‘education’ works slowly. And the current overemphasis on self-reliance rules out the sort of intervention that would be necessary to get the requisite change of attitudes. Most of those over 15 now who cannot

match international requirements may well be lost to the cause and there is 306

New Territory

little sign those under 15 will be turned round miraculously in the privatised - society. Perhaps, Morgan wonders, New Zealand needs a ‘sink’ for the non-competi-

tive workforce, similar to France’s agricultural ‘sink’ and Japan’s grossly inefficient distribution sector. Under the prosperity consensus, the railways and other state-owned enterprises, plus protected manufacturers, for example, car assemblers, provided such a ‘sink’. If so, we need to address that explicitly. If not, we will need to develop policies that ensure people are not dumped on the tip. The workforce competitiveness issue is obviously an economic question. It is also a social question. Social cohesion depends on the great majority of people feeling they belong in the society.

To find ways of restoring that cohesion requires a leap of intellect. The intellectual replacement for liberal social democracy, with its base assumption of rational self-maximising individuals operating in ‘markets’, leaves it up to individuals, acting autonomously and separately, to define society and leaves it up to individuals to make their way in that society and to express their desires and needs through ‘markets’ for services that will meet those desires and needs. Since no one can second-guess the individual’s self-interest better than the individual, authorities and other busybodies should not try. They will get it wrong for too many people too often. That is a seductive argument because it avoids the possibility of making wrong

pronouncements that damage other people. But it is inadequate. First, ‘markets’ do not exist in many areas. Markets require a high level of information for people to make rational decisions. In many areas that information does not exist. How does an individual decide what medical treatment is best for a disorder of even medium seriousness? Or the information is confusing. Short-term considerations may be very different from long-term ones; how does the individual choose? This is a serious problem for capital markets. The antics of the paper entrepreneurs have left ordinary individuals unable to tell what is safe and what is not. Can the institutions, who are in a position to know a great deal more, be trusted to be well enough informed to act on individuals’ behalf? Many invested in all

sorts of dogs in the 1980s. Phil Pryke, who was at the centre of much of the Government asset sales and other financial market plays during the late 1980s and early 1990s: “I would invest in New Zealand equities with an extremely cautious eye because the environment is insufficiently regulated to allow redress against the chicanery that goes on in such markets.’

Second, almost all markets operate imperfectly and some operate more imperfectly than others. Some of the intellectual argument for highly deregulated

307

New Territory | labour markets, for example, ignore the ‘stickiness’ of wages (not only workers are unwilling to lower wages; so are managers, often for non-economic reasons) and ignore other constraints. Theory says that if wages float freely down and up as market conditions determine, the labour market will ‘clear’ — that is, everyone will get a job because there will be a wage at which someone will find a use

for them. This ignores the logic that there is no point in working for a wage which is exceeded by the unemployment benefit or for a starvation wage. Third, people are not necessarily rational self-maximisers. There are all sorts

of other considerations that drive people other than their own narrow selfinterest. Fourth, people may, and usually do, have an interest in others’ welfare that may cause them not to maximise their own. David Caygill argues for keeping

hospitals and schools in public ownership partly on the grounds that ‘I think that at the end of the day health and education are intrinsically public functions, because there is an element of public good. I have an interest in the health of

those around me and not just my own health, just as I have an interest in the level of education as a whole and not just in my own education or that of my children, which is not the case with most goods and many services.’” Extending this concept, people generally have an interest in the great majority

of people around them feeling they belong to the society they themselves live in. That reduces crime and other strife. They therefore want some sort of policy response to divisions in society that reduce divisions. The reaction of even ‘redneck’ New Zealanders to the Maori fish deal announced in September 1992, which involved $150 million of taxpayers’ money being laid out to ‘give’ fish to Maori ‘free’, was not angry opposition, but a sort of grudging acceptance. The street marches, sit-ins and rugby tour riots are not joys even to ‘rednecks’. The $150 million diminished a division. Fifth, people have an expectation that a national policy will be developed that binds society together. This is not a socialist position. Quite the opposite. It is a ‘conservative’ view, in the Tory sense. In New Zealand politics, this is most coherently argued by Simon Upton, who has explicitly rejected the libertarian

view for one of searching out the ‘social contract’ in New Zealand — that is, what binds New Zealanders together. As Minister of Health, for example, he has come round to a view that the great majority of funding must be by the state, because hospital services are ‘close to the core of what people expect of the state’

and that expectation goes back a long way. “The expectation is, for whatever reason, that we want to maintain control — and that’s not just purchase control, it is ownership control... . The public don’t want to leave [hospital care] to the risks and uncertainties of private ownership.’ In an interview in 1990 he outlined this contract, as built up in 50 years of developing the welfare state: 308

New Territory

‘The notion of a universal pension on which you can build is a very widely held artefact of the political will. Equally, the view that nobody should be disadvantaged because of the [lack of] wealth of their parents is a very deeply held view. There is a widely held view that — it is an egalitarian view, which runs very deep in New Zealand — that the education system should provide the same chances for everybody, that we have universal, free provision of education and I don’t think anybody’s arguing with that. In those non-contentious areas, where there is no moral hazard — universal payments and/or universal provision starts to make sense.’! The problem with the libertarian approach is that it offers no guidance on how to bind society and people want to be bound. It is in the end impractical because no society will accept it. It is also, while often elegant, deeply unsatis-

fying intellectually. ,

The problem is now to find a replacement. If there is to be a policy consen-

sus that endures over the long term, there will at some point need to be an enduring intellectual basis for it. As was indicated in chapter 15, there is no convincing intellectual basis yet on offer. Eco-socialism is still at the stage of an uneasy courtship of two quite different ideas. Greens are divided. Tory social contract offers little more than agreement that what is should continue. What appears likely to be needed is some degree of socialisation of libertarianism, in the same way that social democracy was liberalised to the point of respectability during the first half of the century.

Nevertheless, there is emerging a broad if still fragile policy consensus among major political groupings. And, in the absence of world economic disorder, it looks likely to endure through much and perhaps all of this decade. There is a new status quo. The high tide of libertarian influence in economic and social policy in New Zealand was reached in 1991. Privatisation stopped then, though some policy initiatives announced then (most notably in housing and health) were still working through into practice in 1992, health policy implementation will continue into 1993 and there will probably continue to be a gradual, every low-key privatisation of social services along the lines indicated in chapter 14. There are also some asset sales to come. There may also be some meteors spun off the privatisation planet that have still to come to earth. Since 1991, however, policymakers have been groping towards a durable rebalancing of policy. The hospitals will not be sold, though there may be some scope for more private hospitals. The schools will be not be sold, though there is great scope for choice for parents and so a degree of privatisation. A degree of central direction has been reimposed on the core state sector.

| 309

New Territory | The next Labour, or left, Government will restore some of the unions’ lost role, but within a still relatively deregulated system. The state will return as guarantor and enforcer of minimum wages and conditions. Both major parties are feeling their way towards the appropriate level and kind of state assistance for business. Overall, Labour is struggling, with some success (though at some cost to its philosophical ancestry), towards a new social democracy which takes account of the points at which the welfare state failed and also the impact on the still critical middle of the electorate of the libertarian splurge and greater economic and

cultural openness to the outside world has left. Any reek of paternalism is the kiss of death these days. National is struggling back to conservative management

of the status quo — when it can get the status quo to lie still. So there is now emerging something of a policy consensus between the major parties. This is not in the form of absolute agreement on individual policies, but agreement as to where the boundaries to policy debate lie. These boundaries are much more widely drawn than during the prosperity consensus, but they are recognisable. For much of the past eight years there have been no, or at best extremely vague, boundaries.

In international policy, there is now widespread and, it appears, enduring agreement within the two parties that New Zealand should ensure nuclear weapons do not enter its airspace or waters and are not stationed on its land. This heavily moderates the difference of enthusiasm between the two parties for a dependent alliance of the sort that Anzus used to furnish. In fact, the National Government has repudiated the idea of a return to a client relationship and seems content to let the matter of a resumption of ship visits, now dependent only on

ships not being nuclear-propelled, lie in an experts committee on safety. Both major parties agree that collective security, preferably through the United Nations but, if not, through groupings of nations rather than rigid alliances, is our best option for the next decade or two. There is no great difference in attitude between the two parties on our defence and economic relationship with Australia, nor in paying special attention to the South Pacific as of unique relevance to New Zealand, nor in the development of economic and political links with east Asia. Labour tends to be more sympathetic to African aspirations, but the collapse of apartheid diminishes that as a divisive issue. The differences on international policy are now arguably smaller than at any time since the Vietnam war and the bipartisanship that war brought to an end may well be about to re-emerge. As then, however, much depends on the strategic relationship, if any, that is developed with the United States.

In policy on Treaty of Waitangi issues, those to do with the resources and 310

New Territory

power relationship between Maori and pakeha, both parties agree that: — the Treaty of Waitangi is the founding document of the New Zealand polity, under which sovereignty passed to the Crown but without which such sovereignty would not have passed

— the treaty imposed obligations on the Crown not to disturb chiefly authority over tribal affairs insofar as they were not incompatible with the exercise of sovereignty by the Crown — the treaty also imposed obligations on the Crown to enable Maori to become full citizens of New Zealand, by which is understood fully participating in the education system and the economy — grievances between tribes and the Crown over land and other resources and over the exercise of power should be heard fully and settled in a manner that is broadly acceptable to and accepted by Maori — the appropriate forum for establishing the facts and evidence of claims is the Waitangi Tribunal but final settlements are a matter for direct negotiation between the Cabinet and individual tribes or, where relevant (as with the fish deal in September 1992), between the Crown and Maori generally, subject to the signatures of individual tribes; further, that this round will be the final settlement of such issues — the treaty obliges the Crown to be sensitive to Maori cultural values in all

aspects of its administration, including health, education, welfare, housing, administration of the law and the conduct of departmental business — there is a limit to the sharing of resources and power and to the degree to which adjustments can be made to government practice and those limits are in practice set by the overall political majority on a one-person-one-vote principle, not as between two racial entities; for example, separate legal systems are unacceptable, though there is room for some innovation in sentencing and treatment of criminal offenders. In economic policy there is now broad agreement thar: — markets are the principal determinant of prices and supply of and demand for goods, services and money and by and large governments should intervene in markets only to ensure fair play and to correct market ‘failure’, not to make or override the market in determining prices, supply and demand

— New Zealand cannot insulate itself from world economic conditions; businesses must be competitive with similar businesses in other countries and we should concentrate on those businesses at which we are most competitive (and which generate good returns); that requires constant adjustments to policy and

performance at the level of the firm just to maintain parity with a constantly changing world — the new status quo is not a resting place and an end to change, but a psychology of flexibility and adaptation as circumstances change 311

New Territory | — inflation is undesirable (because, in National’s case, it makes business less

competitive and, in Labour's case, it is a tax on the poor) and an independent Reserve Bank is the appropriate controlling authority, within general policy parameters set by the Cabinet — the interdependence of economies, which intensified in the 1970s and 1980s, means key financial variables — the exchange rate and interest rates — must find their own level, within parameters determined by inflation policy — over time, the Government’s Budget should balance, or at least not add to Government or national debt as a percentage of gross domestic product; there is disagreement between Labour and National on whether that means government spending should be cut as a percentage of gross domestic product — there is no compelling reason for governments to be involved in businesses where there is adequate private sector activity to carry out that business reason-

ably competitively and that by and large such businesses should be sold; but where a state enterprise is a monopoly or where there is a social dimension (as in assurance of electricity supply and postal services), continued state ownership may be preferred to other mechanisms for ensuring the social dimension is observed

— governments do not have a role in directly subsidising private (or com-

mercially-oriented state-owned) business, especially in internationally uncompetitive businesses; but governments do have a role in facilitating the development of viable businesses through indirect means (the means, however, are a matter of considerable debate) — governments may have a role (this is a recent development — or redevelopment) in smoothing out business recessions or at least not acting procyclically to drive an economy further into recession than it would otherwise go; but they

should not attempt to deny long-term trends and especially should not try to compensate their citizens for international events that are beyond the ability of the nation as a whole to influence (for example, oil price shocks or a secular decline in the terms of trade) — governments should operate efficiently, getting the most from scarce resources, should constantly re-examine what they are doing and the way they are doing it; the structure and decision-making procedures of the public sector are, however, still a matter of debate. The debate on economic policy has become less ideological and more prag-

matic as the issues in dispute have changed in nature from those of radical restructuring to those of improving the workability of the new arrangements, as the National Party’s instinct for ‘private’, as distinct from ‘free’, enterprise reasserts itself as a determinant of policy (and so begins again to make claims on the state, to which vote-fearing National Governments will respond), as there

312

New Territory

is, in common with governments elsewhere, a resurgence of interest in the appropriate positive role for the state in business and the economy at both the micro and macro levels and as outcomes (whether because of or despite the measures taken) have begun to indicate that there is a basis for economic growth. The upshot is not unfettered free markets, much as socialists like to paint it so. The economic policy consensus that is emerging is for a much greater reli-

ance on markets as a mechanism for allocating resources and distributing outcomes, but, after the rebalancing has worked through by the mid-1990s, a fair lashing of state intervention. This is still the mixed economy; only the mix has changed. In social policy there are still substantial disagreements, principally on the role of the state in funding and delivering social services. The Labour Party remains

highly suspicious of or outright opposed to private funding (including usercharges) and delivery. The National Party takes a more permissive view of both. This will be a dividing line in the 1993 election. There is also a sharp division on the role of the state in labour relations. The National Party sees labour as a factor cost of business and sees unions as the enemy of individualism, both among workers themselves (forced to bow to ‘solidarity’) and in ‘private’ enterprise. The Labour Party sees labour issues as related directly to the wellbeing, or welfare, of people who make their living through wages and therefore as a social as much as an economic issue. Logically, the National Party wants a minimal role for the state except to defend businesses from coercive union power, while the Labour Party wants an interventionist role for the state to ensure workers’ organisations can negotiate acceptable wages and conditions. This, too, will be a dividing line in the 1993 election. These dividing lines, however, are becoming less sharp. Labour does not propose to restore the compulsory unionism and compulsory awards of the 1894 prescription. It does not propose to move far beyond restoring the right to require an employer to bargain with duly appointed work-

ers’ representatives, which most employers would be happy to accept as a trade-off against rules to contain within recognised bargaining frameworks upward pressure on wages that will accompany economic recovery. The other major difference, which will also not upset employers unduly, is, as noted above, to reintroduce state monitoring and enforcement of strengthened minimum wages and conditions. In any case, unions have for some years taken the view that jobs are more important than wages and conditions and if more flexible labour conditions start generating more jobs, as appears likely in 1993, the pressure for wholesale change to the existing system will diminish. As noted above, National is not going to sell hospitals and schools. Delivery in those areas will remain in state hands, though with some additional scope for 313

New Territory | non-state delivery (which Labour may reject). Conversely, the Labour Government itself was moving towards acceptance of a degree of privatisation of the public health system through contracting out management of wards or facilities. Both parties are concerned to obtain managerial efficiencies (in order to make the health and education systems more affordable and/or to get more from existing scarce resources); and both are concerned to maintain universal access and quality outputs from the systems. Note also that it was the Labour Government, which, under a Minister of Health who came originally from the party’s left, first applied the lessons of ‘moral hazard’ to social services, with charges, for exam-

ple, for prescriptions and which, under Ministers of Education who came originally from the party’s left, first imposed fees on tertiary students. The Labour Party is not proposing to restore benefit and superannuation cuts. While it would be more generous in office, it would be so around the new marker set after the 1990 cuts. National likewise is settling; the pursuit of state spending cuts for the sake of cuts (getting spending down as a percentage of gross domestic product) has now ended, though we can expect a lot of rhetoric yet. In other words, though there are important differences in social policy, they will by 1993 be of similar dimensions to the differences that existed between Labour and National during the 1960s, even if the dividing points have shifted. The greatest difference may turn out to be in housing, where there is a sharp difference in the degree to which the state should actually supply the accommo-

dation, as distinct from supplying the money to pay the rent. In this, the difference between the two parties is the same in substance as it was in the 1950s and 1960s, when National sold state houses to tenants over Labour objections; but it is greater in degree. Just as New Zealand’s welfare state was paralleled throughout the world in countries of our type, so the privatisation of its economic and social policy has been

paralleled — this time on a much wider scale. Market-economics is now the benchmark, not in terms of actual free markets but in a preference for markets over state planning as the appropriate mechanism to allocate resources and in a preference for less regulation. To varying degrees almost all governments are reducing regulation. This goes for the great socialist dictatorship, China, as for the great socialist democracy, India, for south America, a large part of east Asia, for the former Soviet empire and for parts of Africa. Though there will be some retreat from extremes of market passion in Britain, in parts of the Americas and in central and eastern Europe, privatisation has been a worldwide phenomenon. That has been accompanied, less pervasively, by political pluralism. Most of central Europe is now well on the way to durable democracy (the former Soviet empire is a different story). In east Asia Taiwan and Korea have inched towards

314

New Territory

freer systems, Thailand now has a constitution requiring a directly elected civilian prime minister after a discredited military coup, the Philippines remains democratic and in semi-democratic Malaysia and relatively benignly dictatorial Indonesia there has been a slight loosening of autocratic reins. Mongolia has

adopted a democratic structure. It is not far-fetched to think of Hong Kong influencing China’s political system in the time leading up to its reabsorption within China in 1997. In the Americas Chile, Brazil, Argentina, Panama, Salvador and Nicaragua installed more democratic regimes. South Africa began to talk to its blacks and several black African regimes began to contemplate multiparty political systems. This pluralisation far outweighed retreats in the other direction. The main anti-democratic stream was towards islamic states, but that has been limited and in any case can apply only in majority islamic countries.

So New Zealand’s policy consensus is in the mainstream of world policy

thinking and positioning. There are variations of detail, but not of core substance. From this some have taken the view that capitalism is now triumphant. Its onward march was interrupted by the First World War and the Russian revolution, which diverted a whole region and led many developing countries down a blind alley to impoverishment, this view has it. Now that these diversions have spent themselves some 4 billion people have been released to ‘re-enter the world marketplace’ in a ‘golden age of capitalism’.’® Maybe. But an equally plausible view is that capitalism has had its golden age and since the early 1970s has been in crisis. Eric Hobsbawm, a British commen-

tator of the left who acknowledges that “communist systems . . . from the end of the 1950s on, revealed their increasing inferiority to western market economies’, notes, with some force, that “capitalism once again has mass unemployment, poverty and even hunger and homelessness amid the wealth of even very rich countries. It has static or even declining incomes and serious depres-

sions ... what confronts the ruins of the eastern socialist economies today is not | a triumphant capitalism but a global capitalist economy in trouble and recognising it is in trouble.’"” New Zealanders, from their experience since the early 1970s, have little trouble joining in that recognition. The advance of political pluralism and the market idea in economics has also encouraged a brief and rather silly bout of “endism’, an end-state doctrine dreamt up by Francis Fukuyama, a former United States State Department official, in 1990. Evoking Georg Hegel’s end-of-history philosophy of the early nineteenth century which heavily influenced Karl Marx’s predictions of the withering of the

state into communist utopia, Fukuyama argued in 1990 that we are at ‘the end of history as such: that is, the end point of mankind’s ideological evolution

and universalisation of western liberal democracy as the final form of 315

New Territory

human government." Eco-socialists and greens would disagree. There is much ideological debate ahead yet. Fukuyama has been softening his thesis since he first propounded it. In New Zealand that is demonstrated by the NewLabour Party’s reheated social democracy and the Greens’ multiple searches for a new ‘paradigm’. Neither, however, are likely greatly to disturb the emerging policy consensus between the major parties.

Together as an Alliance, NewLabour and the Greens have attracted a great deal of protest support in public opinion polls. There is a school of thought, notable within it the socialist thinker Claus Offe, that argues that reformed socialism and green ideology are close to each other in their joint concern for economic and social justice, their abhorrence of unregulated capitalism, their strong desire for peace and the increasing appeal of eco-socialism. That certainly provides a strong binding point in the Alliance in New Zealand. But there is also

much that drives them apart. NewLabour’s heavy reliance on the state and desire for economic growth are poles away from the decentralised, communitybased ideology of the Greens and their distrust of economic growth.” But, as noted in chapter 15, the Greens are hampered by their organisational naivety, smallness and weakness and by the indistinctness and, to most voters, impracticality, of their ideology. They offer at this point, and probably for a good 10 years yet at least, neither strong voter appeal, nor a strong intellectual counterweight to the policy consensus. Likewise, NewLabour is stranded on the other side of the new/old divide, promising extensive renationalisation and reregulation that no longer appeals widely to the electoral middle and suffers from the intellectual damage done to the central case by the difficulty of making and keeping regulation workable and not ending up with distortions piled on distortions. Regulations distort activity; that is what they are intended to do. Over time people develop methods for getting round the regulation, which leads to more regulations, which leads to more distortion and so on. It takes a very skilful regulator to avoid the trap of multiple distortion, lifestyles for ordinary people far different from that which they would choose, left to themselves, and a diversion of energy into beating regulation. That skill was not in evidence during the 1970s and 1980s. To say that large numbers of New Zealanders, almost certainly a majority, are angry at the outcomes for them of the quiet revolution and would still rather

have the economic security they individually had in the 1970s is true. Most would also rather have back the monocultural society of the prosperity consensus and do not agree the treaty is the nation’s cornerstone document. It is also true that the impoverishment of large numbers of New Zealanders and the

316

New Territory

tightening conditions on much of the middle have created conditions in which a modified social democracy has some appeal. But it does not automatically, or at all, follow that they want to return to the policy environment of the 1970s

nor the upheaval that would be necessary to reintroduce it. Too much has changed. There is now only a forward option and NewLabour is unconvincing as a forward option. For a time, a portion of the left, some of whom were in the NewLabour Party, looked to a “third way’ as a forward option. This was a path that was neither communism nor capitalism but took elements from both: workers’ control in enterprises, a concept of property which was ‘social’ rather than state or private, and a Gramscian view of self-managing civil society — as well as a commitment to ‘bourgeois’ liberties such as political pluralism and parliamentary democracy’.”

The collapse of the communist regimes of central Europe, where the third way

emerged among dissident reforming communists, swept the third way off the agenda. No ‘third way’ is on offer in New Zealand.

All this points toward the gradual bedding of a new status quo during the next half-decade or so. But there remains the possibility of counter-revolution. If economic conditions deteriorate instead of improving, and especially if they deteriorate sharply, anything is possible. And the uncertainty in the world financial system holds that possibility open. In addition, there are huge disparities in wealth between the 30-odd richer nations and the rest. People in the 26 nations of the OECD, with less than 20% of the world’s population, have per capita incomes more than 50 times those of half the world’s population. This is a very unstable situation. If there is not at some point a start on equalisation, economic mayhem may result. There is some sign the internationalising forces in the world economy are pushing production to low-income countries — China, obviously, Bangladesh, Indonesia — to make use of cheap labour. But, if so, will it be fast enough to avert disaster? New Zealand is a ping-pong ball on a very choppy international sea. It could be swamped any time. The counter-revolution would most likely take the form of populism. For that

to happen, a populist movement would need to develop. To a small extent NewLabour leader Jim Anderton’s appeal (though not his party’s) is populist. Much more populist is Winston Peters, the renegade National MP who has consistently opposed the deregulatory economics of the past eight years and spoken for the ‘forgotten people’, whom he counts, probably correctly, in the hundreds of thousands. Most of these are in the shrunken middle of society. At the moment they are held back from gathering round Peters by a residual

317

New Territory | respect for the tradition of New Zealand political methods, by the promise of an improving economy and by the simple fact that he has been unavailable in a form in which they could gather round him. But a populist movement could readily form round Peters — or, possibly, Anderton — if international economic contraction forced a new round of hardship on middle New Zealand. Whether Peters has the steel to organise and control a populist political move-

ment is highly debatable. Most likely, a movement he started would splinter within a few years. Anderton has the steel, but is a less likely gathering point than

Peters and in any case is less of a populist and might therefore founder on trying to be too doctrinaire — too NewLabour-ish. No one else is an obvious candidate. But circumstances have a habit of throwing up the person. It would not be pretty. Populism has an awful habit of turning into authoritarianism. The south American examples, notably Peronism in Argentina, is not an inviting option. The collapse of the extra-democratic Jacobinist movement into the arms of Napoleon mobilised the masses to glory and then to destruction. Populism in the end does not treat the people well. And in any case, the odds are such a counter-revolution will not happen. The international economy is in difficulty but the gloomy Hobsbawm himself sees some basis for optimism in that the quarter-century-long Kondratiev wave of crisis and calm observed in history is emerging from crisis, which suggests there may be an economic upswing during the 1990s.”" More convincing than that

statistical point is that the world economy, despite the disparities in wealth between rich and poor, is much more diversely spread these days than, for example, in the 1930s, not dependent to any great extent on any one country or region. It is therefore better able to spread the strain and survive it. Crises of capitalism have been divined (by Karl Marx, among others, scenting impending socialist utopia) and ridden out before. A catastrophic international economic upheaval of 1930s dimensions should not be ruled out, but the better guess is that it will not happen — ar least, not during the 1990s. From all of the above, therefore, it appears more likely than not that the policy consensus emerging between National and Labour will stick and that over time New Zealanders will to some extent accommodate to it. That will depend, not on theory, but on factual outcomes. The liberal social democratic intelligentsia may well have a point to prove far into the 1990s, regardless of any policy rebalancing, that the 1980s were a wrong turning. Systems of thought are as jealously guarded as any other highly personal possessions. But the ordinary New Zealander is interested in facts, not theory. Occupation of, acclimatisation to and cultivation of the new territory they now

318 |

New Territory

find themselves in will depend on whether by the mid-1990s there is clearly a sounder basis to the economy than in the mid-1980s and there is modest growth on that sounder basis, whether there is more assured access to health treatment, whether Maori, their grievances at least addressed if not fully compensated, begin to reverse the terrible trend in education, economic, health and crime sta-

tistics of the 1970s and 1980s — in other words, whether overall welfare stabilises and begins to improve. The odds are it will. That does not make the policy settings ‘right’. That judgment can be made only according to personalised beliefs and values. Many of the values implicit in the new policy settings are abhorrent to many people and different values are abhorrent to different people. It just makes them a fact. But is that enough? New Zealand has gone through the wrench of attaining independence. It has made considerable progress on accommodation between its two dominant races. It has gone through most of the economic adjustment forced on it by external events and its own misjudgments and has the prospect of reasonable economic growth ahead. It has come through a readjustment in the role of the state and its responsibilities to and performance on behalf of individuals. There is a broad and narrowing policy consensus between the two main political parties which

will continue to dominate policy for a time yet. The revolution is behind us. Counter-revolution is unlikely. We have a new status quo. There is not, however, anything like the powerful cohering force of the prosperity consensus. New Zealand society is fragmented, not unified. There may be policy consensus, but there is not social consensus. There is some way to go yet if the new status quo is to bed in.

319

18. Making a Home

Ws you find yourself in new, unfamiliar, unmapped territory you have two choices. You can camp there, all the while wishing you were some-

where else. Or you can try to make a home there: cultivate it, populate it, understand its climates, adjust to its features, make them familiar. In common with much of the world, New Zealand has gone through an economic and social convulsion in the past decade. New Zealand’s has been less severe than in some countries, for example, those that were part of the Soviet empire, and more severe than in many, because New Zealand has also been emerging into independence, with the strains of nationhood and racial and social adjustment that go with that. A small stratum of New Zealand society has emerged from this convulsion with its welfare — physical, economic, social and spiritual — enhanced. Most New Zealanders’ welfare — in part because of the impact of that world convulsion, in part because of the particular conditions that applied and the particular choices that were made here — has dropped on most counts. Those are features of the new territory. From the national, as distinct from the individual, perspective, there are positives. The economy is now on a firmer, if lower, base. As a result, so are state services. Real progress has been made towards racial accommodation. There is more sense about the physical environment. There is more national confidence

and expression. Those, too, are features of the new territory. | A language is needed if we are to fashion society here where we find ourselves.

The old language is worn out. Some see the international convulsion in which we got caught up as a crisis of socialism — the collapse of the communist economies — or of social democracy and its creation, the welfare state. Some see it as another of the periodic crises of capitalism, this one as fierce as any because of the global implications of income disparities in an increasingly borderless world and the strains on the physical environment. That diametrical disagreement may mean not that one is right and the other wrong, but that both are missing the point because the perspective and the language is wrong, It is easy to agree with Eric Hobsbawm that there is a crisis of ideologies. There is thus a search for a new paradigm to replace capitalism, a new way of explaining ourselves to ourselves so that we can live more easily. Economic libertarians say they have found it in capitalism itself, in the autonomy of the

Making a Home

individual, but this is an idea that too little recognises human sociability. Socialists have explored the possibilities of devolved and ecological socialism, fostering small societies rather than state monoliths. Greens claim to have the new para-

digm in a concern to reconnect people to nature, but their claim is snared in internal disagreements. Part of the difficulty is that nations, and the societies within them, have less autonomy. The borderless world of increasingly free flows of information and, with it, money, means societies are increasingly forced into contact with each other. This intensifies any tendencies within a society to fragmentation, makes it more difficult for those, like ours, that have been under strain, to cohere. And for the time being we cannot shutter ourselves from this borderless world. Technology, which has largely created that borderlessness, may in time yield to national or regional authorities the means to re-erect borders against information and money flows. But for the next 10 years or so, it is more logical to expect that we will have to make our home in this new territory — borderless, open, without defences. The language of most of the policy change in response to the predicament of the 1980s is not much help in that. Most of that language has been negative. ! It was about removing shackles, obstacles and barriers, rather than about freedom. It was about diminishing dependency (whether on the state or on other countries) rather than about developing independence. It was about cuts rather than construction, eliminating deficits rather than building surpluses. The great policy changes — in environment policy, in the constitution, in developing a sense of independent nationhood, in Maori policy, in economic policy and in social change — were not in pursuit of some plan or vision or unifying idea or even a sense of a nation. They came about as offshoots, or accidents, of what their generators thought were going to be practical repairs. The radicals were radicals, not revolutionaries. Their revolution was radicalism gone beyond its original intent. The radicals accordingly have not enlisted the people in pursuit of the revolution. The people are left with sermons about ‘owning the problem’ or facing

up to hard questions. They do not have a promised land in front of them. At best they have slow economic improvement of which they will practically make what they will. Of course, that fits the practical utilitarian habit Bill Oliver identified in New Zealanders. But there is a yearning for more than simple practicality. Conservative rule of the new status quo, which is what the National and Labour Parties

are promising, may not this time be enough. |

Perhaps greens, if not providing answers that ordinary people and their political representatives can grasp and translate into social or political reality, have 321

New Territory

at least posed the question. As far back as 1972, the Values Party, campaigning at the peak of New Zealand’s affluence when the welfare state’s potential achievements appeared limitless, said in its manifesto: New Zealand is in the grip of a new depression. It is a depression which arises not from a lack of affluence but almost from too much of it. It is a depression in human values, a downturn not in the national economy but in the national spirit ... New Zealand’s peculiar malady is not physical poverty; it is spiritual poverty. 7

For a remedy for spiritual poverty, look to the intelligentsia. In turbulent times the poets and writers and artists and intellectuals might provide the lead the politicians cannot. Is there a Locke or a Jefferson or a Voltaire or a Masaryk or a Gandhi? No. The creative intelligentsia have taken Voltaire’s maxim in Candide to heart and cultivated their cultural gardens — in so doing generating the fullest flowering of expression in the 150 years since the treaty, but not a vision around which ordinary New Zealanders can gather. Ordinary New Zealanders are left with their footballers, netballers, cricketers, canoeists and yachties for national definition. To the extent that the creative intelligentsia have ventured into commentary on the societal, economic and public policy changes of 1984-92 they have joined the intellectual intelligentsia in almost unrelenting negativity.

As noted in chapter 16, the great bulk of commentary on the 1984-92 period in a rapidly growing list of books, papers and articles carries a subsisting tone of offence at the ravages, real and imagined, of the ‘new right’. There was some basis for this. The changes profoundly altered many previously settled social and economic relationships, the role of the state and the constitution without adequate, and often without more than cursory, reference to the people in whose unwilling name it was all being done. But can it all have been fundamentally wrong? Was writing the test of environmental sustainability into resource law, the halt to logging of native forests and the vigorous work to get drift net fishing banned indicative of fundamen- _

tal error? Was writing the principles of the Treaty of Waitangi into the law evidence of some deep breach of faith with the nation? Was the 1984-89 massive increase in spending on education, health, housing and welfare socially destructive? Was it an error of direction to aim to bring inflation down, to improve the quality and earning power of exports? Can it have been wrong to attempt to bring national spending within national income to save us from the bailiffs and to try to uncover better ways of earning that income? Was it a misguided expression of national interest to ban nuclear ships and struggle towards 322

Making a Home

a more independent foreign policy? The answer from most commentators has been a reluctant ‘no’ followed usually immediately by a voluble ‘but’ — drowning the major initiative in shortfalls and shortcomings of implementation and detail and outcome for some groups or individuals or sidetracking into improprieties of process. The puzzle is not that some of the intelligentsia have focused on the empty part of the vessel instead of the filled part — given the premises they hold, it is unsurprising some find the chalice poisoned. The puzzle is that so such a heavy weight of those to whom we look for intellectual illumination seem to have found it so. Can the authorities have been so thoroughly wrong?

Have they been absolutely cut off from the underlying aspiration of New Zealanders generally? A collection of programmes of reform as comprehensive and deep as those from 1984-92 inevitably must excite passionate opinions. Passion is not a good

basis for debate. There has been a great deal of artillery fire from entrenched positions. That goes for supporters of this or that policy change as much as for opponents. Much of the ‘debate’ has been personal abuse: supporters of the economic and state sector changes, for example, are labelled a conspiracy; opponents are labelled marxists, troglodytes or, the highest form of abuse for doubters of the liberalised economic stance, unreconstructed keynesians. Problematically for

the rest of us, this has blown big craters in the ground, sprayed a lot of shrapnel around and covered the field with smoke. How are ordinary New Zealanders to make sensible judgments, to make sense of their lives and develop their livelihoods in the new reality which they cannot escape, when they are deafened by such a lunatic barrage? There is a sense in which criticisms of the policy changes are entirely valid. That is in complaints that some group or other has been damaged by them or their legitimate aspirations not met. Maori remain largely a poor underclass and grievances are only slowly and incompletely being deal with, despite the formal shift in the status of the treaty. Maori leaders and their sympathisers are justified in drawing attention to that. Church and other social work activists are justifiedly aghast at the impoverishing impact for many that the 1984-92, and particularly the 1990-92, economic liberalisations and welfare state changes have generated. Soup kitchens are a stain on the national conscience. Also justifiedly aghast are union leaders, forced to watch many of their members, powerless, take a drop in real wages or be dumped into unemployment. Such people must rep-

resent their constituencies. If they do not, there is a serious danger of society disintegrating because too many people get marginalised into voicelessness. But there is a desperate lack of context in these cries. Practical issues confront

New Zealand. They can be simply stated. How does the country earn enough to provide a reasonable standard of living, relative to people in other countries? 323

New Territory

How does it resolve the cultural differences between Maori and pakeha in a way that enriches both races and the country as a whole? How does it construct a fair society that ensures adequate education, health care, housing and income maintenance without unfairly burdening any one group? The economy, for all the recent ‘recovery’, remains deeply problematic. So does accommodation between the races. So does the drawing of the boundary line where benefits leave off and taxes begin.

The developing need is for less of an obsession with looking backward (except for historians so we know better what happened and learn from that). It is for a beginning to looking forward. It is time for the multi-disciplined thinkers, the philosophers and geographers. That means starting with society, the economy and the constitution as they now are. The fact is that we have to live here. We have to make a home here. And that means focusing as a base assumption on what binds us, instead of always on what disunites us. The disunifying elements are easy to identify and evoke comfortable dinner-table tut-tutting agreement. I know. As a journalist,

I make most of my living out of disunity. It is the raw material of lucrative export. Focusing on what binds us does not mean, to borrow again from Voltaire, a Panglossian evasion of uncomfortable facts. That sort of behaviour made the international convulsion in which we got caught worse for us than for most and worse than it might have been: sliding down a steep economic slope; on the brink of serious racial strife. A continuation of the present miserable failure to develop policies that recognise and deal with the unsuitedness of perhaps a third of our population to the demands of the internationalised economy to which we are now irrevocably exposed will be the cause of social disaster by the end of the decade. The search for unity is the challenge of the 1990s. Which brings us back to where we came in: consensus. There is no consensus now. Many of the ingredients of consensus are missing. For as long as the ingredients remain absent, we will get along but we will not make the most of ourselves. That is not an uncommon condition of post-revolutionary society. One way of looking at the 1980s revolution is to see it as the restarting, the continuation, perhaps the completion, of the first revolution, that of 1840 with the Treaty of Waitangi. That revolution was profound, but it was incomplete because it was based partly on denial — the denial of a culture and a history and a contribution. The 1980s revolution was most of all about independence and to claim independence 1840 had to be revisited and that denial undone. Restoration of the treaty to a touchstone role was an unsurprising coincidence of revolution because it was an indispensable element of independence and huge

324

Making a Home

forces were forcing us at last to accept that independence. The French were as diffident about the 150th anniversary of their revolution as we were of the 150th anniversary of our first revolution; by the bicentenary in 1989 French triumphalism in the legacy of the revolution was rampant and the celebrations lavish. In 1939 the French were on the brink of their third military humiliation in a century and a quarter; in 1990 we were confronting, at the level of national decision-making, many of our deepest divisive issues. Yet unnoticed by many, 1990 for us, unlike 1939 in France, offered more hope than despair. The building block is not some idealised person, the communitarian or collectivised altruist of green or socialist ideology or the self-reliant, autonomous, self-maximising individual of libertarian ideology. It is the security-seeking in-

dividual, the pragmatic utilitarian who has stayed with us through all the upheaval. Around that person many things have changed to the point almost of unrecognisability. The value-system that underlies the policy environment in which such individuals now live in is not the one they grew up with. To adjust to living in the new New Zealand will take some wrenching reorientation, even though policy is rebalancing to recognise that enduring pragmatic, security-seeking individualism.

Practicality requires an end to ideology and attention to detail. Security requires, for a time, evenness, predictability and peace. So far we have the simple conservatism promised by the major parties. But New Zealand’s individuals

have seldom stopped there. They have habitually conjured up an idea — or, better, an instinct— of what their country and their society should be: pioneering and egalitiarian at one time, humanitarian at another; at times leading the world in social initiatives, at times just excelling at sport; inventive with No 8 wire; and so on. There is no such idea or instinct now. It is unlikely New Zealanders will

want long to be without one. Perhaps the response is already there. If so, it is not to be found among the intelligentsia, who are disoriented, or political leaders, who (except in revolutions) follow rather than lead. But young New Zealanders are making films, without asking first for someone to hold their hand. There is a creativity in business that has not been seen since perhaps the Maori entrepreneurialism of the 1840s-60s. There seem to be more local initiatives, fitting neither the state model, nor capitalist, nor co-operative, to deal with issues, solve problems and provide services at grassroots level. There is an energy.

And there is independence. It takes many forms, but it is a positive force. Amid all the (true) tough talk of economic competitiveness which substitutes for the lost positivity of the prosperity consensus, there is among a minority a

| 325

strong sense that this small country and these practical peoples have much to say

New Territory | for themselves and to the world. You don’t have to listen too hard to hear phrases

such as “The people from Aotearoa are leaders in their own right . . . She is a very special country, Aotearoa’ and “New Zealanders are good friends . .. New Zealanders love their their country . . . It is nice to see that this is so natural’ * Aotearoa is the only country, because of its smallness, that is able to put together issues like ‘greening’ and be heard throughout the world. We stopped nuclear ships coming through and the world heard. ... The people from Aotearoa are leaders in their own right. ... She is a very special country, Aotearoa.?

... and this, from a migrant from Russia: You [New Zealanders] are good friends. You help and you do not expect anything in return and what is even more important for me, you do not interfere. ... You are very trusting. You believe people. ... You are not violent ... You grumble that life has become so much more dangerous ... but you still sleep with open windows and sometimes do not even close doors. People are not aggressive here. New Zealand husbands and wives treat each other with love and respect ... it is a kind of tradition that you spend weekends with your family, not just being physically present at home, but doing things together and enjoying each other’s company. New Zealanders are kind and tolerant, not only with their own children, but they are concerned about other people’s kids and it is amazing to me how you treat disabled kids. New Zealand is a beautiful country and this needs no proof. New Zealanders love their country; they are very patriotic. It is nice to see that this is so natural.‘

We are in new territory. We can turn away from it. We can claim it. It can be left to others. It can be ours. It can be laid to waste. It can be cultivated and home made here.

326

Appendix 1. Consensus or Social Contract:

The notion of social contract has gained some renewed currency in the wake of the American philosopher John Rawls and the public choice theorists — and in New Zealand because it has appealed to Simon Upton, the National Party member of Parliament for Raglan and currently Minister of Health, who explicitly used it in formulating some of the social policy framework in 1990 for the National Party. I prefer consensus for a number of reasons. (1) Consensus is voluntary, whereas contract may be coercive. In a democratic society (arguably, over the long term, in any society) social structures and policy frameworks are durable only if there is at the least an absence of dissent and arguably, over the long term, only if there is voluntary consent. Whereas contract, especially among unequals, may be imposed by threats and duress on one contracting party in the face of dissent by or manifest unfairness to that party, consensus requires the voluntary consent (even if signified only by an absence of dissent) of all who subscribe to it. Contract embodies the notion of force and parties are unable unilaterally to withdraw; subscribers to consensus are free to withdraw and consensus lapses when too many withdraw, regardless of the ability of the remaining subscribers to maintain the social structures and policy frameworks embedded in it. In this sense, too, consensus is more appropriate in the analysis of democratic societies than social contract. (2) Consensus is a single and straightforward concept, readily understood. So-

cial contract is defined differently by different users: sometimes as agreement between individual members of society, sometimes as agreement between individuals and their rulers and sometimes to a mixture of the two.

It is either (a) an artificial construct, derived from an imaginary state of nature to create a set of rules for a given developed political society and often to provide a legitimising ideology for the particular political structure and rules of that society (Upton candidly calls it an ‘heuristic device’) or (b) an almost tautological notion of the limits of policy flexibility or political manoeuvrability, a useful concept for conservatives and a notional substitute for constitutional checks and balances.

327

New Territory | (3) The quasi-legal nature of the word ‘contract’, implying reciprocal rights and duties between individuals, groups or rulers and ruled, fits uneasily into social analysis or description. Contract as a notion is atomising, dividing

individuals and groups from each other and rulers from ruled, whereas consensus as a notion is integrative, implying shared values and norms, which is nearer the reality of a successful polity. Contract assumes that rulers and ruled are apart from each other rather than that the rulers are a subset of the ruled as consensus assumes. It may be argued that rulers are not a subset of the ruled generally, but are usually either entirely or mostly a subset of an elite which is able to perpetuate itself and that therefore the apartness inherent in the notion of contract accurately describes social and political reality. In other words, by definition the elite and the non-elite (containing most of the ruled) are set apart. But who then are the parties to the contract? Is it between the elite and non-elite? Or is it between all the ruled, elite and non-elite combined, and the rulers? Or is it between the ruled among the elite and the ruler subset of that elite? Or is there some hierarchy of contracts, either separately between the ruled and rulers of the elite and then between the elite and the non-elite, or separately between the rulers and the elite ruled and non-elite ruled. The first assumes there

is no separateness of interests between the ruled and the rulers among the elite needing a contract (that is, that there is consensus). ‘The second seems improbable since one contract would then have to embody both elite and non-elite. The third is patently incomplete, since it excludes the majority; and the apartness objection applies. ‘The last implies a disjunction of interests between the elite and the non-elite which denies the likelihood of consensus and instead suggests the second level of contract is an unequal, harsh or unconscionable one which denies legitimacy to the contract and can be maintained only by force. By contrast, consensus must by defini-

tion involve the great majority of both rulers and ruled and elite or non-elite: that the interests of rulers and ruled or elite and non-elite are not identical or the non-elite does not have the same access to power as the elite, does not rule out the possibility of consensus. Consensus may also encompass mechanisms whereby members of the non-elite may move into the elite.

(4) There are usually in any society excluded minority non-elites, such as Maori in New Zealand. Consensus implies agreement among'the great ma-

jority, not among everyone, and thus allows deviations, even quite large deviations, by small minorities. The idea of a contract between such excluded groups and non-excluded non-elites and/or the elite and/or the rulers is absurd or at the least such a contract would be harsh, unconscion328

| Appendix 1 able and unequal and therefore illegitimate. (5) In any case, consensus can incorporate contract. It does not exclude the

existence of reciprocal rights and duties between rulers and ruled within a broadly agreed framework. Many people in New Zealand today do have a sense that the state has a quasi-contractual obligation to perform certain functions on their behalf — much of the pensioners’ arguments over superannuation over the past half-decade has been of a quasi-contractual right to a state pension in return for past taxes and/or contribution to the country. Some arguments about health have the same flavour. But the concepts of reciprocal rights and duties and a higher-level consensus that incorporates such reciprocal expectations are not mutually exclusive. (6) Contract is liable to be interpreted in a culture-specific — that is, English, or English-derivative — way. It is therefore a clumsier analytical device than consensus.

(7) Tama journalist, not an academic. Consensus is a less confined, if perhaps less rigorous, concept than social contract, and therefore more appropriate to the work of a journalist.

329

Appendix 2. The Ideas Behind the Welfare State

The welfare state can be seen as a challenge to capitalism or as an element of it. Logic suggests the second. Socialism aimed to supplant capitalism, but in coun-

tries where capitalism was strong and delivering a rising general standard of living, socialism in this form did not gain a lasting foothold. Instead social democracy turned to ameliorating capitalism and more widely distributing its liberating wealth. Keynesian economics added a technical dimension: management of the economy to fund, underpin and make practicable the welfare state. The British liberal tradition rested on a notion of individual autonomy and freedom, each individual technically equal under the law which was administered in impartial courts that were independent of the government. Sovereignty rested with the people, expressed through an elected legislature, and the state was subject to scrutiny and ultimately to control by the legislature. Individuals had

a number of ‘negative’ rights, that is, rights against interference from others: principally not to be arbitrarily deprived by either the state or other individuals of life, liberty or property. Property was considered an extension of the individual

(actually, of the male individual) and the right to non-interference in the individual therefore also secured the individual against interference by the state in how the individual disposed of his property — that is, in commercial dealings, buying and selling. Thus under classical English liberalism state interference in the economy was strictly limited. Free markets, regulated by the law of contract,

defined what should be produced and, broadly, how it should be distributed. State activity was limited to ‘defence’ — from external threat (war and invasion)

and internal threat (assault and theft) — and the provision of a system of administration of justice and dispute resolution and a very limited range of ‘public goods’, such as roads, postal services and, later, elementary education, which the markets did not adequately supply to all individuals and which were beyond the capacity of most individuals to buy on their own account. Under classical liberalism differences between individuals in their economic and social condition was no concern of the state.

From the later nineteenth century a branch of liberalism allowed an extension of the concept of defence to a degree of protection of individuals from

Appendix 2

economic and social misfortune — that is, to correct the arbitrariness or inadequacy of markets, which failed to supply the poor with adequate resources to secure food, housing, sickness care, education and income maintenance. If markets were inadequate to supply ‘defence’ and ‘justice’, as even classical liberalism

conceded, and if therefore the state could be called on to correct those market ‘failures’, then conceptually other market failures could justify state initiatives. In the sparse early years of New Zealand European colonisation, because markets were fragmented and small, governments in New Zealand extended the concept of public goods to encompass a range of services provided by the private sector in maturer countries.' After 1890 the Liberal Government introduced old age pensions, state housing, protection for workers’ organisations and measures to enhance access to land ownership.” But the notion of individual freedom remained central: the measures were intended to enhance freedoms (of some people), not eliminate freedoms (of others). The individual remained the central focus of the evolving liberalism even after it drifted a long way from classical liberalism. This is an important ingredient of the democratic element in social democracy. The ‘social’ element in social democracy descended from socialism. Socialism urged social, collective action (including through the state) to correct, not market failures, but the evil of markets. Socialists argued markets alienated people from themselves by treating the labour of those who did not have property as a tradeable commodity and disempowered them by enslaving them to those with property (capital), who pocketed the ‘surplus value’ of their labour. Since property was the base of markets (property was what was traded in markets), property

should be held or controlled communally, not left to the unfettered decisions of private individuals. Collective decisions should determine what should be produced and how it should be distributed to ensure everyone contributed equally and got a fair share. Legislative, judicial and other institutions, which were seen as serving predominantly the interests of those with property, would have to be supplanted with or converted into institutions that served workers’ (that is, in the new socialist society, everybody’s) interests. Revolutionary social-

ism argued for the abolition of all private property and the replacement of all institutions with new ones in the control of workers’ mass organisations or the state, which in the utopian or romantic versions would wither away, leaving the people in an abundant, self-regulating paradise. In practice, revolutionary socialism invariably led to the re-enslavement of the people by the state through centralised ‘command’ economic and political systems. Reforming socialism allowed private property but within tight limits. It argued for the constitutional takeover by workers of the legislative and legal institutions and control of markets by the state through regulation and ownership of important enterprises in 331

New Territory , , order to share economic output more equitably and also to eliminate the inefficiencies of uncontrolled market capitalism with its boom and bust business cycles. In practice this became social democracy. Social democracy was critically different from liberalism in two main respects.

First, it assumed the preferences of individuals could be translated into one single preference of a collective entity (for example, a union or the state) which then became the preference of the individual (for example, the ‘solidarity’ of a union required all, including dissenters, to abide by union decisions because the interest of each member of the union was equated with the union interest). Liberalism allowed some degree of coercion of dissenters (in war or in taxation, for example) to conform to a majority decision, but a majority decision was seen as a collection of individual decisions, not as the unitary decision of an entity. Second, there was a much stronger concept of equality. Not only should individuals have equal rights not to be interfered with (which amounts to a right to be unequal) and to have their contracts enforced, as liberalism required, but under social democracy everybody should have an equal (fair) opportunity to do as well as they were able to secure equal economic and social outcomes. Even equality before the law was worthless if a poor person could not afford the price of lawyers and court fees; and the contract enforcement was worthless if there was no property on which to base a contract. The broader equality of social de-

| mocracy required ‘positive’ rights: the state (drawing through taxation on those with more resources) had positive social duties to its citizens to ensure they each had adequate food, shelter, education to realise their talents, treatment of illness and an income both from work and in cases of unemployment, ill health or old age. In essence, as some more recent social democrats have put it, each individual was to have a right to be a full citizen of the society in which he or she lived and it was to be the state’s duty to ensure that right was met. It was at the point where these positive rights were to be translated into action that social democracy butted on to the liberal tradition. Social democracy, as distinct from socialism, relied on democratic institutions and not revolution. Capturing the legal and legislative institutions bequeathed by liberalism enabled social democrats to give effect to the positive rights and to harness the economic dynamic of capitalism to the will of all instead of leaving it at the service and profit of a propertied few. In addition, by adopting (and adapting) the liberal legal system, the notion of individual freedom could be upheld, even though in a modified form. In places such as New Zealand, Australia and north America, where there was a strong tradition of individualism fostered by the ‘homestead’

principle, the occupation of previously unfarmed land, this was particularly important to the acceptance of social democratic ideas. There was also in New Zealand by the 1920s a co-operative practice among 332

Appendix 2

many of those individualistic farmers. Small dairy farmers formed co-operatives to process their milk and deal with exploitative British buyers. Farmers also established meat processing and fertiliser companies. This has been mistaken for a sort of ‘socialism’, but it was not: the farms remained the private property of the farmers. It was, however, collective action and dairy farmers in due course welcomed state intervention to guarantee prices and collectivise the industry at the national level. Social democracy — at least in some manifestations — was not a hostile concept for small farmers to whom markets have proved unruly and dangerous places. Internationally, this seductive marriage of individual freedom to a social guarantee of fair treatment for all developed a powerful intellectual momentum from the 1930s onward. It was reinforced by the economic and monetary analyses of John Maynard (Lord) Keynes, which provided an economic technique for supplementing market activity in the interests of the whole of society. Keynes argued that, by the 1920s, entrepreneurs’ holding-back of large sums from consumption as savings no longer had the useful effect it had had in the expansionary

nineteenth century of increasing production, because entrepreneurs invested heavily, but instead led to economic crises and stagnation. The state could and should engineer the movement of that useless private capital into channels that would revive economic activity — that is, it should maintain effective demand by itself spending. Keynes's disciples developed that into a general operating principle that governments could soften economic cycles by manipulating their taxing, borrowing and spending to counterbalance the movements in the private economy. This provided reformist social democrats with a relatively light-handed technique to control capitalism and so both to enhance the democratic tone of their programme and to broaden its appeal to conservative workers

and small business operators and farmers — and as a result, as the industrialised countries emerged from depression and war, social democracy became the norm. A variant of keynesian economics known as development economics — economic modernisation by way of modern heavy industry and manufacturing industries set up, often with foreign loans or investment, behind high protective walls and with highly regulated internal markets — was advocated for and widely applied in developing economies (and, in adapted form, in New Zealand).

333

Appendix 3. The Intellectual Challenge to the Welfare State

The eighteenth-century Scots thinkers David Hume and Adam Smith provide a useful starting point. The fact that much libertarian thought does owe a lot to Hume and Smith led early critics to dismiss libertarian thinking as just an atavistic return to outmoded ideas, partly because Hume and Smith were intellectual influences in the ending of mercantilism (state control of trade) and the rise of laissez-faire and the free market in the nineteenth century, which was rejected or modified in the twentieth century as too harsh socially. But various strands of modern libertarianism reach further back, on the one hand to the English seventeenth-century social contract philosophers, Thomas Hobbes and John Locke, particularly with the latter on the issue of property, and on the other hand to the fifth-century BC Greek philosopher Aristotle and the medieval thinker St Thomas Aquinas in drawing on ideas of natural law and natural rights.

Hume argued that ends pursued by humans were the product of passion, sentiment and feeling, not reason, which was the ‘slave of passion’. Human beings followed their own interests — and their immediate interests rather than future interests. Outside the natural physical order and ‘conventional’ constructs by design, such as parliamentary statutes, there were ‘aggregate’ social structures, such as the common law system and markets, which were the spontaneous outcome of interactions of individuals none of whom had the particular outcome that eventuated in mind. So people acting out of ‘self-love’ developed a system in everybody’s interests ‘though it be not intended for that purpose by the inventors.. The value of the systems created in that way lay in their ‘utility’, that is, their usefulness in promoting general wellbeing, not in whether they were ‘liberal’. Similarly to Hume, Smith thought it °. . . absurd and unintelligible to suppose that the first preconceptions of right and wrong can be derived from reason’. Each human being had his or her own motives for action. In economic life, following those motives (each pursuing his or her own self-interest) would lead to the maximisation of overall interest through the operation of an ‘invisible hand’, unless there was political or violent intervention. Again, for Smith it was not an intrinsic rightness or wrongness that validated the market structure, but whether it worked — its utility.

Appendix 3

Both Hume and Smith reached their conclusions as a result of observation of what motivated human beings and what evolved as a consequence, that is, what was utilitarian. They rejected the idea that individuals have some god-given or natural right to liberty. Liberty and its untrammelled exercise was simply the most effective means of maximising general wellbeing.

Down one route of thinking this utilitarian approach led, via Jeremy Bentham, to an objective concept of the greatest good for the greatest number, the aggregate of subjective individual personal preferences, which Bentham be-

lieved could be discovered and promoted by statute law. This is the sort of utilitarianism Bill Oliver had in mind in describing New Zealanders of 1960 as ‘utilitarian’. Even though Bentham was in some ways even more laissez-faire in his thinking than Smith, he is regarded by some commentators as the father of state interventionism since he allowed that, if the market did not deliver the greatest good for the greatest number, there was no reason for the state not to intervene. Down another route, the Hume and Smith legacy led to the Austrian and Chicago schools of economics. These two schools held that the maximum per-

sonal liberty produced the best economic outcomes, in efficiency and in maximising general welfare. The Chicago school also attempted, with varying success, to show that political liberty depended on economic liberty and to construct a political philosophy on the practical value of free individuals being left to their own devices. Both schools went to considerable lengths to keep their studies and conclusions ‘value-free’ — that is, they did not claim any arrangement was morally or intrinsically better. Friedrich von Hayek, the best-known of the Austrian school, argued, like Hume and Smith, that if individuals were left to their own devices, a market system would emerge by natural selection. Because knowledge was dispersed throughout all actors in an economy and was constantly changing, it was impossible to replicate it in a general plan. Liberty was therefore a means to society’s

improvement, Hayek argued, and ‘the benefits of freedom therefore are not confined to the free’. Ludwig von Mises took a slightly different tack, arguing that a market system is not just an observable outcome of free human interaction, but theoretically the most likely outcome and that theory would hold even

if there was no experience of the outcome. So, for example, rent control does | not just, as a matter of fact, result in the misallocation of housing stock but is a necessary inference from an axiom about self-interested human action. Co-ordination in markets, Mises argued, was brought about by entrepreneurship, which was the means by which individuals worked towards their ends. Entrepreneurship required people to risk their own property, so socialist systems could not be effective and could succeed to some extent only because of the existence 335

New Territory | , of price signals in surrounding economies (the same goes for state-owned enterprises surrounded by private sector firms). The Chicago school, whose major figures were Milton Friedman, George Stigler and Gary Becker, took a more limited view than Mises, a pragmatic view

rather than a philosophical one. They did not rest their case on the argument that a market system would naturally emerge if people were left to themselves but argued that as a matter of observable fact markets maximised economic welfare and political intervention diminished it. Only markets (exploiting selfinterest) could co-ordinate the disparate elements of a complex society and any intervention would destroy both freedom and prosperity. This they set out to show by factual rather than theoretical analysis of cause-and-effect in economic interactions, concluding, for example, that minimum wage laws caused unem-

ployment, inflation eventually caused more unemployment, rent control encouraged underoccupation of controlled properties and so caused homelessness, and welfare at zero prices increased demand and so numbers on welfare. Becker extended this cause-and-effect analysis to social subjects such as discrimination, crime and punishment, human capital, fertility and love and marriages. From these empirical studies Chicago scholars concluded that human beings were rational maximisers — that is, in any set of circumstances they would take whatever action maximised their interests (hence another term used for new theories — economic rationalism). Prices of one sort or another were paramount in their decisions. If they changed their behaviour as a result of interventions in a market, it was not in response to political or social ideas but to changes in prices.

The best-known cause-and-effect finding was that fluctuations in the money supply determined the rate of inflation, from which Friedman developed the monetarist technical prescription that the money supply should be controlled to curb inflation. The Chicago school, like Mises, demonstrated that a lot was not working effectively in the liberal social democratic welfare state and social structure. It argued that simply changing the interventions would not solve the underlying problem and that the route to improvement lay in removing interventions to allow prices to become clearer so that rational maximising individuals could respond to them and maximise economic activity. But the absence of a coherent underlying philosophical theory weakened the argument: if any state intervention diminished the efficiency of the market in maximising general welfare, what, for example, was to be said about the heavyhanded intervention in the money supply advocated by the school? The Chicago school also, like the Austrian school, drew its political conclusions on the need for a liberal society as well as for free economic markets largely from economic

336

Appendix 3

analysis, which made the conclusions lopsided and unconvincing as prescriptions of what ought to be rather than as descriptions of what did not work. This same problem applies to the work of James Buchanan. In his search for an underlying basis for the free economy and society, Buchanan went back to

concepts established in the seventeenth century by the English philosopher Hobbes of a fictitious ‘social contract’ between individuals in a hypothetical state

of nature to establish a state to govern their political and economic behaviour which, if left unchecked, would be destructive. Buchanan’s brand of libertarian thought is consequently known as contractarian liberalism: instead of state action based on the Pareto-optimal principle that if no one was worse off and one person was better off the action was acceptable, Buchanan argued that if there was any disagreement with such an action those disagreeing would be worse off for being overruled. A benevolent despot could not know the subjective preferences of individuals; instead political economists should advise individuals how to make improvements in wellbeing through agreement. But this is open to some

cutting criticism — why, for example, should someone believing liberalism intrinsically right submit that to the agreement of others? — and offers no workable political theory of the state. Buchanan’s major contribution was in his studies of ‘public choice’. The state, in his analysis, was twofold: protective, to enforce neutrally law agreed unani-

mously; and productive, to generate public goods that markets do not spontaneously produce adequately — necessarily a narrow range because of the need for agreement (which in this case Buchanan reduced from unanimity to two-thirds). States got taken over — owned — by their operators: in the United States the Supreme Court (the protective state) made law essentially for itself and the productive state interfered extensively in the economy and taxed extensively and thus promoted social ends which obliterated individual preferences. Common to the utilitarian libertarians — the Austrian and Chicago schools and the Virginia school of public choice theorists — was an attempt to keep their analyses ‘value-free’, to exclude moral judgments and argue from observation of cause and effect that individuals in a free society and free economy maximised their welfare and that (excessive) state intervention reduced that welfare. They saw their work as more about ends than means and the results of their work as useful in a technical sense rather than as a prescription of what shape society should take or what was the most moral behaviour for individuals. They followed Humean arguments that there were no universal laws of nature or first princi-

ples that could be understood objectively through argument, only subjective preferences. Ayn Rand argued the reverse: although we come to know things by experience, things existindependently of our subjective experience. For Rand there was

337

New Territory , objective reality which reason was capable of understanding and which led a code of ethics based on egoism: rational life consists of the pursuit of self-interest. By

the fact of their existence, individuals had (natural) rights and to deny those rights was to pursue a philosophy of death. Capitalism was the only rational economic order since it allowed individuals to pursue their ends through productive work and voluntary exchange. The world was divided into ‘traders’ (living by mutual exchange) and ‘warriors’ (living parasitically on the efforts of others) and the state was an advanced form of parasitism or ‘looting’ (though Rand did allow some, limited, form of government). Rand condemned altru-

ism converted into coercive behaviour by the state as a form of ‘moral cannibalism’.

Despite her attempt to establish a broader theory of natural rights as the basis for a free society and free economy, Rand’s arguments were, like those of the utilitarian libertarians, rooted in economics. Indeed, the utilitarians made

‘politics subordinate to economics and appear to deny any autonomy to the moral or political ends of [human beings]’,! which was unsatisfactory as Murray Rothbard, an anarcho-capitalist, pointed out, because “economics can help supply much of the data for a libertarian position but it cannot establish that political philosophy itself’. Robert Nozick stands out for constructing a much more thoroughgoing base in moral philosophy for a libertarian position. Nozick argued that there was ‘no social entity, only individual people with their own individual lives’ whose separateness was inviolable and endowed them with natural rights to pursue their own ends, which included the right not to be interfered with by others in pursuing those ends. Their preferences could not be amalgamated. Nozick did not

argue, like the utilitarian libertarians, that the state must exist to correct the undersupply by the markets of certain useful public goods and services. He argued that the state was generated by an invisible hand — a state would emerge, as a de facto monopoly like money, as a consequence of spontaneous operations of individuals (needing a mechanism to protect their liberty) without any of them specifically intending it. As such, it would be extremely limited in its functions —a ‘minimal state’ involving geographical integrity, a system for making ‘public law’, centralised institutions and a prohibition of private enforcement of rules of justice. It would be a sort of private company, a natural monopoly for protection of individuals to minimise individuals’ risk in having only independent protective agencies. In economic terms Nozick’s individuals were inseparable from their property and to redistribute that property as if it were some collectively owned ‘pie’, as socialism prescribes, would be to use the individual for others’ ends which violated the individual’s rights. Income paid to workers and other factors of production was the income which was necessary to keep those 338

Appendix 3

factors in optimal employment. To Nozick, socialism was not intrinsically undesirable, or undesirable because of its economic consequences, but was to Nozick undesirable only if it violated moral constraints on action laid down by natural law. Even Nozick’s minimal state was unacceptable to anarcho-capitalists. If natural law prescribed constraints on human action to make freedom possible and if the right to self-defence was universal, on what basis would individuals surrender that right to the coercive power of a monopoly state? Anarchists argued that protective services would spring from the market; and that there was thus no distinction between natural law and positive law. Even the courts would be private and competition would eliminate unreliable procedures. Anarcho-capitalists, notably Rothbard, argued that ownership was the identifier of liberty — self-ownership and ownership of property. Any state was morally wrong in that it interfered with individual liberty and in any case even the minimal state has shown an inexorable tendency to grow in actual life. Government employees became ‘rent-seekers’ (that is, obtained control over what they did and levied a charge on society for the existence of that control) and the existence of such monopoly rents in the public sector encouraged its expansion. So-called public property was actually private property, since it was controlled ultimately by individual officials.

339

Appendix 4. Was it a Revolution?

Much revolutionary theory makes violent overthrow of institutions and the holders of power a central criterion. For example, Hannah Arendt says: “Only where change occurs in the sense of a new beginning, where violence is used to constitute an altogether different form of government, to bring about the formation of a new body politic, where the liberation from oppression aims at least at the constitution of freedom can

we speak of revolution.”! |

Arendt notes that until the French revolution, the word was used in the sense of the circularity of events, the Glorious Revolution of 1688 being thought at the time to be a ‘restoration of monarchical power to its former righteousness and glory’, not an overthrow, and the American revolutionaries referring to their action as a counter-revolution.? Sir Roger Douglas’s notion of undoing 30 years of economic mismanagement is interesting in this context. Arendt also distinguishes irresistibility as an element of revolution, a notion

that parallels the belief among New Zealand’s policymakers at the time that ‘there is no alternative’ to radical change. Another important element is that revolutions may be triggered by the needs of the poor but are never carried through by them. Revolution is the business of an elite: ‘No revolution, no matter how wide it may have opened the gates to the masses of the poor, was ever started by them, just as no revolution, no matter how widespread discontent and even conspiracy may have been in a given country, was ever the result of sedition. Generally speaking, we may say that no revolution is even possible where the authority of the body politic is truly intact, and this means, under modern conditions, where the armed forces can be trusted to obey the civil authorities. Revolutions always appear to succeed with amazing ease in their initial stage and the reason is that the men who make them

first only pick up the power of a regime in plain disintegration; they are the consequences but never the causes of the downfall of political authority’.’ Abstracting the condition of violence, there is a parallel in New Zealand in the first three years after 1984, when the Government met little organised op-

position to its radical economic and other policy changes: Douglas and his colleagues found an economic regime ‘in plain disintegration’ and were able to move with relative ease, but resistance grew as time passed and the thrust of the

Appendix 4

radical policy changes pushed deeper. Arendt notes that professional revolutionaries seldom start revolutions; they

take over a popular movement that begins spontaneously or a low-level rebellion. Note also David Close: “The element of coercion or violence is also essential to revolution because every political system rests ultimately on the sanction of force and force is therefore needed to overthrow it. In theory the upholders of the old system may be so demoralised and the champions of the new one may be so confident and united that power is transferred peacefully. In practice these conditions never exist.” Close allows a ‘metaphorical’ use of ‘revolution’ to describe change in ‘nonpolitical spheres (as in cultural, technological or economic revolution) ... so long as the word is confined to basic, normative change.”* For Close the issue is power:

‘The essential point about revolution ... is that it involves a change in a government’s basis of legitimacy, that is, in those principles, or norms, which determine its claims to its subjects’ obedience and the nature of its powers and responsibilities. In contemporary Britain or Australia, for example, such principles (in their ideal form) include government by consent and for the benefit of the governed, equality before the law, freedom of opinion and respect for private property. The word revolution has been associated with changes in government not only by long usage but also by logic, because it is only through a change of government that people can bring about a forcible, large-scale change in any sector of society.”° But Close also uses ‘revolution’ in terms that will be familiar to all who have

lived through the suddenness and insecurity of the 1984-92 changes in New Zealand. He says revolution must be defined in subjective as well as objective terms: “The essential feel of revolution derives from its cataclysmic — sweeping, sudden and violent — quality. Cataclysmic change destroys people's security and unsettles their convictions. Hence the emotional extremism and intellectual effervescence that characterise those periods that intervene after old authorities have

been shaken before new ones have become established.” Close puzzlingly rejects the appellation of ‘revolution’ for the overthrow of Charles I by Oliver Cromwell on the ground that it was led by an ‘established elite’ and ‘continued to deny any political voice to the poor majority of the population’, a criterion which would seem to strike the French revolution off the list

and, if one focuses on the denial of political voice to the poor majority, the Russian revolution also. Close’s conclusion on the Puritan revolution was earlier specifically endorsed

by Jaroslav Krejci , who argued that ‘...in contrast to a rebellion, a revolution is carried by more than one social group or class, has more ambitious aims and 341

New Territory | | also results in more tangible and durable changes in societal organisation and structure. Ideology, political regime and socioeconomic structure are all affected,

although possibly to differing degrees of intensity. Changes in the ruling personnel also of course accompany each revolution. They even occur many times because a revolution is a prolonged process lasting several decades rather than

years, during which there are many shifts and changes in the supreme authority.” Krejci defines revolution in this ‘technical’ sense as: a social change which (a)

was brought about from below (ie, from outside the dominant institution and/ or top executive but not necessarily from the bottom), but within the respective society (state), (b) was achieved by some use of violence (armed insurrection,

civil war, series of coups dat, etc), (c) eventually affected not only the ruling personnel but also some basic systemic parameters of the society, such as the political regime and socioeconomic structure and (d) affected these latter in a quasi-permanent rather than a merely short-term way.”° In this respect, while the Puritan revolution was abortive in political terms, some of the forces did recapture power 28 years later and there were lasting legacies, notably that ‘constitutional parliamentary monarchy, a wider scope for religious tolerance and the free play of market forces became the main long-term features of the British

societal system’.!! |

Krejci allows a “metaphorical sense of revolution, such as industrial revolution, cultural revolution or scientific revolution’? which he distinguishes from the ‘technical’ sense of revolution described above. The use of the word ‘revolution’ in these metaphorical senses has validity in that both ‘have one important element in common, the change of the paradigm which had been the pivot of value orientation or criterion of truth for the phenomenon affected’,’? which has some relevance to the New Zealand experience in 1984-92. By comparison with Close himself, Bill Brugger and Kate Hannan, in Close and Bridge’s book, distinguish three senses of revolution: cultural, that is, a fundamental change in a society's value system; political-economic, a change in the dominant mode of production and hence in the nature of the ruling class; and narrow political, focusing on the overthrow of a regime." Brugger and Hannan quote the J-curve theory of revolution developed by J C Davies,” ‘a growing awareness of the benefits of economic growth produces a “rising horizon of expectations”’® which goes on rising even in a slump, causing a gap between expectations and achievement which causes resentment, which, when directed at a regime, makes revolution likely. This, they say, applied in the French and Russian revolutions but does not explain why were there not more revolutions in the 1930s slump and again in mid-1980s when the overwhelm-

ing number of countries were in a J-curve situation but there was no world 342

Appendix 4

revolution. They were writing before the central and eastern European revolutions and the shift from autocratic to democratic regimes in much of south and central America. The J-curve does seem to have some application to New Zealand in the early 1980s. The centrality of violence is denied outright by Richard DeAngelis in another chapter of the Close and Bridge book, Richard DeAngelis, “France, May 1968: A New Kind of “Revolution”’. DeAngelis draws from the student protest-rebellions and the Solidarity movement in Poland the notion of a ‘cold’ revolution: ‘Revolution may best be seen today as a decisive shift in the balance of social forces and values, a change in the basic rules of the socio-political game. If so, it can occur over a several-year period, in fits and starts, through crises and mass mobilisations but relatively non-violently. A revolutionary result may happen, but without armed insurrection, civil war or conquered state bastions. Just as “hot” war is increasingly replaced by “cold war” in international relations, “hot” revolutions may be increasingly replaced by “cold” (or “cultural”?) revolutions in the age of urban, information-based, bureaucratic authority.” This seems

to at least come close to encompassing the New Zealand experience from 1984-92. Elsewhere in the book the idea of analysis of revolution on social psychological criteria is briefly addressed.'® That too, has some relevance to the New Zealand experience.

343

Notes

Chapter 2. Godzone Lost ' Daniel Bell, The End of Ideology: On the Exhaustion of Political Ideas in the Fifties, 2ed (The Free Press, New York, 1962), p398, originally published in 1960. 2 Bell, End of Ideology, p402. The Road to Serfdom was the title of a book published in 1944 by Friedrich von Hayek warning that socialism, social democracy and the welfare state threatened personal liberty. > Bell, End of Ideology, pp402-3. * Bell, End of Ideology, p404. 5 Neal Ascherson, “Bring on the hypnotist’, London Review of Books, 12 March 1992, reviewing Robin Blackburn (ed), After the Fall: The Failure of Communism and the Future of Socialism (Verson; London, 1991), argues that: “It was not capitalism’s success which finally sank communism, but one of its failures. To be precise, the fatal hole in the ironclad’s side was struck in the mid-seventies, as the western economies slowed and then halted after the sixfold rise in oil prices. For states like Poland, already embarked on a wild rush of growth financed by western loans and on an ambitious industrial renewal based on western imports, this was the beginning of terminal disaster for the regime. Foreign debts ballooned out of control; inflation poured in. By the end of the decade the debt was astronomical, the imported machines were stopping for lack of spare parts and the population were sleeping on winter streets to keep their places in food queues. Industrial unrest became political opposition and then, in 1980, the Solidarity revolution. Less spectacularly, the same missile from the west holed all the communist economies below their waterlines, and eventually the Soviet Union, too. It was not the west which collapsed under the hammer blow of oil prices: instead, its recovery from that calamity showed just how resilient international capitalism had grown since the thirties. But the east had grown dependent on the system it intended to bury and the sudden change in prices, interest rates and the demand for imports dealt the “planned economies” a mortal wound.’ A more precise identification of the point of failure comes from Goran Therborn, “The Life and Times of Socialism’, New Left Review 194, July/August 1992, pp17-32, who points out that countries of the Soviet bloc made rapid progress between 1950 and 1960 in catching up on the United States in gross domestic product per capita but then stalled. °... a successful basis for industrialisation and economic modernisation was achieved. However, the further development of mass consumption, services and a post-industrial quality of life was never realised.’ Therborn quotes Radovan Richta of the Czechoslovak Academy of Sciences

as pointing out in a paper in 1965 that ‘ “... the present system of management and the concepts on which it is based ... have proved incapable of grasping or mastering the transition from industrialisation to the technical and scientific revolution. Following this transition, investments in qualitative change in the forces of production in intensive growth, in modernisation, new technology, scientific development and in raising levels of training

344

Notes and skills, and improving working and living conditions, reducing the length of the working week, etc become ... more profitable than the construction of more industrial enterprises of the traditional kind ... although in terms of production of industrial goods Czechoslo-

vakia can compare itself to the most advanced nations in the world, it lags behind considerably in the development (and dynamic) of its productive forces ... and in the progressive changes that are now becoming decisive.” ’

Chapter 3. ‘A Modest Affluence for All’ ' See Appendix 1 for my reasons for describing the agreement as consensus rather than social contract. ? Even in the second edition of his standard work, A History of New Zealand Penguin, London, 1969), Keith Sinclair distinguished smarter dressing and longer hair among younger New Zealanders from the ‘uniformly dowdy’ nature of New Zealanders at the time of publication of the first edition in 1959. But he nevertheless recorded that ‘a certain sameness persists. Country people cannot be distinguished from “townies” by their clothes or manners. People mostly speak alike, with few regional distinctions. If we ignore the Maoris, customs differ little from one locality to another. . . No significant number of children, apart from Catholics, go to private schools . . . there is almost complete equality of opportunity to enter the professions and a high degree of social mobility. No particular prestige adheres to rising in society from poverty to power, affluence or eminence. Nor does any great stigma attach to changing from white collar to overalls.’ (p286)

> In fact, even in Victorian Britain this was a misleading picture, because there was a bulge in the middle of the triangle containing elements of the lower middle class and the skilled working class who were mildly prosperous and had much to lose from radical labour politics. The ‘volcano’ was bulgy in the middle, rendering it relatively harmless and not at all ripening for revolution as Karl Marx supposed. * WH Oliver, The Story of New Zealand, (Faber and Faber, London, 1960), pp271-78. > See Ann Beaglehole, A Small Price to Pay. Refugees from Hitler in New Zealand, 1936-1946, (Allen & Unwin/Historical Branch, Wellington, 1988). 6 Ann Beaglehole, A Small Price to Pay. Facing the Past. Looking Back at Refugee Childhood in New Zealand, 1940s-1960s (Allen & Unwin, Wellington, 1990).

” Janet Frame, quoted in Beaglehole, Facing the Past, p15. * Beaglehole, Facing the Past, p14. 9 Jack Hunn, Report on Department of Maori Affairs,24 August, 1960, (Government Printer, Wellington, 1960). Included in the Appendices to the Journals of the House of Representatives. Hunn distinguished integration from assimilation (and from two other states, segregation and symbiosis): integration was ‘to combine (not fuse) the Maori and pakeha to form one nation wherein Maori culture remains distinct’. The Swiss were an example of an integrated nation and the British one of an assimilated one; assimilation ‘may be the destiny of the two races in New Zealand in the distant future’. By culture Hunn meant ‘language, arts and crafts and institutions of the marae’, which were ‘the chief relics’. ‘Evolution’ towards integration was inevitable: “Official policy can accelerate or retard but not thwart or divert the process of self-determination.’ Urban drift, ‘far from being deplored, . . . can be welcomed as the quickest and surest way of integrating the two species of New Zealanders.’ (p15) The objectives of the welfare division of the Maori Affairs Department must be ‘to assist the Maori. . . in adapting himself to the new culture, each according to his full

345

New Territory | ability’, ‘to cultivate . . . an attitude of goodwill amongst Europeans’ and ‘to help develop in the Maori an appreciation of his own culture’. (p79) 0 Hunn, Report on Maori Affairs Department, p78. '* Oliver, Story of New Zealand, p270. The play was John Osborne’s Look Back in Anger. ‘2 And therefore, Sinclair asserts, could not be called colonial, A History of New Zealand, p317. But they were not in any way reflective of the country as a whole. '5 “New Zealand’s foes were the enemies of its allies,’ wrote John Henderson in ‘Changes in New Zealand Defence Policy’ in Richard Kennaway and John Henderson (eds), Beyond New Zealand II: Foreign Policy into the 1990s (Longman Paul, Auckland, 1991), p86. The ‘colonial’ relationship with Britain in the Second World War was distinguished from a genuine alliance, which contains notions of reciprocity of obligation, by James Belich in “War’ in Colin Davis and Peter Lineham (eds), The Future of the Past. Themes in New Zealand History (Department of History, Massey University, Palmerston North, 1991), p136. Belich dismissed some writers’ interpretation of New Zealand’s roles in the two world wars as evidence of emerging nationhood. Belich argued that while collective identity was enhanced by the war experience, ‘collective identity is not nationhood’. ‘4 Belich, ‘War’, p136. 'S See Mary Boyd, ‘Australia-New Zealand Relations’ in William S Livingstone and W Roger Louis (eds), Australia, New Zealand and the Pacific Islands (Australia National University Press, Canberra, 1979), p48. Also, Jock Phillips, A Man's Country. The Image of the Pakeha Male — a history (Penguin, Auckland, 1987) and Belich, op cit, p130ff. © WB Sutch, The Quest for Security in New Zealand 1840-1966 (Oxford University Press, Wellington, 1966), pp1-6, 17, 21. ‘7 Oliver, Story of New Zealand, pp273-74: ‘. . . individuals and communities have turned . . . to public authorities for assistance and advantage: unemployed working men, runholders, small farmers, industrial workers, importers, manufacturers, medical practitioners, teachers, writers and musicians. There has never been anyone else to whom to turn.’ ‘8 Harvey Franklin, Cul de Sac (Unwin Paperbacks, Wellington, 1984), pp22-26. '? For a good description, see Douglas C Webber, Trade Unions, the Labour Party and the Death of Working Class Politics in New Zealand (PhD thesis, Victoria University of Wellington, Wellington, 1976). 9 Oliver, Story of New Zealand, p277-78. Sutch takes it as read in the preface to Quest for Security in 1966, pxiii. 71 Sutch, Quest for Security. 22 Franklin, Cul de Sac, p27: ‘Of all the well-worn paths leading up to Parliament, that used by the advocates of private enterprise and competition in search of protection and regulation is the broadest.’ 73 See Appendix 2 for a brief summary. 24 See, for example, David Thomson, ‘Society and Social Welfare’ in Colin Davis and Peter Lineham (eds), The Future of the Past. Themes in New Zealand History (Department of History, Massey University, Palmerston North, 1991), p101. *> A description of the term conservative (and liberal and radical) as applied to temperament is contained in Colin James, The Quiet Revolution. Turbulence and Transition in Contemporary New Zealand (Allen & Unwin/Port Nicholson Press, Wellington, 1986), pp23-27. It is argued there that New Zealand politics has been “more the politics of temperament than of ideology’.

346

Notes 26 Oliver, The Story of New Zealand, p277, again furnishes an acute description: “It would be possible describe New Zealand politics without dwelling upon parties but instead concentrating upon the impact such pressure groups are able to make upon political decisions. Then parties would re-emerge as bodies responsive in greater or lesser degree to different pressure groups — the Labour Party especially sensitive to trade unionist demands, the National Party to those of farmers and businessmen.’

27 An example from my own experience was my purchase, as a teenager, of a 35mm camera in 1957 from my holiday earnings. A friend of the family owned a camera shop in another town and was willing to allow me to buy one of six he was allocated for that year. Even with the money in hand I would have found it difficult to buy a camera if it had not been for that connection. My father, now six years dead, may still be on the waiting list for a Vauxhall which he abandoned when a five-year wait for an Austin bore fruit. Modern-day Russians and east Germans, no longer Trabi-trapped, would understand. 28 One of my brothers used to buy parts that way to feed his radio construction hobby. Another was under instruction from a medical specialist he saw briefly to come in always with at least one such note which the specialist stored in a box in his office. The one-per-day rule was widely ignored; decency was observed by buying the notes at every second teller’s wicket. That way £2 or £3 of 5-shilling notes could be collected during a day’s shopping by calling in at every post office. 27 Gross domestic product figures are not readily available pre-1955, so the more readily used gross national product is used. The ratio is not greatly different. In 1966-67, tax was 24.75% of gross domestic product and 25.13% of gross national product. The 1938-39 and 194950 figures are from the 1951 Budget, table 14, for the gross national product figures and its companion assessment of the New Zealand Economy, 1939-51, Appendices to the Journals of the House of Representatives B-5, table 12 for the total taxation figures. The 1967 figure is from Taxation in New Zealand, Report of the Taxation Review Committee (known as the Ross Committee), Appendices to the Journals of the House of Representatives B. 18, p55. 39 Taxation in New Zealand, p55. 31 Oliver, The Story of New Zealand, p210, 224. 32 See Christine Dann, Up from Under (Allen & Unwin/Port Nicholson Press, Wellington, 1985), Phillida Bunkle and Beryl Hughes (eds), Women in New Zealand Society (Allen & Unwin, Wellington, 1980, and Dann and Maud Cahill (eds), Changing Our Lives: Women Working in the Women’s Liberation Movement 1970-1990 (Bridget Williams Books, Wellington, 1991). 33M K Joseph, ‘Beginnings’, Islands 27, November 1979. 34 See, for example, both Sinclair, A History of New Zealand, p286-87 (quoted in note 2 above) and the general tone of his later chapters, and Oliver, The Story of New Zealand, p207 (‘New Zealanders so unanimously chose security’) and pp278-79, describing the few liberals who were ‘more concerned with liberty than security’. 35 Jack Nagel, “Voter Turnout in New Zealand General Elections, 1928-1988’, Political Science, Vol 40, No 2, December 1988, pp16-38 and Stephen Levine and Nigel Roberts, ‘New Zealand General Election of 1990’, Political Science, Vol 43, No 1, July 1991, p9. 3° Labour’s opposition to military participation in the Vietnam war might be considered an example — but, as noted above, even the National Government of the day was reluctant to commit troops.

347

New Territory | 37 Oliver, The Story of New Zealand, p276.

Chapter 4. Fall from Grace ' Ranginui Walker, ‘The Maori People: Their Political Development’, in Hyam Gold (ed), New Zealand Politics in Perspective (Longman Paul, Auckland, 1985), p263. 2 See Christine Dann, Up from Under (Allen & Unwin/Port Nicholson Press, Wellington, 1985) for a good survey of feminist activity in the 1970s. Also Dann and Maud Cahill (eds), Changing Our Lives: Women Working in the Women's Liberation Movement 1970-1990 (Bridget Williams Books, Wellington, 1991). 3 Keith Sinclair, A History of New Zealand (Penguin, London, 1980), 3ed, p324.

* A longer description is contained in Colin James, The Quiet Revolution. Turbulence and Transition in Contemporary New Zealand (Allen & Unwin/Port Nicholson Press, Wellington, 1986), pp27-41. > In The Quiet Revolution | called this generation the Vietnam generation on the strength of the anti-Vietnam protests’ symbolisation of its radical nature and the coincidence of the protests with the visible emergence of that radicalisation. The ‘gimme’ generation is a more general and so more useful label. § See, for example, Michael Hirschfeld, ‘Opting In’, in Brian Edwards (ed), Right Out (Reed, Wellington, 1973), pp147ff Jim Eagles and Colin James, The Making of a New Zealand

Prime Minister (Cheshire; Melbourne, 1973), pp169-74, 218-19. | 7 James, The Quiet Revolution, pp42-53, pp166-68. ’ These were the words of New Zealand Prime Minister Michael Joseph Savage, declaring war on Germany alongside Britain on 5 September 1939: “... we range ourselves without fear beside Britain. Where she goes, we go, where she stands, we stand.’

Chapter 5. An End to Affluence ‘The definition of these terms is taken from Richard O’Brien, Global Financial Integration: The End of Geography (Royal Institute of International Affairs, London, 1992). This book also provides a good short summary of the internationalisation and globalisation of financial markets.

2 In 1990 there were roughly 35,000 transnational corporations with 147,000 foreign affiliates — ‘Fear of Finance’, The Economist, 19 September, 1992, p9. > O’Brien, Global Financial Integration, pp33ft. * ‘Fear of Finance’, The Economist, 19 September, 1992, pp11-12. > These figures were given in ‘Fear of Finance’, The Economist, 19 September, 1992, p9: turnover in foreign exchange in 1992 was roughly $US 900 million a day, triple the amount in 1986; between 1970 and 1988 the proportion of American government bonds held by foreigners went from 7% to 17% and the proportion of West Germany’s official debt held by

foreigners went from 5% to 34% between 1974 and 1988; between 1986 and 1990 outflows of foreign direct investment from the United States, Japan, West Germany and Britain rose from $US61 billion to $US 156 billion, an annual growth rate of 27%. ° This was sanctioned both intellectually and by international practice after 1945. Lord Keynes said of the Bretton Woods fixed exchange rate regime: “We intend to retain control of our domestic rate of interest, so that we can keep it as low as suits our own purposes, without interference from the ebb and flow of international capital movements or flights of hot money ... Not merely as a feature of the transition, but as a permanent arrangement, the

348

Notes plan accords to every member-government the explicit right to control capital movements.’ — quoted in ‘Fear of Finance’, The Economist, 19 September, 1992, p10. That is in fact what countries did. 7 Interview Hugh Fletcher, chief executive of Fletcher Challenge, 12 February, 1992. Fletcher Holdings decided in the late 1970s that it had to focus on internationally competitive activities because it took the view ‘that New Zealand would slowly open up and many of the protected positions we had would be exposed to tougher competition and that the domestic economy would be pretty static. Therefore we needed to be much more internationally competitive.’ After its merger with Challenge Corporation to form Fletcher Challenge and in the wake of controls on investing overseas being relaxed the merged company decided in 1982-83 to begin investing offshore — as Fletcher put, ‘offshore investment got added to the equation’ of resource-based, internationally competitive activities. > John Gould, The Muldoon Years. An Essay on New Zealand's Recent Economic Growth (Hodder and Stoughton, Auckland, 1985), p62. > BP Philpott, Productivity, Planning and the Price Mechanism in New Zealand Manufacturing Industry (Agricultural Economics Research Unit, Lincoln College, 1966). '© Gould, The Muldoon Years, p33. '! Philpott, Productivity, Planning and the Price Mechanism. 12 John Gould, The Muldoon Years, p65. "> Gould, The Muldoon Years, p11. Gould’s figures show average New Zealand growth per capita of 1.9% a year from 1954-67 (compared with 3.8% for the OECD as a whole), 2.2% for 1967-72 (4.1%), 2.3% for 1972-75 on the back of a wool and commodity boom (1.9%) and 0.4% for 1975-82 (2.0%). 4 The most remarkable device was the ‘electricians ratchet’, devised by Tony Neary, secretary of the Electrical Workers Union, in which his state sector workers’ wages were set off his private sector workers’ wages which had a set margin over the state sector workers, thereby perpetuating a spiral that constantly outran inflation. 'S Colin James, The Tasman Connection: A New Path (Discussion paper prepared for the Australia-New Zealand Foundation, Wellington, 1982), pp40-42. '© Colin James, The Tasman Connection, p33. 17 Warren Johnson and Ron Sandrey, ‘Land Markets and Rural Debt’, in Ron Sandrey and Russell Reynolds (eds), Farming without Subsidies (Ministry of Agriculture and Fisheries and GP Books, Wellington, 1990), p184. 18 Sandrey and Reynolds, Farming without Subsidies, p72. '9 It might be argued that the changes to labour laws at the end of 1983, which banned both compulsory union membership and the closed shop (even with unanimous agreement), would have eliminated or at least reduced the ability of workers to enforce the inflation catch-up. But few unions lost many members under the laws and the centralised award system, complete with its complex and rigid relativities, remained. Since protection remained high for manufacturers, who still as a result operated on a cost-plus basis and could pass on wage increases almost with impunity, the chance of an inflation-compensating award being negotiated was high, with a resultant near-automatic flow-on to other awards. 20 This includes special work schemes wholly or partly paid for by the Government and sometimes by local government as well. In the early 1980s the numbers on those schemes grew nearly to equal the number unemployed. 71 Gould, The Muldoon Years, p80.

349

New Territory | Chapter 6. Welfare in Crisis ' Charles Waldegrave and Rosalyn Coventry, Poor New Zealand. An Open Letter on Poverty (Platform Publishing, Wellington, 1987), p134. * Report of the Parliamentary Select Committee on Health and Superannuation, quoted in the report of the Royal Commission of Inquiry into Social Security in New Zealand (Government Print, Wellington, March 1972), p47. > David Thomson, ‘Society and Social Welfare’, in Colin Davis and Peter Lineham (eds), The Future of the Past: Themes in New Zealand History (Department of History, Massey University, Palmerston North, 1991), p103. * Report of the Royal Commission on Social Security, pp65-66. > There was accountability in the last resort. In 1989 the Minister of Health, Helen Clark, as she had the legislative power to do, fired the Auckland Area Health Board for overspending and appointed a commissioner. ® Thomson, ‘Society and Social Welfare’, p100. ” Waiting lists are not a reliable measurement because they can lengthen or shorten depending on a number of factors that have little to do with overall provision of services — For example, if more surgeons are available and there is more prospect of getting a non-urgent operation done, it is more worthwhile going on a waiting list. Some go on waiting lists as a matter of routine even when the likelihood of the operation being needed is remote. Changes in technology (for instance, a previously inoperable condition becomes operable or a non-surgical technique is discovered or more limited surgery is found to be effective) may raise or lower the waiting list. Nevertheless, in a general way a long waiting list indicates the service is falling short of demand. * See Waldegrave and Coventry, Poor New Zealand. Also Brian Easton, Social Policy and the Welfare State (Allen & Unwin, Auckland, 1980). > For example, John C Goodman and Alistair J Nicholas, Voluntary Welfare. A Greater Role for Private Charities (Centre for Independent Studies, Sydney, 1990). '© David Thomson, Selfish Generations? The Ageing of New Zealand's Welfare State (Bridget Williams Books, Wellington, 1991). '* David Thomson, ‘Society and Social Welfare’. 12 Ibid, p115.

'3 Ibid, p110. 4 [bid, p110-11. ‘> [bid, p111.

Chapter 7. A Different Way of Thinking ' Norman P Barry, On Classical Liberalism and Libertarianism (St Martin’s Press, New York, 1987), p3. John Hospers, Libertarianism (Nash, Los Angeles, 1971) p4, as quoted in Barry. > Mark Prebble, “Notes on Nozick’, paper for internal distribution within the Treasury, 29 July, 1986. * The Treasury, Government Management, Brief to the Incoming Government (Treasury, Wellington, 1987), Vol 1, p25. ‘It is clearly not possible to establish that individuals have any _ transcendental or natural rights. Rights are things we give each other.’ > The Treasury, Government Management, Vol 1, p413. ° Barry, Classical Liberalism and Libertarianism, p46.

350

Notes

Chapter 8. Collapse of Consensus ' See J Krejci, Great Revolutions Compared: The Search for a Theory (Wheatsheaf Books, Brighton, 1983). Krejci describes four typical early stages in a revolution as: onset — prolonged period of innovative, reformist moves by part of existing cultural elite, plus progressive political activation of large groups of population; institutionalisation of reformist forces, taking over old or creating new institutions; compression by the Government which tries to temporise but eventually clamps down; explosion as a result of consequential irritation.

? John Henderson, Keith Jackson and Richard Kennaway, Beyond New Zealand: The Foreign Policy of a Small State (Methuen, Auckland, 1980), particularly the essay by George Laking, former Secretary of Foreign Affairs, “The Evolution of an Independent Foreign Policy’, pp10-16. Jackson, however, (‘Attitudes and Alliances, 1945-76’, pp16-22) was less convinced of independence, discerning shift not from dependence to independence, but to ‘a range of uncomfortable dependencies’ (p17). And in the concluding chapter (‘Change and New Zealand Foreign Policy’) he discerned ‘a subconscious desire for a “protector” ’ (p262)

Chapter 9. A Radical Frame of Mind ' Geoffrey Palmer, Environmental Politics. A Greenprint for New Zealand (John MclIndoe, Dunedin, 1990), preface. 2 Colin James, ‘Social Credit and Values’, in Howard Penniman (ed), New Zealand at the Polls (American Enterprise Institute for Public Policy Research, Washington, 1980), p166. > In 1992 the National Government legislated to permit voters to dismantle a regional council and return the functions to an ad hoc arrangement between the constituent district councils. This was done in the north of the South Island. National also promised an easier path for secessionist-minded communities out of the districts into which they had been lumped, but at the time of writing no secessionist movement, the most celebrated being that of Waiheke Island, off the coast of Auckland, had succeeded in getting a majority for de-amalgamation. Enthusiasm for dismantling the regional councils similarly waned after the initial flush.

* See David McLoughlin, The Undeveloping Nation: New Zealand's Twenty-year Fall Towards the Third World (Penguin, Auckland, 1992). > Palmer was candid in acknowledging the lack of interest among others. Referring to his tidying up of the Constitution Act in 1986, a measure of relatively minor importance which among other things provided for a speedy transfer of power after an election, he wrote in New Zealand's Constitution in Crisis. Reforming our Political System (John McIndoe, Dunedin, 1992), p47: “In retrospect I don’t think any of my parliamentary colleagues or the public cared at all about this act, but for me it was a great excitement.’ © Geoffrey Palmer, Unbridled Power? An Interpretation of New Zealand's Constitution and Government (Oxford University Press, Wellington, 1979). He wrote a sequel in 1987, in which, with the experience of office, the questionmark was removed from the title. ” Palmer, Constitution in Crisis, pp58-59.

* Palmer, ibid, pp58-62. > Palmer, ibid, p60. '° Towards a Better Democracy, report of the Royal Commission on the Electoral System, December, 1986. ‘1 But only a/most invariable. Elections from 1914 to 1931 yielded indecisive results that were

351

New Territory settled only after six months in 1914 and two months in 1922 (on the narrowest of majorities and left a minority government in 1928 which then had to go into coalition in 1930. That coalition won the 1931 election. In that period only in 1919 and 1925 were there clear majorities on election night, and in 1919 that was on only 37% of the vote. Although the 1911 election was on a slightly different system, requiring a second election run-off between the two top-polling candidates if no one got 50% on the first ballot, it is conceptually close to the first-past-the-post system. In that election the Liberals at first held on to office, but were defeated in Parliament six months later and the Reform Party formed a government without an election. See Michael Bassett, Three-party Politics in New Zealand, 1911-1931 (Historical Publications, Auckland, 1982). In 1981 only a handful of votes in two electorates yielded National’s majority of two and in both 1978 and 1981 Labour got more votes than National, casting some doubt on its mandate. ‘2 Marshall wanted Richard Nottage, a career diplomat, and Moore wanted Ted Woodfield,

who had come to the Ministry of External Relations and Trade from the Department of Trade and Industry when the trade sections of both departments were merged. They compromised on Graham Ansell, then High Commissioner to Australia, who was nearing retirement. Nottage got the job when Ansell retired — after a change of government. ‘5 Mervyn Probine, “Change in the State Sector’, staff seminar at Massey University, April 1990, typescript, p17. ‘4 Private conversations with the author, September-October 1992. Informants asked not to

be identified. |

> See Mervyn Probine, ‘State-Owned Enterprises — the Checks and Balances’, Margaret Clark and Elizabeth Sinclair (eds), Purpose, Performance and Profit. Redefining the Public Sector (Institute of Public Administration, Wellington, 1986), pp105-23 and “Changes in the State Sector’, pp7ff. 16 Interview with author, 2 August, 1988 7 Huakina Development Trust v Waikato Valley Authority [1987] 2 NZLR 188, 196. '8 New Zealand Maori Council v Attorney-General, [1987] 1 NZLR 641, 673. 9 Sir Robin Cooke, ‘Introduction’, special Waitangi edition, (1990), 14 NZULR 1

Chapter 10. The Push to Independence John Henderson, “Changes in New Zealand Defence Policy’, in Beyond New Zealand II. Foreign Policy into the 1990s (Longman Paul, Auckland, 1991), p83. ? David Lange, Nuclear Free — The New Zealand Way (Penguin, Auckland, 1990), p37. 3 Norman Kirk, in Towards Nationhood (New Zealand Books, Palmerston North, 1969), p51. * For a useful discussion of this, see Stuart McMillan, Neither Confirm nor Deny. The nuclear ships dispute betweeen New Zealand and the United States (Allen & Unwin/Port Nicholson Press, Wellington, 1987), pp41-43. A Heylen poll of 9 February, 1985, found 89% in favour of warships coming to New Zealand if they were definitely not nuclear-propelled nor nuclear-armed. McMillan notes: “Had there been strong anti-American feeling in the community, such a result would not have been found.” McMillan summarises Heylen Research Centre polls on pp33-5. They show growing support for the ship ban. > RW Johnson, “Ahead lies — what?’, London Review of Books, 12 March, 1992. © The Dominion, 15 August, 1986

7 McMillan, Neither Confirm nor Deny, p154-55 quotes Bill Hayden, Australian Foreign Minister, saying at a press conference after the Anzus council meeting in August 1986 from

352

Notes which New Zealand was excluded, that ‘the United States was treating New Zealand as a friend but no longer an ally and treating Australia as an ally but no longer a friend.’ Secretary of State Shultz said in 1986, after meeting Lange at an Asean dialogue partners meeting in Manila that, “We part company as friends, but we part company.’ * “Mr Hawke or Anzus’, editorial, The Press, 27 June, 1988, quoted Prime Minister Bob Hawke as telling the United States Congress: ‘Australians must not be given reason to believe that while we are first class allies we are only second class friends.’ 9 Private discussions by the author at various times with the then Minister of Foreign Affairs, Russell Marshall, and the Secretary of External Relations and Trade, Graham Ansell, who had before his appointment as secretary been High Commissioner in Canberra. ‘© John Henderson, “New Zealand and the Foreign Policy of Small States’, in Beyond New Zealand II. Foreign Policy into the 1990s (Longman Paul, Auckland, 1991), pp6-12. '! “The myth of economic sovereignty’, The Economist, 23 June, 1990, p67. '2 Henderson, ‘New Zealand and the Foreign Policy of Small States’ p71. ‘3 Comments to the author in 1972 by David Thomson, then Minister of Defence, who had been Minister Assistant to the Prime Minister 1966-69. 4 Henderson, “New Zealand and the Foreign Policy of Small States’, p8. 5 The Defence of New Zealand: A Policy Paper (Ministry of Defence, Wellington, 1991), p54. '6 The Defence of New Zealand, Review of Defence Policy (Ministry of Defence, Wellington, 1987). 7 Towards a Pacific Island Community, report of the South Pacific Policy Review Group (Wellington, 1990). '8 David Barber, ‘Is the Pacific Really Home for the Kiwis’, Pacific Islands Monthly, May 1991, po. ')_ Terence Aschoff, ‘Japanese Language in New Zealand Secondary Schools’, Working Paper No 2 for the New Zealand Centre for Japanese Studies. 70 Rt Hon W F Birch, “New policy leads to broader spread of migrants’, press statement, 24 September, 1992, showed that new migrants coming from north Asia dropped from 40% to 10% between 1991 and the six months to June 1992 and those from south-east Asia rose slightly from 14% to 17%. Europe went from 21% to 24%. 71 A useful reference is Alan Bollard, Frank Holmes, David Kersey and Mary Anne Thompson, Meeting the East Asia Challenge (New Zealand Institute of Economic Research/Institute of Policy Studies, Wellington, 1989).

Chapter 11. A New Social Order ' Foran excellent, succinct and readable summary of the legislation, the tribunal’s work and its evolution, see W H Oliver, Claims to the Waitangi Tribunal (Department of Justice, Wellington, 1991). ? Claudia Orange, The Treaty of Waitangi (Allen & Unwin/Port Nicholson Press, Wellington, 1987), pp107-8, 115. > Oliver, Claims to the Waitangi Tribunal, pp12, 94. * Wi Parata v The Bishop of Wellington, [1877], 3 NZ Jur (NS) SC, 72, 78. 5 Te Heu Heu Tukino v Aotea District Maori Land Board [1941] AC 308. ° Keepa v Inspector of Fisheries [1965] NZLR 322. ” Te Weehi v Regional Fisheries Officer [1986] 1 NZLR 680. § New Zealand Maori Council v Attorney-General, High Court, Wellington, CP 553/87, 8

353

New Territory | 1! [bid, 664. :

October, 1987, and Ngai Tahu Trust Board v Attorney-General, High Court, Wellington, CP 559, 610, 614/87, 2 November, 1987, both unreported. 9 Huakina Development Trust v Waikato Valley Authority [1987] 2 NZLR 188, 196. ‘© New Zealand Maori Council v Attorney-General, [1987] 1 NZLR 641, 664.

12 Ibid, 664.

3 [bid, 682. 4 Claudia Orange, The Treaty of Waitangi. 'S So much so that Peggy Koopman-Boyden could choose ‘Social Policy: Has There Been One?’ as the title for her contribution to Martin Holland and Jonathan Boston (eds), The Fourth Labour Government. Politics and Policy in New Zealand, Second Edition (Oxford University Press, Wellington, 1990). ‘© Unshackling the Hospitals, Report of the Hospital and Related Services Taskforce, 5 April, 1988. 17 D Muthumala, W G Scott, J C Westrate and A Morris, Health Expenditure Trends in New

Zealand (Department of Health, Wellington, 1989), p27. ‘8 Unshackling the Hospitals, p13. '9 Interview with the author, 30 September, 1989.

Chapter 12. An Economy to Fix * Tam indebted for this phrase, as applied to the Labour Party, to Professor Keith Jackson in a private discussion, 2 May, 1992. 2 This should not be taken as evidence of successful entrepreneurialism, however. The business ran into debt problems as many fast-growing businesses do. A pig farm partnership he was involved in during the 1980s failed in March 1992 ata cost to Douglas of $1 million (The Dominion, 14 May, 1992). > Roger Douglas, “An End to Soft Options’, speech in Tauranga, 28 September 1978. * For example, in a speech to the Manurewa Rotary Club, 5 March, 1979. > Roger Douglas, ‘A Guaranteed Minimum Income’, discussion paper in the series Ideas for the Eighties, approved for distribution within the party by the education committee of the Labour Party, 10 September, 1979. ° Roger Douglas, paper circulated within the Labour Party, undated but probably 1980. ” Roger Douglas, There's Got to be a Better Way! A Practical ABC to Solving New Zealand's Problems (Fourth Estate Books, Wellington, 1980).

* Douglas, ibid p38. > Douglas, ibid, p56. ‘© This point is underlined by Brian Easton, “Labour’s Economic Strategy’ in Jonathan Boston and Martin Holland (eds), The Fourth Labour Government. Radical Politics in New Zealand (Oxford, Wellington, 1987), p134. ll Interview with the author, 24 October, 1991. 12 Interview with the author, 23 October, 1991. 13. Interview with the author, 25 October, 1991. 14 Interview with the author, 24 March, 1992. 15 Interview, 25 October 1991. 16 Interview, ibid

‘7 Interview, ibid

354

Notes 18 “Labour’s broad economic strategy seems like National’s but Caygill points out the differences’, National Business Review, 19 May, 1980, pp10-11. '? David Caygill, speech to Aggregates Association, 21 September, 1982, typescript in writ-

er’s possession. | 2° A.useful summary of this process is in W Hugh Oliver, ‘The Labour Caucus and Economic Policy Formation, 1981-84 in Brian Easton (ed), The Making of Rogernomics (Auckland University Press, Auckland, 1989), p11ff. 2! Roger Douglas, Toward Prosperity. People and Politics in the 1980s, a Personal View (David Bateman, Auckland, 1987), p29ff.

2 ibid, p30. > ibid, p30. 4 ibid, p35. > ibid, p36. 2° New Zealand Labour Party, Economic Policy 1984 (Wellington), photocopied typescript document, p2. 2” ibid, p10. 8 Tan McLean, The Future for New Zealand Agriculture (Fourth Estate Books, Wellington, 1986). 29 Colin James and Nikitin Sallee, “Lange’s hands still steady two years further on’, National Business Review, 11 July, 1986. 3° Brian Easton, Rogernomics, p67. 3! The Treasury, Economic Management (Government Printer, Wellington, 1984). 32 Economic Management, p104. > Economic Management, p105-6. 34 Economic Management, p07. >> Economic Management, p111.

3° Viz ‘.. . it is more useful to consider the question, “what set of interventions is most ap-

propriate?” than to attempt to answer those of the form, “should the Government intervene?” (p296) . . . ‘Few, if any, societies leave the entire range of “economic” activity to be determined purely by market outcomes’. . . ‘there is no reason to presume that the resulting distribution of income and wealth will be regarded as socially desirable, nor that society would be unwilling to trade a reduction in aggregate income for a more equitable outcome . . . Some government action to redistribute income in favour of less advantaged members of the community may strengthen social consensus and democratic processes and allow incentives to the improvement of individual welfare to operate with less resistance.’ (p296) ... ‘It is in those areas where efficiency concerns are not dominated by arguments favouring alternative goals (including those in which an equity/efficiency trade-off exists) that use of the market mechanism may offer some advantages.’ . . . “While market mechanisms do have some advantages in efficiency terms, there are a number of situations in which

they may fail to produce socially appropriate outcomes on efficiency as well as equity grounds.’ (p297) 37 Private discussion August 1992 with Dr Roderick Deane, who was in 1984 deputy governor of the Reserve Bank. °° Tan Dickson, “Designing a Goods and Services Tax for Australia’, address to the Victorian Employers Federation, 18 May, 1990. Dickson was the Treasury officer principally responsible for GST and for persuading Douglas to switch from retail sales tax.

355

New Territory

9 [bid. © Ibid. ‘1 A good short description of this can be found ‘Comment: The Evolution of Monetary Policy — a Critical Interpretation’, Business Outlook, National Bank of New Zealand, May 1990. 2 This was a key element in the election cycle. See, for example, the graph on p65 in James, The Quiet Revolution. *3 The best analysis to date of the reforms is in Jonathan Boston, John Martin, June Pallot and Pat Walsh (eds), Reshaping the State. New Zealand's Bureaucratic Revolution (Oxford University Press, Auckland, 1991). Note especially the contributions by Boston on the theoretical underpinnings for the reforms (Ch 1), Martin’s contrasting of the old public service ethos with the new managerialism (Ch 14) and Pallot’s analysis of the financial management changes (Chs 7 and 8). “4 The Dominion, 5 July, 1990. “5 David Caygill, Economic Strategy, document issued with the 1990 Budget, p67. “© Sir Frank Holmes and Crawford Falconer, Open Regionalism? NAFTA, CER and a Pacific Basin Initiative (Institute of Policy Studies, Wellington, 1992), p117. ‘Home goods prices are probably now [1992] about 10% higher than they would be under a free trade regime, a significant improvement on the 24% of a decade ago and 18% four years ago.’ *7 See Kym Anderson and Ross Garnaut, Australian Protectionism. Extent, causes and effects (Allen & Unwin, Sydney, 1987), pp28ff, confront and counter the usual arguments for protection in an economy similar to New Zealand’s. For example, they argue (p32) that protection does not save jobs overall, since all other industries have higher costs which cuts out an equivalent number of jobs. For a New Zealand assessment, see Ian Duncan, Ralph Lattimore and Alan Bollard, Dismantling the Barriers: Tariff Policy in New Zealand (New Zealand Institute of Economic Research, Wellington, 1992), particularly p9 where it is argued that instead of having a narrower industrial base with lower protection, ‘it is conceivable that the production base would have been wider’ because it might have encouraged ‘higher value-added, short production run manufactured goods’ and ‘production processes would have been adjusted to better suit New Zealand’s factor endowments’. The National Bank’s Business Outlook, September 1991, argued, pp5-6, that protection discourages innovation and research and development, agreed generally as important contributors to the development of the high-value-added, high-wage, high-growth economy politicians of nearly all stripes have as the goal of their economic policy. The Economist magazine has also run a number of articles summarising academic writing on the merits of unilateral deprotection.

Chapter 13. An Economy Fixed? ' A good account of how this process contributed to the destruction of a large, cash-rich company is given in V J Carroll, The Man Who Couldnt Wait (William Heinemann Australia, Melbourne, 1991), describing the ill-fated takeover of the venerable major Australian newspaper and magazine publisher, John Fairfax Ltd. The laxity of bank lending decision-making in conditions similar to those which applied in New Zealand is equally dismayingly chronicled.

? Source: Reserve Bank. > Colin James, ‘Confusing signals’, Far Eastern Economic Review, 3 March, 1989, p85. * One such, comprising unionists, clergy and academics, called itself a Sweating Commission, recalling a similarly named commission that found serious labour abuses in the 1880s.

356

Notes > Sunday Star, 22 July, 1990. ° Ron Sandrey and Russell Reynolds (eds), Farming Without Subsidies. New Zealand's Recent Experience (Ministry of Agriculture and Fisheries and GP Books, Wellington, 1990), p161.

” Sandrey and Reynolds, ibid, p162. * Economic Monitoring Group, New Zealand Planning Council, The Economy in Transition: Restructuring to 1989 (New Zealand Planning Council, Wellington, 1989), p179. ? OECD Economic Surveys, New Zealand, 1988-89 (Organisation for Economic Development, Paris, 1989), p81. '° Robert Wade, Governing the Market. Economic Theory and the Role of Government in East Asian Industrialisation (Princeton University Press, Princeton, 1990). 1! Wade, Governing the Market, p368. 12 Wade, Governing the Market, p349. 3 Wade, Governing the Market, p346. '* Paul Auerbach, ‘On Socialist Optimism’, New Left Review 192, March-April 1992, pp2425. ‘9 “Where Hong Kong has the edge, The Economist, 22 August, 1992.

Chapter 14. A More Private Place ' The Treasury, Government Management. Brief to the Incoming Government 1987 (The Treasury, Wellington, 1987).

2 Ibid, p14}. 3 Ibid, p169.

* Ibid, p23. | > Ibid, p3. ° Ibid, p4. ? Ibid, p5. * Ibid, p122.

> bid, p8. 10 [bid, p7. ‘YA very useful summary is in Gary Hawke, Government in the New Zealand Economy (New Zealand Planning Council, Wellington, 1982). ‘2 S$ Jennings and R Cameron, ‘State-owned Enterprises Reform in New Zealand’ in A Bollard and R Buckle (eds), Economic Liberalisation in New Zealand (Allen & Unwin, Wellington, 1987), p339. The six trading departments were: trading activities of the airways system, the Lands and Survey Department, Forest Service, the Post Office, the State Coal Mines and the electricity division of the Ministry of Energy. '? Nikitin Sallee, “Douglas: selling the idea of selloffs’, National Business Review, 18 September 1987, p9. ‘4 Interview, 10 September, 1992. ‘> Interview, 14 September, 1992. '6 Media seminar organised by the New Zealand Business Roundtable on 28 July 1992 17 Interview, 8 September, 1992. 8 Simon Terry, “Wary market may hold back asset-sale returns’, National Business Review, 27 May, 1988, pp1-9. 9 The Public Benefit of Private Ownership. The Case for Privatisation (New Zealand Business Roundtable, Wellington, 1992), p17. The International Monetary Fund examined in de-

357

New Territory os tail the sale of Telecom.

20 Oral comments to a media seminar on privatisation organised by the Business Roundtable on 28 July, 1992. 21 “Escaping the heavy hand of the state’, The Economist, 13 June, 1992, p69, reporting a World Bank study of three privatisations in each of Britain, Chile, Malaysia and Mexico Privatisation: the Lessons of Experience (Country Economics Department, World Bank, Washington,

1992). The World Bank found big productivity gains in 11 out of the 12 privatised companies and the twelfth, Air Mexicana, went bust because it overinvested on overoptimistic tourism projections. 22 This ‘ethos’ has been well described by John Martin, himself a former high-ranking state servant, in several publications, notably A Profession of Statecraft? Three Essays on Some Current Issues in the New Zealand Public Service (Institute of Policy Studies, Wellington, 1987),

Public Service and the Public Servant (State Services Commission, Wellington, 1991), and ‘Ethos and Ethics’ in Jonathan Boston, John Martin, June Pallot and Pat Walsh (eds), Reshaping the State. New Zealand’ Bureaucratic Revolution (Oxford University Press, Auckland, 1991). 23 The most celebrated case was the retirement of the interventionist, opinionated and abrasive W B Sutch as Secretary of Industries and Commerce, whose ideas and personality were anathema to the minister, John Marshall. Sutch was also suspected of harbouring sympathies with the communist countries and in 1977 was brought to trial (but found not guilty) on charges of passing secrets to the Soviet Union. Jack Lewin was initially denied the secretaryship of Industries and Commerce under Marshall and allowed it under his Labour successor, Warren Freer, for a strictly limited period only. 4 For a brief description of the acts see chapter 9 above. > Anna Yeatman, “The Concept of Public Management and the Australian State in the 1980s’, Australian Journal of Public Administration 46: pp339-356, quoted in Martin, ‘Ethos and Ethics’, p369. 26 Michael Jackson, “The Public Interest, Public Service and Democracy’, Australian Journal of Public Administration 47, pp241-51, quoted in Martin, Public Service and the Public Servant, p10. 27 Martin, Public Service and the Public Servant, p15. 8 Quoted in Martin, “Ethos and Ethics”, op cit, p370. 9 This point is argued, though to implausible excess, in John Goodman and Alistair Nicolas, Voluntary Welfare. A Greater Role for Private Charities (The Centre for Independent Studies, Sydney, 1990). 39 James Cox, Private Welfare (Centre for Independent Studies, Sydney, 1992), executive summary, px7ii and chapters 3 and 4. 31 M Rein, ‘Private Provision of Welfare: From Welfare State to Welfare Society’, pp9-38, in R Henderson (ed), The Welfare Stakes: Strategies for Australian Social Policy (IAESR, Melbourne, 1981), p12, quoted in Cox, Private Welfare, p20. (Italics mine.)

2 Cox, Private Welfare, pp49-59. : 33 This is established as far back as the nineteenth century theorist, J S Mill: “The state must act by general rules. It cannot undertake to discriminate between the deserving and undeserving indigent. It owes no more than subsistence to the first and it can give no less to the last . . . Private charity can make these distinctions; and in bestowing its own money, it is entitled to do so according to its own judgment.’ J S Mill, The Principles of Political Economy,

358

Notes (Parker and Son, London, 1848, 1970), p335-36. 34 In fact, the state has not withdrawn entirely. It has intervened on the employers’ side by banning strikes in support of a union or workers collective attempting to force an employer to negotiate a collective contract. But this extreme is likely to be removed or at least modified by some future government. 35 Colin James, ‘Now for the main course’, National Business Review, 16 January, 1991. 36 In his school textbook, Further Steps Towards a Welfare State since 1935 (Heinemann, Auckland, 1967), p30, W H Oliver reproduces a picture of a long column of marchers in Queen Street in Auckland headed by carpenters carrying a banner urging people to “Demand guaranteed full employment. Protest against unemployment’. This was when unemployment had risen above the post-1945 norm, but was still below 1%.

37 Mark Prebble, “Critical New Elements in Government Thinking’ in G R Hawke, ed, A Modest Welfare Net? The Future of the Welfare State (Institute of Policy Studies, Wellington, 1991). 38 Thomson, ‘Society and Social Welfare’ in Colin Davis and Peter Lineham (eds), The Future of the Past. Themes in New Zealand History (Department of History, Massey University,

Palmerston North, 1991), p111. 39 Prebble, “Critical New Elements in Government Thinking’, pp1-2. ‘0 Prebble, ibid, p3.

‘1 Prebble, ibid pS. *2 Prebble, ibid, pé. * Prebble, ibid, p6. “* Gary Hawke, ‘Commentary: Belonging and Participating in Constrained Circumstances’, in Hawke (ed), A Modest Safety Net?, p69. *5 Thomson, ‘Society and Social Welfare’, pp115-16.

Chapter 15. The Politics of Pain ' For a more detailed description of the parties’ conduct and tribulations from 1987-1990, see Colin James and Alan McRobie, Changes? The 1990 Election (Allen & Unwin/Port

Nicholson Press, Wellington, 1990), pp61-114. ,

? Eric Hobsbawm, “The Crisis of Today’s Ideologies’, New Left Review 192, March-April 1992, p6l. 3 Paul Auerbach, ‘On Socialist Optimism’, New Left Review 192, March-April 1992, p23. * For example, G A Cohen , ‘The Future of a Disillusion’, New Left Review 190, November-December 1991, pp5-20: “We now know that the traditional socialist view about the market’s lack of planning was misconceived. It failed to acknowledge how remarkably well the unplanned market organises information and, indeed, how difficult it is for a planning centre to possess itself of the information about preferences and production possibilities dispersed through the market in a non-planning system. Even if the planner’s computer could to wonders with that information, the problem is that there are systematic obstacles to gathering it: to that extent, von Mises and Hayek were right.’ Cohen also dismissed the argument by Marx and Engels that planning represented ‘humanity rising to consciousness of and control over itself: “Individual self-direction, a person’s determining the course of his own life, may have value per se, but collective self-direction does not.’ But ‘the market distributes in unjustly unequal amounts’ and ‘it motivates contribution not on the basis of commitment to one’s fellow human beings and a desire to serve them while being served

359

New Territory | by them, but on the basis of impersonal cash award’ and in those areas Cohen says socialism has a contribution. (pp17-18). See also, for example, British Labour MPs Austin Mitchell, eg, in Competitive Socialism (Unwin Paperbacks, London, 1989) and Britain Beyond the Blue Horizon (Bellew, London, 1989), and Brian Gould, A Future for Socialism (Jonathan Cape, London, 1989) for less theoretical and more practical approaches to the same issues.

> RW Johnson, ‘Ahead lies — what?’, London Review of Books, 12 March 1992, reviewing Chester Hartman and Pedro Vilanova (eds), Paradigms Lost: The Post Cold War Era (Pluto, 1991) and Christiane Lemke and Gary Marks (eds), The Crisis of Socialism in Europe (Duke University Press, 1992). 6 The underlying conditions which led to that dislocation in the United States are discussed in Robert Kuttner, The Life of the Party. Democratic Prospects in 1988 and Beyond (Penguin, London, 1988). For a specific reference to Dukakis, see ppx#f. First published in Viking Penguin, 1987. ” A good description of this phenomenon and the profile of support is to be found in Robert Kuttner, The Revolt of the Haves (Simon and Schuster, New York, 1980). 5 Jack Nagel, “Voter Turnout in New Zealand General Elections, 1928-1988’, Political Science, Vol 40, No 2, December 1988, pp16-38 and Stephen Levine and Nigel Roberts, ‘New Zealand General Election of 1990’, Political Science, Vol 43, No 1, July 1991, p9. > For example, Bruce Jesson, Behind the Mirror Glass (Penguin, Auckland, 1987), Fragments of Labour (Penguin, Auckland, 1989 and ‘The Disintegration of a Labour Tradition: New Zealand Politics in the 1980s’, New Left Review 192, March-April 1992, Bruce Jesson, Alannah Ryan and Paul Spoonley, Revival of the Right. New Zealand Politics in the 1980s (Heinemann, Auckland, 1988) and Hugh Oliver, “The Labour Caucus and Economic Policy Formation, 1981-1984’ in Brian Easton (ed), The Making of Rogernomics (Auckland University Press, Auckland, 1989). © Kuttner, The Revolt of the Haves, pp18-19. 't Royal Commission on Social Policy, New Zealand Today, pp403ff, particularly pp445-48, 486-509. '2 Royal Commission on Social Policy, New Zealand Today, p537. 5 Hyam Gold and Alan Webster, New Zealand Values Today (Massey University, Palmerston North), pp20-24, 6-7; see also the tables. '* For a fuller account, see Colin James, The Quiet Revolution. Turbulence and Transition in Contemporary New Zealand (Allen & Unwin/Port Nicholson Press, Wellington, 1976), pp79ff. 'S RD Muldoon, The Rise and Fall of a Young Turk (Reed, Wellington, 1974), p8. '¢ James, The Quiet Revolution, p84ff. Citations are drawn from all of Muldoon’s books in that passage.

17 James, The Quiet Revolution, pp85-87, 93, 108-9. '8 Tn his official 50th anniversary of the party — The First 50 Years (Reed Methuen, Auckland, 1986), p125 — Barry Gustafson quotes a ‘longterm woman activist’ as saying that before Muldoon became leader ‘ “I could have gone into a room and known it was a National Party gathering just by glancing around but [after he became leader] I'd go to the National Party gatherings and think I was at the local football club... He brought a whole new group in”.’ ‘2 James, The Quiet Revolution, pp111ff.

360

| Notes 20 Ibid, pp127ff. 71 See the graphs at the end of chapter 6, Colin James, with Alan McRobie, The Election Book (Allen & Unwin, Wellington, 1978), pp74-77. 22 As, for example, summarised by Christine Jennett and Randal G Stewart in their introduction to their jointly edited book, Politics of the Future. The Role of Social Movements (Macmillan, Melbourne, 1989), pp2-9. 73 National Business Review, 8 August, 1983, p7. * Kuttner, The Life of the Party, ppix-x. > Another bit of mythology, which was misconceived by Bruce Jesson, was that I was an active supporter of the cabal. Jesson in various places has stated that I ‘publicised’ those arguing for ‘new right’ economic nostrums from the late 1970s. I did pay a lot of attention to the emergence of those ideas in political debate and expression, such that in 1982 or 1983 Professor Robert Chapman remarked that I was ‘looking for the revolution of the right’. As a journalist, however, I am bound to examine currents and to inquire where they might lead. At the same time as Jesson has supposed me to have been ‘publicising’ (that is, pushing as distinct from tracking or recording) the more-market ideas, I was also tracking and writing extensively about the rise of the liberal-left in the Labour Party organisation and about the rise of the Social Credit Political League and what it might represent (to such an extent that one senior Labour official inquired seriously whether I was a Social Crediter). By contrast, I did not in 1983-84 write much about the New Zealand Party, which I regarded as a movement, not a party, and therefore likely to have limited impact and a limited future; yet, if 1 was pushing, as distinct from tracking, the ‘new right’, I would surely have devoted more effort and space to ‘publicising’ that party. For the past three years I have been looking out for a credible political riposte to the dominance of market-obsessed policy approaches and now that it is beginning to emerge in a politically credible form in New Zealand I am tracking it. This does not, however, make me a ‘publicist’ of the ‘new left’. In passing, it bears noting that no one has ever produced any evidence that anything I have written or have said on radio or television has influenced anyone to take or not take some action in relation to government policy. 26 Private discussion with Geoffrey Palmer, May 1988. *” Geoffrey Palmer, New Zealand's Constitution in Crisis. Reforming our Political System (McIndoe, Dunedin, 1992), p144. * Colin James, “Commentary on Leadership’, in E M McLeay (ed), The 1990 General Election. Perspectives on Political Change in New Zealand (Department of Politics, Victoria ~_ University, Wellington, 1991), p73. Also James and McRobie, Changes?, pp63-64. 2? The distinction in content between what the Labour techno-liberals thought they were doing (market-economics plus the welfare state) and the market-libertarianism they were accused of is described in Colin James, “The Rise and Fall of the Market Liberals in the Labour Party’, in Margaret Clark (ed), The Labour Party after 75 Years (Department of Politics, Victoria University, 1992), pp11-27. Using the the terminology ‘market-liberal’ and market-libertarian’ the distinction was drawn thus: ‘Market liberals generally agree that:

—markets generate wealth, that is, economic welfare, better than any other form of economic organisation —clear price signals are important to the efficient wealth-creating functioning of markets —price signals are clouded by almost every government intervention in markets; this es-

361

New Territory , pecially applies to border protection and protective internal regulation of business; such interventions should therefore be kept to a minimum consistent with social objectives and sound functioning of markets —however, some market activities themselves occlude price signals and in some economic activity markets disappear, in which case government intervention is necessary to secure economic welfare —price signals are an important indicator of the efficiency and therefore effectiveness of gov-

ernment administration —governments are inappropriate owners of commercial enterprises because governments often or usually set conflicting objectives for commercial enterprises they own and because governments should not put taxpayers’ money at commercial risk, both on grounds of competence as commercial operators and on grounds of trusteeship —economic welfare is one element of general welfare, which also includes self-fulfilment, good health, adequate housing, leisure and emotional and spiritual fulfilment —markets are inappropriate or ineffective mechanisms for creating some other elements of general welfare objectives or their economic welfare outcomes may compromise social welfare; in the case of social welfare objectives, the government has an active role to intervene, as agent of the people, to achieve those objectives, either by regulating, managing or supplanting markets; however, even in those cases, there may be some role for price signals to guide consumer responses —in pursuit of social welfare objectives the government denies economic resources to economic welfare-creating activity and can have other effects on economic welfare creation; the government has a responsibility to set a balance between economic welfare creation and government-created social welfare such that each is optimised. Market-libertarians, on the other hand, generally delseve: — individuals are the basic unit of economic organisation — individuals know what is good and right for them; governments do not; individuals make rational economic choices in their own best interests

—governments have a very limited and maybe no role in intervening in markets for economic welfare objectives —markets are an appropriate organisation for delivery of much social welfare; governments need intervene only to the extent that markets do not deliver social welfare to some people —delivery of social welfare is akin organisationally to delivery of economic welfare; social welfare delivery agencies are “businesses” with “clients” and “consumers”.’ 30 A faint echo was heard at the inaugural NewLabour Party conference at Labour Weekend, 1989, when members of the tiny Permanent Revolutionary Group argued (unsuccessfully) against the party adopting strong border protection measures. 31 James Thorn, Peter Fraser (Odhams, London, 1952), p45-46. On 10 December, 1916 Fraser made a speech in which he said: ‘For the past two years we have been looking at the ruling classes of Europe spreading woe, want and murder over the Continent and it is time that | the working classes of the different nations were rising up in protest against them.’ He was sentenced to a year in jail for sedition. In October 1918 he was elected to Parliament in a by-election. 32 Roger Douglas, Toward Prosperity. People and Politics in the 1980s. A Personal View (David Bateman, Auckland 1987), p37. 3 Hon R O Douglas, Financial Statement, 18 June 1987, p1.

362

Notes ** Douglas, speech to Canterbury Chamber of Commerce, 30 March, 1988. *> Jonathan Boston, “The Theoretical Underpinnings of Public Sector Restructuring in New Zealand’, in Boston, John Martin, June Pallot and Pat Walsh (eds), Reshaping the State. New Zealand’ Bureaucratic Revolution (Oxford, Auckland, 1991), pp2-11.

3° This is not necessarily so. There have been widespread complaints about the low level of skill of many New Zealanders. It may have been ‘equitable’ in the sense of rewarding effort and skill, for something like the 1985-87 redistribution to have taken place. But whatever the dubious merits of that argument (many of the high-flyers proved to have alltoo-meltable wax on their wings), it is irrelevant to the question of whether it was at odds with Labour tradition: the redistribution contravened Labour notions of equity. 37 Peter Dunne, speech to the northern South Island regional conference of the Labour Party, 1 May 1992, typescript, pp1-2. *8 Sir Roger Douglas, Winter lecture at Massey University, 10 July, 1992, typescript. * Douglas, Winter lecture. *° Interview with author, 22 August, 1991. See also Colin James, The new lobbyists. Getting high on ideas’, Management Magazine, October 1991, p44ff for a discussion of the change in lobbying. In that article David Caygill describes his early brushes with manufacturers as their appearing to assume that ‘really you could develop policy on a sensible basis if you understood their specific firm needs’. *! Burdon himself cryptically commented from his sickbed to me that macroeconomic policy was agreed and while there is still debate on microeconomic policy that debate amounted to ‘footnotes’. Colin James, “National in the nineties, Listener, 19-25 August, 1989. *2 Stephen Rainbow, “The Unrealised Potential for Green Parties: a Study of Four Green Parties’, unpublished doctoral thesis, Victoria University of Wellington, p61. Rainbow’s analysis is a very useful introduction to the intricacies, complexities, opportunities and misplaced hopes of green political movements.

Ibid, p55. ** Royal Commission on Social Policy, New Zealand Today, particularly pp513, 520, 521, 524, 538.

*° Gold and Webster, New Zealand Values Today, appendix A, table 3.0. 4° Jack Vowles and Peter Aimer, Voters’ Vengeance. The 1990 Electio and the Fate of the Fourth Labour Government (Auckland University Press, Auckland, 1993), (forthcoming). *7 In a private conversation with a very senior minister-to-be, I asked why the party, in the light of its knowledge of the state of the Budget deficit projections, did not jettison its promises and take a crisis message instead to the electorate. The answer from the minister, who for the time being must remain anonymous but was subsequently at the centre of the radical shift in policy immediately after the election, was simply: “We can’t.’ Ironically, had the promises been jettisoned, the Government would have a smaller and thus more manageable and less independent-minded majority and with that more cohesion in what became an extremely turbulent and unpopular year in 1991. And it would have had a ‘mandate’ of sorts. ** Colin James, ‘Now for the main course’, National Business Review, 16 January, 1991, p 1 Off.

Chapter 16. Time Out ' See Appendix 4. 7 Most enthusiastically used by Finance Minister Ruth Richardson, for example, in Colin

363

New Territory James ‘Helping us to bring out ourselves’, National Business Review Magazine, 9 August 1991, p10ff. > Sir Roger Douglas, speech in the Massey University winter lecture series, 10 July, 1992. * See, for example, Richard Mulgan, Democracy and Power in New Zealand (2ed), (Oxford University Press, Auckland 1989, p65. > Douglas, Massey speech, op cit. ° By contrast with the New Zealand experience, the Australian Liberal/National coalition released a very detailed tax and economic package, Fightback, in November, 1991, around 16 months before the expected date of the next federal election. ? Interview, 22 September, 1992. * Martin Holland and Jonathan Boston, The Fourth Labour Government. Politics and Policy in New Zealand, 2ed (Oxford University Press, Auckland, 1990). > A sample from 1990-92: Jane Kelsey, A Question of Honour? Labour and the Treaty (Allen & Unwin/Port Nicholson Press, Wellington, 1990), Jonathan Boston and Paul Dalziel (eds), The Decent Society? Essays in Response to National's Economic and Social Policies (Oxford University Press, Auckland, 1992), David Novitz and Bill Willmott, New Zealand in Crisis (GP Publications, Wellington, 1992). 10 Jonathan Boston and Martin Holland (eds), The Fourth Labour Government. Politics and Policy in New Zealand. Second Edition (Oxford University Press, Auckland, 1990) and Boston, John Martin, June Pallot and Pat Walsh, eds, Reshaping the State. New Zealands Bureaucratic Revolution (Oxford University Press, Auckland, 1991) '1 Jonathan Boston and Paul Dalziel, The Decent Society? Essays in Response to National's Economic and Social Policies (Oxford University Press, Auckland, 1992. ‘2 Richard Mulgan, “Why politicians can’t be trusted for advice on electoral reform’, National Business Review, 14 August, 1992, p8. ‘3 An example is Professor Ian Shirley, director of the social policy research centre at Massey University, who as recently as 1991 argued in ‘Unemployment — its realities and human costs’ in Raymond Pelly (ed), Towards a Just Economy (Combined Chaplaincies, Victoria _ University of Wellington, Wellington, 1991) pp21-42, that New Zealand after 1984 could have rejected ‘disinflation’, with its unemployment-inducing effects, and instead ‘charted a development course based on economic sovereignty, a secure domestic market and an institutional commitment to full employment as he said Sweden, Japan, Switzerland, Norway and Austria did in the response to the ‘global economic crisis of the 1970s’. But that is exactly what New Zealand did until 1984 and it produced spiralling inflation and unemployment. In addition, most of the above countries gave considerable policy weight to getting and/or keeping inflation down. And in mid-September 1992 Sweden was forced into a drastic deflationary package. ‘4 Jane Kelsey, A Question of Honour, p262. '5 In Scott McVarish, The Greening of New Zealand. New Zealanders’ Visions of Green Alternatives (Random Century, Auckland, 1992), scarcely any of the green activists interviewed for the book noted positive greenwards developments during the previous eight years. '6 Chris Rudd, ‘The Changing Structure of Public Expenditure’ in Boston, Martin, Pallot and Walsh, Reshaping the State, pp149-50. '7 Norman P Barry, On Classical Liberalism and Libertarianism (St Martin’s Press, New York, 1987), p46, noted that the ‘scientific’ assertion by libertarians (that is, that their analyses and prescriptions were value-free) ‘is not that they confused explanation and recommen-

364 |

| Notes

dation (they didn’t) but whether [libertarianism] can be sustained on a “scientific” basis alone’. But there was a measure of validity: as Barry noted, the difficulty with the ‘scientific’ assertion ‘is not that they confused explanation and recommendation (they didn’t) but whether [libertarianism] can be sustained on a “scientific” basis alone’. And the fact that libertarianism did share some base assumptions, despite its multi-strandedness and its divergences, did not make it easy to adopt a la carte approach by proponents and opponents. 8 “PDL expects 50% export growth’, The Dominion, 24 September, 1992, p18.

Chapter 17. New Territory ' Richard Nottage, ‘New Zealand and a New World Order’, address to the Bankers Association annual dinner, 1 September, 1992. ? Sir Frank Holmes and Crawford Falconer, Open Regionalism? NAFTA, CER and a Pacific Basin Initiative (Institute of Policy Studies, Wellington, 1992). > Nottage, address to Bankers Association. He rejected a Japan-Germany- United States version of the tripolar world advanced by recently retired New Zealand High Commissioner to London Bryce Harland as insufficiently acknowledging the degree of interdependence of modern economies.

* A six-part series by the Singapore newspaper, New Paper, October 1992, portrayed New Zealand as having a ‘sensible Government’ but ‘short-sighted voters’ who were work-shy, drawing counterfire from NewLabour MP Jim Anderton in the New Zealand Herald, 26 October, 1992. > Joel Kotkin, “They Order These Things Worse in Europe’, Guardian Weekly, 13 October, 1991, p20. © Bryce Harland, On Our Own. New Zealand in the Emerging Tripolar World (Institute of Policy Studies, Wellington, 1992), p98. ” Nottage, address to Bankers Association. John Martin, ‘Leadership in the New Zealand Public Service — an Historical Perspective’, Public Sector, Vol 14, No 3, September 1991, p4. > Nottage, address to Bankers Association. © Denis Hussey, Agricultural Marketing Regulation (New Zealand Business Roundtable, Wellington, 1992), pxi and elsewhere. ') See especially Harvey McQueen, A Quakty Partnership: The Transition between Education and Employment (Institute of Policy Studies, Wellington, 1992), a study of the interface between ‘education’ and ‘training’ for industry for a demonstration of that failure. '? Private discussion, 8 September, 1992. 3 Interview, 22 September, 1992. 4 Interview, 22 September, 1992. '> Colin James, ‘Finding the appropriate role for the state’, National Business Review, 6 July, 1990.

'© David Hale, ‘The Coming Golden Age of Capitalism’, Asian Wall Street Journal, 12 November, 1991. '7 Eric Hobsbawm, “The Crisis of Today’s Ideologies’, New Left Review 192, March/April 1992, p59. "8 A useful summary and brief reply to his critics can be found in Francis Fukuyama, “The “End of History” Debate’, The National Interest, No 18, Winter 1989/90, reprinted in Dialogue

No 89, 3/1990, pp8ff. | 365

New Territory | '9 Stephen Rainbow, “The Unrealised Potential of Green Politics: A Study of Four Green Parties’, unpublished doctoral thesis, Victoria University of Wellington, 1991, pp41-45, 301-8, esp p307. 70 Neal Ascherson, ‘Bring on the hypnotist’, London Review of Books, 12 March 1992, review-

ing Robin Blackburn (ed), After the Fall: The Failure of Communism and the Future of Socialism (Verson, London, 1991).

71 Hobsbawm, “The Crisis of Today’s Ideologies’, p59. ,

Chapter 18. Making a Home ' There were exceptions. Sir Roger Douglas entitled his 1987 book Toward Prosperity. Ruth Richardson has a vision of a contented and fulfilled society of self-reliant individuals. But neither has been able to fashion a rounded, national, goal to which people can easily relate. And both voices were drowned in the static of the heavily negative effects (for most people) of what they did in economic and budgetary policy. 2 Values Party, Blueprint for New Zealand, (Values Party, Wellington, 1972), p2. > Dell Wihongi, in Scott McVarish, The Greening of New Zealand. New Zealanders’ Visions of Green Alternatives (Random Century, Auckland, 1992), p182. * Masha Denisova, ‘A change to see ourselves as others see us’, The Dominion, 13 November, 1991, p13.

Appendix 2. The Ideas Behind the Welfare State ' See William Pember Reeves, The Land of the Long White Cloud (Golden Press facsimile reprint, Chrischurch, 1980), pp282-92, 308-23 and G R Hawke, Government in the New Zealand Economy (New Zealand Planning Council, Wellington, 1982). ? Though this was a pragmatic bid for the votes of the landless who hoped to profit from the break-up of the big estates, it could be given impeccable liberal credentials by reference to John Locke’s proviso (in justifying private ownership of land) that there must be some left for others, an idea which would have had a powerful appeal in a ‘young’ country with wide tracts of underused land.

> In the United States, where ‘socialism’ gained little hold in a country dedicated to the rugged individual, ‘liberalism’ has come to mean what Europeans and Australasians know as social democracy. That is, if you take the defence element of liberalism far enough you can end up with policies close to social democracy. It is perhaps noteworthy that Sir Robert Muldoon, New Zealand Prime Minister and Minister of Finance from 1975-84, while practising social democratic policies, called himself a liberal.

1987), p13. ,

Appendix 3. The Intellectual Challenge to the Welfare State

' Norman P Barry, On Classical Liberalism and Libertarianism (St Martin’s Press, New York, ? Murray N Rothbard, The Ethics of Liberty (Humanities Press, New Jersey, 1982), pv.

Appendix 4. Was it a Revolution? ' Hannah Arendt, On Revolution (Penguin Books, London, 1973), p35.

2 Ibid, p43.

366

Notes

> ‘Ibid, pp115-16. * David Close, “The Meaning of Revolution’ in Close and Carl Bridge (eds), Revolution: a History of the Idea (Croom Helm, Beckenham, 1985), p2.

> Ibid, p2. ° Ibid, p2. ? Ibid, p3. $ Ibid, po.

'! bid, p7. |

> Jaroslav Krejci, Great Revolutions Compared: The Search for a Theory (Wheatsheaf Books, Brighton, 1983), p5. 10 Ibid, p6.

12 Ibid, po.

3 Ibid, p6. ‘4 Bill Brugger and Kate Hannan, in “Modernisation and Revolution’ in Close and Bridge, Revolution: a History of the Idea , p120. 'S J C Davies, “Towards a Theory of Revolution’ in American Sociological Review, XXVII No 1 (1962), pp 5-19.

‘6 Brugger and Hannan, ‘Modernisation and Revolution’, p131. '7 Richard DeAngelis, ‘France, May 1968: A New Kind of “Revolution”’, in Close and Bridge, Revolution: a History of the Idea , p220. "8 Close and Bridge, Revolution: a History of the Idea , p134.

367

INDEX: NEW TERRITORY 113, 114, 310; and 4th Labour Govt, 114115

Abortion, 238; and Labour Party, 242, 256

Arbitration Court, 27, 60

226 Arendt, Hannah, 340

Accident compensation, 76, 77, 81, 224,

Accountants (see also Society of Arthur Anderson (firm), 138 Accountants), 167, 174, 185 Asia (see also Malaysia, New Zealand-

Aged, generational equity in welfare, 71, Foreign relations-Asia), 43-44, 47, 293, 82-85; health services for, 81; history of 296, 298 services for, 230 Assimilation policies, 13, 33, 94;

Agnew, Spiro, protests against visit to NZ, challenged, 38, 128-129, 130 87

Associations (see also Trade unions,

Agriculture (see also Kiwifruit, Ministry of Women's organisations), 16-17 Agriculture and Fisheries, Supplementary

minimum prices), 7, 24-26, 31-32, 66; Auerbach, Paul, 235

and technology, 53-54; as focus of NZ's

economic activity, 305; drop in farm Auckland Savings Bank, 178 values, 190; exports, 24-25, 33, 47, 58-

59, 62, 181, 187, 305; subsidies and Austin, Margaret, 246

SMPs, 1, 57, 59, 63, 64, 67, 259; Muldoon and, 63-64; support phased out, Australia (see also CER, NZ-Foreign

152, 158, 168, 175, 176; results, 187, relations-Australia), 43, 185, 186, 190,

191, 280; taxation, 30, 168 191, 193, 194, 237; possible NZ

federation with, 294-295; relations with

Aimer, Peter, 268 USA, 115

Aims and values, 255 Backbone Club, 271 Air New Zealand, 159, 166, 202, 205- Balance of payments (see also

206, 207, 208, 210, 212 Debt,Overseas, Economic policy, Exports, Imports), 54-56, 59, 180-181, 182,

Alatas, Ali, 119 187-188; and Muldoon, 61-62, 66, 67 Alcohol, control of, 18, 30, 31, 133 Bank of New Zealand, 159, 202, 203, 206, 207; losses, 177, 178; sale of, 210-211,

Alliance Party, 263-264, 316-317 212, 214

Anderton, Jim (see also Alliance Party, Banks and banking (see also Credit cards, NewLabour Party), 112, 147, 244, 245, Monetary policy, and individual banks eg

257, 263, 317, 318 Bank of NZ, PostBank), and government control, 26, 203; collapses, 177-178;

Andrew, Doug, 147 deregulation, 153; results, 173, 174

Angus Construction, 177 Bassett, Michael, 112, 136, 146, 198, 245

Antarctica, 119-120; protection policies,

100, 266 Bastion Point, 126, 127

Anzus (see also Treaty alliances), 44, 112, Bayliss, Len, 186, 305

payments, Debt, Overseas, Economic

Bazley, Margaret, 132 policy), 1, 59-60, 67, 172-173, 182, 195, 196, 250, 268-269, 312; and social Becker, Gary, 336 policy, 139, 162; cuts in spending, 161, 171; to be funded within NZ, 156

Belgrave, John, 159-160 Burdon, Philip, 121, 194, 261 Bell, Daniel, 6, 86 Business (see also Financial services,

Bendon (firm), 186 Industrialisation, Manufacturing, and individual companies eg Brierley Bentham, Jeremy, 335 Investments, Fletcher Challenge,

Equiticorp, Robert Jones Investments), and Biculturalism (see also Maoris, Maoritanga, Labour Party, 260; and National Party,

Pacific Islanders, Population), 110-111, 259-260; collapses afer sharemarket

131-132, 290, 300-301, 324 crash, 177; deregulation, 170; foreign

ownership, 178-179; in 1990s, 306;

Bidwill, Charles, 186 insolvencies, 178; management

improvements, 185-186, 304; more Bill of Rights (see also Civil rights, Human competitive, 185-187; operating

Rights Commission), 105, 134 environment, 162, 183-184; state

assistance, 170, 310, 312; under CER,

Birch, Bill, 149, 261, 262 116-117

Birds, black stilt, 229 Business Roundtable, 90, 211, 237, 274; Births, ex-nuptial, 72

and privatisation, 213-214

Butcher, David, 144, 205, 245 Bolger, Jim (see also National Government,

1990-1992), 210, 260-261, 274, 296 Cadbury Schweppes, 186 |

Bollard, Alan, 176 Campbell, Rob, 146, 176, 246 Boston, Jonathan, 252, 285, 287 Capital punishment, abolition of, 21 Bougainville (see also South Pacific), 120 Capitalism (see also Social democracy,

Socialism), 314-315, 320-321, 330

Brash, Don, 143

Carter Holt Harvey, 179, 182 Brierley, Ronald, 211

Cartwright, Silvia, 132

Brierley Investments, 174, 179,

207,210, 211, 212 Caygill, David, 83, 100, 144-145, 146, 147, 198, 211, 212, 216, 245, 249,

British Gas, 211-212, 216 259, 284, 308; and privatisation, 144 Broadcasting (see also Radio, Television), Censorship, 18-19, 133 and Douglas, 142

Centre for Independent Studies, 90

Brugger, Bill, 342 CER (see also Australia, New Zealand

Buchanan, James, 89, 225, 337 Australia Free Trade Agreement, NZ-

Foreign relations-Australia), 53, 64-65,

Budget deficits (see also Balance of 115-117, 169, 176, 282, 288, 290,

294-295, 304-305, 310 Commonwealth Games (1990), 119

Ceramco, 186 Communicate New Zealand, 159 Chambers of Commerce, 22 Conformity (see also Prosperity

consensus), 12-13; declines, 42-43

Chase Corporation, 174, 177

Conservation See Environment

Child benefit, 83, 225 Conservation Act, 130

Chilwell, Mr Justice, 110, 129 Conservation Department, 101 Chinese in New Zealand, 17

Consultants, 199, 217-218 Church of England, 128

Consumerism, 173, 179 Civil rights (see also Bill of Right, Human

Rights Commission), 133-134 Constitutional reform (see also Electoral

reform, Parliamentary reform, Statute of

Clark, Helen, 80, 100, 109, 115, 132, Westminster, Treaty of Waitangi), 99,

139-140, 141, 198, 218, 222, 243, 104-108, 123; economic policy and, 108-

246, 248, 249, 253, 256, 258 110; Maori policy and, 110-111, 123 Clear Communications (see also Cook Strait ferries, 202 Telecommunications), 166, 206

Cooke, Robin, 110, 129-130 Close, David, 341

Cooper, Michael, 138 Closer Economic Relationship with Australia

See CER Cooper, Warren, 112 Clubs See Associations Countrywide, 178 Clutha River, water rights, 101 Court of Appeal, 102, 105, 110, 129130, 131

Coal mining, by CoalCorp, 179, 184; State

Coal Mines, 144, 202, 203, 204 Cox, James, 222 Colonialism (see also Independence, Credit cards, 156 International relations, Nationalism), 7-8,

10-11, 14-15, 33, 36, 42, 44, 93-94, Credit ratings (see also Budget deficit,

99, 103, 117, 295 Debt,Overseas), 55, 181

Commerce (see also CER, Exports, Imports, Crime, 1, 31, 72, 180, 239, 279; mass

GATT, Manufacturing, Ministry of murders, 280 Commerce, Trade Development Board),

compared with Australia, 185; Crimes Act, 105-106

diversification of markets, 58, 297-298, 305; globalisation, 47-50, 295-296; NZ Cullen, Michael, 248, 250, 266, 269 terms of trade, 54; state assistance, 1/70, 312; with Asia, 121-122, 296, 297; with Culture See Maoritanga, Social conditions Latin America and Eastern Europe, 297;

with United States, 115, 296-297 Davies, J C, 342

DeAngelis, Richard, 343 249; and "revolution", 340; background and

ideology, 141-143, 251-253, 258; Debt, Overseas (see also Budget deficit, criticises changes, 190-191; on Credit ratings, Economic policy), 1, 55- privatisation, 205, 207, 211; Treasury

195, 196, 322; and asset sales, 207-208

56, 59, 65, 67, 180, 181, 182, 188, briefing (1984), 150-152 Dukakis, Michael, 236

De Cleene, Trevor, 245, 253

Dunne, Peter, 144, 194, 246, 254-255

Defence policy (see also Frigates, Ministry

of Defence), 115, 118-119, 295; and Durie, Eddie, 126, 128, 131 Australia, 115; reform, 103 Dyson, Ruth, 255 Democrat Party (see also Social Credit

Political League), 263, 264 Economic conditions (see also Balance of payments, Budget deficit, Debt,Overseas,

Department of... See name of department, Depression, Economic policy, Incomes, eg Conservation, Health, Social Welfare. See _ Inflation, Interest rates, Investment,

also Ministry of... Poverty, Prices, Prosperity consensus, Standards of living), after restructuring,

Depression (1930s) (see also Economic 172-196, 276-290, 341-343; after

conditions), 5, 11, 15 sharemarket crash, 177- 183; and Britain, 14; and Muldoon, 61-69; and US, 14; as

Devaluation (see also Exchange rate, described by Treasury in 1984, 150-152; Monetary policy), 60-61, 67-68, 149, boom, 1980s, 173-177; deep recession,

158 170-171, 179-183;182;depression, 1980s, education and, 79-80; end to

Development Finance Corporation (see also affluence, 47-70, 276-277, 281; for

Zealcorp), 159, 174, 202-203, 212, women, 183; globalisation, 47-49, 53; in

215; collapse, 178, 212 Asia, 7; in 1940s-1960s, 5-7. 9-35; In

1970s, 1-2, 36-37; in 1990s, 196, 273,

Dickson, lan, 152 279, 287-290; politics and restructuring, 280-281, 303-309, 324; success of Divorce (see also Single mothers), 31, 72, restructuring, 183-188, 322-326 280, 289 Economic management, 150-152 Doctors (see also Health services,

Hospitals), 26, 33, 77, 198; general Economic policy (see also Agriculture,

practitioners, 136, 221 Balance of payments, Budget deficit, Credit ratings, Economic conditions, Exports,

Domestic purposes benefit (see also Single Import licensing, Imports, Inflation,

mothers), 72-73, 225-226, 240 Investment,Foreign, Monetary policy, Prosperity consensus, Taxation), and CER,

Douglas, lan, 64 116-117; and constitutional reform, 108110; and farming, 305; and Maoris, 134,

Douglas, Ken, 191 183; and market philosophies, 307-309, 314-316; and women, 132, 134, 183; Douglas, Roger (see also names of his capital returns needed, 167-168; changing

publications), 89, 90, 108, 109, 112, public attitudes, 188-190; conflict with

136, 137, 141, 145, 146, 147, 148, social policy, 134-137, 140, 197-199; 192, 193, 245, 247, 250, 252, 253, critics of restructuring methods, 1/72-

254, 256, 257, 262, 271, 273, 283; and 173, 176, 190-196; December 1987 deregulation of financial markets, 176- package, 248-249, 254; dictates change in 177; and Lange, 149-150, 197, 248- role of state, 197-200; diversification of

markets, 58-59, 297-298, 305; ideologies of Roger Douglas, 142-143, Electricity (see also Hydroelectrcity), 62,

146-148, 251-252; ideologies of 202, 206, 210; corporatisation, 165;

officials, 145-147; Keynesian economics, nuclear generation, 113; power shortages,

19, 194-195, 330, 333; libertarian 215, 228-229; prices, 165

influences, 89-92, 252-253; Muldoon's policies, 61-70, 93, 94; NZ compared with Electricorp, 163, 164, 165, 166, 205,

other countries, 191-194; of Labour Party 215, 228, 254; job losses, 179 after 1990, 254-255, 310, 311-313; of National Government, 1990-1992, 261- Elliot, Royce, 220 263, 311-313; post-Rogernomics era,

234, 254-255, 268-269, 290, 309- Elworthy, Peter, 259, 260

310, 311-313; prosperity consensus regulation, 26-32; Rogernomics, 99, 122, Emigration (see also Immigration), 180

141-171, 271, 281-282; results of Rogernomics, 172-188, 276-290; Employment Contracts Act (see also

sequencing errors in restructuring, 172, Industrial relations, Labour force, Trade

176-177, 191, 252; state intervention unions), 163, 226-227, 272, 289

again possible, 194-195, 310 Employment policies (see also Hours of

Economic Stablisiation Act, 20 work, Labour force, NZ Employment

Service, Unemployment), 23-24, 163,

Education (see also Marshall,Russell, 229, 239, 279 Ministry of Education, Picot,Brian,

Teaching, Universities), 1, 29-30, 82, Energy (see also Electricity, Gas,Natural,

198, 200, 239, 240; and economic Hydroelectricity), and industrialisation, 2, performance, 79-80; and employment 49, 62-63

opportunities, 306-307; and technology,

77; Asian languages, 121; cuts, 138; Enterprise Council, 194

failures, 78-80; of women, 133;

privatisation, 221-222, 254, 262, 309, Environment (see also Antarctica, 313-314; restructuring, 137, 139, 160- Conservation Dept, Green philosophies, 161, 272, 282, 308; zoning and choice, Greenpeace, Manapouri, Palmer,Geoffrey,

223 Recycling, Resouce Management Act, Royal Forest & Bird Protection Society, Whales),

Egalitarianism (see also Individualism), 32, 87, 94, 238, 240, 242; and anti17; and financial deregulation, 254; nuclearism, 113, 114, 237; international incomes and, 140, 183, 267, 280, 285, issues, 119-120; parliamentary 302-303; lack of, in welfare, 81; Labour commissioner, 101; reforms, 99, 100-

Government and, 124, 277 103, 290

Elections (see also Political parties), Equal pay (see also Wages, Women), 133, manifestos and broken promises, 272-273; 254 party swings, 237; voting patterns, 35;

1984 election, 148-149, 241, 259-260; Equiticorp, 174, 207, 211; collapse, 177

1987 election, 241-242; 1990 election, 261-262; Tamaki by-election (1992), European Economic Community (see also 263-264; Wellington Central by-election NZ-Foreign relations-United Kingdom), 53;

(1992), 264 Britain and, 44, 46, 47, 118; NZ relations with, 299

Electoral reform (see also Constitutional

reform, Parliamentary reform, Exchange rate (see also Devaluation, Foreign Proportional representation), 106-107, exchange), 66-67, 69, 172, 175, 183-

237, 274-275 184, 312

153-154; trading in, 63 Export Guarantee Corporation, 159

Foreign policy See International relations Exports (see also Agriculture, Economic

policy, Imports, Manufacturing, Wine), Forestry (see also NZ Forest Products), 55-56, 175, 322; after deregulation, 175, 196, 202, 204, 298; cutting rights sold,

186-187; agricultural, 24-25, 33, 47, 159; native forest log ban, 100-101, 322

66, 181, 187, 305; effect of high wages on,

60-61; manufacturing, 25-26, 58-59, Forestry Corporation, 184

62, 186, 187, 304-305; Muldoon and, 62-63, 65-70; need for change, 69-70; to Frame, Alex, 110 Asia, 121-122; to UK, 44, 47, 58; to USA,

14, 58, 115, 118 Frame, Janet, 12-13, 14

Falklands War, 93-94, 118 Franklin, Harvey, 16 Family, 16, 31; family support, 29 Fraser, Peter (see also Labour Government, 1935-1949), 250 Family benefit See Child benefit

Fraud, 174, 178 Farming See Agriculture Freedom (see also Independence), and moral

Fay Richwhite (firm) (see also Richwhite, issues, 133-134; desire for, 5; post-

| David), 174, 177, 211 World War 2 generation and, 40-41, 141, 278-279

Federated Farmers of NZ, 22, 228, 259,

260 Friedman, Milton, 86, 89, 146, 336

Feltrax, 179 Frigates (see also Defence policy), 116, 117

Fernyhough, John, 260

Fukuyama, Francis, 315-316 Fiji (see also South Pacific), 120, 176 Gair, George, 67, 260-261 Financial services (see also Business,

Monetary policy), after crash, 177-178; Gallaghers, 187 during boom, 174

Galvin, Bernie, 141, 146 Fish Protection Act (1877), 125, 129 Gambling, 31, 133, 280 Fisher & Paykel, 177, 186 Gamma Foundation, 269

Fisheries, drift-net fishing banned, 101,

115, 119, 322; Maori claims, 126, 128, Gandhi, Rajiv, 119 129, 131-132, 308

Fletcher, Hugh, 181 | Gangs, 94

Gas, Natural, 62-63, 66, 126, 203

Fletcher Challenge, 49, 122, 131, 179,

181, 209, 210, 211, 216 GATT, 115, 121, 296

Foreign exchange (see also Exchange rate, Genealogy, 122 Monetary policy), 2, 28, 51-52; Bretton

Woods system, 51; deregulation, 152, Gibbs, Alan, 90, 136, 143, 248, 260

Globalisation (see also International Guiness Peat (firm), 177 relations), 47-50, 117, 279, 295, 296, 311, 321; of information, 299; of money, Gulf War, 114, 118-119 50-53, 117, 299-300, 312, 317 Hannan, Kate, 342

Goff, Phil, 100, 139, 144, 245 Hardie Boys, Mr Justice, 129 Goldcorp, 178

Harland, Bryce, 305 Goods and services tax (see also Taxation),

157, 179, 272 Harris, Peter, 147, 269

Gould, John, 70 Hawke, Gary, 231-232 Government departments (see also Health Computing Service, 159 Privatisation, Public service, State-owned

enterprises, and names of individual Health Department (see also departments), changed role, 227-229; Bassett,Michael, Clark,Helen, Health charges for services, 158, 199, 220-221, services, Hospitals, Upton,Simon), new role 228; commercialisation, 110, 143, 144, of, 227; politicised, 109; restructured,

153, 163-165, 209-210; cuts to 180

resources, 161-162; departmental rivalries, 220; inefficiences, 163-164, Health services (see also Accident 203-205; reforms, 159-160, 184-185; compensation, Doctors, Health Dept, reasons for privatisation, 165-167, 203- Hospitals, Prescriptions, Social welfare),

205, 206-210; sales, 210-215; 29, 75, 77, 82, 188, 239, 240, 279; and

opposition to sales, 214, 215-217 technology, 71, 76-77; cost of, 30, 67,

77, 138; cuts, 182; failings, 78; improved

Government Life Insurance Office, 201 management, 184-185, 188-189; private insurance, 78, 138, 224; privatisation,

Government management, 200-201 221, 223-224, 227, 309, 313-314;

203 248, 253

spending on, 138, 161; structural reform, Government Office Accommodation Board, 136-137, 138-139, 198; user charges,

Government Stores Board, 203 Hegel, Georg, 315 Government Printing Office, 159, 211 Henare, James, 127 Government Supply Brokerage Corporation, | Henderson, John, 117 159 Hensley, Gerald, 109 Green Party (see also Alliance), 263, 264-

265, 316-317 Hercus, Ann, 146, 147

Green philosophies (see also Environment, Hillary, Edmund, 119

Values Party), 87, 237, 264-266, 309, 316, 321-322; and 4th Labour Govt, 100- Hobson, William, 37-38 103, 246; and Values Party, 101, 264 Hobsbawm, Eric, 235, 315, 318, 320 Greenpeace, 265

Hohepa, Pat, 124-125, 126, 127 Greig, Mr Justice, 129

Holland, Martin, 285 167, 168-169, 175, 181 Holmes, Frank, 32 Income support, 71, 73, 82, 136, 226 Holt, Jim, 147 Incomes (see also Standards of living), 140, 183, 267, 280, 285, 302-303; of Homosexuality, 18, 30, 238; and Labour farmers, 175 Govt, 124, 133, 134, 256; and National

Govt, 256 Independence (see also Colonialism, Nationalism), 36, 46, 122-123, 27/7, Honours, 14 290, 295, 324-325; and CER, 116-117; and Labour, 112-116, 118-120, 322-

Hospitals (see also Doctors, Health 323, 325-326; and National, 118-119, services), 77, 188, 198; capital return, 120 167; management, 75-76, 138-139,

184-185, 188-189, 256; numbers of Individualism (see also Libertarianism), 7, operations, 137, 185; privatisation, 201, 15-17, 19, 92; and individual

217-218, 221, 256, 262, 272, 284, responsibility, 226-229, 231, 233, 325309, 313; privatisation rejected by 326; and social security, 23-24, 86; and

Labour, 254, 308, 314; staff salary South African sport, 23; and National Party, increases, 138, 198; waiting lists, 138 259; and welfare state, 86-89, 331, 334339; in new society, 325

Hours of work, 26-27, 50 Industrial relations (see also Employment

Housing (see also Clark,Helen, Housing Contracts Act, Labour force, Trade unions), Corporation, Ministry of Housing), 1, 29, 185, 253, 254, 323; views of Labour and

80,82, 137, 138, 191, 224, 227, 239, National Parties on, 313 262, 279, 309; home ownership, 16, 30,

31; mortgage costs, 189; prices, 174 Industrialisation (see also Business, Manufacturing, names of projects eg NZ

Housing Corporation, 222, 227; as SOE, Steel, Marsden Point oil refinery), 2, 49,

248, 253, 254; mortgages sold, 159 62-63, 166, 190, 202, 261; debts, 6566

Human Rights Commission, 134 Industries Development Commission, 63

Hume, David, 334-335 Inflation (see also Economic conditions,

Hume Industries, 186 Economic policy), 1, 31, 59-60, 61, 66, 67, 68, 154-156, 172-173, 182, 183,

Hussey, Denis, 305 191, 250, 290, 312, 322; and unemployment, 154-155

Hydroelectricity (see also Clutha River,

Electricity), 164, 204 Inland Revenue Department, 157 Immigration (see also Chinese in NZ, Intellectually Handicapped Children's Emigration, Refugees), 12-13, 301; from Society, 217 Asia, 121, 293, 298, 301 Intelligentsia, 322, 325; analyses "quiet

Import licensing, 25, 26, 27-28; and revolution", 284-287, 322-323; Dunne, 144; and Muldoon, 63-64; challenges welfare state, 334-339 removed, 169

Interest rates (see also Economic conditions,

Imports (see also Exports, Motor cars, Economic policy), 1, 26, 83; and budget Wine), 25-26, 55-56; deregulation, 166- deficits, 156; controls removed, 63, 149,

153-154; rates soar, 172-173, 175-176 1975), 112, 244

Interlock (firm), 187 Kiwifruit, 62 International relations (see also Kondratieff, Nikolai, 11-12 Globalisation, Ministry of External

Relations and Trade, NZ-Foreign relations, Krejci, Jaroslav, 341-342 United Nations), 14; changes in 1970s,

43-44, 45, 93; Muldoon and, 93-94; in Krueger, Anne, 172 1990s, 293-300, 310; revolutionised in

1980s, 99, 103, 112-123, 285; rise of Kuttner, Robert, 243-244, 266

Asian influences, 293, 296, 298

Labour force (see also Employment

Investment (see also Economic conditions, Contracts Act, Hours of work, Industrial Economic policy), 182; deregulation, 167- _ relations, Trade unions, Unemployment), 1;

168, 170; in agriculture, 57, 58-59, cost of, 77; in Australia, 116; increased

175-176; in Asia, 122; in Australia, 116; productivity, 185, 304; lack of skills, 79in manufacturing, 175-176, 186, 288, 80, 305-307; new legislation, 163; on 306; in Think Big projects, 65-66, 166; farms, 24; self-employed, 16 investment companies, 175, 176, 178;

retail deposit companies, 175-176; Labour Government (1935-1949) (see returns from, 57; SOEs and, 165-166 also Fraser,Peter, Nash,Walter), 28, 29, 245, 250; and doctors, 33; and Maoris, 13;

Investment, Foreign, 49, 175, 177, 186; and pensions, 73; economic policies, 250; by Asians, 121-122, 186, 298; Douglas World War II controls, 20 welcomes, 143

Labour Government (1972-1975) (see

Jeffries, Bill, 246 also Kirk,Norman, Rowling,Bill), 41, 93, 289; and local government reform, 103, Johnson, R W, 236 104; and Waitangi Tribunal, 124-125 Jones, Robert (see also New Zealand Party, Labour Government (1984-1990) (see

Robert Jones Investments), 241 also individuals eg Caygill, Clark, Douglas,

Lange, Palmer), 87, 95, 100, 141, 285;

Joseph, M K, 34 and environment, 101-103, 285; and trade unions, 134-135; and Treaty of Waitangi,

Judge Corp, 174 110-111, 122-123, 124-131, 134, 285, 286, 287; and women, 132-133,

Judges (see also Courts, and names of 134, 183, 242-243; as "new right", 249individuals eg Cartwright, Chilwell, 255; class background, 141-142, 242; Richardon, Williamson), 106; first woman constititional reform, 104-110, 123;

chief district court judge, 132 development of economic policies, 146148; economic idealogies, 142-146, 249-

Kelsey, Jane, 286, 287 255; economic policies in practice, 152171, 190-192, 245-248, 285; first

Kerr, Roger, 90, 145 days, 149-150; foreign policy, 112-123, 285; ideologies, 242-245, 249-255; Keynes, Maynard, 19, 194-195, 330, 333 _ intelligentsia and, 284-287; local government reform, 103-104; on role of

King, Annette, 245 state, 197-233; public opinion and, 281284; radicalism of, 99-111; social

Kirk, Alf, 146 policies, 124-139, 197-198, 226, 229233, 254, 286-287, 322; support of

Kirk, Norman (see also Labour Govt, 1972- business sector, 260

287, 334-339; and Labour, 249-255; and Labour Party (see also Anderton,Jim, National, 253; and social cohesion, 309; NZ Dyson,Ruth, Wilson,Margaret), 21, 22, politicians and, 89-92, 309 27, 41. 100; and anti-nuclearism, 113, 310; and industrial relations, 313; and Lion Nathan (see also Myers, Doug), 186 Maori, 124, 243, 310-311; and Muldoon, 94: and National Development Act, 101; and Lobbying, 228, 258-259; and National,

Rogernomics, 234, 245-252; and social 259

class, 141-142, 241-244; and women,

39, 124, 132, 133, 242-243; changing Local government, reform of, 103-104,

support base, 256-258, 266-268; 161, 282

economic policies 1990s, 254-255, 266270, 271, 289, 310-314; social policies McCahon, Colin, 14

1990s, 310-314

McGillicuddy Serious Party, 263 Land development, 202

Macintyre, Duncan, 256

LandCorp, 159, 214 MacIntyre, Hamish, 256 Lands & Survey Department, 228

McKinnon, Don, 120, 121, 261

Lane, Walker, Rudkin, 185-186 McLagan, Rob, 259

Lange, David, 100, 106, 109, 112, 119,

120, 141, 145, 146, 149-150, 197, McLay, Jim, 260

198, 199, 212, 226, 245, 247, 248, 276; and Anzus, 114; and Douglas, 197, MacLean, lan, 64, 148 248-249; failure as PM, 248-249 Maharey, Steve, 255

Latimer, Graham, 126-127, 128, 130 Malaysia, 118, 176, 186, 288 Law, and Treaty of Waitangi, 129-130;

reform, 105-106 Mana Motuhake Party, 38, 127

Law Society, 22 Manapouri, Lake, 32, 265 Lawyers, 26, 167, 174, 185 Manufactuers' Federation, 22, 64, 183, 228, 259-260, 271

Legislative Council (see also Parliamentary

reform), 35, 108 Manufacturing (see also Business,

Industrialisation), 1, 67-68; after

Liberal Government (1890s), 331 sharemarket crash, 179; and technological change, 53-54; boom and, 175, 191;

Liberal Party (see also Alliance), 256 export tax incentives, 59, 62, 67; exports,

58, 66; gains from deregulation, 185-187;

Liberalism (see also Social democracy, globalisation, 47-49; improved Socialism), 19-21, 141, 146, 330-331; management, 185-186, 188-189, 304;

and Labour, 242-244, 268, 277; and improved productivity, 304, 305;

1970s generation, 40-42, 239; and social investment needs, 175-176, 186, 306;

democracy, 332 protection, 18, 25, 32-33, 49-50, 59, 80, 81; protection reduced, 63-64;

Libertarianism (see also individual protection lost, 153, 158, 168, 176, 186; theorists eg Friedman, Nozick, Rand, Von state assistance renewed, 310, 312-313 Hayek), 86-89, 141, 146, 200, 276,

Manukau Harbour, 126 Ministry of Education (see also Education),

Maori language, 126, 131; Kohanga Reo, 158, 180, 227 218

Ministry of External Relations and Trade

Maoris (see also Assimilation policies, (see also International relations, New Biculturalism, Fisheries, NZ Maori Council, Zealand-Foreign relations,

Maoritanga, Race relations, Treaty of Nottage,Richard), 109 Waitangi, Waitangi Tribunal), 2, 10, 12,

16-17, 31, 34, 94, 323; and education, Ministry of Housing (see also Housing

79: and National, 271; and Treaty of Corporation), 227 Waitangi, 124-125, 289; devolution of

control, 130-131, 300; land grievances, Ministry of Women's Affairs (see also

282, 289; 1990s policies, 310-311; Women), 132

renaissance, 1970s, 37-38, 41, 110111, 124, 127, 129, 132, 238-239, Ministry of Works and Development, 158,

280, 300-301; sovereignty of, 128-129, 163, 228 286, 287; urbanisation, 13, 79

Monarchy, and New Zealanders, 14

Maoritanga (see also Biculturalism, Maori

language), 12, 122, 130, 311; in Monetary policy (see also Banks and

government depts, 131; role of iwi, 300- banking, Credit cards, Devaluation,

301 Exchange rate, Financial services, Foreign exchange), 2, 26, 28, 33; deregulation,

Marijuana, 133 152-156, 167; deregulation errors, 172, 176-177, 191, 192; deregulation results,

Marsden Point oil refinery, 63, 65 172-173, 174, 176-177, 254; Friedman and, 89; globalisation, 50-53; Reserve

Marshall, John, 114 Bank Act, 108; under Muldoon, 69

198, 247 247, 255

Marshall, Russell, 109, 119, 120, 138, Moore, Michael, 100, 109, 141, 146,

Martin, John, 220 Morgan, Gareth, 306-307 Marx, Karl, 6, 20, 235, 315, 318 Motor cars, 1, 168, 185; Japanese secondhand imports, 181

Matrimonial Property Act, 289 Motunui claim, 126 Matthews, Bob, 208 Moyle, Colin, 245

Matthewson, Clive, 246 Muldoon, Robert (see also National Party),

Mining (see also Coal mining), 101, 144 61-70, 86, 93-95, 118, 135, 144, 145, 146, 149, 157, 190, 191, 192, 228, Ministry of Agriculture and Fisheries (see 258, 259, 260, 261; deregulation of

also Agriculture), 158, 220, 228 business, 170; foreign policy, 119-120; Robsmob, 240-241, 244

Ministry of Commerce (see also Trade and

Industry Dept), 228 Mulgan, Richard, 283, 285 Ministry of Defence (see also Defence Myers, Douglas (see also Lion Nathan), 145 policies), 184; battle over executive head,

109 Myles, Gilbert (see also Liberal Party),

256 "New Right" See Libertarianism NAFTA See New Zealand Australia Free

Trade Agreement New Zealand Australia Free Trade Agreement (NAFTA) (see also CER), 47, 58, 65

Nash, Walter, 250, 251 New Zealand Dairy Board, 183

National characteristics See Egalitarianism, Individualism, Nationalism, | New Zealand Employment Service (see also

Social conditions, Utilitarianism Unemployment), 223

National Development Act, 101 New Zealand-Foreign relations-Africa (see also South Africa), 119, 297, 310

National Development conference, 27, 33

New Zealand-Foreign relations-Asia (see

National Film Unit, 159 also Asia, Malaysia), 119, 120, 121-122, 310

National Government (1949-1957, 1960-

1972) See Prosperity consensus New Zealand-Foreign relations-Australia (see also Australia, CER, New Zealand

National Government (1975-1984) See Australia Free Trade Agreement), 43, 45,

Muldoon, Robert 47, 115-116, 294-295

National Government (1990-1992) (see New Zealand-Foreign relations-Pacific (see also individuals, eg Bolger, McKinnon, also Bougainville, Fiji, New Caledonia,

Richardson, Upton), 105, 106-107, 109- South Pacific), 93, 118, 120-121, 294,

110, 114, 118, 120-121, 131-132, 310 135, 158, 159, 161, 162, 163, 167,

171, 180, 181, 182, 183, 198, New Zealand-Foreign relations-United

199,210, 214, 215, 220, 221, 222, Kingdom (see also European Economic 223, 224, 225, 230, 232, 235, 237, Community, United Kingdom), 7, 9, 10-11,

248, 253, 255, 262-263, 284, 285, 29, 33, 36, 93-94 310-314

New Zealand-Foreign relations-United

National Party, and environmental issues, States (see also Nuclear ships, United

101; in 1950s-1960s, 21-23; Muldoon States), 1, 2, 7, 29, 33, 44-45, 87, 93,

and, 240-241, 258, 259; problems caused 282, 299, 310; anti-Americanism, 112by Rogernomics, 259-260; social policies, 114; free trade and, 296-297; National

89, 313-314; support base, 258; Govt and, 118-119; post non-nuclear

tranformation to Ruthanomics, 261-263; relations, 114-115 post-Ruthanomics, 270-271, 289-290,

310-314 New Zealand Forest Products, 179

National Provident Fund, 202, 212 New Zealand Insurance Bank, 177-178 Nationalism (see also Colonialism, New Zealand Maori Council, 130 Independence), 114, 119-120, 123, 131,

295 New Zealand Party (see also Jones, Robert),

Neilson, Peter, 100, 144, 145, 146, 245

95, 113, 241

New Zealand Planning Council, 188 “New age" philosophies, 87

New Zealand Post, 163, 164, 166, 204,

New Caledonia, 120 206, 208-209, 210, 215, 218, 254;

closes post offices, 182-183, 215, 272, South Pacific), 37, 43, 45, 301 284; prices, 166; profits, 184; rural

delivery, 210, 217 Palmer, Geoffrey, 91, 100, 101, 135, 141, 144, 146, 245, 247, 258; and New Zealand Railways, 163, 164, 165, constitutional reform, 104-108; and 201, 203-204, 205; corporatisation, Treaty of Waitangi, 110; as Minister of 164-165, 166; job losses, 179; profits, Environment, 100, 102-103, 247; as

184 Prime Minister, 119-120, 171, 249

New Zealand Shipping Corporation, 65, Panama, US intervention, 115 203; sold, 159 Parliamentary reform (see also Legislative

New Zealand Steel, 65, 177, 179, 207; Council), 106; senate proposed, 107-108 sold, 159, 207, 210-211 Peace movement, 113, 114; and Labour

NewLabour Party (see also Alliance, Party, 242

Anderton,Jim), 244, 245, 255, 263, 264,

316, 317 Pearson, Frank, 299-300

North American Free Trade Agreement, 296 Pensions (see also Domestic purposes benefit, Social welfare, Superannuation),

Nottage, Richard (see also Ministry of 72, 74, 137; cuts by National Govt, 162, External Relations and Trade), 295-296, 180, 182, 183, 199, 262, 272, 273;

297, 298, 299, 305 fraud, 136; inequities, 81; Labour Party and cuts, 314; level of pensions, 73, 83,

Nozick, Robert, 90, 265, 338-339 180; targeting, 138, 225-226, 231, 250-251

Nuclear ships (see also NZ-Foreign

relations-USA), 2, 93, 94, 103, 112- Perot, Ross, 237 114, 117, 118, 254, 282, 322

Peters, Winston, 237, 256, 258, 270,

Nuclear weapons, 46, 99, 113, 237, 310; 274, 317-318 National Party and, 261

Petrocorp, 65, 159, 206, 207, 209, 210, Offe, Claus, 316 211-212, 216

Oliver, Bill, 11, 14, 31-32, 34, 45, 222, Petrol, 166 321, 335 Petrol, Synthetic, 65, 66, 126; Synfuels

Olympic Games, Moscow (1980), 119 sold, 159

Ombudsman, 21 Philips, Bill, 154 Orange, Claudia, 122, 131 Picot, Brian, 137, 248

O'Regan, Mary, 132 Planning Tribunal, 101, 102, 129 Overseas debt See Debt, Overseas Political ideologies See Capitalism, Liberalism, Libertarianism, Populism,

Ozone, 101 Radicalism, Social democracy, Socialism PDL Holdings, 304-305 Political parties (see also Elections,

Electoral reform, individual parties eg

Pacific Islanders (see also Immigration, Alliance, Democrats, Greens, Labour,

Liberals, Mana Motuhake, National, freezes, 68, 145, 149 NewLabour), 33, 35; and economic policies,

281-283, 311-313; and foreign policy, Prisons, privatisation of, 218, 222 310; and Maori policy, 310-311; amd social policies, 313-314; broken election Privatisation (see also Government promises, 272-273; ideological challenges, departments, Public service, Social 234-235; minor party voting, 236-237, conditions, Social welfare, State-owned

263-264; public disenchantment, 107, enterprises), 139, 143, 158-159, 160,

272-275, 276, 280-281, 285; 197, 199-233, 217, 252, 268-270,

realignment caused by Rogernomics, 255- 272, 2/3, 2/7, 285, 312; and social 259, 270-272; similarities in policies of service dimension, 215-216, 220, 252,

major parties, 310-314, 325 254; benefits, 208-210; choice, 223-

236; competition and, 205-206; ends,

Political system, 238, 273-275, 276; 309; management of sales, 210-215;

changes, 283-284 opposition to sales, 214, 215-217; prices received, 159, 199, 210-214; Popper, Karl, 12 privatisation of public service, 218-223; reasons for privatising, 165-167, 203Population (see also Births, Chinese in NZ, 205, 206-210; under National, 262 Maoris, Pacific Islanders), diversity of,

37-38, 298, 300-301; earlier Probine, Mervyn, 109 differences, 301-303 Property (see also Housing), during boom, homogeneity, 12-15, 122; generational

174; farm property, 190 Populism, 234, 241, 243-244; and Labour, 266-267; and Muldoon, 258; and Proportional representation (see also

Peters, 317-318 Electoral reform), 106-107, 271, 2/74 Ports, stevedoring costs, 165, 166 "Prosperity consensus", 6-7, 9-35, 279; and British cultural supremacy, 13, 37-

Post offices See New Zealand Post 38; and colonialism, 14, 36, 42; and conformity, 12-13, 42; and

PostBank, 159, 164, 178, 182, 201, 203, egalitarianism, 17; and farming, 24-26;

209, 213, 214, 215; profits, 184 and individualism, 15-17; and Labour Party, 41, 245; and liberal social

Poverty, 80-82, 323 democracy, 19-21; and National Party, 21-23, 241; and political parties, 238;

Prebble, Mark, 89, 90, 230-231 and quest for security, 17, 278-279; and

state, 18; and welfare state, 23-24, 82-

Prebble, Richard, 83, 100, 112, 141, 85, 278; challenges to, 7-8, 31-32, 34, 146, 206-207, 211, 212, 245, 248, 36-37; economic policies during, 27-30;

249, 250, 253 ends, 36-46; lack of consumer choice, 5051; Muldoon tries to maintain, 61-69, 93-

Prendergast, James, 129 95; Muldoon fails, 69-70, 93-95, 237 Prescriptions, 77; fees, 139, 158, 224, Proudhon, Pierre Joseph, 88 253-254 Pryke, Phil, 307 Press Association, 122 Public Finance Act (see also State Sector

Prices, 1, 17, 60, 140, 168, 189; Act), 108-110, 159-160, 162, 219

agricultural, 54, 187; controls removed, 63, 153, 168; effects of corporatisation of Public opinion, on politicians, 273-274;

government services, 164-165, 166, 184; on Rogernomics, 188-190, 282-284,

318-219; on social services, 239-240, 268, 308-309; on state's role, 268, 308- Registered Securities Ltd, 178 309 Religion, 31, 280 Public service (see also Government

departments, Privatisation, Public Finance Research, 170 Act, State-owned enterprises, State Sector

Act), 1, 33-34; and childcare, 133; and Reserve Bank, 154, 155-156, 172-173, Maori, 130-131; and Rogernomics, 145- 183-184, 203, 237, 250, 261, 312; 147; and technological change, 77; business _ first woman board member, 132

terminology, 139-140, 199, 226;

constitutional changes, 108-110; Reserve Bank Act, 108, 154, 261 consultants and, 199; contracted out work,

217-218; financial management of, 160, Resource Management Act, 101-103, 229, 184, 199, 221, 254; inefficiencies, 203- 266, 282, 285, 322; and local government 205; management practices, 76, 108, reform, 104; and Treaty of Waitangi, 130 159-160, 219, 254, 312; Muldoon and, 67; politicisation, 109-110; privatisation, Retailers’ Federation, 22 218-223; reform of, 159-160, 163-

167, 180; reform ideologies, 89-90, "Revolution", theoretical analysis of, 340252-254; role, 20-21, 201-203; role of 343

executive heads, 108-109, 159-160,

219-220, 221; salaries, 160, 163 Richardson, Mr Justice, 110, 130

Public Trust Office, 201 Richardson, Ruth, 90, 181, 211, 22/7, 253, 256, 261, 270, 273

Pulp and paper industry, 49, 58, 185,

186, 202 Richmond Smart (firm), 174, 177

Race relations (see also Assimilation Richwhite, David (see also Fay Richwhite),

policies, Biculturalism, Chinese in NZ, 211 Maoris, Pacific Islanders), attitudes, 240,

300-301; changes, 99, 103, 124-132 Robert Jones Investments (see also Jones, Robert), 174, 182 Radicalism, 40-42; right-wing radicalism, 237; within 4th Labour Government, 100, "Rogernomics" See Douglas,Roger,

103, 111, 283-284, 321 Economic policy

Radio, 12, 14, 21, 203, 204; and Maori, Ross, Peter, 206 128; Eurocentrism, 122 Rowling, Bill (see also Labour Govt, 1972-

Raglan golf course, 127 1975), 142, 145

Rainbow, Stephen, 264 Royal Commission on Social Policy, 135, 136, 200, 239, 268

Rand, Ayn, 90, 265, 337-338 Royal Commission on Social Security, 73,

Rata, Matiu, 124, 126, 127, 128 136, 231

Rawls, John, 327 Royal Forest & Bird Protection Society, 265

Recycling, 101 Rudd, Chris, 287 Refugees (see also Immigration), 299 Rural Bank (see also State Advances

Corporation), 24, 202-202, 209; sold, Education, Family, Gambling, Gangs, Health

159, 210 services, Homosexuality, Hospitals,

Housing, Incomes, Maoris, Population,

“Ruthanomics" See National Government, Poverty, Religion, Royal Commission on

1990-1992, Richardson, Ruth Social Policy, Royal Commission on Social Security, Standards of living, Technological

Saunders, Barrie, 142 change, Women), 8, 9-10, 12, 13, 16-17, 19-21, 30-31; cultural diversity, 300-

School buses, 217 301; cultural links with Britian, 14-15, 122; cultural links with US, 14-15, 39;

Science, 170 changes post-war, 40-46, 82-83, 99-

100, 141; changes 1970s, 71-75; changes

Scientific and Industrial Research affect political situation, 238-239, 255-

Department, 158, 180, 220 259, 272-275, 309-319; changes affect welfare, 77-78; effects of economic

Scott, Graham, 109 restructuring on, 182-183; generational diversity, 301-303; income span widens, Sesquicentenary, 325 140, 183, 267, 280, 285, 302-303; morality, 30-31, 133-134; of Maori, Sex education, 133 131-132, 323; of women, 132-134;

regulation and, 26-27, 30; revolutionised

Sharemarket, 173-174; crash, 177 in 1980s, 99, 124-140, 258, 276-290,

320, 322-326, 341-343; revolution and

Shipley, Jenny, 75 public support, 282-284; social cohesion, 307-309

Shirley, lan, 285 Social Credit Political League (see also

Shultz, George, 112 Democrat Party), 113, 241, 263

Sinclair, Keith, 34, 39 Social democracy (see also Liberalism,

Socialism), 19-21, 33, 91-92, 141, Single mothers (see also Domestic purposes 249-251, 284-285, 320, 330-333;

benefit), 72-73, 225-226 challenges, 37, 86; failure, 234-236

Smith, Adam, 334-335 Social mobility, 10, 11 Smith, Murray, 212 Social policy (see also Social conditions,

Social welfare), and economics, 134-137, SMPs See Supplementary minimum prices 140, 153, 162; consensus or social contract, 327-329; Labour's policies,

Sniveley, Suzanne, 132 124-140

Social class (see also Egalitarianism), 10, Social welfare (see also Accident 234-235; and 4th Labour Govt ministers, compensation, Domestic Purposes Benefit, 141-142; and women, 133; changes, 7/0; Education, Health services, Hospitals, equality, 17, 31; fragmentation of middle Housing, Income support, Pensions,

classes, 235, 238-239, 266-268; Poverty, Superannuation, Unemployment,

inequities in standards of living, 140, 183, Voluntary welfare), 1, 6-7, 36-37, 322;

267, 280, 285, 302-303; middle class changes in 1970s, 71, 74-75, 178;

and income, 303-304; middle class and changing attitudes, 73-74, 82; conflict

state, 239-240 with economic policy, 134-137, 153,

162, 183, 197-199; cost of, 29-30, 72,

Social conditions (see also Abortion, Aged, 74-78; continued government role in, Alcohol, Births, Censorship, Conformity, 229-230; effectiveness questioned, /8-

84; effects of unemployment on, 180; 40, 119, 282; 1981 Springbok tour, 239, fragmentation of management, 71, 75; 256 history of, 163-164, 201-203, 331; inefficiencies, 163-164, 203-205; Standards of living (see also Incomes), 56, inequities in, 81-85; inequities to be 98, 82, 140, 183, 191

changed, 124, 134-137; libertarians and, 89-92; moral hazards, 77; part-payments, State (see also Government departments,

224-225, 262; privatisation, 199, 221- Privatisation, Public service, State-owned 223, 262; role of state, 197-233; self- enterprises), and broadcasting, 12; and reliance in, 226-229, 231, 233, 325- economics, 6, 268-269; and regulation,

326; spending on, 183-187, 232-233, 26-30; and welfare, 73-74, 81, 200-

254, 286-287, 322; SOEs and, 167-168; 203, 229-230; attempts to limit state

targeting, 225-226, 231, 250-251; spending, 67; in World War Il, 20;

thinking in 1990s, 313-314; to Maori, libertarians and, 88; public opinion on 134; to women, 134, 198; welfare state, role, 239-240, 308-309; role in 23-24, 78, 241; welfare state challenged, morality, 18, 30, 31; role in prosperity 86-92, 334-339; welfare state ideologies, consensus, 18, 33, 278; role 330-333; welfare state in crisis, 71-85; revolutionised, 99, 197-233 welfare state redesigned, 227, 230-235, 262; welfare state successes, 82; welfare State Advances Corporation (see also Rural

state transformed, 99, 124-140, 162, Bank), 24, 201 197-198, 229-233, 272, 279-281

State Insurance, 159, 202, 203 Social Welfare Department, 227

State-owned enterprises (see also Socialism (see also Liberalism, Marx,Karl, | Government departments, Public service,

Social democracy), 88, 194, 203, 235, Privatisation, State), 130, 144, 158, 330-331; and first Labour Govt, 250; and 163-165, 184, 205, 206, 209-210; in Goff, 144; and ideological change, 234; and health, 161 Labour Party, 234, 244; and Values Party,

264; failure, 235-236, 320-321 State Sector Act (see also Public Finance

Act, Public service), 108-110, 159-160,

Society of Accountants (see also 162, 218, 219; and salaries, 163 Accountants), 22

State Services Commission (see also

SOEs See State-owned enterprises Probine, Mervyn), 219; and salaries, 160

Sollitt, Don, 304 Statistics Department, 158, 181 South Africa (see also NZ-Foreign Statute of Westminster, 14 relations-Africa, Sport), 2, 23, 40, 93;

Labour Party and, 112 Stigler, George, 336 South Pacific (see also Bougainville, Fiji, Superagqnnuation, 1, 29, 74, 82, 83, 136;

New Caledonia, NZ-Foreign relations- 138; 142; 162; 180; 210; 225; 226; Pacific), 93, 118, 120-121, 294, 310 251; 272; 284; 314; removal of tax concessions, 168 Sovereignty See Independence, Maoris-

Sovereignty Supplementary minimum prices (see also Agriculture), 63, 64, 67

Spock, Benjamin, 40

Sutch, W B, 15, 17 Sport (see also Commonwealth Games,

Olympic Games), and South Africa, 2, 23, Sutton, Bill & Jim, 245

Timms, Tony, 100 Swier, Geoff, 147

Tizard, Catherine, 132

Tait Electronics, 187, 306 Tourism, 187, 305 Tasman Pulp and Paper See Pulp and paper

industry Tourist Hotel Corporation, 159

Taxation (see also Agriculture-Taxation, Towards prosperity, 147, 250 Economic policy, Goods and services tax),

59, 61, 138, 141, 196, 223, Town and Country Planning Act, 101

2/2; and business environment, 162163); and welfare interface, 71, 81-82, Trade and Industry Department (see also 182; company tax, 157; Douglas and, 143; Ministry of Commerce), 228 evasion, 61, 157; flat tax, 248-249, 254; Muldoon cuts tax, 68; prosperity consensus Trade Development Board, 170, 228

and, 29-30; restructured, 152-153,

156-158 Trade unions (see also Employment

Contracts Act, Equal pay, Hours of work,

Taxis, 26, 167 Industrial relations, Labour force), 16, 27, 31, 34, 280, 310; and deregulated

Te Weehi, Tom, 129 economies, 146, 163; and Labour Party, 313; and wages, 163; Labour Govt and,

Teaching (see also Education), 78, 189, 134-135, 198, 254; under Employment

200; bulk funding, 137, 161; salary Contracts Act, 163, 226-227

increases, 138, 198; teacher-pupil ratios,

137 Transport (see also Air NZ, Cook Strait ferries, NZ Railways, NZ Shipping

Technological change, 51, 53-54, 321; and Corporation, Taxis), 194, 202-204;

education, 77; and welfare, 71, 76-77 deregulation, 166, 170

Telecom 158, 186, 205-206, 209, 212, Travel, 50, 53, 58, 181, 299, 301 213-214, 272, 284; job losses, 179; need for capital, 166; prices, 164; sale, 159, Treasury (see also individuals eg Andrew,

166; sale opposed, 165, 216, 222 Kerr, Prebble, Scott), and privatisation,

200-201, 213; briefs Douglas, 150-152;

Telecommunications (see also Clear monetarist policies, 155-156, 160, 184,

Communications, Telecom), 163, 164, 220; role in developing Rogernomics, 145202, 204; competition in, 166; reduced 147, 148, 237; use of consultants, 218 costs, 184 Treaty alliances (see also Anzus), 14, 44

Television, 12, 14, 21, 142, 203, 204, 209, 301; and Maori, 128; cost of, 144; Treaty of Waitangi (see also Biculturalism,

Eurocentrism, 122 Maoris, Race relations, Waitangi Tribunal), 33, 37-38, 99, 122-123, 125-126, Temm, Paul, 126-128 200, 254, 289; and Bill of Rights, 105; becomes "founding" document, 110, 126-

There's got to be a better way, 143 128, 131, 261, 276, 322; courts and, 129-130; 1990s policies, 310-311;

"Think Big" See Industrialisation results of changes, 128-131, 300-301 Thomson, David, 73, 74, 78, 83-85, 229- Treaty of Waitangi Act, 124-126 230, 289 Trotter, Ronald, 213-214, 260

Unemployment (see also Employment Wages (see also Equal pay), 27, 30, 60, policies, NZ Employment Service), 1, 30, 68-69, 77, 80, 308, 309; deregulation,

69, 70, 72, 79, 140, 144, 171, 226, 153, 163, 168, 176, 185, 226-227; 252-253, 279, 281, 282, 303, 305- freezes, 2, 60, 68, 94, 145; hospital staff,

307; after sharemarket crash, 179-180, 138, 198; in public service, 160, 163; 182, 183; and inflation, 154-155; and increases, 138; minimum wages, 313; Maori, 134; and women, 134; effects on restraints, 140; teachers, 138, 198 cost of welfare, 71; NZ attitudes to, 239-

240 Waitangi Tribunal (see also Fisheries, Maoris, Treaty of Waitangi Act, and

United Bank, 178 individual claims eg Bastion Point, Manukau

Harbour, Motunui), 93, 103, 110-111,

United Nations, 30; and drift-net fishing, 124-128, 282, 311; extended back to

115, 119; NZ on Security Council, 121 1840, 128-132

United Kingdom (see also European Economic Waldegrave, Charles, 72 Community, NZ-Foreign relations-UK),

44, 46, 47; cultural ties with, 14-15, Walker, Ranginui, 124-125, 126 122

War (see also Falklands War, Gulf War,

United States (see also NZ-Foreign Vietnam War, World War I, World War Il), relations-USA, North American Free Trade 14, 44-45, 117; antinuclearism, 113 Agreement, Nuclear ships), 87, 236, 237,

243-244, 295 Waterfront Strike (1951), 31, 34

Universities, 161, 189 Wattie Industries, 186 University students, 30, 34, 198; fees, Welfare State See Social welfare 139, 158, 224, 225, 251, 314; grants,

74, 226; numbers increase, 137, 138; Wetere, Koro, 300

radicalism and, 41 Whales, 101

Upton, Simon, 75, 256, 261, 308;

influences on thinking, 89, 327 Whitwell, Jan, 191

Utilitarianism, 11, 15, 321, 325, 335 Wi Parata court case, 125, 129 Values Party (see also Green philosophies), Wilkins & Davies (firm), 177

101, 264, 265, 322

Williamson, Mr Justice, 129 Vietnam War, 14, 44-46, 118; Labour Party members and, 112; protests against, Wilson, Margaret (see also Labour Party),

31, 41 100, 246

Voluntary welfare work, 80-81, 199 Wine, 181, 187 Von Hayek, Friedrich, 89, 335 Women (see also Equal pay, Ministry of Women's Affairs, Single mothers), 31; and

Von Mises, Ludwig, 335-336 matrimonial property, 289; effects of

economic deregulation on, 183; employment

Vowles, Jack, 268 of, 61; in government, 2, 132-133; Labour Government and, 132-133, 134, Wade, Robert, 192 198; liberation, 38-39, 41, 72, 238; role

of, 2, 17, 34, 94, 280 Women's organisations, 16

Woollaston, Philip, 247 World War I, 250

World War Il, 5, 11, 15, 20 Young, Stuart, 187 Zealcorp (see also Development Finance

Corporation), 174