Random House, $29.95
The Tragedy of the Market
Mike O’Brien and Chris Wilkes,
Dunmore Publishing, $27.95
I remember the first time I set eyes on David Lange. The then recently elected member for Mangere had long, lank hair, heavy black-rimmed spectacles and at least 100 pounds more avoirdupois than now. He got himself with some difficulty up the shallow three or four marble steps to the landing in the Beehive’s ground floor reception room and he launched some unremembered book.
Never before and never since have I been so surprised and enchanted by a speech by a politician. It was fresh, insightful, funny and apparently extempore. Sir Roger Douglas was standing next to me and when it finished I turned to him and said, ‘There’s your next Prime Minister. ‘ ‘Don’t worry, I’ve got it in hand, ‘ was the laconic reply. The rest, as they say, is history.
The fourth Labour Government was perhaps the most innovative and controversial in our history. It came to power after a snap election and in the midst of a constitutional and foreign exchange crisis. Because my husband was Secretary to the Treasury at the time, I had a box seat at the drama and saw just how fragile is the fabric of our democracy.
The fourth Labour Government began with great drive but went down to electoral defeat after a chaotic second term. Lange and Douglas feuded openly, Lange sacked Prebble and then Douglas from his cabinet and finally resigned himself and the country had three Prime Ministers within a calendar year. The promise of the first term had turned poisonous and only 29 Labour members held their seats in 1990.
Lange’s analysis of this fiasco was that Labour had forsaken its roots and forgotten in whose interests it was supposed to govern. Douglas and his supporters blamed it entirely on Lange’s failure of courage and will to press on with the process of reform begun so boldly in the first term. Hence the title of Douglas’s latest book ‑ the business is what he was unable to finish when Lange called for time out for a cuppa.
Douglas had always been a utopian dreamer as well as a hands-on politician. Rowling demoted him from the front bench when he had the audacity to propose a so-called alternative budget and his There’s Got to be a Better Way prefigured many of the things he was to do as Finance Minister even though they appeared nowhere in the Labour Party manifesto.
Douglas insists right up to the present that he is still a socialist and what drives him most is a concern to better the situation of the disadvantaged and dispossessed in our society. He doesn’t, however, see the state as necessarily the only or even the best deliverer of goods or services to citizens and he argues that effective policies and good politics must be based on individual choice and personal responsibility.
Douglas has had the rare honour to have his book reviewed in The Economist. It has always been fascinated by him. It describes New Zealand as having seen ‘the most radical recent economic reforms of any industrial country, making it a paradise for free marketeers ‑ if not for those who have lost their jobs’. That is the nub of the problem. Many can now see the benefits of deregulation and restructuring, but a hard core of around 10% are unemployed and increasingly unemployable. Their alienation is explicable and causes the majority anxiety and unease.
Douglas’s response to this human problem is to put a time limit on the unemployment benefit ‑ he argues that many OECD countries already do ‑ and then to make training mandatory. He ends his section on labour market reform: ‘There is no reason why New Zealand cannot return to a state of full employment, when anyone wanting a job should be able to find one’ (p70). Would that it were so easy.
Douglas’s central thesis is that the welfare state has outlived its usefulness and should be dismantled. He argues that its original intent was to make society more equitable by transferring wealth from the rich to the poor. Today, however, most tax is paid by the middle class which then ‘captures’ most of the money back in some form or another.
Douglas thinks we can cut government expenditure by 70% in 30 years, eliminating personal income tax and company tax along the way. He sees state provision of health, education and pensions as massively inefficient. He thinks citizens who are less tax-burdened would have more choice, and schools and hospitals would necessarily have to try harder to attract and please their customers. He agrees governments should continue to assist the poor and those on benefits in health, education and provision for old age, but he also believes that targeted support will he more efficient in helping the truly needy, as well as giving greater choice to all.
The nub of his argument is: ‘The government can help people pay for health care without taking over the medical business, just as it can help them pay for food and clothing without nationalising supermarkets and clothes stores’ (p214).
Those who have benefited most from the welfare state these past 55 years ‑ those David Thomson has written about as the ‘selfish generations’ ‑ will fight to retain the status quo and their cocoon of state dependency. There is evidence mounting, however, in several countries that the welfare state has reached its limits and will have to be redesigned. Douglas is not afraid to think the unthinkable and question old shibboleths. He should be read with an open mind.
The Tragedy of the Market carries its entire message in its title. I find it extraordinary that as the countries of eastern Europe and the former Soviet Union have been turning away from the failures of central planning since 1989 two Massey University academics can give the following as their main cure for what they believe to be wrong with us: ‘The first and most substantial principle which needs to be reintroduced is that there must be an active role for the state in planning the future direction of New Zealand society’ (p174).
This book is a hatchet job on the fourth Labour Government in general and Douglas in particular. Nor, of course, do they like the Muldoon or Bolger National Governments, but they reserve their special venom for Labour’s traitors.
The authors are sociologists, not economists and their work illustrates perfectly why the British Minister of Education has dubbed sociology a ‘pseudo-religion rather than an academic discipline with serious intellectual rigour’. Economists will be fascinated to know that in the authors’ view ‘the market’s claim to universal value must be seen for what it is ‑ a rather small, obvious idea, limited to a short period of time in a limited number of countries’ (p176). Have they not heard of Adam Smith?
Their lack of historical knowledge or perspective is breathtaking. They even think the New Zealand Labour Party first came to power in the 1890s (p101). Their lack of willingness to acknowledge contemporary developments in formerly communist states seems a kind of blindness, too. What would they make of the ringing call by Vaclav Klaus, Finance Minister of Czechoslovakia, with which Douglas begins his book:
‘We want to achieve the transition from a state-dominated economy to an economy based on the private sector, private initiative and private entrepreneurship. We are increasingly convinced that our country, or any other, is less unique than often claimed. The basic economic laws are valid across continents, economic systems and ideological beliefs. The so-called ‘third way’ between central planning and the market economy is the fastest way to the third world. ‘
Do O’Brien and Wilkes think Douglas has brainwashed Vaclav Klaus?
Not even they, however, have the chutzpah to hold up the failed East European model as one to emulate. They bid us instead turn our eyes to Sweden.
Let me tell you the latest news on Sweden. Since its currency was floated less than a year ago it has depreciated 30% with consequent inflationary pressures. Its budget deficit is 13% of GDP, currently worst in the industrialised world. Its national debt is now 71% of GDP and is also rising, so that even optimists predict it will double in five years. Two-thirds of adults get their income directly from the state in the form of benefits, workfare or government jobs. Private industry is so heavily taxed it is increasingly moving offshore. Sweden once had a much-vaunted full employment policy, but no more. The registered unemployed are 9.4% and a further 5% are on make-work schemes of one sort or another. The much vaunted Swedish model has developed chronic problems which no government seems willing to tackle.
The central concept around which the authors organise their argument is the ghastly neologism ‘fordism’. Fordism, they say, is characterised in the first instance by mass production and mass consumption and on this base welfare states were erected.
Dear old Henry Ford’s name is being taken in vain. He famously thought history was bunk. Heaven knows what adjective he would find for this pair. Apparently in his autobiography he suggested that when he watched animals being disassembled in the Chicago freezing works this gave him the germ of the idea for the motor industry assembly lines. For our authors it is then a small step to see that in New Zealand ‘millions of identical sheep were yearly processed to look exactly alike, in a rural version of the model T Ford’ (p17). How’s that for lateral thinking?
Throughout their book O’Brien and Wilkes regret that the state has shed certain responsibilities and redesigned others. They call for a ‘highly efficient, responsive and investment-directed state’ (p 175) to expand its areas of influence and activity.
Who, I wonder, do they have in mind when they endlessly reiterate the virtues of ‘the state’? Do they mean politicians and bureaucrats? Why should rational New Zealanders want these people to have more power? All polls show that kiwis have almost universal contempt and distrust for politicians and scant enthusiasm or respect for faceless civil servants. If ‘the state’ isn’t politicians and bureaucrats, it can only mean those with guns ‑ the army and the police. Few citizens surely would regard that as utopia.
On the back cover of the book a fellow sociologist enthuses: ‘This book is brilliant Star Trek stuff. ‘ He is perfectly right. Its neo-marxist nostrums are pure science fiction.
Margaret Clark is professor of politics at Victoria University of Wellington.