Kiwi News and Views

The background to In Open Seas: How the New Zealand Labour Government Went Wrong:2017-2023

Not in Narrow Seas: The Economic History of Aotearoa New Zealand, published in 2020, proved more successful than either I or the publisher (VUP, now Te Herenga Waka University Press) expected. I had expected that it would be a sleeper, a steady seller which would eventually reshape the way we thought about our history and our country.

However, it sold well. The obvious next step was to update it. It was to be a more future-oriented book. I titled it In Open Seas to indicate that there were options as to where we might progress. Early on, I made the decision that its voice would be more personal, more reflective because it would include my judgements about those future options. I also decided to link it to Not in Narrow Seas by describing some of the challenges I had when I was writing the earlier book.

The initial theme was transformation, following Labour Prime Minister Jacinda Ardern’s statement that hers would be a ‘transformative’ government. I thought I could add a bit of intellectual weight to the underlying transformation using the background of the nation’s economic history. But it became evident that whatever its aspirations, the Ardern-Hipkins Government was not going to deliver on them. As it became increasingly obvious to the informed that many of Adern-Hipkins Government’s policies were suicidal, the book increasingly transformed into a critique. (This is not a book about its politics; others will write about that.) I added the subtitle: How the New Zealand Labour Government Went Wrong: 2017-2023. The critique is not always sympathetic: the Government’s behaviour sometimes forced me away from the more temperate tone of Not in Narrow Seas.

I completed the first draft of the book in July 2022, and then commenced the revision and updating. More material was added as the Ardern-Hipkins Government did not change its course. But I did not expect the Government, with its huge majority, would lose the October 2023 election. By the time I sent it to the publisher, their publishing program was already full for the rest of 2024. By 2025 events and policies will have moved on under the Luxon-led Coalition Government.

That meant the book, as conceived, was no longer contemporary enough. I looked at the possibility of revising the manuscript. It contains much useful material including setting out new direction and reporting on some policy failures. Some of it is so prospective that it will be beyond the comprehension of the conventional wisdom for some time. No matter. It took 40 years to recognise the significance of child poverty, damaging two generations of New Zealanders in the interim. Hopefully, the country will respond a little faster to some of the issues raised in In Open Seas.

However, the Coalition Government has embarked upon such a different direction that a total reconstruction was required. Better to start a new book.

What to do with the manuscript of In Open Seas? I could have stuffed it in a bottom drawer. But because there is so much valuable material I decided to publish it, as is, as an e-book. This is where it is available.

In doing so I have resisted the temptation to do yet another revision and updating. I hope that readers will forgive the book’s limitations. To have done more would have meant that In Open Seas would never have been published.

The book may provoke a less than mild reaction from some Labour loyalists. In a few years’ time they will realise that their government lost its direction. Rather than plodding on, they should take the standard advice for those lost in the bush.

Stop. Sit down and think.

Think carefully about how the situation arose.

Can you retrace your steps?

Gain some height to get a better perspective.

The aim of publishing this book is to help them do so. Even if its map is not perfect, I am confident it has some clues for a better path.

Those who are not Labour loyalists will also find the book useful, as they reflect that the Coalition Government’s ‘back on track’ is not taking them anywhere near where they want to go. We really do need a fundamental rethink about the future path of Aotearoa New Zealand. I hope this book – and my future writings – contribute to the rethink.

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The final section of In Open Seas, called ‘sailing in a new direction’, provides a chapter-by-chapter synopsis.

1. About the Author: Hello! The study argues for a Rawlsian framework for public policy, which evaluates it on the basis of the benefit to those at the bottom of society.

2. Wellbeing: We need to refocus from our obsession with measures of material output, such as GDP, towards wellbeing, despite this being a more complex notion.

3. To Market, To Market: Markets are a very powerful means of coordination in a complex affluent economy. But they need to be regulated in order to work most effectively for enhancing wellbeing.

4. Economic and Social Development: Economic growth, say as measured by GDP, is not the same as economic and social development, the way that a society evolves. A major contribution to either is technological change, which is neither inherently good nor bad, but usually has to be regulated to promote wellbeing. The origin of most technological change is overseas and it has to be adapted for New Zealand. We overrate our ability to accelerate economic growth. We have more influence over the patterns of development.

5. The Environment: The environment is an integral part of economic growth and wellbeing. We should be aiming for it to be as sustainable as possible.

6. Overpowering Markets: Are markets overpowering our lives? Will we end up valuing everything in dollar terms rather than human ones?

7. Is the Rich World Going Into Secular Stagnation? Whether or not the world (and New Zealand economy) is entering a period of long-term stagnation or slower growth, the following need to be addressed:

 avoiding stressful unemployment;

 lifting the relative incomes of those at the bottom;

 improving the quality of life;

 improving safety;

 increasing opportunity enabling the achievement of capabilities;

 promoting sustainability.

8. The International Order: While throughout New Zealand’s past history the international order has been dominated by one of two hegemons – Britain and the US – or the transition between them, the future is likely to be a multipolar world. Even if it is a bipolar international order, New Zealand will have to tread a narrow path on economic, security and cultural issues between the great powers rather than relying on just one of them.

9. The Open Economy: Because it is small, the New Zealand economy will be a specialist one, concentrating on resource-based exports despite trying to diversify. It will have to maintain an open economic stance to the world, challenged by the reluctance of significant potential trading partners to open up their markets to pastoral imports or to even notice our existence.

10. Migration and Diversity: While there may not be more social diversity these days than in the past, it is certainly more publicly evident. That places a challenge on how to evolve a coherent nation. Tolerance is critical. An important source of diversity is immigration. It needs to be better organised and more strategic. Immigration will not solve the aging of the population. The age of entitlement for New Zealand Superannuation needs to rise in a planned, slow, transparent manner. The fiscal savings could be used to improve the healthcare of the frailist elderly.

11. Māori: The notion of being Māori has evolved. Today being Māori is primarily an ethnic or cultural matter rather than a descent (or racial) one (although whakapapa remains important). We should focus on the achievement story rather than the grievance story. Even so, most socioeconomic indicators of those who identify as Māori are lower than the national average. The gap is slowly closing. Because being Māori is evolving, it is difficult to forecast where they are going. It is critical though, that our thinking about Māori is not limited to keeping them in the past ignoring the changes, ignoring the achievements, ignoring their diversity.

12. Te Tiriti o Waitangi: There are many misunderstandings as how the treaty signed at Waitangi in 1840 came about and what the text contains. ‘Originalist’ interpretations can be rejected for any close historical/textual analysis. There was no common view of its intentions at the time of signing. Its meaning today arises from the dialogue which has subsequently occurred; it will evolve further.

13. Governing New Zealand: A modern social democracy depends upon an elected dictatorship. One way of understanding the paradox is to see it as founded on a social contract. Te Tiriti is such a social contract; that was the intention of at least one person involved in the drafting (it was not everyone’s intention).  New Zealand should continue to progress towards a republic, which is not so much about having a (distant) monarch or president as head of state, nor about the diminishing ties with Britain. It is about everyone having equal social status and value; a civil society in which supreme power is held by the people and which recognises the rights of minorities.

14. Centralised New Zealand: Those who signed Te Tiriti o Waitangi were thinking in terms of a minimalist state. Over the years New Zealand has become increasingly centralised. The pressures for increasing the powers of the centre continued. New Zealand should be less centralised, not only because the centralised state suffers from rigidity and is slow to innovate-, but because decentralisation and tolerance may be the only way for a liberal democracy to maintain coherence in the face of increasing expressions of diversity. Decentralisation is not only about giving individuals greater discretion in their decision making. It is also about encouraging the organic growth of social institutions to fill the hollow society. An important institution for decentralisation is local government.

15. Co-governance: Co-governance must be distinguished from partnership, self-government and co-management. Its origin and meaning is unclear. It does not come out of Te Tiriti o Waitangi.

16. Accountability: The government – the executive of Cabinet and the public service – of a liberal democracy is held accountable to the public by a number of mechanisms, only one of which is regular ‘free’ (i.e. independently run) elections. Many of the mechanisms exist in principle, but do not function well. Parliament holds the government to account very poorly. Among the changes to strengthen this function are:

 a greater recognition of importance of Parliament’s accountability responsibilities;

reducing political parties’ power over MPs chosen by the party list;

reducing the influence of political funding;

making Officers of Parliament those commissioners whose function is to hold the government account and who are currently within the executive they are meant to be monitoring

strengthening the Official Information Act (especially by better funding the parliamentary officer monitoring the OIA – the ombudsman).

 Until there is a considerable strengthening of the accountability mechanisms, the parliamentary term of three years should not be extended.

17. The Public Record: The maintenance of the public record is a key element of holding the government to account. The recent stewardship of the Department of Internal Affairs which is responsible for Archives New Zealand has ignored that central role in democracy. The Department’s record in regard to the National Library, for which it is also responsible, has also been disappointing. Both agencies need to be housed elsewhere. The Chief Archivist should be an Officer of Parliament.

18. Generic Management: New Zealand management is dominated by the cult of generic management, of managers who profess to be able to manage, but know little about the institutions they manage. In fact they do not manage very well, often reducing the professional capacity of their institutions. There is a need to shift to a new style of management which respects professional skills and the integrity of each organisation.

19. The Healthcare System: Often healthcare is poorly delivered by the market. That is why we need a publicly provided large and complex healthcare system with unified funding. The issue is not that its structure is wrong and we need another redisorganisation. Rather, it is managed badly with insufficient attention to patients and the people who treat them. It is typical that the last centralisation (redisorganisation) paid little attention to quality control and local accountability. Changing the balance between generic and professional management of the system is both the priority and, given the entrenchment of the incumbent managership, a great challenge.

20. Education and Science: The research and tertiary education sectors became dominated by a commercialisation philosophy when they meekly accepted the neoliberal restructuring of three decades ago. Consequently they have become top-heavy with generic managerialism and the resulting transaction costs. They have lost their purpose of contributing to New Zealand by maintaining the country near the international intellectual frontier.

21. Inequality: Distributional inequality is tricky; commentators often confuse different notions. Moreover, their focus tends to be on the existence of inequality, rather than why it occurs and how it has changed. The chapter explains some of these issues in preparation for the following chapter.

22. Poverty: The definition of poverty involves a social judgement. Mine follows from the 1972 Royal Commission on Social Security, which wanted a society in which people are able to feel a sense of participation in and belonging to the community – a very Rawlsian approach. In 1990 the approach was abandoned for the less generous standard of sufficiency to sustain life and health which has dominated social policy since. The vast majority of the poor are children and those who live with them. Poverty is not confined to any ethnicity. The effect of the 1990 ‘redesign of the welfare state’ was to double the number of children in relative poverty. The evidence is that in this new regime many people are below an adequate standard of living and are struggling, compromising their health and their future prospects. The implication of the 2018 Child Poverty Reduction Act with its objective to halve child poverty, thereby reversing the redistributional cuts of three decades earlier, was surely the most revolutionary ambition since the Rogernomics revolution. However, the Ardern-Hipkins Government failed to really pursue child poverty reduction, probably because it did not understand what it was doing.

23. Redistribution: Paying taxes is a part of citizenship. The wherewithal to pay the taxes arises from individuals being part of a community. They would have little income without the economy which the community creates. Rawlsians are left with the challenge of attaining adequate wellbeing for those at the bottom without compromising the economy and overall wellbeing. Fortunately wellbeing for most of the population is not particularly related to their material income. The current New Zealand system is neither efficient nor especially equitable.

24. Modernisation: Societies continually face shocks and change. Modernisation is the task of adapting and evolving its institutions to these new circumstances. The chapter illustrates this by reference to the changes which have happened since 1972 which require rethinking how the principles set out by the Royal Commission on Social Security need to be applied. These include the rise of married women in the paid workforce and the higher level of evident unemployment together with the inconsistency recognised by the Royal Commission between the Social Security System and the Accident Compensation System. New Zealand suffers from intellectual and policy inertia supported by sclerotic pressure groups with the consequence that it modernises slowly and badly.

25. Making Policy: Policy design is a discipline which should start off with a detailed specification of the problem followed by a careful analysis. However, it is common in New Zealand to decide on a policy solution and construct the justification for it based on selective anecdotes. That is why so much policy is badly designed and why the repeatedly amended botch jobs look so Heath-Robinson.

26. The Covid Crisis: This chapter describes the Covid crisis and the evolving policy response. It contributes to the lessons reported in the next chapter.

27. Climate Change Policy: The chapter uses the experiences of climate change policy (and the Covid crisis) to illustrate the critical conclusion that it is extremely hard to replace bad policies with good policies. We frequently imitate foreign practices failing to adapt to New Zealand-specific conditions. New Zealand’s contribution to global warming is insignificant and has been even further limited by imitating rather than adapting overseas thinking on climate change. New Zealand’s economic and social sustainability may have been compromised. The way we have measured emissions – on a production rather on a consumption basis – has shaped the way we think about the problem (Gilling’s Law), often to the detriment of New Zealand’s interests. We should be focussing more on the cloud than the emissions joining it. That suggests we should treat long-life and short-life emissions differently and reinforces the conclusion that we cannot rely upon forestry sequestration of carbon.

28. The Public Discourse: The public discourse depends upon truthiness rather than expertise, celebrities rather than experts, personal abuse rather than rationality, self-interest rather than independence. The low standards exist from the bottom of society right to the top.

29. Mañana New Zealand: Public policy is very much mañana, putting off making decisions until it is too late, without any anticipation of the future. Dornbusch’s law is that ‘a crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought’.

Epilogue: There is a sad tendency by the mediocre to try to isolate New Zealand from the world, instead of engaging with it.

An Infrastructure New Zealand report says we are keeping up with infrastructure better than we might have thought from the grumbling. But the challenge of providing for the future remains.

I was astonished to learn that the quantity of our infrastructure has been keeping up with economic growth. Your paper almost certainly has daily reports of inadequacies in the land transport system (not to mention your travel being delayed by congestion), the energy system, and hospital and school buildings while at least once a week it probably draws attention to a telecommunications breakdown or failures in the three waters systems (more often if you live in certain cities). Similar incidents for airports and seaports pop up too.

Grumbling aside, the economic history of New Zealand illustrates why these shortages happen. The international Great Depression of the early 1930s first hit New Zealand when public works laid off workers because there were no funds to pay them. During the Second World War resources were diverted from building infrastructure to fighting (thereby causing the electricity shortages with the blackouts of the early 1950s). When Robert Muldoon hit a fiscal crisis shortly after coming to office in 1975, he immediately cut public investment. In each case economic difficulties meant we shortened our investment horizon, focusing on the present at the cost of providing for the future. A decade later Rogernomics couldn’t work out how to commercialise some of the infrastructure – privatisation did not always work for roads, say – and left a muddle. This time commercialisation shortened the time horizons of investment.

Unfortunately, we have a statistical series for infrastructure only back to 1990 so I cannot turn the previous paragraph’s qualitative story into a quantitative one: the data series since has been based on Statistics New Zealand (SNZ) data and the analysis was provided by the Infrastructure New Zealand (INZ) (here). It shows infrastructure growing more slowly until about 1997, stagnating through to 2004, expanding to 2013 and then stagnating (keeping up with GDP growth) thereafter.

Before reporting the results, I need to say something about the measure which SNZ uses for all its capital stock estimates. It takes the value for assets in one year, adjusts them for inflation, depreciates them for wearing out, and adds in new investment.

The method of depreciation is tricky and may explain part of the almost paradoxical findings. I avoid the technical issue with an illustration. Recently a 132-year-old Wellington fresh-water pipe collapsed. The depreciation formula will value the still functioning pipe as zero. When it ruptures it will be replaced by a new one, the cost of which will be added to the value of the infrastructure. Presumably that will not affect the availability of the water to users (except for fewer interruptions). The new pipes’ contribution to GDP productivity is near zero.

The cost of extending infrastructure may not always be as productive as the existing infrastructure. Doubling a road width is likely to cost more than the original cost of the road. Sometimes it may be. The replacement of the copper wire network with the broadband one created possibilities which would have been beyond the ken of Alexander Bell.

Even so, the new infrastructure may add to human welfare without adding to material productivity. We benefit from less traffic congestion, children benefit if the classrooms are not damp, increasing earthquake resilience is of little value until one day the big one happens. 

These valuation issues may explain the increasing grumbling, despite the effort of infrastructure growth keeping up with economic growth. So I proceed cautiously, using the data to provide insights which are reasonably robust in these issues. I am going to the use capital to annual GDP provided by INZ as percentages. A constant percentage means infrastructure has been growing as fast as material output, a rising one that the capital stock is increasing faster than GDP. I compare 1990, the first year available, with 2022, the last year. I’ve summarised my investigations in the following table.

Infrastructure  Capital Relative to Annual GDP

Infrastructure Sector (Ownership) 1990 2022 Change

Road Transport (Public) 14.3% 18.6% 4.3%

Rail, Water, Air & Other Transport (Public) 2.3% 2.2% -0.1%

Public Administration & Safety (Public) 8.1% 8.7% 0.6%

Social Housing (Public) 7.9% 3.3% -4.6%

Other Public Capital (Public) 1.9% 2.8% 0.9%

Preschool & School Education Mixed88%) 9.5% 7.6% -1.9%

Tertiary Education (Mixed92%) 2.2% 4.5% 2.3%

Hospitals (Mixed91%) 5.3% 3.9% -1.4%

Water, Sewerage, Drainage & Waste Services (Mixed68%) 5.1% 9.2% 4.1%

Electricity & Gas Services (Commercial) 14.6% 12.9% -1.7%

Telecommunications Services (Commercial) 6.9% 5.7% -1.2%

TOTAL 78.1% 79.4% 1.3%

A warning about terminology. You’ll have to look up SNZ definitions to see what exactly each sector covers. Second, I have listed the sector ownership. ‘Commercial’ may be misleading for it includes publicly owned (or partially owned) trading enterprises (such as Meridian Energy, Genesis Energy and Mercury Energy). There is also mixed ownership (according to SNZ definitions) in some sectors – the number after the ‘mixed’ is the proportion of the infrastructure which is publicly owned. ‘Public’ includes both central and local government. (Phew! about definitions.)

What we see in the table is that infrastructural capital has grown slightly faster than GDP over the 32 years. When judging we should remember that, as hinted in the second paragraph, we may have had an infrastructural deficit in 1990. In which case we may not have caught up.

The interest in the table might be the change in the composition of the infrastructure. I was surprised that the three waters sector’s infrastructure has increased substantially, as has that of the land transport sector. That is not the impression that the grumbling gives. The infrastructure of the commercially owned sectors of electricity and telecommunications have increased more slowly than GDP. Each of these potential paradoxes needs to be investigated.

Less surprising is that social housing has decreased significantly given the policies towards it that governments have been pursuing. (There is no information here about the stock of privately owned housing.) The relative reduction in core education probably reflects slow growth in the age groups, but possibly also that school buildings are not being upgraded. On the other hand, tertiary education has been adding to its buildings.

The healthcare sector is more perplexing. Healthcare spending has been increasing relative to GDP, but the buildings and equipment they use have not.

I leave investigating these issues to others and other occasions. My point is that the INZ report Build or maintain? New Zealand’s infrastructure asset value, investment, and depreciation, 1990–2022 is a useful contribution to our understanding of the way the economy has been developing … and not developing.

It and the other work of INZ demonstrates that thinking systematically about infrastructure is vitally necessary for New Zealand’s development. The politicians agree and are prioritising it.

The Minister for Infrastructure, Chris Bishop, has just announced his government’s policy which includes an Infrastructure Commission to further embed the sector into the government system. Having set out the policy he said that it should be bi-partisan because it involved the long term. A bit like the Red Queen – policy first; consensus after? The other political parties were not amused. Perhaps the minister should involve them in establishing the membership of the new commission.

Hardly anyone says what are ‘the principles of the treaty’. The courts’ interpretation restrain the New Zealand Government. While they about protecting a particular community, those restraints apply equally to all community in a liberal democracy – including a single person.

Treaty principles were introduced into the governance of New Zealand by the Treaty of Waitangi Act 1975 whose purpose was ‘to determine whether certain matters are inconsistent with the principles of the Treaty.’ However, the Act did not state what those principles were.

The Court of Appeal had to define the principles in the case of New Zealand Māori Council v Attorney-General (1987) (a.k.a. the ‘Lands’ case or the ‘SOE’ case) because they are in the State-Owned Enterprises Act 1986. The judges did not codify their principles, but a common summary of their conclusions is:

The Crown has the right to govern. The principles of the treaty ‘do not authorise unreasonable restrictions on the right of a duly elected government to follow its chosen policy. Indeed, to try and shackle the Government unreasonably would itself be inconsistent with those principles’.

The Crown has a duty to act reasonably and in good faith. The relationship is ‘akin to partnership between the Crown and Māori people, and of its obligation on each side to act in good faith.’ The judgment draws parallels with ‘our partnership laws’.

The Crown has a duty to protect Māori interests. ‘The duty of the Crown was not just passive but extended to active protection of Māori people in the use of their lands and waters to the fullest extent practicable.’

The government should make informed decisions. The Court said that in order to act reasonably and in good faith, the government must make sure it was informed in making decisions relating to the treaty. That will ‘require some consultation’.

The Crown should remedy past grievances. ‘If the Waitangi Tribunal finds merit in a claim and recommends redress, the Crown should grant at least some form of redress, unless there are grounds justifying a reasonable Treaty partner in withholding it – which would be only in very special circumstances, if ever.’

Subsequently the Waitangi Tribunal endorsed these principles.

In 1989 the New Zealand government responded to the Court of Appeal with a set of principles. No subsequent government has modified them. They were:

The government has the right to govern and make laws. (The kāwanatanga principle)

Iwi have the right to organise as iwi, and, under the law, to control their resources as their own. (The rangatiratanga principle)

 All New Zealanders are equal before the law.

Both the government and iwi are obliged to accord each other reasonable cooperation on major issues of common concern.

The government is responsible for providing effective processes for the resolution of grievances in the expectation that reconciliation can occur.

As lawyers have pointed out, Article 3 of Te Tiriti applies to all New Zealanders. If the term ‘Māori’ is replaced by ‘New Zealander’ and the term ‘iwi’ by ‘voluntary associations’ the above principles are those intrinsic to the governance of a civilised liberal democracy.

 Suppose every Māori was to disappear (perhaps a virus wiped out everyone with a Māori gene). Which of these principles in its generalised form would become redundant? I hope none of them. While their effect is to restrain the government in its treatment of a particular group (Māori), in a liberal democracy those restraints apply equally to all – including the minority of one person. They are generally not platitudes; many hardly apply in Putin’s Russia.

The implication of Article 3 is that individual Māori do not have a special status. But do iwi, Māori collective institutions? (Because Māori have a right to develop, today’s ‘iwi’ covers not only the tribes which were their social organisations in 1840 but more recently evolved ones, such as the Māori Women’s Welfare League and the Māori Urban Authorities.)

Do the treaty principles give iwi special rights? Yes and no. They say that the Crown is duty bound to consult iwi. But consultation is an integral element of a liberal democracy. Iwi are fortunate that their right is stated more explicitly.

I’ve discussed the issue of co-governance here. Even as Prime Minister, Chris Hipkins said he did not understand what it means. Public discussion has muddled self-government, partnership, co-management and co-governance. The three earlier notions are integral to the running of a liberal democracy.

While Māori claim kaitiakitanga (guardianship) rights over community and public property, so do a lot of my green friends. They are examples of taonga katoa, discussed below.

I am not sure whether preservation and promotion of Māori culture is a Tiriti issue. Any civilised society would do that. (The same applies to Pasifika culture, given Aotearoa New Zealand’s share of those peoples.) Te reo is discussed below.

So how are we to judge ACT’s proposed Treaty Principles Bill? The bill is not yet before Parliament, but ACT’s manifesto said it would define the principles of the treaty as:

The New Zealand Government has the right to govern New Zealand.

The New Zealand Government will protect all New Zealanders’ authority over their land and other property.

All New Zealanders are equal under the law, with the same rights and duties.

The proposal looks like an attempt to redefine Te Tiriti o Waitangi. Evolving the interpretation of past events is organic; putting one in statute is not; it fossilises it. At a deeper level, it is not unusual for an authoritarian state to reinterpret history to suit itself. (Witness Putin about the history of the Ukraine.)

While its principles 1 and 3 are consistent with those of the Court of Appeal, the ACT proposal omits other key treaty principles. One is uneasy that we should pass a law which seems to repeal so casually the deliberations of the courts on such weighty matters, especially as those that underpin a liberal democracy.

ACT’s Principle 2 is narrower than the principles set out by the Court of Appeal. It is a limited interpretation of the second article of Te Tiriti, reflecting the neoliberal view that it is only about private property rights. Māori had few of those in 1840; property rights were held by the community, much to the frustration of Europeans who wanted to acquire land. Neoliberals object to community ownership. (Elinor Ostrom was made a Nobel Laureate in 2009 for her work explaining how such collective ownership can work very effectively.)

Moreover, the second article of Te Tiriti covers far more that what we conventionally think of as private property. We can see that from the evolution of the drafts of the treaty. Up to what is called the ‘English version’ there was a list – ‘Lands and Estates Forests Fisheries and other properties’. The text signed on the treaty grounds jumps to ‘ratou wenua o ratou kainga me o ratou taonga katoa’– ‘their lands, their villages and all their treasured things’. (Because translators would not make that jump, I am of the view there was a revised English draft from which Te Tiriti was translated; it probably ended up in Colenso’s – now lost – papers.)

‘Taonga katoa’ is a very strong term – much more encompassing than ACT’s ‘other property’. For instance, the courts have ruled that ‘te reo’ is one of those taonga. Had this been raised with Māori on 6 February 1840 – unlikely because people didn’t think that way then – the Māori response would probably have been ‘he aha to tikanga?’ – ‘what do you mean?’ Ask it today, the response is a very positive ‘āe, āe’.

My thinking is greatly influenced by Edmund Burke and, indeed, Friedrich Hayek when he is not a neoliberal. They saw organic development at the core of social progress. Sometimes the government has to accelerate or enable it. It should avoid retarding it or fossilising it. That is what the ACT proposal does.

In arguing that the ACT proposal retards organic development and undermines democratic principles, I am not arguing that the party is inherently reactionary or authoritarian. Rather, I don’t think the proponents of the bill have thought these issues through. We shall see how they respond when such issues are drawn to their attention. One hopes they will reaffirm the Court of Appeal’s principles of the treaty which underpin a liberal democracy and adopt a more accurate historical account of the drafting of Te Tiriti and the subsequent organic evolution of its interpretation.

The paper on which this column is based has been checked with various legal authorities.

.AUKUS is a backward-looking policy. The World needs to move forward.

Economists think that the more interconnected countries are by trade and investment, the less likely warfare will occur between them. On many occasions countries have consciously intensified those interconnections as an alternative to war. Examples include the federation of the American states into the USA following a confederation after customs conflict between Maryland and Virginia; the European Coal and Steel Community (which evolved into the EU) tying up the French and Germany industries after three painful wars; ASEAN which was started after the Indonesian confrontation of Malaya ended; recently India has improved its physical and trade links with its neighbouring China and Pakistan.

Alas, economic relations between China and the US have deteriorated. That this occurred under both President Trump and President Biden suggests a structural tension arising from jostling over their places in the world. According to the World Bank, the Chinese economy is now a quarter larger in total output than the US economy, although its output per capita is only about a third of the US level.

One can explain the First World War and the follow-up Second World War as a consequence of Germany catching up in economic size to Britain and trying to find a comparable place in the world. (Neither noticed that the US was already bigger.) We may be grateful that moving from one global hegemon, Britain, to a second, the US, did not involve conflict between the two (although the two world wars accelerated the transfer from a weakened Britain).

It is unlikely that China is going to be the next global hegemon. Rather, we are moving to a multipolar world where there is none. There is a plausible economic model which predicts that world economic output, and hence power, is moving to where the populations are – the situation before British industrialisation. It occurs because of the ease with which technology and capital can transfer between countries.

That does not mean that Chinese productivity will catch up to the American level – not in this century anyway. Factors like the resource base and social organisation mute the economics. (Nor is it clear what will be the effect of global warming.)

India’s population overtook China’s last year and is expected to greatly exceed it in 2050 (1.7b vs 1.3b), while Pakistan (370m), Nigeria (360m) and Indonesia (320m) may then have populations comparable to the US’s (380m). (The European Union’s is already bigger, at 450m – without much change expected in the future.)*

Economists work on the basis that in the long run wars are decided by economic might once there is a commitment. As the war in the Ukraine prolongs, Putin’s only hope must be that the West has not the commitment to defeat Russia outright. I am not sure what the conclusion is over a short war with nuclear weapons except that no one wins. So while military strategists focus on the shorter term, the longer outlook is likely to be dominated by economic and related considerations.

So behind today’s incipient economic warfare and military machinations we face a multipolar world whose shape is uncertain. There may be regional hegemons. Russia is contesting with the West for Eastern Europe; China wants to be the hegemon in East Asia, which the US is contesting (especially over Taiwan); India has similar ambitions in the Indian Ocean; Iran’s ambition seems to be the Middle East hegemon although anyone who thinks they know what is going on there has not been following closely enough. However, while regional hegemony may be a local military and political solution, global economic connectedness means regions are interdependent.

The challenge for the world, then, is how to get from the current world order, in which the US acts the hegemon, to a multipolar world in which the US is but one of four or so big economies. Full multipolarity may be less than a quarter of a century away.

The US does not seem to see the issue this way. It is largely preoccupied with the short-term task of trying to maintain its current hegemony in a world whose order it sees as not too different from the immediate post-war one. It might have been the only effective global power in 1950, when it was producing around 27 percent of the world’s goods and services (measured in common prices – ‘purchasing power parity’, as all the output data in this column is), but by 2023, the US share was 15% (as was the EU’s, with China at 19% and India’s at 8% – everyone else was below 4%).

Trump admitted the weakening of the US when he insisted that the European nations increase their military spending. However, and ironically, it is Putin who has given the Europeans the spur to spend more, although that is partly because they no longer trust the US commitment to them.

The US strategy seems to be to compensate for its growing weakness by strengthening its alliances. When NATO invited Australia and New Zealand (and Japan and South Korea) to their deliberations, it was not with the intention of involving the two countries in a European war again (at least I hope not) but it was trying to entice the Europeans to make a commitment in the East Asia/West Pacific region.

Similarly, the AUKUS pact is trying to get Britain involved (Australia does not have much choice). The Pillar Two extension is probably more about involving Japan and South Korea than involving us. (Sorry, folks, we really are unimportant.) The difficulty with AUKUS is that it does not seem to be forward looking, contributing to a pathway to the oncoming multipolar world.

That faces New Zealand with a choice of looking forward or looking backward. In an earlier column, I pointed out the short-term conflict between our security and trade interests, between involvement with the US and with China. This column is about long-term concerns. (Parliament grounds must already be booked for demonstrations by educationalists, environmentalists, the gun-control lobby, healthcare advocates, Māori, those concerned with poverty, pro-Gaza and pro-Israel supporters, public servants and unionists. Does the Government need to take on peaceniks as well?)

All of which suggests we should not get too involved in AUKUS Pillar Two. Yes, the US is a friend, but you don’t always join in when a friend is behaving unwisely. Mind you, I am not sure that the US will listen to a friend advising the more prudent course of action of developing an international order which makes more room, especially, for China and India. (It is said that countries don’t have friends, only interests.)

On the economic front we should be encouraging economic interconnectedness, especially a rules-based international order. Disgracefully, the US is vetoing appointments to the WTO Appellate Body which deals with disputes arising from disagreements between trading partners. (Presidents Obama, Trump and Biden have all vetoed, so there is a structural problem here, not a whim.) That weakens the international rule of law.

The US has what amounts to a veto in the IMF and the World Bank, reflecting international circumstances in 1945, not those of 80 years later. With the weak IMF plus the Chinese and US treasuries and the ECB we have, in effect, four world central banks which is, for example, fouling up sorting out countries with serious debt problems.

These arrangements established immediately after the Second World War and reflect neither today’s world nor the future’s. (As do the five permanent seats on the UN Security Council, to which New Zealand objected when that it was established.)

New Zealand may have little influence over the evolving world order. In so far as we have, we should be putting our effort in assisting it to move towards the reality of multipolarity. Ultimately New Zealand is having to balance its short-term interests against its long-term ones. I am not sure our friends always understand this.

* UN Population Division’s central estimates. I also looked at various projects of economic output. They are all over the place but are insistent that the US share in the total will fall further.

The underlying economics of the Fair Digital News Bargaining Bill rests on intellectual property rights.

I have written elsewhere about the tension between information as a public good which economic efficiency requires to be freely available and yet, because it is costly to produce, may require payment to those who create the information. Any practical resolution of the tension will be imperfect.

A common resolution is to give the producer of the information an intellectual property right. Examples include patents and copyright. They are essentially human constructs. The details of the laws which define these rights vary from country and through time. A major factor in the evolution of intellectual property rights has been changing delivery platforms.

Thus arises the need for the Fair Digital News Bargaining Bill currently before Parliament. The rise of social media and its use of news poses issues which we may, or may not, want to resolve. News can be costly to produce – a comprehensive news service certainly is. Under what circumstances are the social media platforms such as Google and Meta – the two examples I use here, but there are many others – entitled to use news generated by newspapers (and broadcasters)?

In standard market terms, newspapers are very odd institutions. Purchasers do not pay for the full cost of the news they read. Historically, perhaps two-thirds of the media’s funding has come from advertisers who, in effect, pay the newspaper for access to the readership. The revenue coming from advertising meant that subscribers were getting a heavily subsidised product.

It was not an ideal solution to the provision of news but, especially in a democracy which depends on a vigorous independent news service, it was the best arrangement that it has been able to devise. (There may be a role for a government-subsidised news service. As valuable as RNZ, is, the existence of private sector media reduces the possibility of the government interfering with its public news service.)

The model which was successful for over a hundred years broke down with the arrival of the worldwide web. Many people shifted across to it for their news sources and so have the news providers. But their advertisers shifted to a different part of the web, especially social media, because it enabled them to better target the audiences they were seeking.

As a result the traditional news media has lost much of its advertising revenue. It tried to recover the loss by raising the price of its subscription to its papers, by charging for use of its websites and by donations and sponsorship. These additional sources have not covered all the lost advertising revenue and the news media has had to cut back on its news coverage – in practice that means fewer journalists chasing the news.

But the new social media also needs access to the news. Google would provide a limited service if the search engine did not include news stories; Meta uses news stories to attract the audience which its revenue-producing advertisers seek.

The Fair Digital News Bargaining Bill attempts to address this muddle by giving news media, in effect, an intellectual property right to their stories. Or rather, to extend existing their property rights. After all, both NZME and Stuff pay overseas news providers for the stories they republish.

Social media does not always republish the full story. Sometimes it is just the headlines which also cites the news site where the story sits. The effect of the proposed legislation is to make it clear that this infringes a property right of the news provider who is entitled to charge for that use. (The bill covers only particular sites; essentially news providers but not blogs. I suppose that others, in principle, could be covered by the proposed provisions – such as when this column cites a news site – but this is not the intention of the bill.)

How to enforce the new property rights? I suppose it could have been left to the courts but New Zealand has followed other jurisdictions, such as Australia, Britain, Canada and France, which have an arbitration process. Yes, it is clumsy and expensive – but it is likely to be less clumsy and less expensive than litigation. (Providing an alternative to expensive litigation is not new; small claims courts are another example.)

How has social media responded in these other jurisdictions? Google seems to have decided to accept the arrangement, paying large sums to the news providers. Canadian ones receive CD $100m annually (about NZ$15m on a per capital basis), perhaps t percent to the news providers’ advertising revenue. Presumably, the commercial judgement is that without the news sites the search engine would be crippled and people would go to others. The additional revenue will, one assumes, go into more news coverage; Google’s customers will be among the beneficiaries.

On the other hand, Canadian Meta has abandoned providing news from Canadian news sites so it pays nothing. Presumably its commercial judgement is that it will not lose a lot of custom as a result. Presumably too, the Canadian news providers have judged that it makes little difference to them if they don’t get referrals from Meta. On the other hand French Meta – it was Facebook then – not only agreed to pay up but agreed to provide news in French.

The Fair Digital News Bargaining Bill is at the select committee stage. It was introduced by the Hipkins Labour Government, but the Coalition Government has decided to proceed with it. (Despite, to my surprise, objections from some neoliberals who, I would have thought, would have welcomed improved enforcement of intellectual property rights.) When Parliament passes the bill, a step will be taken to making our news media more financially secure. Even so, its prospects remain fragile.

The claim that there are currently 14 layers of management at Health New Zealand, raises wider issues of how we organise systems.

I want to write a column about current proposals to redisorganise Health New Zealand but, frustratingly, the Coalition Government has not released evidence of its claim that the successor to the District Health Boards is projected to lose $1.4b in the current year, after running a small financial surplus last year. That is a massive turnaround. The cynic must wonder whether the projection involves a bit of creative accounting, a cynicism heightened by the delay in publishing it.

The political purpose may have been to change the top management of Health NZ by appointing a commissioner because the government has little confidence in the previous management. If so, that is their judgement, using smoke and mirrors to disguise what should be a routine governance decision.

Certainly there were smoke and mirrors in the government’s claim that there were ‘14 layers of management’ at Health NZ. The list was probably packed for political purposes. A better one might have been

1.         Commissioner

2.         Chief Executive

3.         Regional deputy CE

4.         Hospital manager

5.         Service manager

6.         Clinical director

7.         Ward management

8.         Clinical staff

With the Minister of Health on top.

The minister’s list had the Commissioner at its top and the Patient at its bottom, giving the impression that the purpose of patients is to support the managers – an absurd impression, but too often that is how the managerial hierarchies think and operate. (One recalls the university joke – I think it is a joke – that once the role of registries was to obtain funding to enable academics to work; nowadays academics generate funding to enable registries to work.)

There is a current government belief that there are too many wasteful bureaucrats on the government payroll and they should be made redundant. I was surprised at the ease with which the Chief Executives met and even exceeded their targets. The cynic might conclude that the apparent overstaffing of the agencies implied that almost every Chief Executive in the public service had allowed overstaffing and was  incompetent. My guess is that problems will occur on the frontline as a result of the back-office redundancies.

Whether Health NZ is overstaffed is a matter of contention. There are claims that the numbers of back-office staff have already been reduced. Even so, according to the government list there is at least one additional layer added by the creation of the centralised Health New Zealand and abolition of the DHBs. Even if this has resulted in fewer bureaucrats, its effect is to separate the most senior management even further from the front line of patients.

It is too easy for generic managers to isolate themselves from the real activities of their agency. Recall that the Senior Leadership team at Statistics New Zealand during the 2018 Census crisis had no experienced statisticians on it. The phenomenon is not confined to the public sector. When Fletcher Building had a crisis arising from failing building contracts, there was nobody on its board with building experience.

Universities are collegial enterprises (knowledge is collegial). However, they have become increasingly hierarchical to the point that deans of faculties (they have fancier names nowadays) are often appointed without consulting the college of academics and are simply imposed on them. In one case (only one?) the dean quickly proved incompetent and became thoroughly disliked. The dean’s response was a Praetorian Guard of management layers which appeared to do little, so the academics told me. They thought its purpose was to protect the dean when the academics became too bolshie.

Multitudes of management layers also reduce accountability. Nobody gets blamed for failure because there are always others to blame. The Peter Principle, that managers rise to their level of incompetence, does not apply in New Zealand; here they get promoted well beyond it.

Lacking the expertise to manage professionals, generic managers not only distance themselves with management layers but they also overuse consultants rather than developing the skills internally.  This also reduces managerial accountability, since failure can be attributed to the consultants – it is rare to point to poor management of consultants.

Recently there was severe under-staffing at the Dargaville hospital. Once upon time the complaints would have landed on the desk of the CEO of the DHB based a car-drive away in Whangarei. Instead, it landed on the Wellington-based Minister of Health’s desk (rather than Health NZ’s senior managers). While I have no doubt the matter is serious for those living in Dargaville, surely the Minister should not have got involved unless there was evidence of systemic failure in Health NZ.

What can be done to reduce the dependency upon hierarchical structures? An obvious step is to reduce the layers and sublayers of management. A second is to devolve responsibility; that was the point of DHBs being in charge. A third is to build into upper management connections with those at the front end. (Avis used to require their managers to spend one day a week on a front desk.)

Upper management is besotted by its agency’s finances, measured by the balance sheet. Perhaps the excess waiting that the sick face could be listed as a liability (assessed as the cost of eliminating it) in the balance sheet. The listing would confront those at the top with all those who were suffering. (Even so, it would soon manipulate the waiting list to reduce the liability without actually reducing the client discomfort.)

Do we need such hierarchical structures? Consider treatment in a hospital – say, an operation. Yes, there is a hierarchy in the theatre, but fundamentally it is a cooperative team – just as your local sports team has a captain but the team plays together (respecting the captain). The full health team includes administrators – like booking clerks – but they are working together, respectful of one another and in touch with their patients. Even the team captain typically interacts with the patient as a human being.

Where a hierarchy is necessary, Simon Sinek observed:

       Senior doctors and especially hospital administrators don’t know what their job is. When you ask them ‘what is their priority’, they say ‘patients’. It’s not. It is to take care of the people who work in the hospital – of the people who take care of the patients. Every administrator, every senior doctor, every senior nurse should be preoccupied with one thing and one thing only: are my doctors OK, are my nurses OK, is my staff OK? And if they get that right, the staff will devote their time and energy taking care of each other and the patients.  …

Each tier in a hierarchy should be looking down to the tiers below instead of, as happens far too often, looking upwards. If they insist on looking that way, turn the list of management provided by the Minister of Health layers upside down, putting patients at the top.

David Seymour describing himself as an ‘old-fashioned lefty’ caused a flurry in the commentariat.

The responses were not always informed. One thought he was saying he was a Marxist. In fact it is relatively recent when Marxism became an important strain on New Zealand’s left. Our Communist Party formed only in 1921, after the rise of the Soviet Union. In 1890 William Pember Reeves, a key New Zealand left-wing thinker, wrote a series of articles on socialism and communism covering a myriad of leftish thinkers. His treatment of Marx’s thought was described by his biographer, Keith Sinclair, as ‘inadequate … Marxism had not then, of course, achieved its pre-eminence among socialist systems, nor were Marxists the most numerous socialists, so [Reeves] neglect of them is not surprising.’ That is not to dismiss Marx. He was a great nineteenth century intellectual, but his ideas have not been at the heart of the broad New Zealand left.

What Seymour actually said was

      ‘And in many ways, I’m an old-fashioned lefty … I believe that we pay taxes for education so every child has the opportunity to be developed to their full academic potential. I don’t think we’re doing that right now.’

He is referring to the Fraser-Beeby principle articulated by Minister of Education Peter Fraser in 1938:

      ‘The government’s objective, broadly expressed, is that every person, whatever her or his level of academic ability, whether he or she be rich or poor, whether he or she live in country or town, has a right, as a citizen, to a free education of the kind for which he or she is best fitted and to the fullest extent of her or his power.’ [1]

The two were only stating a sentiment which went back a long way in our history. When I was writing Not in Narrow Seas I was faced with the question of why Europeans came to New Zealand in the nineteenth century. If they wanted to migrate, North America and Australia were closer and easier.

Pursuing an answer proved tortuous, but the short one is that, while there were many and varied reasons, an important one was that our Pakeha ancestors pursued opportunity, especially the opportunity to live the rural life that was collapsing in England as a consequence of industrialisation. Their ambition was to own their farm. Initially, many of those farms were ‘subsistence’ – largely self-sufficient, only marginally interacting with the commercial market. But the advent of refrigeration proved seductive and the farms became profitable commercial enterprises.

As the country urbanised, opportunity remained a central aspiration of the nation, captured in the Fraser-Beeby principle and the claim that New Zealand was a class-free society. (‘Social class’ not Marx’s notion of political class as in ‘class conflict’.) Sinclair wrote in 1959 that ‘New Zealand is not a classless society. It must be more nearly classless, however, than any other society in the world’. Well, somewhere in the world there has to be a society which is at the top of the rankings and it just could be the one down-under.

Or was. Even as this was written Sinclair’s friend and colleague, Bob Chapman, was identifying emerging class divisions in urban New Zealand. They have continued, which has meant that there are fewer relative opportunities for many groups. Hugh Lauder and David Hughes showed that a child with a working-class background had to have, on average, a significantly higher IQ than one from the middle class in order to get to university. But this was based on 1980s data and we do not know whether things have got harder or easier after 1990; the increased access to tertiary education may have ghettoised the poorest. I do know, anecdotally, of able young people who have missed out on the education they were capable of because of class/family circumstances. One might argue that the Coalition Government’s education policies will sharpen class divisions as it will make it easier for those higher in the social rankings to buy educational advantage for their children.

The above discussion was primarily about Pakeha. The Māori story is different. We talk about it, ignoring that there is hierarchy in Māori society. Focusing on Māori/Pakeha as the most significant societal dividing line has suppressed discussion of class in Aotearoa New Zealand.

As class has evolved here, the equal opportunity goal faded. When do you last remember a politician – Seymour aside – talking about the Fraser-Beeby principles? [2]

So one might welcome Seymour’s raising the issue of educational opportunity, hoping his concerns will be taken up by a wider public. But in a fundamental way his conclusion is misleading. There has long been a tradition in New Zealand that the schooling system is key to providing opportunity. The implication is that it can compensate for family failings.

How families fail and succeed is largely outside the remit of economics, except in one key area. If we put families under economic pressure, they are more likely to fail. The 1990 Richardson-Shipley benefit cuts and the neoliberal twist of taxation away from the rich have put additional pressure on family incomes, increasing social divisions and reducing opportunity for those at the bottom.

In principle the 2018 Child Poverty Reduction Act was intended to address these pressures although its targets were not pursued at all vigorously by the Ardern-Hipkins Government. By softening the targets, the Coalition Government has indicated it will be even less vigorous. Children will continue to turn up in the education system poorly prepared to take advantage of it no matter how much money is poured into it. The irony is that Seymour wants to prioritise strengthening the state over strengthening families.

If Seymour wants to identify ‘left’ as support for promoting opportunity for all, so be it. But in that case the right, as far as he is concerned, are opposed to the notion. Maybe Seymour is really an old-fashioned lefty.[3]

[1] It was drafted by his head of department, Clarence Beeby and is gender-amended as, later, Beeby said that Fraser and he would have wished.

[2] There is one exception I know of. Some New Zealand economists – among then some in Treasury – discuss Amartya Sen’s notion of ‘capability’. The complicated idea is not too different from the Fraser-Beeby principle. It hardly touches our public policy.

There is also the 15-year longitudinal study Competent Children which demonstrates the importance of family.

[3] State solutions rather than supporting the private sector is a feature of the political right in other areas such as crime. Contrast Tony Blair’s claim to be ‘tough on crime; tough on the causes of crime’.

New Zealand is again having to reconcile conflicting pressures from its military and its trade interests. Should we join Pillar Two of AUKUS and risk compromising our markets in China?

For a century after New Zealand was founded in 1840, its external security arrangements and external economics arrangements were aligned. Britain, then the international hegemon, provided the security and the main export market together with the capital which flowed into this country. New Zealand even twice fought on the other side of the world (three times if you include the South African War) as a part of the deal.

But Britain was weakening relative to rising Germany and the United States. The Fall of Singapore in 1942 demonstrated that Britain could no longer guarantee New Zealand’s security and in 1951 it joined the ANZUS Treaty with Australia and the United States without Britain. That was a factor which led to New Zealand accompanying them into Vietnam between 1963 and 1975. The treaty began to unravel when New Zealand declared it was nuclear-free and in September 1986 the United States suspended its ANZUS treaty obligations toward it.

Neither country completely abandoned the other militarily. Since 2021 New Zealand has been considering joining Pillar Two of AUKUS, a strategic defence partnership between Australia, the United Kingdom and the United States. Pillar Two is about sharing advanced technology, like artificial intelligence and quantum computing. The technology could also include drones or support systems for hypersonic weapons. It does not involve nuclear weapons, which comes under Pillar One. (Japan is in a similar position.)

The unravelling of our economic ties with the UK came later. In 1966 more than 60 percent of our exports still went to Britain. Many might see Britain joining the European Community in 1973 as the switch point but it would be only symbolic. New Zealand had been rapidly diversifying; less than 30 percent of exports went to Britain in that year.

In 2008 New Zealand signed a free trade agreement with China which became our biggest export market. Today’s dominance of China in New Zealand’s trade is extraordinary. It is our biggest market for milk products, sheep meats (for beef it is only second), fish, apples, wine and honey (for kiwifruit it is third). Thirty years ago, China did not make New Zealand’s top ten export destinations in any of these products.

New Zealand now sends almost a third of its exports to China. East and South-east Asia and Australia are deeply economically interconnected with China and this wider group takes nearer two-thirds of New Zealand’s exports. (Britain now takes about 2 percent.)

China does not dominate our capital markets to the same extent. The big foreign investors in New Zealand are Australia, Britain, the US and Japan. During a financial crisis we would go first to the US (or the IMF which it dominates), as happened in 2008.

In principle, the mismatch between our security and economic alignments should not matter, but currently China and the US are at loggerheads. A simple explanation is that the US has been the world hegemon both militarily and economically for the 80 years since the Second World War. While the US military is still the largest by far, and its international reach is like that of no other power, China is challenging it in what it deems as its own region/neighbourhood (including Taiwan, which it regards as an integral part of China).

The economic story is different. The World Bank’s latest figures suggest that China’s GDP is more than a quarter larger than that of the US measured in comparable prices.* Of course with its bigger population, China is much poorer in per capita terms but the sheer magnitude gives it economic heft.

China wants to use its economic (and military) might to challenge – even overturn – the American version of world order. Detailing this, and its prospects, is a much longer article than can be fitted in here. Instead, the column focuses on New Zealand’s response in this uncertain world.

What is especially worrying is that neither the US nor China seems to be greatly committed to a world order based upon the rule of law, for each has undermined or ignored the rules when it has suited them. In a free-for-all world it is too easy for small nations to be bullied. Lee Kuan Yew commented that whether elephants make love or war, the grass gets trampled.

The danger is that as the two powers contest, we may be forced to take sides. The outcome could be unpleasant. Australia’s decision to side openly with the US led to China’s withdrawal of market access for some of Australia’s products to signal it was not happy.

This provides a context to the current dispute over whether New Zealand should join Pillar Two of AUKUS. No doubt there has been a vigorous debate within the Ministries of Foreign Affairs and Trade, and Defence. (There was one about sending troops to Vietnam.) The Coalition Government seems to be more pro-US than the previous one. On the other hand, exporters – the Auckland Business Community is prominent here – is nervous that moving towards the US will compromise the key export market.

That suggests that we should not get too close to the US militarily. Frankly, I am haunted by the experience of the Vietnam War when the US deliberately lied to us. It did the same to Britain to inveigle them into the Iraq War. The concern is whether a cumulative set of commitments will put New Zealand in a position of having to take sides if a shooting war over Taiwan or the South China Sea breaks out. Pillar Two probably would not make much difference but it is a shift towards that possibility.

That is not to side with China which, to be frank again, has some very unpleasant human rights (wrongs) policies. Even so, we should recognise China’s growing place in the world order, support its increasing involvement but insist that the evolving order should be one where the rule of law is strengthened rather than weakened.

Ideally irrespective of these strategic considerations, we should be diversifying away from the China economic complex. Easier said than done, for it largely depends on how entrepreneurial our exporters are.

Central government can support them by pursuing further trade liberalisation. About three-quarters of our goods exports are covered by free trade agreements. We are hoping for more with economies in the Middle East and Latin America (and we also seek further liberalisation in services). However, the two big outsiders are likely to elude us: the US and India.

While the US is enthusiastic for New Zealand joining in its military ventures, its five million farmers and those in agriculture-related jobs are far more politically important than five million New Zealanders living in a remote (unfashionable) corner of the world.

One might have thought that India would be keen to help us get out of the China-US quandary, since it does not want to be in it either. We will, no doubt, get a free trade deal with it in due course, but it will be limited, especially in dairy products. It has almost a billion households in rural areas, and while not all are farming, their numbers are sufficient to be politically significant. (Both countries have more dairy cows than we have: 300m odd in India, 9m in the US against 6m in New Zealand – there are 7m in China and growing.**)

In summary, most countries think we are too small and not strategically located enough to really matter. (Australia and some Pacific Island states would be the exception.)

Our quandary is not unique. It is even harder for the ten ASEAN nations. Vietnam was invaded by China in living memory and the Philippines and Vietnam are confronting China in the South China Sea. Yet their economies are even more integrated into China’s economic nexus. We should be paying much more attention to how they balance the pressures.

The ASEAN strategy has been described as ‘multi-alignment’, in which states form overlapping relationships with several major powers. Presumably that is what New Zealand means by its ‘independent foreign policy’. It can be tricky to apply. Singapore says it does not have a US naval base. Even so, there is usually a US navy capital ship tied up to a wharf, which a cynic might think was specially built for the purpose – just ‘visiting’.

Finding the balance to ease the quandary will not be easy. I had a friend who was on the Department of External Affairs Vietnam desk during the height of the conflict. Like me, he wished we had not sent the troops, but he understood the pressures. Years later, Tim commented that he thought Prime Minister Keith Holyoake, advised by the DEA, got the balance about right, doing the minimum necessary. One hopes for a similar wisdom from today’s leadership.

* World GDP shares in thee same prices are China 19.1%, US14.8%, EU 14.7%, India 7.9%, Russia 3.5%, Japan 3.4%, Brazil 2.4%, Indonesia 2.3%, Britain 2.2%.

** India produces 24% of the world’s milk (including buffalo milk), the US 12%, China 5%, New Zealand 2.5%.

As a momentous, historic weekend in US politics unfolded, analysts and commentators grasped for precedents and comparisons to help explain the significance and power of the choice Joe Biden had made. The 46th president had swept the Democratic party’s primaries but just over 100 days from the election had chosen to stand aside.

Some talked about Lyndon Johnson, who had initially wanted to run for another term in 1968 but a surprisingly slim victory in the New Hampshire primary and deteriorating health made him change his mind and pull out. But that was before most of the primaries, seven months before the election. Others talked about Harry Truman, who pondered another run in 1952 and even put his name on the New Hampshire primary ballot. But advisors convinced him he was too old and unwell to continue.

So both share similarities with Biden’s decision, but neither made their call as late or as dramatically as Biden.

“There is no direct historical analogy that I’m aware of,” said Russell Riley, a presidential historian at the University of Virginia, told the Washington Post.

Well, not in America. But there’s a recent one here in New Zealand. Not exactly analogous, of course, but pretty close. It’s the story of a man, a loyal servant of his party, who read the polls, the mood of his country, and recognised that in “putting people first” it was his duty to stand aside (however reluctantly) for a new generation. He stood down for a younger woman, his deputy, and a candidate who would break barriers just by standing. The man won praise for a “selfless masterstroke” putting country and party first.

I’m sure you get the comparison. In 2017, Andrew Little stood aside for Jacinda Ardern. In 2024, Biden has now stood aside, endorsing vice-president Kamala Harris. Events in the first 12 hours after his announcement have made it very unlikely any serious competition will stand against her. So commentators are now grappling with whether Harris has it in her to seize her moment, just as many of us watching Ardern’s rise to leader wondered if she had it in her to turn around National’s double-digit poll lead.

The answer here was “Jacindamania”. As Labour’s youngest ever leader, the 37 year-old held a stunningly impressive first press conference, told a breakfast TV host to butt out of women’s reproductive lives and harnessed a “mood for change”. Ardern failed to win the popular vote, but Labour’s surge and coalition partners meant she won power.

There are lots of reasons why the late resignation of a leader here in New Zealand may not have the same impact in the US. For one, Ardern an Opposition leader up against a tired, third term government. Harris, 59, has to defend an incumbent government, which has become poison in these fast-changing, polarised times.

But already there are similarities on many fronts. Harris moves centre stage with many in her own party harbouring serious doubts about her electability. Some talk about her  “uneven history as a campaigner”. Others have described her as a “promising” politician who flamed out on the national stage. Others still, a politician who knows what she knows but is weak on some cornerstones issues, especially the economy.

Ardern faced just those criticisms, and in both cases they aren’t without some merit. Harris and Ardern were both flawed candidates in some similar ways; both experienced yet somehow under-prepared, both people who wrestle with their own self-confidence, and both measured politicians who seem to act more on caution than on vision. Both have struggled with what these days is called “delivery” when in power.

But sometimes a moment propels a person and a person can capture the mood of that moment; sometimes not having too long to prepare allows a person to be authentic and inspirational in a way they never could have if they had more time to think; sometimes just by being someone else they become precisely the person the public wants. Dismiss it as “stardust” as some did in 2017, but that won’t stop them winning.

Harris has the potential to speak to a better future, in a way Ardern did, contrasting with familiar, older, male opponents. She has the potential to connect with younger voters just as Ardern did. And just by being something new, she can shake the cobwebs off what people thought they had to choose between at the election. Just like Ardern did.

Immediately following Ardern’s election as Labour leader, the party was swamped with donations, peaking at $700 per minute. In just seven hours after Biden stood aside, Democratic online fundraising platform ActBlue raised US$46.7m, mostly from small donors. Democratic-aligned analysts spoke on-air of a phone call organised Sunday (UST) by the Win with Black Women network. A thousand women had been expected to join the call. More than 34,000 called in (some sources say as many as 40,000).

Former advisor to President Barack Obama turned commentator, Van Jones, said on CNN, that he had his doubts about Harris even in recent weeks, but in just 12 hours the public response to her had changed his mind. “I’m watching a rocket take off,” he said. Yeah, we’ve seen that here in New Zealand, I thought.

So soon after Biden’s big call, there’s no way of knowing if Harris will be able to follow Ardern’s path to victory. But the comparisons are clear and worth considering. It’ll be fascinating to see whether Harris can manage her launch as well as Ardern did and capture the public’s imagination in the same way. To see whether Kamalamania will capture the US in the short months until election day.

 

The Minister of Housing’s ambition is to reduce markedly the ratio of house prices to household incomes. If his strategy works it would transform the housing market, dramatically changing the prospects of housing as an investment.

Leaving aside the Minister’s metaphor of ‘flooding the market’ I do not see how the announced strategy is going to quickly resolve New Zealand’s housing problems.

His strategy seems to have evolved over the last five years following the establishment of the Ministry of Housing and Urban Development and is much the same as a Labour Government would have proposed, point-scoring and minor differences aside.

Supply-side initiatives take time. It is not like the Reserve Bank changing the Official Cash Rate, with an immediate impact on financial markets which works its way quickly into the new mortgages and mortgage renewal markets.

We are currently adding about 30,000-40,000 dwellings a year to the housing stock. (There will be more new ones since some will replace demolished dwellings.) Suppose we add an extra 10,000 a year. That would not only be a strain on the building industry but the Reserve Bank might feel it necessary to further restrain the economy. Given there are over 2 million houses the additions to the total stock would be about 0.5% a year. Is demand so elastic to such a small change in supply? (For a review of the changes in the intercensal housing stock see here.)

In any case, it is unlikely that the announced changes will produce a sharp increase in the supply of new buildings. It is not just a matter of putting up a shed on new piece of land. There is the accompanying infrastructure including water and roading. That in will take time to be installed, even if the local authority is enthusiastic. So the strategy is about the long term and not ‘flooding the market’.

The Minister’s strategy includes a long-term target of the price of houses costing ‘three to five’ times (annual) household incomes. ‘What I want is for house prices to moderate over time, so that in 10 to 20 years’ time, we have essentially gone a long way towards solving our housing affordability problem.’ Currently the multiple is 6.6 nationwide. In Auckland it is 8.1, Wellington 6.1, Christchurch 5.8, Hamilton 6.6, Dunedin 5.7 and Queenstown-Lakes almost 15.

So the Minister wants a cut in the relative price of housing of between 25 percent and 55 percent. That does not mean he expects the nominal price of houses to fall 25 to 55 percent, a reduction which would cause widespread financial distress (particularly if it was to happen rapidly). Rather, the Minister is hoping that nominal incomes will rise faster than housing prices over the long term.

To make rough sense of it all, suppose he envisages a 40 percent relative cut in house prices in fifteen years (the Minister’s midpoints). Allow inflation at 2 percent per annum and real incomes to rise their long term average of 1.5 percent p.a.. Now suppose the average price of a house is $1m. (Quotable Value thinks it is about $900,000 but the million keeps it simple.) The 6.6 ratio would mean an average household income about $150,000 p.a. (Which is also a bit high – this is an illustration). In fifteen years’ time, under those moderate inflation and growth assumptions the household is likely to be earning about $250,000 p.a. The ministerial ambition for the ‘four’ ratio means the price of housing will still be $1m (i.e. four times $250,000). So the Minister’s target means that there will be no nominal capital gains in house prices for a long time to come.

You can fiddle around with these assumptions, but realistic alternatives suggest that, under the Minister’s ambition, capital gains on housing will be negligible and house ownership will be a poor investment prospect. For most people home ownership will make still make sense, even though they will make no capital gain when they sell (for neither will the next house they buy have gone up in price). However, treating your house as a financial investment or investing in property may not make as much sense.

Of course, it is only the Minister’s ambition. He won’t be the Minister of Housing in fifteen years. But he can be held to account while he is. Will housing prices be stagnant on his watch? In my judgement the proposed measures will not be sufficient to attain the ambition. My guess is that a serious effort to restrain house price rises will also require further fiscal and monetary measures.

Since the cost of building houses and providing infrastructure will go up with inflation, the value of land will fall under the Minister’s scenario.  That seems very unlikely. In the more stable past, house prices have rise a few percent annually faster than consumer prices. What the reverse would mean is difficult to analyse but there would be a very different housing and investing world from the one we are, or were, used to.

So will housing prices stagnate to the extent of the Minster’s ambition or will they rise much like they did in the quieter past. Your guess is as good as mine, but I shall be surprised if they stagnate. I am not holding my breath waiting for the flood.