The perils of pragmatism, Tim Hazledine

The State in New Zealand 1840-1984: Socialism without doctrines?
Michael Bassett
Auckland University Press, $39.95,
ISBN 1 86940 193 X

Unlike George Lucas of Star Wars, Michael Bassett has decided to tell his story in chronological order. He had wanted to write a book on the Fourth Labour Government after 1984, but Mr Roger Kerr, Executive Director of the NZ Big Business Roundtable, persuaded him in the nicest possible way to first research a study on how New Zealand came to the brink of Rogernomics. The Roundtable also assisted financially with publication, but Bassett assures us that there has been no editorial interference, and that he is “grateful for their forbearance”.

Well, jolly good! But we should not be too prissy about this – some very good historians over the years have accepted or sought the patronage of the rich and powerful. There is the tale of the great Gibbon presenting yet another volume of his magnum opus to his hoped-for patron, the unlettered Duke of Gloucester, who responded affably: “Another damned, thick, square book! Always scribble, scribble, scribble, eh, Mr Gibbon?”

Bassett has scribbled furiously, and his book is certainly thick and square enough – 445 pages, more than 1200 endnotes. His story is that of the role of the State in New Zealand – its role in the New Zealand economy, especially – and his theme is that the State’s intervention, up to 1984, when the narrative ends, was not thought out, ad hoc. “Socialism without doctrines” is the sub-title, and the phrase is repeated in the book. The early state interventions were done with “few genuflections at overseas experience or ideology”; there was “pragmatism, not ideology”; Labour’s first three administrations had “no theory”; protection was “piecemeal”; by the early 1980s “layers of well-intended intervention” were in mutual conflict.

But don’t get the wrong impression from this – the solution was not a more ideologically consistent interventionism! Bassett is quick to assert his point: “New Zealand would [not] necessarily have fared better had its haphazard state activity been more philosophically consistent. Nowhere in the world has socialism, with or without doctrines, proved a panacea for modern times.”

So there is nothing here to strain the Business Roundtable’s editorial forbearance.

But what is the non-aligned reader to make of it all? First, and so far as I can judge, Michael Bassett is a competent historian. The prose is steady and lucid, the narrative well-paced, the research into primary sources – including author interviews – extensive. For my taste, the use of anecdotes to (insidiously) make rather than illustrate points is excessive, but I don’t think they fooled me and why should I assume that other readers will be less able to look after themselves? There is a nasty little sequence of unsubstantiated assertions about ACC, which might be lifted verbatim from a Business Roundtable pamphlet, but on the whole Bassett keeps his prejudices under control, at least up to the point in the narrative when he starts appearing in his own endnotes.

For Michael Bassett was, of course, a player in the story of which this book is the prequel – a Labour MP, in and out and in, for 15 years and a member of David Lange’s administration. He has on his hands, if not blood, then grease – the grease of the “Fish and Chips Brigade” who met in Lange’s office in December 1980 to conspire to overthrow the then Labour leader Wallace Rowling.

The famous photo is reproduced here. There they are: the owl-like Lange, Bassett himself, the wolfish Roger Douglas, and panda-eyed Mike Moore. Bassett may not have been a major player – who now from memory would come up with his name as the fourth member of that quartet? – but he is parti pris, and he has his part (if no longer party) to protect.

But we should judge his story on its merits. Does it support the thesis summarised in the socialism-without-doctrines subtitle? First the socialism part. Unless one is prepared to label as socialist a state that does anything more than carry out the minimalist functions of enforcing the law and raising an army, then this is not an accurate use of the word, at least in its modern sense. As Bassett points out, by 1910, at the end of the first 50 years or so of vigorous development, the State accounted for just about 10% of New Zealand GDP. That percentage would rise through the century, as it did in all the economies we call capitalist, but economic life remained grounded in the widespread exchange of private property rights in a market setting, fundamentally different from the socialist regimes of Communist China and the Soviet bloc.

In his excellent book Only Their Purpose is Mad, the late Bruce Jesson labelled as “The State of Amnesia” the New Right view of pre-1984 New Zealand as a sort of closed, socialist fortress – the “Albania of the South Pacific”, as someone else put it. Jesson saw the country as having been essentially colonial, not closed, and the role of the State as basically supportive of the private sector in the Keynesian sense: maintaining purchasing power, building infrastructures, weaving safety nets, stabilising markets.

We could argue about this, but perhaps it is more useful to focus on the “without doctrines” part of the thesis. Here I expect there would be a good measure of agreement between Bassett and Jesson, at least on the lack of “theory” or “politics” of New Zealanders, which both rather deplore, though for very different reasons. To Bassett, it fostered the process of “incremental interventionism” that cobbled together an “over-regulated, over-legislated society” that by the 1980s had become “virtually ungovernable”, and thus in need of nothing less than major, radical reform. To Jesson, it made New Zealanders all too governable; we were a “hollow” society with a “shallow” culture – without the layers of civil institutions between individual and state that could have defended us against the Rogernomics blitzkrieg (and Muldoon before that).

But surely there was an idea or two around the place before 1984. When all those Europeans and Americans came (as Bassett tells) to marvel at “the birthplace of the twentieth century”, there must have been something systematic underpinning it. The great Liberal progressive governments of 1891-1912 were, well, progressive. They wanted to build a prosperous economy and a decent society and they believed it wouldn’t happen without the State getting seriously involved. What was being born was the modern mixed-economy social democratic state.

If the “theory” of mixed social democracy did not have the beguiling simplicity of the “free” market model, that is because these things really are complicated – even, messy. Decades before the genius Keynes and the methodical Beveridge gave some analytical shape to it all, our pioneering practitioners had to find their way empirically. Bassett gives a (to me) vastly endearing quote from W Pember Reeves:

What one had to do was to form a view of what was wanted and desirable in New Zealand. Then one looked round to see whether there were any schemes or suggestions that would be useful … What you took you pieced together, modified and endeavoured to improve on … The amount of adapting, revising, adding and taking away was very great; over and over again one changed one’s mind.

The result? During the Liberal reign, real GDP per person increased by nearly 40% – about twice as much as over the last 21 years in New Zealand. Even as late as 1950 we had possibly the third highest living standards in the world.

And after that? Bassett reproduces a graph showing New Zealand’s declining income per head relative to the OECD average. “These figures speak for themselves”, he says. But they don’t speak for themselves. Figures never do. Analysis is needed. Note first that the relative decline was because of other countries catching up, not us declining in absolute terms. As Bruce Jesson, who grew up in the 1950s and 60s, remarked: whereas Business Roundtable types deplore the lack of choice of brands of refrigerator, he remembered that his family was glad to have a fridge, to replace their old meat safe. Real per capita GDP actually increased by 50% between 1955 and 1976, under very difficult external circumstances.

Michael Bassett tells us many interesting things about this period, but he lacks economic insight and perspective. On the attempts to diversify exports after 1965 he writes, “success proved elusive”, but in fact, as Brian Easton and other economists have documented, the next 20 years witnessed a remarkable broadening of our markets and export industries. As the narrative moves towards 1984, we are increasingly conscious that the author is in little doubt how he wants the story to end. Good history, says Bassett, gains from hindsight, which is true enough, but his particular post-1984 hindsight is that “any government wishing to pursue the goals of economic and better living standards for ordinary people had to make radical changes”.

Well, one can just about understand why, at the time, a little group of naive, well-meaning meddlers – R Douglas & Co – might have believed that their brand of massive and radical state intervention in the economy could succeed where Muldoon’s had failed; but, God, how one wishes, with hindsight, that they had thought differently. The sickening excesses of SMPs, National Super, and Think Big – well documented here – were, incredibly, soon to be surpassed by wild swings in inflation and exchange rates, by a more than doubling of unemployment, by fire-sale privatisations, by the world’s worst share market collapse, by the ruin of much of the manufacturing sector, by the rise of a massive beneficiary class.

Bassett states that “the jury is still out” on Rogernomics. No it ain’t, Michael. Over the past year or two something like a consensus has emerged from economic commentators of all political stripes. Their verdict, at its mildest: the reforms have been a grave disappointment. The “ordinary people” have suffered, many absolutely, and just about all of us relative to a reasonable counterfactual – say, something like the path of moderate change followed by Australia.

New Zealand underwent an extraordinary regime shift, from “regulatory capture” by the various producer interest groups, to what could be called “deregulatory capture” by financial and managerialist interests. These groups are powerful and it is perhaps naive of me to suppose that the politicians whom they supported could have behaved much differently. Michael Bassett was one of these politicians and we must expect that he will have his own axes to grind in the book that he is writing now about that period. At the very least this should make for entertaining reading, but what one really hopes is that Bassett will apply his historian’s skills to his insider’s perspective and give us something we really need – a cogent, well-informed political/historical analysis to complement the emerging economic history of these difficult times. Does Bassett have it in him to do this? Right at the end of this book, there is a flash of hope. In the very last paragraph he writes:

The only matter still in doubt is whether the Labour and National governments after 1984 have convinced the public that they are more likely to benefit in the long run from governments that are modest regulators rather than enthusiastic doers.

Actually, there is very little doubt that the New Zealand public, having suffered for a long generation the excesses of enthusiastic doers – Muldoon, Douglas, Richardson, and their minions – would now like little better than a nice steady run of modest regulation. Or have I misread this?

Tim Hazledine is Professor of Economics at the University of Auckland and author of Taking New Zealand Seriously: The Economics of Decency (reviewed in our December 1998 issue).

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