The gutting of New Zealand, Paul Dalziel

Only Their Purpose is Mad
Bruce Jesson
Dunmore Press, $27.95,
ISBN 0 86469 343 5

Written during the horror of the early 1940s, Karl Polanyi’s famous book The Great Transformation sought to explain why nearly 100 years of relative liberalism and peace had collapsed into an era of totalitarianism and global warfare on an unprecedented scale. Polanyi argued that the origins of the cataclysm were to be found in a fundamental contradiction, between the utopian vision of a self-regulating system of free markets and the reality of the devastating effects such a system has on social relationships.

In particular, Polanyi claimed that imposing a market economy on a society reduces human beings and their natural habitat to the status of exploitable market commodities (Labour and Land). But it also gives rise to counter-movements – trade unions and protective laws, for example – as people organise to defend themselves against the ensuing personal and social degradation. Those with market power in turn oppose the interference in the market mechanism caused by such interventions.

Polanyi concluded that this conflict would be resolved in one of two ways. Either countries became fascist, so that the free market system might be maintained by force, or countries would discover socialism, under which citizens might voluntarily resign some individual freedoms in order to produce social justice for all.

Bruce Jesson’s book Only Their Purpose is Mad, published shortly before his death earlier this year, explicitly draws on Polanyi’s theory to analyse the economic transformation in New Zealand after 1984, but in a way that is impressively Jesson’s own. This can be illustrated with two examples where Jesson goes beyond Polanyi’s analysis to address important features of the New Zealand experience.

First, Polanyi was concerned with the way an unmoderated market system disrupts social relationships. Jesson agrees, but argues that in New Zealand the focus must be on the finance market: “Speculative finance has gutted New Zealand’s productive economy since the barriers to the global market-place were dropped in 1984-85, and society as a whole has been gutted with it.” Consistent with this, Jesson sometimes defines “the New Right” as “an intellectual-political group for whom the marketplace is an organising concept” but more often as “the finance sector in a political guise”.

The second example relates to Polanyi’s theory that society seeks to protect itself from the worst consequences of a free market system. In contrast, Jesson observes there was surprisingly little resistance in New Zealand to the New Right agenda. Jesson suggests this was because many of our institutions of civil society had not grown naturally from indigenous social movements, but had been set up on overseas models by colonial governments at the turn of the century.

Consequently, Jesson describes New Zealand in 1984 as “a hollow society”. Once the Government decided to use its power to initiate market-led reforms, social institutions that owed their existence or financial support to the state were unable to withstand the pressure. “The fatal flaw was not in the individuals who make up this society,” Jesson suggests, “but in the lack of texture of that society itself.”

It is not possible to summarise the full breadth of his arguments in a short review, but Jesson highlights three strongly related elements in New Zealand’s transformation: (1) the rise of the financial sector; (2) the replacement of a production culture with a finance culture; and (3) the loss of public-spirited and nation-building ideals in the public sector, replaced by a commercial ethos and the profit motive.

Jesson traces the rise of the financial sector to the Muldoon era (1975-1984). High marginal tax rates, no capital gains tax and widespread regulation produced a favourable environment for financial advisors who could design innovative tax avoidance schemes. Financial market deregulation in 1984 gave a further boost, but also allowed the 1985-87 sharemarket boom and crash. The crash should have reduced profits, but Jesson cites Brian Easton’s argument that privatisation of state assets after 1987 compensated by generating very large consultancy fees for the financial sector.

The sharemarket debacle also paved the way for a change in the private sector from a production culture to a finance culture. Most large firms were involved one way or another with the sharemarket takeover frenzy “as companies switched from making products to making investments”. Also, a large section of corporate New Zealand inevitably passed into overseas ownership when the bubble burst. Both factors encouraged management to focus on short-term financial results rather than on long-term relationships with workers and customers.

Jesson also recognises more general factors that contributed to this change. The Government itself became more interested in strictly financial goals, reflected in its corporatisation policy after 1986. The impact of monetary restraint on the exchange rate put considerable pressure on domestic producers. Internationally, finance departments had became more important in corporate management structures, and the opening up of the New Zealand economy after 1984 meant local firms were obliged to catch up with this trend.

The third element in Jesson’s analysis concerns the loss of nation-building ideals in the public sector. This was explicit in the policy of corporatisation, but Jesson argues that the imposition of a finance culture in areas such as education and health had the same effect across the whole of government. “It hasn’t been the state as such that has withered”, Jesson observes, echoing the title of Simon Upton’s prize-winning essay published in 1987, “so much as the state in its benign and humane role.”

In contrast, Jesson provides a fascinating account of his own involvement as the founding chairperson of the Auckland Regional Services Trust between 1992 and 1995. The Trust was set up to manage Auckland local authority assets such as the Yellow Bus Company, the Ports of Auckland, and the city’s water and sewerage systems. It began life with a debt of $224 million, which it was expected to retire by privatising assets.

The Trust refused, and instead restructured the assets into money-making ventures. This improved the value of its balance sheet in a remarkably short time and allowed the loans to be repaid without large-scale asset sales. Jesson argues that this shows how financial expertise can be used in the service of broader social goals. Nevertheless the Trust was wound up in October 1998, and Jesson is understandably bitter: “An effective, successful New Zealand public body has been wilfully destroyed by the government.”

Where Jesson departs most from Polanyi is in his conclusion. Although describing himself as a socialist, Jesson does not use that word in his final chapter on alternatives. He tentatively suggests some specific policies (a financial transactions tax, foreign exchange controls, the Kirk Government’s 1975 superannuation scheme, tax breaks for saving, an industries policy and greater investment in human and social capital), but his focus is on two general principles: the state should be involved in active nation-building, and public policy should aim to curb the finance culture.

My own view is that in these final pages Jesson himself becomes too utopian. Indeed his final sentence seems to say it is only a lack of political will that holds us up. This belittles the fundamental conflict, highlighted by Polanyi and infusing so much of the rest of Jesson’s book: between the vision of individuals doing the best they can within a global system of free markets and the vision of each nation ensuring everyone “is able to enjoy a standard of living much like the rest of the community, and thus able to feel a sense of participation in and belonging to the community” (to use the famous expression of New Zealand’s 1972 Royal Commission on Social Security).

Nevertheless, I think that Jesson offers a valuable insight into the national character of New Zealand that I hope will resonate with others. He suggests that:

In so far as New Zealand has a tradition of its own, it is the low-key belief in progress … This tradition of progress was not about the past but about goals for the future. Progress was seen as the continuing enrichment of people’s lives, in a social and cultural sense as well as materially … As a result of the transformation that has occurred since 1984, we no longer aspire to anything of significance at all. We now live in a society that is thoroughly commercial, where no one aspires to anything noble or worthwhile, or if they do they are ridiculed by the cynics of the free market. In this respect, the pre-1984 tradition of progress lives on as a critique of the present.

In other words, and adjusting Jesson’s title only slightly, our purpose is mad. Or at least we have lost our forebears’ sense of purpose, and have also forgotten some of the important achievements in New Zealand’s post-war society. Jesson suggests this state of amnesia is no accident, but argues in another of his memorable sentences that it has been an essential part of the transformation: “History has to be cancelled out because the New Right is waging a political battle on behalf of the global marketplace against the nation and the state, and history is of the essence of nationhood.”

Whether or not readers agree with the arguments as they have been finally expressed in this book, they will find much food for thought in all its chapters. The book is also a worthy testimony to Jesson’s remarkable lifelong work promoting nationhood and social justice in New Zealand. May he rest in peace.

Paul Dalziel teaches economics at Canterbury University and co-edited Redesigning the Welfare State in New Zealand (which is reviewed below).

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