The bankruptcy of the new fundamentalism, Brian Easton

From Welfare State to Civil Society: Towards Welfare that Works in New Zealand
David G Green
New Zealand Business Roundtable, $24.95
ISBN 1877148 016

In Making a Difference, Ruth Richardson says that she was “more likely than Jim [Bolger] to talk about the [1991] benefit cuts in moralistic terms.” Leaving aside the fragging of her prime minister, which seems to be one of the main purposes of her auto-hagiography, there is an interest in what the ex-minister of finance meant by “moralistic terms”. I think she means, for Richardson finds it easier to claim the high ground than to climb it, that dependency on the state is wrong, although the fog descends as we try to unravel what she thinks is right.

In practice she was not so much on a hilltop, but on a wharf surrounded by people struggling in the water almost afloat by state-owned lifebuoys. Her strategy is to withdraw the public buoyancy. She seems delighted to see a handful of the survivors learning to swim, while the sinking rest are ignored. This morality, which costs the moralist nothing, is complicated by policies which make it more difficult to climb on to the wharf: fearsomely high effective marginal tax rates on the poor (which the moralist’s policies raised) and rising unemployment (for there were 10% more unemployed when she left office than when she began it, plus higher disguised unemployment).

However we would be wrong to dismiss this morality issue because of the unsatisfactory effort that Richardson has made. The unanswered question is what the underlying ethical underpinnings of the welfare state are that she was so happy in redesigning. It is a problem that faces the Business Roundtable too, especially given that it has had ex-members jailed and some current members deeply involved in the wine-box inquiry. The NZBR seemed to conclude that there was no-one in New Zealand that could help them at the philosophical level (although there is no lack of local lawyers willing to assist them at the judicial level), so they went overseas for guidance, commissioning David Green of the London Institute of Economic Affairs.

When Green visited last April, there was considerable concern as to his status, not helped by the typographical confusion of the book cover prominently featuring “Dr David G Green”. Usually the emphasis of a qualification on a book cover implies the contents are not quite orthodox: advocacy of weight-loss strategies, cancer cures, astrology, perpetual motion machines, funny money, get rich quick schemes, nutty economic theories and the like.

Views of Green’s status were not further helped by Roger Kerr, the NZBR executive director, who has described the term new right as one which “no genuine academic concerned with precision of thought rather than polemic would stoop to use”. Green had written a few years earlier The New Right: The Counter-Revolution in Political, Economic and Social Thought. Despite its Hayekian overtones it is not a seminal work (for instance neither it nor Dr Green are mentioned in Richard Cockett’s Thinking the Unthinkable). However Green has a credible academic record with a Newcastle doctorate, which led to his first book, Power and Party in an English City, and a number of subsequent books, although the majority are published by the lobby groups for which he works. On the basis of his record he could be shortlisted for a position of senior lecturer in an English political studies department.

Nevertheless, Green faced a severe problem in the NZBR commission because he has little knowledge of New Zealand. The usual approach for an academic who has not got time to visit a country thoroughly is to go down to a library and read everything that is even marginally relevant. I can only conclude the IEA library material on New Zealand consists of Richardson’s book, Roger Douglas’s Unfinished Business, David Thompson’s Selfish Generations? and a few government publications. The enormously rich literature on the welfare state in New Zealand is completely avoided. Astonishingly, the central document on the modern welfare state, the report of the 1972 Royal Commission on Social Security, is not cited and the one mumbled mention of it suggests Green had not read it. The result is a book with the most tenuous connection with New Zealand.

There is also little reference to the flourishing international literature on welfare states, contributed to by left, centre, right and muddled. It is not simply that he fails to refer to key names like Gosta Espinger-Anderson or Frank Castles. Green seems quite unaware of the debate which surrounds them, especially the issue of how to integrate the welfare state with the rest of the economy. There is, for instance, no significant discussion on the labour market, despite it being a central part of the traditional delivery of welfare in the Australasian welfare state. What is a reviewer to do? Accept Green’s narrow frame? The reader is owed a more comprehensive account than this.

2

Given his antiquated vision, it is not surprising that Green equates the New Zealand welfare state with the United States one, a position often also taken by the New Zealand new right. In part they are so mesmerised by the American model they cannot envision a different one; in part they want to convert New Zealand into their idealised version of the United States model; and in part they have read United States new right theorist Charles Murray, like what he has to say and want to apply it uncritically to New Zealand.

Green likes much of Murray and cannot help uncritically applying Murray here. For instance he makes the crude equation of Murray’s portrayal of the United States blacks with the Maori. It would be enlightening to have a systematic comparison of the culture and society of imported slaves with that of the tangata whenua. Instead Green makes a half-hearted parallel and then compounds it by a casual flick through the figures.

Quoting Murray that “the definitive proof that an underclass has arrived is that a large number of young, healthy, low-income males choose not to take jobs”, Green attempts to demonstrate this by noting that “[f]or Maori men aged 15 to 19 [labour force] participation fell from about 65% in 1981 to 44.8% in 1991.” I cannot reproduce Green’s 1981 figure from the population census and the 1991 figure is slightly different. However, that is not the point here. Rather, if we look at all New Zealand males aged 15 to 19 we find that their participation rate fell, too, from 62.7% in 1981 to 49.4% in 1991. (That this is not quite as fast as the Maori rate may be due to age structure effects.) Having equated Maori with low-income males, Green fails the most elementary test to see whether the phenomenon is happening to other groups.

This is an approach where any data which support one’s theory is acceptable and no attempt is made to test alternative hypotheses or to look at other data. It is what Chicago economics professor Melvin Reder describes as a “tight prior”, where “correct answers must conform to definite criteria… Answers that violate any maintained hypothesis of a paradigm are penalised”.

Before leaving the inadequate attempt to impose a Murray analysis on New Zealand, let me express my anger that Green has failed to notice that we have not used the expression “illegitimate” to describe children for almost a quarter of a century. A child born ex-nuptially does not need to be further saddled with the notion they are not authorised by law. Green may come from a country where children are still treated in Dickensian terms but he should know that many New Zealanders’ ancestors fled the uncompromising harshness of the Victorian poor law for a better way of doing things.

3

This lack of historical perspective is another major defect of Green’s work. Perhaps it is inevitable if one has to rely on Richardson, Douglas and Thompson’s Selfish Generations?. I have described in detail the inadequacy of the latter study in New Zealand Sociology (May 1992) but, briefly, Thompson’s study consists of a series of hypotheses, none of which is demonstrated logically or empirically, but which pander to some prejudices. Thompson’s knowledge of the issues was so narrow that he is not even aware of New Zealand research that could have supported his case (let alone that which did not). Noting that Thompson is writing a pamphlet for the NZBR, one hopes that it will be more substantial and less emotional than his last effort.

Green makes numerous errors as a result of his historical ignorance. He says there was no welfare state before 1938. Wrong, there was one as early as 1898, albeit of a primitive form. Later he says New Zealand had social security in 1898. Anachronistically wrong, since the term is not coined until the 1930s.

The problem is deeper, for welfare states are organic institutions which evolve in response to historical events. It is true that many of our ancestors came to escape hardship in the originating country (true even for many of the Maori canoe traditions), but nevertheless poverty was a problem in the nineteenth century. The story of responding to this state of affairs is captured by a number of authors, none more vividly than Margaret Tennant in her Paupers and Providers. The welfare state evolved as a response to this hardship. By the end of the nineteenth century various institutions were in place — most prominently free primary education, the old age pension and the industrial conciliation and arbitration system — to deal with the social difficulties. Further changes were added throughout the first third of the twentieth century, but the institutions failed to cope with the depths of the interwar depression. (New right references to the great depression are as common as NZBR publications referencing the 1987 crash.) From the late 1930s there were further changes. As late as the 1970s the welfare state was progressing in scope, as new pressures arose.

The basic lesson from this, the one that Green missed because he did not bother to understand the New Zealand experience, is that the private sector has regularly proved incapable of providing the support for the poor that New Zealanders desired (and, according to opinion polls, continue to desire). The pragmatist acknowledges there may come a time when the private sector (the voluntary and/or the business sectors) can play a more central role and the state provision will be wound back. Personally, I have no great problem with such a scenario, providing the private provision is sufficient.

However, Green seems to be unaware that when Richardson and her friends began redesigning the welfare state, they put a substantial pressure on the private sector. It proved unable to meet the new demands placed on it, as food queues lengthened, shelters became crowded and family stress rose. The outburst from church leaders against the measures after 1991 was not a group of ethereal clerics looking down from above but an upswelling from those on the ground running the various churches’ charitable institutions. They found they simply could not cope with the pressures from the benefit levels and entitlement cuts, the reductions in housing assistance and the sharp rise in unemployment as a result of Richardson’s ill-thought-out fiscal policy. Cardinal Tom Williams’s exasperated, “The man’s crazy”, to an article by Green arguing for a greater responsibility from the private sector, is perfectly understandable when the cardinal goes on “[d]oesn’t he know how much the churches and voluntary organisations are doing and how stretched they are?”

Well, of course, Green did not, or if he did he gave no sign in the book. This ignorance of what was really going on not only avoids being confronted with unpalatable facts but means that he missed what the debate was actually about. It is easy for Green to say we should all be more moral, and that we should organise a society based on our being moral and then fly away leaving the sermon ringing in our ears. Application of the sermon is much more difficult for those left.

4

Green may be astonished to know there has just been a major reorganisation of the New Zealand economy based on the principle that we could not be relied on to be moral. At least that is how the influential 1987 Treasury post-election briefing, Government Management, reads. It acknowledged moral behaviour and altruism but said it could not be trusted for public policy purposes. That is why, for instance, we had to privatise government-owned businesses, because the politicians who run the country cannot be relied to act on behalf of the people. A central organising theory in the reforms has been the “principal-agent relationship” which says that a person cannot be sure that an agent will act on the person’s behalf, so we have to build in market mechanisms to ensure they will.

The major beneficiaries of this narrow (and nasty) account of human behaviour were those who bought (or were involved in the selling transaction of) the privatised businesses. Almost all of them are on the Business Roundtable. The irony then is that as beneficiaries of this account of amoral man, they now seek a morality. A practical example may explain their dilemma.

Suppose a failure by the Treasury to get its incentives together results in an offshore tax haven evolving, whereby corporations can avoid paying tax, using means which seem to the normal voter to be far from moral. Should they take up the option? Under the Treasury vision, the answer is yes, providing they do not break the law. But law is not morality. Are there any moral restraints on the corporations? The only hint Green gives to the answer is that the rich “have a special duty to assist the poor”. I could not discern from this whether Green would be happy if a corporation avoids tax but gives to charitable works a proportion of the proceeds (how big is the proportion?). The book is remarkably thin on corporations altogether, which may have been a great disappointment to the Roundtablers, most of whose training in ethics amounts to Sunday school and a pass in a course on auditing.

More generally there is an odd disjunction in the book between theory and applications. Green sets out a vision of moral civil society which was praised by Archbishop Brian Davis, who wants a society in which morality and spirituality play a central role. The cardinal would be equally supportive of the goal, although because Catholic social thought is so much more sophisticated than Anglican I would expect any full response of his to be considerably more subtle. However, when praising the book, Davis does not mention its practical policy prescriptions, which seem to be more a mix of the standard Douglas/ NZBR line than to evolve organically out of Green’s analysis.

I chose as my example the section on health, which Green claims as an area of expertise. It is instructive that Green adapts one of eminent health economist Bob Evans’s inherent characteristics of the health system as “asymmetry of doctor and patient”, to “uncertainty about which doctors to trust”. Those familiar with the debate will recognise that Evans is using the principal-agent theory that the Treasury was using but that Green has either missed the point or is avoiding it. Perhaps Green’s naivety is not so surprising then, when he says in the health services “competition is what protects consumers against manipulation [by doctors]”. The reader may be even more confused by Green’s definition of competition a few lines later. It is “freedom of initiative within a legally competitive domain”. Far too much of the new right rhetoric is a humpty-dumpty of giving new meanings to words and then using them as if they have their ordinary meaning. No wonder a reader can get confused.

As a result of Green not grasping, or not wishing to grasp, principal-agent theory, the chapter is a series of misrepresentations of the health debate. One is not surprised that the end that it comes out for what amounts to the privatised system which was presaged in the NZBR Danzon report and the Green and White Paper Your Health and the Public Health, neither of which appear to be in the IEA library.

The lack of reference to the New Zealand health reforms suggests that Green is not interested in how his theory actually works. After all, as Reder suggests, facts can get in the way of theory. An even odder discussion occurs in the section on income distribution where a number of pages is devoted to a British debate but none to the New Zealand one. One might accuse him of ignoring the New Zealand evidence because it is so embarrassing to the NZBR case, demonstrating that income inequality has increased markedly as a result of the reforms it supports. A simpler explanation is that he is not interested, did not look at the New Zealand experience and does not care. In the end much of the book seems to be a British writer writing about British preoccupations, but as he is being paid for by a New Zealand institution (albeit increasingly owned overseas) there are a few miscellaneous inserts about New Zealand. The value of this book, if any, is in the articulation of the new right theory, not in its application.

5

Early on Green states: “I will follow the philosopher Michael Oakeshott in contending that modern European [sic] states can be best understood as torn between two contradictory methods of association.” He follows the Oakeshott in calling the first “civil association”, but calls the second “corporate association”, which does not refer to corporations but to nation-states. No wonder the casual reader gets confused over the idiosyncratic terminology. An index would have been helpful, because it could have been used by the reader to check whether Green had humpty-dumptied yet another word. While I am complaining about terminology, it may be pointless for women to read the book, because Green does not address them, except if they are solo mothers. For instance Green says “no person should exempt himself from the law as he pursues his own goals”.

Accepting the need for simplification, I do not find Oakeshott’s two categories uncomfortable (although it seems to me that the most interesting — and characteristic — associations are those which have elements of both in them). However, having established this abstraction, Green labours to make the first option totally superior to the second. Since facts may get in the way to the believer, the argument proceeds by a series of logical assertions, based on premises which are taken for granted but to the non-believer may well seem contentious. The argument requires a constant ignoring of logical weaknesses and inconsistencies. Instead authorities are quoted (and misquoted) to support the argument.

What is one to make of “the claim that free-marketeers foster selfishness finds no support in the writings of the leading classical-liberal thinkers”? It is a statement so typical of the tendentious nature of Green’s argument it deserves a little reflection. Who ultimately cares whether “free-marketeers [whatever that means] foster selfishness”. Green may be fascinated by the details of their personal lives, although how the dead “thinkers” he quotes have an intimate knowledge of the private activities of, say, the members of the NZBR is puzzling. Perhaps Green meant that free markets, whatever they are, do not foster selfishness. That is an empirical question. As for the views of the “thinkers” (irrespective of how Green has distorted them), who cares? Some of the “thinkers” which Green cites for support (at other points) thought the earth was flat. Opinion does not make it flat.

Or is he saying that those who advocated “free markets” (by which he means the “thinkers” he is citing) did not justify them in terms of selfishness. In Mandy Rice-Davies’ immortal expression, “well, they would, wouldn’t they?” But are we so sure that these thinkers — such as Adam Smith — advocate “free markets” in the way that their followers claim? Smith became a customs collector after he wrote Wealth of Nations. Accusing him of hypocrisy is not adequate. I suggest his vision of the world was considerably more subtle than it is portrayed. (In contemporary terms he favoured “more market” but was not a Rogergnome.) In the end the sentence is either a piece of muddled thinking or a near tautology, like much of the book.

Green’s approach has a naivety to it, which grows out of the simplification. He is determined to demonstrate his choice of civil association is superior in every way to the simplified alternative. This means that any possible defect of his preferred option is ignored or stated to be irrelevant. Every possible defect of the alternative is magnified.

We saw this in the health discussion, where Green ignores and/or misrepresents each criticism of his preferred outcome. It would be perfectly reasonable to present all the major strengths and weaknesses of the different ways of organising a health system, to conclude that none is superior on every criteria relative to the others and yet to conclude that one’s personal preference is, say, the option Green advocates. Others, equally reasonably, might disagree, but engage in a debate. However it is more difficult to engage with unreasonable extremists such as Green.

This seems to have been what happened to the archbishop, who was understandably anxious to state “[t]he moral and spiritual foundations of a nation are much more important than political decisions about the size of the holes in the safety net, or how soft or tough our welfare loving should be — though obviously such decisions are necessary and must be made with care.” I invite the reader to reflect on that sentence and ask how much it, and indeed the whole text is total agreement with Green’s argument and how much it is a plea to reconsider the underpinnings of our nation (a corporatist association which, it will be recalled, Green is rejecting) and is promoting a particular vision, consistent with his church’s heritage. (I assume that in Green’s categorisation the Church of England is a corporatist association in England — and possibly New Zealand, although the text is too vague to judge.) By not adopting any of Green’s policies, the archbishop is indicating he wants these to be debated with the likelihood that different conclusions will be reached.

However the archbishop’s statement of moderation has been seized on by the NZBR to be interpreted as a wholesale support for Green. It is a characteristic feature of Green and the NZBR publicity machines to quote selectively those who apparently support them and ignore anyone who disagrees or has not made statements which can be twisted into support. I do not expect the NZBR to ask the cardinal for a commentary, nor is it likely to promulgate it so vociferously if it were supplied.

My Anglican friends, reasonable moderates to a man, woman and minister, have expressed dismay at this development. As one said: “He [the archbishop] should know to sup with the devil with a long spoon.” The cardinal’s exasperation, although probably spontaneous, was perhaps the better strategy. Because it is older and has operated in more countries, the cardinal’s tradition has had more experience supping with the devil. The result is that in sophistication and subtlety of social policy Catholic thought far exceeds that of most other christian theologians.

6

Ultimately Green is a fundamentalist, who exists in a bifurcated world of good and bad, virtue and vice, christian and infidel, capitalism and communism. It is the world of Sunday school and adolescence, where all is simply categorised and easily judged. It is a world riddled by Peter Pans who have never grown up to face the brutal reality that there are not easy solutions. If they were, they would have been adopted. Recall the 1991 health system proposals which have proved on implementation to be an almost total disaster. Any reasonable person with a little knowledge could have predicted the reforms were not going to work but extremists like Richardson and her friends drove them on, relying on their ignorance of the issues to insulate themselves from commonsense.

The fundamentalism is sometimes justified in the words of Barry Goldwater as “extremism in the pursuit of liberty is no vice”. In fact he said “extremism in the defence of liberty is no vice … moderation in the pursuit of justice is no virtue.” Goldwater was not humpty-dumptying the notion of liberty (it would have been odd in the context of a Republican convention to do so) and there is a substantial difference between defending and pursuing liberty. (The second part of the statement exhorting the pursuit of justice is less commonly stated, although it could be used by oppressed minorities, women and many others to justify actions which might be thought excessive.)

Would that the world, and the great social questions that face us, were as easy as Green claims. But they are not. If you have any doubts, read the book from the perspective of a member of the Roundtable. Certainly you will get the impression, as one of the richest men in the country running some of the greatest corporations, you should contribute more to charity. Certainly one would welcome a more generous response from that quarter. But if they were to run their businesses in the way that Green runs his argument, based on tenuous logic buttressed by conveniently selected quotations (and sometimes misquotations) and a disregard of the facts or the circumstances, Roundtablers would not be rich men and their corporations would be bankrupt.

Brian Easton is a Wellington economist.

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