Friday 31 July 2020

Who Ya Gonna Call? Labour and the New Zealand Economy.

Truth In Advertising: Labour, it would seem, is the party that knows nothing about running the economy right up until the moment that it does. 

HOW DID LABOUR acquire its reputation for being a poor economic manager? As with most things political and historical, it’s a long story.

In the beginning, the very idea that Labour might become New Zealand’s government was considered so preposterous that its economic policies weren’t considered seriously. To be fair, in its early days Labour’s economic ideas were more ideological than practical. The party espoused “the socialisation of the means of production, distribution and exchange”. Once the people were firmly in control of the economy, Labour seemed perfectly content to leave the details of its management to them.

Unfortunately, the revolution in Russia and the seizure of power by the Bolsheviks provided the rest of the world with a lurid picture of what “socialisation” could look like. Most New Zealanders recoiled in horror. If this was class war, then roughly 8 out of every 10 voters wanted no part of it. Clearly, hair-raising and formulaic responses to economic questions were not the way to win votes for Labour outside its working-class bastions in the big cities – and the West Coast’s coal mines.

Thus began the long and difficult journey from the Red Dawn of Labour’s adolescence to the Pink Sunrise of its adult years. Along the way the party steadily shed the most radical of its manifesto promises. That Labour was finally ready to occupy the Treasury Benches was signalled when the party voted to abandon its longstanding commitment to nationalise all privately-owned land in New Zealand.

The event which drove this crucial shift from revolutionary rhetoric to reformist realism was, of course, the Great Depression. Labour had to present the electorate with something it could vote for because it was fast becoming clear to a majority of New Zealanders that the conservative coalition government of the day was utterly bereft of ideas about how to get the economy moving again. Labour owed the people a workable alternative – and in the 1935 general election it delivered one.

For the next 14 years, through depression and world war, Labour kept on delivering. For tens-of- thousands of New Zealanders, the party not only stood for the nation’s, but also their own families’, economic salvation. The policies of Mickey Savage, Peter Fraser, Bob Semple, Jack Lee and Walter Nash were widely credited with transforming New Zealand. The country entered the post-war period with one of the world’s most prosperous economies. The opposition National Party only secured the reins of government in 1949 by promising to leave Labour’s “cradle to grave” welfare state intact.

The event that cost Labour its reputation as a wise and just economic manager was the so-called “Black Budget” of 1958. Confronted with a ballooning balance-of-payments deficit, Labour’s Finance Minister, Arnold Nordmeyer, increased excise taxes and sharply curbed the importation of foreign goods. For old and ignoble political and personal reasons, the trade union leader, Fintain Patrick Walsh, joined with the National Opposition in castigating Nordmeyer’s “Black Budget” as a puritanical Presbyterian’s attack on the booze-and-baccy pleasures of the working man.

That Nordmeyer’s tough-but-fair measures actually righted the economy and restored its forward momentum was forgotten. For the best part of two decades all any National Party politician had to say was: “Remember Nordy’s Black Budget!” and voters winced.

By the mid-1980s, however, the gross incompetence of a conservative government had, once again, compelled Labour to set aside its social-democratic dreams. New Zealand urgently required an economic programme capable of extricating its economy from the cul-de-sac into which the dirigiste policies of National’s Rob Muldoon had driven it. “You can’t run a country like a Polish shipyard!”, boomed Labour’s leader, David Lange. Roger Douglas wasn’t about to disagree.

Labour, it would seem, is the party that knows nothing about running the economy right up until the moment that it does. It is nothing short of astounding that in spite of everything that has happened since the party’s formation in 1916 – up to and including Labour’s two decisive re-organisations of the New Zealand economy of 1935-49 and 1984-1990 – New Zealand’s conservative establishment still finds it expedient to cast the Labour Party as a bunch of blood-thirsty Bolsheviks hell-bent on nationalising everything and shooting the buggers who complain.

This woeful lack of gratitude on the part of New Zealand’s capitalists makes me wish (almost) that their false description of Labour was true.

This essay was originally published in The Otago Daily Times and The Greymouth Star of Friday, 31 July 2020.


greywarbler said...

Labour may be called to think up a new New Zealand economy. Treasury can sit at the side table, and give short addresses on the proposals based on a short summary in a binary form - pros and cons. Perhaps draw on Ben Franklin's thoughts that would have gone deeper and wider than Douglas's
and those of Treasury and the NZ Initiative (to fool and bamboozle the NZ public ever more. )

In this 1772 letter, Ben Franklin lays out how his invention, the pro/con list, works:

…my Way is, to divide half a Sheet of Paper by a Line into two Columns, writing over the one Pro, and over the other Con. Then during three or four Days Consideration I put down under the different Heads short Hints of the different Motives that at different Times occur to me for or against the Measure.

When I have thus got them all together in one View, I endeavour to estimate their respective Weights; and where I find two, one on each side, that seem equal, I strike them both out: If I find a Reason pro equal to some two Reasons con, I strike out the three. If I judge some two Reasons con equal to some three Reasons pro, I strike out the five; and thus proceeding I find at length where the Ballance lies; and if after a Day or two of farther Consideration nothing new that is of Importance occurs on either side, I come to a Determination accordingly.

Kat said...

It seems the current opposition lot are too busy shooting themselves to complain about Labour. ACT could be the fresh lot of "buggers" though. Watch out again New Zealand.

Ricardo said...

Indeed Chris.

Just look at the GDP graphs for NZ. From 1984 to the present day, the success of Labour policies is quite startling (Source" World in Data). New Zealand owes a great debt of gratitude to the 4th Labour government for having the courage to take NZ's economy by the throat and effect life saving, dare I say it, Neo-classical macro economic reforms. No surprises that open trade, subsidy free and competitive industries with an independent central bank and a low inflation/low interest rate environments have played a large role in maintaining our first world status.

Jens Meder said...

Yes Chris, you are right because National just announced a policy to stop contributions into the NZ Super Fund, thereby depriving us again of the long term economic benefits of a steady rate of NZ owned retirement capital creation through the taxation system -

not only for helping to keep sustainable our current level of NZ Super and its entitlement age at 65,

but also by raising our rate of investment capital ownership per head of citizen, the crucial factor for turning poverty into prosperity.

Nick J said...

It's pretty obvious that Labour has the role of providing the environment for initiative to flourish whilst restraining the tendency of capitalism to concentrate and protect priveleged economic positions. Double damned for saving the soul of the soulless.

greywarbler said...

Would Ricardo* have agreed wholely with 'Ricardo'?
...Neo-classical macro economic reforms. No surprises that open trade, subsidy free and competitive industries with an independent central bank and a low inflation/low interest rate environments have played a large role in maintaining our first world status.

The economy isn't a game of Monpoly for the afficianados. My view - It follows lines or 'laws' that can be foretold and calculated, in its serving of the needs and projects of citizens, which include the basics of satisfactory food and housing and options for being entrepreneurs. The last usually affected by the first two, and needing appropriate education.

I don't consider we have first world status as in the 'Ricardo' comment if the basic requirements of our economy are scrutinised.

Here is a bite-sized critique of some of Ricardo's verities. (I've put a paragraph in as I think the second half applies particularly well to our situation in NZ.):

The development economist Ha-Joon Chang challenges the argument that free trade benefits every country:
Ricardo’s theory is absolutely right—within its narrow confines. His theory correctly says that, accepting their current levels of technology as given, it is better for countries to specialize in things that they are relatively better at. One cannot argue with that.

His theory fails when a country wants to acquire more advanced technologies—that is, when it wants to develop its economy. It takes time and experience to absorb new technologies, so technologically backward producers need a period of protection from international competition during this period of learning. Such protection is costly, because the country is giving up the chance to import better and cheaper products. However, it is a price that has to be paid if it wants to develop advanced industries. Ricardo’s theory is, thus seen, for those who accept the status quo but not for those who want to change it.

This economist notes that 'protection is costly... but is a price [essential] if it [a country] wants to develop advanced industries'.

Ricardo thought about the needs of workers being replaced by advanced machinery, and noted that workers were quite correct in having concerns.
Supporting displaced workers would result in having to bear the cost of protectionism while the new technologies were implemented to upscale and advance the economy.
Technological change
Ricardo was concerned about the impact of technological change on labour in the short-term. In 1821, he wrote that he had become "convinced that the substitution of machinery for human labour, is often very injurious to the interests of the class of labourers," and that "the opinion entertained by the labouring class, that the employment of machinery is frequently detrimental to their interests, is not founded on prejudice and error, but is conformable to the correct principles of political economy."

I suggest that there has been little lasting enthusiasm in NZ to enable workers to make changes in their skillset. At the time of adoption of neoliberal economics, what the public heard was the naive and ambitious ideas of the 4th Labour Government, that once capital and labour were freed up, new jobs would arise as new businesses abounded with entrepreneurship springing up freed from wearying and oppressive regulations.

This is a long essay? called Ricardo's Difficult Idea written by Krugman.


Brick said...

The unfortunate difference is that previous Labour governments had a reasonable number of competent mp's - the current lot must be the most incompetent collection ever seen in NZ history.