Category: Uncategorized

Big Corporations Are Not What We Think They Are

John Kay has been widely described as ‘one of the greatest economists of our time’. He is well grounded in economic theory and has taught it. He is rich with practical experience, both as a consultant and a corporate director, which he melds shrewdly with the theory. He writes precisely and charmingly. And he is not constrained by the inertia of the conventional wisdom. I particularly liked his books on Obliquity, Other People’s Money and Radical Uncertainty (the latter he wrote with Mervyn King) where he pushes economists’ thinking forward– the conventional wisdom will eventually follow.

His latest book, The Corporation in the 21st Century, is even more challenging. A warning though. The publishers subtitle, ‘Why (Almost) Everything We Are Told About Business Is Wrong’, is misleading. Kay is explicit that he is writing about mega-corporations rather than conventional businesses. The standard paradigm still applies for most of those we know, work for and purchase from. The book, however, makes a compelling case that there is evolving a quite different sort of business, typically associated with products we may love, but whose producers we hate.

That is almost the title of the book’s first chapter which, initially, I found had a strange theme. Kay cites a recent legal case in which an investor sued Goldman Sachs for not following its ethics and values statement which begins ‘our client interests always come first’. The investment bank defended its case in court by arguing that the code was puffery and that no reasonable person would regard it as a statement of fact on which they might rely. The argument was supported by the US Chamber of Commerce and various other business peak associations. The US Supreme Court sided with the argument. Apparently, you should not trust what businesses tell you. Kay cites other instances with similar conclusions. 

(Kay does not explore the common notion that a successful economy depends on trust, although he has an acerbic ‘the 2024 meeting at Davos adopted its theme “Rebuilding Trust”. Well it might.’ Perhaps that will be in his next (fourteenth) book.)

The purpose of the opening chapter seems not only to express moral outrage, but also to frame the book: don’t believe what business tells you. What then are you to believe? Who then are you to believe?

Kay’s book is so rich in insights and examples that it is difficult to summarise. Basically, his message is that the features of corporations we are familiar with are no longer dominant. The archetypal business of the Industrial Revolution was a steelworks or a textile mill. Subsequently, the model was extended to embrace new technologies such as automobile production.

However, business went beyond that, nicely illustrated by the evolution of General Motors, which transformed from a company which made cars to a finance corporation which used its cars to secure its lending to consumers.

This rising role of finance in the modern economy is one of the major transformations of the modern era. Kay cites the case of the Halifax Building Society, once the largest mortgage lender in the world, whose board he was on – he left before it collapsed. For more than a hundred years it was a mutually owned organisation. It was converted to a shareholders’ company, became merged with the Bank of Scotland and crashed with it in 2008 under the impact of bad loans and inept money market trading. (One employee was fined £500,000 for reckless conduct.)  Kay thinks the rot set in before the demutualisation saying:

“I trace the beginning of the decline to an earlier board decision to establish Treasury, which managed day-to-day cash balances as a profit centre in its own right. … Trading in short-term money market instruments is essentially a zero-sum game – one party’s gain is another’s loss. So what was the source of the trading profits that not just our company, but every company in this business, claimed to make? The experienced bankers would shake their heads at this naivety. If they deigned to answer the question at all, it was to say that our traders were uniquely perceptive and prescient, although it was difficult to remain convinced of that once you had met them. The fantasy that sustainable earnings could be achieved through a sleight of hand was dispelled by the 2008 crisis – and was a principal cause of it.”

So the financial gains were a kind of Ponzi scheme in which the traders used a valuation of their assets unconnected with tangible assets or the actual future flow of income to give the impression that they were all making money. It came crashing down in 2008. But we never learn and, no doubt, the same thing is happening today. Mind you, those involved in the dealing make a mint during the boom, which is ultimately paid by the losses suffered by depositors, shareholders and taxpayers when the crash occurs.

When will the next crash happen? I can’t tell you. Dornbusch’s Law states that crises ‘take longer to arrive than you think, but then happen faster than you thought’.

Yet we are only halfway through the book (and have already skipped a lot of interesting ideas). Its second half moves on to explore another of Kay’s central themes. ‘The value of production today lies in the ideas rather than the stuff – think of pharmaceuticals or smartphones.’

A startling illustration is Amazon, a two-trillion-dollar company, which reports holding assets which are less than a quarter of that. Most of its buildings and the like are leased property which it does not own. ‘The key point is that Amazon has virtually no [tangible] assets akin to the Carron ironworks, the rail line from London to Bristol or Henry Ford’s River Rouge complex.’ Most of the limited assets its owns are financial. Trillion-dollar Apple has a similar story. It does not make computers, distribute them or sell them. It coordinates these activities.

Kay argues these companies are more typical of the modern mega-corporation. The core ideas in his book – collective intelligence, radical uncertainty, disciplined pluralism, relation contracts and the mediating hierarchy – lead to a quite different account of the organisation of the firm from how the standard economic theories and the law characterise it.

That discussion is for another venue. In fact, this book is a work-in-progress. It will take us a long time to work out its implications. Sometimes he gives the impression he may not fully understand himself. That is the nature of revolutionary tracts.

The concluding chapter, ‘After Capitalism’, is an indication of just how revolutionary Kay’s thinking is. I am not sure that is the right way to think about this era. Capitalism has transmuted greatly in the two centuries since the Industrial Revolution.

Observe that ‘capital’ has two different meanings. Kay is pointing out that in the evolving era, physical capital appears to be less significant. But financial capital remains significant, as this book and some of his earlier ones argue. Symbolically, Trump’s cabinet is stacked with billionaires.

And if financial capital remains politically powerful – the golden rule of those who have the gold make the rules – what if it is all a Ponzi system? Gee willikers.

Do we need bigger multipurpose government mega-departments?

Restructuring seems to be the fashionable management practice whenever faced with a challenge. (Eminent health economist Alan Maynard’s caaled it ‘redisorganising’ citing Petronius Arbiter in Satyricon: ‘we tend to meet any new situation by reorganising, and what a wonderful method it can be for creating the illusion of progress while actually producing confusion, inefficiency, and demoralisation.’

Yet the restructurings continue (until the demoralisation ends?). They are reminiscent of a cargo culture, with the expectation that eventually a magic spell will succeed. It every new senior generic manager commences with a restructuring it surely implies that the structure which the outgoing chief executive left behind was inadequate. In turn, their structure will suffer an upheaval, presumably with the same implication.

Currently the Public Service Commission is considering reducing the number of government departments by merging them. But what is the evidence of the effectiveness of the mega-departments which bring a diversity of activities under the same chief executive?

Anecdote there is. The Lambton Quay view – the term for the discussions by Wellington insiders – rarely has a generous word to say about the Ministry of Business, Innovation and Employment – a department of diverse miscellaneous affairs (it has twenty ministers). Promised synergies have not appeared. For instance, the various divisions of what was once the Department of Labour have not articulated a coherent approach to labour market policy.

The other great example of a miscellaneous affairs agency is the Department of Internal Affairs (DIA). It also gets few plaudits from Lambton Quay. We have one study, which I report in chapter 17 of In Open Seas, of what happened when Archives New Zealand and the National Library were forced to rejoin the DIA in 2010.

No justification was given for the mergers. The most likely one was that the State Services Commissioner thought he had too many chief executives reporting to him – about forty. There may be a similar reason for the current proposals to reduce the number of government agencies.

The DIA’s subsequent stewardship of Archives New Zealand has been far from impressive. (Nor has it treated the National Library well.) Following the amalgamation, Don Gilling, a retired professor of accounting with considerable public sector accounting experience, found that the DIA was raiding the funds allocated by Parliament to the two to prop up its other activities. One understands the challenges faced by an underfunded department but this was thwarting Parliament’s intentions. How did the department respond to Gilling? It rejigged its accounts, making them less transparent so it is no longer possible to do a Gilling analysis.

You may think that the public record is a trivial part of overall government, but it is central to accountability. Without protecting it, the Official Information Act (OIA) would be neutered. A requested document which the executive did not want to be revealed could be legally destroyed.

That accountability of government is but also true for past ones. When legislation was first passed to provide for investigating Treaty of Waitangi grievances, it applied only to contemporary issues. Later it was extended back to 1840 and has worked well because of what is available in the public record, even though the record is not perfect as the tattered remnant of the document of what was agreed at Waitangi reminds us.

The executive loathes accountability and, as we saw with the DIA accounts, will do its best to neuter attempts to apply it. A nice illustration, reported in In Open Seas, was that in 2019 the DIA deliberately manipulated the official information process to prevent the public obtaining a document before their policy decision was made so the public assessment could be ignored. (pp.214-8)

(The DIA manipulations enabled it to overrule the three ministers directly involved – the Minister of Internal Affairs, and the associate ministers, the Prime Minister and the Minister of Finance – a reminder on how powerful a department can be against weak ministers.)

So how to downgrade the use of the public record for accountability purposes? The DIA is increasingly merging management of Archives New Zealand with the National Library’s, claiming that they are both heritage institutions. (I leave you to explain why they are not in the Ministry of Culture and Heritage.)

The consequence is that the constitutional role of the public record is downplayed. We should not undervalue the significance of the state’s heritage responsibilities but accountability must be the priority in a democracy. After all, dictatorships are jealous of their heritage too; they distort them to reinforce their authority.

Whatever the intrinsic constitutional interest in this example – for democrats it must be high – the illustration shows that mergers do not always work. As mega-departments become multipurpose it becomes easier for managers to avoid a purpose they don’t like or find too difficult. If they don’t like accountability, they redirect the activity towards heritage; if labour market policy is too difficult then fragment those who ought to be dealing with it.

One of the major reasons we have separate departments despite their appearing to be in the same area is that they have different roles and purposes. Merge them and the roles and purposes get fudged. It was right to separate out the Ministry of the Environment, which is a policy agency, from the Department of Conservation, which manages the state’s environmental assets. Fuse them and both jobs will be done badly.

MPs have often been supine when their ability to maintain accountabilty is threatened. Recall how they happily passed the 2020 Public Service Act even though it reduced their ability to hold government agencies accountable. Will they be as complacent this time?

Reducing the number of the chief executives is not the only option. Before the 1989 State Sector Act, there was a panel of commissioners each of whom were responsible for a set of departments.

Without evidence to demonstrate that mega-departments work. It’s all unthinking reaction. Almost certainty the proposed mergers will further reduce the executive’s accountability to the public. The confusion, inefficiency, and demoralisation will continue.

With his ‘I have the right to do anything I wanna do. I’m the president of the United States.’ Donald Trump is echoing Louis XIV who may have said ‘L’état, ce’est moi’ – ‘I am the state.’*

The founding fathers of the American constitution were mindful of the authoritarian streak in English royalty; some had even claimed a ‘divine right of kings’ with unconstrained power. Charles I had made such a claim and had been beheaded. That led, several decades later, to the 1688 Bill of Rights which constrained the sovereign (it is now a part of New Zealand law) and the political writings of John Locke which were influential in the founders’ thinking when they were designing the constitution.

So they designed the American constitution with the fear of a Trump-like president (their equivalent of the sovereign) in mind. They assumed that the counterbalances from Congress and the Supreme Court would mean that a president would never try to abrogate the rule of law to the extent that Trump has. (Test it where it is ambiguous – yes.) What they perhaps did not appreciate was that the checks and balances would respond slowly and a determined president could do many things before they became binding.

I do not think it is likely that we could end up with a Prime Minister who would overrule our laws when it suited her or him. Even so, we should be concerned about the executive having unrestrained power.

From our perspective, Robert Kennedy Jnr, Trump’s secretary of Health and Human Services, may be more relevant. Thus far he has not broken the law.(One restraint may be that he is a registered attorney with law degrees from two respected universities. He has even less background in the discipline of healthcare than I have.) But he has had a surprising amount of discretion within the law.

It would be easy to dismiss Kennedy as unique to America, where he is both rich and has a high public profile from his family. (His father, also Robert Kennedy, was assassinated while running for president.) When Kennedy was running for president in 2023, Trump considered him such a threat that he was offered the health secretaryship in return for his support. So he is a kind of coalition partner in the Cabinet with only a little public support. Sound familiar?

Kennedy is an acknowledged vaccine sceptic. I avoid a discussion on this view here (but read David Isaacs’ Defeating the Ministers of Death, although it finishes before the Covid pandemic, alas). Even so, during his Senate confirmation hearings he said, ‘I’m going to empower the scientists at HHS to do their job and make sure that we have good science that is evidence based … I’m not going to substitute my judgment for science.’ (my italics)

Yeah right. Since coming to power Kennedy has cut back funding of medical research, discouraged vaccination programs and either directly, or indirectly by his behaviour, laid off administrators with acknowledged expertise in the area. Illustrative of his approach, he is cutting $US500m of research funding for mRNA vaccines, claiming that they ‘fail to protect effectively against upper respiratory infections like Covid and flu’. Had he fulfilled his promise to the Senate he would have directed the research to pay more attention to investigating this alleged failure. (My understanding is that vaccines rarely fully protect, but their enhancement of the overall quality of life more than offsets any failures. Settling the balance is an evidence-based research exercise.)

Kennedy has similarly intervened in other medical areas. Further detail would only reinforce the central issue: to what degree can a cabinet minister pursue some policy very distant from conventional understandings, when the politician has no mandate for the pursuit? That Trump is tacitly supporting Kennedy’s policies by not sacking him or reining him in, is not a satisfactory answer. It is not simply that Trump has only a limited mandate (about a third of registered voters); even that majority of that minority probably did not vote for these particular policies.

Do we observe some New Zealand Cabinet Ministers pushing personal policies with a Kennedy-like lack of attention to the evidence? Would they do so further, were they not restrained by checks and balances? As a British Lord Chancellor said, a parliamentary system is an ‘elected dictatorship’. Our dictatorship is restrained by the requirement of having an election every three years. In those thirty-six months the dictator-politicians are also subject to formal and informal checks and balances. Without them, as Trump’s ignoring of them in his first eight months well illustrates, a politician can do a lot of damage. On the other hand we expect our political leaders to lead and object to eunuchs who do nothing. It is a delicate balance.

The Coalition Government is currently putting to a referendum the proposal that New Zealand extends its three-year electoral cycle to a four-year one, thereby extending the dictatorship and weakening a key mechanism which holds our politicians accountable.

The ACT party has reservations about this power increase and suggested that we should support the four-year term if there are more checks and balances. Theirs was a grudging concession along the lines that if electoral accountability is reduced, parliament would make minor changes to strengthen the checks and balances. It has since withdrawn it; ACT has offered no alternative.

Surely the change should be the other way round. Politicians would acknowledge that the checks and balances on the executive are weak and need strengthening. They would make changes to increase their accountability. Having done this, they would then ask for a four-year electoral term.

As Trump and Kennedy demonstrate, the likelihood of politicians reducing their power belongs to the ‘yeah right’ basket.

* Another parallel with the Sun King is that Trump appears to have similar golden tastes redecorating the White House.

Appendix: Some Ways to Strengthen Accountability

1. ‘Officers of Parliament’ – the Auditor General, the Commissioner for the Environment and the Ombudsman (who is also Official Information Officer) – have accountability roles similar to MPs but with more resources and expertise. There are others with similar roles – a list is here – but because they are based in government agencies and subject to them, they are less able to hold the executive to account. They should be made officers of parliament.

2. Properly fund the Ombudsman’s office so that challenges to the executive’s Official Information restrictive decisions can be dealt with more quickly.

3. Strengthen the ability of select committees to challenge the executive. (The ACT proposal attempted to do this.)

4. Make the public accounts more transparent so they make using them for accountability easier.

5. Reduce the power of parties relative to voters by having list MPs appointed to Parliament on the basis of those who obtained the most electorate votes but did not win their seats, thereby increasing the independence of MPs. (Like the way Samoa tops up the number of women MPs.)

6. Further limit the power of those with finance to fund parties.

7. Make political lobbying more transparent.

8. Give local authorities more independence (which also means more financial independence).

With his ‘I have the right to do anything I wanna do. I’m the president of the United States.’ Donald Trump is echoing Louis XIV who may have said ‘L’état, ce’est moi’ – ‘I am the state.’*

The founding fathers of the American constitution were mindful of the authoritarian streak in English royalty; some had even claimed a ‘divine right of kings’ with unconstrained power. Charles I had made such a claim and had been beheaded. That led, several decades later, to the 1688 Bill of Rights which constrained the sovereign (it is now a part of New Zealand law) and the political writings of John Locke which were influential in the founders’ thinking when they were designing the constitution.

So they designed the American constitution with the fear of a Trump-like president (their equivalent of the sovereign) in mind. They assumed that the counterbalances from Congress and the Supreme Court would mean that a president would never try to abrogate the rule of law to the extent that Trump has. (Test it where it is ambiguous – yes.) What they perhaps did not appreciate was that the checks and balances would respond slowly and a determined president could do many things before they became binding.

I do not think it is likely that we could end up with a Prime Minister who would overrule our laws when it suited her or him. Even so, we should be concerned about the executive having unrestrained power.

From our perspective, Robert Kennedy Jnr, Trump’s secretary of Health and Human Services, may be more relevant. Thus far he has not broken the law.(One restraint may be that he is a registered attorney with law degrees from two respected universities. He has even less background in the discipline of healthcare than I have.) But he has had a surprising amount of discretion within the law.

It would be easy to dismiss Kennedy as unique to America, where he is both rich and has a high public profile from his family. (His father, also Robert Kennedy, was assassinated while running for president.) When Kennedy was running for president in 2023, Trump considered him such a threat that he was offered the health secretaryship in return for his support. So he is a kind of coalition partner in the Cabinet with only a little public support. Sound familiar?

Kennedy is an acknowledged vaccine sceptic. I avoid a discussion on this view here (but read David Isaacs’ Defeating the Ministers of Death, although it finishes before the Covid pandemic, alas). Even so, during his Senate confirmation hearings he said, ‘I’m going to empower the scientists at HHS to do their job and make sure that we have good science that is evidence based … I’m not going to substitute my judgment for science.’ (my italics)

Yeah right. Since coming to power Kennedy has cut back funding of medical research, discouraged vaccination programs and either directly, or indirectly by his behaviour, laid off administrators with acknowledged expertise in the area. Illustrative of his approach, he is cutting $US500m of research funding for mRNA vaccines, claiming that they ‘fail to protect effectively against upper respiratory infections like Covid and flu’. Had he fulfilled his promise to the Senate he would have directed the research to pay more attention to investigating this alleged failure. (My understanding is that vaccines rarely fully protect, but their enhancement of the overall quality of life more than offsets any failures. Settling the balance is an evidence-based research exercise.)

Kennedy has similarly intervened in other medical areas. Further detail would only reinforce the central issue: to what degree can a cabinet minister pursue some policy very distant from conventional understandings, when the politician has no mandate for the pursuit? That Trump is tacitly supporting Kennedy’s policies by not sacking him or reining him in, is not a satisfactory answer. It is not simply that Trump has only a limited mandate (about a third of registered voters); even that majority of that minority probably did not vote for these particular policies.

Do we observe some New Zealand Cabinet Ministers pushing personal policies with a Kennedy-like lack of attention to the evidence? Would they do so further, were they not restrained by checks and balances? As a British Lord Chancellor said, a parliamentary system is an ‘elected dictatorship’. Our dictatorship is restrained by the requirement of having an election every three years. In those thirty-six months the dictator-politicians are also subject to formal and informal checks and balances. Without them, as Trump’s ignoring of them in his first eight months well illustrates, a politician can do a lot of damage. On the other hand we expect our political leaders to lead and object to eunuchs who do nothing. It is a delicate balance.

The Coalition Government is currently putting to a referendum the proposal that New Zealand extends its three-year electoral cycle to a four-year one, thereby extending the dictatorship and weakening a key mechanism which holds our politicians accountable.

The ACT party has reservations about this power increase and suggested that we should support the four-year term if there are more checks and balances. Theirs was a grudging concession along the lines that if electoral accountability is reduced, parliament would make minor changes to strengthen the checks and balances. It has since withdrawn it; ACT has offered no alternative.

Surely the change should be the other way round. Politicians would acknowledge that the checks and balances on the executive are weak and need strengthening. They would make changes to increase their accountability. Having done this, they would then ask for a four-year electoral term.

As Trump and Kennedy demonstrate, the likelihood of politicians reducing their power belongs to the ‘yeah right’ basket.

* Another parallel with the Sun King is that Trump appears to have similar golden tastes redecorating the White House.

Appendix: Some Ways to Strengthen Accountability

1. ‘Officers of Parliament’ – the Auditor General, the Commissioner for the Environment and the Ombudsman (who is also Official Information Officer) – have accountability roles similar to MPs but with more resources and expertise. There are others with similar roles – a list is here – but because they are based in government agencies and subject to them, they are less able to hold the executive to account. They should be made officers of parliament.

2. Properly fund the Ombudsman’s office so that challenges to the executive’s Official Information restrictive decisions can be dealt with more quickly.

3. Strengthen the ability of select committees to challenge the executive. (The ACT proposal attempted to do this.)

4. Make the public accounts more transparent so they make using them for accountability easier.

5. Reduce the power of parties relative to voters by having list MPs appointed to Parliament on the basis of those who obtained the most electorate votes but did not win their seats, thereby increasing the independence of MPs. (Like the way Samoa tops up the number of women MPs.)

6. Further limit the power of those with finance to fund parties.

7. Make political lobbying more transparent.

8. Give local authorities more independence (which also means more financial independence).

What are the economic and political implications if the New Zealand economy stagnates for five and more years?

Prime Minister Christopher Luxon told Morning Report that ‘We’ve got the worst recession* we have had in 30 years’. (Observe, he could have said ‘since the Rogernomics Stagnation which finished 30 years ago’, but some things may not be mentioned in public.)

One takes it that he is referring to assessments like Treasury’s 2025 Budget Economic and Fiscal Update which reports a three-year downturn from September Quarter 2022 ; although my impression is that everyone has become even gloomier since May. Treasury then did not expect the economy to reach the September 2022 per capita level again until September 2027 (a year after the next election). Treasury expected the decline to bottom out about now. But the return to growth is slow and if the Treasury is right, the economy will grow at about its earlier rate, with a track about 8 percent lower than in the past. That would mean it has lost about five years of economic growth in this ‘recession’. We are not having a business cycle fluctuation.

One can fiddle around with these figures, but the basic story would remain unchanged. Luxon is talking about a long recession; although he does not give an explanation as to why it is happening. (He mentions ‘the Covid hangover with all the extra spending’ but that simply brings the ‘recession’ forward; it changes neither its shape nor existence.) His promise to ‘fix the economy’ is without much explanation either. As my In Open Seas observed, trying to fix something without understanding what went wrong is a common approach in New Zealand.

There have been five great stagnations in the last 160-odd years. Excluding the Rogernomics one, which was unique to New Zealand and probably reflected policy incompetence, the other four were all associated with global stagnations, although excessive borrowing may have intensified the experience here. It turns out that currently most of the countries whose macroeconomics I monitor closely – America, Britain, China, the European Union, France, Germany, Japan, Russia – are struggling (as are many others). Germany, for instance, is beset with a recession and a not very robust governing coalition. (Holger Schmieding, chief economist of Berenberg, a German bank, said that the German premier, Friedrich Merz ‘is not an experienced politician, he acts more like a CEO’.)

Their difficulties could be – like New Zealand’s – attributed to the post-Covid unwinding compounded by the chaos that Trump’s tariff warfare is adding to the world economy, perhaps most by adding to decision-making uncertainty.

(A caution. We are only three years into this ‘recession’. While that makes it longer than a conventional business cycle. Treasury does not think it will last as long as our great stagnations.)

Observe that some economies currently in ‘recession’ were struggling before the Covid pandemic (in a way that New Zealand was not), tempting one to dismiss Covid as the underlying cause of the current difficulties but compounding them. What are those underlying processes?

First, leave aside China, whose astonishing growth phase seems to have come to an end. I am reminded of what happened to Japan, which also had an impressive growth burst which flattened out, leaving its economy struggling for decades. Warring Russia is also obviously a special case. The remainder are affluent economies.

I have discussed whether they are suffering secular stagnation. I shan’t go through the details; you can see them here and here. What is critical is that while affluent economies and their societies continue to evolve, it may be a different evolution from that with which we are familiar in the last two centuries.

So different that we are struggling to explain exactly what is happening. We need much more experience and data to be confident in our analysis. On the other hand, uncomprehending nostalgia tends to invoke the unthinking inertia of using a paradigm of the past. I am afraid that is what I hear from Luxon. I do not have a lot of respect for the policy thinking (if any) of the Ardern-Hipkins Government – and I have yet to be convinced that Labour in opposition is any better – but I credit them with trying to cope with evolving New Zealand even if they could not explain this to themselves.

Luxon campaigned on ‘back on track’ which was a return to the policies of the past with little recognition that things were changing. – not only in the economy. Morning Report headlined that he claimed that his government’s ‘policies were working to fix economy, raise living standards’, although how he was proposing to do so either does not appear to have been covered in the interview.

Obviously improving infrastructure, making regulation more effective and increasing trade opportunities are worthwhile, but they are not particularly related to the ‘recession’. (We may argue over increasing exploitation of depletables, as is Shane Jones’, ambition, but again the approach is not particularly about the ‘recession’.)  None explain why the ‘recession’ began in the early 2020s.

Luxon appears to be assessing the issue as being one of growth of GDP – the measure of market output – rather than wellbeing. Increased GDP is a goal welcomed by business because it increases profits – a lot of businesses are struggling at the moment. Moreover, increased GDP is associated with increased tax revenue, although it will also increase the need for additional public spending because of its downsides. Whether there is a net gain depends upon the degree to which the government responds to these expenditure pressures.

Indeed, the Coalition Government has reduced its commitment to the arts and culture, the environment (including reducing carbon emissions) and to public health, matters which the public will judge them on.

That political judgment occurs in just over a year’s time in the 2026 General Election. The indications are that the state of the economy – say, measured by the unemployment rate – will be a little bit worse than it was at the 2023 election but prospects may be improving, whereas in 2023 they were looking dimmer (and were made even dimmer by some of the actions the Coalition Government undertook).

However, the role of the economy in the election campaign may depend on the Labour Opposition – I doubt that a capital gains tax will be decisive either way, except perhaps to stiffen loyalists in either camp. Events over the next 12 months are likely to be more important. Key ones may be unpredictable. Ability to manage coalitions may be critical.

Even so, trying to understand and respond to our long recession will almost certainly involve our adapting overseas analysis for New Zealand’s unique circumstances. The affluent world may be entering on ‘secular stagnation’ as assessed by GDP. If so, we probably cannot avoid that fate either.

* Recession has various economic meanings. Traditionally, it referred to a particular stage in the business cycle but when the cyclical downturn is stretched out beyond the normal length it becomes something else, often called a ‘long recession’ (as occurred after the GFC) which may morph into a long stagnation (it did not in the case of the GFC). I have put recession in quotation marks to emphasis that Luxon and all are talking about a long recession where traditional business cycle analysis may not apply.

A physician’s memoir describing a successful research program leads to pondering about research funding strategies.

A few years back, I was, in effect, commissioned to review the development possibilities of a local biotech industry, especially one for creating new pharmaceuticals. At the time, it was fashionable in every regional plan – anywhere in the world – to claim that local prospects of developing an innovating biotech industry were high.

From my reading I concluded that the United States did not have a biotech industry. Rather, a dozen of its large urban centres had one and everywhere else hardly mattered. That was because the industry had to function in a deep, skilled-labour market with numerous medical centres and tertiary educational institutions, and a variety of specialist ancillary services such as precision assaying (measurement) and patent lawyers. Smaller centres would not have enough work to support the specialisation. (The technical term is ‘economies of agglomeration’; they are central to economic development as my Globalisation and the Wealth of Nations explains.)

The population of the smallest of the US biotech centres was larger than Auckland, although if Hamilton was added it just exceeded the threshold (especially given the expertise in Ruakura). That led me to argue that good linkages between the two centres were vital – we are getting there – and it seemed likely we could further enhance the potential ‘size’ of greater Auckland by improving its connections with the rest of New Zealand. (At the time, the expertise for maintaining high air quality was in Wellington, a short air trip or overnight shipping away; broadband was to come.)

Even so, the biotech industry has not thrived as much as was hoped. My guess is that there has not been enough private venture capital to fund the development of a biotech industry which has a high rate of failure, while the government was unwilling to fill the gap. I moved on to other issues.

Reading Eric Espiner’s A Physician’s Journey: Chasing Hormones You Never Knew You Had, and Why You Need Them prompted a return. (A warning. The book is not an easy read; its target audience is those very familiar with general medicine. This layman struggled to keep up.)

Hormones (their study is called ‘endocrinology’) are one of a body’s signalling devices in which molecules flow between glands and organs which react to their signals. The known number is 75, but more will be discovered. Most people know of a handful – adrenalin, cortisol, dopamine, growth hormone, insulin, melatonin, oxytocin, oestrogen, testosterone … – and a handful of the glands which produce them – ovaries, pancreas, pituitary, testes, thyroid …

To my surprise, even the heart secretes hormones. (On reflection, I shouldn’t be surprised at anything in endocrinology.) In between his clinical duties as a hospital physician, Espiner (and his team) was a pioneer in the study of one of three hormones the heart secretes: the C-type natriuretic peptide (CNP), which plays a crucial role in regulating various bodily functions, including cardiovascular homeostasis, bone growth, and neuronal function. (I am afraid you’ll have to look up elsewhere if you want more detail; I don’t trust myself.)

This internationally pioneering research was based in Christchurch. It occurred, serendipitously perhaps, because, like Espiner, Don Beaven was a Christchurch boy, who established what is now known as the Don Beaven Medical Unit. His interest was diabetes, where he developed a world class reputation and he recruited to his medical unit endocrinologists in training such as Espiner. The unit was not just an isolated part of the University of Otago. It drew on other local institutions: the Canterbury hospital system, the Canterbury Research Foundation (which Beaven helped found), Lincoln University (a lot of the experimental work was done on sheep) and the University of Canterbury science faculty. It had good connections with other international centres of excellence; as well as the professional interchange, they used the Christchurch team to do some of their assaying.

Such a centre of excellence does not make Christchurch a biotech centre comparable to the American dozen. It is a reminder that centres of excellence can exist in just about any city. It is also a reminder that public policy has to be flexible. Who would have guessed that such pioneering medical research would arise in Christchurch? (There is other excellent research being done outside Auckland. The Dunedin Multidisciplinary Health and Development Study has recently celebrated its fiftieth anniversary to international accolades.)

I am not convinced that our approach to public research has been responsive enough. Espiner grumbles about the time he wasted making abortive research grant applications. (The Canterbury Medical Research Foundation could only make a small contribution but what it did was invaluable.)

I know of a lot of other quality researchers with similar grumbles. It’s partly the funding shortage, but also – in my experience – the way the research funding selection boards tend to favour the fashionable and the conventional; moreover they tend to support projects rather than programs in centres of excellence. The failure applies to the social sciences as well as the natural sciences. You would have to be Trumpish brain-dead to support the Ministry of Culture and Heritage’s abandoning Te Ara, Aotearoa New Zealand’s world-leading electronic encyclopaedia.

What about commercialising the research by a patent which produces something which could be sold, thereby paying a royalty? That was the background to my original investigation. Create a new medical drug and one can end up with zillions; the fashion did not notice that only a trivial number of chemicals investigated got as far as commercial use (which was why venture capital is so important). Espiner describes the difficulties patenting their findings – patent lawyers were hard to find in New Zealand – but ultimately there was no commercial firm that could see how it could make a profit from them; eventually the patents were dropped because of the expense of maintaining them. The intellectual property is available free to all endocrinologists and their patients.

That is characteristic of a lot of research. The findings may be immensely valuable but they cannot be commercialised. Einstein was working in the Swiss patent office during his 1905 annus mirabilis when he published four groundbreaking papers, including one which was foundational in quantum mechanics while another was his special theory of relativity. He could not take patents out on any of them.

Focusing public funding on commercialisable research – that which contributes directly to GDP rather than wellbeing – is very short term and, probably, not very rewarding. Some might conclude that we should abandon public research funding altogether (aside from some obvious exceptions such as into potential geological disasters). But that is thinking around the wrong way.

The work of Espiner, Beaven and their colleagues was vital for importing frontier endocrinology into New Zealand. Because they were doing quality research this transfer of international knowledge was more effective. That some research was pioneering increased the effectiveness of their interactions with overseas colleagues and the transferring of their findings here. The learnings from Christchurch flowed into endocrinology practice throughout New Zealand. We all benefited.

What can Econ101 tell us about Trump’s tariffs?

Before reviewing the economics of tariffs as indirect taxes, here is a brief account of their constitutional role. In particular, in some jurisdictions, including New Zealand, taxes and therefore tariffs are the preserve of Parliament, not that of the executive or kings. England’s civil war is complicated – wars always are – but one factor was that King Charles I was raising taxes without the approval of Parliament. The issue was eventually settled in the 1689 Bill of Rights – now a part of New Zealand law – which clearly states that only Parliament can raise taxes. One factor in the American colonists’ revolt against Britain a century later was ‘no taxation without representation’, which is enshrined in their constitution in its first article.

It is true that sometimes Parliament or the US Congress gives the executive the power to raises some taxes in an emergency but that power is usually for circumscribed situations. President Trump has claimed that such situations give him the power to raise tariffs. One American court has ruled that the increases are not legal, although reverting tariffs back to the pre-Trump levels has been suspended until the US Supreme Court makes a ruling. There is a view that the Court will back down on the constitutional principle as fast as Taco Trump always chickens out.

It is necessary to go through this because it is not certain that the Trump-imposed tariffs are firmly in place, adding to the uncertainty that the world economy faces. This column is going to assume that the Trump tariffs are permanent – until the times do alter.

It is a routine Econ101 exercise to distinguish between the apparent incidence of an indirect tax – who pays it – and the actual incidence – who ultimately pays it. Excise duty on beer is paid by the brewery to the government, but they then pass the tax on in higher prices to the drinker who bears (most of) the burden of the excise hike. I have said ‘most of’ because consumers may reduce their consumption and that will affect the brewers’ profit. As the Econ101 student learns, this balance between the suppliers’ burden and consumer’s burden depends upon the elasticities (responsiveness) of supply and demand.

Trump wants to have it both ways. Part of his rhetoric is that the burden of his tariffs will be borne by the exporters, as a punishment for their country running a trade surplus with the US or for its (alleged) political misdemeanours. In which case, US consumers will not face price rises. Another part of his rhetoric is that it will stimulate competing US production, but that requires US consumers to face higher prices so that the US producers find it more profitable to increase supply.

Both will happen to some degree. The conventional wisdom is that most of the burden of Trump’s tariffs will be pushed onto consumers. The expected price hikes are only dribbling through because exporters and those purchasing from them are uncertain as to how long the tariffs will apply.

Given the complexity of Trump’s tariff changes it is difficult to assess their quantitative impact, especially over time. Among the educated guesses is that the impact on output in the long run may be small – a reduction in output of much less than 1 percent. It will be even smaller in the short run. There is a view that the distributional changes will be larger than the aggregate output changes. In particular, it is argued that the working class – who tended to vote for Trump – will be hit most heavily. The tariffs will contribute to government revenue (although not sufficiently to cover the deficit form the ‘Big beautiful bill’).

Trump’s tariffs may contract the world economy. The uncertainty of it all is probably its greatest difficulty the world currently faces. If you export to the US, do you start looking for alternative markets? If you are a US producer do you invest to expand production? The additional output will take time to come on stream and by then the tariffs may be wound back. Better at the moment to tai hoa. Thus, we may see extra US inflation which will affect US – and hence the world’s – monetary policy with some fall-off in demand. Trump prides himself on his ‘weaving’; his negotiating strategy is based on the uncertainty it generates. What this ignores is that businesses (generally) want as much political certainty as possible; it’s hard enough dealing with market uncertainty.

(The analysis is further complicated by what happens to the US dollar; it has fallen relative to the US’s trading partners since Trump became president – but no further than the level it was during the last two Biden years.)

The analysis of tariffs compared to other indirect taxes is complicated by only some suppliers being taxed. Think what would happen if only North Island brewers, say, were levied excise duties. It would be even more complicated if North Islanders north of the Bombay Hills were levied differently from those to their south. That is why every country wants to get the tariffs it pays to the US down. They are put at a competitive disadvantage relative to those countries where Trump has imposed lower rates.

Moreover, unlike in much of Econ101, external suppliers can look for alternative markets. After all, across the board the US only absorbs about 10 percent of the world’s exports even if it produces about 18 percent of the world’s output. (Large ‘generalist’ economies tend to export relatively less than small specialist ones; we don’t classify a sale of a New York-made product to California as an export.) The likelihood is that proportion will be even smaller in the future.

As an economist, I am enthralled by Trump’s tariff experiments; it allows us to test theories and measure magnitudes. As a citizen of the world, I am appalled.

The Government’s Growth Strategy Seems to Have Little Analytic Content.

In 1990, the Prime Minister, Geoffrey Palmer, announced that he would halve unemployment – its rate was then more than 7 percent of the labour force. An OIA request turned up no technical papers. Apparently, the PM’s political advisers – jock wankers/politicos – thought the aspiration would go down well with the public.

More recently, the Minister of Workplace Relations, Brooke van Velden, presented a ‘Health and Safety Reform Construction announcement’ which proved to be, according to one exasperated journalist, ‘an announcement of an announcement you hope to make later in the year once you know what it is you’re announcing’. As the minister explained, her non-announcement (about the regulation of scaffolding) was ‘because people are really excited about this stuff. You should put it up on your website and see what response you get.’ Aspiration without content.

As Jonathan Milne in Newsroom newsletter commented:

Banning cellphones in schools when schools already had their own policies restricting cellphone use. Setting up a road cone tip line, inviting people to dob in excessive cone use. Banning gang patches. Banning voters from enrolling in the last 13 days before polling day. They’re striking initiatives, guaranteed headlines and social media clicks. But what they have in common is the dearth of actual evidence behind them. They’re dreamed up in party-political strategy brainstorming sessions. There’s little reference to the subject specialists in the public service; there’s no prior consultation with the wider public and those who are affected.

An earlier, and perhaps more portentous, initiative was Christopher Luxon’s announcement that he was leading an ‘economic growth’ government.

Presumably he and his political advisers saw that the public thought the Luxon-led Government was drifting. (This is January 2025.) How could they seize the initiative? Economic growth was their suggestion, which Luxon adopted. But how to add content to the narrative? Cough, cough. ‘We’ll make Nicola Willis the minister for economic growth.’ As far as the politicos were concerned, the problem was solved. What was the analytic content?

Appointing Willis as Minister of Economic Development placed her in charge of the large amorphous department, Ministry of Business, Innovation and Employment, which had been created by Stephen Joyce in what was seen as a power grab. (It appears to have been partly to demote the previous minister, Melissa Lee, out of cabinet; I leave the politics to others.)

MBIE is really a ministry of miscellaneous economic affairs, with (over half the cabinet ministers holding or sharing its portfolios). It is not thought to function well and needs to get its various divisions to work better together. Handing it over to the Minister of Finance, who usually has enough on their plate, is odd. (Willis is also Minister of Social Investment.) In principle she is more powerful than Joyce ever was. I am surprised that there was no one else in cabinet to take the job.

Willis has not made much of a mark. She is in the public eye for trying to increase competition in the supermarket sector and reduce the price of butter, hardly matters central to the finance or development portfolios. David Cunliffe, when a junior minister in the Clark-Cullen Labour Government, was charged with increasing competition in the telecommunications industry (and got it right). Minister of Finance Michael Cullen told me he was right behind him, but the leg work was by the more junior minister. Willis is out front.

It is hard to see that the announcement has had much effect other than the ministerial reshuffle. The key ministers driving the government’s economic growth agenda are Chris Bishop, Shane Jones and David Seymour. The first two ministers are doing much as you would expect – improving infrastructure and exploiting resources. (Perhaps add Todd McLay, minister of trade negotiations, since thrust from the external sector is vital.)

Seymour’s involvement reflects a changing perception, here and overseas, of the determinants of economic growth. Economic theory has tended to downplay transaction costs – they are so difficult analytically. There are some Nobel laureates for transaction costs – notably Ronald Coase and Oliver Williamson – but there is little connecting their work to economic growth.

There has been recently an increasing focus on how transaction costs from public sector procedures are limiting economic growth. (Not a lot of attention is given to private sector transaction costs, which might suggest there is a whiff of neoliberal economics in the thinking.) There are a number of other ministers and ministries – over half a dozen on my count – who are also addressing regulatory standards. The most prominent, which does not mean the most effective, is Seymour’s Ministry of Regulation. In principle, its concern is improving the quality of public regulation. Sometimes the impression is that it is adding to the regulatory burden, as in the case of the Regulatory Standards Bill.

Of course, reducing the regulatory process may be a good thing if the resources it releases get usefully deployed elsewhere. But the gains are likely to be small in terms of GDP and not affect the growth rate. On the other hand, too little regulation can be a disaster. The reductions of building regulation led to the tragedy of leaky buildings, estimated to cost the housing sector alone between $11b and $33b plus a lot of heartache and some deaths.

I am not unsympathetic to the argument that some of our regulatory processes are unnecessarily burdensome and could be simplified. (I’ll address their impact on economic growth shortly.) But regulations serve other – often valid – purposes.

The most common justification is ‘market failure’ when unregulated market transactions damage GDP (as in the case of leaky buildings). Two others are often overlooked.

One is that where economic output is not the same as wellbeing, an intervention may shift economic activity towards higher wellbeing, albeit at the cost of depressing GDP. For instance, most healthcare interventions cannot be justified in terms of enhancing GDP but they add to longevity and the quality of life. Cut them back and since people will experience poorer health and die earlier, GDP per capita will go up.

Second, regulation usually has a distributional impact. In simple terms there are winners and losers. Changing regulation changes the balance between them. Abolishing them can abolish some people’s implicit property rights. For instance, some of the environmental regulations give the public, collectively, entitlements to environmental resources which they do not privately own. The effect of the Regulatory Standards Bill is to prioritise explicit private property rights over implicit ones. (The bill would be a better if it made this trade-off more explicit by requiring the reviewing process to identify them.)

I have long been looking at whether regulatory changes affect New Zealand’s economic growth rate. There have been constant promises to improve the growth rate, but there is not the slightest evidence that anyone has succeeded. (By ‘slightest’, I mean within the known margins of measurement error – say plus/minus 0.2 percent p.a.) I concluded that good economic policies keep the boat moving forward but no faster.

That was especially true with the major changes to regulation implemented by the Rogernomes. I had expected there would be gains and tried so hard to find them; I could find none. (I found some improvements in the ‘quality’ of output which are not incorporated in the measurement of GDP.)

Given the way the economy is tracking, I shan’t be surprised if per capita GDP is much the same at the time of the next election as it was when Luxon announced that economic growth was the government strategy (the level will be lower than it was in late 2022). Probably output will be moving up in late 2026 after stagnating this year. No doubt there will be confusion between a cyclical recovery and sustainable growth; a common mistake which politicians in charge like to encourage.

The Luxon-led Government’s political advisers may well be looking for a new slogan. At the National Party conference, he announced that the New Zealand economy was ‘turning the corner’. One is reminded of Muldoon’s announcement of there being a ‘light at the end of the tunnel’. It proved to be a train coming the other way. We don’t know what is around the corner. 

Angus Deaton’s ‘Economics in America’ challenges the direction that economics has taken.

In 2015 Angus Deaton was the sole awardee of the Bank of Sweden’s Prize in Honour of Alfred Nobel, for his contributions in the study of ‘consumption, poverty and welfare’. (It has been relatively rare for this Nobel to recognise poverty or welfare; nowadays the award covers a slightly wider remit than just economics.) The Royal Swedish Academy of Sciences, which makes the award, said that ‘more than anyone else, Angus Deaton has enhanced this [understanding of economic policy intended to reduce poverty]. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics’.

Deaton described himself as ‘someone who’s concerned with the poor of the world and how people behave, and what gives them a good life’. His Deaths of Disease and the Future of Capitalism, which he coauthored with his wife Anne Case, illustrates both his concerns and how innovative he (they) can be.

He grew up in Scotland, going to Cambridge University where he graduated with a doctorate. Forty years ago he took up a chair at Princeton University near New York. Thus he is both an immigrant and well embedded in American life, which is a good place from which to provide an insight into the state of economics and US, as his memoir Economics in America: An Immigrant Economist Explores the Land of Inequality well illustrates. (If you think ‘civilised economist’ is an oxymoron, you have not read this book.)

Of course, American economics is not the whole of economics, but some 71 of the 93 Nobel laureates were born in the US, and a goodly number of the remainder spent most of their working lives at American universities; American economics dominates the economics profession.

Deaton reports that when he shifted to the United States from England, he was struck by how little attention was paid by American economists to distributional economics, which perforce means by the economics profession as a whole. I won’t say he has trod a lonely path, but certainly it has been the path less trodden.

For example, some years ago, I was looking at some New Zealand research which was trying to estimate the gains from reducing border protection. The assumptions in the model ensured there would be gains; at issue was how much? The research concluded that they would amount to an increase of about 0.3% of output. What the research did not notice was that the changing shape of the economy had real wages falling by about 5% amd profits correspondingly rising, which meant that the distributional impact of the proposed policy change was far greater than the gain in efficiency. The winners gains from the redistribution far exceeded the gains from greater allocative efficiency. 

I am not arguing these figures were correct. The point here is that the researcher did not notice the distributional implications of the research. Had I raised it with him, I would have been dismissed by the argument that workers could be compensated for their loss of income, but there would have been no consequent discussion of how the compensation would be implemented – that would involve raising taxes.

That is the story of much public discussion about the economy since. Lots of attention to efficiency gains – which are often quite small (and promised rather than measured) – and no attention to distributional impacts, which can be quite large. I often observe advocacy based upon efficiency gains – promised but not measured – without any attention to the effects on equity. Surprise, surprise; the advocate would be one of the beneficiaries from the gain. Even less surprising, the change is resisted – to the incomprehension of advocates – by those who will be made worse off; advocates attribute it to ‘politics’ (which they pretend to be above). Distributional economics is one of the most complex and difficult parts of economics, but that is no excuse for ignoring it, especially if the analysis is about policy.

Take, as but one example, the Regulatory Standards Bill and let us assume the charitable interpretation that its purpose is to provide a more systematic review of a regulation when it is being introduced. I would have thought that any systematic review would identify winners and losers but there is hardly any reference to that in the proposal. The exception is that a review is required to identify the losses (but not the gains) of those with property rights – commercial capital. One might have expected a similar provision for losses for those with human capital – their earnings. On that the bill is silent. (Even that addition would not cover wider distributional issues such as the degree of income and social inequality and poverty.)

Such criticisms are not peculiar to New Zealand; much of our economic debate echoes that in the US and elsewhere. That is what Deaton is challenging in public policy, area after public area, including health economics, which combines distributional issues with challenging technical ones. Deaton points out that while the healthcare sector consumes about 15 percent of US output (less in New Zealand), there are comparatively few health economists, and they generally have lower status (also true in New Zealand).

Deaton is not a minor economist. Among his recognitions are that he holds a prestigious economics chair at Princeton University, which is globally ranked among ten universities for economics and econometrics (most of them are American). He has been elected president of the American Economic Association. Deaton is an insider writing from the inside.

A great autobiographical memoir describes a journey through life, its vistas changing. Last year, Deaton wrote that he had changed his mind on large parts of the mainstream economics he had previously supported. While acknowledging that economics had achieved much, he concluded, that economists’ mistakes showed how ‘economists could benefit by greater engagement with the ideas of philosophers, historians, and sociologists, just as Adam Smith once did.’

The final chapter of his memoir, entitled ‘Is Economic Failure a Failure of Economics?’ is as an impassioned and informed essay on the state of economics as I have come across for some time – Keynes would have been proud to have written it. It is so dense, balanced and thoughtful that any paraphrase would be inadequate. I suggest you sneak into your local (good) bookshop and begin reading it. I bet you buy the book.

Winning office is not the same as achieving change.

A recent Economist columnist divided politicians and their political advisers into either ‘jock wankers’ or ‘nerd wankers’. It’s a distinction which I use here, but with the less pejorative ‘politicos’ and ‘policy wonks’.

In opposition, the politicos are primarily concerned with getting their party elected; in government their concern is maintaining party support to get the government reelected. The Economist recalls ‘a period of swaggering jocks, charming or bollocking journalists until they wrote something nice about Sir Tony Blair’.

The policy wonks are concerned about the development of effective policy. Of course there is overlap between the two but it is characteristic of the politicos to be concerned about articulating (often poorly defined) policy goals which sound plausible but are not implementable. Think of boot camps for which there is no evidence of their effectiveness – let alone cost effectiveness – but resonate with the public and so win votes. How many policy proposals of this government – indeed of every incoming government – are on the list of such examples?

Very often the politicos have studied politics at university and pop up in advisory positions to incumbent politicians. There are lots of good reasons for studying political processes but, alas, understanding how policy is made is not one of them in New Zealand. In principle, one can take policy studies courses, but my impression is they don’t contain enough gritty case studies – the devil is in the detail.

A salient example of the approach of ‘politicos’ is Elon Musk who having helped Trump get elected, wanted to downsize the US government. Even if we ignore his exaggerated promises typical of the Trump administration, his attempts were a failure because he had no understanding of how the bureaucracy worked; the outcome has been damage followed by (often ineffective) damage control.

The distinction is useful to understand the ‘paradox of Jacinda’. Ardern with a degree in communications and politics and an adult life spent in politics, was a prime minister who was superb in her first term to the extent that her party won a majority of seats in the election at its end. But in the second term, it lost support to the point that she retired early and her party was electorally demolished.

A common trope is that her loss of popularity was because she was a woman, but that has not applied to the same degree to Jenny Shipley, Helen Clark or Judith Collins. The Economist dichotomy provides useful insights, although it is not a perfect fit.

As signalled by the title of her memoir, A Different Kind of Leadership, Ardern saw herself as a leader, skills greatly required in her first term during a number of crises, notably the Covid pandemic and the mosque massacres. (I just marvelled at her handling of the latter, although it is likely that Bill English, say, would have done as well leading during the brunt of the pandemic.)

Her Labour Government could excuse itself for not having much policy during its first term because it was generally quite unprepared for winning the 2017 election. A few – very few – ministers were prepared but their achievements did not amount to an overall direction. Ardern promised ‘transformation’ but that was aspiration without content.

Fortunately for her, and for her Labour Government, the first term was riddled with issues where leadership was vital; Ardern handled them well. Hence the election of a majority Labour Government in 2020. Now was the time for policy which would lead to the promised transformation.

It did not happen. It was not so much that the government was unprepared for policy changes but there was no coherence in the overall direction and some, especially the penchant for centralisation, were in the wrong direction. I have detailed this in my book In Open Seas.

Ultimate responsibility rests with Ardern and her Minister of Finance, Grant Robertson. They may be contrasted with their predecessors, Helen Clark and Michael Cullen, both of whom were policy wonks. (That I give them this attribute does not mean I support all their directions. I have various hesitations with Clark; Cullen I am more comfortable with. Bill English was a policy wonk too; Key was not, as his abortive attempt to change the flag demonstrates – his role was political leadership.)

It is instructive that Ardern’s policy achievement with the greatest transformational potential was the 2018 Child Poverty Reduction Act which gets little mention in her memoir (see my Chapter 22). Arden was not the policy wonk to implement its strategy; she largely employed advisers like her. They were rich with goodwill towards the ambition, but they did not understand the technical issues – the devil is in the detail. The act became aspirational and has achieved little.

I puzzle over Robertson. He too was a politics graduate but had more experience outside the political system. (I am not judging his macroeconomic management here.) In the end I conclude he was not a policy wonk like Cullen or English. He too proposed a transformational policy, probably driven by work which began in Treasury even before English. But the promise to pursue wellbeing rather than output was never bedded in, despite it being, in my view, the economic approach of the future. (See my Chapter 2.) Instructively, it was hardly mentioned in Labour’s 2023 campaign (poverty reduction couldn’t be because there was hardly any). There was not the sort of dual leadership which characterised the Key-English Government.

Instructively, the current Luxon-led Government has wound back most of the Ardern-Hipkins legacies. It was partly because some were misconceived, but also because the current government has a quite different account of the economy and its future. They have yet to convince us it is forward looking.

Neither Christopher Luxon nor Nicola Willis are policy wonks, although some ministers are dealing with their portfolios more than competently. Luxon’s ‘going for growth’ strategy seems to have come from the politicos among his advisers. They are all sausage and no sizzle. Thus the increasing dismay of the public towards the government. Same happened to the recent Labour Government in its second term.

If there are any policy wonks near the current government, they may be advising ACT although they show little of the political judgement of politicos. 

It is too early to judge the efforts of the Opposition – whether Labour has learned from its failure in government. (It should read my book; even if I have it wrong it may stimulate them to get it less so.) Aotearoa New Zealand is going through a rapid social and economic transition but most of the public discussion is backward looking.

The choice between politicos and wonks is that the politicos are better at attaining and maintaining office, but their policy achievements are aspirational and rarely effective; policy wonks find it harder to get elected but when they are, they have the power to change. The Economist article is about getting the balance right.