Taking New Zealand Seriously: the Economics of Decency
ISBN 1 86950283 3
The Wellington launch of Taking New Zealand Seriously coincided with the 1998 conference of the New Zealand Economists’ Association. The contrast is striking. Few of the conference papers were relevant to current economic preoccupations and most were impenetrable to the average intelligent non-economist. Tim Hazledine, Professor of Economics at Auckland University, has tried to write a book accessible to the public.
These were not the only two venues for public economics that day because, as usual, the business press preached. Their oddity is nowhere better illustrated than in the slot just before seven on Morning Report, which was once known as the “God-spot”, in which ministers of religion, including Christian fundamentalists, used to harangue us. Somehow it got transmuted into the “ACT-spot” for economic fundamentalists, so-called “independent” commentators representing the financial sector. Hazledine does not offer the ACT/ Rogernomics perspective, criticising it frequently in the book. But its adherents are easy to criticise as they make so many analytical and empirical mistakes. (I listen to the ACT-spot, as an early morning warm-up exercise, for the elementary – and often laughable – economics mistakes that assail us.)
The issue is not that there was and is no alternative, but what the viable alternatives are. Hazledine summarizes his view as follows:
[h]ow the cake gets baked is more important than how big it is when it comes out of the oven. It is important that everyone participates in the baking process, and that they are decently rewarded for so doing. This is essential for the wellbeing of the not-so-talented bakers, and won’t do the champion cooks any harm either. They might just come to enjoy it, and their children surely will. And, because the social side of economic life (teamwork, loyalty and so on) is a lot more important than the [economic] rationalists realise – well, who knows, the cake to which everyone contributes might even turn out bigger and better than the specialist’s free-market cake. But whether it does or not, the basic point is this: get the process right, and the outcome will look after itself.
Fine God-spot sentiments, but what is the underlying analysis?
Let me begin by pointing out that Hazledine has more in common with the Rogernomes than he thinks. The phrase “get the process right, and the outcome will look after itself” could have come out of a Treasury manual of the 1980s. It has been both a cunning and a deeply flawed strategy. The Treasury process (of commercialisation) has been rather different from the one Hazledine advocates, but critics found that the most powerful argument against it – that the outcomes (such as rising unemployment and no productivity gains) were not what was promised – were undermined by the defence that the processes were right and therefore the outcomes must be right too. The post-revolution Russians were similarly misled: the Party decreed that the process was right, and therefore all the outcomes were in the interests of the workers. (There are more parallels between the Rogernomes and the Bolsheviks than either would want to acknowledge.) The approach of the Hikoi of Hope may be more relevant: define what outcomes are wanted, and test the processes and polices against those desired outcomes.
Hazledine, of course, argues for different processes from the Rogernomes, and pays considerable attention to “social capital”. There is a fashion for adding some attractive adjective to the noun “capital” to generate an expression with positive connotations: social capital, human capital, intellectual capital, community capital, cultural capital, symbolic capital, First Capital, Long Term Capital Management. The Rogernomes got there first. The Institute of Policy Studies and the Treasury have been involved in a project of trying to sell social capital to the public. The inspiration seems to have been Jim Bolger’s desire for social cohesion in the face of a society fragmenting as a result of the economic policies the Rogernomes were pursuing. The trouble is that, as Hazledine rightly identifies, society is anathema to economic rationalism. (As Mrs Thatcher is reputed to have said, “[t]here is no such thing as society. There are individual men and women.”) The resulting publications on social capital are platitudinous, passionless, and pious.
Hazledine has passion, but his analysis may not be much better. Unfortunately his book, written in a popular style, is almost bereft of references. Its analytic underpinnings are unclear. For instance, capital is a very tricky concept for an economist (unless you are on the ACT-spot). Adding an adjective does not make it any easier, especially if it strays from the economists’ notion to include psychological and sociological notions about which economists (Hazledine and myself included) are not particularly knowledgeable.
Hazledine hints there is an international research programme on social capital. The reader would be badly misled if the book gave the impression that it was anything other than rudimentary: a few ideas not well worked through, a few fragments of research open to numerous interpretations. It has about as solid a foundation as the Rogernomics programme. And it might work – just as the economic rationalists promised theirs might work too.
For the average reader, social capital is probably more attractive than economic rationalism, but that does not mean it is well-founded. One might be tempted by Hazledine’s notion of being “decently rewarded”, but what does it mean? I know what a decent relationship is (I hope), but what is a decent income? Is it not possible that if everyone is decently rewarded, their income will exceed the total product of the nation? Sometimes the book uses warm fuzzy terms to avoid the hard questions.
The sort of society Hazledine advocates was characterised succinctly by Australian poet Les Murray in the October issue of New Zealand Books: the keystone of my politics would probably be geniality, if anything. Friendliness, ease, and cooperative kindness. Economists should not be restricted from expressing – and practising – such sentiments, but the discipline presumably should add something more than poetry. Perhaps it can’t. Built on the individualism Mrs Thatcher articulated, economics is hardly going to provide a secure foundation for a theory with bi- and multi-lateral human interactions at its centre.
Much of the book covers more orthodox economic territory. Yet, in the manner of the Rogernomics to which it is opposed, it does so in an anecdotal way, making the book almost a memoir, so many personal anecdotes does it contain. Hazledine writes, “I can’t remember if this story, which I may have started, is actually true, but the point is, it could be true. It has the ring of psychological truth” (original emphasis). Between this book, and that of Richard Prebble’s equally anecdotal-without-evidence I’ve Been Thinking, to which Hazledine compares his approach at one point, New Zealand may be developing a new methodology for social investigation, although I shall be surprised if it catches on internationally.
The book’s obscuration of its analytical economics framework leaves puzzles. For instance, the first page confuses “economic rationalism” with “neo-classical economics”, which suggests Hazledine thinks of abandoning almost all of the economics research programme of the last century.
The economic tradition he seems to be closest to is what my recent book, In Stormy Seas, called “traditional Keynesian”, which is extremely sceptical of the efficacy of the market. But there is very little macroeconomics in this book. Certainly, as the earlier quotation explains, Hazledine supports full employment, but he barely discusses the monetary, fiscal, and exchange rate policies necessary to pursue it. The book definitely favours New Zealand exporting and importing a smaller proportion of GDP, arguing for protection including a “moderate” tariff (not defining moderate, but not mentioning import controls either). Hazledine may be a successor to the tradition we most associate with Wolfgang Rosenberg.
Because it enhances that tradition, even though it is not mine, I welcome the book. But the lack of an analytic framework limits its usefulness. This is not a trivial (or even merely a scholarly) issue. Hazledine is careful not to detail much in the way of policy prescriptions. Fair enough, but how do we decide good policy if there is no framework? Might we not end up with foolish policies, no better than Rogernomics, albeit of a different political suasion?
Moreover, and frustratingly, the book barely acknowledges that there are any traditions of economic analysis in New Zealand, with the few references predominantly foreign and no dialogue with alternative paradigms (excluding the knock-about material on the Rogernomes). For example, Hazledine quotes a Listener column I wrote, but seems unaware it was referring to the sterling work of economist historian John Gould. This ignoring of New Zealand is all the more ironic given that the epigraph of the book is Denis Glover’s Home Thoughts with its hopes for Johnsonville and Geraldine. Glover was not only aware of his intellectual tradition, but engaged actively with his New Zealand colleagues. Despite its motif, this book does not follow Glover’s path.
Hazledine, like this reviewer, grew up in the New Zealand of the 1950s and 1960s, which recalls – like many memories of childhoods – a golden weather. His sunshine was more golden than mine. He says that when he was young most New Zealanders had access to a crib or bach for their holidays. Not in my street. He says there was no unemployment, attributing that to social capital, a sufficiently vague concept to explain any positive social outcome. While there was little registered unemployment, the research of John Gallacher and Richard Braae shows unregistered unemployment was on occasions over 2% of the labour force, the burden of the swings in the labour market being carried by women. Perhaps social capital does not apply to women.
Whatever, that golden weather ended with the dramatic structural fall in the price of wool in 1966. What modernisers like myself argue is that the economy changed dramatically as a consequence, with a great degree of diversification following the loss of markets and land rents caused by the collapse in the terms of trade. Much of what has happened since is a response to these external shocks. The current difficulties with the world economy are not the surprise they appear on the ACT-spot (and unmentioned at the economics conference), but an integral feature of New Zealand’s economic history. By denying or ignoring these changes, Hazledine is describing the economics of a world long past. His approach might work if the real world price of pastoral exports could be raised again to their 1950s level. But in the interim we have to struggle along with the reality of a world that is different from that of our childhood.
How can Hazledine take New Zealand seriously if he does not take its indigenous economists, historians, and other intellectuals seriously? Surely he is not as poorly read in New Zealand economic history and analysis as the Rogernomes he criticises. They borrowed economic models of the US economy under the misapprehension that it was the generic economy and New Zealand should be forced into its mould. To do so, they had to stringently ignore any New Zealand work that went before and that contradicted them. The result has not only been economic failure, but a clash between the New Zealand culture and the alien one the Rogernomes attempted to impose upon it.
The indigenous response has been a research programme which has tested the hypothesis that New Zealand is near enough to the US model. It hardly appeared at the economists’ conference (which, incidentally, did not have a single plenary paper presented by a New Zealand economist, presumably because it would have been too controversial or too boring), nor is it ever mentioned in the ACT-spot whose commentators are usually owned by foreign financial corporations. The basic conclusion of the research programme is that the US model imposed upon the New Zealand economy poorly reflected the local reality (and may not reflect the US one either).
So there is another approach which is part neo-classical without being economic rationalist; which uses anecdotes to illustrate analysis, not to avoid it; which sees the entire tradeable sector (and not just import substitution) as central to the growth process, while being aware of the costs and consequences of external shocks; which respects social institutions and behaviour but does not abandon economic analysis; in which markets have a role, but policy is not dominated by commercialisation; which focuses on New Zealand today and in the future but has an understanding of the past; and which is in dialogue with developments in international economics, without being (colonially) subservient to them.
Sadly, the book hardly engages with this alternative approach. That is a pity, for two reasons. In so far as the book reaches out to the lay audience, it misleads them on the state of the international economic debate, and of the local one, and thereby on the situation and opportunities which face New Zealand. And secondly, although Hazledine can write well and has the ability and experience to contribute to the local debate, at the moment he sells little but the economics of nostalgia.
Brian Easton is a Wellington economist and writer. His book In Stormy Seas was reviewed in our August issue.