The 1984 Labour government has found an almost mythological niche in New Zealanders’ consciousness.
Once upon a time there was the wicked King Muldoon, who was vanquished by the valiant Prince David and his brave knights, Sir Roger, Sir Mike, Sir Richard, Sir Jonathan et al. Prince David brought much freedom and joy to the land. But somewhere in most people’s telling of the tale, brave Sir Roger somehow morphs into a sort of bad teddy bear, and Prince David’s freedom and joy turn to ashes in his mouth.
And since this is living history, we all still like to write our own ending. By some accounts, New Zealand was blighted forever; the prince and the teddy righteously banished. Other
orators have it that the pair are still celebrated today as our saviours.
Although they all sat down to a commemorative feast last Thursday night, (King Muldoon no doubt present in a Banquo sense), no one has yet attempted the ending “… they all lived happily ever after”.
Fashionable though it is to revile the excesses of the 80s, and Roger Douglas among them, it’s still a fascinating question: what would have happened if David Lange had not had a contemplative interlude and banned Douglas’s totemic flat-tax package? What would have happened had we continued with Sir Roger’s agenda?
Today’s Minister of Finance Michael Cullen – in those days a junior Cabinet minister – says it’s simple. We would have run out of money.
“The flat-tax package could never have gone ahead because there was a great big hole in the government accounts,” he says. “That would no doubt have been filled for the time being by a more aggressive state-asset sales programme, and Roger even wanted to privatise health and education, though who we might have found to purchase them is another question.
“We would have seen even more deterioration in support for the government, and in Labour’s traditional voting base, and an even bigger defeat in 1990, where at least we hung on with most Cabinet ministers intact.”
Cullen says that Sir Roger never knew the meaning of “enough”, always believing that more was better. The bonfire of subsidies, regulation and tariffs was revitalising. But he says that Sir Roger’s drive to turn more and more of the state’s traditional work over to the private sector had a fatal flaw: markets weren’t perfect. Many – for electricity, for instance – didn’t even exist, and creating or trying to improve them is a feat that Cullen reckons no government anywhere has ever managed. Just witness our ongoing ructions over the electricity “market”, and the last National government’s quiet shelving of an early proposal to create a competitive health-funding market.
“And there’s no reason why you should assume that because something owns something privately, it’s going to be any better run. Private businesses make mistakes, too.
“You would have ended up with a funny sort of government. It would have had far less ownership and stewardship of things, dramatically reduced income and dramatically increased responsibility for certain other things, like the non-market-fixable fag-end of health, education and welfare.”
Economic analyst Gareth Morgan argues that Sir Roger never intended to finish his agenda and was amazed that he got through as much of it as he did. Like Lomu in his heyday, he ploughed ahead, waiting for someone to stop him.
“He was a crash-through merchant: seize the moment, that currency crisis, and get through as much of your reform agenda as you can. Sort out all the supporting details later.
“You need that approach every now and then. It’s a sort of cleansing. Because most public policy is just a patch over an existing policy, and another patch over that. To fix anything, you always run the risk of getting bogged down in committees and objections, and a little bit gets done here and a little bit there … and what you’re left with is soup. Nothing really gets fixed.”
Douglas’s downfall, Morgan reckons, was his impatient faith that details could be worked out later. If there was pain, it could be bandaged later. Wait till you had the bandage ready, and the whole reform opportunity would be suffocated by nervous nellies. This seeming indifference to transitional consequences gave Rogernomics a bad name, and never more so than in the state-owned enterprise-privatisation firmament.
Morgan recalls that economist Brian Easton, for one, was always arguing that the sequencing of corporatisation and privatisation was all wrong. “And he was right. You have to make sure that you have the capacity for fair competition first – that new entrants can get into the marketplace. That there is a marketplace. Then you corporatise/privatise. But that wasn’t done.”
Instead, Morgan says, the “privilege” of a state monopoly was simply transferred – either to private companies like Fay, Richwhite, or a whole new aristocracy, the state-owned enterprise (SOE) honchos, who got to run monopolies, and pay themselves princely sums. The public was revolted by the SOEs’ antics.
That’s the worst legacy of Rogernomics, Morgan reckons – the “fat cat” polarisation of public opinion around the notion of “left” and “right”. “You can’t talk about private-sector involvement in anything the government does any more, without being branded a ‘right-wing (insert rude epithet here)’.”
Morgan finds that he can’t even write a statement like “the education system is not delivering” without being branded a dangerous right-wing idealogue. The mistrustful “right-wing” shorthand is partly down to the “crash-through” acceptance that short-term pain is a necessary evil. But the main culprit, Morgan reckons, is the straightforward transfer of privilege that occurred under corporatisation and privatisation. Some groups of people were plainly seen to benefit at the expense of others. It’s the “at the expense of others” bit that’s the key, Morgan says. For if rail, electricity, the BNZ, Air New Zealand et al had prospered, clearly enriching the nation, people might not have minded that individuals made money out of them.
But pretty well all the sold assets went on being cot cases, worrying the public and invariably draining the taxpayer’s purse. Telecom only came right because the technological revolution – cellphone, email – overwhelmed its monopoly.
These glaring mistakes of the 80s have led to overdeveloped suspicion of the whole more private/less government genre of reform, Morgan laments. What should happen out of all this is that we learn the lesson that some activities – rail, electricity – are not capable of having markets created for and of them. Such utilities can probably only exist under the aegis of the state, and a social rather than economic assessment of their value.
Morgan says that at least Labour, even during the crash-through period, was still prepared to make those social uber-judgments. National, in its willingness to carry on a goodly portion of the crash- through agenda, was agnostic about the social case for change. On the contrary, it suited it to have big-business and SOE fat cats kept happy, because they were its supporters.
But arguably, the key question may be not what would have happened had we continued with Rogernomics, but where would we be if we had persevered with Sir Robert Muldoon?
Financial analyst Brian Gaynor, an adviser to David Lange during the 80s, says that’s the issue that is too easily forgotten nowadays. “Muldoon was keeping us in the 1950s, with rules and regulations, and borrowing to keep it all going. The economy was going to blow.”
It has been argued since that Sir Robert was in the process of a much gentler opening up of the economy, and given time, he would have deregulated.
Gaynor has no patience with that view. In as much as anyone was allowed to see the true fiscal numbers at the time – for they weren’t regarded as the public’s business – it was clear that the economy was in big trouble. New Zealanders were slow to accept the truth about Sir Robert’s stewardship, as he had come to the Cabinet originally under the celebrated banner of “economic wizard”.
Act leader and economist Rodney Hide also pinpoints the end of Muldoon-omics as the anniversary most worth celebrating. “I have no doubt whatsoever that if he had been re-elected, we would have ended up being run by the IMF, and they would have been a lot less gentle than Roger.”
Gaynor argues that most of the reforms undertaken in the period were in line with what every other comparable Western economy was doing. We were a little ahead with some of it, and made a handy little case study. Having a small population and a unicameral Parliament – not to mention a Finance Minister hybridised from a bulldozer and a Formula One racing car – made us quicker off the mark than others. But privatisation, inflation control, competition among public utilities, an end to subsidies … these became bog-standard in the 80s, and are still pretty mainstream today. “We weren’t really taking all our clothes off and jumping into the sea alone,” Gaynor says.
This is one of the few uncontroversial things that we can say about the era: nearly all industrial countries converted to greater or lesser forms of supply-side economics as last century drew to a close. It’s also little quibbled over that this country increased its productivity, and got inflation under control as a direct result of the reforms begun in 1984.
What we will never settle is how much better off we would be if we hadn’t done it Sir Roger’s way, or had done it more slowly. Paul Dalziel, professor of economics at Lincoln University, is prominent among those who believe that significant gains were sacrificed by the sequence and pace of the reforms. He has amassed statistical evidence – chiefly from comparing us with Australia – that economic growth, labour productivity and employment were significantly behind that of our neighbours. This, he argues, is because Australia took a more moderate approach to the same reforms.
The two economies followed a similar growth path till 1982. The world recession then shocked both – Australia more so – but by late 1985, Australia had made up ground. By mid 1987 – after three years of Rogernomics – New
Zealand’s growth rate started lagging behind Australia’s.
In his paper on the subject, Dalziel calculates that, had New Zealand managed to keep up with Australia’s growth rates, every New Zealander in 1998 would have been $4806 better off, in terms of nominal GDP. Over the entire period, New Zealand was off the pace by $114 billion.
Dalziel says that despite its achievement of greater microeconomic efficiency in some industries, of price stability and of fiscal balance, “the New Zealand experiment did not succeed”. As wel as the growth lag and the well-documented surge in unemployment, the Rogernomics-wrought reforms led to a decline in labour productivity, and left low-income households three percent worse off (in 1996, compared to 1984).
Sir Roger’s version of where we would be now if we had kept him on? Two words: tax credits. He says that he would have moved the tax system to the point where households who undertook to fund their own health, education and super would have been given a tax credit to cover it. (The state would continue to fund and choose for other households.) He calls this “Mum power”.
Fifteen years on, Mum from Otara would now choose, with her personal tax money, which schools her kids attend (one of them owned by the teachers), buy health insurance guaranteeing the family operations the instant they were needed, and afford to salt away more than $100,000 in her and Dad’s retirement accounts.
Tax, he concedes, is still not flat in the Roger Future: 25 cents top rate, 18 cents in the middle, but expected to fall to 15 cents flat in the next 10 years, because of high economic growth and less need for the state to fund pensions.
A fairy-tale? Here’s how it really ends: “And they all lived, bickering happily on about the Labour government, ever after.”
The fourth Labour government’s legacy
THE GOOD …
Inflation finally conquered
Government accounts made fully public, early and often
Government departments and Crown agencies forced to account publicly and in detail for their spending
New parliamentary select committees established to enable public hearings on all legislation
Some public utilities improve services, eg, no waiting list for phone connection, Air New Zealand brings in cover-ed boarding tunnels and edible food
More public debate about New Zealand foreign policy, following the popular sign-up to the nuclear-free status
An end to subsidies for producing unprofitable goods
An end to punitive sales taxes and tariffs, in favour of the neutral GST
An end to foreign-exchange controls; no more limits on overseas spending money or mail-order goods
Elevation of the Treaty of Waitangi to living document status; the ball starts rolling on land grievance settlements
An upsurge in the general public’s economic literacy – from the days when Sir Robert said that a Kiwi “wouldn’t know a deficit if he tripped over one”
The Bill of Rights heralds new social liberalism; later, homosexuality is legalised
A liberalisation of pub hours
Terrific one-liners and a sense of humour restored to government
MMP
THE BAD …
Unemployment across vast sectors of the economy, eg, farming and manufacturing
A period of ferocious inflation
Agnosticism about the value of “widgets” – manufacturing, processing, exports
Hero-worship of financiers, who made money without sullying their paws with widget grease
The new SOE aristocracy, with its huge salaries, perks and lack of accountability
A vaulting new compliance burden on business through GST
Stultified parliamentary Opposition – National spent bewildered years reinventing itself
An ideologically riven Labour Party, which begat NewLabour and later the Alliance
Unprecedented Beehive in-fighting; key Lange-versus-Douglas aides become household names
A massive imbalance of power between the Treasury and all other state agencies
Little thought given to balancing fair- trading regulations for private companies, following market liberalisation
Sticky financial messes for state institutions, including the BNZ and DFC
Growth of public relations
MMP
AND THE UGLY …
The French blowing up the Rainbow Warrior
Fish-in-a-barrel profits made from privatisation by private companies
The Winebox school of corporate tax minimisation
Quangos multiply, despite Sir Geoffrey Palmer’s efforts to cull them
Re-designation of citizens as the state’s “customers”, “clients” and “output unit targets”; and other management-speak euphemisms infesting all corners of government
Bitterly polarised public opinion about economics; reclassification of every potential government measure as right-wing or left-wing
Jim Anderton being able to say, “I told you so!”