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The Minister of Finance says it is but, parochialism aside, are we doing anything to ensure it really is?

One of the necessary skills of a politician is to hold on to at least two contradictory positions at once.  * Consider how, following the report of 72,000 New Zealanders ‘permanently’ leaving the country in the past year, Minister of Finance Nicola Willis said that New Zealand is still ‘the best place to be’. Given the evident superiority of Australia on most material/economic measures – even though many of the popular comparisons are oversimplified – she is presumably arguing that New Zealanders experience higher wellbeing than Australians (a much more difficult comparison to assess).

Meanwhile, the same minister is amending the Public Finance Act to remove reference to wellbeing as a relevant government goal. Apparently the government is confining its economic management to material output, where New Zealand is doing badly, and washing its hands of wellbeing where it says New Zealand is doing well. Huh?

Let’s leave the resolution to the politicians but reaffirm the minister’s view that material consumption does not capture the totality of wellbeing. Consumption can go up and wellbeing go down (as we are reminded when GDP rises and yet another swimming hole of our youth is closed because of pollution).

Is wellbeing higher in New Zealand than elsewhere? People migrate for wellbeing reasons rather than just higher material income. I puzzled over this when I was writing Not in Narrow Seas: The Economic History of Aotearoa New Zealand. One chapter, ‘Why Come to New Zealand?’, concluded that, as best we can compare, there was not a lot of difference in real incomes between New Zealand and other migration destinations at the end of the nineteenth century. (Perhaps New Zealand, the most distant, was the least attractive.) Yet people came. Sometimes there were special reasons but the chapter concludes that the general reason was for lifestyle and opportunity. Immigrants were not attracted to industrial urban living (most came from rural backgrounds) and they saw opportunity (especially of acquiring their own land).

One assumes the outflow of New Zealanders reflects similar assessments, aside from those who are on OE and plan to come back. Some of those who plan permanent migration will be disappointed and return too. But the outflow signals that many see leaving New Zealand as a means of improving their lifestyle and opportunities. It is blind chauvinism to assume that New Zealand is the best place to be.

Of course, there are those who are keen to come to New Zealand, but most are from countries with levels of wellbeing lower than New Zealand. They are not places where New Zealanders are typically migrating, OE aside.

This raises an issue which I sketch here. Could we solve our population-aging challenge by higher immigration of younger people? The statistical projections suggest it might work for a couple of generations, after which the new migrants would be aging too, while their fertility levels converge to ours.

Immigration may solve the headcount issue (and provide enough staff for us when we are in our nursing homes). I’ll leave aside the question of to whether the economy can generate enough foreign exchange for the standard of living necessary to sustain the larger population; there is surprisingly little analysis on this.

But we also need to think about the changes to culture that a high migrant inflow would generate. It is already happening; the increasing cultural diversity need not be bad but there seems to be a limit to the rate at which a community can absorb different cultures; that limit would be exceeded if the inflow was enough to compensate for the age imbalance. Above that limit there may be a nasty backlash against immigrants, as is happening now in Europe and the US.

(This is a matter for sociological expertise, but an economist would be remiss not to draw attention to the challenge. I’ve had to think about it, because in the nineteenth century, the immigrant culture from Britain soon overwhelmed the culture of the indigenous population. It was not so culturally inflammatory – although some pretty harsh things happened to the first peoples – for two major reasons, as well as a high rate of intermarriage. Māori voluntarily and rapidly absorbed much British culture including Christianity, new technologies, market-based commerce, and literacy. (In the mid-nineteenth century proportionally more Māori were literate than settlers.) Second, the settler and Māori populations largely lived in different areas – town and country. Neither applies today; New Zealanders are not nearly as adaptable as Māori were, while migrants flood into the cities where New Zealanders live.)

Part of the solution could be the return of some of the New Zealand diaspora. It is estimated to be as high as a million although that seems to depend upon a generous definition. When I looked, the number seemed to be in the 300,000-500,000 range, up to 10 percent of the domestic population.

Of course, we want New Zealanders to engage with the world and OE is a vital part of that, although aspiring Ernest Rutherfords and Kiri Te Kanawas will hardly flourish if they remain based in New Zealand. But for lesser mortals it would better for us and them if they were back home. (The retired returning are not as attractive in this regard as those of working age; while they bring their retirement income, they add to the demands on the already limited workforce.)

And so we return to the minister’s claim that New Zealand is still the best place to be. Clearly many of the diaspora and those contemplating joining it think she is wrong.

What we may ask the minister is what her government is doing to improve wellbeing. Her response might be that it is trying to get the economy working better. But doing so is often at the expense of activities which promote wellbeing.

Once New Zealanders said we were the best place in the world for children. We would not be so confident of that claim today. Once New Zealand prided itself that it was a society in which people could get good jobs; we don’t today (we get them in Australia). Once we skited that New Zealand was an egalitarian society in which Jack was as good as his master (in those days we were not gender sensitive) while everyone had the opportunity to use their capabilities. Once we had a public service we were proud of. Once our cultural aspirations were supported by, promoted by and funded by the government. Once we had a social objective to enable everyone to participate in and belong to their community. Those onces seem to be a long time ago.

* Scott Fitzgerald wrote: ‘The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.’ I leave the reader to judge the extent to whether our politicians function well.

The tensions between different approaches to the economy are surfacing as the election nears.

As we head towards next year’s election, the tensions between the coalition partners are becoming increasingly evident. There are always these tensions, even before MMP when there were but two significant parties, but they were hidden within the caucuses. For instance, before the 1984 election, Labour’s caucus was torn between two economic strategies which were papered over for the election campaign. (After it, a handful of senior ministers seized power and pursued the one we call ‘Rogernomics’, leaving the modernising alternative – more like that which the Clark-Cullen Government pursued – stranded.)

Today’s tension is most public in the different economic strategies of the ACT wing of the Coalition Government and the NZF wing. ACT’s is unashamedly economically neoliberal, although perhaps the current caucus does not have the same technical command as earlier ones did.

The NZF economic framework seems to be close to that of the traditional National Party (and its predecessor). I’ll call it the ‘Holyoake’ approach, after the Keith Holyoake governments which, sometimes with another prime minister, ruled almost continuously between 1949 and 1972. It was also Muldoon’s approach but the difficulties he faced following the 1966 wool price shock and the resulting inflation gave his record a bad reputation. (The challenges from the shock would have made any mode of economic management difficult, particularly if the politics was concerned with winning the next election.)

The Holyoake approach was highly interventionist, although the interventions were not always well designed. (The first wage freeze was imposed by Holyoake and Jack Marshall.) It was nationalist and centralist with a bias towards private enterprise. It had more in common with Labour’s economic framework than the rhetoric proclaimed.

I was struck by this commonality when looking at total government spending as proportion of GDP between 1939 and 1990. There was a rising trend but with one exception, you cannot tell in which years there was a National Government in charge, in which Labour. The exception was transfers – social security benefits and the like. As far as economic analysis is concerned, transfers are negative (income) taxes so – not surprisingly – you can see a distributional difference between National and Labour; the former favouring those at the top, the other those at the bottom.

What was surprising was that total expenditure (excluding transfers) did not seem to differ by the politics of the government. Perhaps a finer investigation than the database allowed might have shown patterns of differences within the total, such as National relying more on outsourcing or it jigging the expenditure spending towards the rich while Labour directed it more to the poor. The rhetoric of Labour being spendthrifts and National being more frugal is not evident in that data.

Yet the common agreement was not in the rhetoric. In opposition Labour bewailed National Government cutbacks although in government it too tried to control its spending. In opposition National criticised Labour for profligacy; in government it spent every dollar it had available.

The pattern seems to have broken after 1990. The secular trend of public expenditure growing faster than GDP ceased, while the public expenditure of the centre-left governments seems to have grown perhaps two percentage points faster than it did under the centre-right governments. This is a preliminary finding, but it probably means that reality now more closely aligns with rhetoric.

That there was a break following Rogernomics and Ruthanasia is hardly surprising. It might be summarised that there was no longer a consensus to minimise unemployment because neoliberals say the government can’t, that the distribution of income should be relatively narrow because neoliberals say pursuing that goal damages economic performance, that the state does not have a major role in economic management because neoliberals say the state overly infringes liberty.

The disagreements occur within the main parties as well as between them. Let’s call National’s disagreement as being between ‘Old National’ and ‘New National’. Old National is the modernised successor of the Holyoake approach (think Bill English). New National is closer to neoliberalism.

There were some neoliberals in the pre-1984 National caucus (although we did not then use the term) but hardly in its government policies. Ruthanasia introduced them in 1990 to 1993. Today the neoliberalism of New National is much more prominent. Recently a survey asked National voters to choose between a National-ACT coalition government and a National-NZF one. The balance favoured the neoliberal option.

NZF pulls the National-led Government towards the centre, offsetting the pull from neoliberal ACT. Being in coalition – a sort of public caucus – means swallowing dead rats, as Winston Peters has said NZF had to over the Regulation Standards Act. David Seymour has been quieter about the dead rats ACT has swallowed.

Peters’ handling of the Cook-Strait ferries replacement has been very much in the Holyoake tradition. Shane Jones is today’s promoter of a state development strategy. We think of Muldoon (and Bill Birch) as its Think Big promoters, but the postwar tradition began with the pulp and paper plant at Kawerau in the Holland-Holyoake era. Later there would be the steel plan at Glenbrook and the aluminium smelter at Tiwai Point, both of which involved substantial government interventions. (All were generally supported by Labour.) 

While I am nearer the social democratic centre than most neoliberals, I am uncomfortable with NZF’s economic style. My preference is for restrained rational interventionism contrasting with its more reactive approach. Too often NZF goes down a popular and fashionable path without thinking through the implications and hoping that the rational analytics will eventually turn up. They don’t always and sometimes the implications turn out unpleasantly unexpected.

The populist approach is a centralist strategy which is integral to New Zealand’s governing culture. Even ACT directed who would provide school lunches.

Populist interventionism is not confined to NZF. National seems prone to it, especially with publicity which smooths over the reality – often accompanied by a hi-vis jacket. So is the Left. Once we relied on the public service to inject some rationality into the process of policy development; that is less true today.

We cannot know to what extent the economy will affect the 2026 election. The expansion of production might have begun (but there may be an international crisis). From some of the Minster of Finance’s signals the 2026 budget will be tight; it will not lack hi-vis jackets.

Of course, the economy may not have much electoral impact. There are populist issues, political ones (including party breakups), scandals and governing competence issues which may be more decisive. We can be certain, though, that the tensions about economic direction will continue after the election, and are likely to be exposed in the next coalition government too.

Pragmatic analysis says maybe we should, but we should also consider nationalisation. We should certainly consider better regulation.

An earlier column argued that we should make the government’s net worth – the value of its assets less its liabilities – more prominent in fiscal policy. Net worth is also fundamental when we are discussing whether an asset should be privatised or nationalised.

The privatisation boom began with Rogernomics, but as Roger Douglas later confessed, ‘I am not sure we were right to use the argument that we should privatise to quit debt. We knew it was a poor argument but we probably felt it was the easiest to use politically.’ Then we had no measure of net worth for the government accounts so it was difficult to explain that while privatisation would reduce public debt, it made no difference to net worth. (There was a similar difficulty explaining corporatisation, which involved the government reshuffling its balance sheet; this is all a long time ago, it but left a scar on those whose task it was to explain to the public what was happening.)

Douglas’s real argument was that private businesses would perform better in private hands. Actually, there is not a lot of evidence for his better-efficiency proposition if one compares the privatised companies with when they were publicly owned corporations. There is more evidence of gains when comparing the public corporations with the ramshackle public management of the Muldoon era.

Here is how I got to the pragmatic position on which the following analysis is based. In adolescence I believed the fashionable, but ideological, position that there should be more nationalisations. This was challenged by Arnold Nordmeyer, then leader of the Labour Party, who once asked a meeting of students whether they should nationalise everything including grocery stores (which had yet to be replaced with supermarkets). I concluded there was a line to be drawn where on one side the economic activity should be left to the private sector and on the other it was better left to the public sector. I have spent the following sixty years thinking about that line. While there are some clear examples for either side, there is much fuzziness about the exact line. People of goodwill can disagree, even using the same evidence.

At that time there was a debate over ‘Clause Four’ in the constitution of the British Labour Party which stated the party’s aim was of ‘the social ownership of the means of production, distribution, and exchange’. I was persuaded that the clause should be replaced by ‘the social control of the means of production, distribution, and exchange’.

Social ownership is a means of social control but it is not the only means and not necessarily the most effective one. Often that could be achieved by ‘workable competition’, where the state sets up a framework which results in the industry meeting the social goals in the market. The ownership of a store in a competitive market does not give the owner a lot of significant social control. That should be generally true for ownership in a properly regulated market. So there is no need to nationalise grocery stores.

Economists have a more rigorous notion of ‘competition’ than popular sentiment, which is happy to adopt the economists’ conclusions derived from competition theory even when they do not apply. A monopolist will say they are ‘competitive’, but that is not what an economist means.

To simplify, economists refer to pure competition when there are numerous firms in the market, that it is easy for them to leave and new ones to join and where customers are reasonably informed. The economist’s conclusion is that this result in maximum efficiency – use of resources to attain a given output – and, under certain assumptions (which are not always applicable) a high rate of innovation. There are downsides. For instance, the economic outcome may not be equitable. Some economists recommend addressing fairness with other policies; others just ignore it. (I leave you to work out their politics.)

Practically, many markets are not ‘competitive’ in this economic sense. This is particularly true in a small economy like New Zealand; we cannot adopt the conclusions from larger economies without considerable adaption. Instead, we look for ‘workable competition’, for market structures which are near enough to be fully competitive to reap similar benefits. Typically, that involves at least five firms (more if they have very different production technologies). With fewer than five, each firm can game one another at the expense of the public. So as numbers of actors in a market get smaller, the case for intervention gets greater. One form of intervention may be public ownership.

The stupidity of ignoring these regulation issues is illustrated by the privatisation of Telecom in 1989, when government did not even have a paper which addressed them. When, following the restructuring of the Post Office, telecommunications had been split out into Telecom, a publicly owned corporation, the government had directed the business to operate in ways which reduced the monopoly’s ability to exploit its market dominance. It had a natural monopoly of the lines connecting telephones which it could use to control service provision and exploit its customers. Sold off into the private sector, Telecom promptly abandoned those directions.

Some will tell you that Telecom was very successful, citing its profitability, but that may mean it was exploiting its monopoly and overcharging. There are three major indicators this was the underlying situation. First, business customers and consumers grumbled about Telecom’s services. Second, it manifestly failed to get the broadband rollout under way. Third, in order to achieve the rollout, the government separated the line part of the company (now Chorus) from the service part of the company (now Spark). The share price promptly crashed because shareholders knew that Telecom could no longer exploit its monopoly power. Today, Spark is a very ordinary company.

This example illustrates the difficulties of market design. Typically, the businesses which the Treasury Investment Statement says are being reviewed for privatisation are in complicated market structures. The pragmatic decision is complicated.

How the Treasury will work through the list is not known. First, it should sideline those agencies which primarily have social objectives which the market does not capture well, despite the government having put them into a corporate ‘for-profit’ form. They include HealthNZ and RNZ. Considering social objectives in other businesses is important too. I was not initially a fan for Kiwibank but I was persuaded by the failure of the commercial banking system to provide for the needs of modest income households.

Second, there should be far more attention to the regulatory framework than was given at the time the Rogernomics privatisation. (We especially need to move away from the nonsense that adding one more to a handful of competitors is a full solution to a lack of competitiveness.)

Third, a non-ideological review will also look at the possibility of nationalising (or re-nationalising). There is a case, for instance, for there being a single electricity business like Electricorp, rather than a handful of businesses gaming one another in the short term when the industry needs a long-term strategy.

Fourth, we should accept that the line between what should be in the public domain and what in the private domain is fuzzy and will be resolved in part ideologically (a.k.a. who you vote for). One consequence is that any analysis should not rest only with the Treasury, as it would if the only concern was the government’s debt position, but requires the involvement of other agencies including the Ministry of Business, Innovation and Employment and the Ministry of Regulation.

Apologies if this column’s conclusions do not align with your ideology. It should inform it.

The pressure to globalise is consolidating towards a global world in which the US is a marginal player.

There is a trope (or should I say ‘wishful hope’) by some that globalisation is coming to an end. While it may no longer moving towards a comprehensive integration, there are sites where it continues to expand. (There may be one major retreat which I discuss towards the end.)

Broadly, it seems to be going into a consolidation. Yes, there are some contractions (if you oppose globalisation you can point to them) and some expansions (the uncritically favourable list those instead). The rest of us of us observe that consolidation may still be an evolution.

The central issue is what Dani Rodrik called the ‘political trilemma of the global economy’. Countries cannot simultaneously have economic integration, democratic politics and full national autonomy. The more embedded global rules become, the less freedom governments have to set their own policies. Integration and sovereignty pull in opposite directions. Rodrik could have added that without a degree of economic integration, small countries, especially, cannot get the specialisation in their tradeable sector that their prosperity depends upon.

Trump acknowledges the trilemma as he uses America’s economic power to ignore the global rules, flouting the trading system’s most basic rule of nondiscrimination using tariffs and bullying as political weapons.

The reaction of almost every other country is just about exactly the opposite. With the exception of China, they don’t have the power to bully. (China uses its power much less openly; it is proving increasingly successful compared to the US.) As a consequence, all around the world negotiations which have stagnated for years are being clinched.

That does not mean the all the issues that had been holding up the deals have been resolved. Rather, they are being put aside. New Zealand may soon get the long-pursued trade deal with India, but it will not contain much about the sticking point of dairy trade. The same thing is happening in other trade deals. Trump’s bullying is generating an urgency to get them done. They are not ideal, but the diversification reduces America’s global economic power.

A complication is that the US has not been approving appointments to the World Trade Organisation Appellate Body so the court is unable to make binding resolutions of trade disputes. The issue has been evident for years – it is pre-Trump, going back at least to Obama. Increasingly trade deals provide arbitrations procedures. They work. New Zealand has successfully dealt with Canada over a ‘glitch’ using those in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Trump may be getting short-term wins but he is undermining the US in the medium term, nicely illustrated by his announcement that the US will not attend the next G20 meeting to make a political point (about the treatment of white farmers in South Africa, where the meeting is to be held). So be it. The G19 – we are not one, but we will be involved as much as we can – is symbolising a globalised world of (almost) everyone except the US. (Actually, G85 might be a better label; the US share of global trade is only 15 percent – smaller than its 25 percent of global GDP.)

Over the past eight years, more than four of every five nations – developed and developing – have seen trade rise as a share of their national GDP. In the US it has been falling. Whether the falling share is a good thing for the US – a large economy can be more self-sufficient than a small one – is for a later column. In any case, the aggregate measure may miss a critical element from the benefits of trade – the flow of ideas.

For example, the Chinese pharmaceutical industry seems to be developing fast. Trump is blocking access to Chinese innovation. Not only will this handicap the US pharmaceutical industry which, for instance, heavily draws on the European one, but it is likely to damage Americans access to new drugs and ultimately damage their health.

As mentioned earlier, there is one dimension where globalisation may be retreating. We are seeing increased resistance to international migration. Communities appear willing to consume foreign produce but unwilling to allow foreign immigrants. Arguably, the globalisation of migration peaked before WWI, but there has been rising pressures for greater migration in post-WWII. The EU, for example, has made the free flow of people central to its integration. (It is the main reason Britain left the EU.) But it increasingly rejecting flows from elsewhere.

The interfacing of new and old communities is not well studied by economists, so I must be cautious. One economic conclusion is that there is much less evidence of new migrants causing unemployment among the locals than is widely believed; after all the population increases demands and jobs while very often the new migrants fill positions where there are domestic shortages. (I greatly admire the energy and vigour many new migrants bring with them.) It is the social interface which seems troubling.

I expect we shall see increasing restrictions on and discouragement of international migration with increasing emphasis on high and specialised skills. Ironically, that flow can go both ways. America has been a great attractor. Some 40 percent of US Nobel prize-winners have been born elsewhere. Now some of the very able are leaving. One of the many beneficiaries are Chinese pharmaceutical industries.

New Zealand’s migratory history has been more open than many other country histories; about 30 percent of its residents were born overseas. It seems likely that our future will involve even higher proportions of people of Asian and Pasifika descent – many born here. But I do not discount what happened in the US. It was once the world’s greatest destination for migrants, but it is now turning its back on them.

New Zealand has long been aware of its limited weight in the international economy. The spaghetti of trade deals we have with many countries is indicative of our response; the biggest omission in our network is the US which reminds us that the problem has not been simply Trump. (We are so small and strategically irrelevant that we have not been a priority while suffering from protectionist urges in the US Congress.)

We have also built up relationships where trade may be integral but is only a part of the whole. When the Closer Economic Partnership with Singapore was announced in 2001 it seemed one trivial country aligning with another. (Perhaps that is a little unfair to Singapore, but you get the picture.)

However, the deal was not only a step on the way to the 2018 12-country CPTTP and the 2022 15-country Regional Comprehensive Economic Partnership (RCEP) are also sectoral initiatives which are plurilateral – designed to allow other countries join them. (More here.)

While diplomacy has been crucial in our trade negotiations, the trade deals also helped our diplomacy. A quarter of a century ago – well before Trump or our current collection of politicians – New Zealand was pioneering what may be the next phase of globalisation – open plurilaterism because we cant have multilateralism. The pioneering was because we looked to the future and thoght about our particular circumstances, rather than just followed the fashions.

We should follow the Golden Rule of Fiscal Management and not borrow for consumption in the medium run.

Asymmetry is a crucial, but often ignored, feature of credit transactions. You would normally be surprised if a shopkeeper said they would sell you 1kg of apples but not 2kg, even if you offered to pay a higher price. Yet such a response is routine if you ask for credit. As past Minister of Finance Downie Stewart recalled, Keynes advised that New Zealand should borrow as much as it could to offset the Great Depression, but if Keynes were the lender he would probably not be prepared to advance New Zealand any more. That asymmetry is at the heart of the political power of the finance sector over the real economy.

It is not an unreasonable stance. The cost to the lender of a failure to repay a loan can be substantial. Sovereign borrowers prove especially troublesome because it is difficult to enforce debt repayment against a country. Lenders go to considerable trouble to assess the likelihood of such a failure. While they do their own assessments, they are often advised by credit rating agencies (CRAs) who, helpfully for us, offer a window into lenders’ thinking.

Those who have faced CRAs in their regular visits to give New Zealand a credit rating, report they look at the whole economy in an informed, firm but understanding way. Sure, they may be ideologically to your right, but they are not stupid. While they look at a spectrum of indicators, they do not fix on any one. More important, they have to convince themselves that the New Zealand Government has a credible commitment towards its debt obligations as well as an ability to service them including to manage its investments. In the end the lender gets its profit from lending (providing the debt is honoured), so they want to do deals.

That commitment need not be as crude as adhering to a debt-to-GDP ratio target, although that is the way it is currently signalled. However, that target does not make rational economic sense insofar as it results in poor investment decisions.

For example, the government is outsourcing public medical procedures to the private healthcare sector. That avoids the government having to borrow to invest in adequate public sector facilities – such as buildings and equipment. (Other resources – such as staff – are fluid between the public and private healthcare sectors.) Rather than borrowing and investing itself, the government is getting the private sector to do the task and then paying it for the debt servicing. It is keeping its debt-to-GDP ratio down but still paying for the investment. I am more relaxed about such outsourcing than many involved in the healthcare sector, but it makes no sense that the main driver of any decision should be an arbitrary debt target.

This is but one example of the absurdity of the debt-ratio target. Another is the tangle we are getting in over the need to invest in the water infrastructure. Very substantial public funding is required unless we privatise. (Overseas experience suggests that option is not very attractive, except to ideologists.) However, the government has been trying to keep any resulting debt off the books. No doubt the CRAs will see through the muddle because any public funding will be ultimately underwritten by the government, even if it does not appear in the public accounts as a legal contingent liability.

Nowadays, CRAs must be worrying because we are currently borrowing for consumption. (It does not matter whether the funds are spent on public items rather than private ones; a social security benefit is a transfer to household spending, while public expenditure could be paid for by higher taxation and less household spending.)

We can trace this via the Crown’s net worth, the total assets of the Crown less its debt (analogous to the amount you would bequeath to a subsequent generation). When you buy a house with a mortgage, your debt goes up because that measure does not include your current ownership of the house. Your net worth remains the same. It is far better indicator of your financial position. Similarly for the government. (Your bank will remain concerned about your net debt and you will keep an eye on it because you have to service it.)

The Treasury Investment Statement reports that government’s Total Net Worth was $192m (48% of GDP), falling to $183m (42% of GDP) this year (2025) and continuing to fall throughout the next decade. It projects net worth to be $158m (or 24% of GDP) in 2034 although that does not allow for changes due to inflation.

This means the government is consuming its capital, not adding to it. There are various ways of running down net worth including directly borrowing (or selling assets) to fund consumption or running down the stock of capital. (The latter is the reason why our water infrastructure is in a mess.) The New Zealand Government is not saving but over a six-year period it is consuming more than its revenue. It may be a legitimate decision for a retired person to do this but hardly appropriate for a government which expects to live forever.

The hard truth of our current fiscal stance is that additional borrowing is being used for consumption not investment. We overlook this when we focus on the level of debt rather than what we are doing with the borrowing.

How can we make the notion of net worth, with its focus on the distinction between public consumption and investment, more prominent in public discussions? The Treasury is doing its bit in its recent Investment Statement. *

A step forward would be for the government to adopt the ‘Golden Rule’ of fiscal management which focuses on net worth. (It is already implicit in the Public Finance Act even if it seems to be ignored.) Put simply, over the economic cycle the Government would borrow only to invest and not fund current spending. (The principle allows raiding a ‘rainy day account’ to prop up consumption in the short run after a shock but the fund needs to be topped up shortly after, ready for the next shock. It certainly does not envisage six and more years of raiding.)

The Golden Rule only covers the trend in net worth; there is still a need to discuss what level it should be. That should be welcomed.

This is the approach of a fiscal conservative. It would not disturb the CRAs and the lenders they represent. The explicit adoption of a Golden Rule would increase the credibility of the government’s fiscal management. The concern of the debt-to-GDP ratio would continue but it would be seen as a constraint under which the management operates, not the purpose of the fiscal management as too often it appears to today.

* Treasury’s Investment Statement 2025 was published as this column was going to press. It raises some important issues and approaches. Time and space means that I must leave them to a later column.

Queen Elizabeth II famously asked about the 2008 Global Financial Crisis, ‘Why did no one see it coming?’

In fact, many economists (including yours truly) had pointed out that the financial system probably would crash. But we failed to predict what would precipitate the collapse, how severe it would be and when it would happen.

This is partly a logical problem. If we knew when the crash would occur – say 30 February 2026 – then everyone would take action the day before – 29 February 2026 – which would bring the collapse-day forward, invalidating the prediction. Similarly, for the ‘how’ issue.

Consider a building which engineers think is prone to collapse. They cannot tell what the shock will be that does the damage nor when it will hit. It could be an earthquake, a fire, heavy wind gusts, a truck smashing into it …

These remarks are preliminary to the increasing references by reputable observers that various key financial markets seem shaky, including the American share market, the cryptocurrency market and the venture capital market for AI. (Currently, there is little attention being given to the Chinese financial system, but who knows?) There have been recent collapses by smaller firms, such as car-parts provider First Brands, which seem to be tied up with financing. Small collapses are integral to capitalist evolution – ‘creative destruction’ – but too many can be an indication of an impending financial crisis. There is the rule of thumb that the world has a good financial shakedown every decade or so. The last one was 17 years ago, which suggests the next might be a whopper.

Please read a lot of caution into the last paragraph. It is a time for prudence rather than hysteria.

The technical problems arise because market prices reflect subjective value – what people think assets are worth – not some objective value. Contrast the value of the house you live in with its market price. If the price were to change, your dwelling would provide exactly the same comforts as it did earlier. But you may also treat your house as a financial investment, hoping that an increase in its price will add to your wealth.

That is fine, until you start borrowing, speculating that the rise in house price will add to your wealth faster. True, but if the house price falls the opposite happens and your wealth falls faster. However, the value to you of living in the house remains the same.

It is this ‘leveraged’ borrowing which is key to understanding why financial crashes are so dramatic. Typically, the source of the loan is a financial institution which has borrowed to fund the loan. Depositing amounts to the institution borrowing from you.

The depositor does not usually know where their money is being on-lent, trusting the institution to make good decisions. Of course, it will make mistakes but the expectation is that they will be few and any losses are covered by the margin between the interest from your deposit and what they charge the lender.

It is not so simple. As we saw during the GFC, many financial institutions go into complex financing arrangements which no single person understands (including an economist), while the activities of the borrower may not be as transparent as they appear. As the Guardian article cited earlier remarks, ‘as ever in finance, it’s what investors don’t know that scares them most, and with First Brands, there appears to be plenty’.

Moreover, investors may borrow for investments with prices more volatile that their financial returns – if any. Examples are share markets where there may be dividends and cryptocurrencies where there are not.

The earlier shaky building parallel does not capture the way that financial markets develop over time. Suppose the building is continually being renovated and added to. It may not change the engineer’s basic assessment of its instability – strengthening is discussed below – but it becomes even more difficult to understand the details.

Hyman Mynsky described, in very top-down terms, the evolution of the financial system, with three phases.

During the Hedge Phase, financial institutions and borrowers are cautious. Loans are minimal so that borrowers can afford to repay both the initial principal and the interest.

The Speculative Phase emerges as confidence in the financial system recovers during the Hedge Phase. Borrowers no longer invest on the basis that they can pay both principal and interest. Instead, loans are issued for which borrowers can afford to pay only the interest. As the loan principal comes up for payment, they rely on being able to refinance (‘roll over’) their debt, borrowing the principal again.

As confidence continues to grow, investors move into the Ponzi Phase, in which they neither pay the interest on the loans nor repay the principal, relying on the capital appreciation from what they have invested to finance their investing. The asset-price appreciation that the Ponzi investors rely upon cannot go on forever, especially as it needs to accelerate. Eventually, Stein’s law takes its toll; if something cannot go on forever, it will stop. (Just before is known as the ‘Wile E Coyote moment’, when the cartoon character has run off a cliff but not yet realis

ed that there is no ground beneath him.)

Many reputable commentators think the current financial system is in its Ponzi phase, with the expectation that at some stage the bubble will pop at the ‘Minsky Moment’ after which everyone tries to get out of their investment commitments, turning them back into cash. Ponzi borrowers are forced to, because they have no cash; speculative borrowers can no longer refinance the principal even if they are able to cover interest payments. The prices of assets fall, with innocent lenders suffering as well as guilty borrowers.

We cannot predict when the Minsky Moment will occur. Nor can we prevent it, although there are some who try to prolong it – promising a bigger crash.

What we can do – in this small corner of the earth – is to take measures to mitigate what happens, just like making a building more robust to a shock. Much has done been since the GFC. The government tries to keep its debt down to give it freedom to manoeuvre. The housing market has been dampened down (although some are still trying to beat it up). The RBNZ has increased its supervision of the financial system (which may reduce your return on financial investments today, but mitigate your loss after the crash). There is the deposit compensation scheme, which shifts risk from small depositors to the public purse in return for an insurance premium. Regulation has reduced the amount of self-interested financial advice.

Much of this is like fighting the last war, adding protections we needed during the GFC. The next war will be different – who predicted the role of drones when the Ukrainian invasion started? The GFC was different from the 1928 Wall Street crash and the 1987 Stock Market (Black Monday) debacle, not only because the financial system evolved but because mitigating protections had been put in place.

As for you, the advice is surely to reduce your leveraged borrowing and your exposure to others’ leveraged borrowing. Even so, while the impact of a financial crash may differ for the prudent from the imprudent, it is not too fussy about whether one is guilty or innocent. The building comes down on everyone.

What do the 2025 Nobel awards in economics say to us?

One of the economic puzzles of human existence is that for most of it, going back to its beginnings, the material standard of living did not change much. Then, about 200 years ago, it began increasing; in some places more than others but material living standards in even the poorest regions are today markedly higher than in 1800, and higher than they possibly could have conceived of then.

Economic historians have struggled with what triggered this economic growth. There is no consensus but this year’s Nobel Prize in economics was half-awarded to Dutch-Israeli economist and economic historian Joel Mokyr for his seminal contribution to understanding it. (I deal with the other half below.)

There was a lot of ill-informed comment about the award. It was not the first Nobel in economic history; in 1993 Robert Fogel and Douglas North were so recognised. Nor was it the first award about the role of technology in economic growth; Robert Solow was recognised in 1987. However, neither they, nor their successors, tackled the question of the trigger.

The answers are outside narrow economics. Solow, who first studied sociology under Talcott Parsons, dismissed sociological theories as too fuzzy by economic standards. Mokyr was not as nervous.

First, he defined culture as ‘a set of beliefs, values, and preferences, capable of affecting behavior, that are socially (not genetically) transmitted and that are shared by some subset of society’, distinguishing culture from institutions by regarding culture ‘as something entirely of the mind’ which is ‘to an extent, a matter of individual choice’. By contrast, institutions are ‘socially determined conditional incentives and consequences to actions. These incentives are parametrically given to every individual and are beyond their control.’ (Economists have thought a lot about the role of institutions; its first Nobel economics award was to Ronald Coase in 1991.)

Mokyr focuses on the cultural shift which precipitated economic growth. Between the 16th and 18th centuries, a group of European intellectuals groped their way towards a new view of nature and knowledge in which by disinterested and open inquiry, nature’s secrets could be understood and then used to the benefit of humankind, nurturing the Scientific Revolution and the Enlightenment. The approach percolated throughout society, influencing individual behaviour. Once the notion became widespread that objective knowledge was possible and could be used to improve people’s lives, the emergence of self-sustaining economic growth became possible.

Scroll back to the period before. Have you noticed how its histories are dominated by warfare – as economically destructive an activity as humanity has invented? True for Māori oral histories, but also for written ones from other cultures. You get a sense that the point of human existence was seen to be in the honour which came from fighting (women hardly appear). Economists have tended to explain this by the lack of investment opportunities (although there was often a lot of conspicuous consumption of constructing large buildings – cathedrals and palaces – which may have stimulated economic activity but did not stimulate economic growth).

There was nothing particularly ‘European’ in this cultural shift – it just happened there first. Similarly, I don’t think there is anything particularly European in quantum mechanics even though it was pioneered by Europeans and Americans; today we acknowledge the contributions of Asians with Nobels too. (Perhaps as an aside, the first Nobel to a non-European economist was in 1979 to West Indian Arthur Lewis; I still draw on his insights.)

Mokyr then went onto to trace how this cultural shift transmitted into economic growth. Of course industrialisation happened in particular places which had the resources (such as coal in the English Midlands) and institutions (typically stable ones dominated by the rule of law).  

As Solow saw, although initially only vaguely, this change in attitudes kept identifying new production possibilities – technologies – which meant that the same combination of labour and capital could produce more output (and new kinds of output). The new technologies lifted the material standard of living, much more than capital accumulation by itself.

Hence the second half of the 2025 economics Nobel award. Philippe Aghion and Peter Howitt describe a process whereby the new technology is introduced. It involves creative destruction – first identified by Joseph Schumpeter who would have received a Nobel had they existed when he was alive – in which firms die and new ones grow.

Crucial may be the willingness of society to allow this to happen. It may not be so critical when there is that accelerated growth phase through which many countries go. (New Zealand’s was in the late 1930s and 1940s; China’s may be coming to an end.) But during the period of sedate growth which follows, it is politically tempting to shore up industries and businesses (and regions) from the past. Their winding down and closure is socially painfully, especially to the workers involved.

In my view we need to recognise this pain and evolve a system of redeployment and upskilling – like the social unemployment insurance scheme the Ardern-Robertson Government was developing. That will only soften the disruption but it will not be eliminated. I am reminded of a unionist who was vociferous in opposition to the closure of his freezing works but some years later told me that it ‘was the best thing that happened’ to him.

Aside from the scholarly interest, is there a contemporary relevance in Mokyr’s findings? Didn’t the Scientific Revolution and the Enlightenment happen sometime ago? But is there not some reaction against it going on? I am not talking here of the rise of Romanticism which occurred shortly after the Enlightenment and pointed out that it did not cover the entirety of the human experience. As John Stuart Mill’s autobiography illustrates, both approaches are needed.

Rather the forces of the counter-Enlightenment appear to be rising especially in the US with its MAGA right but also in the woke left (except that is not as well-organised or powerful). Those tendencies exist here too.

They amount to a reversion to approaches which dominated a quarter of a millennium ago. Very often the holders of these archaic ideas do not understand what has happened since. Just because we (including me) do not understand quantum mechanics does not mean it is wrong. Indeed, applications of quantum mechanics are riddled through our everyday life. If you want to reject quantum mechanics, you should abandon your mobile. If you want to reject the Scientific Revolution and the Enlightenment, you should opt for the material standard of living which was normal for our ancestors for thousands and thousands of years.

So the second leg recognised by the 2025 Nobel in economics, creative destruction, is at the heart of modern-day living. Hence the resistance to change. But as Catherine Booth, cofounder of the Salvation Army, said, ‘if we are to better the future, we must disturb the present’.

I don’t think New Zealand is particularly prone to social inertia except that our small size makes it easier for the conservative leadership to resist change and to promote platitudes in place of insight and wisdom while excluding those with whom they disagree – and may be ahead of them – from their conversations.

That is why we have to maintain an open stance to new ideas and to the world. Mokyr argues the enlightenment transformation occurred because its participants were in a ‘republic of letters’ in which they corresponded across distances and time. MAGA seems to be turning its back on the openness, even repressing it. Let’s not join it.

This review of ‘Conversations about our country with Jim Bolger’ by David Cohen was first published in the ‘NZ International Review’ (September/October 2021) p.29-31.

James Brendan Bolger presents a paradox. When he became prime minister, a Tom Scott cartoon presented him as a kind of Forrest Gump; in 2017 he outshone his other three panellists: Helen Clark, Geoffrey Palmer and Jenny Shipley. In 1990 and 1991 he presided over the most bitter attack on New Zealand’s welfare state; today he rejects neoliberalism. He was in the Muldoon Cabinet which supported the 1981 Springbok Tour; among his proudest moments are working with his greatly admired Nelson Mandela. He left school at 15; for 18 years he was Chancellor of the University of Waikato.

Journalist David Cohen’s Friday conversations with Bolger – modelled on Mitch Albom’s  Tuesdays with Morrie – offers some insights to the paradox, without entirely resolving it.

Part of the answer is that although Bolger was born in 1935 he grew up in a rural Taranaki which the prosperity of the welfare state had not really yet reached. It was normal to leave school at 15, for a job (the family farm); after all he had run a farm at 12 when the local farmer was away. Thus he is a throwback to an earlier generation of politicians – before Muldoon’s one which was shaped by fighting in the war. Before that – the Savage-Fraser generation – politicians’ apprenticeships were in the school of hard knocks. Many worked their way up through a union as did Bolger, except his was Federated Farmers. Like some of his ‘uneducated’ predecessors, Peter Fraser, Norman Kirk  and Keith Holyoake, he is an omnivorous reader.

In the 1990s, there was a sort of snobbery towards Gump – recall the description of him as ‘Spud’ – by those who had grown up in more affluent times and been lucky enough to have tertiary education and OE – Bolger got his in Washington when he was 63.

Being Prime Minister is a learning experience, although this is rarely explored in retrospective biographies – not in Cohen’s book. One arrives in office underexperienced – being Leader of the Opposition is near irrelevant preparation – surrounded by public servants who initially prop one up and, if one has the character, grows into the job – Bolger had.

That may explain Bolger’s role in his National Government’s assault on the welfare state in 1990-1. Apparently he was overseas when Cabinet made the key decisions. I’ve not seen explored his feelings about the ‘redesign of the welfare state’ – it would require a tougher interviewer than Cohen – but there are a number of indications that he would not have been so brutal.

There is a parallel here with David Lange who was gazumped by Roger Douglas. The difference is that Bolger wound Ruth Richardson back. Perhaps having Bill Birch as his lieutenant (and tramping partner) helped – although neither this book nor the recent biography Bill Birch: Minister of Everything by Brad Tattersfield discusses their relationship. (Allow me a frustration to observe that biographies rarely report how the politician connects with close public servants and intimate political colleagues, yet that is often key to understanding their performance. But no matter how good those around are, the clay they are working with matters.)

Cohen’s book is tantalising when it draws attention to the religious dimension of Bolger’s life. I cannot recall another account of a politician which pays so much attention to the issue. The book records Bolger as a regular churchgoer – at the time of the Mosque Massacres, Bolger was in Moslem Baku but arranged to be taken to a local Catholic church. The book also touches on the canard that a Catholic prime minister might be beholden to Rome. But it fails to mention that Bolger has been deeply influence by Catholic social justice philosophy which is founded on the 1891 papal encyclical Rerum Novarum: The Condition of Workers which supported private property, but not uncritically; and the ‘just wage’. (Allow another paradox: Ruth Richardson was brought up a Catholic, but the encyclical seems to have had less impact on her thinking.)

Of course the environment he grew up in was critical. There were more Māori at his school than Pakeha and he has shown a particular interest in race relations, as well as leading the Treaty Settlement process.

Yet there is a paradox here. In 1991 Rerum Novarum was celebrated by Centesimus Annus: The Centenary of Rerum Novarum. It was released about the same time as the Employment Contracts Act and provides a critique of how ‘anti-Catholic’ the legislation was. (The Catholic bishops thought so too, and circulated a pastoral letter at the time.) What Bolger really thinks of the ECA is not on record. He had been Minister of Labour under Muldoon and his bête noire was the freezing worker unions – a common position for a farmer. Militant unions have not always contributed to the sustainability of New Zealand’s union movement.

Bolger has strong views on racial issues, tolerance generally, and the environment (climate change). But does one detect a shift in his interests towards international affairs? I recall little evidence of such an interest before he became premier, although he mentions he followed events offshore as a child on the farm.

Every Prime Minister has to get involved, but Bolger’s interest has continued in retirement. Sometimes one often gets the impression of politicians’ set pieces being mechanical exercises based on anonymous public servants’ notes. Once they separate, the politician descends into platitudes. Bolger had, however, maintained his interest – including saying to Cohen that on some issues he has not yet reached a conclusion. The chapters on Armageddon (the nuclear question) and Washington are additions to the foreign affairs literature.

The paradox is us – we undervalued Bolger because he was not one of us. Ironically, retired he may be the most progressive premier since Norman Kirk. (Across the board – Helen Clark is ahead on women’s issues and international affairs. Bolgers  jokes that perhaps he should have been a Labour PM and Clark, who also came from a farm, a National one.)

Therein lies a deeper paradox. It is said that New Zealand history is written about the land of the long pink cloud. I struggled with the image while writing my Not in Narrow Seas: The Economic History of New Zealand. There is a stronger case that New Zealand is a green land in a blue sea. Among its premiers is a tradition of progressive farmers of a rightish disposition: Harry Atkinson, Bill Massey (probably, we lack a good biography), Gordon Coates and Keith Holyoake. James Brendan Bolger is one of them.

Our current fiscal settings promise that we will eventually face a public debt explosion. A major cause would arise from the aging population. Is there anything we can do?

It has long been known that the ageing population would create future fiscal pressure. It was quantified in the first (2006) Treasury long-term fiscal projection and has been confirmed in every subsequent one. It is not simply that with relatively more elderly, the cost of New Zealand Superannuation rises markedly faster than GDP. The elderly also require more public healthcare and related social support much of which is today funded by others.

For the record, the just released 2025 Treasury Long-Term Projection calculates that given the current expenditure and revenue settings net debt would amount to two years of GDP in 2065.* Of course, the true figure is not that precise, but the order of magnitude is probably right. Whatever the ratio is, it will be acceptable to those expected to lend the debt to the government. Fundamentally, the current fiscal settings are not sustainable. A major contribution to the blowout is the aging population.

Despite the 2006 warning, very little has been done to address the challenge. Michael Cullen introduced Kiwisaver, a semi-compulsory earnings-related second-tier top-up on NZS but it will do little to reduce the fiscal pressure.

He also instigated the New Zealand (aka Cullen) SuperFund, in which the government invests financially now with the intention to draw down the fund as a bulge in the proportion of elderly comes through. Subsequent National Governments have not always paid into the fund in the way that Cullen intended.**

Meanwhile, the public remains impervious to the danger of a fiscal crisis. They seem to dismiss the challenge because they think it will not happen in their lifetimes. A consequence of Dornbusch’s law? Since the crisis takes longer to arrive than you think, you ignore it; when it  happens it will be faster than you thought and you will be very angry at no one taking preventive measures (but not angry with yourself). Today’s young-uns may wake up one day to find we are (or the world is) in an economic and financial crisis which requires their retirement prospects to be ‘unexpectedly’ and severely curtailed.

What to do? The first option is to do nothing and hope that action will have to be taken after we are dead, with the cost of our sloth falling on younger generations – that has been the approach of recent decades.

The second option would be to Americanise the pension system – to abandon NZS as it was originally conceived and is understood today, replacing it with an income- or means-tested minimal income support for the poorest and leaving everyone else to fend for themselves. The Treasury tried to do this with its proposal in the 1997 referendum. Although fronted by Winston Peters, the scheme was neoliberal as set out by Roger Douglas in Unfinished Business. It was rejected by a huge majority (92.4%) of voters. I suppose it could be imposed without popular consent but that seems unlikely so I won’t critique it.

Treasury has also proposed that the level of NZS be indexed to prices rather than wages with the effect that the elderly would not share in any rise in material prosperity. (It was a part of the 1997 scheme.) Such price-indexation was imposed on benefits in 1991. The outcome was increased hardship. Whether it would be politically acceptable is for others to decide. (The Treasury is not unknown to advocate policies which it knows are politically unacceptable.) The change would give a little short-term relief to fiscal pressures, but would not resolve the longer-term pressure.

The indexation shift is likely to be a part of the resolution response to any Horrendous Fiscal Crisis (HFC). There would also be endings of various concessions (e.g. health, social support and transport), and the introduction of incomes- and/or means-testing. (Means-testing involves an assets test.) The winter energy supplement would be high on the abolition list. This is an ugly scenario – essentially an Americanisation – over which we would have little control.

That leaves two options (or both). One (the fourth in this list) would be to raise the age of entitlement. I have long been an advocate of this policy although I originally arrived at it from an equity rather than fiscal perspective. It seemed to me that as longevity increased and as those in later working age groups – the pre-elderly – became more robust, it did not make sense to give them the same state support as when the New Zealand pension system was first formulated in 1898.

I was impressed by the raising of the age of eligibility from 60 to 65 which Ruth Richardson (then Minister of Finance) and Cullen (then Opposition Spokesperson on Finance) agreed to in 1992. Well-signalled, small, incremental steps, with a provision to cover those unable to work and in hardship. Why stop at 65? Why not continue the process until some reasonable age of eligibility is reached? I suggested that might be where expected longevity would be 17 years. In 1898 that the expectation of a 65-year-old was 13 years; today it is 20 years. We do not expect to reach an expected longevity until age of about 72. Were we to adopt immediately the Richardson-Cullen process raising age of eligibility 3 months every year, we would not reach 72 until 2041. (For further detail see here and here.)

I am not arguing here for reducing the scope of the modern welfare state. Rather, I favour adapting it to changing circumstances. (Once, a single woman was eligible for the pension at the age of 55; I leave you to list the changing circumstances which made that archaic even if originally it was a humane policy.)

The National Party proposes raising the age of eligibility to 67 some years away. (I leave you to judge whether that is politically courageous or timid.) It was ruled out in the coalition agreement with NZF. It leaves the danger that one morning during an HFC, those who are 64 will wake up to find they will have to wait another two or more years before they become eligible for NZS.

The fifth option would be to claw back the incomes of the well-off elderly more than the current income-tax system (with its low top rate) does. There are potentially big gains here. On the two occasions a government tried to impose a clawback (it was called a ‘surcharge’), the public outcry was such that it backed down.

Which seems to leave us with the first option, to do nothing and wait for the HFC to do it to us.

Let me make a small suggestion which would give some flexibility for future change. Set up a special tax code for NZ superannuants. Let’s call it ‘G’ for golden oldies. (I suggested a parallel code for families with children here.)

Initially, it would have exactly the same tax regime as the existing one. Only those joining the scheme would be required to use the G code – current superannuants would not. An important reason for leaving them alone is that one cannot trust those designing the G-code to make transferring to it simple. But also it provides more certainty to the existing superannuants that their entitlements will not be undermined. Both reasons would reduce the initial antagonism to the new G-scheme.

In the long run though, the G-scheme could be changed with tax rates on upper incomes increased relative to ordinary tax rates – a clawback. (I could give a lot more detail if there was any interest.) Thus we would have an arrangement which could be used to progressively, flexibly and incrementally address the challenge of the aging population, rather than wait for the HFC to do it for us.***

* Note for Geeks. The public debt-to-GDP ratio will not be 200% as was widely reported. It may be 200% years. What separated out the good mathematicians in my class from the rest, was that the former knew they had to keep their units consistent. If you didn’t, you made egregious mistakes. Debt is a stock measured in dollars (say), GDP is a flow measured in dollars per year (say). In which case the Debt-to-GDP ratio is dollars divided by dollars per year, so its unit of measurement is ‘years’. You may think this does not matter but I have seen discussions in considerable confusion because the participants were not distinguishing stocks from flows. Part of our clumsy response to the Asian Financial Crisis of 1997 arose from the Reserve Bank not understanding this elementary mathematics.

** The economics of the Cullen fund is complicated. It requires distinguishing between the situation for a person from the situation for the economy as a whole where feedback loops are so much stronger. Do not make the ‘fallacy of composition’, which ignores these feedbacks. It led to a lot of faulty analysis during the Great Depression and probably intensified it. The critical assumption is that the Fund can make a higher return on its investments than the costs of government borrowing.

*** I shall write about the role of immigration in a later column.

Jim Bolger was the first Prime Minister I ever interviewed. It was 1992 or early ‘93 at Massey University. He was in the second half of his first term and I was a 21- or 22-year-old student journalist. Bolger had already made most of the historic political choices that would define his leadership of the country – letting Finance Minister Ruth Richardson execute the mother of all budgets, going back on his promise to cut the hated superannuation surtax, and passing the Employment Contracts Act. He’d promised an end to the rapid, painful reform of Rogernomics and return to a more settled politics that suited his political temperament.

He had campaigned in 1990 with the promise of a “Decent Society”, a slogan that fitted him to a T but didn’t exactly fire up his party. Instead, his first two years in office were a tsunami of economic reform, a continuation down the neoliberal path laid by Roger Douglas and David Lange. After winning the 1990 election in a landslide, Jim Bolger had become a deeply unpopular Prime Minister. So I did the maths and asked him a confronting question. In essence, I said ‘You’re unpopular, but your party is still polling well and so’s Winston Peters. If you want National to win the next election, why don’t you hand over the leadership to Peters?”

I remember Bolger’s reply almost word-for-word after all these years. He stared hard at me and said, “You are a very naive young man who clearly knows very little about politics”.

Jim Bolger wasn’t afraid of expressing his opinion and even when he was facing the stormiest of political seas, he never lacked self-confidence.

Bolger was New Zealand’s 35th prime minister. The 11th longest-serving, from 1990 to 1997. A farmer Prime Minister, in the best New Zealand tradition, following in the footsteps of Coates, Massey, Forbes, and Holyoake. MP for the King Country (and KingCountry-Taranaki) for a quarter of a century, entering parliament at the dawn of the Robert Muldoon era, in 1975. He was a cabinet minister just two years later and after National’s 1978 win became Minister of Labour and Minister of Immigration. These were the days when big strikes were settled in the minister’s office. Bolger became a master of the ‘smoke-filled room’. Although his office negotiations were more famously concluded over a glass of whiskey. When I produced The 9th Floor in 2017 we called his episode ‘The Negotiator’ for good reason. In part because of his real politick acumen but also because in his second term he would begin some of the most consequential negotiations in modern New Zealand history. More on that later.

When Bolger came to office, he knew the economy and the majority government-owned bank BNZ was in bad shape. He didn’t, however, know both were on a precipice. As he told Guyon Espiner and me in his interview for The 9th Floor, our series of interviews with former Prime Ministers, it’s hard for anyone to understand what it’s like “being told the day you become Prime Minister, that the country’s broke”. It was the epitome of Harold Macmillan’s quote that the great challenge for a politician is “events dear boy, events”.  After a night of jubilation, he was called by Treasury officials on Sunday morning and summoned to a meeting. They told him the BNZ would need a $380m bailout, the government would need to borrow double that. Bolger’s fiscal plans turned to ashes before his eyes.

Leadership, to Bolger, was about being able “to see a little further” than most and to “see a different world”. And being able to bring people along on the journey. But his first term was about the here and now. So he decided to follow the advice of his Finance Minister, cutting benefits, removing the universal family benefit altogether, keeping the super surtax. It was a reluctant choice but, in his mind, the right one. The only one. A conservative by instinct, Bolger knew the public hates change and the best path is to get from the old stability to the new stability as quickly as possible. So he also introduced the Employment Contracts Act at speed, ending compulsory unionism and national award agreements.

They were decisions he never resiled from, but he certainly had second thoughts. In The 9th Floor interview, Guyon and I could hardly believe our ears when he embarked on a deconstruction of neoliberal politics and its impact on the poor.

“Do I believe the gap between those who have and those who don’t at the moment is too big? Yes. This is why we’re getting many revolutions around the world. The world has sat silent as they have pursued neoliberal economic policies … and in fact they’ve failed. They have failed to produce economic growth and what growth there has been has gone to the top”.

Guyon asked the question every New Zealander alive in 1990 was asking: “But you embarked on that model, did you not?”

History has come to view his hard economic choices more kindly, but it came at immense political cost for Bolger. With interest rates around 20% and unemployment around 10%, times were tough and voters turned on him. The reason I asked him the question I did that day at Massey was because his Preferred Prime Minister numbers fell as low as 8-9%. By the time we did The 9th Floor in 2017 he could joke about it. “They were the lowest in polling history… No-one will beat me.”

Perhaps Bolger’s greatest good fortune at the time was that as unpopular as he was, Labour was even more so. It was a divided party struggling with its identity in the wake of the Lange-Douglas years. Mike Moore launched a fierce campaign in 1993, but Bolger clung on after a hung parliament on election night, thanks for a few hundred votes in Waitaki. Bolger quickly signalled the tough medicine was done, sacking Richardson as Finance Minister and trying to steady the ship of state. He got the nickname ‘the great helmsman’.

Bolger always took himself and his work seriously. When we made The 9th Floor he was less than impressed that Moore, Prime Minister for just 59 days, would get the same treatment as him. But he was also incredibly realistic when it came to politics. He knew it was the art of the possible. He knew to pick his battles.

The battle he chose that became perhaps his greatest legacy was his commitment to honouring the Treaty of Waitangi. He dragged his party, cabinet, and voters to a new era of race relations that he was uniquely placed to introduce. As a farmer just out of Te Kuiti, he got to know a lot of Māori leaders in the King Country. As the son of Irish immigrants and a committed Republican who accepted the Order of New Zealand but never a knighthood, he empathised. He insisted New Zealand needed to “give up the colonial mentality”. He had a deep, personal hatred of racism. “I cannot abide racism. I cannot abide people judging others by the colour of their skin, their ethnicity or their culture… One of the great evils of world society is racism. The undermining of a stable world society is racism”. He pointed to Brexit and the first Trump election. “Tragically, this has a long history”.

Bolger, with his friend and ally Sir Doug Graham, began treaty negotiations with Tainui and then Ngai Tahu. They changed the relationship between the government and iwi and re-imagined race relations in New Zealand. It began with an act of political opportunism, when about 20% of the fishing quote came up for sale and the Bolger government decided to offer it to Māori. As was Bolger’s style, the settlements were often hammered out in his office with a mix of threats and compromise. But his approach to Māori-Pakeha relations was a fierce act of principle for Bolger and he’s now renowned for his foresight in treaty relations. He described as “absurd” the idea that New Zealand’s first citizens should be dispossessed of so much of their land and rights without any redress. He thought treaty settlements were a way of bringing honour back to New Zealand and that “if Māori do better, we all do better”.

I remember at the time that one of the most telling comments he made during our interview was that the treaty settlements that have flowed since the mid-1990s might not be “full and final” as per the legislation. As long as Māori dominate the bottom quartile of social statistics, Māori leaders will keep asking the question and keep pointing to the where that poverty began. He said they would be quite right to do so.

Despite never becoming truly popular or being embraced by voters. Bolger won a third term. He was the first MMP Prime Minister. He won the largest share of the popular vote in 1996 but New Zealand First held the balance of power. Bolger had sacked Winston Peters, his heir apparent, in 1991 over his continued criticism of the government’s economic policies. They’d become bitter rivals. But Bolger, the negotiator, knew a deal could be done. Labour would need three parties to form a coalition, National and New Zealand First could do it alone. Peters demanded the deputy prime ministership and a new role of Treasuer, senior to the finance minister. Bolger conceded. He told the story of a late night discussion with Peters where their colleagues drifted away through the evening until just the two men were left, putting ghosts behind them and agreeing a way forward. Tensions grew within the coalition however, and in December 1997 Bolger was rolled by Jenny Shipley. He harboured some doubts about MMP but thought it had acted as a safety valve, saving us from some of the turmoil and division seen in recent years in Europe and the US.

Bolger was as complex a mix of contradiction as any Prime Minister, probably more than most. Despite wanting to break the power of the unions, he thought they had become too small. He hated politicians promising to build more prisons and lock up more people as a solution to crime (“it’s demonstrably a cross on New Zealand’s record that we have so many people in prison“). And of course he led a strongly neo-liberal government and then railed against those policies later in life. He went on to be New Zealand’s ambassador to the US and feared that as early as Trump’s first election, the country was turning its back on democracy. Given his fondness for the country, he might not mind being remembered as something of a Jimmy Carter figure. While he led much longer, he will be remembered for his decent character and was more popular and respected after he left office than when he was in power. Once dismissed as “spud”, he has slowly moved up historians’ rankings of Prime Ministers as the years have gone by.

Bolger was a politician forged in the Muldoon years, a rural conservative who ended up leading a reforming government in spite of himself, a stubborn man who showed the political flexibility to survive three terms.

He was, undoubtedly, a proud New Zealander who loved and understood his country.

“One of the great ethos of being a New Zealander is fairness. And I’ve got a book in the bookshelf which is titled ‘Fairness or Freedom’. Americans talk always about freedom. Every sentence has freedom in it. We talk much more about fairness. And fairness was what I wanted. That every member of society had a fair opportunity to succeed, make progress, to look after their families, provide for their children and so forth.”

Bolger knew, even towards the end of his life, there was still much work to do to create the decent society he longed for. A decent society for all, even the newest New Zealanders.

“The biggest challenge in societies like is to welcome in others from different cultures and value systems, histories and religions and make them all feel New Zealanders,” he said. “You see, you could argue the challenge is to grow the economy by X percent a year or whatever, but it’s almost mundane by comparison. Therea re various ways you can do that. I think the sense of people feeling they are important in this society and [that] their lifestyle reflects that acknowledgement of that importance [is critical]. We have to listen more carefully to those who are left on the margins.”