Wellbeing Economics : Future Directions for New Zealand [1 ed.] 9781927277010, 9781927277607

Citation preview

Contents

Preface

iii

1 2 3 4 5 6

1 11 21 31 41 52

Wellbeing Economics Leading Lives We Have Reason to Value Living Well in Communities Value through Enterprise and Skills Public Service to Expand Capabilities Future Directions for New Zealand

Notes and Further Reading Introducing BWB Texts About the Authors Copyright and Publisher Information

ii

64 75 77 78

Preface

The research that has led to this book began in 2002 when the two authors accepted senior academic positions at Lincoln University. Paul Dalziel returned to the university to be Professor of Economics, a chair previously held with distinction by Bryan Philpott, Bruce Ross, Tony Rayner and Peter Earl. Caroline Saunders was promoted to a personal chair as Professor of Trade and the Environment and was simultaneously appointed as Director of the university’s Agribusiness and Economics Research Unit (the AERU, which was founded by Philpott forty years earlier in 1962). Our first joint research project took place that year, when the AERU was commissioned by the Ministry of Economic Development to prepare a report on the benefits and best practice of regional economic development planning. This involved a review of the international literature on that topic and an analysis of three case studies of regional partnerships in the Bay of Plenty, Canterbury and Marlborough. Other projects followed, so that by the end of 2013 we had published sixtysix jointly authored reports, book chapters and journal articles as well as a number of other publications involving one or other of us. This included projects for policy agencies in Wellington as well as for international agencies such as the Food and Agricultural Organisation (FAO) and the Organisation for Economic Co-operation and Development (OECD). Reviewing that body of work, we realised that during the previous twelve years we had developed a framework of policy analysis that we had begun to call wellbeing economics. We had not, however, prepared a coherent account of that framework in a single publication. We therefore approached Bridget Williams with a proposal to prepare a book on wellbeing economics for the BWB Texts series and we were delighted when our proposal was accepted. The result is this book, which aims to set out for a general audience the key ideas in the wellbeing economics framework. Because it has been written for a general audience, the main body of the book does not use footnotes or referencing. Instead we have included an appendix of iii

Preface

Notes and Further Reading that provides sources for all direct quotations and also offers a guide to other publications that we think might be interesting for readers. We have inevitably incurred a number of debts in preparing this book that we are pleased to acknowledge. We have worked in academic environments for more than three decades and during that time our thinking has been stimulated by conversations with research colleagues, research partners, research participants and research sponsors, too many to mention by name. We are nevertheless pleased to recognise in particular the research environment at Lincoln University, which has provided continuing support for the AERU mission ‘to exercise leadership in research for sustainable well-being’. We are very grateful to the small group of people who read all or parts of the manuscript in earlier drafts and provided feedback that helped clarify aspects of our analysis. We are particularly grateful to Hilary Blake, Tony Burton, Kristie Carter, Lucy D’Aeth, Julie Fry, Margaret Galt, Jill Hawkey, Jane Higgins, Girol Karacaoglu, Barbara Nicholas and Graeme Nicholas. Finally, we thank the team at Bridget Williams Books. Our editor, Geoff Walker, helped us to improve the text in numerous ways and then prepared the final manuscript for publication with Tom Rennie and Barbara Graham. Tom Rennie and Bridget Williams were supportive of the project throughout, and we are grateful to all four people for their professional input and encouragement. Paul Dalziel and Caroline Saunders AERU, Lincoln University May 2014

iv

1 Wellbeing Economics

New Zealanders know that good economic performance is essential for our individual and community wellbeing. We also have a clear vision of what good economic performance means. It means expanding opportunities for private enterprise so that living standards do not fall behind those achieved in comparable nations. It means all capable adults can find decent work so they can support themselves and their children. It means inflation is controlled so there is no threat to the real value of savings. It means the country pays its way in the world so we do not have to borrow overseas to finance domestic consumption. It means individual effort is rewarded and economic opportunities are widely shared so that people are not trapped in poverty. It means our social and cultural values are respected, as is the natural environment that sustains us. It is not difficult to find statements endorsing this vision across the political spectrum, but it was expressed with particular clarity at the Economic Summit Conference convened at Parliament after New Zealand’s watershed election of 1984. Participants in the Summit represented a wide cross-section of interests, including Ministers of the Crown, employer organisations, trade unions, professional associations, business sectors, community groups and people who had been long-term unemployed. A statement unanimously approved at the conclusion of the Summit included the following: The conference agrees that sound economic management must have five basic policy objectives – sustainable economic growth, full employment, price stability, external balance and an equitable distribution of income – while fully respecting social and cultural values and avoiding undue environmental costs. A decade of far-reaching reforms followed, beginning with the delivery of Roger Douglas’s first Budget on 8 November 1984 and finishing with the passing of Ruth Richardson’s Fiscal Responsibility Act on 27 June 1994. Despite those reforms, and despite some obvious successes such as the control of inflation, there remains deep dissatisfaction about the economic outcomes being achieved thirty 1

years later. New Zealand’s record of economic growth, for example, remains low compared with other countries. In 1984 New Zealand ranked eighteenth in OECD tables of per capita gross domestic product (GDP) – that is, the income that a country generates in a given year, divided by that year’s average population. By 2011 the country’s ranking had fallen to twenty-first while Australia had risen from ninth to fifth. Unemployment continues to be well above the 4 per cent benchmark that in 1984 was considered unacceptably high. Further, a very high percentage of the unemployment burden is borne by young people under twentyfive years. Perhaps most noticeably, the distribution of income in New Zealand has widened considerably over the last three decades. At the Ministry of Social Development, Bryan Perry estimates that the percentage of the population living on less than 50 per cent of the median income (after housing costs) was 6 per cent in 1984. This jumped to 11 per cent by 1992 and was still 13 per cent in 2012, over twice its starting point. At the 1984 Economic Summit child poverty was not mentioned as a policy problem; by 2012 it was so serious that the Children’s Commissioner established an Expert Advisory Group to report on possible solutions. Dissatisfaction about poor economic outcomes is by no means restricted to New Zealand. Many countries are experiencing reduced economic growth, increased unemployment and large numbers of people trapped in relative poverty, made worse by the austerity programmes that were imposed to cope with the consequences of the 2008 global financial crisis. Against that background, a new framework is emerging internationally for understanding economic policy questions and their solutions. It aims to address issues like unemployment and poverty directly, rather than thinking these problems would be solved automatically with higher economic growth. The name of this policy framework is ‘wellbeing economics’. WELLBEING ECONOMICS At its most general level, wellbeing economics is a statement about the purpose of economic activity, which we summarise in the first of the five principles we will set out in this chapter. Principle 1: The purpose of economic activity is to promote the wellbeing of persons. This statement may seem too obvious to warrant explicit attention. It turns out, however, that the need to defend this principle against alternatives is as old as the discipline of economics itself. Thus, Adam Smith’s An Inquiry into the Nature 2

1 Wellbeing Economics

and Causes of the Wealth of Nations, which is universally accepted as the founding text of modern economics, attacked the mercantile system in 1776 for making production, rather than consumption, the objective of industry and commerce: Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce. Jumping forward nearly 240 years to our own time, similar criticisms apply when growth in a country’s GDP is taken to be the primary measure of economic performance. This is because GDP is a measure of market production, which therefore tends to focus policy on the interests of producers rather than on the wellbeing of consumers. One of the first people to write extensively on this topic was a New Zealand economist, Marilyn Waring. Waring was a member of Parliament between 1975 and 1984, and chaired the Public Expenditure Select Committee when New Zealand adopted GDP as its official measure of economic activity. Waring subsequently wrote a book condemning GDP for excluding from its measure such items of irreplaceable value to wellbeing as the natural environment and the care of children within households. In 2008 French President Nicolas Sarkozy invited three eminent economists – Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi – to head a high profile commission to identify the limits of GDP as a measure of economic performance and social progress. Echoing Adam Smith’s point and Marilyn Waring’s critique, the commission recommended more emphasis on wellbeing measures (emphasis in original): Another key message, and unifying theme of the report, is that the time is ripe for our measurement system to shift emphasis from measuring economic production to measuring people’s well-being. And measures of well-being should be put in a context of sustainability. The commission did not dismiss production measures entirely, arguing that GDP will continue to have an important role in monitoring market activity. Nevertheless the call for a greater focus on measuring people’s wellbeing was not hypothetical; wellbeing frameworks are beginning to be used to guide policy advice around the globe. The OECD, for example, offers analysis and advice on economic issues to its member countries. Its mission is ‘to promote policies that will improve the 3

economic and social well-being of people around the world’. Consistent with that mission, the OECD describes the common thread of its work as ‘a shared commitment to market economies backed by democratic institutions and focused on the wellbeing of all citizens’ (emphasis added). In the United Kingdom, Prime Minister David Cameron launched a National Wellbeing Programme in November 2010. The Office for National Statistics consulted widely before publishing forty headline measures of wellbeing in a snapshot of ‘Life in the UK’. Following that work, the United Kingdom Cabinet Office committed itself to analysing the published data and considering how wellbeing can be reflected in policy. Closer to home, the mission statement of the Australian Treasury begins with a simple phrase: ‘to improve the wellbeing of the Australian people …’. Under its Secretary from 2001 to 2011, Ken Henry, it has created a wellbeing framework with five dimensions: (1) opportunity and freedom; (2) consumption possibilities; (3) complexity; (4) risk; and (5) distribution. Note that the Australian framework focuses on consumption, another echo of Adam Smith’s critique. In 2006 Henry explained the breadth of vision behind that focus: The second dimension of our wellbeing framework is the level of consumption possibilities. This concept could be thought of as a generalisation of the traditional focus on economic growth. But it is a substantial generalisation. For example, it includes both material and intangible things, and it includes non-market goods and services such as personal and professional relationships, the physical environment, health, and leisure. In our own country, Statistics New Zealand published its Framework for Measuring Sustainable Development in 2009. This offers eighty-five indicators to measure environmental, economic and social progress, sixteen of which are regularly updated on a dedicated website. More recently, the New Zealand Treasury has created a Living Standards Framework as a policy tool for considering a range of material and non-material factors that impact on wellbeing. We discuss this initiative in Chapter 6. The frameworks developed by the Australian Treasury and the New Zealand Treasury both draw explicitly on the research of Nobel laureate Amartya Sen, particularly Sen’s capabilities approach presented in his 1999 book Development as Freedom. Sen’s thought has been very influential in our own research on New Zealand policy issues; we think it offers strong foundations for the practice of economic management. THE CAPABILITIES APPROACH OF AMARTYA SEN The first edition of Adam Smith’s Wealth of Nations was published in 1776, the 4

1 Wellbeing Economics

same year that the United States Declaration of Independence was proclaimed across the Atlantic. These two events are often taken to symbolise the economic and political freedoms that are foundational for modern market economies. Building on that tradition, Amartya Sen’s Development as Freedom also places great weight on freedom, arguing that development can be seen as a process of expanding the real freedoms, or ‘capabilities’, enjoyed by persons: The analysis of development presented in this book treats the freedoms of individuals as the basic building blocks. Attention is thus paid particularly to the expansion of the ‘capabilities’ of persons to lead the kinds of lives they value – and have reason to value. His statement recognises that the wellbeing of persons depends on their capabilities to lead the kinds of lives they value; that is, Sen emphasises the personal ‘agency’ of individuals as they go about their daily business of leading lives they themselves value. The concept of agency plays an important part throughout this book. It is a sociological term conveying the idea that people should not be regarded as passive recipients of their social environment (including public policy); instead, people are always capable of active engagement in shaping their futures through choices they make. The choices may be limited by economic and social factors, but this does not mean that outsiders should presume to make choices on their behalf or to impose their own external values. The links between wellbeing, capabilities, values and agency are expressed in our second principle. Principle 2: The wellbeing of persons is related to their capabilities to lead the kinds of lives they value and have reason to value. The final phrase in this principle is critical in Sen’s analysis. It is not enough for each citizen to value the kind of life he or she is living; citizens must have reason for their values. The insistence that values must be reasoned takes Sen away from individual libertarianism and gives his theory a strongly communal character. Further, since the personal agency of citizens is paramount in his analysis, Sen argues that the reasoning itself should be a public and participatory process. Indeed, one of the valuable aspects of a well-functioning democracy is the platform it provides for this continuous and ongoing process. An important stimulus for all public policy is the social reality that we live in communities where powerful economic and social forces affect personal capabilities in systematic ways. As a result, whole groups of people, despite individual agency, can find themselves with significantly reduced opportunities when these forces impact on social characteristics such as economic background, gender, ethnicity, marital status, sexual orientation, religious beliefs or physical abilities. 5

Sen argues that protection of individual freedoms must therefore be a social commitment. Free speech and individual property rights are essential for development, but more is required to ensure people are substantively free. This is summarised in our third principle. Principle 3: Economic policies should expand the substantive freedom of persons to lead the kinds of lives they value and have reason to value. There is nothing neat and tidy about determining whether particular kinds of lives have reason to be valued. It can be a matter for fierce argument (because values are so important) between teenagers and their parents, between artists and their communities, between different factions in voluntary organisations, between colleagues in a workplace, between employers and workers, between ethnic groups in a multicultural society, and between political parties at election time. These dynamic, diverse and perpetual arguments are an indicator of cultural vitality as citizens create and defend different kinds of lives they claim to have reason to value. Amartya Sen’s capabilities approach resonates with Adam Smith’s observation that the ultimate object of economic policy is not production, at least not for its own sake. If a country’s measured growth does not expand its citizens’ capabilities to lead lives they have reason to value – perhaps because the growth path creates jobs that pay less than a living wage, or involves serious damage to the natural environment, or leaves citizens disempowered in other important dimensions – this is profit extraction by the economic elite, not development. Policy-makers must therefore maintain a practical concern about what happens to citizens’ capabilities under different policy options, including how new opportunities for production and consumption will be distributed among identifiable groups in the population. TIME-USE CHOICES AND MARKET PRODUCTION When thinking about consumption, economists typically concentrate on the spending of income on market goods and services. Such spending is important, but economists have recognised that consumption also refers to the spending of time, including time spent on non-market activities such as caring for family and participating in personal leisure. Marilyn Waring has written many insightful pieces on this topic; the following quotation from one of her essays explains why economics needs to study this form of consumption: Time is the one thing we all have. We do not all have market labour-force activities. We do not all have disposable cash. Many of us do not trade on the basis of money, we trade our time. Our economics is about how we use 6

1 Wellbeing Economics

our time. And, even though we frequently do not have a choice about how we use our time, it is the common denominator of exchange. So time is the one unit of exchange we all have in equal amounts, the one investment we all have to make. Sen’s framework similarly invites us to think carefully about time. Time-use choices – and the constraints we experience on those choices – are crucial to our capabilities to create lives we have reason to value. This includes fundamental life-changing choices such as the time spent in formal education, the time spent in paid employment or self-employment, the time spent in unpaid work for family members, the time spent in community organisations, the time spent in cultural, sporting and recreational activities and the time spent in retirement. It also includes more mundane choices we make on a daily or weekly basis. This leads to our fourth principle. Principle 4: Wellbeing is created through persons making time-use choices they judge will contribute to their leading the kinds of lives they value. Consumption of income and consumption of time are closely linked for at least two reasons. First, income spent on goods and services is generally earned through time spent working in market production. Second, wellbeing created by time spent on non-market activities such as family care and personal leisure is enhanced by spending income on relevant goods and services obtained from the marketplace. These connections can be illustrated using a report prepared by our research centre (the AERU) for Sport New Zealand in 2011. Our task was to estimate the economic and social value of sport and recreation to New Zealanders. There is no doubt that New Zealanders generally regard these activities as important for living valued lives. Every week hundreds of thousands of New Zealanders, young and old, spend time engaged in sport and recreation, both as direct participants and as spectators. Indeed, survey data allowed us to estimate the number of hours spent by New Zealand adults in three key activities: (1) participating directly in sport and recreation themselves; (2) watching children and youth playing in organised sport (assuming one adult spectator for every two participants); and (3) working as volunteers in sport and recreation clubs. This came to an annual total of 545 million hours for the whole population or an average of 168.4 hours per adult in a year. That total is a substantial consumption of time. Assuming 8 hours in a working day, it is equivalent to 21.5 working days per adult in New Zealand. A starting point for valuing that consumption of time is to note that the ‘average person’ could sacrifice all involvement in sport and recreation in order to spend the 21.5 days in a job paying the minimum wage ($12.75 when the survey data were collected). This would generate income of $2,150, so the time spent in sport and 7

recreation activities by the average person must be worth at least that value. Applying that calculation to the aggregate 545 million hours, our study estimated the value of the time spent in sport and recreation at $6.9 billion over twelve months. This is a measure of wellbeing generated by people for themselves through their involvement in sport and recreation, illustrating the primacy of individual agency in people creating lives they have reason to value. The personal wellbeing generated through participation was enhanced by people’s use of market production. The study identified seventeen market industries directly connected to sport and recreation. The time-use and income choices made in these industries were significant. In the 2006 Census there were 36,831 employees in these industries, 2 per cent of the employed population. Further, the seventeen industries contributed $3.8 billion to the country’s GDP measured in 2008/09 prices, or 2.1 per cent of GDP. If other contributions were included, such as the provision of sport and recreation education in schools, the market value of this more broadly defined sector rose to $4.5 billion or 2.4 per cent of GDP. In order to earn income in any market transaction another person must be willing to spend money on the purchase; that is, for every market seller, there must be a market buyer. Thus the 36,831 people employed in the sector were able to generate income of $3.8 billion only because people were willing to spend that amount to enhance the value of their sport and recreation activities. Returning once more to Adam Smith’s insight, consumption is the sole end and purpose of all production. We will return in Chapter 4 to the place of market production within a wider wellbeing context. For now, we simply record that market production has value only if it adds to the value created by citizens exercising agency for their personal wellbeing. This is expressed in our final principle. Principle 5: Market production should enable persons to add value to the kinds of lives they value. VALUE-ADDED ACTIVITIES AND THE STRUCTURE OF THE BOOK This first chapter has introduced five principles of wellbeing economics that will guide the remainder of the book. The principles are: Principle 1: The purpose of economic activity is to promote the wellbeing of persons. Principle 2: The wellbeing of persons is related to their capabilities to lead the kinds of lives they value and have reason to value. Principle 3: Economic policies should expand the substantive freedom of persons to lead the kinds of lives they value and have reason to value. 8

1 Wellbeing Economics

Principle 4: Wellbeing is created through persons making time-use choices they judge will contribute to their leading the kinds of lives they value. Principle 5: Market production should enable persons to add value to the kinds of lives they value. These principles mean that the traditional division in economics between market and non-market activities is at best arbitrary. Whatever its context – market or non-market – all human effort serves the same purpose when it creates additional value for wellbeing. Consequently, this book will use the term ‘valueadded activities’ to refer to any human effort motivated by this objective. This covers a wide range of activities, as can be illustrated by using headings that progressively expand their focus from the personal level to the national level: • • • • • •

Personal value-added (for example, walking for good health) Household value-added (for example, family life) Communal value-added (for example, voluntary clubs and societies) Regional value-added (local public goods and services) Market value-added (private goods and services) National value-added (national public goods and services).

These headings provide the structure for this book. Chapter 2 discusses the first two headings, which are the foundation for all economic management policies based on the wellbeing economics framework. The chapter begins with personal value-added choices and then considers household value-added choices. A key concept that emerges from this discussion is ‘cultural capital’, which we define as the values and practices inherited from previous generations, transformed in the present generation, and passed on in its transformed state to the next generation. Chapter 3 considers the third and fourth headings. It explores how citizens form voluntary organisations for communal value-added activities that contribute to the lives they value and have reason to value. This builds a community’s ‘social capital’. The chapter then explores how citizens elect local governments to provide regional public goods and services. An important responsibility is management of the region’s natural environment (which we call its ‘natural capital’). The chapter finishes with Elinor Ostrom’s theory of citizens and local government working together to co-produce public services, which is another theory emphasising individual agency. Chapter 4 addresses the fifth heading, analysing market value-added activities. There are two parts to this analysis: the value created by enterprises in the goods and services they produce; and the value added to this process by employees. The chapter focuses on how markets improve people’s wellbeing and on how a general capability to access quality employment is therefore critical for wellbeing. It develops a recent suggestion by the OECD that labour market skills are the global currency of the twenty-first century. The two parts of the chapter pay at9

tention to investments in ‘physical capital’ by enterprises and in ‘human capital’ by employees. Chapter 5 examines the sixth heading, discussing national value-added activities provided by central government. It begins with a model of government constrained by guarantees of economic and civil rights. It recognises the social costs of funding government activities, leading to the subsidiarity principle that the government should avoid funding goods or services that citizens are capable of purchasing just as effectively for themselves. The remainder of the chapter then discusses four significant examples of activities that meet this test of good government. Chapter 6 draws together our major themes and illustrates what the wellbeing economics framework might mean for New Zealand. We do not focus solely on public policy; a section on skills and education concludes, for example, that everyone (parents and other relatives, employers and other community leaders, voluntary organisations and professional societies) can be involved in helping the current generation of young people, in all their diversity, to discover, discipline and display their talents and interests. Nevertheless, we do argue that New Zealand’s economic policy should move away from our traditional focus on ‘export-led growth’ towards support for what we call ‘value-added growth’. The book finishes with an appeal for a shift from a ‘welfare state’ towards a ‘wellbeing state’. In a wellbeing state, agency is conceived as lying primarily with the country’s citizens as they daily make time-use choices they judge will contribute to leading the kinds of lives they have reason to value. The role of other private and public institutions is to add value to those choices, especially by aiming to expand the capabilities of persons to enhance their own wellbeing.

10

2 Leading Lives We Have Reason to Value

Our first principle states that the purpose of economic activity is to promote the wellbeing of persons. This is related in our second principle to their capabilities to lead the kinds of lives they value and have reason to value. Our third principle follows directly: economic policies should expand the substantive freedom of persons to lead such lives. Given these three principles, the design of good economic policy requires some shared language for discussing the kinds of lives people value and have reason to value. This chapter enters into that discussion. Economists do not claim any professional expertise in discerning personal or communal values and so our approach to this task emphatically excludes any philosophical attempt to pronounce on what constitutes valued kinds of lives. Further, such an attempt would clearly be inconsistent with the principle that wellbeing comes from persons leading the kinds of lives they value. Instead, our approach is to make a cautious analysis of people’s preferences revealed in the time-use choices they are making. Our analysis is ‘cautious’ for two reasons, both based on Amartya Sen’s point that it is not enough for citizens to value the kinds of lives they live; they should also have reason for doing so. First, our previous chapter recognised that citizens live in communities where powerful economic and social forces affect personal capabilities in systematic ways. There was a time not so long ago when social norms in New Zealand did not allow women to choose to remain in paid employment if they chose to marry. Our analysis must be sensitive to the ways in which time-use choices may be limited, or even prohibited, by forces such as these. Second, the previous chapter also recognised that a community’s cultural vitality is driven by dynamic, diverse and perpetual arguments on what kinds of lives people have reason to value. We do not pretend to capture all that dynamism and diversity in a few pages of text; our discussion offers only a contribution to this ongoing cultural process, made from our particular point of view at a particular moment in history. The focus on time-use choices is justified by the idea in Principle 4 that these choices are made because they are judged to contribute to the kinds of lives 11

people want to lead. By studying these choices, we therefore gain insights into the personal and household activities that add value to people’s lives. Consequently, this chapter is structured around information drawn from Statistics New Zealand’s most recent New Zealand Time Use Survey, which took place over twelve months in 2009 and 2010. THE TIME USE SURVEY The New Zealand Time Use Survey 2009/10 (abbreviated as TUS 2009/10) covered citizens aged twelve years or over, who were usually resident in New Zealand and living in private households. Participants completed a forty-eighthour diary of all their activities. For each part of each day, they recorded what they were mainly doing (their ‘primary activity’), any simultaneous activities (such as being available for childcare), who they were with and where the activity took place. The data published by Statistics New Zealand provide information on seventy activities grouped under four major headings: necessary time; contracted time; committed time; and free time. Briefly, necessary time is personal care activities such as sleeping and eating; contracted time is labour force activities such as paid employment, education and training; committed time is unpaid work such as household work and childcare; and free time involves all other activities such as recreation and entertainment. These four major headings are further divided into twelve categories. These categories, and their respective shares of primary activity time in the 2009/10 diaries, are as follows: Necessary Time: • Personal care (45.6 per cent) Contracted Time: • Labour force (13.7 per cent) • Education and training (2.7 per cent) Committed Time: • • • •

Household work (8.5 per cent) Childcare (2.2 per cent) Purchasing goods and services (2.8 per cent) Other unpaid work (1.0 per cent)

Free Time: • Religious, cultural and civic participation (0.9 per cent)

12

2 Leading Lives We Have Reason to Value

• • • •

Social entertainment (6.3 per cent) Sports and hobbies (3.1 per cent) Mass media and free time (12.9 per cent) Residual categories (0.4 per cent)

The category involving the largest consumption of time by a considerable margin is personal care. A daily average of nearly 11 hours is spent on personal care, particularly sleeping (8 hours 48 minutes), eating and drinking (1 hour 25 minutes), and personal hygiene and grooming (38 minutes). Because activities such as sleeping do not involve much choice, they have received little attention from economists. For a book on wellbeing, however, it is an important observation that New Zealand adults spend more than a third of their time sleeping; such a high share of time consumption suggests this activity is essential for wellbeing. Indeed, Philippa Gander (Director of the Sleep/Wake Research Centre at Massey University) has noted that a ‘recent proliferation of longitudinal and cross-sectional epidemiological studies confirm that adults who report usual sleep of fewer than 7 hours [too little sleep] or at least 9 hours per night [too much sleep] are at increased risk of a range of adverse health outcomes including obesity, impaired glucose tolerance, type 2 diabetes, cardiovascular disease, poor general health and premature mortality, after controlling for other risk factors’. The absolute necessity of sleeping for health means that wellbeing economics must pay attention to any related capabilities that involve private and public choices. In particular, a fundamental aspect of every person’s wellbeing is the capability to organise a healthy place where he or she can safely lose consciousness for about a third of every day. Thus the New Zealand Time Use Survey leads us directly to the importance of residential housing for wellbeing. HOUSING AND WELLBEING Housing quality and affordability are well recognised as core indicators of personal and communal wellbeing. The OECD, for example, publishes a Better Life Index (BLI) for comparing wellbeing among countries. The BLI sets out eleven topics that influence a better life, the first of which is housing. Similarly, the New Zealand General Social Survey (NZGSS), which is undertaken by Statistics New Zealand every two years to provide information on the wellbeing of residents aged fifteen years and over, includes two questions on housing. Important features of the capabilities of New Zealanders to access quality housing can be obtained from these official sources. The good news is that the 2012 NZGSS reports that 86.4 per cent of New Zealanders are satisfied or very satisfied with their house or flat. Also, the BLI estimates that New Zealand is among the top four of its member countries in terms of the average number of

13

rooms for each person living in a dwelling. There is, however, considerable bad news. The BLI records that New Zealand has the second worst value in its dataset for housing affordability. New Zealand residents spend 26 per cent of their household gross adjusted disposable income on housing costs (including actual or imputed rent, utilities, furniture, furnishings, household equipment, routine repairs and maintenance). Only Greece has a higher share, at 27 per cent. The NZGSS asks if participants have any major problems with their house or flat. This can include it being too cold or difficult to keep warm, too small, damp, in poor condition, too expensive, hard to get to from the street, or it having pests such as mice or insects. In the 2012 survey, 33.4 per cent stated there was such a problem. This was an improvement on previous surveys (37.2 per cent in 2008 and 36.6 per cent in 2010), but it still represents more than a third of the adult population reporting a major housing problem. The survey recorded a large difference between people renting their accommodation (49.8 per cent reporting a major problem) and those living in their own home (25.4 per cent). This suggests that home ownership is valuable for wellbeing, but the percentage of people owning their home has been falling steadily since 1986. This trend is confirmed by the three NZGSS surveys so far, which record that the percentage of its youth and adult population living in rental accommodation grew from 30.5 per cent in 2008 to 33.2 per cent in 2012. It is clear from the data that sole-parent families find it particularly difficult to secure good housing: 54.7 per cent in the 2012 NZGSS were living in rental accommodation (compared with 28.1 per cent of couples with children) and 55.0 per cent of these sole-parent renters reported a major problem with their house or flat. Philippa Howden-Chapman is Director of the He Kainga Oranga/Housing and Health Research Programme at the University of Otago, Wellington. Her research team estimates that about a quarter of New Zealand households experience fuel poverty, meaning they need to spend more than 10 per cent of their income on all household fuels to achieve a satisfactorily warm indoor environment. Writing in 2011, Howden-Chapman and her colleagues commented: … existing houses are often poorly insulated and rental properties are not required to have insulation or heating. Average indoor temperatures are cold by international standards and occupants regularly report they are cold, because they cannot afford to heat their houses. Fuel poverty is thought to be a factor in NZ’s high rate of excess winter mortality (16%, about 1600 deaths a year) and excess winter hospitalisations (8%). Finally, despite the high number of rooms per resident recorded in the BLI, there is persistent overcrowding in parts of the country. The Canadian National Occupancy Standards calculate the number of bedrooms required to meet accom14

2 Leading Lives We Have Reason to Value

modation targets; for example, no bedroom should be shared by more than two persons, nor by a boy and a girl unless both are aged under five. Applying these standards to 2006 Census data, 10.4 per cent of New Zealanders were living in overcrowded housing that year, but the figure was 16 per cent or higher in the Far North, Central Auckland, Papakura, Kawerau, Opotoki and Porirua. In Manukau, it was 25.1 per cent. Recall Principle 1, that the purpose of economic activity is to promote the wellbeing of persons. The data just cited indicate opportunities for adding considerable value to personal and household wellbeing, by improving the capabilities of New Zealand residents to live in quality housing. Perhaps no one will disagree with that statement, but there remains an issue of whether this is a matter for economic policy. A dominant view is that initiatives to assist people with housing are the domain of social policy and that social policy should generally be constrained until sound economic policy produces a stronger economy. In its strongest form, this view argues that spending on private and public housing represents lost opportunities for higher levels of business investment, so that policy should discourage housing spending in an effort to stimulate greater economic growth. The wellbeing economics framework points in a different direction. First, it explains that it is improvements in wellbeing that count, not how the wellbeing is produced. It does not matter whether wellbeing is created by greater business investment leading to higher market income or by greater housing investment leading to better health and comfort. Both routes to higher levels of wellbeing are equally desirable. Second, the wellbeing economics framework therefore rejects a sharp distinction between economic policy and social policy. The two policy areas are intimately connected. For example, better housing leads to better health; better health leads to better education; better education leads to better employment; better employment leads to better income; and better income leads back to better housing, creating a positive spiral of increasing economic and social wellbeing. Third, wellbeing economics is sceptical about claims that economic growth will lead to universal improvements in wellbeing. This scepticism is based on experience. To illustrate, the 1991 Census recorded that 23.7 per cent of Manukau residents were living in overcrowded accommodation. Over the next fifteen years, New Zealand’s per capita GDP increased by nearly 40 per cent; nevertheless, overcrowding in Manukau did not fall, it increased to 25.1 per cent in the 2006 Census. Trickle-down economics manifestly failed to deliver higher wellbeing (through better quality housing) for this community. Fourth, wellbeing economics argues that policy should be aimed directly at expanding the substantive freedom of persons to lead the kinds of lives they value and have reason to value. This does not mean the state should necessarily provide more housing itself. Such an initiative might be part of a policy response but the bigger picture is how the economy can be organised so that people have the cap15

abilities to arrange quality housing through their own efforts. CHILDCARE AND WELLBEING Our discussion now moves from the wellbeing of individuals to the wellbeing of households. People form households in different ways during their lifetimes, including setting up a flat when first leaving home or shifting into a retirement village after the family home is sold. The focus of this section is on the choice to create and sustain a family household, which for most people is a core element of living a valued life. Derek Bok at Harvard University, for example, published a book in 2010 on The Politics of Happiness: What Governments Can Learn from the New Research on Well-being. He comments: Repeated surveys have found that married couples are more satisfied with their lives than individuals who are single, divorced, separated, or cohabiting but unwed. People who are married tend to live longer and are less likely to become depressed, commit suicide, or experience health problems than persons who are divorced or separated. Apparently, a close conjugal relationship acts as a buffer against adversity and helps the immune system protect against illness. Bok points out that marriage does not necessarily cause additional happiness, since ‘those who marry might be happier to begin with, and their cheerful disposition could presumably contribute to a successful union’. Nevertheless, policy-makers, employers and individual citizens need to consider how different options might support or undermine wellbeing choices made by persons for their family lives. The most obvious issue is the capability of people to balance their time committed to the care of children and their time devoted to earning income and advancing careers in market employment. TUS 2009/10 reveals that men and women in New Zealand are currently making different choices about this balance; that is, the survey recorded large gender differences in the contracted time and the committed time of New Zealand adults. On average, the daily primary activity time recorded as contracted time was 4 hours 55 minutes for men and 2 hours 59 minutes for women. The difference was due mainly to women spending less primary activity time in work for pay or profit (on average 1 hour 41 minutes less per day compared with men) and in formal education (6 minutes less per day). That pattern was mirrored by the daily average primary activity time recorded as committed time: 2 hours 32 minutes for men and 4 hours 20 minutes for women. This difference was due to men spending less primary activity time in 16

2 Leading Lives We Have Reason to Value

household work (on average 62 minutes less per day compared with women), in childcare (28 minutes less) and purchasing goods and services (15 minutes less). These gender differences are magnified when ‘simultaneous activities’ are included in the analysis. The total average daily time spent on childcare as a primary or a simultaneous activity was 3 hours 2 minutes for men and 5 hours 19 minutes for women. Further, Statistics New Zealand analysed responses from a subset of the survey involving two-parent households with all children aged under twelve years. Among this subset, 50 per cent of the parental childcare was provided by the mother on her own, 42 per cent by both parents simultaneously, and just 8 per cent by the father alone. These patterns raise important questions for wellbeing economics. Taken at face value, current time-use choices seem to suggest that women value lives involving fewer hours per week in paid market work while men value lives involving fewer hours in unpaid household work. It must be asked: do we men and women have reason for such different time-use patterns? Or is this a legacy of social norms that new generations of parents will find harder to justify? There is strong evidence that all is not well in this aspect of household wellbeing. If we consider all New Zealanders who married in 1986, for example, just over one in three of that group had divorced by 2011. In the 2010 NZGSS, 15 per cent of parents reported that at least one of their children aged under eighteen did not live with them. The 2013 Census recorded that of the 671,094 families with children living in private dwellings, 30 per cent were in sole-parent households. Another distressing indicator is the extent of child poverty in New Zealand. This has become such a serious problem that the Office of the Children’s Commissioner, the New Zealand Child and Youth Epidemiology Service at the University of Otago and the J R McKenzie Trust have formed a partnership to compile annual measurements of child poverty. Their first Child Poverty Monitor report, released in December 2013, included the following summary facts: The 2013 Monitor shows that one in four Kiwi kids are growing up in income poverty and one in six are going without the basic essentials like fresh fruit and vegetables, a warm house, decent shoes and visits to the doctor. Ten percent of children are at the hardest end of poverty and three out of five kids living in poverty will live this way for much of their childhood. These data indicate further opportunities for substantial improvements in wellbeing. In our current economic and social system, large numbers of families do not have the capabilities to obtain sufficient resources for raising their children well. This is a not a problem just for current wellbeing; if we fail to invest in the health of children now, the lifetime impacts on their education success and workplace productivity will affect future wellbeing for at least a generation. These observations again do not mean the state must address this issue on its own. The way in which citizens make arrangements for childcare (in the broadest 17

sense of that term) is an issue that should be discussed in our families and in our communities: how can parents construct the kinds of lives they value and have reason to value that will allow them to provide their children with the best opportunities they can give them? CULTURAL CAPITAL Once we begin to ask questions of this nature – how to provide the next generation with the best opportunities we can give them – we are discussing what scholars call a community’s ‘cultural capital’. The central idea behind this term is that each generation passes to the next generation not just economic wealth, but also a rich set of dynamic traditions, values and artistry that comprise a young person’s cultural inheritance. The wording is deliberately chosen to echo a much older term, ‘physical capital’, which refers to human-made assets used for ongoing production. Examples of physical capital include factories, commercial buildings, residential housing, electricity networks, sewerage systems, transport infrastructure, vehicles, machinery, farm animals, orchards and intellectual property. As a community builds up its stock of physical capital, its capacity for economic production also increases (especially as new technologies are incorporated into the assets). This process is therefore a major source of higher wellbeing, as will be discussed in Chapter 4. That original concept of physical capital has been applied over the years to analogous ideas and it is now commonplace to refer to investments in human capital (the level of education in the population), social capital (the strength and accessibility of interactive networks among people) and natural capital (the quality of environmental ecosystems). These three concepts will be discussed in separate sections of later chapters. A similar analogy uses ‘cultural capital’ to refer to a community’s cultural inheritance. The economist who has written most on this term is David Throsby at Macquarie University in Australia. In June 1988 he delivered the presidential address to the Tenth International Conference on Cultural Economics, where he distinguished two types of cultural capital: The stock of tangible cultural capital assets exists in buildings, structures, sites and locations endowed with cultural significance (commonly called ‘cultural heritage’) and artworks and artefacts existing as private goods, such as paintings, sculptures, and other objects … Intangible cultural capital, on the other hand, comprises the set of ideas, practices, beliefs, traditions and values which serve to identify and bind together a given group of people, however the group may be determined, 18

2 Leading Lives We Have Reason to Value

together with the stock of artworks existing in the public domain as public goods, such as literature and music. Cultural capital therefore covers a diverse range of items. New Zealand’s Ministry for Culture and Heritage, for example, suggests that cultural values, customs, behaviours and identity include the following components: • • • • •

Arts, creative and cultural activities Languages, film and broadcasting History and heritage Sport and recreation A sense of place.

Cultural capital is continuously transformed to incorporate new discoveries and respond to new circumstances as it passes from generation to generation. It is an important tool for wellbeing economics because of its close relationship to the way each generation reasons about the kinds of lives valued by its members. As Arjo Klamer at Erasmus University has argued: ‘immeasurable as it is, cultural capital appears to generate the most important values of all, the values that can give meaning to our life’ (emphasis added). A key point for this present discussion is that children are first introduced to the community’s cultural capital by their parents. This was originally emphasised in 1983 by French sociologist Pierre Bourdieu, who coined the term ‘cultural capital’ to explain how pupils from wealthier social classes are advantaged when they arrive at school because families in these classes have more resources of income and time to invest in passing on cultural capital to their children. New Zealand parents are strongly committed to providing children with cultural development. This is illustrated by the number of young people who belong to clubs and organisations outside school. In 1999, for example, the New Zealand Council for Educational Research completed a survey of 505 young people aged ten years as part of its Competent Children research project: Eighty-four percent of the children at age 10 had joined a club or were taking part in some form of organised activity outside school. Fifty-one percent of the children had lessons or coaching outside school, mostly in the sports and performing arts, and 51 percent also played a musical instrument, or sang in a choir. On this understanding, child poverty is not just a matter of inadequate material resources (such as cold housing or unhealthy diets). Another consequence is that children are hampered in engaging with their cultural heritage that should help them generate values and find meaning in life. The results of this deprivation are often revealed when the young person eventually disengages from education at secondary school, creating ongoing problems for their personal wellbeing and 19

perhaps the wellbeing of those around them. These considerations lead to the importance of parents having the capability to access decent work opportunities so that they can spend sufficient income and time with their children. We will return to this observation in Chapter 4, but first Chapter 3 explores the way in which citizens form voluntary community organisations to reflect their personal and communal values.

20

3 Living Well in Communities

Writing in the fifth century, Augustine of Hippo suggested two things are necessary in life – wellbeing and a friend (salus et amicus). His emphasis on friendship alongside wellbeing illustrates that humans are a communal species. This is supported in TUS 2009/10, which recorded that the average time spent alone in a twenty-four-hour period was just 5 hours 14 minutes for men and only 2 minutes more for women. Thus, New Zealanders on average spend more than three-quarters of their day in the company of others. This chapter focuses on two aspects of this communal life. The first is the way citizens create and participate in a range of voluntary community organisations. These organisations make up a nation’s ‘civil society’ (as distinct from its government and business sectors). Their common element is that each organisation must add value to the wellbeing of its members beyond what each member could achieve relying only on personal resources. This leads to a section on a concept frequently used in wellbeing economics – ‘social capital’. The second aspect is local government. Some activities affect the wellbeing of so many residents in a geographical area that there are good reasons for relevant services to be provided by a local public agency funded from taxes or rates. This arrangement can add considerable value to wellbeing, but the reliance on compulsory taxes also means that normal market mechanisms for efficiency are absent. A core responsibility of local government is its natural environment. Thus the chapter includes a section on ‘natural capital’ in the context of concerns about global climate change. This is followed by a section on a theory developed by Nobel laureate Elinor Ostrom, which advocates ‘coproduction’ of local government services by residents and officials. Ostrom’s theory, like that of Amartya Sen, places persons at the centre of their own lives, acknowledging their agency in creating the kinds of lives they have reason to value.

21

COMMUNITY ORGANISATIONS AND WELLBEING The previous chapter explained how the TUS 2009/10 brings its recorded activities together under four major headings: necessary time; contracted time; committed time; and free time. Under the last heading, average free time in the TUS 2009/10 was measured at 5 hours 40 minutes, with just 5 minutes difference between the average free time available to men and to women. The top twelve activities recorded as free time (and their average lengths of time per day) were: • • • • • • • • • • • •

Watching television or video (128 minutes) Socialising and conversation (67 minutes) Reading or personal writing (26 minutes) Travel associated with social entertainment (15 minutes) Other mass media and free time (14 minutes) Playing video or computer games (11 minutes) Thinking, reflecting, relaxing, resting and planning (9 minutes) Listening to music or radio (7 minutes) Playing active sport (6 minutes) Active exercise (6 minutes) Religious practice (5 minutes) Gentle exercise (5 minutes).

Thus New Zealanders spend almost two-thirds of their free time (65 per cent) on just three activities: watching television or video; socialising and conversation; and reading or personal writing. The dominance of free time by sedentary activities such as these is a pattern repeated throughout the Western world. Indeed, the World Health Organisation now lists ‘physical inactivity’ as the fourth leading cause of global mortality and scientists have associated it with increased risk of poor health through disorders such as coronary heart disease, colon cancer, breast cancer and type 2 diabetes. It is therefore reasonable to ask whether we have reason to value such sedentary lifestyles. The New Zealand Ministry of Health is concerned that nearly half of us do not meet the current world standard for good health, which is at least 30 minutes of physical activity per day on five or more days of the week. In the TUS 2009/10, the average time spent on active sport or exercise by New Zealanders is just 12 minutes per day; that is, 84 minutes per week, well below the 150-minute target. The above list includes activities that typically occur with household members only (dominated by 2 hours watching television or video) and activities that typically involve a wider social group (such as socialising and conversation). This chapter focuses on the latter range of activities. As well as engaging with informal networks of friends and neighbours, New Zealanders participate in community organisations that pursue a diverse range of objectives determined by their members. 22

3 Living Well in Communities

There are tens of thousands of these organisations. In October 2005 Statistics New Zealand took a snapshot of the country’s non-profit institutions. To be included, an institution had to be organised, not-for-profit, private, self-governing and voluntary. The study identified 97,000 institutions satisfying these criteria, with 43,220 (44.6 per cent) devoted to culture, sports and recreation. Large numbers of citizens participate in these groups. The New Zealand Values Survey 2005, for example, asked about people’s membership in different types of voluntary organisations. The organisation types, and the percentage of survey participants who indicated they were active members of each type, were as follows: • • • • • • • • •

Sport or recreational organisation (42 per cent) Charitable organisation (28 per cent) Art, music or educational organisation (25 per cent) Professional association (23 per cent) Church or religious organisation (22 per cent) Some other voluntary organisation (14 per cent) Trade union (13 per cent) Environmental organisation (8 per cent) Political party (5 per cent).

New Zealand’s non-profit sector is larger than in many countries. In 2008 the Ministry of Social Development’s former Office for the Community and Voluntary Sector published a study undertaken as part of a global project initiated at Johns Hopkins University in the United States. It found that the New Zealand non-profit workforce as a share of the economically active population was the seventh largest among the forty-one countries included in the project, with a very heavy reliance on volunteers in this workforce: ‘In fact, 90 per cent of New Zealand non-profit organisations employ no paid staff, and so rely on volunteers to function.’ Again it is reasonable to ask whether there is reason to value this kind of life. This is a case where the policy framework of the questioner can lead to different answers. The traditional economics framework prioritises growth in GDP. If that framework is adopted, then we must recognise that volunteered services do not contribute to that priority; unpaid work is specifically excluded from the GDP measure. The amount is significant. Statistics New Zealand estimates that for the 2003/ 04 financial year, the market value of volunteer work in non-profit organisations was $3.3 billion. That is, if those volunteers had chosen to do the same type of work for business enterprises in paid employment, they would have increased their annual income by $3.3 billion, which would have added 2.4 per cent to that year’s GDP. The wellbeing economics framework, however, prioritises people’s wellbeing. Adopting that perspective, it is entirely reasonable for people to sacrifice 23

potential market income if they obtain greater personal satisfaction from their unpaid work in a voluntary role. To return to a point made in Chapter 2, there is no reason to focus exclusively on market-based sources of wellbeing. Thus, one person might choose to volunteer time to serve on a school’s board of trustees because she gains satisfaction from contributing to the governance of her child’s education. Another person may choose to work extra hours in paid employment because she gains satisfaction from taking her child on a more expensive summer holiday. What matters in both examples is that a person is making time-use choices she judges will contribute to the kind of life she values. Good evidence supports the contributions to wellbeing that can be obtained from participation in community groups. The Mental Health Foundation of New Zealand, for example, has published a guide on how wellbeing can be improved in everyday life. Drawing on a United Kingdom Foresight Project on mental capital and wellbeing, the Foundation’s guide identifies Five Ways to Wellbeing: Give. The guide reports research that strongly links volunteering and community involvement with positive feelings and functioning. It advises that self-worth and positive emotional effects can be helped by helping others, by sharing personal skills and resources, and by behaviours that promote a sense of purpose and team orientation. Be active. The guide refers to the evidence noted earlier in this chapter that sedentary lifestyles can harm personal health. It confirms a strong correlation between physical activity and increased wellbeing, as well as lower rates of depression and anxiety. It therefore recommends that people do what they can and enjoy what they do. Keep learning. The guide emphasises that learning is more than formal education; it can include any approach to maintaining curiosity and an enquiring mind. The guide recommends adult learning that includes elements of setting goals that are self-generated, positively focused and aligned with personal values. Take notice. The guide recommends developing skills for greater awareness of what is immediately happening within and around us. It refers to ‘mindfulness’ research, which suggests that heightened self-knowledge and open awareness lead to positive effects such as consistency of behaviour with personal needs, values and interests. Connect. The guide offers a key message that giving time and space to both strengthen and broaden social networks is important for wellbeing. It observes that the wellbeing of individuals is bound up in the wellbeing of their communities and so recommends actions that stress the importance of fostering relationships with others. 24

3 Living Well in Communities

SOCIAL CAPITAL AND WELLBEING With 97,000 non-profit organisations to choose from, there is enormous diversity in the communal activities of New Zealanders. Researchers have suggested that these diverse activities can be brought together under a generic heading termed ‘social capital’, just as a country’s diverse assets for production can be aggregated into the concept of ‘physical capital’. A useful starting point for thinking about social capital is Robert Putnam’s influential book Bowling Alone: The Collapse and Revival of American Community, published in 2000. The title came from Putnam’s observation that more Americans than ever go tenpin bowling, but there has been a dramatic decline in the numbers participating in formal bowling competitions. More and more Americans are ‘bowling alone’. Putnam presented this and other data to argue that American citizens are becoming less connected with one another and with civil society. He described this trend as a depletion of the country’s ‘social capital’, which he attributed to a range of technological and demographic changes over the previous three decades. In the face of this depletion, Putnam advocated conscious efforts to revive American community. Authors like Putnam are concerned that declining social capital reduces individual and communal wellbeing. Another example of this concern is Francis Fukuyama’s book Trust: The Social Virtues and the Creation of Prosperity (1995). Fukuyama argues that strong social networks are necessary for citizens to develop shared norms and values, which in turn help build trust and so make it easier for people to do business with each other. On this view, strong social capital is of value in its own right (because communal participation directly adds value to personal wellbeing), but also because it provides a healthy setting for a successful market economy. We return to this theme in Chapters 4 and 5, but first we consider the role of local government in adding value to wellbeing. LOCAL GOVERNMENT AND WELLBEING The two previous sections have described how voluntary participation in communal activities adds value to personal wellbeing. There are, however, limits to what can be achieved through voluntary groups, first explored systematically in Mancur Olson’s 1965 book The Logic of Collective Action: Public Goods and the Theory of Groups. Olson’s analysis is still relevant fifty years later. The key idea rests on an older concept known as ‘public goods’. These are goods with two characteristics that distinguish them from private goods purchased in a supermarket. First, if one person consumes a public good, this does not prevent other people from consuming the same item. Second, if a public good 25

is provided at all, then it is not feasible to exclude anyone from enjoying its benefits. An example is street lighting designed to contribute to the safety of driving or walking in a city at night. One person making use of this service does not prevent any other person from simultaneously doing the same. Further, it is not feasible to prevent anyone from taking advantage of the lighting once they are in the city. Public goods are very important for wellbeing economics. Consider a city with a population of 100,000 adults. If each adult contributes $10 for street lighting, the result is one million dollars available for a service whose benefits are available for all to enjoy. Public goods can therefore add high value to personal wellbeing, but there is an obvious barrier to achieving this through voluntary actions. Consider what might result if individual citizens are asked to make a voluntary donation of $10 for street lighting. A citizen might think along the following lines: ‘If I decline, only $999,990 will be available for the project, but that is still a great lighting system and I get to spend my $10 on a private good at the supermarket.’ Other citizens might reason in exactly the same way (this is known as the free-rider problem) and so the city street lighting project would not receive the full funding it deserves or it might not proceed at all. Based on that analysis, Olson drew some general conclusions. Voluntary community organisations tend to be small and reliant on an even smaller number of their most enthusiastic members. A voluntary group that wants to grow should think about how it can supply members with private benefits as well as any public good that may define its primary purpose. Some form of compulsory levy is typically required to achieve an efficient level of funding for large investments in public goods. This last conclusion provides a reason for local governments. Residents in a geographical area submit to compulsory taxes or rates to be used by local government for providing public goods and services that add value to the residents’ wellbeing. As the street lighting example illustrates, the two characteristics of public goods mean that local governments have the potential to deliver high benefits to ratepayers in return for relatively small payments levied on each property owner. Further, because local government in New Zealand is funded by rates, there is a virtuous cycle in local government finance. Successful investments in public goods and services that add value to the wellbeing of local residents make the district a more attractive place to live. This tends to push up property values. As a result, the wealth of individual ratepayers increases, but so does the rating base of the successful local authority, rewarding it with more resources for further investment. Again there are limits. Since local governments can rely on compulsion for their funding, they do not face the innovation and efficiency disciplines that providers in competitive markets must meet to survive. This can allow negative 26

3 Living Well in Communities

outcomes such as wasted resources, poor decision-making, lobbying by groups for special treatment, and excluded values of minority communities. Examples of ‘government failure’ such as these have been well documented in a research programme known as public choice theory, initiated by James Buchanan and Gordon Tullock in the early 1960s. Buchanan and Tullock proposed ‘constitutional democracy’ as a key ingredient for solving this problem. Constitutional democracy allows majority decision-making for ordinary political issues of the day, but the decisions must satisfy a framework of rules codified in a higher-level document (such as the Constitution in an American setting) that is far harder for citizens or officials to change. In a New Zealand setting, the higher-level rules are set out in the Local Government Act 2002, which originally defined two statutory purposes for local government to emphasise democratic decision-making in the context of an overall focus on the wellbeing of local communities: (a) to enable democratic local decision-making and action by, and on behalf of, communities; and (b) to promote the social, economic, environmental, and cultural well-being of communities, in the present and for the future. That original wording is consistent with the approach advocated in this section. Part (b) was amended in 2012, however, so that the second statutory purpose is now ‘to meet the current and future needs of communities for good-quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses’. NATURAL CAPITAL AND WELLBEING A core responsibility of local authorities in New Zealand is for the natural environment. This is set out in Part 4 of the Resource Management Act 1991, which defines the functions, powers and duties of central and local government. Regional councils help manage air quality, waterways and soil conservation, for example, while district and city councils regulate land use and manage other environmental impacts. Healthy local environments are essential for personal wellbeing. Indeed, economists in recent years have begun to measure the economic value of ecosystem services provided by a community’s ‘natural capital’. These include: the provision of food, water and other natural resources; the regulation of climate, floods and other environmental impacts; the production of cultural benefits such as a spiritual sense of place; and the supply of supporting services such as soil forma27

tion and photosynthesis. A pressing issue for the relationship between natural capital and wellbeing is the clear scientific evidence for global climate change. Based on that science, dealing with the consequences for wellbeing is another policy challenge where the aim should be to expand the freedom of persons to lead the kinds of lives they value and have reason to value (Principle 3). The first Millennium Ecosystem Assessment report, Ecosystems and Human Well-being (published in 2003), suggested ways to improve human wellbeing in the face of global climate change: Human well-being can be enhanced through sustainable human interaction with ecosystems with the support of appropriate instruments, institutions, organizations, and technology. Creation of these through participation and transparency may contribute to people’s freedoms and choices and to increased economic, social, and ecological security. An important example was the Stern Review on the Economics of Climate Change, commissioned by the United Kingdom Government in 2006. Nicholas Stern, a former Chief Economist and Senior Vice-President of the World Bank, concluded from a standard cost-benefit analysis that it is economically sensible for our current generation to invest more financial resources in policies that will reduce the worst impacts of climate change in the future. CO-PRODUCTION OF LOCAL GOVERNMENT SERVICES The quote from the Millennium Ecosystem Assessment report at the end of the previous section observed that ‘human well-being can be enhanced through sustainable human interaction with ecosystems’. The words in added italics are consistent with a major theme in this book. People are not passive recipients of services (in this case, not even of ecosystem services), but people have agency to create wellbeing through their actions (in this case, through interaction with their natural environment). There is a uniquely New Zealand example of this theme in the country’s Resource Management Act 1991. Section 7(a) requires persons exercising functions and powers under the Act in relation to natural and physical resources to ‘have particular regard to kaitiakitanga’. Kaitiakitanga is a Māori word that defies easy translation into English, but its meaning for the purposes of the Resource Management Act is defined in Section 2: kaitiakitanga means the exercise of guardianship by the tangata whenua of an area in accordance with tikanga Maori in relation to natural and physical resources, and includes the ethic of stewardship.

28

3 Living Well in Communities

This definition introduces further important Māori concepts. In the Act, tangata whenua means the iwi or hapū (tribe or sub-tribe) that holds mana whenua over a particular area; mana whenua means customary authority exercised by an iwi or hapū in an identified area; and tikanga Māori means Māori customary values and practices. Bringing these ideas into the linguistic framework of this book produces the following observation. To live a life with reason to value, Māori tribes and sub-tribes must have the capabilities to exercise guardianship according to their customary values and practices in relation to the natural and physical resources of the local area where they have customary authority. The italicised phrase emphasises the way in which this legislation attempts to respect the agency of Māori tribes and sub-tribes in its definition of kaitiakitanga. It is not enough for Māori values and practices to be taken into account in the decision-making of local authorities; the local authorities must also ensure that local tangata whenua have the capability to take actions themselves that will exercise their own guardianship. This idea that local government should aim to empower communities to promote their own wellbeing has wide application. It is, for example, a feature of a research programme led for several decades by Elinor and Vincent Ostrom at Indiana University in the United States. Elinor Ostrom was an extraordinary scholar. Her academic position was in political science; yet she shared the 2009 Nobel Prize in Economics for her analysis of economic governance, especially of resources held in common ownership. In her lecture at the presentation of that award, Ostrom was critical of policy analysts who assume their role is to impose answers from the outside for improving a community’s problems: When analysts perceive the human beings they model as being trapped inside perverse situations, they then assume that other human beings external to those involved – scholars and public officials – are able to analyze the situation, ascertain why counterproductive outcomes are reached, and posit what changes in the rules-in-use will enable participants to improve outcomes. Then, external officials are expected to impose an optimal set of rules on those individuals involved. It is assumed that the momentum for change must come from outside the situation rather than from the self-reflection and creativity of those within a situation to restructure their own patterns of interaction. Ostrom found in her studies that better outcomes are achieved when different levels and nodes of decision-making in a community are respected (she termed this ‘polycentricity’) and when public goods are provided by citizens and local government officials working together (she termed this ‘coproduction’). Her emphasis on empowerment of local action resonates with Amartya Sen’s emphasis 29

on development as freedom. Ostrom developed ‘design principles’ or ‘best practices’ associated with successful institutions, which are too detailed to explore in this short book. Instead, we finish this chapter with another extract from her Nobel Prize speech. It expresses Ostrom’s optimism about what can be achieved through communal and regional value-added activities: Extensive empirical research leads me to argue that … a core goal of public policy should be to facilitate the development of institutions that bring out the best in humans. We need to ask how diverse polycentric institutions help or hinder the innovativeness, learning, adapting, trustworthiness, levels of cooperation of participants, and the achievement of more effective, equitable, and sustainable outcomes at multiple scales.

30

4 Value through Enterprise and Skills

The previous chapters have developed an interpretation of citizens as persons whose wellbeing is related to their capabilities to lead the kinds of lives they value and have reason to value. These persons have agency, making time-use choices they judge will contribute to leading valued lives. They form households, which may involve tensions between time committed to childcare and time contracted to earning income. They participate in diverse community organisations reflecting personal values. They submit to compulsory rates on their properties so that local government can work with them to co-produce public goods and services. This chapter now places these purposeful citizens into the marketplace. John McMillan was one of New Zealand’s most eminent economists. Based in the United States, McMillan was editor of the prestigious Journal of Economic Literature from 1998 to 2004. During that period he published a highly praised book, Reinventing the Bazaar: A Natural History of Markets (2002). Its opening chapter includes the following observations: In fact, markets are the most effective means we have of improving people’s well-being. For poor countries they offer the most reliable path away from poverty. For affluent countries, they are part of what is needed to sustain their living standards. Markets, then, are the most potent antipoverty engine there is – but only where they work well. The caveat is crucial … Left to themselves, markets can fail. To deliver their full benefits, they need support from a set of rules, customs, and institutions. They cannot operate efficiently in a vacuum. This chapter focuses on how markets improve people’s wellbeing, while McMillan’s caveat that markets can fail to deliver without support from well-designed institutions will be considered in Chapter 5. We begin with a discussion of three strengths of the market system emphasised in the economics literature: (1) markets allow specialisation of production; (2) markets reward entrepreneurs who organise new ways of adding value; and 31

(3) markets support decentralised decision-making. This ends with a section describing how investment in ‘physical capital’ raises living standards. The second half of the chapter then analyses how citizens enter into the market system primarily through paid employment. The capability to obtain paid employment is essential for wellbeing, but the jobs must offer decent work and a living wage. The three strengths of the market system discussed in the chapter’s first part all have implications for paid employment, which the chapter discusses around the core concept of ‘labour market skills’. This leads to an explanation of what economists mean by ‘human capital’ and the influence this metaphor continues to have on public policy. MARKET PRODUCTION AND WELLBEING Originally, a particular market tended to be at a particular location, but modern technologies now allow markets to involve thousands of sites around the globe, or to be entirely electronic without any need for public space. A market reconciles the desire of sellers to earn the highest possible return for what they choose to produce and the desire of buyers to pay the lowest possible cost for what they choose to consume. Bargaining between these two groups results in a market price that makes the amount supplied equal to the amount demanded. It is significant that markets exist wherever there are large populations and no overwhelming force suppressing their operation. Whatever caveats we may hold about their operation in particular times and places, the universal adoption of markets to organise production and exchange is itself evidence of this institution’s enduring contribution to human wellbeing. Adam Smith’s Wealth of Nations identified an important strength of markets: they allow producers to specialise, both in terms of their chosen outputs and in terms of how they organise their production processes. This is because producers are able to rely on markets to sell their outputs and to buy their inputs. Smith introduced this theme in his opening chapter, inviting readers to consider the example of manufacturing pins: One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations … Smith estimated that ten people in his time could make upwards of 48,000 pins a day under this system, whereas without its division of labour they could make 200 pins at best. This illustrated his more general observation that the specialisa32

4 Value through Enterprise and Skills

tion made possible by the market system increases enormously the value that can be created by workers’ time (that is, their ‘productivity’). Another strength of markets is that they reward entrepreneurs who imagine and organise new ways of adding value for consumers. This was emphasised by Joseph Schumpeter in Capitalism, Socialism and Democracy, published in 1942. Introducing what he famously termed capitalism’s ‘creative destruction’, Schumpeter explained the system’s in-built dynamism for incessantly creating new opportunities: The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates. Schumpeter argued that this dynamism is driven by entrepreneurs: To act with confidence beyond the range of familiar beacons and to overcome that resistance [to novelty] requires aptitudes that are present in only a small fraction of the population and that define the entrepreneurial type as well as the entrepreneurial function. This function does not essentially consist in either inventing anything or otherwise creating the conditions which the enterprise exploits. It consists in getting things done. Even in 1942 Schumpeter thought that innovation was becoming routine in large corporations. Present-day scholars similarly recognise that entrepreneurship is not limited to individuals; all sorts of small and large enterprises can increase value through innovation. Nor is this limited to private commerce; voluntary community organisations can act as entrepreneurs in building or maintaining distinctive community assets that attract tourists and deliver value to their regions. A third strength of competitive markets is their support for decentralised decision-making. This feature, which is very beneficial to wellbeing, rests on an important property of a competitive market – its market price equals both the cost of producing one more unit of the item being traded (the item’s ‘marginal cost’) and the amount consumers are willing to pay for that extra unit (the item’s ‘marginal benefit’). Through the price they pay, consumers are therefore forced to take into account a purchased item’s marginal benefit to other consumers and how much it would cost producers to make a replacement. Similarly, producers are constrained by the marginal costs of production in other enterprises and by the marginal benefit of the item to the market’s consumers. This makes competitive markets ‘economically efficient’, meaning that resources are directed to uses that are most highly valued within the market system while goods and services are produced at the lowest feasible market cost. Market 33

outcomes need not prevail if citizens determine that other values should have precedence (New Zealand, for example, does not allow nuclear processes for the generation of energy); nevertheless, the wellbeing advantages of this efficiency property should not be understated. Recognition of this strength is particularly associated with Friedrich Hayek, another Nobel laureate. Writing in the American Economic Review in 1945, Hayek characterised the economic problem as ‘how to secure the best use of resources known to any of the members of society, for ends whose relative importance only those individuals know’ (emphasis added). This problem is solved through decentralised decision-makers reacting to changes in market prices: The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly [by the increase in its market price]; i.e., they move in the right direction. This resonates strongly with Principle 2 that the wellbeing of persons is related to leading the kinds of lives they value. No central planner could hope to understand the diversity of lives valued by individual citizens, but market transactions allow persons to make their own choices, while obliging them to take into account the marginal values and marginal costs of the market resources they choose to consume. Taken together, these three strengths make competitive markets a powerful institution for focusing producers on the task of adding value for consumers. Each enterprise pays the marginal cost of all inputs it uses. It then processes those inputs to create goods and services valued by consumers more highly than the original market value of the inputs. The reward for success is profit. Thus, where individual markets are properly managed to work well (including self-regulation or external monitoring to prevent anti-competitive behaviour), the market system can be the nation’s heart and lungs for supporting its citizens’ efforts to develop and sustain wellbeing. PHYSICAL CAPITAL AND WELLBEING Adam Smith observed that the ability of specialisation to increase the productivity of human work is due to three factors: … first, to the increase of dexterity in every particular workman; secondly, to the saving of the time that is commonly lost in passing from one species of work to another; and lastly, to the invention of a great number of ma34

4 Value through Enterprise and Skills

chines which facilitate and abridge labour, and enable one man to do the work of many. The third of these – the invention of ‘a great number of machines’ – is an example of investment in ‘physical capital’. As explained in Chapter 2, physical capital covers human-made assets used in ongoing production. The amount of investment in new physical capital every year is substantial. Statistics New Zealand estimates that in 2012/13 New Zealand’s ‘gross fixed capital formation’ (that is, its total expenditure on business investment and new residential buildings) was $35.3 billion, or 22.7 per cent of the country’s total expenditure that financial year. Investment expenditure on such a scale is essential not only to increase worker productivity and raise living standards, but also to maintain full employment. This latter insight was explained by John Maynard Keynes in The General Theory of Employment, Interest and Money, published in 1936. More than seventy-five years later, his language may appear arcane, but the analysis remains as important as ever: Thus, to justify any given amount of employment there must be an amount of current investment sufficient to absorb the excess of total output over what the community chooses to consume when employment is at the given level. For unless there is this amount of investment, the receipts of the entrepreneurs will be less than is required to induce them to offer the given amount of employment. Keynes’s theory rests on the idea that at least some people do not spend all their earned income; some is set aside as savings. Only the amount spent on consumption becomes new income for other people, who in turn decide how much of their new income to save and how much to spend. This income-spending-income cycle continues until it eventually peters out. Keynes was the first to recognise that this process determines the aggregate level of spending in the economy each year. Keynes then asked two questions. First, if the economy is at full employment, how much income is produced? Second, given the propensity to save of the country’s citizens, what is the total level of savings set aside at that full employment level of income? Since savings by definition must equal investment expenditure, the answer to this second question determines the level of investment needed to maintain full employment. This key insight can be illustrated with reference to New Zealand’s experience after the global financial crisis in 2008. Gross fixed capital formation in New Zealand fell by 7.8 per cent in 2008/09 and by a further 9.6 per cent in 2009/10. As predicted by Keynes’s theory, these large falls in investment spending were accompanied by a sharp rise in unemployment, from 3.5 per cent of the labour force at the end of 2007 to 6.9 per cent by the middle of 2010. 35

Keynes called this phenomenon ‘involuntary unemployment’ since his analysis demonstrated that full employment cannot be restored by wage cuts when the lack of jobs is caused by insufficient investment. Individuals are powerless when the whole market system is affected by such a sharp shock. This can be disastrous for citizens because of the strong connections that exist between market employment and wellbeing. MARKET EMPLOYMENT AND WELLBEING A recent article in New Zealand Economic Papers by Denise Brown, Julie Woolf and Conal Smith noted that a negative relationship between unemployment and life satisfaction is one of the strongest findings in the international literature on wellbeing economics. This will not surprise many readers and indeed their article confirmed the negative relationship using New Zealand data: unemployment was one of four factors with a strong impact on a citizen’s life satisfaction reported in the New Zealand General Social Survey 2008. The three other factors (all positively related to life satisfaction) were health status, income and social relationships. Competitive markets were described earlier in this chapter as the heart and lungs of national systems for supporting personal and communal efforts to develop wellbeing. Continuing that analogy, the experience of involuntary unemployment for any sustained period is like struggling continuously for breath. It is not simply that market goods and services are out of reach; it is also hard to participate in any value-added activities (including creating a normal family life or engaging in outdoor recreation) without the ability to make relevant market purchases. The capability to find employment is therefore critical for wellbeing. Further, wellbeing requires decent work. This was emphasised in a recent United Kingdom study headed by Michael Marmot, Professor of Epidemiology and Public Health at University College London. Published in 2010, the Marmot report emphasised the risks to wellbeing of low-paid, insecure and heath-damaging work: Insecure and poor quality employment is also associated with increased risks of poor physical and mental health … Work is good – and unemployment bad – for physical and mental health, but the quality of work matters. Getting people off benefits and into low-paid, insecure and health-damaging work is not a desirable option. Recall Principle 2, that wellbeing is related to the capabilities of people to lead the kinds of lives they have reason to value. This sets a standard for defining decent work; it must provide sufficient income for workers and their families to live with dignity and participate as active citizens in society, including the ability to 36

4 Value through Enterprise and Skills

arrange healthy housing. The social standard for this income level is called the country’s ‘living wage’. The living wage is higher than a country’s statutory minimum wage because of different social norms reflected in each concept. The minimum wage sets a floor for the socially acceptable amount earned by any worker (for example, a school-leaver in a first job). Because employers cannot pay a lower rate, it also sets a floor for the value produced per hour of work in any job. This is an important benchmark in the national economy, but is clearly not designed to support a socially acceptable family life. This requires a higher wage, the living wage. The Family Centre Social Policy Research Unit has estimated a living wage for New Zealand based on 2012 prices. The study by Peter King and Charles Waldegrave measured the minimum income needed for a socially dignified life in a household of two adults (one working full-time and one working part-time) and two school children (one aged under ten and the other a teenager). Their calculations produced an hourly rate of $18.40, nearly $5 higher than the 2012 statutory minimum wage of $13.50. Although the minimum wage may provide adequate income for a schoolleaver with no dependants, wellbeing problems arise when parents are in jobs paying less than the living wage. By its definition, an inability of parents to earn the living wage gives rise to child poverty and causes other damage to the quality of families’ lives. It is therefore distressing to note the situation of adults aged thirty-five to thirty-nine in the 2006 Census. Members of this age group had more than two decades of life experience since turning fifteen, during which time they should have developed valuable labour market skills. Nevertheless, 40 per cent reported total personal income below the annual value of working at the minimum wage for 40 hours a week (about $20,000). This suggests that large numbers of people in this age group, most of whom are parents, are not able to earn a living wage. This in turn indicates problems in New Zealand’s systems for developing and rewarding labour market skills. .

LABOUR MARKET SKILLS AND WELLBEING In 2012 the OECD released a report called Better Skills, Better Jobs, Better Lives: A Strategic Approach to Skills Policies. The report called on countries to pay close attention to their strategies for developing labour market skills in their workforces, which it justified in the following important statement: Skills have become the global currency of the 21st century. Without proper investment in skills, people languish on the margins of society, technological progress does not translate into economic growth, and countries can no longer compete in an increasingly knowledge-based global society. 37

The OECD emphasis on skills fits the wellbeing economics framework very well. Because competitive markets focus producers on adding value for consumers, any work contributing to this task is ‘skilled work’. That is, all work is skilled. The fundamental skill, of course, is the capability to add value to an enterprise’s mission of adding value. Without this skill, no employment contract is sustainable for long. Enterprises also require technical skills, ranging from the skills of manual labour and machinery operation to the skills of technical expertise and professional management. In both the private sector and the public sector, workplaces further value what policy-makers in Australia have called the ‘core skills for work’: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Manage career and work life Work with roles, rights and protocols Communicate for work Connect and work with others Recognise and utilise diverse perspectives Plan and organise Make decisions Identify and solve problems Create and innovate Work in a digital world.

Employers and employees all have an interest in how the country organises the development of skills in its workforce. Enterprises must be able to hire employees with the right skills if they are to sustain their market activities. Workers must be able to develop skills that will add value to an employer’s operations if they are to obtain sustained employment within the market system. The strengths of the market system identified earlier in this chapter all apply to skills development. First, markets allow specialisation in acquiring skills. By choosing to specialise in a particular field, a person can invest in further education and experience to hone existing skills and to develop new skills that are relatively rare in the workforce. This should increase the person’s capabilities for adding value in an enterprise. Second, the market system rewards people who are entrepreneurial in their skill development throughout a work career. Individuals who improve their skills, perhaps through formal education or through informal training and experience on the job, and who seize new opportunities for utilising those skills, are rewarded with higher incomes. Third, the system supports decentralised decision-making. Market wages provide information to employers and employees about the relative scarcity of particular skills among the working-age population and about the value of these skills to enterprises in different industries. Citizens are therefore able to evaluate their personal abilities and interests in the light of this information to help make good choices for constructing rewarding career paths. 38

4 Value through Enterprise and Skills

There is an important caveat. Labour markets seldom meet the strict requirements for perfect competition, but are buffeted by social forces and market power. Recall from Chapter 1 that a foundational consideration in Amartya Sen’s capabilities approach is that whole groups of people can find themselves with significantly reduced opportunities when these structural forces impact on their economic background, gender, ethnicity, marital status, sexual orientation, religious beliefs or physical abilities. In particular, it is not uncommon for prevailing social norms to marginalise the work of some groups as ‘unskilled work’. Before the Equal Pay Act of 1972, for example, it was widely accepted in New Zealand that women should receive less pay than men for the same work. Although that practice is now prohibited, a gender pay gap remains in the average hourly earnings of women and men. This has led to calls for ‘pay equity’. The Ministry of Business, Innovation and Employment maintains a webpage on pay equity, which it defines as follows (notice the emphasis on the value of work, consistent with the approach taken throughout this book): Pay equity means gender doesn’t affect what people are paid. It means women receive the same pay as men for doing the same work, and for doing work that is different, but of equal value. The value of work is assessed in terms of skills, knowledge, responsibility, effort, and working conditions. Employees have traditionally looked to trade unions and professional associations to bargain for recognised skills standards so that they might be confident that further education will increase the value of their work and be rewarded with higher pay. That mechanism weakened in New Zealand after the Employment Contracts Act 1991 saw the percentage of wage and salary earners belonging to a union fall from 43 per cent in 1991 to 21.1 per cent in 1999. Union coverage now hovers around 20 per cent. HUMAN CAPITAL AND WELLBEING Education is much more than vocational training. Consistent with this book’s emphasis on the breadth of wellbeing, education must provide opportunities for young people to discover their abilities across a wide range of activities that will help them construct the kinds of lives they will value and have reason to value. Young people should learn in education to discipline those diverse abilities and should have opportunities to display their disciplined abilities to their peers, families and communities (including potential employers). Nevertheless, education decisions often include vocational goals. As a result, there are some similarities between education decisions and the decisions by enterprises to invest in new physical capital. In both cases, economic sacrifices 39

are made in the expectation of future benefits, whether the benefits are higher incomes from skills learned in education or higher profits from increased sales made possible by the new assets. Recognising these similarities, Jacob Mincer, Theodore Schultz and Gary Becker proposed more than fifty years ago that a person investing in new skills is acquiring ‘human capital’. This metaphor, along with its associated economic model of education, has become very influential in public policies directed at raising skills. Although it can be applied at any stage in a career of lifelong learning, the model’s most important influence has been in policy thinking about the number of years that young people choose to spend in formal education to develop their skills for the labour market. The model’s basic insight is that a young person who chooses to spend another year in education will have compared the sacrificed income he or she could have earned by taking on a full-time job (plus any other direct costs of education such as tuition fees) with the higher future income he or she will earn as the result of an additional qualification. A large number of academic studies have demonstrated that, on average, more years of education are associated with higher lifetime earnings. This conclusion is supported by the emphasis that many parents put on their children’s education, often with significant financial sacrifices. It also lies behind policies such as the decision in 1993 to raise New Zealand’s school-leaving age from fifteen to sixteen and the more recent adoption of a policy target to increase the proportion of twenty-five to thirty-four-year-olds with advanced trade qualifications, diplomas and degrees to 55 per cent by 2017. The human capital analogy leads, however, to a further essential point that is sometimes overlooked. In physical capital formation, considerable attention is paid to each building’s detailed design, its fit with the architecture of neighbouring buildings and its compliance with safety and other regulatory codes. Similarly, successful investment in human capital requires much more attention to the diverse potential of each individual learner than simply increasing the number of years spent in education. We will return to this theme in the book’s final chapter, but first Chapter 5 considers the role of central government in supporting people’s efforts to live the kinds of lives they have reason to value.

40

5 Public Service to Expand Capabilities

Previous chapters have emphasised that people create the kinds of lives they value and have reason to value; this chapter continues that theme. It explores how central government uses tax revenue to add value to the activities of citizens, resulting in greater wellbeing than individuals, households, community groups, local governments and commercial enterprises could have achieved from the same unpooled resources. We begin with two founding documents in New Zealand’s history: the Declaration of the Independence of New Zealand (1835) and the Treaty of Waitangi (1840). The former is essential for understanding the latter document, while the Treaty is important for this chapter because it explicitly refers in the Māori text to the exercise of government. This is followed by an analysis of the costs of funding government activities, including the ‘deadweight loss’ of taxation. The social burden of these costs means that government programmes are justified only if they add more value than could have been achieved by taxpayers using the same financial resources on promoting their own wellbeing. The rest of the chapter discusses four significant examples of activities that meet this test of good government. The first concerns the relationship between state and market. Some approaches suggest that the main role of the state is to address instances of market failure; our approach emphasises the state’s prior responsibility to maintain institutional frameworks for market success. The second example concerns the government’s role in implementing community values concerning fairness and equity. This includes policies to ensure that citizens socially recognised as unable to earn market income through employment (including those who have retired at the end of their participation in the labour force) have the resources they need to live a dignified life. Third, central government has a dominant role in planning investments in capital infrastructure such as the country’s transport and communication networks. This is an outstanding example of the government acting to expand capabilities, since these infrastructure assets are for people to use in their own imaginative ways to enhance their wellbeing. This applies to all types of capital 41

considered in this book: physical capital; human capital; social capital; cultural capital; and natural capital. The final example considers the public-sector workforce as an integrated entity. This is another example of a resource available for people to use to enhance their own wellbeing. The chapter pays particular attention to the sector’s spirit of public service and its unique capability to accumulate, analyse and synthesise information on behalf of citizens. TE TIRITI O WAITANGI AND WELLBEING Before discussing the Treaty of Waitangi (Te Tiriti o Waitangi), some knowledge of an earlier document is helpful. On 28 October 1835, thirty-four Māori leaders from the northern part of the North Island signed the Declaration of the Independence of New Zealand (He Wakaputanga o te Rangatiratanga o Nu Tirene). The document had been drafted by the British Resident, James Busby, who signed it as a formal witness. Translated from the original Māori text, the first Article states: We, the hereditary chiefs and heads of the tribes of the Northern parts of New Zealand, being assembled at Waitangi, in the Bay of Islands, on this 28th day of October, 1835, declare the Independence of our country, which is hereby constituted and declared to be an Independent State, under the designation of The United Tribes of New Zealand. The British Government received this Declaration, which was a key consideration in its decision to negotiate a treaty in 1840. It was therefore no coincidence that Te Tiriti o Waitangi was negotiated at the same place as the Declaration had been signed, or that the Treaty’s English text refers to ‘the Chiefs of the Confederation of the United Tribes of New Zealand’, the same designation that had been used in the Declaration. Consequently Te Tiriti o Waitangi is an agreement that was negotiated by representatives of two countries who recognised each other’s independence. Signed initially at Waitangi on 6 February 1840, and subsequently in most parts of the country, Te Tiriti o Waitangi achieved three objectives, recorded in its three articles. In Article 1, complete government (kāwanatanga katoa) was granted to the British Crown. In Article 2, the Crown guaranteed to Māori unqualified chieftainship (tino rangatiratanga) over their lands, villages and all their treasures; that is, Article 2 guaranteed Māori economic rights. In Article 3, the Crown guaranteed to Māori the same rights and duties of citizenship (tikanga katoa rite tahi) as the people of England; that is, Article 3 guaranteed Māori civil rights. This simplicity of New Zealand’s founding document is very powerful, 42

5 Public Service to Expand Capabilities

at least in the Māori text. The English text uses the term ‘sovereignty’ for ‘kāwanatanga katoa’, which has a weight in European history that is absent from the phrase ‘complete government’. Based on the Māori text (which was the one signed by almost all signatories), Māori leaders of 1840, acting from their selfdeclared and acknowledged sovereignty, agreed for the British Crown to exercise complete government subject to guarantees that Māori economic and civil rights would be protected. This is a reasoned model of government, which can be applied to all groups of citizens, however groups choose to define themselves on the basis of common interests. A group claims its sovereignty, meaning that its members accept primary responsibility for determining the kinds of lives they value and have reason to value. The group’s members then determine activities they judge will contribute to living those kinds of lives. In a diverse society, and even within groups themselves, this inevitably generates conflicts as different people argue for their different values. Given these conflicts, it is a reasoned response to agree to a system of ‘complete government’. In particular, it is reasonable to give central government the exclusive mandate for exercising physical force to resolve conflicts (for example, through the armed forces, the police and the prison service). It is also reasonable to insist that this mandate is subject to guaranteed economic and civil rights, enforced through the transparent procedures of an independent judiciary. This model of government rests comfortably within the wellbeing economics framework. It recognises that agency lies primarily with citizens, but also that central government can add value to the purposeful activities of those citizens, in this case through the exclusive mandate to exercise physical force to resolve conflicts. Before we discuss further important examples, the next section recognises limits on government programmes since funding public expenditure from taxation imposes social costs that must be taken into consideration. TAXATION AND WELLBEING Public expenditure by central government, including the wages and salaries of public-sector employees, must be funded. The government’s revenue comes primarily from compulsory taxes levied on market income and spending. There is therefore a social cost to consider alongside any benefit of public expenditure; taxpayers sacrifice some earnings that they and their households could have used for market purchases to promote their own wellbeing according to their own values. Moreover, this direct impact is not the full extent of the social cost. Because a tax on market income and spending reduces incentives to earn income in the first place, the funding of public programmes changes economic behaviour. Taxpayers reasonably choose to spend less time in paid work, and to spend less income 43

on market goods and services, because they do not get to enjoy the full personal benefits of their earnings. This additional social cost is called the ‘deadweight loss’ of taxation. The New Zealand Treasury has suggested a plausible figure of 20 per cent for the deadweight loss in New Zealand; that is, the full social cost of a dollar of tax revenue is about $1.20. Thus the expense of a tax-funded programme must be multiplied by a factor of 1.2 to calculate its full social cost. This does not rule out public expenditure per se, but it does mean that government activities should generate wellbeing at least 20 per cent greater than could be created by taxpayers retaining their respective shares of those same financial resources. This is not as difficult to achieve as it might sound, for the same reasons that spending by a local government on public goods can create exceptional value for residents in its region. There are 3.4 million taxpayers in New Zealand; hence a tax of $30 on each taxpayer’s earnings could finance a $100 million public-sector programme. If this provided a genuine public good that all taxpayers could use to gain additional wellbeing valued by each taxpayer at just $40, the result would be higher aggregate wellbeing worth $136 million. This figure easily meets the requirement for a margin of 20 per cent ($120 million). That hypothetical example shows the power of expenditure on genuine public goods, but there is an important corollary to be respected. The social cost of taxation means that central government should avoid funding goods or services that citizens are capable of purchasing just as effectively for themselves (individually, in households, in community organisations or with the support of local government). In the European Union, this discipline is called the principle of subsidiarity: Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level. The remainder of this chapter discusses four examples of activities consistent with this principle to illustrate how central government can add value in unique ways to personal and communal wellbeing. MARKET REGULATION AND WELLBEING Recall John McMillan’s statement in the previous chapter that ‘markets are the most effective means we have of improving people’s well-being’ but only where they work well: 44

5 Public Service to Expand Capabilities

Left to themselves, markets can fail. To deliver their full benefits, they need support from a set of rules, customs, and institutions. They cannot operate efficiently in a vacuum. If the rules of the game are inadequate, as often they are, it is difficult and time-consuming to set them right. Many countries, to their citizens’ detriment, have not yet been able to do so. It has long been understood that a particular market may fail to achieve socially desired outcomes. A market price, for example, does not reflect any wider social impacts (called ‘externalities’) that may arise outside its particular market. The classic example is a firm whose production results in pollution of the local environment. The pollution imposes costs on residents’ wellbeing, but in a market economy the firm does not have to consider those costs when making its decisions. Externalities are not always negative. A positive example is immunisation. A decision to accept immunisation will generally improve the wellbeing of an individual recipient, but it also improves wider communal wellbeing because the incidence of a contagious disease is reduced. When a market involves significant positive or negative externalities, economists say there is ‘a market failure’ and argue that wellbeing can usually be improved with a well-designed intervention. It might be possible, for example, to introduce policies that make it easier for people affected by the externality to negotiate their own private solutions. Carefully considered taxes and subsidies might lead market participants towards more desirable outcomes. The introduction of a new market instrument, such as a system of tradable permits, might achieve better results. Regulations to guide private-sector behaviour in the market might improve overall wellbeing. In some cases, public-sector provision might be less inefficient than private provision. McMillan’s point, however, is deeper than examples such as these. His comment is not just about particular markets; rather, his observation is that a country’s market system as a whole requires support from rules, customs and institutions if there is to be ‘market success’. The most obvious requirement is for institutions that ensure property rights are effectively defined and unambiguously protected; there is no incentive to engage in market transactions if goods can be arbitrarily seized. Another requirement is for reliable judicial processes that enforce agreements and adjudicate disagreements; market contracts cannot be sustained without these processes. Further support comes from clear and enforceable rules about behaviour such as truthful statements and honest disclosure. The rules, customs and institutions supporting a market system are ultimately founded on community values. Recall the observation by Francis Fukuyama in Chapter 3 that business is easier when citizens have built trust through shared norms and values. Similarly, organisations in a country set and enforce their own codes of conduct. The New Zealand Stock Exchange, for example, maintains rules that all participants in its market are obliged to follow; the November 2013 45

document of those rules was 213 pages long. Precisely because markets are so important for wellbeing, it is another reasoned response for citizens to give central government the overall responsibility for ensuring that rules and institutions for market success are properly codified and maintained. This includes activities such as using taxes to fund the country’s independent judiciary and to pay the costs of specialist regulatory agencies such as the Commerce Commission. Thus there is no fundamental conflict between Principle 3 of wellbeing economics (economic policies should expand the substantive freedom of persons to lead the kinds of lives they value and have reason to value) and Principle 5 (market production should enable persons to add value to the kinds of lives they value). The state acts on behalf of citizens to sustain the institutional framework within which people can use markets to promote the wellbeing of themselves and others. Two special cases of the relationship between state and market involve particularly sensitive wellbeing issues. This was recognised by Karl Polanyi in a 1944 book called The Great Transformation. The title reflects Polanyi’s view that the British industrial revolution had transformed economic relations to create a market economy, but that it had also transformed social and environmental relationships: … a market economy must comprise all elements of industry, including labour, land, and money. But labour and land are no other than the human beings themselves of which every society consists and the natural surroundings in which it exists. To include them in the market mechanism means to subordinate the substance of society itself to the laws of the market. That final sentence is a powerful one, and finds many echoes in more recent writings on modern capitalism. Our approach responds, however, that ‘the laws of the market’ are themselves framed by the state on behalf of its citizens. Hence the issue is not whether markets have a role in allocating labour and land resources (we think they do), but whether the rules set for these markets at any particular moment genuinely promote individual and communal wellbeing. Employment law and environment law are therefore significant elements of any government’s vision for wellbeing. Precisely for the reasons identified by Polanyi, public-sector legislation and private-sector norms for regulating market activities in relation to employment and the environment are touchstone issues for debates about the kinds of lives that citizens value and have reason to value. EQUITY AND WELLBEING The central government’s responsibility to reflect community values and to main46

5 Public Service to Expand Capabilities

tain rules and institutions for market success leads naturally to another important function it performs on behalf of all citizens. Recall our earlier analogy that the experience of involuntary unemployment for any sustained period of time is like struggling continuously for breath. Two aspects of this observation justify a central government response. First, people unable to earn market income through employment find it hard to participate in normal family life or community activities. This exclusion from participation offends values deeply held among the general population. The most famous expression of this in New Zealand was made by the Royal Commission on Social Security in 1972, which recorded the following social norm: To ensure within limitations which may be imposed by physical or other disabilities, 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 in and belonging to the community. More recently, the Welfare Working Group (set up by the government in 2010 to review New Zealand’s welfare system) echoed that statement in its own description of norms for social security benefits: Enabling people who can be in employment to find paid work should be a central focus of the benefit system. However, for those who are permanently unable to be in paid work, the benefit system must also support people to participate as fully as possible in the community. Second, a situation of sustained levels of high unemployment weakens the market system by reducing the customer base of local businesses. As the recent experience of some European countries shows, this phenomenon can generate a spiral of increasing austerity: higher unemployment leads to lower domestic sales for firms, who respond by laying off workers, which results in still higher unemployment. Social norms such as respect for property rights begin to weaken when people lose any hope of being able to find decent work at a living wage. As an institution required to implement community values and as overall guardian of the market system, central governments are uniquely placed to address these issues, including setting up systems to provide social security income support for citizens. The clearest example of this role is the New Zealand Superannuation scheme. A New Zealand citizen or permanent resident who is aged sixty-five years or over, and who meets certain residency requirements, is entitled to a weekly payment that at the time of writing is $410.32 for a single person living alone and $310.34 for partnered person (both rates before tax). The recipient also automatically receives the SuperGold Card offering private- and public-sector discounts, including free off-peak public transport in many areas. 47

There is strong cross-party support in New Zealand for these arrangements, which have proved their effectiveness in protecting senior citizens from poverty. The Office for Senior Citizens advised the incoming Minister in 2011 that ‘in June 2010, 7 per cent of older adults were living below the low-income threshold, compared with 21 per cent of children’. Despite that success for older New Zealanders, designing equitable and effective social security policies is an enormously complex task. As well as considering the social costs of the tax revenue needed to fund social security, policy advisors must also analyse the incentives created for recipients of the income support, the incentives created for the family and employers of those recipients, and the impacts on voluntary community organisations offering related services. INFRASTRUCTURE AND WELLBEING Chapter 4 commented on the substantial investment in new physical capital that takes place in New Zealand every year, mostly by private and state-owned enterprises to take advantage of market opportunities. Some of this investment is for new ‘infrastructure’, which is defined in the country’s National Infrastructure Plan 2011 as follows: ‘Infrastructure’ is the fixed, long-lived structures that facilitate the production of goods and services and underpin many aspects of quality of life. ‘Infrastructure’ refers to physical networks, principally transport, water, energy and communications. Examples include roads, railways (metropolitan and national), airports, seaports, urban water networks, rural irrigation schemes, electricity generation, electricity transmission, oil and gas distribution, and telecommunications, including highspeed and high-capacity broadband in urban and rural communities. There is some private provision in these categories, but there are important reasons why central government plays a dominant role in funding this form of investment. The first is that the purpose of infrastructure investment is to provide new assets to be used by enterprises and citizens for their own purposes. The value of a new road is not the cost of its construction, but the increased wellbeing that people can create from using the road for their own journeys and for the carriage of goods. Infrastructure is therefore an outstanding example of Principle 3, expanding the substantive freedom of persons to lead the kinds of lives they value and have reason to value. A second reason is that it may not be feasible for a private supplier of infrastructure to collect revenue directly from users to cover their costs. The construction and maintenance of New Zealand roads, for example, is funded from the National Land Transport Fund, whose revenue comes from the government’s 48

5 Public Service to Expand Capabilities

excise duty on petrol and other road-user charges. Toll roads can be created, but the experience in Australia includes several examples where the operators have suffered substantial losses. A third reason concerns cases where there is room in the market for only one supplier. A good example is the national grid for transmitting electricity from generators to distributors. It would be enormously wasteful to build a second national grid and so care must be taken to ensure that the owner is not allowed to take advantage of its monopoly position to raise prices. This is why a state-owned enterprise, Transpower New Zealand Ltd, owns and operates the national grid on behalf of central government. Fourth, financial returns to a project may depend on other infrastructure investments occurring at the same time. The value of an irrigation scheme, for example, may depend on new investment in local rural roads. Similarly, a decision to invest in a new inland port to relieve congestion at a nearby seaport may depend on changes in the local rail network. The National Infrastructure Plan 2011 describes improving coordination as ‘one of the biggest challenges facing infrastructure in New Zealand’. Finally, it is often impossible to predict all uses to which the new asset will be put. This comes from the first point above: infrastructure is for people to use for their own purposes. In the language of economists, infrastructure investment creates ‘options’ that may or may not be taken up, depending on the imagination and creativity of a region’s entrepreneurs. These options have economic value that can be estimated, but they will not normally generate a profit flow to private suppliers without public subsidies. Although this section has concentrated on physical infrastructure, similar points can be made about any of the types of capital discussed in previous chapters: physical; human; social; cultural; or natural. Investments in each type of capital are generally private decisions made by individuals and community organisations. Nevertheless, they are frequently supported by infrastructure investment funded by central government. Human capital infrastructure, for example, is an area where central government in New Zealand has substantial investments. These include ownership of state schools, institutes of technology and polytechnics, and eight universities. There is also annual public funding for early childhood education, integrated schools, industry-training organisations, private training establishments and the country’s three wānanga (specialist tertiary institutions infused with Māori tradition and custom). The result is an infrastructure of integrated learning providers for citizens to make their own decisions about human capital investment. It is scarcely possible to overemphasise the importance of this infrastructure for wellbeing and for the communal equity values discussed in the previous section. Similarly, social capital infrastructure includes the Ministry of Social Development and the health system. Cultural capital infrastructure includes Creative New Zealand, Sport New Zealand and the Ministry for Culture and Heritage. Nat49

ural capital infrastructure includes the Department of Conservation and Antarctica New Zealand. The previous section concluded that designing equitable and effective social security policies is an enormously complex task. The same is true of infrastructure decisions, which require a spirit of service to the wider population and a broad knowledge about the country’s economic, social, cultural and environmental possibilities. Only one institution has the human resources to offer these qualities – the country’s public service. THE PUBLIC SERVICE AND WELLBEING The Briefing to the Incoming Minister of State Services prepared by the State Services Commission after the 2011 general election observed that ‘the State sector’s workforce is its single most valuable resource’. That workforce is governed by the State Sector Act 1988, which was amended in 2013 to affirm a state sector system that: (a) is imbued with the spirit of service to the community; and (b) operates in the collective interests of government; and (c) maintains appropriate standards of integrity and conduct; and (d) maintains political neutrality; and (e) is supported by effective workforce and personnel arrangements; and (f) meets good-employer obligations; and (g) is driven by a culture of excellence and efficiency; and (h) fosters a culture of stewardship. The public sector’s code of conduct reinforces these qualities, requiring it to be fair, impartial, responsible and trustworthy with a pervasive respect for integrity. Indeed, New Zealand has an enviable reputation for integrity. Transparency International, for example, is an institution in Berlin that produces an annual corruption perceptions index for public sectors in 177 countries. New Zealand performs very well in this index; in 2013 it was ranked first equal with Denmark. This book’s focus on wellbeing finds support in the code of conduct’s commitment to ‘strive to make a difference to the well-being of New Zealand and all its people’: As State servants, imbued with the spirit of service to the community, we are motivated to improve the well-being of New Zealanders. A concern for the well-being of others is central to the spirit of service. This involves each of us endeavouring to find more efficient, effective, economical and sustainable ways of making our professional contribution to the work of our organisation. 50

5 Public Service to Expand Capabilities

Further, this book’s framework offers a view on what it might mean to ‘improve the well-being of New Zealanders’, summarised in Principle 2: the wellbeing of persons is related to their capabilities to lead the kinds of lives they value and have reason to value. Consistent with this principle, the public service is a unique resource for citizens to use as part of every person’s purposeful actions to improve their own wellbeing. A specific aspect of this unique resource is ‘knowledge’: knowledge about global trends; knowledge about international opportunities; knowledge about national networks; knowledge about government systems; knowledge about institutions; knowledge about environmental impacts; knowledge about technological developments; knowledge about the diversity of its citizens; and even knowledge about knowledge itself. Private-sector organisations and individual citizens also know about each of these items, but employees in the public service have an unmatched capability for accumulating and synthesising knowledge across the broad spectrum of its activities. It is not enough to accumulate and synthesise knowledge, of course; the real competitive advantage for a small country comes from using that synthesised knowledge to create a coherent public policy strategy on behalf of citizens. This idea can be termed ‘the Skilling thesis’ after its emphasis by David Skilling, the founding director of the former New Zealand Institute and now Director of the Landfall Strategy Group in Singapore. Skilling argues that small countries like New Zealand and Singapore are not simply scaled-down versions of large countries: Specifically, small countries need to focus on two areas in order to engage successfully in the global economy. First, develop a clear policy agenda that engages seriously with the global environment, and positions the country to compete in the changing global context. Second, to deliver this policy agenda, governments will need to invest in strengthening public sector strategic capacity, political institutions and social cohesion so that there is a shared understanding and sense of direction. New Zealand has stable political institutions and a history of relative social cohesion. The country has already made investments in its public-sector strategic capacity. We agree that further investments to strengthen these features would be valuable, not only for New Zealand to engage successfully in the global economy but also for New Zealanders to improve their wellbeing more broadly defined.

51

6 Future Directions for New Zealand

In this book we have presented a wellbeing economics framework for understanding how people create wellbeing through their individual and communal choices. Chapter 1 explained our intellectual debt to Amartya Sen, who argues that development occurs by expanding the capabilities of persons to lead the kinds of lives they value and have reason to value. Following Sen’s argument, our own approach in this book has focused on how people engage in purposeful activities to add value to their wellbeing. Chapter 2 analysed time-use choices made by New Zealanders to make some cautious observations about the kinds of lives that citizens reveal they value. We highlighted, for example, the significance for wellbeing of choices made about forming households and about time balanced between caring for children and earning market income. Chapter 3 then discussed how people organise themselves within communities to add value to their wellbeing. We considered participation in voluntary community organisations and the value added by local government. The latter discussion drew on Elinor Ostrom’s research to highlight advantages when residents are able to work closely with their local government to co-produce public goods and services. Chapter 4 considered markets as another communal institution used by people because it adds value to their lives. We highlighted the strengths of competitive markets due to specialisation, entrepreneurship and decentralised decision-making. Consequently, we argued that the market system can be a nation’s heart and lungs for supporting its citizens’ efforts to develop and sustain wellbeing, but this also means that the capability to access quality employment is critical for personal and household wellbeing. Chapter 5 explored how citizens support a central government to add further value to their lives, taking into account the full cost of taxation. We discussed four government activities with this feature: providing rules and institutions for market success; implementing communal values of equity; investing in physical, human, social, cultural and natural capital infrastructure; and maintaining a 52

6 Future Directions for New Zealand

capable public sector imbued with a spirit of service to the community and a pervasive respect for integrity. The purpose of this final chapter is to show how the different parts of the framework reinforce each other in explaining how wellbeing is promoted by human effort. We begin in the following section with an example drawn from the dairy industry, illustrating how a focus on wellbeing can improve market outcomes in the private sector. This is a key aspect of our analysis: wellbeing economics is not just a matter for public policy. Another key aspect is the concept of ‘value-added activities’. This concept has featured in all the previous chapters; indeed value-added activities make up the backbone of our wellbeing economics framework. A section therefore discusses this concept further, presenting our argument that New Zealand’s economic policies should move away from a focus on ‘export-led growth’ towards a focus on ‘value-added growth’. This leads to a section on skills and education. For people to engage in valueadded activities they require skills. Formal education is a critical aspect of skills development, and so teachers have unmatched opportunities to add value to their students’ lifelong wellbeing. Nevertheless, skills development is a much wider experience than formal education, beginning at birth and continuing over a lifetime. As mentioned in our opening chapter, wellbeing economics has been adopted in international policy circles, including the OECD in Paris and core central government agencies in the United Kingdom and Australia. Recent initiatives in the New Zealand public sector are also consistent with this approach. We introduce two examples: Treasury’s Living Standards Framework and the government’s Better Public Services programme. We finish with an appeal for a shift from a ‘welfare state’ to a ‘wellbeing state’. This appeal is not addressed simply, or even primarily, to central government. All individuals, households, community organisations, local governments and central government agencies collaborate in adding value to the diverse kinds of lives that persons in this country value and have reason to value. A WELLBEING EXAMPLE Our analysis of ‘value-added activities’ began with a discussion of the choices made by persons (individually and in households) to lead the kinds of lives they value and have reason to value. That starting point reflects our view that wellbeing economics is not primarily about public policy; it is founded first and foremost on the purposeful activities of people acting individually or in collaboration with others. It is fitting, therefore, to begin the discussion in this final chapter with an example drawn from private business. Cherie and Michael operate a sharemilking business of 600 cows on a South53

land dairy farm. Like many dairy operations, they employed workers on an eleven and three roster, meaning that staff worked eleven days and then had three days off each fortnight. During the spring calving season, the roster moved to twelve and two. Employees received a good weekly wage, but their work days could be 10 hours or longer to get everything done. In 2013 Cherie and Michael decided to explore whether they could improve their wellbeing and the wellbeing of their staff by moving to a five and two roster. They decided to aim for a standard work week of 40 hours for each employee, with enough flexibility to accommodate requests for time off work. One staff member played sport, for example, and so was released to participate in team training every Wednesday evening and to play on Saturdays. Short-term staff were employed to cover the gaps and extra staff were employed in spring. The decision to shift to the five and two roster was expensive; Cherie and Michael estimate that their annual wages bill increased by up to $15,000 (or approximately 15 per cent) in the first season. But they also found the higher costs were easily recouped because they and their workers were no longer tired and stressed by long hours. They themselves had time to work on the business, which they used to offer better staff training on skills such as milking and teat spraying techniques, to give positive feedback on employee performance, to provide proper inductions on health and safety, and to develop improved systems for getting things done more efficiently. They also found it much easier to release staff for off-farm training provided by the Primary Industry Training Organisation because of the extra staff in the system. As a result, worker productivity increased and so did farm profitability, despite the higher wages bill. Cows in difficulty or in poor health were spotted and treated sooner; there were fewer cow deaths and more live calves; and the herd consistently produced more milk. Workers required fewer sick days and had fewer injuries, and they did not make as many mistakes from tiredness. Cherie and Michael say they now have a ‘skilled effective engaged team working in a safe environment and creating profit and lifestyle for the farm manager’. There was a marked impact on the work-life balance issues that were discussed in Chapter 2. Cherie writes: … the extra time that Michael has been able to spend with the kids, going to school events, etc, and being home earlier in the evening and being able to spend more time with them; it has had quite a positive impact on both the children and myself. This example offers two insights with wider application. First, the successful achievement of enhanced wellbeing was not simply a matter of changing one aspect of the business (the move to a five and two roster). Instead, changes were made across the entire farm system (to include better training, for example) that 54

6 Future Directions for New Zealand

raised worker productivity to offset the extra wage costs. At the national level, adoption of a wellbeing economics framework would similarly require coordinated changes across the whole economy. Second, the example illustrates that a focus on wellbeing does not mean that traditional economic measures must suffer. The changes made by Cherie and Michael increased their wages bill and increased their profits; both outcomes are included by Statistics New Zealand as higher contributions to the country’s GDP. At the national level, organising market activity with a stronger focus on increasing people’s wellbeing should lead to more transactions recorded as GDP growth. VALUE-ADDED ACTIVITIES Our opening chapter explained Amartya Sen’s insight that the wellbeing of people depends on their capabilities to lead the kinds of lives they value and have reason to value. The two italicised words mean there can be no suggestion that the role of policy is to deliver wellbeing to communities. The wellbeing economics framework insists on the agency of persons in creating their own valued lives, and it further recognises that each community must determine its own reasoned values for judging wellbeing. Thus there is no overarching grand plan for what constitutes wellbeing (beyond certain universal human rights). Instead, the different elements of wellbeing economics are coordinated through the concept of ‘value-added activities’. Recall that this refers to any human effort motivated by creating additional value for wellbeing. In Chapter 1 we used six headings to show how it can be progressively expanded from the personal to the national level: • • • • • •

Personal value-added (for example, walking for good health) Household value-added (for example, family life) Communal value-added (for example, voluntary clubs and societies) Regional value-added (local public goods and services) Market value-added (private goods and services) National value-added (national public goods and services).

Of these, market value-added is the category that is most familiar to economists, since it is the basis of the traditional measure of a country’s economic performance, GDP. GDP is calculated by measuring the value added by each market sector to the total value of all inputs it purchases from other domestic sectors or from overseas. It is a fundamental principle of a market economy that enterprises must add value to flourish; we argue that the same principle applies to the non-market activities in the above list. We also argue that value-added activities make up the backbone of the wellbeing economics framework. The only way we can increase our wellbeing is by engaging in activities (market and non-market) that add more value to individual 55

wellbeing. Only if we involve the whole population in engaging in greater valueadded activities can we produce ‘cultural vitality’, ‘economic thriving’, ‘human flourishing’ or any other term we might choose to describe wellbeing growth at the communal level. This further leads us to argue that the objective of New Zealand’s economic strategy should be to promote value-added growth. By this we mean that private and public enterprises should be constantly searching for activities that will add greater value to wellbeing. This idea is familiar to New Zealand companies; consider, for example, the following quote from a recent annual report of New Zealand’s largest commercial enterprise, Fonterra: Milk is pure and simple, so is our approach. What do people want? That’s simple too. Healthy productive lives, supported by trusted nutrition at every age and stage in life. We’re listening, using our dairy knowledge to make products which enrich people’s lives around the world. Fonterra understands that value comes from its products’ abilities to contribute to the kinds of lives valued by its customers; that is, ‘healthy productive lives’ and ‘enriched lives’. Our argument, expressed in Principle 1, is that all economic activities should be similarly motivated: to promote the wellbeing of persons. This idea might seem too obvious to need argument, but in New Zealand there is a long-standing tradition to promote export-led growth instead. Historian Jim McAloon, for example, has identified that as early as 1967 this objective was an important reason for the decision to devalue the New Zealand currency following the collapse in the world price of wool that year. The phrase ‘export-led growth’ has been prominent in policy debates ever since. At the time of writing, for example, the government’s Business Growth Agenda is explicitly committed to building export markets, including a high-level goal of increasing exports from 30 to 40 per cent of GDP by 2025: To meet the target of 40% by 2025, the value of our exports will need to double in real terms. This requires real export growth on average of between 5.5% and 7.5% a year from 2016 to 2025 … Achieving our 40% target will require a shift of investment from the production of goods and services for the domestic economy, and towards international markets. It will require investment to flow to opportunities in the export sector, as well as the ability of labour and skills to shift in response to changing demand. International trade is clearly essential for New Zealand’s economic prosperity. Exports will always be an important part of a value-added growth strategy if only because economies of scale achieved by producing for large overseas mar56

6 Future Directions for New Zealand

kets can allow a local firm to increase the value-added component of every unit of output it sells. Nevertheless, a strategy that focuses on exports for their own sake can be hostile to the principles of wellbeing economics. This is particularly possible when the strategy aims to increase exports by reducing the costs of domestic production. Policies to support such a strategy could include: keeping wage growth below productivity growth (perhaps through industrial relations reform); putting pressure on people to accept low-skilled jobs (perhaps through social welfare reform); or diminishing protection of the natural environment (perhaps through changes to the Resource Management Act). In each case, GDP growth may receive a short-term boost from the policy, but vulnerable groups in the local population may at the same time have reduced capabilities for wellbeing. This is a recipe for widening the country’s income distribution, which itself becomes a barrier to authentic economic development. In particular, if segments of the population do not have the capabilities to find employment in decent work that pays a living wage defined by the country’s social norms, they are personally vulnerable to social isolation and have restricted capabilities to purchase goods and services that would add value to their lives. Within their local communities, this results in low levels of cultural vitality, economic thriving and human flourishing. Further, the market equilibrium that emerges in these circumstances can become self-sustaining. People working for low wages cannot afford high-value goods and services that would improve their wellbeing; nor can they afford to invest in developing labour market skills. As a result there is no local market for firms to supply more highly valued outputs and the region has inadequate skills for sustaining higher-paid jobs. Private enterprise responds to these absent market signals by continuing to offer mainly low-productivity jobs. Both sides of the market are caught in a low income, low skills and low productivity equilibrium that persists. This is a situation where central government agencies focused on value-added growth rather than export-led growth might intervene to nudge the outcome to a new equilibrium at higher wellbeing levels. A public sector imbued with a spirit of service to the community could aim to understand the barriers to valueadded growth on both sides of the market and use that knowledge to design coordinated initiatives for simultaneously raising the productivity of workers on the supply side and the market value of production on the demand side. No one should pretend that such understanding would be easily achieved, or that such initiatives would be easily designed. Nevertheless, there is an extensive literature on successful regional development programmes coordinated by capable public sectors to help communities achieve better market outcomes with higher levels of personal wellbeing, cultural vitality, economic thriving and human flourishing. Policies that aim to encourage export-led growth by reducing domestic costs are ultimately self-defeating. To the extent that they contribute to widening in57

come inequality, they weaken human flourishing and economic development. To the extent that they subsidise low value-added exports, they put pressure on the New Zealand exchange rate to rise, crowding out other export opportunities. Instead, the aim should be to focus on exports where local producers create the greatest value for overseas consumers. This means developing effective value chains for all New Zealand’s major exports into the country’s traditional and emerging international markets. This would be consistent with a wider economic strategy to search for and take advantage of opportunities for value-added growth, whether those opportunities are in local or international markets. SKILLS AND EDUCATION Throughout this book we have emphasised the importance of skills and education for wellbeing. In Chapter 2, we observed that skills development begins with families introducing children to their cultural heritage. In Chapter 4, we quoted the OECD view that ‘skills have become the global currency of the 21st century’, meaning that employers and employees all have interests in the way workforce skills are developed. In Chapter 5, we commented that it is scarcely possible to overemphasise the importance of the government’s substantial investment in human capital infrastructure. From the moment we are born, we develop skills. Indeed there is a wealth of evidence that skills development during infancy and childhood has lifelong implications. Skills learned at a young age become key building blocks for each person’s capabilities to lead the kind of life he or she has reason to value. Skills are also essential for opportunities to add value in employment or self-employment. There is, however, solid evidence that New Zealand has some serious problems in skills development. In 2009, for example, the OECD published a study comparing six indicators of child wellbeing in thirty countries. The countries were placed into three groups for each indicator: well above average; close to average; and well below average. New Zealand did not score well above average for any of the five indicators for which local data were available, but was well below average for two: health and safety (twenty-ninth out of the thirty countries) and risk behaviours (twentyfourth). It was close to average for material wellbeing (twenty-first), housing and environment (fourteenth) and educational wellbeing (thirteenth). In 2011 the Chief Science Advisor to the Prime Minister, Peter Gluckman, released a report on adolescent transitions prepared by a taskforce of experts cochaired by Gluckman and Harlene Hayne (now Vice-Chancellor of the University of Otago). The report paid careful attention to the scientific evidence and made a conscious effort to avoid omissions or exaggerations. The introductory paragraph of its executive summary is therefore profoundly disturbing:

58

6 Future Directions for New Zealand

Adolescents in New Zealand relative to those in other developed countries have a high rate of social morbidity. While most adolescents are resilient to the complexities of the social milieu in which they live, at least 20% of young New Zealanders will exhibit behaviours and emotions or have experiences that lead to long-term consequences affecting the rest of their lives. High rate of social morbidity … at least 20 per cent … long-term consequences … the rest of their lives. These phrases indicate serious problems. The report’s summary went on to highlight the significance of early childhood experiences for these poor outcomes: Social investment in New Zealand should take more account of the growing evidence that prevention and intervention strategies applied early in life are more effective in altering outcomes and reap more economic returns over the life course than do strategies applied later. This will require long-term commitment to appropriate policies and programmes. The report called for a generation of effort, arguing that New Zealand cannot afford so many young people being placed at risk. We agree, but this is not solely a public policy question. Nor do our observations seek to blame homes, schools, communities or particular policies. We simply stress the obvious point that skills development by young people is a foundational issue for anyone concerned about present and future wellbeing. Our own work on skills development has largely been concerned with labour market skills. That work has led to a model of education based on four Ds: discovery, discipline, display and diversity. • Discovery: Educators should help people imagine different futures for themselves and discover from a wide range of academic and non-academic experiences where their talents and interests lie. • Discipline: Educators should help people make sound choices about how they invest time and money in disciplining their talents and interests through education and training. • Display: Educators should help people display their disciplined talents and interests, including helping them to gain respected qualifications opening up genuine employment opportunities. • Diversity: Educators should help the full range of learners, with their diverse talents and interests, to enter into this positive cycle of discovery, discipline and display. These four Ds of education are relevant for more than teachers in schools or tertiary institutions. Parents and other relatives, employers and other community leaders, voluntary organisations and professional societies can all contribute to helping young people (in all their diversity) discover, discipline and display their 59

talents and interests. THE LIVING STANDARDS FRAMEWORK AND BETTER PUBLIC SERVICES There have been movements towards a greater focus on wellbeing in the New Zealand public sector. In this section we introduce two recent initiatives: the Living Standards Framework adopted within Treasury, and the government’s broader Better Public Services programme. Treasury’s vision is ‘to be a world-class Treasury working for higher living standards for New Zealanders’. The phrase ‘living standards’ in that statement means much more than just income or GDP: ‘it includes a broad range of material and non-material factors which impact on well-being (such as trust, education, health and environmental quality)’. Consequently, Treasury published a report in May 2011 on Working Towards Higher Living Standards for New Zealanders, from which it developed a Living Standards Framework as a tool to aid its policy advice. The Framework pays attention to changes over time in the stocks of four types of capital: 1. 2. 3. 4.

Physical and financial capital Human capital Social capital Natural capital.

The focus on capital stocks follows the capital approach taken by Statistics New Zealand in its own Framework for Measuring Sustainable Development. Both frameworks are consistent with the approach taken in this book, except that we have treated cultural capital as a fifth type of capital (rather than including cultural values and a sense of cultural identity under social capital). To increase the Framework’s relevance for its policy-advice function, Treasury focuses on five living standards dimensions. These dimensions are chosen, among other reasons, to concentrate on areas where government decisions are a key influence and where Treasury has a specific role. The five living standards dimensions are: • • • • •

Economic growth Sustainability for the future Increasing equity Social infrastructure Managing risks.

A speech in June 2012 by Treasury’s Chief Economist, Girol Karacaoglu, explained that the Living Standards Framework had been guided by the work of Amartya Sen and also influenced by Daron Acemoglu and James Robinson’s 60

6 Future Directions for New Zealand

book Why Nations Fail: The Origins of Power, Prosperity, and Poverty (2012). It is an important attempt to implement a broader focus on wellbeing at the heart of the government’s policy advice. A second public-sector initiative we want to highlight is the Better Public Services programme. This began with the government’s decision in 2011 to establish a Better Public Services Advisory Group chaired by Maarten Wevers, Chief Executive of the Department of the Prime Minister and Cabinet. The Advisory Group’s subsequent report identified three aspects of the public sector where change was needed to: • manage the state agencies that provide or fund services less as a collection of individual agencies, in pursuit of their own singular objectives, and more as a system that is focused on the results that will have the biggest positive impact on New Zealanders’ lives, • clarify and strengthen leadership and reduce the clutter of decision points, and • move away from a culture where value-for-money is a secondary consideration, and towards an environment where leaders and workers are motivated to continuously innovate and improve. As discussed in Chapter 5, the public service has an unmatched capability for accumulating and synthesising knowledge across its broad range of activities. A challenge, however, is how the diverse public agencies can collaborate to deliver the public service’s full potential to citizens. Building on the Advisory Group’s report, the Better Public Services programme is designed to address that key issue. Thus, the government has published a set of activities in which it expects measured improvements in outcomes as a result of greater connectedness and collaboration across public-sector agencies. These activities are: • • • • •

Reducing long-term welfare dependence Supporting vulnerable children Boosting skills and employment Reducing crime Improving interaction with government.

There will always be debate about how the associated outcomes might best be measured. Success in boosting skills and employment, for example, is measured by increases in qualifications, but qualifications on their own do not necessarily represent labour market skills or improved employment prospects. Nevertheless, the Better Public Services programme is an important step for strengthening the public sector’s strategic capacity and its contribution to wellbeing in New Zealand.

61

FROM WELFARE STATE TO WELLBEING STATE New Zealand is recognised as having been a pioneer in creating in 1938 what was arguably the Western world’s first comprehensive welfare state. The key moment was the passing of the Social Security Act in September that year. The Prime Minister of the day, Michael Joseph Savage, explained the philosophy behind that Act in the following terms: There is no way of dealing with poverty except by getting to the people who are poorly paid, poorly housed, and poorly fed, who cannot reach the main facilities for education and medical services. We want education and medical services to reach every section of the community wherever they may be, in the backblocks or in any other part of the country, for after all the people’s well-being is the highest law, and so far as this Government is concerned we know no other. Three aspects of that quotation resonate with the approach taken in this book. First, Savage argued ‘there is no way of dealing with poverty except by getting to the people who are poor’. This is consistent with our own rejection of ‘trickledown theories’ for addressing poverty. Second, Savage recognised the multiple dimensions of social exclusion, including poor pay, poor housing, poor nutrition, poor education and poor medical care. He therefore argued, as we do, for a wide-ranging programme across a broad spectrum of activities to address the problems of poverty. Third, Savage claimed that ‘the people’s well-being is the highest law’, which is echoed in our first principle that ‘the purpose of economic activity is to promote the wellbeing of persons’. Notwithstanding these resonances, we argue in this book that more than seventy-five years later there is a new opportunity for New Zealand to pioneer a further transformation in how a country enhances the wellbeing of its people. For want of a better term, we refer to this transformation as a shift from a welfare state to a wellbeing state. The fundamental difference between a welfare state and a wellbeing state is where agency is thought primarily to lie. In a welfare state, it is accepted that agency lies primarily with central government and the public service. Thus Savage’s government exercised agency in promoting people’s wellbeing by building houses, opening hospitals, expanding schools, giving milk to children, stabilising farmer incomes, fostering new industries, raising labour standards and extending social security. Those central government initiatives did not deny all room for personal initiative and entrepreneurial innovation, but it was generally accepted that the responsibility for acting on the big questions in areas such as health, education, housing, industrial development and economic strategy belonged primarily to the 62

6 Future Directions for New Zealand

central government and its advisors. In a wellbeing state, agency is conceived as lying primarily with the country’s citizens. Citizens are daily making time-use choices they judge will contribute to leading the kinds of lives they have reason to value. The role of other institutions, including central government and the public service, is to add value to those choices, especially by aiming to expand the capabilities of persons to enhance their own wellbeing. This focus on the agency of citizens maintains a place for central government initiatives; indeed a shift towards a wellbeing state does not require or even imply a smaller public sector. As explained in previous chapters, central government, local governments, market activities and voluntary community organisations must all play their own particular roles in contributing to personal and communal wellbeing. A wellbeing state would require a public service that concentrates on activities that add value in ways that citizens cannot achieve by themselves using the same resources. Further, given the definition of a wellbeing state, a move in that direction could be supported by, but not initiated by, central government. Instead, shifting towards a wellbeing state would need to be an objective chosen with reason by New Zealand citizens exercising agency for their own individual and communal wellbeing. In that spirit, we finish with a short exhortation taken from the indigenous language of New Zealand: kia ora tātou katoa; may you and we all enjoy wellbeing.

63

Notes and Further Reading

Chapter 1 The quotation from the Economic Summit Conference communiqué is reproduced from Paul Dalziel, ‘The 1984 Economic Summit Conference: A Search for Policy Objectives’, New Zealand Economic Papers, 20, 1986, pp.41–51. Jim McAloon has written an insightful account of economic management before 1984 in his book Judgements of All Kinds: Economic Policy-making in New Zealand 1945–1984 (Wellington: Victoria University Press, 2013). The OECD rankings of New Zealand and Australia are based on data at http://stats.oecd.org. The reference to high youth unemployment comes from Rick Boven, Catherine Harland and Lillian Grace, More Ladders, Fewer Snakes: Two Proposals to Reduce Youth Disadvantage (Auckland: The New Zealand Institute, 2011). For an analysis of inequality in New Zealand, see the essays in Max Rashbrooke’s edited book Inequality: A New Zealand Crisis (Wellington: Bridget Williams Books, 2013). Bryan Perry’s Ministry of Social Development report is Household Incomes in New Zealand: Trends in Indicators of Inequality and Hardship 1982 to 2012, Revised Tables and Figures, published 27 February 2014, available from www.msd.govt.nz; the data reported in this chapter are from Tables F.4 and F.7, pp.12 and 14. The report by the Expert Advisory Group on Solutions to Child Poverty, Solutions to Child Poverty in New Zealand: Evidence for Action, was published by the Children’s Commissioner in 2012. The quotation from Adam Smith comes from An Inquiry into the Nature and Causes of the Wealth of Nations, Book IV, Chapter 8. Marilyn Waring’s book is entitled Counting for Nothing: What Men Value and What Women Are Worth (Wellington: Allen & Unwin in association with Port Nicholson Press, 1988). The book and its author were the subject of a documentary film produced by the National Film Board of Canada in 1995, Who’s Counting? Marilyn Waring on Sex, Lies and Global Economics (www.nfb.ca/film/whos_counting). The book’s twenty-fifth anniversary inspired a tribute volume, Counting on Marilyn Waring, edited by Margunn Bjørnholt and Ailsa McKay (Bradford: Demeter Press, 2014). The quote from Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi’s Report 64

Notes and Further Reading

by the Commission on the Measurement of Economic Performance and Social Progress, published in 2009 at www.stiglitz-sen-fitoussi.fr, is from paragraph 21. The OECD mission statement is at www.oecd.org/about. The discussion on the United Kingdom National Wellbeing Programme draws largely on Abigail Self, Jennifer Thomas and Chris Randall, Measuring National Well-being: Life in the UK, 2012 (London: Office for National Statistics, 20 November 2012, downloaded from www.ons.gov.uk/ons/dcp171766_287415.pdf). The United Kingdom data are updated at www.ons.gov.uk/ons/interactive/well-being-wheel-ofmeasures/index.html. The quote from Ken Henry comes from his presentation on ‘Wellbeing and Public Policy’ to the Population Wellbeing Data Gaps Workshop, Australian Bureau of Statistics, Canberra, 8 June 2006, p.7. The Statistics New Zealand website of key indicators drawn from its 2009 Framework for Measuring Sustainable Development is called ‘NZ progress indicators: Tupuranga Aotearoa’. The main reference for the capabilities approach is Amartya Sen’s book Development as Freedom (Oxford: Oxford University Press, 1989), although Sen has many other publications on this topic. The quote is from p.18. A good introduction is Martha Nussbaum’s Creating Capabilities: The Human Development Approach (Cambridge, MA: Belknap Press, 2011). An excellent example of the theory’s application is Sabina Alkire’s Valuing Freedoms: Sen’s Capability Approach and Poverty Reduction (Oxford: Oxford University Press, 2002). An example of our own use of Sen’s theory is John Schischka, Paul Dalziel and Caroline Saunders, ‘Applying Sen’s Capability Approach to Poverty Alleviation Programs: Two Case Studies’, Journal of Human Development and Capabilities, 9(2), 2008, pp.229–46. The Marilyn Waring quote is from her book Three Masquerades: Essays on Equality, Work and Human Rights (Auckland: Auckland University Press with Bridget Williams Books, 1996, pp.87–88). The AERU report on The Economic and Social Value of Sport and Recreation to New Zealand (Lincoln University: AERU Research Report No. 322, 2011) was by Paul Dalziel and is available on the Sport New Zealand website, www.sportnz.org.nz. Chapter 2 The recognition that economists are not qualified to make normative statements goes back at least to John Neville Keynes’s book The Scope and Method of Political Economy (London: Macmillan, 1891). It was repeated 100 years later in The Economist as Preacher (Oxford: Blackwell, 1982, p.3) by George Stigler who observed that ‘economists have no special professional knowledge of that which is virtuous or just’. The approach of analysing ‘revealed preference’ began with Paul Samuelson’s article ‘A Note on the Pure Theory of Consumer’s Behaviour’, Economica, Vol. 5, No. 17, 1938, pp.61–71. Sources for Amartya Sen’s theory were discussed in the notes for Chapter 1. 65

Notes and Further Reading

Information on the New Zealand Time Use Survey 2009/10 is available on the Statistics New Zealand website www.stats.govt.nz. Two New Zealand research centres on sleep are the Sleep/Wake Research Centre in Massey University’s School of Public Health and the WellSleep Clinic at the University of Otago, Wellington. The quote from Philippa Gander comes from her article on public health issues associated with sleeplessness written for Massey University’s Defining New Zealand website at http://definingnz.com/sleep (dated 22 May 2013). The OECD Better Life Index is at www.oecdbetterlifeindex.org. Information on the New Zealand General Social Survey is available on the Statistics New Zealand website www.stats.govt.nz. The observation on home ownership comes from page 6 of Philip Morrison’s report On the Falling Rate of Home Ownership in New Zealand prepared in 2008 for the Centre for Housing Research, Aotearoa New Zealand. The comments on fuel poverty come from the article by Philippa Howden-Chapman, Helen Viggers, Ralph Chapman, Kimberley O’Sullivan, Lucy Telfar Barnard and Bob Lloyd, ‘Tackling Cold Housing and Fuel Poverty in New Zealand: A Review of Policies, Research, and Health Impacts’, Energy Policy, Vol. 49, 2012, pp.134–42. The local authority house-crowding statistics are from Statistics New Zealand Census data. A recent exposition of the view that investment in residential housing has contributed to slow economic growth in New Zealand is made by Michael Reddell in ‘The Long-Term Level “Misalignment” of the Exchange Rate: Some Perspectives on Causes and Consequences’, presented at a Reserve Bank of New Zealand and Treasury joint forum on 26 March 2013. Per capita gross domestic product data are presented in Statistics New Zealand’s series SNDA.SG09RAC00B01NZ. The quote from Derek Bok comes from his book The Politics of Happiness: What Government Can Learn from the New Research on Well-being (Princeton, NJ: Princeton University Press, 2010, p.17). Statistics New Zealand published Caring for Children: Findings from the 2009/10 Time Use Survey in April 2013, available from www.stats.govt.nz. Writing on the reasonableness of different life choices available to men and women by economists goes back at least to John Stuart Mill’s book on The Subjection of Women (London: Longmans, Green, Reader, and Dyer, 1869). An influential analysis of the way economics reinforces patriarchy through its different approaches to valuing paid and unpaid work is the book by Marilyn Waring, Counting for Nothing: What Men Value and What Women Are Worth (Wellington: Allen & Unwin in association with Port Nicholson Press, 1988). Another important contribution is Prue Hyman’s Women and Economics: A New Zealand Feminist Perspective (Wellington: Bridget Williams Books, 1994). The New Zealand divorce data come from Demographic Trends: 2012, published in 2013 by Statistics New Zealand. The information on parents with children not living with them comes from a Statistics New Zealand press release, ‘Parents supporting children who do not live with them’, published 2 March 2012. Census 2013 data are available at www.statistics.govt.nz. 66

Notes and Further Reading

The quote on the findings of the Child Poverty Monitor report is taken from a University of Otago press release dated 9 December 2003; the report itself is at www.nzchildren.co.nz. Key results are available on the dedicated website www.childpoverty.co.nz. The authors wrote a report on cultural capital commissioned by Statistics New Zealand as part of its Official Statistics Research programme: Paul Dalziel and Caroline Saunders with Rosie Fyfe and Bronwyn Newton, Sustainable Development and Cultural Capital, Official Statistics Research Series, Vol. 5, 2009, available at www.statisphere.govt.nz. Two other New Zealand authors who have written extensively on cultural capital are Anne de Bruin at Massey University and Penny Eames at PSE Consultancy in Waikanae. An example of the former’s work is her article ‘Towards Extending the Concept of Human Capital: A Note on Cultural Capital’, Journal of Interdisciplinary Economics, Vol. 10(1), 1999, pp.59–70. Penny Eames’s book Cultural Well-being and Cultural Capital (Waikanae: PSE Consultancy, first published in 2006) is now in its third edition at www.artsaccessinternational.org. David Throsby’s presidential address was published as ‘Cultural Capital’, Journal of Cultural Economics, Vol. 23(1), 1999, pp.3–12; the quotation is from p.7. The definition of cultural wellbeing by the Ministry for Culture and Heritage is taken from its 2005 booklet Cultural Well-being: What is It?, available at www.mch.govt.nz. The quote from Arjo Klamer comes from p.467 of ‘Accounting for Social and Cultural Values’, De Economist, Vol. 150(4), 2002, pp.453–73. Pierre Bourdieu’s major essay on cultural capital was published in German in 1983. A translation by R. Nice was included as ‘The Forms of Capital’ in J. C. Richardson (ed), Handbook of Theory and Research for the Sociology of Education (Westport, CT: Greenwood Publishing Group, 1986, pp.241–58). The quote from the Competent Children project comes from Cathy Wylie, Jean Thompson and Cathy Lythe, Competent Children at 10: Families, Early Education, and Schools (Wellington: New Zealand Council for Educational Research, 2001, p.xxx). Chapter 3 The Augustine quote is from his Sermon 299D. We were pointed in its direction by A. C. Grayling’s excellent book on Friendship (New Haven, CT and London: Yale University Press, 2013). Grayling concludes that ‘human beings are essentially social animals [so that] relationships are vital not just to the well-being but to the identity of all but the oddest individuals’ (p.170). Sources for the Time Use Survey 2009/10 are given in the notes for Chapter 2. James Tully has recently discussed similarities between Ostrom’s and Sen’s theories; see ‘Two Ways of Realizing Justice and Democracy: Linking Amartya Sen and Elinor Ostrom’, Critical Review of International Social and Political Philosophy, Vol. 16(2), 2013, pp.220–32. 67

Notes and Further Reading

The health risks associated with physical inactivity are discussed in a publication of the British Heart Foundation National Centre for Physical Activity and Health, Economic Costs of Physical Inactivity: Evidence Briefing, March 2013, available at www.bhfactive.org.uk. The count of non-profit institutions in New Zealand was published in a Hot Off the Press release by Statistics New Zealand dated 16 April 2007. The New Zealand Values Survey 2005 was undertaken by Massey University’s Centre for Social and Health Outcomes Research and Evaluation (SHORE) and Te Rōpū Whāriki between 9 December 2004 and 24 March 2005. The data on active participation in voluntary organisations come from Emily Rose, John Huakau, Paul Sweetsur and Sally Casswell, Social Values: A Report from the New Zealand Values Study 2005 (Auckland: SHORE and Te Rōpū Whāriki, 2005, p.13, Table 1). The New Zealand contribution to the Johns Hopkins University study is: Jackie Sanders, Mike O’Brien, Margaret Tennant, S. Wojciech Sokolowski and Lester M. Salamon, The New Zealand Non-profit Sector in Comparative Perspective (Wellington: Office for the Community and Voluntary Sector, 2008); the quote is from p.13 of that report. The market value of volunteer work in non-profit institutions comes from Statistics New Zealand’s Non-profit Institutions Satellite Account: 2004 (Wellington: Statistics New Zealand, 2007). The Mental Health Foundation’s pamphlet on Five Ways to Wellbeing: A Best Practice Guide is available on its website, www.mentalhealth.org.nz. Robert Putnam did not introduce the concept of social capital, although its popular use was helped by Bowling Alone: The Collapse and Revival of American Community (New York, NY: Simon & Schuster, 2000) and by an earlier book by Robert Putnam, Robert Leonardi and Raffaella Nanetti, Making Democracy Work: Civic Traditions in Modern Italy (Princeton, NJ: Princeton University Press, 1993). An important academic contribution was the article by James Coleman on ‘Social Capital in the Creation of Human Capital’, American Journal of Sociology, 94(Supplement), 1986, pp.S95–S120. Mancur Olson observed that ‘the concept of public goods is one of the oldest and most important ideas in the study of public finance’ (p.14 of the 1971 edition of The Logic of Collective Action: Public Goods and the Theory of Groups, Cambridge, MA: Harvard University Press, first edition published in 1965). The book that launched public-choice theory was James Buchanan and Gordon Tullock’s The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor, MI: University of Michigan Press, 1962). The extracts from the Local Government Act come from its Section 10. A good introduction to ecosystem services in a New Zealand context is provided by a Royal Society of New Zealand issues paper, ‘Ecosystem Services: Emerging Issues’, published in July 2011 and available at www.royalsociety.org.nz. An early example of the use of ‘natural capital’ is AnnMari Jansson, Monica Hammer, Carl Folke and Robert Costanza (eds), Investing in Natural Capital: The Ecological Economics Approach to Sustainability 68

Notes and Further Reading

(Washington DC: Island Press, 1994). Two influential projects on ecosystem services and global climate change are the Millennium Ecosystem Assessment that completed its reports in March 2005 (www.maweb.org) and the Intergovernmental Panel on Climate Change that is continuing to operate (www.ipcc.ch). The quote from the former exercise came from p.71 of its first report, Ecosystems and Human Well-being: A Framework for Assessment, published in 2003. The Stern Review on the Economics of Climate Change was published as a book by Cambridge University Press in January 2007; electronic copies of the original report are available on several websites, including HM Treasury’s archived webpages. The material on kaitiakitanga and the Resource Management Act 1991 is taken from Paul Dalziel, Hirini Matunga and Caroline Saunders, ‘Cultural Wellbeing and Local Government: Lessons from New Zealand’, Australasian Journal of Regional Studies, Vol. 12(3), 2006, pp.267–80. Two of Elinor Ostrom’s books are Governing the Commons: The Evolution of Institutions for Collective Action (Cambridge: Cambridge University Press, 1990) and Understanding Institutional Diversity (Princeton, NJ: Princeton University Press, 2005). Her Nobel Prize Lecture, ‘Beyond Markets and States: Polycentric Governance of Complex Economic Systems’, was published in Karl Grandin (ed), The Nobel Prizes 2009 (Stockholm: Nobel Foundation, 2010, pp.408–44, available at www.nobelprize.org). The quotes in the text are from pp.416–17 and pp.435–36 of that lecture respectively. Chapter 4 The quotation from John McMillan is from his book Reinventing the Bazaar: A Natural History of Markets (New York, NY and London: W. W. Norton, 2002, pp.13–14). Adam Smith’s example of the manufacture of pins comes from An Inquiry into the Nature and Causes of the Wealth of Nations, Book I, Chapter 1. Nicholas Phillipson’s Adam Smith: An Enlightened Life (London: Allen Lane, 2010) is a stimulating biography of his life and times. The two quotes from Joseph Schumpeter come from Capitalism, Socialism and Democracy (London: George Allen & Unwin, third edition, 1950 [first edition, 1943], pp.83 and 132). Thomas McCraw has written an excellent biography of Schumpeter, Prophet of Innovation: Joseph Schumpeter and Creative Destruction (Cambridge, MA and London: Belknap Press, 2007). Friedrich Hayek wrote widely on the role of market prices in supporting decentralised decision-making, including in The Road to Serfdom (Chicago, IL: University of Chicago Press, 1944). A concise statement is his article on ‘The Use of Knowledge in Society’, American Economic Review, 35(4), 1945, pp.519–30. The quote in the text comes from p.520 of that article. An insightful appraisal of Hayek is provided by Bruce Caldwell, Hayek’s Challenge: An Intellectual Biography of F. A. Hayek (Chicago, IL: University of Chicago Press, 2004). 69

Notes and Further Reading

The quotation from Adam Smith on productivity again comes from Book I, Chapter 1 of An Inquiry into the Nature and Causes of the Wealth of Nations. The data on gross fixed capital formation are taken from Statistics New Zealand series SNDA.SG05RAC00P51. The John Maynard Keynes quote comes from The General Theory of Employment, Interest, and Money (London: Macmillan, 1936, p.27). An academic article explaining why labour cannot restore full employment through nominal wage cuts is Paul Dalziel and Marc Lavoie’s ‘Teaching Keynes’s Principle of Effective Demand Using the Aggregate Labour Market Diagram’, Journal of Economic Education, 34(4), 2003, pp.333–40. The quoted study of life satisfaction in the New Zealand General Social Survey 2008 by Denise Brown, Julie Woolf and Conal Smith is ‘An Empirical Investigation into the Determinants of Life Satisfaction in New Zealand’, New Zealand Economic Papers, 46(3), 2012, pp.239–51. The full title of the Marmot report is Fair Society, Healthy Lives: A Strategic Review of Health Inequalities in England Post-2010 (London: The Marmot Review, 2010, available at www.marmotreview.org); the quotation in the text is from p.26. The New Zealand living wage calculation was reported in Peter King and Charles Waldegrave, Report of an Investigation into Defining a Living Wage for New Zealand (Lower Hutt: Family Centre Social Policy Research Unit, 2012). The Census data on lowwage employment are drawn from Paul Dalziel, ‘Education and Skills’, in Max Rashbrooke (ed), Inequality: A New Zealand Crisis (Wellington: Bridget Williams Books, 2013, pp.184–97). The OECD 2012 report Better Skills, Better Jobs, Better Lives: A Strategic Approach to Skills Policies can be downloaded from http://dx.doi.org/10.1787/ 9789264177338-en; the quote is from p.3. The Australian ten core skills for work are taken from Core Skills for Work Developmental Framework: Overview, published in 2013 by the Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education and the Department of Education, Employment and Workplace Relations. It is available at their websites www.deewr.gov.au/csfw and www.innovation.gov.au/csfw. New Zealand public policy interest in pay equity goes back to the decision by the government to set up a Working Group on Equal Pay and Equal Employment Opportunities in March 1988. The topic is extensively covered in Part II of Prue Hyman’s Women and Economics: A New Zealand Feminist Perspective (Wellington: Bridget Williams Books, 1994). In 2003, the government established a Taskforce on Pay and Employment Equity, chaired by Diana Crossan. The Ministry of Business, Innovation and Employment’s website on pay and employment equity provides the quote in the text; its current address is www.dol.govt.nz/services/PayAndEmploymentEquity/index.asp. A recent book on unions and skills is Richard Cooney and Mark Stuart (eds), Trade Unions and Workplace Training: Issues and International Perspectives (New York, NY: Routledge, 2012). The New Zealand union coverage data come from Table 1 in Leda Blackwood, Goldie FeinbergDanieli and George Lafferty, ‘Unions and Union Membership in New Zealand: 70

Notes and Further Reading

Annual Review for 2004’, in Stephen Blumenfeld and George Lafferty (eds), Labour, Employment and Work in New Zealand (Wellington: Industrial Relations Centre, 2005, pp.373–81). The New Zealand Companies Office now publishes an annual Union Membership Return Report. The original references to human capital were in journal articles by Jacob Mincer, Theodore Schultz and Gary Becker; the concept was popularised in Becker’s book Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education (New York, NY: Columbia University Press, 1964). A critical review of this model and subsequent developments is provided in Paul Dalziel’s chapter ‘Education and Qualifications as Skills’, in John Buchanan, David Finegold, Ken Mayhew and Chris Warhurst (eds), The Oxford Handbook of Skills and Training (Oxford: Oxford University Press, forthcoming in 2014). The www.eel.org.nz website contains material from a five-year research programme on education and employment linkages in New Zealand. Chapter 5 A good introduction to Te Tiriti o Waitangi is Claudia Orange’s An Illustrated History of the Treaty of Waitangi (Wellington: Bridget Williams Books, 2004). Archives New Zealand maintains a webpage at http://archives.govt.nz/exhibitions/treaty where copies of the signed treaty documents can be viewed. That page also links to New Zealand History Online at www.nzhistory.net.nz/politics/ treaty-of-waitangi, which is our source for Sir Hugh Kawharu’s authoritative translation of the Māori text. The translation of the Declaration of the Independence of New Zealand comes from p.15 of Claudia Orange’s book cited above. Our thinking on the Declaration’s significance owes a considerable debt to the scholarship of Manuka Henare, beginning with his PhD thesis, The Changing Images of Nineteenth Century Māori Society – From Tribes to Nation (Wellington: Victoria University of Wellington, 2003). An interesting introduction to the complexities of defining sovereignty is provided in John Wilson’s Parliamentary Research Paper, ‘New Zealand Sovereignty: 1857, 1907, 1947, or 1987?’ (Wellington: New Zealand Parliamentary Library, 2007). At the time of writing, the Waitangi Tribunal is considering tino rangatiratanga and kāwanatanga as part of its regional enquiry Te Paparahi o Te Raki (Wai 1040). The concept of government being identified with an exclusive mandate to exercise physical force was originally propounded in Max Weber’s influential lecture on ‘Politics as a Vocation’ delivered in Munich on 28 January 1919. Geoffrey Palmer and Matthew Palmer’s Bridled Power: New Zealand Government under MMP (Auckland: Oxford University Press, fourth edition, 2004) is an excellent introduction to New Zealand’s constitutional arrangements. Treasury’s estimate of the social cost of taxation is taken from its Cost Benefit Analysis Primer (Wellington: Treasury, December 2005, Section 2.3.10, p.18). The number of taxpayers in New Zealand comes from Treasury’s Key Facts for 71

Notes and Further Reading

Taxpayers, produced for the 2013 Budget. The ‘subsidiarity’ definition comes from clause 3 of Article 5 of the Treaty on European Union signed at Maastricht on 7 February 1992. The John McMillan quotation comes from his book Reinventing the Bazaar: A Natural History of Markets (New York, NY and London: W. W. Norton, 2002, p.14). There are many good textbooks on public economics; one favoured by the authors is Harvey S. Rosen and Ted Gayer, Public Finance, tenth global edition (Maidenhead: McGraw-Hill Education EMEA, 2014); externalities are covered in its Chapter 5. Participant rules for the New Zealand Stock Exchange can be found at www.nzx.com. The quotation from Karl Polanyi comes from his book The Great Transformation (London: Victor Gollancz, 1945, p.77). The Royal Commission on Social Security quote comes from its report Social Security in New Zealand (Wellington: Government Printer, 1972, p.65). The Welfare Working Group quote comes from Long-Term Benefit Dependency: The Issues (Wellington: Welfare Working Group Secretariat, August 2010, p.2). Information on the New Zealand Superannuation scheme is available at www.workandincome.govt.nz and on the SuperGold Card at www.supergold.govt.nz. The briefing to the incoming Minister by the Office for Senior Citizens after the 2011 general election was entitled New Zealanders: Getting Older, Doing More; the quote in the text is from p.6. Margaret Tennant has studied the interaction between public and private initiatives to improve welfare in The Fabric of Welfare: Voluntary Organisations, Government, and Welfare in New Zealand 1840–2005 (Wellington: Bridget Williams Books, 2007). The National Infrastructure Plan 2011 was produced by the National Infrastructure Unit based within Treasury; it is available at www.infrastructure.govt.nz; the definition of infrastructure cited in the text comes from p.1 and the comment on improving coordination of infrastructure investment comes from p.18. Arthur Grimes has written insightful pieces on New Zealand infrastructure issues, including ‘The Role of Infrastructure in Developing New Zealand’s Economy’ (Motu Note No. 1, 2009) and ‘The Economics of Infrastructure Investment: Beyond Simple Cost Benefit Analysis’ (Motu Working Paper 10-05, 2010). Both are available from Motu Economic and Public Policy Research at www.motu.org.nz. The State Services Commission issued a publication in April 2013 to mark the centenary of the inauguration of commissioner control of state-sector employment: 100 Years of Public Service by historian Redmer Yska, available at www.ssc.govt.nz. The quote from the Commission’s Briefing to the Incoming Minister of State Services after the 2011 election comes from p.16. The quote on wellbeing in the state sector’s code of conduct comes from State Services Commission, Understanding the Code of Conduct – Guidance for State Servants, first published in June 2007, revised in April 2010, p.9. The website of the New Zealand branch of Transparency International is at www.transparency.org.nz. David Skilling’s major think-piece on small countries is his discussion paper ‘In Uncer72

Notes and Further Reading

tain Seas: Positioning Small Countries to Succeed in a Changing World’ (2012), available at www.landfallstrategy.com; the quote in the text is from p.22. Skilling also gave a related lecture at Treasury on 15 May 2012 entitled ‘There Is No Such Thing as Domestic Policy’; it is available at www.treasury.govt.nz. Chapter 6 The quotation from Fonterra comes from its 2012 Annual Report, p.13. Jim McAloon wrote in his book Judgements of All Kinds: Economic Policy-making in New Zealand 1945–1984 (Wellington: Victoria University Press, 2013) that ‘the cumulative effect of all the measures adopted during 1967 was a significant reorientation of the New Zealand economy in the direction of export-led growth’ (p.133). The quotation concerning the export goal in the Business Growth Agenda comes from New Zealand Government, Building Export Markets (Wellington: Ministry of Business, Innovation and Employment, August 2012, p.11). The OECD report on child wellbeing was published as Doing Better for Children (Paris: OECD, 2009); the table of country comparisons is in Chapter 2, available at www.oecd.org/social/family/43570328.pdf. The report from the Prime Minister’s Chief Science Advisor is entitled Improving the Transition: Reducing Social and Psychological Morbidity during Adolescence (May 2011); the quotations cited in the text come from pp.1 and 2, while the call for a generation of effort comes from p.5. The reference to our work on skills development in a labour market context refers primarily to a five-year research programme on education employment linkages funded by the Ministry of Business, Innovation and Employment (and its predecessors). The research leaders were Karen Vaughan, Jane Higgins, Hazel Phillips and Paul Dalziel. A dedicated website with the major research reports can be found at www.eel.org.nz. Treasury maintains a website on its Living Standards Framework at www.treasury.govt.nz/abouttreasury/higherlivingstandards; the quotations in the text (including Treasury’s vision statement) are taken from that website. The initial report in May 2011, Working towards Higher Living Standards for New Zealanders, was by Ben Gleisner, Mary Llewellyn-Fowler and Fiona McAlister. An academic paper on the framework, with an example of how it can be applied in policy advice, are provided in Ben Gleisner, Fiona McAlister, Margaret Galt and Joe Beaglehole, ‘A Living Standards Approach to Public Policy Making’, New Zealand Economic Papers, 46(3), 2012, pp.211–38. Statistics New Zealand maintains a dedicated website on New Zealand progress indicators at www.stats.govt.nz/browse_for_stats/snapshots-of-nz/nz-progress-indicators/ Home.aspx. The Better Public Services Advisory Group Report was published by the government in November 2011; the quotation in the text is from pp.5–6. The programme’s website is at www.ssc.govt.nz/better-public-services. The speech by Savage quoted in the text is recorded in Parliamentary Debates, 1938, v. 251, p.643; cited from Barry Gustafson, From the Cradle to the 73

Notes and Further Reading

Grave: A Biography of Michael Joseph Savage (Auckland: Reed Methuen, 1986, p.212).

74

Introducing BWB Texts

BWB Texts are short books on big subjects by great New Zealand writers. Commissioned as short digital-first works, BWB Texts unlock diverse stories, insights and analysis from the best of our past, present and future New Zealand writing. Paul Callaghan: Luminous Moments Foreword by Catherine Callaghan Creeks and Kitchens: A Childhood Memoir Maurice Gee Report from Christchurch Rebecca Macfie 'I think … I am going to die.': Katherine Mansfield at Fontainebleau Kathleen Jones Hidden Agendas: What We Need to Know about the TPPA Jane Kelsey Geering and God, 1965–71: The Heresy Trial that Divided New Zealand Lloyd Geering Inequality and the West Robert Wade The Zealandia Drowning Debate: Did New Zealand Sink Beneath the Waves? Hamish Campbell The Quiet War on Asylum Tracey Barnett

75

Introducing BWB Texts

A Punitive Society: Falling Crime and Rising Imprisonment in New Zealand John Pratt What Happened at Waitangi? Claudia Orange When the Tour Came to Auckland Geoff Chapple Thorndon: Wellington and Home, My Katherine Mansfield Project Kirsty Gunn The Inequality Debate: An Introduction Max Rashbrooke

76

About the Authors

Paul Dalziel is Professor of Economics at Lincoln University and Deputy Director of its Agribusiness and Economics Research Unit. He has previously published nine books on New Zealand economic policy, two of which have been translated and published in Japan. He has received two awards for excellence in university teaching and five awards for his research. Caroline Saunders is Professor of Trade and Environmental Economics at Lincoln University and Director of its Agribusiness and Economics Research Unit. She has published extensively on New Zealand economic issues, for which she received the NZIER Economist of the Year Award in 2007 and was made an Officer of the New Zealand Order of Merit in 2009.

77

Published in 2014 by Bridget Williams Books Limited, PO Box 12474, Wellington, New Zealand, www.bwb.co.nz, [email protected] © Paul Dalziel and Caroline Saunders 2014 This BWB Text is copyright. Apart from fair dealing for the purpose of private study, research, criticism or review, permitted under the Copyright Act, no part may be reproduced by any process without the prior permission of the copyright holders and the publisher. Inquiries should be made to Bridget Williams Books. ISBN 9781927247990 (EPUB) ISBN 9781927277003 (KINDLE) ISBN 9781927277010 (PDF) DOI http://dx.doi.org/10.7810/9781927247990 ISTC A022013000006165 Acknowledgements The publisher acknowledges the ongoing support provided by the Bridget Williams Books Publishing Trust with the G & N Trust, and Creative New Zealand.

Help with your BWB Text Your BWB Text uses high production standards and is built to last. If you are experiencing any issues with this or other BWB titles and require help, your first point of contact is the bookstore or library that supplied access to the work. If they are unable to assist, please contact BWB at [email protected] – we will be happy to help. The team behind BWB Texts: at BWB, Tom Rennie and Bridget Williams; commissioning editor Geoff Walker; and contributing editors Max Rashbrooke and Hannah August. Edited by Geoff Walker Proofread by Barbara Graham Cover design by Base Two Digital development by Tom Rennie and Barbara Graham