Kiwi News and Views

Why try to stop that evolution?

In 1956, historian Ruth Ross presented her investigations of the treaty signed at Waitangi on 6 February 1840 to a seminar concluding, ‘The [Māori and Pakeha] signatories of 1840 were uncertain and divided in their understanding of [Te Tiriti’s] meaning; who can say now what its intentions were? … However good the intentions may have been, a close study of events shows that [Te Tiriti] was hastily and inexpertly drawn up, ambiguous and contradictory in content, chaotic in its execution.’ The reaction to her paper was scornful. Those at the seminar ‘regarded her approach to the treaty as idiosyncratic and dismissed it.’ Ross said that another historian, a close friend, ‘told me my approach was a waste of time’ and ‘dismiss[ed] my preoccupation with the text as “historically worthless”’.

In 1972 Ross published virtually the same paper in the New Zealand Journal of History. It has since become the foundation paper for historical studies of the signing at Waitangi, fundamentally changing the way that historians (and informed persons) thought about Te Tiriti. One age’s eccentric becomes the sage of a later one.

That story is written in detail in Bain Attwood’s ‘A Bloody Difficult Subject’: Ruth Ross, Te Tiriti o Waitangi, and the Making of History, the most important scholarly book on the subject in over a decade. The book observes that in the early 1980s, much influenced by Ross’s work, the common sentiment that ‘the Treaty is a fraud’ was replaced by ‘Honour Te Tiriti’.

This was the biggest but not the only major development of thinking that has occurred in the last half century. In 1975 Te Tiriti was embedded in New Zealand law in the Treaty of Waitangi Act, whose appendices also included what we call the ‘English version of the Treaty’. It was one of the drafts when the treaty was being developed in preparation for negotiation. Ross does not think it was the last draft – neither do I – but that the last draft in English has been lost in private papers and probably destroyed. We know that after the last English version was translated into Māori there were some changes made to get to the final Māori version (Te Tiriti), but we do not know what they were.

We do know that there was no English text on the Treaty grounds on the day of the signing. We know that shortly after the signing, the US consul, James Clendon, hunted around for an official English text but could find one. In fact, William Hobson, who signed Te Tiriti, forwarded five different English language versions to his superiors in Sydney and London, which surely suggests he did not have an authoritative text. Those translations of Te Tiriti, made for land dealing purposes in Auckland in the following decade, would have been quite unnecessary if there had been an official English language version of Te Tiriti. The claim that ‘the treaty is a fraud’ could be applied to the ‘English version’.

A later major development was the 1987 Court of Appeal decision on the meaning of Te Tiriti. (New Zealand Maori Council v Attorney-General 1987). ACT is both wrong and right when it says Te Tiriti is not a partnership. The Court – all five judges – said that the signatories had to act in good faith akin to a partnership. Earlier courts had talked about the ‘honour of the Crown’, which is an analogous sentiment. But the judges did not say that Crown and Māori were partners like a couple of lawyers in a business. Perhaps the people who jumped to this conclusion have not read the decision.

There are other critical events such as decisions made by the Waitangi Tribunal and the courts, and the Treaty Settlements. But I have said enough to illustrate how our understanding of Te Tiriti has evolved over the last half century, as it did earlier.

To many, the evolution has been a bit frightening; I sympathise with them. We are no longer talking about the treaty we were taught about at school; we can now be more informed. There are two main efforts to stop the evolution of our understanding.

One is ‘originalism’ – that we should go back to the original intention of Te Tiriti. The difficulty is that, as Ruth Ross showed and subsequent scholarship has confirmed, there was no agreed meaning on the day. Hobson had an understanding, but I doubt that either James Busby or Henry Williams, who helped develop the agreement with him, fully shared his view. Māori certainly had a different understanding. It would be totally anachronistic to think that they had an understanding of sovereignty similar to Hobson’s. Moreover, it is most unlikely that the different Māori signatories had a common view about what the agreement meant.

In any case, any original notion about governance was based on the minimalist state. (Look at Colonial Secretary Normanby’s instructions to Hobson.) The modern state, with facets like a large taxation base, considerable government spending, the development state and the welfare state, which we take for granted really got underway later. (Te Tiritihas had to adapt from the conception of  of the minimalist state when it was written to the current highly centralised one; I’d have said ‘with difficulty’.)

Originalism is undermined by social change. The third article says that Māori would be entitled to English rights. In 1840 neither all women nor most men were entitled to vote in England. Is Te Tiriti irrelevant to our universal suffrage? (In 1840 colonial subject’s access to England was unrestricted. I doubt a New Zealander would get very far if they tried to use Te Tiriti as grounds for a British entry permit today.)

There is a quasi-originalism which goes back to an earlier treaty interpretation. An example is drawing attention to a pamphlet by Āpirana Ngata published 100 years ago. (It is historically inaccurate.) In fairness to Ngata, he was a man of his times but he kept up with developments. There can be no doubt that had he read the Ross article and followed the subsequent informed discussion, he would have rewritten his pamphlet.

If originalism does not work then, there is what may be called the ‘new originalism’, which is to set down an interpretation of Te Tiriti which will be a foundation for the future. ACT’s proposed Treaty Bill is an example. If it were passed by a huge majority in a referendum with little public dissent – I do not expect that it would be – it would be a basis for the future, setting in concrete the meaning of Te Tiriti. (Of course there would have to be a version in te reo, and we would have to agree that the two versions meant the same thing.)

ACT is slipping into the bill its own political theories when it reinterprets the second article as being confined only to property rights in a minimalist state, a very New Right approach. I doubt that is how the Māori signatories interpreted the notions of ‘rangatiratanga’ or of ‘taonga’.

Neither do the modern courts.  A really important evolution was when the courts confirmed te reo was a taonga. I would have been a very odd discussion if anybody in 1840 had raised the issue. ACT’s second proposed article overturns the possibility that te reo is taonga.

ACT are not the only new originalists. Many of those who set down what they think Te Tiriti means do so in as equally ahistoric certainty that what they are saying now is (or should be) eternal.

It aint. Given the change in the last fifty years, it is inconceivable that our understanding will be the same in 2074. Whatever the originalists and new originalists try, it will be different. Hopefully, it will come about through the organic evolution like the last 183 years. And true, we may end up with something that I am, or you are, not entirely happy with. But we should try to prepare ourselves. Understanding Te Tiriti’s actual historical evolution rather making up pseudo-history to suit our prejudices would be a good start.

Somewhere in David Seymour’s rhetoric there is a serious debate clawing to get out. In fact, there are a hatful of debates. Seymour at his best has always been an ideas man. His problem in recent years is that rhetoric has tended to get in the way. The politician who so effectively twerked his way into public consciousness and so elegantly built a public and political coalition to pass the End of Life Choice Act has become an angrier and more divisive political figure, undermining his ability to spark more healthy debate.

Yesterday, in his state of the nation speech, Seymour reminded New Zealand of the insightful political mind behind the political persona we’ve seen through the Covid years.

ACT has courted conspiracy and division on its way to the cabinet table and, the closer it got, the more Seymour seemed to lose the charm and sincerity that helped him dig ACT out of its darker one percent years.

But as I’ve said many times, including on the Caucus podcast during the election campaign, ACT is looking to be the most active and interesting spoke in the wheel of this government. On Caucus I quoted Eminem, saying Seymour would not want to miss his one shot, his chance to blow. And lo and behold, Seymour yesterday said precisely that – he had “one shot” and if he didn’t take it, a politician with different values would.

While National as a party seems to be trapped in short-term memory, obsessed with returning New Zealand to the Key years and governing like it’s 2009, and New Zealand First wants to take us even further back – to some imagined halcyon days of the 1920s, 50s, or 70s – ACT is the one to watch. Regardless of whether or not you agree with his politics, Seymour’s speech reminded us why.

Seymour spoke insightfully of a Pacific far from the “benign strategic environment” in which Clark said she governed. A world where “there be dragons” everywhere. And where US political polarisation is bad for smaller countries, from Ukraine to Israel to New Zealand. Critically, he says when trust in democratic institutions erodes, democracy itself is in jeopardy. These are important words.

Seymour also raised the country’s long-term political cycle – the “golden weather” of the 60s and 70s, the change of the 80s, the “good times” of the 90s and early 2000s. He rightly said transformational governments are few and far between in these long cycles. Jacinda Ardern famously claimed hers would be just such a government, before being derailed by New Zealand First, Covid and, arguably, poor politics.

So, without using Ardern’s explicit language, Seymour painted himself as the next great transformational figure. The man of the hour. It’s an ambitious take for a non-Prime Minister with just 8.6 percent of the vote, but is entirely consistent with Seymour’s zeal and ACT’s roots. This is, remember, the party of Sir Roger Douglas and Ruth Richardson, arguably this country’s most transformational political figures of the past 50 years.

Seymour called out this century’s three main Prime Ministers – Helen Clark, John Key and Jacinda Ardern (ignoring Bill English and Chris Hipkins) – as responsible for “lost decades”. He said they marked time and failed to innovate.

He’s hardly the first whose political analysis says that those govenments were defined as much by what they didn’t do as what they did. To point to those Prime Ministers as political managers rather than leaders. (Although, to be fair, it fell to them to damp down the collective political trauma felt after the radical changes led by Douglas and Richardson).

For Seymour, we’re due a new dose of reform.

In some ways it’s too soon to tell if any of those Prime Ministers were transformational. Perhaps Ardern’s government of ‘kindness’, for example, will be remembered as more significant than it is currently, in the shadow of Labour’s election defeat. Reform can be cultural and behavioural, after all.

But for Seymour, reform means policy. Policy based on values, not political management or expediency. It’s a refreshing promise in these cynical and polarised times. Seymour has become a hate figure for some on the left, but even they might welcome a politics based on values.

But which values will hold sway in this coalition? It is here that Seymour’s speech lays out a vital tension at the very heart of this government.

National ran on a conservative platform; it didn’t seek or get a mandate for transformation. The most appealing point for many voters was that they had different faces and may be more competent in political management than the previous lot. Winston Peters – for all his talk – is inherently conservative and New Zealand First is instinctively a ‘back to the future’ party.

Both parties campaigned on taking New Zealand back to imagined better days and there’s nothing in the election results that suggest voters were looking for ACT-style (libertarian-inspired, market-driven, individual rights-based) upheaval. Nothing to suggect his coalition partners want that either.

Ironically, Seymour argued in his speech that many Americans will support Donald Trump in this year’s presidential election because of some belief ‘life was better before’. He didn’t mean it as a complement. Yet the government he is part of is built on much the same promise.

Seymour, for example, spoke critically of rising house prices under John Key. Yet this government is repeating the policies – such as interest deductability and a minimal brightline test – that helped drive price rises. Just as it is set on repeating much from the previous National-led administration. Prime Minister Christopher Luxon idolises Key, one of the manager PMs Seymour called out. And Luxon is, as defined by his career, a manager.

Luxon and his cabinet is not built transformation – explicit or covert. The promises already made to over-turn so much of the Adern agenda will suck up much of its political capital and energy for the first term. There will be little time for the generational reform Seymour is seeking as this government’s ‘first 100 days’ agenda bleeds out in months and years.

Which suggests that Seymour’s grand designs will likely be suppressed by his coalition partners and events. If Seymour is to get anywhere near the transformation he sees as essential to strengthen the state of the nation, it will have been a remarkable act of political will.

ACT’s best chance will be in the portfolio where he has most say – regulation. The one place where he may have caught his opponents and allies alike on the hop is getting control of a new ministry that has licence to reform every bit of state activity it comes in contact with. This is ACT planting its flag exactly where you’d expect it would be – not in the heat of identity or cultural politics, but in that most central of political debates – the size and shape of government.

It’s in reforming the very machinery of government – regulations – that Seymour is best placed to take his one shot at transformation. To make his case for change and reinvention. Which means it’s there his opponents will have to take up arms against him and there – in the dull trenches of regulation – that some of the most important debates of the next three years will come. The outcome of those debates will go a long way to determining the state of our nation in the 2027 election.

And even more from the book it is based upon: “American Prometheus: The Triumph and Tragedy of J. Robert Oppenheimer” by Kai Bird and Martin J. Sherwin.

Christopher Nolan’s award winning film Oppenheimer is based on the 2005 biography American Prometheus. I really liked the title. Prometheus was the Greek god who gave mankind fire, and was punished for doing so. J. Robert Oppenheimer gave us atomic weapons and energy. The ugly and enthralling core of the book and the film is about the story of his success and the resulting punishment.

The film is not quite accurate, but in a related context Oppenheimer justified some changes to other theatrical accounts of his life as legitimate dramatic licence. The 700-page book has to be more scrupulous. There are 85 pages of notes and the bibliography is another 15.

An enquiry was set up in 1954 to consider Oppenheimer’s security status. The book calls it a ‘kangaroo court’. Lewis Strauss, his main antagonist, chose the enquiry panel and kept in constant touch with them and the ‘prosecuting team’. Between meetings Oppenheimer’s rooms were bugged, including discussions with his counsel. It was not a court, so illegally acquired evidence from FBI wire-taps was used against him. Not that Oppenheimer or his counsel always knew because much of the evidence was not disclosed to them. The enquiry was in secret with no independent journalists reporting it.

I was continually reminded of the detestable show trials under Stalin where the conviction was predetermined and the defendant never had a chance. I was appalled, because I have had so much respect for the American judicial system. Of course, it has failed on numerous occasions – there are the terrible stories of McCarthyism at about the same time while those involving blacks go back centuries – but this was the authoritarian state out to get someone. Prometheus was being punished.

The difference from the Soviet Union and similar trials was that there was widespread public uproar from the science community when the verdict was announced; the panel revoked Oppenheimer’s security clearance by a 2–1 vote (while unanimously clearing him of disloyalty). That sort of outrage cannot occur in an authoritarian state, so one was still left with some respect for the robustness of American public life.

Eventually the decision was revoked and Oppenheimer’s official status was reinstated. But he was a broken man when the presidency acknowledged him and dead when his security status was restored.

It is difficult for a film to capture the gruelling detail of the ‘trial’. When I saw Nolan’s film, I did not come away with the knowledge or extreme outrage I had following reading the book. The best that the film could do is juxtapose Oppenheimer’s ordeal with a 1957 senate hearing into Strauss’ suitability to be commerce secretary in an Eisenhower cabinet. You may not have a lot of respect for such hearings, recalling the disgraceful McCarthy ones of the 1950s. But it was in public and there was due process. The Senate rejected Strauss in what was described as ‘one of the biggest, bitterest, and in many ways most unseemly confirmation fights in Senate history’. (The nays included  John Kennedy and Lyndon Johnson.) The film makes it seem that Strauss was being punished for his treatment of Oppenheimer, but the charge sheet of his misdeeds was longer, including the Democratic majority’s main argument that Strauss’s statements before the committee included semi-truths and outright falsehoods and that under tough questioning he tended towards ambiguous responses and petty arguments; given the way he treated Oppenheimer one is not surprised.) I doubt the outcome gave much comfort to Oppenheimer.

There are a couple of other themes in the book worth pondering, even if there is not room here to explore them. First is the clash at Los Alamos, where the atom bomb was developed, between Oppenheimer, who headed the scientists, and Lesley Groves, who headed the military. The military wanted great compartmentalisation between scientists for security reasons. Oppenheimer argued that a free flow of information was necessary for scientific endeavour. He won, the scientific community shared, and produced a bomb in a remarkably short time. After the war, Oppenheimer argued that scientific communities sharing their understanding across nations was the best way to prevent the misuse of atomic weapons. He lost that one.

Second, I was also struck by the contrast between Oppenheimer’s success at Los Alamos and his lesser achievements at the smaller Institute of Advanced Studies near Princeton which he headed between 1947 and 1966. (However, his insistence that Fellows at the Institute should include the arts and humanities was farseeing; he was well read, with a wide variety of tastes and interests.)

Oppenheimer came to Los Alamos with little management experience (generic managers would be appalled). His success there was because its scientific community had a single common goal (to produce an atomic bomb). There was no such commitment at the IAS, which was staffed by able eccentrics with personal agendas, just like universities. Vice-chancellors might like to reflect on the parallel; it is not just trying to herd cats but sometimes, to be zoologically inaccurate, the cats hunt in packs.

The film Oppenheimer is doing very well in the rankings. It has many strengths, although its sound is not one – the advice is to go to a session with subtitles (if you can find one). But I can’t help thinking that part of its recognition among Americans arises from its representation of one of the nastier shadows in US history – the repeated failure of its justice system to be judicial. The shadow has not gone away. Perhaps many of the film’s enthusiasts are deeply worried about how Donald Trump is using the courts and how he might use them even more malignantly if he became president again.

Footnote: Many images of Oppenheimer (including the cover of the book) show him with a cigarette or pipe. He died of throat cancer in 1966 at the age of 62; I found the book’s description of the treatment gruelling. It is thought that tobacco killed – caused the premature death of – about a hundred million people in the last century with over 25m this one. The number contrasts with perhaps less than a million killed by atomic weapons. Both are unnecessary scourges of mankind.

Luxon has to address the need to maintain and enhance New Zealand’s social cohesion.

Dear Christopher Luxon,

The greatest challenge you face is that of the nation’s social cohesion (rather than the economy). The problem has been with us ever since Hobson arrived.

New Zealand is a diverse society. For over a century we suppressed this truism by relegating women to the kitchen, Māori to the pa, gays to the closet, and ignoring the role of religion in secular life. We practised majoritarianism by a group – who among other things were straight, Pakeha, Anglican, middle-class, male, rugby followers – which pretended theirs was the only acceptable lifestyle and the country should be run in their interests. Those who did not conform to this majority were ignored, treated as quaint eccentrics, or repressed.

Today that diversity is more apparent. Affluence has enabled individuals to exhibit their differences, while social media enables like-minded minorities to join together. We are also importing the fashions of antagonistic public dialogue from overseas, most notably the rhetoric of conflict from the US – a society which seems to be falling apart because it lacks social cohesiveness.

All societies are under these pressures for roughly the same reasons. Some rigidly suppress differences, perhaps emphasising a dominant ethnicity or religion at the expense of everyone else and ignoring that there can be great diversity within the dominant group. Others face, in despair, the terrifying prospect of social unrest and breakdown.

Each country is different and has to find its own resolution (or not). New Zealand has three major differences. We have no significant external threat (except global warming); we are small; we have MMP, which recognises the diversity in a way that Frontrunner/FPP did not (Its electoral system is exacerbating the disruption in US politics).

You, Mr Luxon, will be reminded of MMP every time you enter Parliament’s chamber. You are not there because a majority of the electorate voted to support you. You look at your benches and see three disparate parties, none of which is entirely unified; the other side of the House looks no better.

You know, even if the commentariat does not, that the voting outcome of the 2023 election was not very different from that of the 2017 election except that the parties at either extreme garnered a little more support. But if the electorate did not change much, the government has shifted dramatically (because New Zealand First changed its mind).

So you have not really been given the radical mandate some of your colleagues aspire to. You are tentatively charged by the electorate to govern New Zealand in everyone’s interests; you will be judged by an unforgiving electorate.

The easy approach might seem to be a majoritarianism which attacks any dissenters. As tempting as it may seem, it is unlikely to work. Recall Rob Muldoon. He could argue his abrasiveness got him re-elected. But that was under Frontrunner. Had it been under MMP he would have lost both 1978 and 1981 as well as 1984.

There are numerous counterexamples. Prime Minister Bill Massey (1912-1925), a founder of a key precursor of the National Party, was a member of the Orange Order, notorious for his harsh response to the miners’ and waterfront workers’ strikes in 1912 and 1913. He matured.

He was against the charging of Cardinal James Liston for sedition in 1922; he saw little advantage in sharpening the religious antagonism of the times. A cabinet full of hard-line Protestants overruled him. (Liston was found not guilty.) You may be on Massey’s side, Mr Luxon, but you will not be given a decade to mature.

So how are you going to deal with the tensions and divisions, especially as you have people on your side of the House who revelled in intensifying them when in opposition?

The first obvious action is to talk to your cabinet and caucus about the issue, explaining the importance of not exacerbating social tensions and of healing social divisions. Keith Holyoake gave excellent advice when he told MPs to breathe through their nose – not opening their mouths at inconvenient moments. You need to discuss the same message with the leaders of your coalition parties and ask them to pass it on to their caucuses.

One of the nastiest rising tensions is between media and politicians. What is going on is surely mutually agreed destruction invigorating public extremists; apparently journalists are receiving death threats too. Your press office needs to talk to the press gallery and agree to take a more courteous approach. It must recognise that both sides are doing necessary tasks but they need to avoid abrasive, stupid and useless questions and answers.

Does that deal with around Parliament? You also need to change Parliament’s approach to the wider community. In particular it, needs to resist the temptation to interfere. Apparently over half of the population are opposed to trans-women being involved in women’s sports. (That’s something outside of my expertise.) It is easy for Parliament to pass a law but I suggest that it instead leaves the decision to individual sports bodies. Many will get into a pickle but explain it is their responsibility, not Parliament’s.

Another area to restrain is the nation’s habit of simplifying what is going on into two opposing and antagonistic camps. The obvious current example is Māori and non- Māori. You do not have to be very socially perceptive to know that there is enormous diversity within each group and much overlap. When someone claims to speak on behalf of Māori or whatever, the one thing that is certain is that the speaker is at best, representing just one of the group’s segments.

Take a leadership role; say your government respects all Māori or whatever, will listen to all of them and not just some self-appointed spokespeople, and will govern on all their behalfs. Get your speechwriters to always include a reference to the diversity within any group whenever a speech mentions them.

The issues of delegating down and recognising diversity applies in many other areas. It might be summarised by ‘subsidiarity’, the notion that decisions should be taken at the lowest possible level. It has not been prominent in the thinking of the New Zealand government. For instance, it loves to bully local government, directing what they should or should not do. It is time for the centre to withdraw and leave them to make as many local decisions as possible, even if they make ones with which you personally disagree.

Subsidiarity is about respect for local and individual decisions and tolerance of diversity. As far as I can see, respect and tolerance is the way to maintain social cohesion in a liberal democracy. The alternative is centralisation, majoritarianism and authoritarian repression followed by ugly civil strife.

There is an economic dimension. The market is a very powerful means of decentralisation – of practising subsidiarity. In that sense, I was a supporter of the market liberalisation we associate with Rogernomics (and I wrote about it before 1984). Unfortunately, the neoliberals decentralised very badly. Very often their economics was embarrassingly shonky and they never really understood the issue of market design – getting the right balance of regulation. Paradoxically, they were bullies using their centralised powers to impose their theories – look at the way they treated local government. And a properly working market requires a fair income distribution – instead, the policies increased its unfairness. Ironically, the neoliberals’ arrogance brought on MMP which is designed to reduce the power of the centre.

Mr Luxon, you govern with the consequences of that heritage, and the real danger that, because of the way its institutions operate, you will govern a deeply divided society if you pursue a majoritarian strategy. There has to be a better way. Decentralisation and subsidiarity, respect and tolerance are keys to it.

Yours sincerely, Brian Easton.

The New Zealand economy is struggling; the new government will struggle to implement its economic promises.

There is not a great deal of difference in Treasury’s projected GDP growth patterns between the May 2023 Budget Economic and Fiscal Update (BEFU) and the December 2023 Half Yearly Economic and Fiscal Update (HYEFU). But there are some other important underlying changes which suggest the incoming government has a tougher task than it expected. (I am skipping the September 2023 pre-election update because there is a lot of noise in the series, and the longer perspective gives a clearer account of any changes.)

Surprisingly, for me at least, the more recent HYEFU forecast suggests a slight improvement in the external account compared to the forecast six months earlier. But any difference is well within the forecasting fans, which indicate the inevitable uncertainties. (A footnote below describes how the Treasury may want to change its forecasts in the light of new developments since HYEFU was locked up in November 2023.)

The big difference between the two forecasts is population growth arising from higher immigration than was expected in BEFU. Since the GDP projection has not changed much, that means GDP (output) per capita is lower in HYEFU than BEFU.

This column treats population growth from migration in the standard way where the distributional impact of the new arrivals is neutral. The assumption is probably wrong and I plan to investigate whether the effect is significant. I’ll let you know (if anyone does the job before me, I am happy to report their work first).

As a result of the population growth, private consumption spending per person is falling over the next few years. HYEFU thinks spending will be rising again from 2025/6 but even in 2027/8 the per capita level will be below this year’s level.

You may think the changes are small, but averages can be misleading. Some will get an income  boost, so many of those suffering will experience a greater fall than average. Losers include those facing higher interest rates; on the other hand depositors will be benefiting from the higher rates. Probably well over half the population will experience a fall in their spending power over the next two years.

The HYEFU forecasts are based on government policy decisions made up to November 24,before the new coalition government was sworn in. It reflects the outgoing Labour Government’s policies and did not incorporated the new government’s December Mini Budget decisions. HYEFU comments that they ‘will improve the fiscal outlook’, although the announced changes were small. The Mini Budget included neither the coalition government’s proposed income tax changes nor the offsetting cuts to public consumption. HYEFU says – perhaps piously – that the ‘other signalled commitments … expected to be agreed in the future … would be broadly neutral over the forecast period’.

The centre of those commitments is to give income tax relief, in order to allow some increase in private consumption after June 2024. (We shall have to wait to see how well the relief is are targeted on those most suffering.)

As HYEFU implies, the relief is to be offset by cuts to public expenditure. The Minister of Finance, Nicola Willis, has announced that the cuts will be in the order of 6.5 percent and more, but I am not sure of what. (‘Backrooms’ are a nebulous concept.)

My reaction was to recall the 3 percent cutting exercise on 1982 under Muldoon. (Willis had just been born; I doubt many in the cabinet will remember them.) I checked my memory with some on the frontline at the time. One described the outcome as a ‘sham’, with few real cuts.

Admittedly, Ruth Richardson slashed government spending in 1991’s ‘mother of all budgets’ but that was as much about ‘redesigning of the welfare state’ from a European to a minimalist American approach. As well as impoverishing many New Zealanders, the cuts to the health system killed people while they waited for treatment.

Perhaps a more relevant instance was the measures the Key-English National Government imposed after the 2008 Global Financial Crisis. They were more a squeezing in which each year government departments were given a little less than they needed. Consequently, government borrowing remained high, coming down only slowly. The public agencies struggled with the under-funding. Part of the increase in government spending under the Ardern-Hipkins-Robertson Government was restoring what had been squeezed. (On the other hand, some of their additional spending seemed to me to be wasteful or ineffective.)

To my surprise – remember it was about Labour’s spending plans – HYEFU forecast a fall in per capita public spending of around 6 percent over the next three years to June 2026. Where Labour expected to get the reductions is unclear. Labour’s already assumed planned squeeze suggests that the Coalition Government is going to be struggling to get the cuts they need unless they have a dramatic (and, thus far, secret) agenda in the way that Richardson had.

We won’t fully know until the May 2024 budget brings the coalition government’s decisions together, although there will be various indications – cries of pain – before then. I have no doubt that Treasury officials will be struggling to meet their political masters’ demands. The real decisions are yet to be taken which is why the December Mini-budget was vague.

Being a member of the Opposition or commentariat is a bit like being a couch fan watching a football match, shouting advice like ‘you should run faster’. Now Luxon, Willis and a gaggle of associate Treasury ministers are on the field. Welcome to the real game.

Footnote: HYEFU observes the following new information since the November forecasts were made: the September 2023 quarterly GDP figure turned out lower than expected (it may be revised), indications are that the December 2023 CPI increase (to be released on 24 January) may be lower than forecast and that house prices rises are also more subdued, while the net migration inflow is higher. My impression is that international thinking about the world economy is becoming gloomier. We await more data and the 2024 BEFU to find out how that will affect the Treasury forecasts.

Robert Solow transformed the way we think about economic growth.

When you are in the trenches, you may not always realise what the war is about. Years later you read an account and see more clearly. Thus it was with me in the 1960s when economic analysis went through a revolution.

My insight came later when reading the budgets in the 1960s of Minister of Finance Harry Lake about whom I had been asked to write. The speeches expressed an ambition to increase economic growth, but the analysis was around capital investment only, which sounds very incomplete to today’s economist. Reflecting, I realised Lake was using the explanation I had been taught in my economics courses.

However, I was also working at the NZ Institute of Economic Research, whose first director, Conrad Blyth, had brought back from his overseas studies a different account of economic growth which I had absorbed into my thinking without realising how radical it was. Later Bryan Philpott and I worked together in the area. The key founder of this approach was Bob Solow, who has just died at the age of 99.

Solow’s key finding was that output per worker rose faster than the quantity of capital in the long run. You may know the standard assumption in classical economics as the ‘falling rate of profit’ as in Das Kapital, but Marx was drawing on orthodox economics, beginning with Malthus and Ricardo in the early nineteenth century, and still held by great economists such as Keynes and Schumpeter in the 1930s.

The decreasing marginal return on capital is really a consequence of the laws of thermodynamics. So the laws must imply that there are other things affecting production as well as capital and labour. Solow was humble about what he found. (It was such a gigantic insight he could afford to be.) His seminal 1957 paper explained the paradox by ‘technical change’:

I     “I am using the phrase ‘technical change’ as a shorthand expression for any kind of shift in the production function. Thus slowdowns, speedups, improvements in the education of the labour force, and all sorts of things will appear as ‘technical change’.” (His italics)

Solow’s paper is the source of the widely quoted claim that 80 percent of economic growth (output per person) is attributed to technology. But only if the word ‘technology’ has Solow’s particular meaning of what we cannot explain. Economist Moses Abramovitz called the unexplained residual the our ‘ignorance’. Today we call it ‘multi-factorial productivity’ (MFP) or Total Factor Productivity (TFP)..

Sloppy thinking has empowered any group – educationalists, managers, scientists, those in the creative sector – to promote its interests by claiming it is making a major contribution to the coefficient of ignorance. Each seizes on their version of the meaning of technology; it makes them seem important and seems to justify spending large quantities of public money on them. (Many of those who argue for increasing our ignorance are well placed to make a contribution.)

Economists have tried to explain MFP/TFP – to reduce the coefficient of ignorance. We have never been able to explain it all. (It has been difficult because we cannot do experiments.) Over the years economists have concluded it is not just a matter of technology in the narrow sense of plans on how to use resources but also covered such things as managerial performance and the speed at which innovations are taken up and adapted to local circumstances. But we have not been able to measure by how much.

More recently, a crucial feature of economic development has hit home. (It is a central notion of my Not in Narrow Seas.) There has been a shift to economic activity in the market from economic activity outside it. Women moving from the kitchen into the factory are included in the calculations, but what about the refrigerators and washing machines which reduced their household grind, making the move easier?

Or consider when in the 1860s New Zealand had the highest productivity in the world as conventionally measured. It was not that we were working smarter or using more advanced technologies then. Rather, we were moving alluvial gold in the river beds outside the market into the market economy – bank vaults. Had the effect been drawn to Solow’s attention, he would have wished he had mentioned the effect moving from outside the market to inside among the ‘any kind[s] of shift’ in his 1957 paper. But in those days, economists were not as sensitive to the resource issue in economic growth (land excepted).

Economists have never said that capital and labour were irrelevant. They are as necessary as classical orthodoxy thought they were, but in a different way. Technology (in the narrow sense of ‘plans’) has to be embedded in capital and labour. So developments in information technology are embedded in personal computers and so on – capital goods. And the developments have to be also imbedded in the skills of the persons using them.

Nor should we ignore the social technologies of how an economy is organised. They range from having a good judicial system, so that contractual arrangements run as smoothly as possible, to how workplace relations are organised.

A curious feature of economic growth is that over a long period the rate of change of New Zealand’s MFP/TFP (the residual contribution to economic growth) does not seem to have changed much. I’ve looked and looked.

Had another go with a new data base a couple of weeks ago and failed, yet again. I was looking for a slow-down in hourly labour productivity growth early this century, as posited by some economists internationally. I thought I had found a slight one but it turned out to be not statistically significant. Bother!

And so to the uncomfortable question of whether we can accelerate the rate of long-run productivity growth. Everyone has been saying that since seven decades ago when we first had reasonable measures of the rate of economic growth. Economists do it as a mantra: ‘adopt my economic policies and the economy will grow faster’. (The commentariat echoes them.) But they provide no systematic evidence that their prescriptions will work. It is more ‘trust me, I know what I am doing’, but since the prescriptions all differ whom do you trust?

The politicians’ slogan is that faster economic growth will mean we can meet the public’s demands for tax cuts and more public spending. It is easier to say this when one is opposition. In government the cruel reality is that no matter what they do, the long-term MFP/FTP growth rate chugs along much as it has for the last century.

It is difficult to identify any New Zealand government that has really changed the growth rate (with the possible exception of the neoliberal policies of the late 1980s and early 1990s which  stagnated the economy; we still have not recovered from their damage). Short-term burst, such as the upswing of a business cycle, can be identified by judicious choices of end points which may satisfy those with an ideological bent. A scientist is less able to find a significant long-term change. (A change of 0.1 or 0.2 percentage points in the growth rate is difficult to identify because of noise in the data.)

Most of the paragraphs of this column could not have been written before the systematic measurement of economic output, led by Simon Kuznets, and the resulting analysis, led by Solow. One honours him for his pioneering insights. In the study next door, Paul Samuelson changed how we thought about economics; Bob Solow changed how we thought about the economy.

He wrote with elegance and clarity – he was drawn into the social sciences by reading great novels in his adolescence. They were spliced with wit. Here are some:

    “Economists are divided between those who look at economic aggregates and those who look at the details. I belong to both sides.”

    “Everything reminds Milton [Friedman] of the money supply. Well, everything reminds me of sex, but I keep it out of my papers.”

As an economist, Solow liked formal models and mathematics. But nothing too fancy. Over-refinement reminded him of the man who knew how to “spell banana” but did not “know when to stop”.

    “Part of the job of economics is weeding out errors. That is much harder than making them, but also more fun.”

    “Why does a public discussion of economic policy so often show the abysmal ignorance of the participants?”

When Frankiln D. Roosevelt in July 1933 coined the phrase “first 100 days”, those first few months were already done and dusted. He was looking back over a start to his presidency that had seen him call Congress into urgent session, during which time it had passed 15 major new laws. While some were more successful than others, they pushed back against the Great Depression and sparked new hope and ecomic activity.

The National-ACT-New Zealand First government made much its 100 day plan, which Prime Minister Christopher Luxon has repeatedly described as “ambitious”. Luxon likes to say things, like his government will “deliver and get things done” and “work incredibly quickly”.

So as the year comes to a close and we reflect on the first stage of this new government’s life, how’s it looking so far?

Well, 24 days into its government, parliament has closed and MPs have gone on holiday for more than a month. Most of the legislative work thus far has been to repeal laws and stop things. And, many voters may be surprised to learn, most of the actual changes promised are months – if not years – away. This National-led government’s big promise, its point of difference from the previous lot, was delivery. But if the 100 Day Plan has done nothing else, it has suggested the current lot are going to struggle just as much as the last.

To be fair, a few of its actions have been prompt: The so-called “ute tax” – a subsidy for low emission vehicles funded by taxing high emission imports – will be gone on December 31. Fair Pay agreements have been repealed, effewctive December 20. The first law the government passed was repealing the Reserve Bank’s dual mandate of inflation and employment, returning it to its pre-2018 focus on inflation alone.

Sidebar: It was an odd priority, given experts tend to agree that even with a single mandate, its approach to price stability since 2018 would have been nigh identical to what it did. What’s more, this law was passed with support from New Zealand First, whose leader Winston Peters just 11 years ago introduced a private members bills demanding the opposite. Back then he was concerned about the high New Zealand dollar and attacked the Bank’s “myopic obsession” with inflation.

But – back to the 100 Day Plan – most of the promises involve large globs of smoke, mirrors and spin. Lots of promises to do something later. It looks like National’s promise to get the country back on track will be a wee way down the track.

One of the defining aspects of National’s election camapign was its heavy reliance on slogans and Luxon’s and Willis’ refusal to go off-script to discuss policy and debate ideas. They would repeat scripted lines ad nauseum. They have started in government much the same way.

It’s noteworthy that National’s two senior leaders have corporate backgrounds where “messaging” and “comms” prevail as a way to talk to “stakeholders”. No-one seems to have explained to them yet that speaking to citizens in a democracy requires a different approach.

In truth, the 100 Day Plan might be better called ‘the great undoing’. This is a Do-over government like none before. In the past, New Zeaand has been saved the curse of great pendulum swings as governments come and go. Arguably it’s one of the blessings of short, three-year terms. Parties have tended to accept the bulk of a previous government’s manifesto and moved on. Not this time.

Luxon and co have deified the previous Key government and seem to want to return us to 2015. (Which is interesting given Winston Peters was railing against it from the Opposition benches). Regardless of what you think of the Key years and what’s happened since, pendulum-swing governments are bad for a country long-term. Let’s hope the do-over approach of the sixth National government is a blip, not a trend.

So what does it want to undo, precisely? Central to its “ambitious” list of plan to stop things are removing Auckland’s regional fuel tax, repealing three waters laws, stopping work on Auckland’s light rail, repealing RMA reforms, and stopping the Lake Onslow scheme.

For all Luxon’s words about working incredibly quickly, unpacking some of these laws will eat up millions of public servants’ hours and heaps of National’s political capital in its first term.

Much like the 100 Day Plan, Nicola Willis’ mini-budget this week hints at urgency and the ghosts of mini-budgets past. But while Ruth Richardson came in with a howitzer, Willis deployed more of a bow and arrow.

Her big moves announced in her statement?  “Confirming the Government’s commitment to fully restoring interest deductibility for rental properties, with details of the phasing of this commitment to be the subject of an announcement in the New Year”.

 Oh, and, “progressing work to deliver meaningful income tax reduction in next year’s Budget” or “continuing to uphold the commitment in the ACT-National Coalition Agreement to consider the concepts of ACT’s income tax policy”. “Progressing”? “Confirming”?

The Labour-led government was not unfairly ridiculed at times for announcing announcements and failing to act. But I struggle to remember a statement from them promising to continue a commitment to consider a concept.

While the new government’s main “delivery” thus far has been slogans and promises to get round to its promised repeals next year, it has also been buying into a fistful of fights. With the health sector over smokefree legislation; with environmentalists over mining on the conservation estate; with China over AUKUS; with Maori over te reo, treaty principles and affirmative action programmes; and with KiwiRail over the Cook Strait ferries.

All of this has – within just a few weeks – prompted questions about this government’s experience and discipline, usually National’s strong points. Each of those issues could consume huge chunks of political attention and capital with very little delivery for your average voter or impact on the cost of living.

And if, for example, the three water repeal means higher rates and the tax deductibility changes mean higher house prices, the money back into people’s pockets – the centrepiece of National’s campaign – could soon disappear back out of those pockets, leaving some very aggrieved voters.

National in Opposition liked to use accuse Labour and the Greens (and New Zealand First 2017-20) of “virtue signalling”. A lot. The Child Poverty Action bill, feminism, the gender split in boardrooms, refugee policy, Healthy Homes, the offshore drilling ban… all were examples of virtue signalling, according to National. Yet look at the headlines around this government in just one month – stopping higher pay for public servants who learn te reo, promises to make English an official language and require public service agencies to have their first name in English, gender-based funding for grassroots sports, going to “war” with the media and more. The risk of distraction and chasing rabbits down holes in 2024 looom large.

As politicians up sticks and begin their summer break, the clock is still ticking on the government’s 100 Day Plan. It runs out on March 7. With so much fuss having been made about this timeframe and this government promising to be the great deliverers, voters will be waiting with interest to see come summer’s end precisely how much has been delivered.

 

The new Minister of Finance implied that Treasury’s ‘books’ were deceptive. Can’t see it myself.

I was disturbed by media reports that the new Minister of Finance, Nicola Willis, had criticised the previous Labour Government ‘for leaving the books with “nasty financial surprises” that National will have to clean up’ and that ‘after looking at the books Willis said the outgoing Labour Government had left some “nasty surprises”.’ She went on that ‘the Labour Party had left the “cupboard bare” and spent New Zealanders’ money with “pretty wild abandon” … What I’ve now learned is it’s not just that the cupboard is bare, it’s that there are snakes and snails and all sorts of things in there, nasty financial surprises that we as an incoming government are going to have to deal with.’

I do not have an exact transcript of what she said – hence the confusion of quotation marks – and it is not uncommon for an incoming minister to make extravagant claims about an outgoing government.

What disturbed me was that the new minister seemed to be saying that the Pre-election Economic and Fiscal Update (PREFU) was misleading, with the implication that the Treasury was incompetent or dishonest. She was not probably intending to do so, but ‘the books’ are the Treasury’s, not the Minister of Finance’s.

To give a context. In 1990 the incoming National Government was surprised by the fiscal situation it took over. To ensure this would not happen again, it passed the 1994 Fiscal Responsibility Act (now incorporated in the 1989 Public Finance Act), which required two reports a year on the state of the government’s finances, one at budget time (BEFU) and one half-a-year later. (The Half-Yearly Economic and Fiscal Update (HYEFU) has just been published.) Additionally, it required a PREFU to be published a few weeks before any election. (September 12 in the case of the 2023 election.)

Willis seemed to be challenging the integrity of the 2023 PREFU. Each EFU makes it very clear that it is a Treasury document. Here is what HYEFU 2023 says:

     “On the basis of the economic and fiscal information available to it, the Treasury has used its best professional judgement in preparing, and supplying the Minister of Finance with, this Economic and Fiscal Update. The Update incorporates the fiscal and economic implications of government decisions and other circumstances as at 23 November 2023 that were communicated to me by the Minister of Finance as required by the Public Finance Act 1989, and of other economic and fiscal information available to the Treasury as at 24 November 2023.”

Note that, as Treasury also states, HYEFU 2023 was ‘completed prior to the release of the Coalition agreements, the Government’s 100 Day Action Plan commitments and the decisions made on the Mini Budget.’ So it is really the Labour Government’s last EFU, rather than the National Coalition Government’s first EFU. (It is due in May 2024, just before the Budget.) The commentariat treated it as a dead duck, and focused on the Minister of Finance’s financial statement released at the same time.

I looked carefully at HYEFU 2023 to see whether it had changed much from PREFU 2023. Yes, there are differences but no more than normal. I am not surprised. Yes, there is a deterioration in the fiscal position between August and November 2023 but by far the most important reason is that the economy has deteriorated more than expected, which reduces government revenue. In my experience Treasury is scrupulous about following the law, although it readily acknowledges that it has to make its best judgements in applying it. Treasury macro-economists loathe getting their forecasts wrong; there would be no intention to mislead in PREFU 2023. The HYEFU economic forecasts were finalised on 6 November. Since then there has been more bad news. (I’ll review the state of the economy early next year, when I’ve had time to put in the grind.)

What then is Willis going on about? I put aside that she is trying to portray a crisis – the strategy of incoming governments in 1975, 1984, 1990 and 2008. Not all those portrayals were justified but some gave the new government the excuse to make radical changes including reneging on election promises. Undoubtedly though, Willis wants to portray the previous government as a fiscal disaster – that’s politics.

One problem she faces is that she may not have a good grasp of the ministerial challenges she faces. No matter how hard Treasury tries, there is always a bit of a fiscal shambles of things popping up unexpectedly. Cabinets never resolve all that they face each Monday morning. There were issues which the Labour Cabinet had not yet addressed when it closed down for the election campaign.

One such example may have been Kiwirail’s ambitions for the Cook Strait ferries. Willis has scotched them for being too expensive. The way she did so was unfortunate. Old Wellington hands – Willis is not among them – are too familiar with government agencies making ‘gold-plated’ claims for taxpayer funding in order to get a less ambitious project approved. The Treasury paper rejecting the proposal probably suggests alternatives.

There are also the ‘risks to the fiscal forecasts’, which take many pages in an EFU (48 pages in HYEFU 2023 compared with 19 pages of fiscal outlook). You have to be a bit of a geek to pay them much attention (I plead guilty). Many carry over from EFU to EFU, there are new ones and some have come to book in the period between. They might be deemed ‘snakes and snails’, but they can be identified if one puts in the effort.

One is left with the impression that the National Opposition did not. Willis complains that there were spending programs due to terminate which she did not know about. A bit of diligence in the Opposition Research Unit would have identified them – did they tell her? Or was the Opposition badly prepared?

I do not want to suggest that there are no fiscal problems facing the incoming government, even if it were not giving major income tax cuts. Days before the release of PREFU 2023 the then Minister of Finance, Grant Robertson, announced that most government departments were told to cut back their spending, alerting old hands to the challenges. (A few days before the election, a leaked paper reported that the Ministry of Business Innovation and Employment was reducing staffing and tightening up on expenses. Newbies reported this as though MBIE had assumed that a National-Act government would be elected and were anticipating the expenditure cuts it would impose. In retrospect, Robertson may want us to think that, but the reality is that MBIE was responding to his directions.)

As far back as I can remember, there has been Wellington-based gossip about Treasury losing its grip. There is no evidence of this in HYEFU 2023, despite what their new Minister said. In parallel, as far back as I can remember there has been a view that Oppositions are badly prepared for taking over the government.

PS. Some of the commentariat report that Willis had announced ‘expenditure cuts’ worth $7.5b up to June 2028. However, that total includes a tax hike of $2.3b from commercial depreciation becoming non-depreciable for tax purposes from 1 April 2024.  (The outgoing Labour Government went into the election with the same policy.) There are more expenditure cuts to be announced.

In his Economists in the Cold War, Alan Bollard contrasts Saburo Okita of Japan with Zhou En Lai of China to highlight a critical issue.

Saburo Okita (1914-1993) was in Manchuria (northeast China), in the port city of Darien (Chinese: Dalien) which was occupied by Japan at that time. Because they were politically unsympathetic to the increasingly militaristic occupation regime, his family moved in his teenage years back to Tokyo, where he graduated in electrical engineering and joined the civil service. During the Second World War, and despite reservations about Japan’s war policy, he was involved in managing the supplies of raw material such as coal and iron necessary for the war economy and food.

Japan lacks sufficient local supplies of many of these critical resources. One of the reasons for its territorial ambitions was to secure alternate supplies by conquest. Manchuria was a key source.

Defeated Japan was grim. Okita set up a group immediately after the war to plot the economic recovery. It met in a half-destroyed building. Many of the official records they needed were missing and they lacked even paper. Okita’s home had been bombed and he and his family had to pile in with the in-laws. He had to scrounge for potatoes and other basic food.

Bollard uses Okita’s life to describe the Japanese recovery from this misery to become one of the strongest economies in the world with Okita playing a central role in the planning and advice system, although he was never Minister of Finance.

As the economy flourished, he moved into the international arena including chairing the Pacific Economic Cooperation Council in Bangkok from 1986 to 1988.

In the course of his career, he helped develop a solution to the Japanese resource deficit which did not involve conquest and colonisation. The alternative was trade. New Zealand is a beneficiary. We were on the edge of the Greater East Asia Co-Prosperity Sphere, the creation of which was a Japanese objective in WWII. Instead, Japan is our fourth largest export market, and an integral part of the East Asian economy which New Zealand depends upon.

If a Japanese empire was not realised, neither were some of the victors’s plans. They wanted to ensure that after their defeat Japan and Germany would revert to rural economies, unable to provide the advanced technological resources to pursue modern warfare. Wiser heads (and the need to resist Communism) prevailed and today both countries are advanced economies playing an important role in the liberal international order. (On the other hand, Russia and North Korea demonstrate that less developed economies can sustain militarily aggressive intentions – at enormous cost to their populations.) This is an important lesson to be recalled if the West ‘defeats’ Russia. Putin’s claim the West wants to dismantle Russia. The West should make it clear that it wants Russia to be a part of a civilised, affluent, peaceful world. (That Japan transformed successfully might provide some optimism for such a goal.)

Okita and other Japanese economists of his time explained this international economic interdependence as ‘flying geese’. As characterised by the diagram of a flock of birds flying in a V-shaped formation, there is a leader with the rest tucked in behind it, benefiting from those in front. *

 

The flying geese model is intuitively attractive to explain the evolving pattern of East Asian development despite significant differences in resource endowments. As Bollard writes:

       “As the lead goose (Japan) grew stronger, its rising wages and growing investment moved it towards more capital intensive industry, releasing its labour intensive operations for economies further down the formation. Each economy remained outward-looking and trade-driven, with the possibility of positive spill-over effects, technology transfer, and international investment speeding the growth process.”

The model can also be applied to the development of the European economy and to the North American economy (applied to regions and not just countries). Observe too, that in long flights the lead bird will ease back and another take over. Is China doing that? (Although you cannot see it, there is a small dot at the back of the right wing of the V; that’s us – New Zealand.)

Bollard contrasts Okita with Zhou Enlai (1898-1976) who also had a turbulent life until 1949 when the Chinese Communist Party took over the governance of China, and he came second only to Mao Zedong; unlike the latter he was a stabilising force.

Okita and Zhou met on a number of occasions. Bollard’s description of a conversation in 1971 is revealing.

      “As Zhou saw it, the main purpose of economic growth was to build defence and security, and Japanese growth could drive the country back to Manchuria in search of resources. Okita had been an advocate of peace policies in Japan, and he objected to the argument, saying the purpose of Japanese growth was to give its citizens better living standards and its consumers more choice. Indeed Japan’s internationalization would likely constrain militarism. The debate continued for some hours and, while very civil, there was no agreement. Zhou’s argument, that the economy must serve strategic national interests rather than improving the material lives of citizens, had deep roots in Chinese history but also fitted Communist Party thinking in many Cold War States. What was the real role of economics? To Okita, it was consumption for individual welfare, to Zhou it was production for state security.”

The answer remains unsettled. (In contrast, the big economic question of how to organise a modern economy – getting the balance between markets and planning – is much better settled. The review of Bollard’s Economists in the Cold War which explores this is here.) You can easily identify countries which prioritise national security over their citizens’ wellbeing. Zhou’s strategy may still dominate Chinese thinking. Even though its citizens have experienced substantial rises in their material standards of living, there is a growing popular desire for their interests to be given greater weight.

It is easy to claim that Okita’s rather than Zhou’s strategy has long applied in New Zealand. Recall that during the trench warfare of the Great War – which has similarities to what is going on in today’s Ukraine – the New Zealand leadership was not nearly as ready to sacrifice its troops in the way the British military command seemed to and which appears to be the Russian approach in its Ukraine invasion. On the other hand, our commentariat often gets carried away with describing the economy as an entity which has a significance beyond that of the citizens. I am reminded of the sentiment: ‘my economic advisers tell me the economy is doing well, but I know the people are not.’

* I wish they had chosen swans rather than geese. One of the most moving moments in music is the glorious ‘swan theme’ in the final movement of the Sibelius Fifth Symphony.

Alan Bollard, formerly Treasury Secretary, Reserve Bank Governor and Chairman of APEC, has written an insightful book exploring command vs demand approaches to the economy.

The Cold War included a conflict about ideas; many were economic. Alan Bollard’s latest book Economists in the Cold War focuses on the contribution of seven economists with each one paired with another, the contrast heightening the underlying theoretical tensions, I am not going to deal with two of the chapters, important as the topics are: the struggle by the US to dominate the international economic architecture (Harry Dexter White) and the development of the strategy for nuclear conflict (John von Neumann).  The focus here on the five which are about how to organise an economy.

The Cold War started almost eighty years ago. It began in the shadow of two economic events. The first was the Great Depression, when the capitalist economies miserably failed. It occurred closer to the publication of Marx’s Das Kapital than to today. That book seemed to predict the sort of economic catastrophe which happened and promised – albeit vaguely – an alternative economy. Many economists, including Keynes, whose General Theory had yet to be fully adopted, expected another great depression after the war.

Moreover, the Soviet Union, which was based upon Marx’s vision, seemed to have ridden through the Great Depression without the same agony. (The belief was not entirely true; things had been pretty rugged there too, including the Holodomor, the great Ukrainian famine of 1932-3 in which up to 7m died in a population of about 30m. Knowledge about what was going on in other countries was not as extensive as it is today.)

The second influential event was the Second World War, in which the economic power of the West – most notably the US – was harnessed by direction from the centre rather than by market demand, as is common in a capitalist economy. The detail of the direction during the war was extraordinary; in New Zealand it extended to the length of women’s dresses.

Again admiration fo the Soviet Union loomed large. During the war, a quarter of its people were wounded or killed, including around 27m dead. It was no wonder that many in the West, uninformed about the brutal internal oppression, admired the country. As Bollard records, some economists went so far as to become Soviet spies. Others were fellow travellers. And of course others were vigorously anti-communist.

It was a reasonable question straight after the war to ask how best to organise economy. The contrast was ‘command or demand’; was it better to have an economy directed and owned by the government from the centre or would a market-driven economy of individual decisions and private ownership work better?

Bollard covers the question by describing the life histories of five economists who answered the question in various ways. In each case he contrasts his choice with another economist who took a different view.

Oskar Lange (1904-1965) was a Pole who spent a lot of time in the US following persecution in his homeland. The contrasting economist is Austrian neoliberal Friedrich Hayek (1899-1992) who was a vigorous proponent of the market economy. Lange put much thought into how to make central planning work, especially by using price signals. He had an interesting life – sad because he when he returned to Poland after the war, this subtle economics thinker found himself having to mouth Stalin’s economic nonsense.

(It had not occurred to me how many of the era’s economists whom I respect lived politically turbulent lives. Unless you were American or British, you probably had to flee on at least once. Bollard also covers their personal lives. Some of those were turbulent too.)

The German chancellor Ludwig Erhard (1897-1977) was an economist who as Minister of Economic Affairs and later as Chancellor presided over the German postwar miracle. His strategy was a social market economy which aimed to provide a liberal market environment with public/social welfare support for individuals. He is contrasted with Jean Monnet (1888-1979), was a key founder of what became the European Union. French-German tensions aside, I am not sure they were too different.

Joan Robinson (1903-1983) was based in the stability of Cambridge, England. An ‘establishment rebel’ she was the closest to a Marxist of Bollard’s seven (but recall Karl said he was not a Marxist either). I greatly admire her economics but, sadly, she often ended up endorsing some very unsavoury regimes.

She is contrasted with American Paul Samuelson (1915-2009), with whom she had a long off-and-on correspondence. (Bollard does not discuss how Samuelson is probably the twentieth-century economist, second only to Keynes, provided a theoretical answer to big question of how to organise economies. It is called the ‘neoclassical synthesis’, combining Keynesian macroeconomics with an advanced version of neoclassical microeconomics.)

I am going to leave Japanese economist Saburn Okita (1914-1993), contrasted with Chinese premier Zhou Enlai (1898-1976), for another column because they moved on to an even bigger question of the purpose of an economy. Suffice to say here, that Okita played a key role in the Japanese postwar recovery and in the wider development of the East Asian economies.

Raúl Prebisch (1901-1986) is the last in the book. Although originally Argentinian, he fled to Chile, in between a number of internationally important jobs, to experience the turmoil which followed the Pinochet coup. His challenge was whether the models for the development of rich countries were as relevant to poor countries. His thinking was influential on New Zealand’s thinking about development policy in the early 1960s. In particular he argued that primary exports faced falling prices (terms of trade) relative to manufactures, which justified measures to diversify an economy. (There is an enormous literature about this ‘unequal exchange’.)

Prebisch was right for the first three-quarters of the twentieth century but the trend reversed towards its end as manufacturing-successful East Asia became hungry for food and raw materials.

Bollard contrasts Prebisch with American Walt Rostow (1916-2003), famous for his The Stages of Economic Growth: A Non-Communist Manifesto with its notion of an economy ‘taking off’ into sustained growth. (He was also national security advisor to Lyndon Johnson.) He too was also influential in New Zealand’s thinking in the 1960s.

So who won? Unquestionably, economic organisation via the demand side of the economy is dominant in today’s affluent economies. I am not sure that we should attribute its success to economists, even if they gave us a better understanding of how market economies work. Rather, the complexities arising from the increasing diversity of choice in affluent economies can only be met by a high degree of decentralisation. I watched how east-central European economies under the Soviet yoke became increasingly – but slowly – more wealthy. Eventually, central controls became over-burdened and failed. That was a major factor in the rise and fall of the Berlin Wall and hence the end of the Cold War.

The prize to one of Bollard’s seven – if any is particularly worthy of the prize – is surely to Erhard, whose vision of the social market economy (Samuelson’s neoclassical synthesis with an integrated welfare state) dominates much of our thinking, even in those economies seduced by neoliberalism.

 

A. E. Bollard (2023) Economists in the Cold War, Oxford University Press. 384pp. ISBN: 9780192887399 (Also available as an ebook)