QUARTERLY ESSAY 80 The High Road

 

Correspondence

Tim Hazledine

THE HIGH ROAD

Correspondence


Tim Hazledine

I’m a New Zealander and an economist at the University of Auckland. I met Laura Tingle in Auckland in November 2019. I was impressed, of course.

However, when Laura told me that her next big project was to write a very long-form essay – an essay that would be published under the title The High Road: What Australia Can Learn from New Zealand – well, I wondered if the great Australian people were quite ready for that.

The essay – in itself, excellent – does not immediately soothe these doubts. And they seem all but confirmed by what follows in the same issue of Quarterly Essay: forty pages of commentary by nine people on Katharine Murphy’s essay The End of Uncertainty from the previous issue, and a response from the author. The commentaries – which must all have been written just a month or so previously – are fluent, friendly and informed; all of them focus on the current Australian administration’s response to the COVID crisis.

And the number of times the words “New Zealand” appear in those forty pages? Zero, zip, zilch. (The words “Jacinda Ardern” appear once, in passing.) I am not complaining. That would be hypocritical, given my own lack of learning about Australia. When I met Tingle, I think I may have implied or even claimed that the prime minister of Australia was a man named Michael Turnbull. Perhaps he was.

But anyway, why should the people of, say, Sydney care any more about goings-on in Auckland, 2350 kilometres away, than the people of London care about what’s happening in Chişinău, the capital of Moldova, which is the same distance away? I note that our countries’ governments have never had enough to talk about to support a viable direct air service between Canberra and Wellington (and, yes, there is a direct service between London and Chişinău).

Of course, an obvious difference is that anyone setting out in an eastward direction from London to seek commerce or companionship is likely to find it somewhere in Western Europe, long before they get as far as Moldova, whereas between Sydney and Auckland there is just empty sea – there’s nowhere else to stop. So the relationship we do have, as the only Anglo countries in the Southwest Pacific, may just be a matter of faute de mieux, as we often say in New Zealand. And it’s not even that we like each other. We pretty clearly don’t much. Tingle’s essay deflates the bubble of Anzac comradeship, quoting Australia’s official historian of World War I, who viewed New Zealanders as “colourless,” and another historian, who claims that Australians of that era saw New Zealanders as a “pale imitation” of themselves.

There’s a lot of this sort of nonsense around. In World War II, a young British officer, Frank Thompson (brother of the social historian E.P. Thompson), after coming across antipodean troops in Egypt, wrote that “the New Zealanders are rough-hewn and intelligent; the Australians are rough-hewn and villainous.” Perhaps the funniest put-down came from our dear departed John Clarke, a New Zealander who happily resettled in Australasia’s only great city – Melbourne. When asked why he had left New Zealand, Clarke said: “Because it was there.”

But all this is the reason Tingle should write her essay. If there is something for Australia to learn from New Zealand, who better – who at all? – to break through the apathy and antagonism than Tingle – author of three previous Quarterly Essays and held in the highest esteem in her country. Still, I am not sure that even she will succeed, but I will do my small bit to help by adding to her analysis of two topics – one on which I know a lot, one on which no one yet knows a lot, because it is an exciting work in progress.

The first topic is New Zealand’s infamous “Rogernomics” episode of rapid, radical economic liberalisation over the seven years from 1984 to 1991. Tingle’s essay is very good on why Labour finance minister Roger Douglas wanted to liberalise: he and his colleagues in Treasury genuinely and disinterestedly believed that massive “reform” would supercharge New Zealand’s productivity performance. It’s good on how they were politically able to do it: they were empowered by a combination of New Zealand’s small size and its unicameral system of government, buttressed by less obviously disinterested support from the slightly sinister Big Business Roundtable lobby group. And it’s clear about why the reforms were rammed through so quickly: they were quite openly aiming to get it all done and dusted before anyone could stop them.

But there’s another notable dimension to this extraordinary episode. A list of the reforms implemented in those seven years is staggeringly long: more than 200 separate corporatisations, privatisations, liberalisations and so on, in both private and public sectors. How could a small, albeit honest, civil service – in a country of fewer than 4 million people – administratively deliver as many major policy upheavals as it most assuredly and successfully did? The answer is that implementing nearly every one of the 200-plus reforms was simply a matter of repeating the same basic formula over and over again.

Rogernomics is often casually claimed to be a textbook example of economic reform. Something to do with “free” markets. But it wasn’t fundamentally to do with free markets, and the textbook had not been written, and still hasn’t. The liberalisation formula – if mentioned at all – is buried away in the section of standard economic texts that deal briefly with issues of “asymmetric information,” which arise when one party has knowledge that is not available cost-free to another. The formula is called the “principal–agent model,” or just “agency theory.”

The pervasiveness of asymmetric information in just about all social or economic interactions cannot be denied. We each know more about our own nature and actions than any other human being can. The issue is: what do we do with our private information? Agency theory assumes the worst: we will use our personal information advantage without scruple in our own narrow self-interest. I call this the “selfish shit” model of human behaviour. Its policy implications are stark. First, deflate the value of private information by removing from management anyone who actually knows something about how a business, a hospital or an industry works, and replace them with generic managers with no specialist expertise. Then write simple performance contracts for the new managers with narrow, measurable targets (key performance indicators, or KPIs) and incentivise them to meet those targets with carrots (bonuses) or sticks (the threat of dismissal).

This procedure could be (and was) rapidly deployed in just about every economic and administrative setting: from minding the money in the till of a cafe to minding the monetary policy of the nation. Employees were to be dissuaded from cheating on their employers by cranking up the threat of dismissal, which was achieved by weakening the trade union movement and increasing unemployment. The governor of the Reserve Bank of New Zealand had to sign a very simple contract specifying only that he keep inflation in a narrow, low band to get his bonus.

There are three big problems with agency theory in action. First, it’s not that KPIs won’t be met, but that they will be met at the expense of other worthy goals that didn’t make it into the job contract – full employment, in the case of the central banker; willingness to act with initiative, in the case of the cafe worker.

Second, although the stark “selfish shit” assumption is factually false – in general, most people do behave in a trusting and trustworthy way – if applied long enough it can create the amorality it presupposes. If you persistently treat agents as untrustworthy, then eventually they may just say: “Stuff it. Why should I be honest if you aren’t going to believe in me anyway?”

Third, a logic puzzle. If Roger Douglas believes everyone is a selfish shit, why shouldn’t we believe the same of him? Why should we, the people, simply trust him – or anyone – to be our agent in these matters? “Quis custodiet custodes ipsos?” as we often say in New Zealand.

Well, to be fair, Roger did not trust himself – or at least he did not trust his successors. One of the reforms enacted slightly later is New Zealand’s 1994 Fiscal Responsibility Act, which limited, in particular, the ability of the finance minister of the day to spend up big in election years, which practice had been shamelessly indulged in by all parties hitherto. Quite a good reform, that.

But, as a whole, Rogernomics has failed dismally, as Tingle documents. New Zealand’s productivity, far from being supercharged, has spluttered along in Australia’s wake, actually slipping further behind, with widening income inequality.

Why has there been no outcry, particularly from the protected precincts of university campuses? Well, the minority of academics who did speak out were treated with disdain or worse. In the mid-1990s, an emissary of the Big Business Roundtable came to the vice-chancellor of the University of Auckland and demanded that he fire New Zealand’s most active public intellectual, the legal scholar Jane Kelsey, and “the socialist economist Hazledine.” The vice-chancellor – an Australian – responded by promoting Kelsey to a personal chair and confirming tenure of my professorship.

The stupidity and viciousness of this little intervention was typical of the times and is still embedded in a strong rightist, conformist bias to New Zealand politics, including in our governing Labour party. Really, labelling a wishy-washy social democrat like me a “socialist” (not that there’s anything wrong with being a socialist, of course) – because I am against monopolies and handouts to business – reflects what I hope Australians would regard as a rather distorted perspective.

The second topic of Tingle’s I wanted to add to – the work in progress – is race relations. In 2011, I read a New Yorker article by Hilton Als on Jane Fonda. Als recounts the wedding of Fonda’s son, Troy Garity, to Simone Bent, an actor. Garity is white, Bent black. The groom’s father, Tom Hayden, a former Chicago Seven activist, made a speech saying he was particularly happy about the union because it was “another step in a long-term goal of mine: the peaceful, nonviolent disappearance of the white race.”

If I had read this in, say, 1981, I would have responded: “Yeah, right!” But by 2011 – perhaps a little late – I was uneasy. I didn’t, and still don’t, give a fig about the disappearance of my race in a commingling of the bloods, but wouldn’t that also mean the disappearance of the minority race – Māori, in New Zealand’s case? And wouldn’t the minority race have something to say about that?

Well, they did have something to say, and Tingle’s essay is very good on the steps taken – in the nick of time – to regenerate Māori language and culture, particularly with the settlements that have been reached since 1987, supported by both political parties, through the Waitangi Tribunal hearing process. The slogan here is “self-determination,” and (citing the Australian scholar Shireen Morris) Tingle summarises its outcome as the establishment of a “mostly comfortable biculturalism.”

But what does biculturalism mean in this context? The term apparently originated in Canada, where it refers to the cordial separation between Anglo and French Canada: “two solitudes,” as it was once described. I’d say that what is now happening in New Zealand is actually going in a quite different and very interesting direction – towards the building of a national culture that, perhaps uniquely in the world, is heavily influenced by the indigenous race.

Take the success of iwi-based Māori businesses, which operate commercially under a strong social charter – something which, according to Rogernomics, is not just undesirable but impossible. Our ongoing revolution in resource stewardship policy applies the principle that natural resources are “owned” not by humans but by themselves: te mana o te wai – the river owns the river, and the river has a right to be clean. The statement in Tingle’s essay that “Māori culture is increasingly seen as New Zealand’s culture”: this is terrific, but it isn’t about biculturalism – is it? Perhaps Australians can tell us.

 

Tim Hazledine is a professor of economics at the University of Auckland. He was previously a professor at the University of British Columbia and has held visiting teaching positions at the University of Warwick, Queen’s University and Balliol College, University of Oxford. He is interested in economics as a social science and the policy implications that do and do not follow from this.

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This correspondence discusses Quarterly Essay 80, The High Road. To read the full essay, subscribe or buy the book.

This correspondence featured in Quarterly Essay 81, Getting to Zero.


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