In The Instability of a Dependent Economy, arguably the most important book so far written on the realities of New Zealand politics, C G F Simkin concludes that the successful management of our economy depends on the relative balance between exports, external public borrowings, private capital imports, and private bank credit. The key to this balance, Simkin decides, is being able to respond effectively, locally and politically, when private capital imports are abruptly withdrawn for any reason.
The fact that this book was published in 1951, deals with economic fluctuations between 1840 and 1914, and was written by a colleague and friend of F A Hayek, does nothing to detract from its contemporary relevance. This is because it is an exploration of our perennial political dilemma. How does a small, distant, insignificant, agricultural trading economy with some, but not many, natural resources of its own maintain the social ambitions that its 19th-century European immigrant founders had, by 1900, erected into its predominant political agenda? New Zealand was to be a good place for ordinary people to live. This agenda remains, as does the abiding resistance to it from certain groups who see New Zealand as primarily a place to do business.
By the 1960s it seemed that we had resolved the problem. We had a responsive egalitarian democracy, a welfare state that was based on full employment rather than benefits, and an apparently secure and lucrative market for our trading commodities from which we bought most of what we needed in return.
There were two snakes in this Eden. In the first place, this outcome had been purchased at the cost of suppressing almost anything original, imaginative, or creative that might be perceived as a threat to social stability and cohesion. Although it claimed to be, New Zealand was not a good place to live for most women, Maori, children, or in fact for anybody much who was not a white middle-aged male who had served in the New Zealand Division, and sometimes not even for them. Secondly, the conditions that had given rise to the carefully constructed institutional arrangements on the basis of which we organised our economy began at the same time to come under immense pressure from forces beyond our direct control. By the middle of the 1970s, they had ceased to apply. International inflation, a sudden massive increase in the price of oil, and the closing of almost all of our international markets to all but a fraction of what we had previously exported to them had pushed us willy-nilly into a crisis.
Our initial response to this crisis (which by the early ’70s could no longer be simply ignored) was to pretend that we could deal with it by borrowing money until it went away. Dissenters were hit with sticks until they were rendered silent. By 1984 it was apparent, even to many of those who had hitherto obtusely refused to believe it in the face of all the evidence, that this was not working. Unfortunately, we then made a fundamental error of judgement. We allowed ourselves to be misled by fools.
J K Galbraith remarks in several of his works, commencing with The Great Crash, that every once in a while a generation comes along that deludes itself into believing that it alone, of all the generations since the dawn of time, has discovered the secret of universal and endless prosperity. Usually this occurs about 50 years after the last sharp lesson in the folly of this delusion, so that by the time it happens again, most of those who know better by experience are in such a small minority that they can be derided or ignored. Galbraith writes about the United States and Europe. John Mulgan draws attention to the same phenomenon closer to home in Report on Experience.
In 1984 we were no exception to this rule. That was when some snake oil salesmen turned up with their nostrums and told us that all we had to do was dismantle all regulation and ensure that what they called “the free market” was as unimpeded as possible in its operations, and we would enjoy endless prosperity. Like the sheep in which we deal (and which we sometimes resemble), enough people believed in their advice for it to be put into effect. Some were encouraged in their belief by the shrewd apprehension that it would be to their financial advantage to go along with this. These included quite a lot of those who had persisted in their view that New Zealand was primarily a place to do business.
A few people, familiar with the history of economic thought, and of the reasons why our European ancestors had come here in the first place – to get away from a similar experiment – pointed out that there were serious drawbacks, but they were also derided and ignored. This was possible partly because neo-classical economics is a metaphysical system of belief, not, as it fondly imagines, a rational approach to change, and it is therefore self-referring. It was its own justification. But it was also partly because we had developed a variation on the parliamentary model of the constitution which meant that once in power a cabinet was unaccountable and unstoppable.
Egged on by those who stood to gain, successive governments have taken us on a hair-raising ride to the general abandonment of all of the elements Simkin identified as necessary for exercising any sensible management over our economic affairs. By 1990 it was clear that the nostrums had failed. The international stock market crash of 1987 had revealed the vanity of our belief that we had found the key to universal and unending prosperity. We had also been treated to the amusing sight of our three most misguided prime ministers since George Forbes (Lange, Palmer and Moore) attempting to explain away this palpable failure.
The laughter was hollow. On almost any economic determinant we cared to choose – unemployment, economic growth, labour productivity, balance of payments – we had failed to effect any improvement whatsoever and in most circumstances matters had grown significantly worse. A programme of pressing on regardless had been replaced by frozen inaction. The immediate result was a split in the Labour Party and the turning out of the Government in the 1990 election.
In the meantime, another group of people also identified by John Mulgan as “the smart fellows who cashed in on a deteriorating contract” had combined with those described by Rex Fairburn as “dabblers in expertise licensed to experiment in the vile body of the state” to keep the process running of its own accord. They have since enjoyed the support of successive governments, and those leading such governments have been marginalised and dispensed with if it ever appears that their nerve is failing them. The introduction of MMP, although it has the potential to reverse this situation, has not, so far, been permitted to have the impact it might. This is not because there is a conspiracy against it, but because of the dead weight and inertia of previous arrangements.
Our social cohesion has been maintained only because we have been able to live on several generations’ worth of social capital, but almost all of this has now been squandered on our failed experiment, which even its principal proponents now scarcely believe in. In the meantime, two disastrous consequences of everything we have done over the last fifteen years have become apparent. First, we have cannibalised a whole generation of our young people, and we are well on the way to doing the same to a second. Both of my own children would like to live in their own country and make a life here, and neither of them do because there is nothing here for them.
And, secondly, we have lost all faith in the ability of our political systems to deliver the outcomes that most New Zealanders continue to want. The dirtiest word in this country for some time has been “politician”. This has been, with very few exceptions, irrespective of where these hated politicians stand on the political spectrum.
In a few months’ time we will go to the polls again. At present, the surveys are showing that the third largest of our political parties is SOAP (an acronym for the Sod Off All Politicians party, comprising all of those who won’t vote or even register, perhaps 20% of citizens). Another 10% will insist on voting for the generic Silly Party. Because of flaws in our MMP arrangements – although these could be easily fixed if the Government had the will to do so – perhaps another 10% will vote for parties that will have members in Parliament but shouldn’t. In other words, two out of every five citizens will be effectively giving our democracy the finger. This, as a long-time colleague of mine is wont to remark – in the laconic and understated way that is a major characteristic of our humour – is a bit of a worry.
How will it end? Not in tears because those who had them have wept themselves to a standstill long ago – whether from despair or laughter I can no longer distinguish. If any lesson can be drawn from the last fifteen years – apart from underlining the abiding gullibility of human beings – it is that there are no short cuts or free rides. We must re-assert the validity of Simkin’s analysis, work out what it means in terms of steps to be taken for the future, and begin the unspectacular and thankless task of rebuilding our society and its communities. At the end of that very long process, perhaps my children will be able to come home to a New Zealand that is truly theirs – a genuinely good place to live.
Tony Simpson is a social historian, whose latest book A Distant Feast – The Origins of New Zealand’s Cuisine will be reviewed in the next issue.