ADAM SMITH’S ISLANDS

Adam Smith’s Islands

New Zealand’s Incomparable Restructuring, 1980–1995

John C. Weaver

McGill-Queen’s University Press

Montreal & Kingston • London • Chicago

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This book has been published with the help of a grant from the Federation for the Humanities and Social Sciences, through the Awards to Scholarly Publications Program, using funds provided by the Social Sciences and Humanities Research Council of Canada. Funding was also received from McMaster University.

We acknowledge the support of the Canada Council for the Arts.

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McGill-Queen’s University Press in Montreal is on land which long served as a site of meeting and exchange amongst Indigenous Peoples, including the Haudenosaunee and Anishinabeg nations. In Kingston it is situated on the territory of the Haudenosaunee and Anishinaabek. We acknowledge and thank the diverse Indigenous Peoples whose footsteps have marked these territories on which peoples of the world now gather.

Library and Archives Canada Cataloguing in Publication

Title: Adam Smith’s islands : New Zealand’s incomparable restructuring, 1980–1995 / John C. Weaver.

Other titles: New Zealand’s incomparable restructuring, 1980–1995

Names: Weaver, John C., author

Description: Includes bibliographical references and index.

Identifiers: Canadiana (print) 20240449398 | Canadiana (ebook) 20240449401 | ISBN 9780228023821 (paper) | ISBN 9780228023845 (ePUB) | ISBN 9780228023838 (ePDF)

Subjects: LCSH: New Zealand—Economic policy. | LCSH: New Zealand—Economic conditions—1984- | LCSH: New Zealand—Politics and government—1972–

Classification: LCC HC665.W43 2025 | DDC 338.993—dc23

This book was designed and typeset by Sayre Street Books in 10/12 Sabon. Copyediting by Robert Lewis.

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Tables

2.1 Examples of consultants retained during corporatisation and privatisation, 1984–90

2.2 External studies and consultations for the GST, SOEs, and the Commerce Act (1986), 1985–86

2.3 Consultants and contacts: revising the Reserve Bank, 1986–89

2.4 Consultants: Treasury Department units and affiliates, 1985–88

8.1 Asset sales by settlement date of agreement, 1988–2014

13.1 The state sector and its conditions of employment: state services and the core public service, 1985

13.2 State-sector employees in urban centres, 1985

13.3 Militancy and protest in the public service, 1986–89

13.4 Examples of single-purpose local government bodies, 1987

Preface and Acknowledgments

I was initially drawn to New Zealand history by the extensive and well-organised state records held by Archives New Zealand. They helped me to clarify colonial land policies for my book The Great Land Rush and the Making of the Modern World, 1650–1900 (2003). Subsequently, I returned often when preparing a data set of suicides, compiled in association with my colleague Doug Munro. On these occasions, the staff at the Wellington repository supported a paradise for researchers of diverse backgrounds and interests. A few steps away, the Single File Cafe offered a vibrant meeting place. Eventually, the suicide data supported themes in my book Sorrows of a Century: Interpreting Suicide in New Zealand, 1900–2000 (2013), a study of life’s troubles. Several observations stood out. One was a relatively low male suicide rate from 1940 to the early 1970s. Strong overseas demand for wool and lamb likely helped to fend off the black dog of mental depression. A rise in male suicides coincided with economic woes. This account oversimplifies, although not unduly. In the late 1970s, new economic realities were upsetting a seemingly limitless run of prosperity. The current book explains the country’s economic troubles. The archives hold materials on a succession of government responses, moving from the reactive measures of deficit spending and controls to those of a wide-ranging overhaul that went as far as any country in the OECD.

Research into the extensive government and private papers held at Archives New Zealand’s Wellington repository and across the street at the Alexander Turnbull Library was supplemented by reviewing political papers held in Christchurch and Dunedin. Staff at the Macmillan Brown Library, University of Canterbury, went out of their way during a national election campaign to secure Cabinet clearance for my access to private collections. At the Hocken Library, University of Otago, archivists volunteered to telephone Stan Rodger for permission to open sealed boxes from his splendid collection of party and ministerial papers. Pure gold within. I cannot say enough about the kindness extended in every institution.

Intuition, helpful archivists, and tenacity have their place. However, I would have missed a great deal had it not been for conversations with Roderick Deane, Roger Douglas, Michael Bassett, Stan Rodger, and David Caygill and for permission to access their papers. My thanks go to Gillian and Roderick for insisting that I speak to participants and for their help with the arrangements. Conversations and correspondence with Don Hunn, Richard Prebble, Geoffrey Palmer, Margaret Bazley, Jim Bolger and a number of anonymous informants not only provided a sense of personal interactions, foibles, abilities, and sacrifices but also helped to guide my searches in archives. More than once, moreover, participants saved me from factual errors by clarifying the cryptic banter in memos, identifying the individuals speaking in recorded conversations, and recounting details not captured in documents. Their reflections left the impression that humour, respect, exhaustion, and sadness transcended purely partisan and ideological differences even back then, although the heat of the moment was undeniable. Back in the archives, I noticed the paper trails left by the sharp wits who had enlivened select committee hearings, written spirited interdepartmental memos, and left quips on Stickum notes. At its decent best, government is a creative art form projecting humour as well as drama. Several informants shared anecdotes about the private side of public life that I cannot share, although I can share that the individuals whom I met were clever and dedicated to service.

The Cabinet Policy Committee proved a fine point of entry for the research, a conventionally bureaucratic start to be sure, but the committee minutes gave me glimpses of personalities and insight into ferocious turf wars. Nearly everything that the government undertook had to pass through the Cabinet Policy Committee, where disagreements were thrashed out to yield a policy paper for Cabinet approval. Research for a timeline of committee meetings and topics strengthened my view that a holistic account of restructuring was possible. It was apparent, too, that the local was global. Thus began a seven-year project with research support from McMaster University and from the School of Management’s Student Research Programme at Victoria University of Wellington in conjunction with the Deane Family Foundation. At McMaster, I profited from the assistance of Vanessa Lovisa, who laid the foundations for a survey of women’s concerns collected by New Zealand’s Ministry of Women’s Affairs. In Victoria University’s Student Research Programme, I was fortunate to work with Abigail Mills, who investigated rural restructuring. By similar good fortune, William Tennant from the same programme helped by delving into state enterprise severance packages and productivity gains. Preparation for a course on the history of capitalism designed for McMaster’s Integrated Business and Humanities programme broadened my thinking, as did discussions with the course’s doctoral candidate teaching assistants, Mack Penner and Mark Forbes.

Administrative archives alone would have supported a history of restructuring. A more ambitious and enjoyable goal comes into view when preparing journal publications. The archives contain letters from the public that opened the possibility of blending policy discussions with tradition, popular culture, and technology. Reliance on materials prepared by state-sector elites would have overpopulated events with the accounts of these articulate agents, potentially crowding out the people affected, who reacted with both darts and laurels. My early findings were shared, and disputed, on Friday nights by a coterie of academic regulars at a back table in a Wellington establishment. Cordiality prevailed; agreement less so. The project’s findings disrupted articles of faith. At the back table, a combination of consternation and companionship ruled, as it also did during presentations at the Stout Research Centre for New Zealand Studies. I am grateful to attendees – especially Richard Hill, Gordon Anderson, Brigitte Bönisch-Brednich, Jane Bryson, Russell Campbell, Doug Munro, Bob Tristram, and Adam Weaver – for conversations that enlarged the scope of my research.

Working with participant-generated sources meant reading against the grain, not only to recognise another side of the story but also to instigate introspection leading to reasoned judgments. I was interested in, not persuaded by, the arguments of proponents of a so-called managed economy, particularly David Grant’s perspectives on Ken Douglas and Jim Anderton. His arguments do not square with mine, but I appreciated David’s sharing of information over several conversations at the Single File Cafe. I am aware of bias when interpreting state records and have worked at countering it with attention to divisions within the government and within the public service, to the distress accompanying restructuring, and to the surveys of public opinion.

I have been chided as an outsider who wasn’t there. Most historians are not there by definition, and that is a challenge for all historians since what separates history from other disciplines is attention to context. For urging me to pay attention to the context of character traits and life outside the paper trail, I am indebted to Gillian Deane and Jannie Hunn, who were there. My long-time friend Bill Richardson, a professor of accounting, gave graciously of his time. After reading and marking up the original draft with an eye to clarity, accessibility, and technical correctness, Bill read it again to find places to trim. His improvements were a serious start to the exacting work of producing a book. For that activity, I turned to McGill-Queen’s University Press out of recognition for its professional standards and because of friendship. Phil Cercone began this collaboration, our sixth. Jonathan Crago continued the association with the press. Jonathan and the anonymous readers plied me with suggestions. I have never seen the equivalent of such high quality and helpful recommendations. I have respected the work involved by incorporating most, if not all, of the suggestions. Kathleen Fraser set me on course to comply with house style, complete copyright approvals, and abide by production schedules. Robert Lewis’s excellent copy-editing has been a study in precision that respects the partnership of potential readers, the editor, and the author. Sergey Lobachev prepared an exemplary index. It is always a privilege to collaborate with individuals who revere the book.

Debts to my family are without number. Joan has supported all endeavours since our student days.

Spelling, Currency, and Terminology

To achieve consistency of spelling between quotations and text, New Zealand spelling has been adopted. Deviations from other English spellings are minor and likely to pass without notice. A number of New Zealand terms, such as “wage fixing” and “benefits,” have been retained because their origins or nuanced meanings relate to the theme of national difference. Their connotations should be evident from context. Dollar amounts are New Zealand dollars unless otherwise indicated.

For simplicity and continuity across the chapters, I have used the term “state” to apply to the enduring non-elected agencies that elected governments have at their disposal. Temporally, these agencies transcend a government. The term “government” is reserved for the elected group provisionally empowered to direct the state. By New Zealand convention, governments are numbered: the Third National Government, the Fourth Labour Government, and so forth. In particular legal situations, the Crown is mentioned. Crown and state are not readily separated, but “state” is the clearer term for the events under review. The term “Crown” applies more often when the state is mentioned in some legal capacity. The usual term for a major state entity with operations and facilities was previously “department.” When the 1980s reforms removed significant tangibles from state control, reduced state entities became “ministries,” a term associated with policy formation and supervisory functions rather than with the running of enterprises.

Abbreviations

ANZ

Air New Zealand

CGT

capital gains tax

CHE

Crown Health Enterprise

CPC

Cabinet Policy Committee

CSU

Combined State Unions

DCF

discounted cash flow

DPB

Domestic Purposes Benefit

ECNZ

Electricity Corporation of New Zealand

EEC

European Economic Community

ESAS

Electrical Supply Authorities

FBT

fringe benefits tax

FOL

Federation of Labour

FFT

final transfer tax

GMFI

Guaranteed Minimum Family Income

GPS

general practitioners

GST

Goods and Services Tax

IMF

International Monetary Fund

MCC

Special Ministerial Coordinating Committee

MCI

Microwave Communications Incorporated

MMP

mixed member proportional

MP

member of Parliament

NZRC

New Zealand Railway Corporation

NZRL

New Zealand Rail Limited

OECD

Organisation for Economic Co-operation and Development

OPEC

Organization of the Petroleum Exporting Countries

PSA

Public Service Association

RBFC

Rural Banking and Finance Corporation

SMP

Supplementary Minimum Price

SSC

State Services Commission

SOE

state-owned enterprise

TVNZ

Television New Zealand

WST

wholesale sales tax

Figure 1 | Labour Party caucus members on board the 4:27 p.m. train in Wellington, bound for Paraparaumu, 29 March 1983. From left, back row: Peter Neilson, Koro Tainui Wētere, and Colin Moyle. Middle row: Peter Tapsell and Bob Tizard. Front row: Michael Bassett and Bruce Gregory. Labour Party members of Parliament were to attend a two-day retreat at Tatum Park near Levin. The party had just launched its Save Rail campaign to protect rail transport from trucking by road. Saddled with a huge debt, the railway paid no corporate taxes and lived on subsidies. In late 1990, the government wrote off its debts, restructured its balance sheet, gave it the appearance of a going concern, and groomed it for sale. Alexander Turnbull Library, National Library of New Zealand, ref. ep/1983/1129/4-f, Evening Post, photo by Ross Giblin.

Figure 2 | Prime Minister David Lange (left) and Finance Minister Roger Douglas celebrate the conclusion of the Economic Summit, September 1984. An accompanying note from the cartoonist states, “The economic summit had mirrored an event held by Bob Hawke after he won the election in Australia. Little did we all realise that Roger Douglas knew exactly what he wanted to do next!” In fact, the new government had studied the Hawke summit as an act of political theatre and had staged its own masterful performance. Alexander Turnbull Library, National Library of New Zealand, ref. dcdl-0024886, Taranaki Daily News, cartoon by James Lynch.

Figure 3 | President Jim Knox (right) and Secretary Ken Douglas of the Federation of Labour at the Economic Summit, 13 September 1984. Among other things, the summit signalled to the country, somewhat misleadingly, that the Labour government was really listening to many interests. For certain, the government was telling the unions’ old guard that they were nothing special and that the government would not be listening to them. Alexander Turnbull Library, National Library of New Zealand, ep/1984/4274/20-f, Evening Post, photo by John Nicholson.

Figure 4 | Depicted as antediluvian cavemen, Minister of Labour Stan Rodger and Federation of Labour president Jim Knox busily club each other, 1984. An accompanying note from the cartoonist states, “In election year the industrial relations scene continued to be a battleground.” The allusions were aimed at the outdated labour relations regimes in the private and public sectors; however, Rodger was not inclined to use the instruments of the state but wanted employers and the unions to negotiate without intervention. Alexander Turnbull Library, National Library of New Zealand, ref. dcdl-0024861, Taranaki Daily News, cartoon by James Lynch.

Figure 5 | Finance Minister Roger Douglas blocks his ears as a group representing agriculture, business, seniors, and trades wail over losing economic privileges. An accompanying note from the cartoonist states, “The 1984 emergency budget saw the first stage of withdrawal of regulations, protectionist practices and subsidies. It was not popular even though most agreed it was necessary.” The petitions from interest groups and the accompanying briefs from interventionist economists working on their behalf confirm the cartoon’s point. Alexander Turnbull Library, National Library of New Zealand, ref. dcdl-0024894, Taranaki Daily News, cartoon by James Lynch.

Figure 6 | Women members of Parliament Ann Hercus and Marilyn Waring leap into the air as they prepare for a cricket match between parliamentarians and American diplomats, 28 February 1979. Neither Hercus (Labour Party) nor Waring (National Party) enjoyed the male-dominated politics of the 1980s. Each demonstrated principles that annoyed their prime ministers and that, in Waring’s case, precipitated a snap election. Alexander Turnbull Library, National Library of New Zealand, ref. ep/1979/0757/3a-f, Evening Post, photo by staff photographer.

Figure 7 | A large crowd of farmers assemble in Civic Square, Wellington, to protest government policies, 30 April 1986. Alexander Tumbull Library, National Library of New Zealand, ref. ep/1986/2002/18-f Evening Post, photo by staff photographer.

Figure 8 | Former finance minister Roger Douglas (right) and colleague Richard Prebble in Parliament, Wellington, on their way to a caucus meeting where a secret ballot on the Labour Party leadership was to be held, 21 December 1988. Douglas could not win this contest but had sufficient backing in the caucus to be re-elected to Cabinet months later, hastening Lange’s resignation as prime minister. Alexander Turnbull Library, National Library of New Zealand, ep/1988/4750, Evening Post, photo by Ross Giblin.

Figure 9 | Finance Minister Roger Douglas (left) holding up Prime Minister David Lange’s arm in a victory salute after Labour is re-elected, 15 August 1987. Douglas went to Lange’s headquarters to parade symbolic unity in an effort to dispel uncertainties about the reform drive. Smiling here, Lange later claimed that he resented the appearance. Alexander Turnbull Library, National Library of New Zealand, ref. ep/1987/4138/26, Evening Post, photo by Ross Giblin.

ADAM SMITH’S ISLANDS

Introduction

COURTING CONTROVERSY

From the late 1970s into the 1990s, many developed countries restructured relations between state and economy. Faced with upheavals in the postwar order, politicians, public servants, central bankers, private consultants, and officials at international agencies exchanged information on handling a multitude of fiscal and monetary ordeals. A “great transformation” started with American president Richard Nixon’s decision in August 1971 to end the convertibility of greenbacks into gold, eliminating the lynchpin in the Bretton Woods system, which had been established in 1944 to contain currency manipulation and to smooth international trade.¹ The ground continued to move under the member countries of the Organisation for Economic Co-operation and Development (oecd) while governments contended with developments more disruptive to the global economy than an economic downturn.² Members of international financial networks shared concerns about the oil price shocks, the reversals in terms of trade, the hypermobility of capital, the ease of credit, and the damage of inflation. The emergencies announced a shift in economic power. “A historic corner had been turned.” The rich countries’ share of manufacturing trade started to decline around 1955. Then the drop accelerated.³

As a supplier of animal protein to the United Kingdom, New Zealand suffered from the British involvement in this decline. Continental meat producers had the advantages of freshness and were better placed to appreciate changing tastes. The terms of trade plunged.⁴ An estimate of labourers’ real wages shows them peaking between 1972 and 1975, before plummeting by roughly 20 per cent and remaining low for the next decade.⁵ New Zealand’s Treasury Department warned the Third Labour Government (1972–75) that its spending activities “could generate levels of domestic activity too great to be supported by the balance of payments.” A devaluation was required.⁶ For a small regulated economy, the crises were real and the attempts by the next government, Third National, to deal with them by further subsidies and forays into state-sponsored economic diversification in the late 1970s and early 1980s aggravated the troubles.⁷ Interventions led to further interventions to manage the unintended opportunities and distortions caused by the earlier interventions.⁸ Several years before New Zealand’s restructuring began, reform proponents close to the state’s fiscal and monetary operations had forecast that the country’s chaotic accretion of subsidies was unsustainable.⁹ As well, the state’s borrowing from overseas and its expansion of the money supply had deleterious inflationary effects, more severe than elsewhere in the oecd.¹⁰

Several policy analysts in New Zealand’s public service as well as critical thinkers in the major political parties maintained that the country’s current conduct of fiscal and monetary management, labour relations, and producer subsidies obstructed adaptation to the new external environment and exacerbated inflation. They dismissed any thought that the country’s trade problems were cyclical, and when the opportunity came, they jettisoned a variety of interventionist measures, some of which had been sweeteners for voters rather than Keynesian countercyclical measures. Cabinet ministers and senior public servants teamed up from 1984 to 1990 to remove controls, regulations, and subsidies. Whereas some countries only dabbled in restructuring, New Zealand went far and fast, reducing subsidies to sectors that had come to expect state support. Treasury economist Sue Begg warned in early 1984 that adjustments to living within means “may give us little joy.”¹¹ Anticipated were social dislocations, not their precise form and duration. A surprising degree of producer resilience and adaptation could not have been forecast either. The speed and scope of the upheavals left many bewildered and in immediate trouble. Resilience was notable.

Senior public servants saw no short-term comfortable solutions. Social welfare caseworkers were unaccustomed to the rising numbers of applicants and to drives by the Social Welfare Department’s head office to investigate recipients’ eligibility. Some employees in the more overstaffed state-run businesses, as well as rural producers who had become reliant on production incentives, had miserable times. The consequences were expected by advocates of restructuring. Prior governments were assigned the blame, not only for the wastefulness in routines but also for poorly costed policy choices. Taxation practices in New Zealand were less sophisticated than in many oecd countries and needed attention too. Trade union leaders, lobbyists for protected producers, interventionist economists, and second-wave feminists found some aspirations sidelined. The latter two groups appealed for a return to a managed economy. Although the book dwells on economic matters, the government did not neglect progressive measures. Critics and casualties of restructuring recognised abrupt social downsides. The parliamentary Labour Caucus included members who, if uncomfortable with restructuring, understood that their progressive itinerary had better prospects inside a partisan assemblage that had won an election. They were determined to win, and there were progressive results. The Homosexual Reform Act (1986), not a government measure but overwhelmingly supported by the caucus, was one of several pieces of transformative legislation that “appealed to the party membership and urban liberals.”¹² The most comprehensive and historically significant social reform legislation was the Treaty of Waitangi Amendment Act (1985), which empowered the Waitangi Tribunal, created in 1975, to expand its mandate and to look into past breaches of the Treaty of Waitangi (1840), understood as historic injustices endured by Maori.¹³ In 1990, late in its second term, Fourth Labour passed legislation on employment equity and on civil rights.¹⁴

Obliged to write without fear or favour, historians are equally required to honour this freedom with citations that enable others to review the evidence. Great effort has been made to do so while explaining the economic and social conundrums as these were appraised by ministers and senior public servants. A preference for explaining why reforms were undertaken and how they were achieved rubs against the grain of some academic accounts of economic restructuring in the 1980s. I refer to critics of market restructuring who have branded it “neoliberalism,” claiming to have found an insidious knowledge system that went forth to imperil “contemporary liberal democracy,” stifle “radical democratic imaginaries,” or enchain democracy.¹⁵ The practice of collecting or reiterating rhetorical evils stifles curiosity about the non-conforming occasions when democratic majorities supported reforms. Additionally, the attacks distract from awkward questions about who might supply the “imaginaries.” An intuitive fear of giving details or addressing theoretical inadequacies has turned critical discussions inward, rallying the convinced, satisfying the somnolescent, steering inquiry toward marginal historical subjects in a quest for relevance, and pitching a drearily straight argument.

SUPPOSITIONS VERSUS CONTEXTUAL REALITY

In the 1990s, the term “neoliberal” commenced an ascent in academic discourses. A Google Ngram measure of published word usage suggests that by 2004 “neoliberal” was overtaking “free market.” Some in the academy paraded in the new clothes. The Global Economic Crisis of 2007–08 contributed, spilling back into considerations of the economic difficulties of the 1970s and 1980s. The colossal recklessness in financial centres returned regulation to prominence in the academy, retrospectively opening criticism of the financial deregulation of the 1980s. In their own ways, historians of ideas and exponents of critical social theories credited neoliberal ideas with the resurgence of free-market economics, a reduction of the state, and values that advanced inequality. The influence of the financial crisis on scholarship that was related to the economic difficulties of the 1970s and 1980s marked a generational divide.¹⁶

Capitalizing on Crisis: The Political Origins of the Rise of Finance (2011), Greta R. Krippner’s persuasive tracking of the displacement of the state, connects it to the ascendency of finance capital in the United States. The standing of substantiated narratives is affirmed by her judgment that certain attempts to understand restructuring, notably Marxist-inspired theories, “lose sight of the concrete mechanisms and institutional details.”¹⁷ Keeping these factors in sight is more easily said than done. In The Great Persuasion: Reinventing Free Markets since the Great Depression (2012), historian Angus Burgin cautions that making the transition from accessible ideas to government policy formation was no simple matter. He advises that the influence of Friedrich Hayek and Milton Friedman on policy required subtle handling. “The relationship between abstract ideas and processes of political change,” he admits, “is difficult to calibrate and challenging to represent.”¹⁸

Ideas-based studies cannot bridge the gaps between thought and actions in dynamic political processes. The puzzling-out of governments’ actions is thinly represented in writings that bring neoliberalism into their titles. Meanwhile, ideas and their pedigrees are explained with attention to the finest nuance. Since the competing domains of so-called theory and empiricism divide many disciplines in humanities and social science scholarship, there is no point in obscuring intent. The title of this book is a declaration. Adam Smith’s Islands takes the epistemological view that instances of restructuring offer concrete realms of study, including not only the crises of declining prosperity and acute inflation but also the remedies fashioned by intricate political and technical operations.

Academic distillations required for the neoliberal label face a whack-a-mole challenge. Nation-states and provinces have distinct constitutional, political, and social makeups. Only a handful of researchers have tackled diversity. Monica Prasad includes the United Kingdom, France, and Germany, Mark Blyth discusses Sweden, and Daniel Stedman Jones traces a transatlantic assault on Keynesianism.¹⁹ Of course, the scope of restructuring was greater, extending to the Americas, eastern Europe, Asia, and Oceania. Synthesis, when attempted, will be punctuated with caveats. Specific jurisdictions are likely to present unexpected realities that take over. The New Zealand case submits that at the working edge of restructuring, as distinct from accounts by academics and special interest groups, the public’s objections pertained to implementation, particularly sequencing and duration. Farm subsidies were removed before the labour relations and monetary reforms had time to assist with export opportunities. Many primary producers believed that Fourth Labour dragged its feet on restructuring labour relations. This sequencing was not ideal, and the finance minister admitted that. As leaders of a Labour government, ministers had practised a gradualism in bringing forward changes in labour relations. As for the duration of policy-induced hard times, there was a problem. Deflationary processes and financial liberalisation were adopted at the same time and did not harmonise. In monetary matters, the government delayed action to end currency speculators’ depletion of foreign currency reserves until the conditions were auspicious for springing a surprise. Timing was an important variable in restructuring.

Critics of restructuring looked abroad for demons and angels. Augusto Pinochet’s Chile, Ronald Reagan’s United States, and Margaret Thatcher’s Britain delivered the former. For once, Australia was the home of angels. A Labor government in Australia maintained some interventionist measures that attracted the interest of New Zealand’s left, but the alternative across the Tasman did not last long (chapter 1), and the country’s mineral wealth, absent in New Zealand, supported plenty of national and state initiatives. In New Zealand, if there had ever been anything close to a consensus about the merits of the managed state, it was fading, and that was not because of ideas filtering in from abroad. For example, public opinion divided over several welfare benefits. Once controversy started, it grew. In the 1980s, the champions of imagined alternatives to restructuring also imagined a cultural consensus.²⁰ It was no longer there.

Something else must be considered, namely the sincerity of government ministers in their pursuit of restructuring to improve national economic performance in order to support a one-of-a-kind suite of welfare benefits. Taking a contrary position, some naysayers proposed that facilitating private pursuits for affluence tended to lead to dangerous speculation. True enough. However, the fiscal support for welfare owed much to the individual pursuit of affluence since, in the aggregate, it generated employment and taxes. Reformers in the government saw their mission as the re-establishment of national affluence in a competitive world. As well, in the matter of a social consensus, New Zealand was home to a growing consumer society with expanding tastes, awareness of quality from abroad, dissatisfaction with local choices, and impatience with the state’s pettifogging management of private consumption by currency controls and industrial protection. Welfare benefits were not going to disappear; neither was consumerism. To support both, New Zealand had to compete in export markets. Advocates of restructuring dismissed the notion of a national communitarian essence, viewing its appearance as a misguided belief about people’s aspirations or a smokescreen for unfair state redistributions. A clash of truths led one of the many commentators on the country’s woes to remark in 1985 that “the price of some egalitarian end may be the pursuit of elitist standards. Cold comfort to some.”²¹ A socially compassionate society might require enterprise, bringing accompanying disparities in wealth.

There was no comforting warmth in the customary political home of intervention and communitarianism. For years, Labour Party conferences passed uncosted and uncoordinated resolutions. In the early 1980s, however, a centre-left cadre aspired to electability in preference to supporting an image of irresponsibility that frightened wavering voters who could otherwise have been weaned from a National government in disarray. As Labour pragmatics saw it, they had to save the country by problem solving and by abandoning ideology and wish lists. Election defeats convinced young ambitious Labour parliamentarians to abandon class rhetoric, meet with business leaders, and treat unions as badly led interest groups. ²² To some stalwarts, the ensuing restructuring betrayed the party’s conference-floor democracy and disrespected its legacy guardians.

From 1985 to 1990, the Economist praised a New Zealand Labour government for restructuring the economy, hailing its actions as the most dramatic in the oecd.²³ Which government, the journal asked, was more Thatcherite than Mrs Thatcher?²⁴ On surface appearances, the onrush of reforms resembled the uk experience.²⁵ When exploring asset sales or monetary practices, leading New Zealand ministers, public servants, and central bankers contacted British counterparts and academics familiar with the City of London. Yet, details intercede to complicate surface comparisons. Typically, New Zealand reforms did not follow practices adopted elsewhere because the local starting point was a review of a unique country’s particular problems and the history of certain institutions that had perpetuated interventionist rigidities. From time to time, ministers and public servants saw flaws in reforms employed elsewhere. In some areas of reformation, New Zealand was several years behind other oecd countries. Counterparts abroad warned of the mistakes that they had made. Personal interactions accompanied by frankness featured in restructuring.

New Zealand’s past and present differed from those of other countries that were also restructuring. Troubled economies are troubled in their own way. Argentina, Greece, Nigeria, Venezuela, and many more have been unhappy – and remain unhappy – in separate but largely economic ways. In the early 1980s, for good reasons, New Zealand was an unhappy country too. Its trade-dependent economy and small domestic market made trade critically important; the balance of payments chronicled a reversal of fortune. Individual and interest group complaints about unfairness or inequity in certain social benefits and subsidies splintered a long-standing welfare consensus. Inflation exceeded that elsewhere in the oecd, and the number of workers involved in labour disputes was on the rise throughout the 1970s and well into the 1980s.²⁶

The correctives proved distinctive since they emerged from deliberations in Cabinet committees, in public service working groups, and in committees of ministers and their officials. Although senior public servants and ministers did not invariably agree or work together seamlessly, the former accepted their role, and the latter were not impervious to good suggestions. The thought to hold onto is that agents of change argued, resulting in outcomes not foreseen at the start. Citing political scientist Hugo Helco, Malcolm McKinnon submits that government departments learned as well as acted. They puzzled things out.²⁷ Key members of the state’s economic management bodies were aware of current ideas and recent practices in economics, finance, and management.²⁸ For reassurance or fine-tuning, ministers called in overseas consultants, often discovering that on major questions these parties lacked definitive answers.

Neoliberal luminaries had no direct part in the restructuring; several students and followers were involved but not united over policy and not almighty fixers. They were in the mix. At the time, the discipline of economics in New Zealand was an international outlier because the managed economy remained a staple in academic circles, although the Treasury, the Reserve Bank of New Zealand, and the New Zealand Planning Council were moving to new positions. There was a respect for people and their choices rather than for macroeconomic policies that supposedly empowered clever people to make the right decisions for others.²⁹ The schism in the profession was apparent when interest groups, defending concessions and subsidies, enlisted a few interventionist economists. The schism appeared again when policy announcements prompted media coverage and critics’ participation. “The new Treasury of economists” regarded intervention as a hangover from previous eras. The economy and economics had moved on. The state did likewise.³⁰

Key ministers and senior officials rejected a pair of schemes identified with prominent neoliberal public intellectuals. Pleading the impracticalities of applying monetary policy to defeat inflation, a Milton Friedman notion, analysts at the Treasury and the Reserve Bank adopted a broader position. Fiscal policy and major adjustments to labour relations were included in their disinflation campaign.³¹ Officials familiar with monetary practices insisted that technical difficulties with selecting, measuring, and interpreting several different monetary aggregates made it impractical to operationalise Friedman’s assertion that all inflation was monetary. In another instance, reformers rejected a radical means of fiscal constraint. Some American states had chiselled debt ceilings into their constitutions, a pet scheme of Nobel laureate James M. Buchanan in the late 1970s.³² Knowing that defining activities as off-budget allowed politicians to declare fiscal prudence and then to deviously subvert it, senior Treasury officials went to work on measures to improve fiscal responsibility. They promoted budget transparency and fiscal rigour in the senior public service.³³

Overseas commentators were struck by how far New Zealand’s reformers went to rein in the state. Until 1984, New Zealand had been regarded as the most interventionist state outside of the communist bloc. It would be misleading, however, to characterise the economy as truly planned, as though that were ever feasible. Intervention had originated in ad hoc steps, often politically motivated. Some steps were vote-getting leaps, most prominently an uncosted, pay-as-you-go, universal superannuation (old age security) scheme with generous payments that later required occasional trimming adjustments. Political opportunism also figured in pro-cyclical expenditures or tax cuts before elections. State spending was not the same thing as state planning.³⁴ Nevertheless, a shell of state management grew to encase numerous state-run enterprises and abundant levers of ministerial control that had prolonged a mentality of wartime control. Governments could ration imports and foreign currency, adjust the nominal exchange rate, loosen liquidity, and engage in subsidisation. Behind trade barriers, unions and compliant employers worked through federations to achieve a modus vivendi that passed the costs of uniform national wage settlements onto captive consumers. Not all business leaders were fervent free marketeers.

During Fourth Labour’s zealous offensive against subsidies, economic controls, government-run business, outdated craft unionism, and more, the Economist alluded to Thatcherite reforms.³⁵ Off-the-cuff comparisons could also have been made to other oecd democracies, including the United States, Canada, and Australia. Moreover, there were reforms in subordinate jurisdictions; some American and Australian states and Canadian provinces went at least as far as national governments. New Zealand’s restructuring was a particularly broad reformation and ran at full tilt. Errors, neglected considerations, measures at cross-purposes, and unanticipated complications flesh out its history. Officials of the International Monetary Fund (imf) and a few senior officials believed that restructuring had not been well defended. They questioned whether the government had adequately outlined the type of society that it wanted, and they worried that without crisp and clear communications, the government could have failed to lock in its achievements. The fact that individual ministers were responsible for massive changes in their policy bailiwicks helps to account for the absence of a communication strategy. It happened, too, that Prime Minister David Lange could quip with deadly accuracy but left explanations to others. Certain ministers fronted up; others remained silent as long as possible. It depended how much trouble their brief for restructuring was likely to cause. Minister of Labour Stan Rodger had a delicate mission and a wily way with silence and carefully chosen words. Opponents of restructuring had less difficulty than proponents when it came to articulating visions. They were not governing and could flirt with utopianism, a circumstance that Fourth Labour’s ministers reiterated at Labour Party conferences.

THE WORLD OF NETWORKS

This book does not systematically compare national experiences of restructuring. The relevant state and private papers may never be accessible for free inquiry. What can be done is to propose a research agenda through events that are accessible. The deregulation of finance and utilities, the privatisation of state-owned enterprises, and the fiscal retrenchment pursued in many capitalist countries were followed by the adoption of market economics in Czechoslovakia, East Germany, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Yugoslavia.³⁶ Together with the prior events of restructuring in the oecd, these revolutions in the former communist bloc contributed to a new phase in postwar history. The surface appearance is known. It remains for us to get inside the processes. Fortunately, New Zealand’s Fourth Labour Government not only went far with structural changes but also left records – ultimately open to examination – of confidential discussions on monetary policy, inflation fighting, taxation, corporatisation, privatisation, deregulation, labour relations systems, subsidisation, banking practices, health care, and local government. Humming in the background, computers revolutionised political parties’ campaigns, government research, and fiscal management. Data for policy papers and benefit reviews could be readily assembled and programmes more closely monitored thanks to computers.

Historian Pierre-Yves Saunier cautions that because world historians usually synthesise from published material, they can seldom contribute fresh elements to knowledge. Scanning the “wide horizon implies a growing estrangement from original material.” Proposing that the historian’s laboratory is the archive, Saunier hopes that explorations of original material will reveal “circulations, connections, relations and formations.”³⁷ The New Zealand state’s commitment to transparency endowed the country with the documentary riches required to explain economic restructuring along with its global connections. Government files and personal papers document events inside a transformation in politics, economics, and culture, bringing to light transnational connections.³⁸ Global linkages not only multiplied and thickened during restructuring. Their character also changed. Financialism advanced and solidified.

Few countries can provide better material on linkages. In the transnational world of capitalism, New Zealand was an opportunity, client, recipient, and vendor. During the structural transformations in the 1980s, its external financial ties usually converged in the United Kingdom. However, the United States and Japan were gaining importance. Americans appeared among consultants advising on management, finance, and technology.³⁹ Influences coming out of overseas powers other than the United Kingdom transgressed national identities. Economic nationalists objected to deeper integration with the centres of overseas capital; however, the small domestic market made the country dependent on trade as well as on overseas capital. For New Zealand’s controlled economy, the global emergence of undisciplined capital in the 1970s was a bewildering development and costly to defend against.⁴⁰ The country’s exporters and importers had become adept at manipulating invoices to evade or exploit controls. Capital mobility was irrepressible in advanced economies, partly because of sophisticated capital operations arising from exports and imports. Financial markets, moreover, had developed derivatives, which were difficult to contain. Trading banks did their part by making backdoors available at their captive loan companies. The spreading linkages of capital liquidity were paralleled in the efflorescence of personal contacts across borders. New Zealand public servants travelled abroad for conferences and secondments. Several politicians likewise spread their wings. A few of both groups of travellers, seeking information or assistance for the state, dialled numbers on the business cards that they had collected. Advances in communications and the digital revolution were modernising politics and public administration at the exact moment of the reforms.

An archival cornucopia supports a narrative that has little in common with publications by authors of intellectual histories of neoliberalism who have touched on the economic transformations experienced in the late twentieth century. Although this book shares their belief that the 1980s was a remarkably important period because of adjustments to the state in many countries, it emphasises the national and internal economic context as well as the context of a national cultural change respecting social welfare. We need to understand better why former values and respected practices shed some legitimacy. New ideas did not supplant old practices due to an influx of foreign theories. Public opinion polls and other soundings examined here suggest a decaying consensus on the merits of state interventions. Unflattering media coverage of the controlled economy escalated, plus certain social welfare benefits and their administration came under unrelenting scrutiny. These things occurred not because neoliberal thinkers launched successful ambushes but because growing public support for assessing individual need was displacing affection for a legacy system that redistributed according to defined categories, not equity or need.

Adam Smith’s Islands settles on the verifiable. Attention to global economic shocks as well as distinctive local practices in finance, trade, labour relations, and social welfare can refocus attention, moving it away from neoliberal public intellectuals and toward local problem solving and a fading consensus around the notion that state actions were fair and effective. Despite functioning adequately in good times and having come from good intentions, many of the New Zealand state’s endeavours had fostered interest group entitlements and had permitted state-sector wastefulness. Goodtime laxity was unsuited for rougher periods, although it must be said that rougher periods called for social assistance. Here, a dilemma developed. While restructuring the economy, the Fourth Labour Government confronted a corrosive bout of inflation that had eluded the previous government’s attempts to contain it with controls. The new initiatives to combat the problem depended on fiscal restraint and a tightening of liquidity. The previous government’s combination of troublesome regulations and controls, which had been unable to restore economic health, exasperated many but not all employers. The idea that a ramshackle faux socialism was dragging the country down split the business community as well as the country’s primary producers into old-line defenders of subsidisation and allies of the free-market insurgents in the Labour Party.

Although the radical initiatives that changed the state and the economy in the 1980s responded to concrete, material problems, they also addressed the unfairness inherent in controls and subsidies. These measures benefited groups with priority ranking and occluded how individuals and enterprises made business decisions that could respond to price signals from foreign markets. With a dizzying variety of direct and indirect subsidies, the interventionist state had not been protecting the vulnerable but attempting to pump up exports with incentives. From the ranks of the privileged and protected, there materialised a few entrepreneurial dissidents who witnessed how concessions and subsidies were damaging a business sense of where opportunities could be found in world markets. The recently formed New Zealand Business Roundtable ceaselessly put the free market case in front of parliamentarians and business journalists. The executive of the well-establish Federated Farmers went full out for the free market, barely managing to keep the disenchanted membership onside. The country’s sectoral organisation into federations underwrote debate.

The Fourth Labour Government defied what leading ministers identified as special interest groups: a large and cossetted state sector, protected manufacturers, subsidised farmers, legions of local government officials, state-approved trade unions that deflected reorganisation, and sections of the health care system. There was a concurrent drive to rationalise social welfare benefits and to supress overpayment. This department’s ministers, who self-identified as social democrats, saw one of their jobs as restoring integrity to income-support measures. The challenges of managing state-supported income maintenance should be considered separately from the general winding-down of state intervention. Income maintenance ran as a distinct policy area with specific dilemmas and tensions, emanating from the country’s unique assemblage of uncoordinated benefits. Moreover, the attitudes of clients and critics alike were affected by the sexual revolution, second-wave feminism, socially conservative reactions to both, grey power, and a fiscal mess. Explaining and documenting these points complicates how reforms should be thought about, for they did not come about owing to the persuasiveness of a few intellectuals. They were not the neat results of a linear course. Some accorded with wide public opinion. Reforming the public service, for example, was popular outside of the capital. Moreover, successive governments in New Zealand, as also occurred elsewhere in the oecd, tried to balance income maintenance for a growing cohort of seniors against a host of other worthy social welfare objectives. Grey power politics cut into the state’s consolidated revenues since the national superannuation scheme began as a pay-as-you-go affair that drew on tax revenues.

Policy papers and discussions within the government were conducted in a language removed from left ideologies and wish-list politics. Fourth Labour vigorously opposed uncosted Labour Party conference resolutions. Prime Minister David Lange – after 1987 considered by friend and foe alike to be on the loose-spending side of his government – told disappointed insurgents at a 1988 party conference that he had no time for the “warm fuzzies of ideological self-indulgence.”⁴¹ Reform’s critics had anticipated a more congenial address. The certainties of government responsibilities clashed with the spending ideas of the party’s left, which held influence largely outside of Parliament and was very active at conferences. The parliamentary party’s leadership had a fractious association with unions and with Labour’s head office, a situation compounded by something additional to restructuring, namely reformers’ attempts to turn the Labour Party into an organisation with broad electoral appeal. While the head office sent delegates to the Socialist International organisation, the agents of change chased financial support from business.⁴² The simultaneous efforts to restructure the economy, rebrand the party, and deal with conference politics eventually exhausted the government.

The local setting is packed with drama, cunning, commitment, setbacks, human foibles, and fatigue. As a transnational phenomenon, however, the trimming of the state’s direct operations in the economy from the late 1970s into the 1980s is better understood by standing back from the fascinating hurly-burly. The end of easy postwar prosperity in a few countries, New Zealand among them, was traumatic. Greta Krippner points the way toward understanding this outcome in her account of relationships among policy makers, the financial sector, and “the limitless demands of U.S. households, corporations, or the state for capital.”⁴³ The key to understanding is not a dead-end enlistment of a theory built around the label “neoliberalism.” Starting with the “fading prosperity” of the 1960s and 1970s, Krippner relates how American policy makers avoided the distributional implications of a new global situation, instead permitting the “financial exuberance” of credit to fashion an illusion of prosperity.⁴⁴ In its exceptional blending of consumer expectations, economic scale, and decentralised banking, the American course was unlike any other taken in the oecd. New Zealand’s particular challenges, although coming out of the same global shakeup, were rooted in the country’s own exogenous and self-inflicted troubles. Here, however, the state had distributional mechanisms through social welfare. The larger predicament was that the country had to trade its way through the decline. It certainly could not go down the American path of leveraged finance.

Ideas did enter the picture through a single book-length compendium that laid out the problems and the general means to address some of them. The Treasury’s Economic Management: Policy and Organisational Issues was prepared in July 1984 as an extensive briefing for whichever party won the immediate election contest, although its authors had fingers crossed that it would be Labour. The Treasury’s economists took the stance that interventions, which aimed at specific and immediate problems, “failed to make the best of the circumstances we find ourselves in” and diverted attention from critical examinations of the state’s current involvement in the economy: the state-run enterprises, the concessions, the direct and indirect subsidies, and budgets that focused on inputs rather than outputs.⁴⁵ The briefing faulted the tax base as narrow and riddled with loopholes; it censured social welfare as poorly targeted. Within a few months, the criticism and ideas for restructuring had determined the work agenda for committees and task forces. Economic Management encapsulated the arguments for restructuring but did not come as a bolt from the blue. For several years, the Treasury’s senior officials had been advising a resistant Prime Minister Robert Muldoon that pulling the levers of intervention was not improving the national income, rooting out inflation, or containing fiscal deficits. The Labour Party’s parliamentary leadership had promoted similar ideas during a roadshow early in 1983. Other narratives enter the restructuring scene too, including resistance, the diversity of solutions on offer, technical issues, interdepartmental friction, and compromises. It was not a linear neoliberal thing.⁴⁶

The political process originated in studies of local problems and in attention to the new challenges emerging from the end of the postwar attempts to manage capitalist state economies in a global economy. First came the troubles and crises, then the enlistment of ideas, and finally modification or abandonment. A lot was happening that responded to public pressure. Perceptions of unfair redistributions and exposures of privilege had for several years been turning the public against interventionist practices. As historian David Hackett-Fischer explains in Fairness and Freedom: A History of Two Open Societies: New Zealand and the United States (2012), fairness coloured New Zealand political reality and rhetoric. It proved adaptable enough to serve competing ideologies.⁴⁷ This insight about fairness applied to eliminating subsidies as well as progressive measures. As never before, a government supported women who were making careers in the public service. Maori rights received greater recognition, although Maori were disproportionately affected by restructuring in the forestry sector. Even though conservation is not a fairness cause, it inspired protests. When Fourth Labour corporatised the state’s forestry enterprises, it concurrently created a Conservation Department and promoted the conservation of native forests.

Historian Kenneth Pomeranz reminds historians of “what we do,” emphasising the skills that develop from probing for context and asking irritating questions. Why did particular theorists write a certain way at that time? What were others saying? The context for this book includes what others were saying. It looks into contextual features: the terms of trade, the balance of payments, the blight of serious inflation, the dynamics of policy making, the phenomenon of team problem solving, the circuits of conflicting ideas, and the strokes of originality. It all tumbles forth from hefty files. Pomeranz admits that obsessing about primary sources can produce “a Borgesian nightmare, not a readable history.” The trick is to simplify without oversimplifying.⁴⁸

CONTENTIONS AND RECOLLECTIONS

Wellingtonians are justifiably proud of their city, arguably the world’s finest small capital. It certainly is small and on its own. Intimacy affected the processes of government. Private residences and restaurants provided venues for policy discussions. Intimacy conditioned the flows of information on the government’s conduct, promptly reaching academics and journalists, who had their ears open and rushed their findings into print. One example, The New Zealand Experiment: A World Model for Structural Adjustment? (1995), Jane Kelsey’s title for a critique of restructuring, stands as a leading example of contemporary critical scholarship. Writers benefited from insider informants but also from the availability of public documents, select committee meetings, and reports from interest groups. Rival opinions were broadcast with regularity. It was not unusual for ministers, opposition politicians, academics, and lobbyists to be interviewed on the same issue on a single radio or television programme or to speak on different days at length. Programme transcripts collected by the parliamentary research office have memorialised remarkable public debates.

The airing of conflicting opinions benefited researchers preparing books, collections of essays, and journal articles. Something so big and controversial attracted academic writers and editors. All maintained points of view without having access to state files and ministers’ papers. Often candid and revealing clashes, documents provide glimpses of personality as well as a better understanding of the context of reforms: the manifestations of the global economy, the importance of a disinflation campaign, the challenges of central banking under interventionist regimes, the sources and resolutions of farm crises, the downside of older-style labour relations, and the transnational capital movements that made controls ineffectual and costly. The initial scholarship had the advantage of an immediate experience of the events. Working with limited sources, pioneering criticisms condemned selected reforms plus the pace and sequence of reforms. They made cases to be answered.⁴⁹ Early responses appeared in articles co-authored by Graham Scott, who was secretary of the Treasury from 1986 to 1993. Since the measures were still fresh, Scott and his co-authors mentioned that their favourable observation remained provisional. They praised a number of former state enterprises for achieving productivity gains and held up New Zealand’s public service restructuring as an example of how “institutional capture” by public servants might be avoided.⁵⁰

Scott was one of several highly educated and experienced officials deeply immersed in restructuring. The core public service was essential. Their position papers and task force reports depict talented individuals interested in their work. Accomplishing so much in a short time would have been impossible without them. Within the core, several groups were asked to do more than ever before and more than their peers. Some offices were more engaged than others. The workload brought consequences. Exhaustion and the allure of better remuneration elsewhere depleted the active core. Transition to a more performance-oriented public service that rewarded merit did not progress fast enough for reforming ministers and senior officials. Unlike restructuring among members of the old Warsaw Pact, New Zealand’s project benefited greatly from the experience of senior public servants raised in an open society where the state had democratic legitimacy regardless of the government of the day. The proper size of the core state sector and its fiscal control comprised separate matters, considered in chapter 13.

Although the bulk of the records were closed for twenty-five years, a few early publications retain interest, testifying to a chatty environment where journalists and academics were well informed. Colleagues, collaborators, and confidants were just down the street or, in that undulating city, up on a terrace.⁵¹ Primary sources, however, go well beyond good rumours, disclosing among other things the internal debates over reform options and showing connections among reforms. There were local fingerprints spread across diverse initiatives. As a scheme unique to New Zealand that aimed to carve out state-owned enterprises from government trading departments, the legislation on these enterprises established two ministers as shareholders and required the pursuit of profits. Some of the same features resurfaced in an unsuccessful plan to radically remake the central bank; they appeared, too, in a short-lived scheme for health care funding, in the operations of the country’s ports, in local authority trading enterprises, and in electricity-distribution bodies. The Treasury not only worked on these propositions and the reform of the core public service but from its departmental desks could also oversee expenditures and assign officials to most task forces. It was bound to be immersed in restructuring.

Engaged everywhere, the Treasury was busy but did not carry the day on all occasions. Fourth Labour’s ministers had responsibility for restructuring areas under their authority and compromised on or delayed action on certain issues, the foremost examples being labour relations and welfare benefits. Both cut close to the Labour Party bone. Complaints about policy fragmentation, inappropriate sequencing, and unfair burdens during adjustments often appeared in briefs levelled against reforms. A piece-by-piece account of restructuring, informed by internal documentation, confirms the separate tracks for reforms as well as affirming the prominence of the Treasury’s economists. The imperfect sequencing and the hand of the Treasury cannot be denied, and critics have had a lot to say about both, although less of course about systemic economic problems, the outdated legacies of interventionist practices, and the dynamics of friction and teamwork that characterised authentic policy making.

Until the 1995 appearance of Jane Kelsey’s The New Zealand Experiment, no one had attempted a comprehensive account. There had been good collections of essays plus single-authored books on the first years of reform.⁵² Kelsey plotted a grander arc, identifying the leading as well as minor reforms. The fact that the book was a survey interpretation wrapped in a partisan manifesto made it unreliable history. Errors were made in attributing motives and in letting pithy assertions substitute for diligent inquiry. Having the answers saves the waste of curiosity. Kelsey maintained that a proposed income tax reform, a so-called flat tax, was designed to incentivise capitalists.⁵³ But that was not the intent. A single rate would have eliminated one opening for tax reduction by the affluent, and planned rebates to working families, an integral part of the package, would have assured progressiveness. A fringe benefit tax also went after privilege. The government was not doing what Kelsey declared. There is an assumption, too, that state-owned enterprises were all winners that could have added revenue and that sales of state assets were “garage sales.”⁵⁴ In many cases, the government was wise to offload bad risks and failing enterprises.⁵⁵ In other instances, sales advanced productivity and innovation but did indeed leave problems to be addressed by the state. Jobs were eliminated. Whether compensation and retirement benefits were fair to everyone is the question. In terms of the fairness of the formulas used and the purchasing power equivalents, the arrangements were not token or trivial.

Kelsey’s critical edge was sharpened on a composite whetstone of communitarian social organisation and second-wave feminism. She dismissed notions of fiscal scarcity and economic inefficiency. The New Zealand Experiment proposed that the economy could have been reordered to take account of kindness, local communities, non-Western values, and greater affirmations of national sovereignty. These prescriptions projected a passionate intensity marked by empathy freed from the self-doubt that advances reliability and coherence. She appealed for autarky plus the benefits of global connections. The mash-up of visions was all over the place and presumed to be attainable through struggle, a heroic belief considering the record of voter preferences, individuals’ private aspirations, and the task of maintaining respect for community solidarity. Defined by whom in a free society? How would the guardians of communal processes be kept true to the values and not capture them for self-interest? How would the elements fit into the current global functioning of trade, capital, and mass consumption?

Communitarian ideals presumed that individuals would show respect for the community, exercising self-restraint in accessing community resources. Whether the resources were subsidies, benefits, or environmental externalities, how would individuals be deterred from ripping off the community? This delicate question was raised implicitly and explicitly, cautiously, and stridently throughout restructuring. As an outsider studying New Zealand’s social and political values, David Hackett-Fischer argues in Fairness and Freedom that the fairness ethic, which intrigues him as a contrast with the American ethos of freedom and enterprise, had become corrupted. The ethic had turned into “a desire to share the benefits of a fair society without fully sharing its burdens or responsibilities.”⁵⁶ In many ways, the challenges in New Zealand’s restructuring fitted a global pattern, but Hackett-Fischer identifies the presence of local values, adding a twist about burdens and responsibility that did figure in restructuring.

Two years after Kelsey’s ambitious and provocative review, Wellington-based writer and economist Brian Easton published The Commercialisation of New Zealand (1997). His potpourri and ex cathedra declarations occasionally scored. The move from a European to a Pacific orientation was such an occasion.⁵⁷ This transnational development was more than a diplomatic realignment. Japanese finance was significant and courted. Favouring localism against centralism, Easton assumed that local government bodies had contributed to “civic virtue.”⁵⁸ Although this claim is debateable, he was onto something. Civic life in the regions was immediately impaired by the cancellation of assorted subsidies. In concert with the multiple and cumulative advantages held by larger centres, restructuring was powerfully centripetal.⁵⁹ Selective in his choice of topics, Easton claimed that the Treasury’s reform juggernaut had been stopped at labour relations. The Labour Department did not go as far as the Treasury wanted, instead producing a compromise reformation. Clever and just short of radical, it was quickly swept away by the Fourth National Government. More about this outcome in chapter 11. Easton’s discussion of labour relations rightly concluded that the unions’ overdependence on state support had reduced their adaptability when international competition became important to the economy.⁶⁰ As Easton suggested, the Treasury’s senior officials had been seriously influential; however, they had setbacks other than the compromise on labour relations. They did not win the bureaucratic battles to restructure the central bank, to soften the regulation of natural monopolies, to change social welfare, or to refashion the administration of health care.⁶¹

Accounts were published by six Cabinet members: Prime Minister David Lange, Attorney General and Deputy Prime Minister Geoffrey Palmer, Minister of Finance Roger Douglas, Minister of State-Owned Enterprises Richard Prebble, Minister of Health (and later of Internal Affairs) Michael Bassett, and Minister of Social Welfare Michael Cullen. National Party prime minister Jim Bolger published his memoirs too.⁶² Gleanings from each publication appear throughout the book.

Bassett’s insider account, Working with David: Inside the Lange Cabinet (2008), principally seeks to explain how the reform government came undone, attributing it to flaws in Prime Minister David Lange’s character and to his relationship with speechwriter Margaret Pope. Although reforms and policy disputes are threaded throughout Bassett’s informative narrative, Lange’s character is the binding theme. Reviewing the book, Malcolm McKinnon, author of Treasury: The New Zealand Treasury, 1840–2000 (2003), comments that Bassett “overlooks the existence of significant elements in Cabinet – let alone in the wider Labour movement – that had reservations about the Douglas approach. These included both new recruits to Cabinet – notably Michael Cullen and Helen Clark – and the longer-serving Geoffrey Palmer, David Caygill, Russell Marshall, and Mike Moore. Bassett tends to present their disagreements with Douglas in terms of personality too.”⁶³ As one would expect in the claustrophobic moves of a fast restructuring, there was no single explanation for a calamitous falling-out among key ministers in 1988. Bassett is right that Lange had feet of clay, and McKinnon is right that “reservations about the Douglas approach” escalated into vendettas. However, the idea of a Douglas approach should be separated into the first-term measures – consistent with IMF and OECD orthodoxy, which Lange backed with wit and gusto – and the second-term skirmishes for control over social welfare policy. Restructuring politics was a game of two halves. Highlights appear in chapters 2 and 3.

Personalities belong in the mainstream of narrative and analysis. The relationships among key personalities bloomed in the brilliant rise of the first term and collapsed in the second term. Douglas’s intensity is fundamental to the narrative, as is Lange’s reliance on instincts, last-minute briefings, and wit. Lange’s personality could be endearing or turn sour, could exude intelligence or betray distraction. The duopoly was one of opposites. For all of their importance, personalities should not crowd out the makeup of the reforms themselves and not neglect the role of public officials. It is worth mentioning here that Michael and Judith Bassett’s biography of Roderick Deane upraises the place of officials in the restructuring. Deane was a deputy governor of the Reserve Bank of New Zealand, chairman of the State Services Commission, and ceo of the Electricity Corporation and of Telecom.⁶⁴ He belonged to the small number of like-minded ministers and officials who revolutionised institutions and practices at a moment of crisis. In Deane’s case, service included combatting a speculative run against the New Zealand dollar, an event detailed in chapter 4.

When planning to write about a celebrated restructuring that altered relationships between the state and individuals, the state and interest groups, the state and regions, and the state and the global economy, I committed to a method and scheme of organisation. Archives were going to guide this inquiry and they have. The majority of chapters are comparable to stand-alone essays about specific problems and the exertions behind legislation and executive actions. Along the way, a cast of remarkable personalities intruded into research findings, making it impossible to ignore character and relationships. We shall see the cast now in the three-act tragedy of a rise and fall.

PART ONE

The Politics of Restructuring

[François Quesnay, author of Tableau économique (1758)] seems not to have considered that in the political body, the natural effort which every man is continually making to better his own condition is a principle of preservation capable of preventing and correcting, in many respects, the bad effects of a political economy in some degree both partial and oppressive … In the political body, however, the wisdom of nature has fortunately made ample provision for remedying the bad effects of the folly and injustices of man … The capital error of this system, however, seems to lie in its representing the class of artificers, manufacturers, and merchants as altogether barren and unproductive. The following observations may serve to show the impropriety of this representation.

Adam Smith, The Wealth of Nations (1776), vol. 2, bk 4, ch. 9

The most important Minister in the Cabinet should be the Minister in Charge of Killing Things. Too easy to start things in government … Promising is what politicians are best at. About the only thing they have not promised New Zealanders is “free sex.”

Future minister of finance Roger Douglas,

There’s Got to Be a Better Way: A Practical ABC to Solving

New Zealand’s Major Problems (1980)

The age of great social innovation is over. On [the] Left we have thought that once we have the legislation passed, we have the problems solved. We have given too little attention to the further problem of good efficient management … Let those industries that have been overtaken by history disappear from the scene.

John Kenneth Galbraith,

“Keynote Address,” Annual Conference of the New Zealand

Labour Party, Auckland, 2 September 1983

1

Remodelling a Labour Party: Leadership and Political Modernity

overview: the new global and the old local

This chapter and the next two bring together the personalities and politics of economic restructuring to answer three questions. First, how could a handful of individuals move a parliamentary Labour Party away from its long attachment to interventionism and toward market-based economics? How did these parliamentary leaders then manage to accomplish a multitude of deep changes in a very short time? What attendant stresses and strains were experienced by government ministers and public servants? The experience captures the underlying power of collective resolve and lessons about the burdens of leadership.

Reform did not run without a hitch. Members of Cabinet would admit years later that they did not always select the best course. One laments that “we buggered up” some operations.¹ What they would have done differently depends on which former minister is reminiscing. There were speedsters and deliberators, pioneers and latecomers. Although they made mistakes, they revolutionised the country economically, culturally, and eventually constitutionally. They were clever, energetic, organised, informed, and wily. They had to be all of these things, not only to take over the parliamentary party and to shape and implement diverse changes but also to counter intrigues by factions within their party organisation or to undertake intrigues more capably than others. Compared to ministers in previous New Zealand governments, these individuals were seriously attentive to developments in the wider world. They established contacts with counterparts and consultants abroad, as did senior officials in many government departments and at the Reserve Bank.

On account of these associations and desperate economic conditions, economic ideas that had recently risen in international stature were displacing national practices and brushing aside local special interests. Labour frontbenchers and a few public service officials tapped into a late-twentieth-century internationalism oriented toward economic reform, through which they made contacts across the developed world with politicians, public servants, international agencies, and private consultants who were traversing the terrain of economic troubles. Even though the frontbenchers were iconoclasts who clashed with some in the party over what Labour stood for, they attended to local constituency business and gave the National Party no quarter. In some areas, ministers and their officials searched for overseas advice; in others, they innovated, remaining proud of homemade solutions, indignant over suggestions that they drew on so-called neoliberalism or monetarism. Undoubtedly, overseas consultations were common but mostly in matters of technical detail. Ministers and officials dealt with a unique matrix of structural economic problems through a combination of pragmatic thinking, awareness of ascendant trends in economics, and debate within committees and task forces.

Long-distance air travel, television, telex, satellite telecommunications, fax machines, and eventually the Internet supported changes to partisan politics, state administration, and government consultation.² The electronic movement of funds impinged on monetary policy, a major field of debate and change in the 1980s.³ On the partisan front, Labour’s head office went online in 1985 so that candidates could tap into a digitised membership system with a list of the 62,000 members held by Datacom in Christchurch. By 1987, the Labour Party had to budget for $250,000 per annum to cover computer services and required an in-house operating team. The sheer expenses of modern membership drives contributed to financial pinches.⁴ Computer use spread unevenly among electorates.⁵

As for the adoption of computers, budgets for departments in 1985 included substantial requests for computer equipment and operations. Minister of Finance Roger Douglas requested “access to a personal computer plus the appropriate software and 1–2 hours tuition” so that he could experiment with the different tax proposals.⁶ The digital revolution initially horrified union officials, who forecast job losses and dehumanising toil. Trepidation faded.⁷ The speed of adaptation to new modes of management and communications was far-reaching. Mainframe and then personal computers allowed greater sharing of information within the government, improving tax file and welfare management. The digital revolution altered the country’s telecommunications system and the pricing of electricity. Adaptation to ceaseless software developments became second nature, folding into ways of thinking about state services and changing conversations about what could be done with state data and about what could be accomplished by sorting and linking records. Privacy objections to record sharing by departments and to the integration of citizens’ files for reasons of policy analysis and coordinating social programmes lost ground to pragmatic governing.

A generational shift accompanied technological and related modes of governing. In early 1983, the parliamentary leadership of Labour was taken over. The insurgents, snapped by a photographer while eating takeout in a parliamentary meeting room, were dubbed “the fish and chips brigade.” In December 1980, after their failed attempt – in a caucus vote of 19 to 18 – to remove Wallace (Bill) Rowling as leader, David Lange, Roger Douglas, Michael Bassett, and Mike Moore embraced the brigade label bestowed at that time by a reporter. These four plus other young professionals, Geoffrey Palmer, Richard Prebble, and David Caygill, had for some time been interested in economic reforms and democratic leadership practices overseas. A would-be economist and avid reader of the farm newspaper Straight Furrow, Caygill in Opposition maintained files on agriculture, regional development, and more. In his role of convenor for the Labour Caucus’s Economic Committee in 1980, he singled out two challenges that had concerned him most for a decade, namely faltering economic growth and inflation.⁸ Except for Moore, the principal reformers entered Labour by routes outside the trade unions, a trend noted and resisted by union officials when it was already too late. Party members who wanted greater trade union influence in Parliament were unenthusiastic about Palmer’s selection in 1978 as Labour candidate for Christchurch Centre.⁹ Officials in the party’s trade union affiliates rightly sensed that professionals like him wanted a “modern centre Party.”¹⁰

The Labour Caucus included more university graduates and fewer trade unionists than thinkable a decade earlier. Their professional backgrounds meant that these parliamentarians found simple tax-and-spend solutions less appealing than had previous Labour governments and that they could argue from foundations in higher education.¹¹ It also helped the cause of economic restructuring that Douglas and Prebble had strong personalities. There was a helpful bias in public attitudes. These professionals looked successful. Reflecting on Labour’s difficulties in the late 1970s, party leader Bill Rowling confided that “if some of us look like ‘no-hopers’ why on earth should the members of the public give us their support.”¹²

Appearances of success, belief in themselves, intelligence, and an inclination toward new ways of thinking extended beyond the core of the new leadership of 1983. Two academic historians in the caucus, Michael Bassett and Michael Cullen, questioned the rationality of subsiding industry in pursuit of diversification, the strategy adopted suddenly by the National Party. With National’s Think Big projects in mind, Caygill believed “that decentralisation of decision-making [was] more likely to arrive at ‘socially optimal outcomes.’”¹³ He reached the same conclusion regarding farm product subsidies. “We can’t pick winners. Instead preserve flexibility.”¹⁴ To stimulate debate, lawyer and tax specialist Trevor de Cleene advocated taxing goods and services and, later, capital gains. In the first weeks of the Labour government in 1984, he floated an unconventional idea: a flat income tax rate of 25 per cent. Later in Douglas’s hands, the idea grew and contributed to party discord. Another of the strong reserve players, David Butcher, was a long-time critic of ad hoc economic management and a supporter of open market competition.¹⁵ Reformers sincerely thought that they had the brains and doubted whether National did. High opinions of themselves formed some of the glue of Labour partisanship even when their policy preferences clearly aligned with free enterprise. Confidence, unity of a sort, and broad appeal began to firm up in 1983.

Early that year, the team made a commitment to eradicate policy chaos, to pitch overboard the postwar avoidance of market-related practices, to separate the parliamentary party from the unions, and to keep the Labour Party Council of forty or so from interfering in caucus affairs, all to be undertaken while radiating a non-partisan aura. The team never realised these ambitions, but they went far enough in 1983–87 to convince observers at home and abroad that they had a plan, and importantly, they managed to suppress differences. When the team reshaped Labour policies in 1983–84, its members promoted one another: “Roger Douglas is without peer in terms of his innovative economic thinking”; “Colin Moyle is widely acknowledged as one of the best Ministers of Agriculture this country has seen”; “As a practical idealist Mike Moore has few equals within the Labour Party or elsewhere.”¹⁶ In 1983, Lange appointed the individuals to the spokesperson positions that he wanted by means of a wily elimination of the shadow Cabinet. Previously, the caucus had voted for membership in a shadow Cabinet, and when forming a government, it had voted again for Cabinet members. Lange reduced the possibility of dissent by hand-picking his team, assigning members to “responsibilities,” and dispensing with the shadow Cabinet.¹⁷ Once in government, reformers practised tactical adroitness and were adept at wriggling out of tight spots, which irritated antagonists outside and, even more so, inside of the Labour Party.

Several spokespersons focused on specific reforms, but Moore and Douglas were eclectic. Moore, who had been a conventional Labour interventionist from 1972 until late 1983, voted for Lange against Rowling as leader.¹⁸ Unique among reformers, he believed in continuing the state’s involvement in wage fixing, yet when it came to leadership in the trade union movement, he thought that the presidents and secretaries “resemble dinosaurs.”¹⁹ Like many autodidacts, Moore confidently scooped up and rearranged information, writing booklets on state-supported regional development, the environment, economic reform, and Pacific affairs.²⁰ A practical non-doctrinaire politician, he switched to Douglas’s position that state-run economies had grave deficiencies. In the opinion of a few teammates, Moore was a gadfly, as well as warm, flaky, and a poor administrator. Douglas was of a different stamp. He organised his thoughts systematically, refined them, and connected them to primary values about fiscal repair, job creation through private enterprise, and the removal of privileges. When he became minister of finance, “Roger had a list for Treasury not the other way around.”²¹ Although this observation captures the constitutional arrangement and perhaps the flow of ideas, it was the case that senior Treasury officials had been writing policy proposals along the same lines for Robert Muldoon’s consideration for several years with little effect. No doubt, they hankered for a receptive government.

In 1983, Douglas began to plot his macroeconomic and microeconomic reforms on a grid, conveying their interdependencies.²² Each occupied a position in a “package,” a term that he would recycle. In early 1987, when preparing his second package, he explained that once again pieces were inseparable. Intellectual completeness and holistic solutions went together with his all-or-nothing, full-steam-ahead deportment in politics. Ideas preoccupied him. A graphologist would surely find something about character in Douglas’s tidy grids and in the scrawls of future prime minister David Lange (1984–89). Both in Opposition and in the Fourth Labour Government (1980–87), the two presented the image of a competent duopoly. Later, in 1988–89, they appeared as adversaries.

Close associates found Douglas almost shy, but there was nothing reserved about his attitude toward politics. In a paper prepared for the September 1989 regional meeting of the Mont Pelerin Society in New Zealand, he admitted that he had never been able to advance in slow measured steps. By then an ex-finance minister, he gave reasons for hustling. First, “interest groups will not have time to mobilise and drag you down.”²³ As minister of finance, he had slammed lobbies, repeating many times that they were defending outdated privileges that he intended to remove for the benefit of consumers and working families. Second, after removing a group’s privileges and demonstrating that the clock could not be turned back, he believed that these groups would have to shift attention to removing the privileges of other groups that were boosting costs.²⁴ Tip the first domino, and others would fall. His 1989 paper was retrospective, but his speeches, publications, and actions from 1980 onward suggest continuity.

Douglas and allies had good fortune when the keynote speaker at the Labour Party’s annual conference in 1983, Canadian-born economist John Kenneth Galbraith, spoke about “The Economic Policy of the Social Left.” It shocked those who expected him to cheer on the left when he announced that “the age of great social innovations is over” and that the left had ignored good management for too long. “Public ownership,” he continued, “is in almost all countries in decline. Not even the avowed socialist is in favour of much government ownership.” To beat inflation, there had to be fiscal restraint.²⁵ To have Galbraith and Douglas on the same page was a jaw-dropping coup.

If Douglas was the impatient visionary, Prebble was the proponent of efficient management in government and a ministerial toiler. Inconsistent with these qualities, he was also a mercurial presence. Eliminating regulatory overkill was something that united Douglas, Prebble, and Michael Bassett, an Auckland historian and Douglas supporter. Lawyer Geoffrey Palmer, who had experience as a student and law professor in the United States, also objected to agencies with excessive powers, but he did so for constitutional rather than economic reasons. Legal preoccupations focused his attention on the journey, not on the destination. He described himself self-deprecatingly, and wrongly, as “the backroom boy.”²⁶ As deputy prime minister from 1984 to 1989, he chalked up major accomplishments, superintending the flow of legislation and driving forward the conversion of government-run trading departments into autonomous state-owned enterprises (sOEs). A government in a hurry needed his discipline and his awareness of both the legislative calendar and the drafting requirements. Having witnessed the defeat of the British Labour Party, which he attributed to leftist infiltration, Palmer was an ardent centrist who sermonised about unity, insisting that Labour should debate in its own forums, not through the media.²⁷ The leadership’s fixation on unity and containment complemented Cabinet government’s collective responsibility. Overlapping solidarities ensured a strong government, but when the leaders stunned the public by ignoring unity and quarrelling openly in late 1987 and throughout 1988, they validated their intuition that the government’s survival necessitated unity.

Former union official Stan Rodger, a respected Labour Party loyalist who was concerned about reform’s impact on future elections, did not buy into the whole Douglas package. However, he did want to end the practice of government intervening in industrial wage fixing, and because deep changes to labour relations were widely considered essential to restructuring as a means to achieve economic growth, he emerged as a shrewd tactician. From experience, he knew a lot about the union scene. Congenial and crafty, he accepted the unity refrain. From February 1983 to May 1984, the principal campaigners for a different Labour Party and different New Zealand, plus Ann Hercus, Trevor de Cleene, Peter Neilson, and others, shredded one another’s draft policy papers during moderately civil exchanges.²⁸ At heart, however, they agreed that wage settlements were unsustainable, that productivity was sagging, and that fiscal circumstances were dire.

This broad base of understanding and the unity pitch helped when Douglas moved far and fast as minister of finance. The individuals had complementary strengths: Lange as the salesperson, Douglas as the innovator, Prebble as a tenacious combatant, Palmer as the organiser and conciliator, and Caygill as the cautious keener with files of information and a tendency to ask, “Now, have I got it right?” Douglas quipped that Caygill took “a 12-year view.”²⁹ The remark explains plenty about these individuals but also the place of respectful differences among a motivated and clever group that had worked together during the years in Opposition. They trained by responding to the Third National Government’s policy agenda. Moreover, as David Caygill would later explain, “Working together you form alliances and develop friendships, you get to know each other, and to learn not just each other’s views or policy orientation but also each other’s strengths and weaknesses. Who is good on detail, who glosses over detail, who panics, who can be relied upon in a crisis, who has a sharp intellect, who has an equable temperament. All of these things go into the mix that influences selection for Cabinet.”³⁰

Unlike governments in the United Kingdom, Canada, and Australia, New Zealand governments did not have to work with a chamber of alleged sober second thoughts. Parliament had been unicameral since 1951. Executive authority was remarkable. Caygill reminisces that when he became a Cabinet minister, he was shocked to find how much authority he had delegated to him by statute. He and Douglas recall that this power worried them since they had witnessed a calculating and obdurate autocrat, National prime minister Robert Muldoon, direct the system’s controls.³¹ Team unity was Labour’s substitute for Muldoon’s one-man show. The leading reformers rallied caucus support by standing together, arguing the merits of policies, enforcing caucus rules, managing perks, and riding the prestige of election victories. They set policies, sought caucus support later, and shunned adverse proposals from the party organisation.³²

More than Cabinet solidarity and caucus rules explain how measures were selected, roughed out, refined, agreed upon, and sent to legislative drafting teams. In a study of Cabinet power in New Zealand, Elizabeth McLeay takes into account the quality of party leadership, constitutional arrangements, the public service, television, and consultants.³³ Television and consultants thrust international modernism into the politics of social-democratic neighbourliness, where Labour’s members of Parliament (MPs) helped constituents to cut red tape and where local industrial projects, even nonsensical ones, were (sometimes) taken seriously.³⁴ Not long after his election as leader in 1983, Lange grasped that television was a one-on-one medium, where he could excel as a large, congenial “teddy bear.”³⁵ Labour came late to contemporary campaign practices, but Lange’s big personality humanised politics for this new medium, and he knew it.

For the 1984 election, the Labour Party had not yet fully adapted to television. Lange campaigned in meeting halls, and for these venues, the party’s publicity committee insisted that branch organisations arrange for the turnout of crowds deemed to meet “the standard requirement.” Initially, the head office resisted hiring an advertising agency, disdaining “techniques from overseas.”³⁶ On the eve of the 1984 election, the party finally accepted modernisation, but it had to do so on the cheap. “TV training” began in March 1984; broadcast time was booked to coincide with popular programmes.³⁷ Ads were shot on a shoestring budget in studios after hours. By contrast, in 1987, “the campaign was almost entirely designed for television.”³⁸ Television campaigns marked a waning of political localism and introduced a nearly ruinous escalation in campaign costs. Invisible to the public, these trends preoccupied head office staff and inevitably paralleled the reformers’ urge to lead the party out of the union halls and toward the centre.

The National Party had danced down the modernity road. In 1975, during the first election campaign after the introduction of colour television, the party hired the American Hanna-Barbera animation studio to prepare a cartoon depicting dancing Cossacks, caricaturing the Labour Party as the authoritarian choice.³⁹ Soon, Labour was deeply committed to professional assistance. Political communication operated at a much higher level of sophistication – and necessitated higher expenditures.⁴⁰ Once in office, Douglas became a devotee of polling for several years and understood the value of weekend announcements, made when reporters had little material other than heartwarming pet stories and car crashes. Labour’s parliamentary leaders caught up with the times, calling out through the media instead of cajoling in the meeting halls of tradition.

Ministers, caucus members, public servants, contract workers, senior officials in closely allied countries, advisers at international organisations, and private consultants assisted with Labour’s undertakings. To secure the information needed to challenge the unsought advice of pressure groups and local interventionist economists, ministers approached foreign public servants, renowned academics, and business leaders, travelled abroad with officials to interview innovators, and commissioned specialists from a bourgeoning corps of transnational policy entrepreneurs.⁴¹ In the late 1970s and throughout the 1980s, economic restructuring in some sense was underway in the United Kingdom, the United States, Australia, Canada, and elsewhere. Eastern Europe liberalised toward the end of the period.⁴² Interested in spreading their influence, the first two countries sponsored trips for foreign politicians. Senior officials in the public service and at the Reserve Bank gained knowledge and made friends when meeting and socialising with visitors from international agencies.

Structural reform among OECD countries marked an epoch in world history, but it was one during which each state travelled its own road. Sociologist Monica Prasad concludes that theories of restructuring “miss the essential role of the political process itself.”⁴³ Her comparison of Britain, France, Germany, and the United States discloses messy developments on account of the many interests involved. International connections were part of the mix, as they were in New Zealand. Departments commissioned external reports to reinforce their preferences during ministerial infighting.⁴⁴ Along with local realities, the diversity of international advice guaranteed distinctive results. On several occasions – notably during the restructuring of electricity, the reorganisation of the Reserve Bank, and the investigation of the superannuation of health care, consultants left officials and politicians to navigate conflicting advice. Ministers and officials studied and rejected certain practices operating in the United Kingdom, the United States, and Canada. Contradictory consultants’ reports led to compromises and hybrid arrangements. Local situations were also crucial in driving departures from what other countries were doing. Especially important were Maori land claims and the country’s well-organised national federations catering to the economic sectors: farm, retail, labour, manufacturing, and finance. Federation officials had access to ministers and parliamentary select committees.

Several ministers believed that the public service had obstructed the Third Labour Government (1972–75).⁴⁵ Not this time. Speed would see to that. Some reforming ministers wanted to get as much done as possible in one term. If anything, these ministers, plus a few enthusiastic senior public servants, were frustrated by delays, unwelcome surprises, hostile remits at party conferences, interdepartmental contests, and conflicting advice from consultants. Presented with an assortment of policy options, ministers made selections that left some financiers, producers, trade unionists, retailers, and academics disgruntled. The sheer diversity of reforms required ministers to focus on their respective tasks and to collaborate with officials. Douglas fashioned a team with his two associate finance ministers, Caygill and Prebble, instructing the Treasury to send them all the papers that it had prepared for him.⁴⁶ This was a shrewd arrangement.

The depth of personnel and talent at the Treasury contrasted with a thinly staffed Prime Minister’s Office. There were miserable consequences. By late 1987, Cabinet collegiality was deteriorating.⁴⁷ More about that later. Meanwhile, the complexity of the tasks and the enlistment of international consultants changed the language of government. Jargon reinforced ministerial and bureaucratic fragmentation, adding to the difficulties that ministers had in keeping abreast of committee work.⁴⁸ Several initiatives were disorderly, several remained incomplete, a couple were wasted efforts, and a Royal Commission on Social Policy (1986–87) fostered confusion and disappointment. Haste and scope were challenging – which is not to say that speed and aspirations were wrong, but they brought trouble.

The Fourth Labour Government achieved a remarkable number of the goals set by its leadership, in part because enough minsters combatted old political habits. Politics had been reactive and “notoriously … concerned with the minutiae of policy decisions.”⁴⁹ National prime minister Robert Muldoon personified the tendency. Often his Cabinet reviewed managerial details and local concerns, as had prior departments. Put in the best light, the practice kept ministers in touch with people. In its own bottom-up fashion, Labour showed comparable tendencies. Party members and the general public had no hesitation in writing to the parliamentary leaders in order to condemn policies. New Zealand had a robust civil society.⁵⁰ Since the mid-1950s, when Labour Party members had gained greater influence on policy, conferences had considered scores of remits.⁵¹ The parliamentarians who led Labour in early 1983 wanted to replace reactive and grassroots politics with fact-based policies. Significantly, they wanted to shake loose from the trade unions. Once in office, the new ministers quite deliberately and consistently shunned informal or special contact with unions, whose opportunities to comment on pending legislation were thus confined to parliamentary committees, just as occurred with any other interest group.⁵²

To some in the caucus, those special interests in Labour behaved like they held “the Holy Labour Grail.”⁵³ To a few party officials, however, the parliamentary leaders postured as though they were the party “and treated the rank and file as errand boys.”⁵⁴ The leading activists for structural change, claiming that their authority flowed from voters, resented particular union secretaries whose inflammatory rhetoric and wildcat strikes made it difficult for candidates in socially mixed constituencies to appeal to the broader public.⁵⁵ The Socialist Unity Party in Auckland and Trotskyites in the Wellington Trades Council stirred up party conferences, contributing to impressions that the party was further to the left than it was.⁵⁶ A representative conflict between moderates in the parliamentary party and the left in the Labour Party organisation erupted in early 1980 when Jack Ridley, mp for Taupo, claimed that party conferences had been hijacked by “the extreme left vocal elements.” He felt that, for eight years, the party had reduced its appeal when it needed to win “more seats like Taupo so that Labour can become a government.”⁵⁷ Party president Jim Anderton replied, “There is no more representative group of the whole Party than the annual conference.”⁵⁸ At that moment in 1980, Anderton, who had not polled above 2 per cent as a preferred prime minister, attempted to corral the parliamentary party by making the Labour Party Council the authority for strategy.⁵⁹

Game on. It continued throughout the 1980s. One faction wanted a closer liaison between the party and unions; another thought that these connections were the kiss of death. At a joint meeting of mps and representatives of the Labour Party and the Federation of Labour (fol), Anderton insisted after a 1981 defeat that a future election victory was compatible with “a good level of trade union activity.” This loss was a demoralising blow that weakened such confidence, prompting the younger reform cadre to challenge the leadership. Anderton’s stance endured. After Labour’s 1984 election victory, annual conferences saw a flurry of remits that attempted to constrain reform-minded ministers.⁶⁰ The counterattacks peaked at the 1988 Dunedin conference, billed as a battle for the soul of the party. Reformers left Dunedin chastened but not restricted.

It is easy to see why middle-of-the road voters continued to associate Labour with union secretaries, who were, for their own purposes, keen to keep this impression alive.⁶¹ National had more diverse social ties and could “reach across, down, and into the less formal social networks that link individuals together.”⁶² Labour was different. “Labour Party people,” explains Geoffrey Palmer, “are usually in politics for policy objectives.”⁶³ Bottom-up attempts to determine policy were lauded as an expression of social-democratic principles.⁶⁴ The much-loved cry of solidarity was inauthentic when divergences guaranteed interminable policy reviews and debates. Parliamentary leaders skirmished with factions in the party organisation at conferences and in committees, leaving the general secretary to referee controversies over adherence to policy, membership eligibility, candidate selection, conference procedures, the accountability of the parliamentary party to the council, and policy formulation.⁶⁵

These fraternal ordeals were more draining, and certainly far less entertaining, than debating National. The struggles jeopardised Labour’s efforts to gain and hold middle ground. Douglas held policy wish lists in contempt. When Palmer had chaired the Labour Policy Council during preparation of the 1981 party manifesto, Douglas turned to Palmer, who was seated behind him in the House of Representatives, and quipped, “The trouble with this Party, you know what it is? You are. If you weren’t so goddam efficient Palmer, we wouldn’t have all this goddam policy.”⁶⁶ Douglas had a point. In 1981, Labour had promised unrealistically to fix everything by generosity and controls. The splash of promises upset the party’s publicity director, who worried about “the relative complexity and lack of targeting.” He conceded that “we must have something to give the voters.”⁶⁷ After the narrow 1981 defeat, the caucus agreed that “Labour’s lack of economic credibility was one of the key reasons for our failure.”⁶⁸ By the time of the 1984 election, steps had been taken to minimise promises and to persuade the business community that Labour had a rational economic policy.⁶⁹

REACTIVE POLITICS

Following the 1981 general election defeat, his third as leader, Bill Rowling held onto leadership aided by South Island loyalists.⁷⁰ In addition to internal policy and social differences, Labour had regional factions, exacerbated in the 1980s by a drift to the north of business and population. Over the next year, Rowling attempted to reconcile heavy-handed economic management with free-market economics and to reconcile spending on regional development with fiscal restraint. “We were divided amongst ourselves,” writes Lange, “and easily disheartened.”⁷¹ Complicating differences among caucus members “was the great divide between the Party at large and many of us in Caucus.”⁷² The caucus became a debating society, exuding confusion. From the November 1981 general election until late 1982, the heterodox recommendations and reactive speeches failed to mesh. Local economic failings tempted a few National but far more Labour parliamentarians to submit independent cures without checking for coherence. Bassett recalls that “the year 1982 saw a ferment of ideas within both main parties and proved to be extremely difficult for both.”⁷³

Finding a consistent way forward was difficult because of small-country intimacy that favoured reacting to events and demands by being nice and generous. Rowling could neither break these habits nor guide colleagues to a different outcome.⁷⁴ Although he recognised that farm subsidies caused distortions, he saw no way to end them without an emergency substitute. When rural producers faced income and debt crises in 1982, he condemned subsidies for creating “a flabby insulated sector that has lost control of its affairs and perception of its own destiny,” adding that there had to be some support scheme, or else farmers would be buried by their operating costs.⁷⁵ Rowling showed decency but personified a bipartisan aversion to hard decisions. From 1980 to 1982, Labour stood for intervention.

In 1981–82, speeches from members of Labour’s shadow Cabinet wandered. Clever opinionated individuals spoke up. Some wanted government to break with hoary practices and charge the agricultural marketing boards’ full interest rates on their overdrafts; others defended these and other concessionary interest rates. National’s initiative to liberalise trade with Australia – the Closer Economic Relations Agreement – split the Labour Caucus. Backing the agreement, Mike Moore, Roger Douglas, Richard Prebble, and Stan Rodger angered the party’s economic nationalists, the “fortress New Zealand” adherents, those who donned the “turtle shell,” as Lange puts it.⁷⁶ Many fol affiliates were “in doubt” about the agreement.⁷⁷ The imperative to compete had been augmented.⁷⁸ Once in office, Labour worked with Australia’s Labor Party government to advance the free trade in goods.⁷⁹

There were other divisions. Shadow minister of defence and veteran mp Michael Connelly was dismissive of an anti-nuclear policy, pointing out that irradiation had commercial applications, plus he argued that the alliance formed by the Australia, New Zealand and United States Security Treaty “should be firm and irrevocable.” This demand was out of step with anti-American tendencies in Labour.⁸⁰ Mike Moore supported Muldoon’s campaign to get the imf to loosen credit; Russell Marshall, regarded by some as “the keeper of the Party’s progressive conscience,” went further and attacked the imf for condemning “the majority of the world’s population to poverty and millions to death and starvation.”⁸¹ Without caucus discipline, a Labour Party that by nature accumulated causes was at a disadvantage as it attempted to appear as a credible government-in-waiting. Blatant contradictions and uncosted hopes left media commentators wondering whether Labour could be trusted. Trusted to do what?

There were rival answers within the party because the parliamentarians formed two camps whose members detested each other’s economic visions. With their speeches primed and aimed, Roger Douglas and Robert (Bob) Tizard faced one another at Labour’s crossroads. Douglas’s family tree grew in Labour soil, where it had been exposed to the winds of free thinking. His father, Norm, had joined the New Zealand Labour Party in 1932, and Bill Anderton, a prominent party figure, had taken him on as a protégé. Norm married Anderton’s daughter. Roger Douglas was born in 1937. Norm strayed from the cautious party line of the late 1930s and 1940s and supported a splinter party led by socialist John A. Lee. When Bill Anderton retired from Parliament in 1960, Norm was back in Labour’s fold and won election in Anderton’s constituency. Roger, meanwhile, was excelling at math. At the time, the obvious career choice was accountancy. In the mid-1960s, he was simultaneously a company secretary and president of the Auckland Regional Council of the Labour Party. Elected to Parliament in 1969, he sat several rows behind his father. In the Third Labour Government (1972–75), Roger was a junior minister but utterly secure and brimming with ideas. ⁸² Casual about details, his way of conceptualising and then delegating duties was suited for ministerial office. In government, he relied on zealously loyal staff to fill the gaps.

Douglas started his economic restructuring campaign in 1980 with a paper for the Labour Policy Council entitled “Restructuring the New Zealand Economy.”⁸³ He followed this paper with publications that enumerated the failings of a state-managed economy. In his book Alternative Budget: A Personal View (1980), he departed from politics as usual: “Further tinkering will be disastrous for our future. The time has come for bold innovation, for taking the tough options we have ducked for thirty years.”⁸⁴ His companion booklet, There’s Got to Be a Better Way: A Practical abc to Solving New Zealand’s Major Problems (1980), opened with the same hard truth: the county had exhausted easy options. In books and speeches, his ideas were neither sequenced neatly nor supported by references to economics, but instead he wrote about things that struck him as foolish and wasteful.⁸⁵ The two slim publications set the direction for what he would accomplish from 1984 to 1987. Douglas recommended removing subsidies, eliminating government trading departments, cutting spending, raising taxes, controlling the debt, decreeing a large currency devaluation, and reorganising social welfare benefits to simplify entitlements.⁸⁶ Bill Rowling slammed Alternative Budget as a cheeky swipe at his leadership and ousted Douglas from the shadow Cabinet.⁸⁷ Douglas’s budget proposals while in Opposition presented an electoral tactic that deviated from Labour partisanship. “I have prepared this Budget,” he wrote, “because of my growing concern that if New Zealand is to solve its social and economic problems, politicians, of all colours, have a responsibility to speak out.”⁸⁸ A breach of party discipline was one thing, but Douglas’s indictments of economic intervention were far-reaching and enraged Bob Tizard, the party’s finance critic.

Born in 1924, Tizard joined the Royal New Zealand Air Force in 1943. He admired fervent socialist Harry Holland, who led the Labour Party in Parliament from 1919 to 1933. Tizard was elected to Parliament in 1957, defeated in 1960, and bounced back from 1963 to 1990. His views are essential to understanding Labour’s fractures in 1981–82 and transformation in 1983–84. As a Labour Party traditionalist, Tizard collided with Douglas.⁸⁹ As minister of finance in 1974–75, he had been a spender and social progressive, committing funds at the end of easy prosperous times. The terms of trade had just turned against New Zealand, and deficits in balance of payments meant that the country was borrowing to live beyond its means.⁹⁰ Tizard insisted on stimulating the economy and offering incentives.⁹¹ The young reformers were taken aback by government electricity concessions to an aluminium smelter, describing it as a “disaster, lunacy, and a waste of money.” Although they thought it wrong to get “hung up on manufacturing alone” and recognised primary producers as the “the base of the economy,” Tizard wanted a second plant.⁹² To political reporter Colin James, Tizard pronounced himself the most confident, the most intelligent, and the quickest in the party. As for Douglas, “he is only a light bulb exploding in his head.”⁹³ Clearly not easy to abide, Tizard got offside with the young reformers. He defended the New Zealand wage-fixing concept of relativities, which linked wages in one field to another. Douglas wanted wages set by real negotiations without government involvement.⁹⁴

When private-sector labour negotiations reached stalemates, one of the two parties could call for arbitration, and a trade’s wages could be awarded by arbitration judges, who reviewed wage data when seeking to sustain historic relativities among trades and occupations. During annual rounds of wage fixing, several large unions with employers perceived as soft started the process rolling with their presentations on prices and wages. Their generous awards became benchmarks used by other unions in their wage briefs. Adjustments evolved into an annual lock-step ritual. State-sector relativities originated differently because of wage-fixing tribunals.⁹⁵ Tribunals found it convenient to reference relativities from the private sector. A department with a vital service and healthy budget, such as the Post Office Department, granted generous settlements, which became benchmarks that were useful to employees in money-losing departments, such as the Railway Department. Relativities inhibited the changes in work assignments that accompany dynamic economies. Regulations imposed restrictions on overtime, obstructing the wishes and ambitions of employees and the needs of employers.⁹⁶ All discussions about relativities in the private and state sectors, as well as about social welfare benefits, ultimately centred on whether the country should remain economically and socially static or become dynamic, whether it should remain bureaucratically managed or become entrepreneurial and adaptable, and whether it should remain inclined to perpetuate past inequalities or become willing to venture into new inequalities.

To Douglas and his supporters, the exacting global environment, a postwar global economy that did not stand still, precluded inertia if citizens were to enjoy Western levels of consumption. Tizard represented the inflexibility that stood in the way. The image of the National Party blocked reformers too and set appearing competent as a goal. Taking stock of several by-elections in 1980, Labour Party organisers were incredulous “that many voters are still convinced that National handles the economy better.”⁹⁷ Banging away at National was fine and took Labour within a hair’s breadth of power, but many voters retained doubts about the party’s ability to manage the economy. This perception had to be overcome.⁹⁸ In the buildup to the 1981 election campaign, Rowling’s press officers recommended that he abandon “the soft issues” of foreign affairs and welfare spending and that he appear to be “the hard economic man … The old problem of promising everything, and spending money hand over fist has to be broken. Any specific promise must be costed.”⁹⁹

When it came to acting the part of the “hard economic man,” Douglas was a credible figure, as well as a dynamic maverick.¹⁰⁰ Influenced by conversations with economists and by reading, he refined his 1980 list of reforms.¹⁰¹ Along with others in the “fish and chip brigade,” he was naive in hoping to transform Labour into a party with broad centrist appeal. But at Labour’s annual conference in May 1982, he headed in this direction with a bold statement that “the Party should avoid taking positions identical to those of the major pressure groups and instead stress that Labour’s policies are formulated independently and on the basis of broad national interest.”¹⁰² He wanted wages set by union-employer negotiations rather than through relativities at arbitration, and he recommended a period of fiscal restraint. It irked him that Rowling retained Tizard as finance spokesperson. It was an article of faith with Douglas that Tizard’s interventionist leanings no longer helped the balance of payments. The country could no longer afford subsidies to rural producers. For New Zealand to become a competitive producer, Douglas insisted that the public accept a less egalitarian society but one capable of economic growth so that the state could afford its revenue-based social welfare system.¹⁰³ Douglas laid out “the tough options,” and his frankness was startling.

Tizard countered with appeals to the managed economy, which he associated with national identity. Dismissing Douglas’s ideas as unworkable, he explained, “We have an established system of relativities in this country, and he wants to upset them.”¹⁰⁴ “Established” implied static. “This country” implied an intrinsic attribute. Generations of New Zealanders had been schooled in the happy thought that their country was “a reforming country showing the way to the rest of the world.”¹⁰⁵ Pride helped to sustain the managed economy’s standing in the Labour and National Parties. Not surprisingly, the internationalists and economic nationalists drew different lessons when the imf and the oecd warned New Zealand in early 1982 to get its fiscal house in order. Advisers from the latter organisation recommended reforming labour relations to give workers and employers greater flexibility in wage fixing and work assignments.¹⁰⁶ Outside advice was annoying to those who, like Tizard, thought that New Zealanders had constructed a remarkable economic and social sanctuary run by sage public servants. To reformers, this way of thinking was unrealistic. Tension between nationalists and internationalists lived on in the Labour Party during the reform years.

Tizard predicted that, as a “loner,” Douglas was destined for the back-benches.¹⁰⁷ Douglas put his caucus standing on the line. In adherence with party practices, the caucus voted for the pool of mps who formed the shadow Cabinet or Cabinet if elected to office. In the 1982 round, Douglas ranked eighth. “Rog spoke out and lived to tell the tale.”¹⁰⁸ Subsequently, the party’s Policy Council split over Douglas’s package. Rowling sought compromise.¹⁰⁹ Lange and Prebble backed Douglas enthusiastically; several others were lukewarm at best.¹¹⁰ In July1982, Douglas reopened policy skirmishing when he unveiled a ten-point economic reform plan days before Rowling was due to issue his economic statement.¹¹¹ Tizard countered that “there is no likelihood it (Douglas’s package) will be endorsed in its present form by the Labour Party.”¹¹² To contain bickering, Rowling asked Douglas to work on the details of his reforms. Meanwhile, Rowling adopted some of Douglas’s programme: an end to subsidies, a currency devaluation, deficit reduction, and a tight credit policy that attacked inflation. Covering his left flank, Rowling suggested a policy of consumer protection from rising charges for utilities and food, a government order to increase wages, tax credits for employers to offset wage increases, and tighter import controls.¹¹³

So Douglas relentlessly pressed his 1980 reforms, adding a Goods and Services Tax (gst).¹¹⁴ Tizard dismissed Douglas’s alternative shadow budget, insisting that it “was not acceptable to Labour voters.”¹¹⁵ Douglas argued that Tizard had not read the statement. “It is evident that when he sees my name in print, he goes cross-eyed and can’t add up the figures.”¹¹⁶ As an alternative to Muldoon’s managed economy and Tizard’s variation on the same, Douglas’s package seemed to some in the caucus as the means to attract uncommitted voters and, in doing so, to finally secure a majority of seats.¹¹⁷ The trick would be to take over the parliamentary party. Once that was done, committee assignments and caucus rules could wangle enough of a common front to achieve functional order.

After Rowling announced in November 1982 that he would step down as leader, confusion tapered off.¹¹⁸ Lange’s election as leader on 3 February advanced the reformers’ agenda. ¹¹⁹ Lange was forty-one and capable of spontaneously reducing an argument to a witty analogy or, here was trouble, loading on scorn.¹²⁰ Only a subtle inflection separated clever repartee from sour impatience. A splendid memory enabled him to work a meeting, recalling names, and to reel off data from a recent briefing when he chose to, perhaps inventing as he warmed up to an audience. He needed briefings, for he lacked an intellectual hinterland. Richard Prebble, who knew him well, cannot recall him mentioning a serious book.¹²¹ Some close associates have described him as considerate, charming, hilarious, lazy, and easily bored. He scorned economics of any school. From his days as a barrister with clients from the poorer neighbourhoods of South Auckland, Lange retained sympathy for the underdog, something genuine that appealed to family and friends. Not long after he became party leader, his wife, Naomi, gave a rare interview. Rudely asked about her husband’s obesity, she remarked that it was the person inside that appealed to her, a comment that brought great credit to both. She was not alone in identifying his compassion and selflessness.¹²²

In 1977, Lange was unkempt and weighed 175 kilograms (about 385 pounds). To prepare for party leadership, which he dearly wanted, he underwent surgery to staple his stomach, changed his hairstyle, and dressed better. “I was going to be transformed,” he writes, referring to the operation.¹²³ Obesity left him with health problems and tinged his character. He did not socialise much with colleagues, and in his first years in government, he was a non-drinker. His sharp wit and avoidance of confrontation worked well and assisted his quests for approval.¹²⁴

PREPARING FOR OFFICE WITH A MANDATE FOR CHANGE

Lange and supporters had chaffed at Rowling’s leadership.¹²⁵ The rival camps had disputed whether a state-managed distribution of resources could continue in a global economy. Rowling and especially Tizard accepted state management. Lange countered that long-term dependence on the state “brings an absolute blight of ambition.”¹²⁶ After 3 February 1983, when he swept to victory and became leader of the parliamentary party on a caucus vote of 33 to 10, Lange proceeded to transform the Labour Party. First, he sidelined the older generation and its preference for interventions in the economy. Caucus rules and the unity pitch kept MPs in line. Second, in a related move, the new team packed the caucus’s Economic Committee. In less than a year, it endorsed policy papers calling for an end to state management of the economy and recommended the revision of welfare benefits. Third, because the new leadership wanted to avoid the short terms of the previous two Labour governments (1957–60 and 1972–75), Moore prepared a paper on tactics for widening appeal.

When Lange replaced Rowling, the reform-minded leadership acquired two individuals who could help with fact finding and policy articulation: Geoff Swier, a University of Auckland commerce graduate employed by the Labour Party’s Research Unit with, as it turned out, a long career ahead in consulting on economic reform and policy development; and Doug Andrews, a Treasury economist seconded to the Office of the Leader of the Opposition. Lange selected Douglas as his finance spokesperson. He knew that it would evoke a “Pavlovian” response from party activists.¹²⁷ Douglas consulted Swier and Andrew when preparing a series of statesman-like economic analyses in April 1983.¹²⁸ Their reports articulated the fiscal and balance of payments situation, assisting Douglas with projecting the gravitas of a well-prepared future minister of finance. Moore chipped in with the idea of a summer 1983 country tour by “different squads of MPs” bouncing along in suitably Labour-decorated Avis Travelhomes. Away they went in February and March, seeking “media situations, not meetings.” “We do not want large public meetings,” Moore directed. “What we do want to do is to visit newsworthy projects in your electorate.” This way, the party was in the news through media-oriented situations in marginal electorates well before the expected election call. As MP Peter Neilson explained at the time, the tour enabled “our Party activists to learn some post-Sutch/Rosenberg economics.” Wolfgang Rosenberg and Bill Sutch were synonymous with “New Zealand style leftist economic policy.”¹²⁹ Voters got to know the leadership’s direction.

No sooner had Lange made Douglas his finance spokesperson than managed-economy proponents, chiefly Jim Anderton (no relation to Bill Anderton) and Helen Clark, attempted an end run by proposing that Labour hold an Economic Summit, inspired by the Australian Economic Summit of April 1983. They meant to loosen Douglas’s hold on economic policies by sponsoring public debate.¹³⁰ Lange had little use for the Anderton recipe. In his first week in office, an energised Lange dismissed redistribution: “You can cut a rich man off at the knees and one poor man will wear his shoes. The fact is we need to have economic growth in this country.”¹³¹ For Labourites wanting to restrain Douglas and company, an Economic Summit seemed an advantageous stratagem. From a distance, it appeared that the Australian event had put the finishing touches on wage and anti-inflationary policies through state-led management. In truth, Prime Minister Bob Hawke had orchestrated it for appearances, a lesson not lost on the reformers. Lange dismissed the Anderton-Clark proposal and “made it clear that he wanted an alternative set of ideas to those in vogue.”¹³²

Lange was secure and resolutely backed Douglas; winning the 1984 general election sealed the ascendency of their partnership in the caucus. Until this victory, a minority of MPs had continued to grumble. If they were to form a government, reformers knew that the Westminster parliamentary system would confer immense power, more so with a decisive leader. Douglas stalwart Bassett suspected that despite his 1983–84 rejection of old-time Labour values, Lange could wobble. Moreover, in the past, the Labour Party’s National Executive had always supported the parliamentary leader “as the titular head of the party,” but party president Jim Anderton challenged this respect, and in Michael Bassett’s assessment, Lange should have and could have reined in a president who “seemed intent on pulling the party to pieces.”¹³³

Lange’s psyche and health eventually contributed to mercurial conduct; he delighted and charmed colleagues and then disappointed them. “David,” Bassett writes, “lived for the theatre of politics” and “didn’t count heads, or point his followers in a clear direction.”¹³⁴ To give him credit, his stage presence in the theatre of politics connected the party to the public during the reform-laden first term.¹³⁵ Bassett notes that Lange’s wit displaced substance in his speeches.¹³⁶ He certainly enjoyed verbal arabesques, and so did listeners, although his off-the-cuff speeches let slip errors of fact and sometimes left listeners wondering what he had said.¹³⁷ Yet Lange was pivotal because he believed that Douglas was essential for the country’s future.¹³⁸ To grasp the significance of the bond that existed between two very different dispositions is to understand the government’s brittle strength, framed with wrought iron rather than steel. Years after they had irreparably parted ways, Lange would insist that in 1983–84 “Douglas alone of the Caucus would enable Labour to reshape itself into a modernising Party which could actually do something for the country.”¹³⁹ In public during 1983–84, Lange campaigned for the Douglas message, recommending the market economy, fiscal retrenchment, and wage restraint. A month after becoming leader in February 1983, he declared that “there is absolutely no thought in the Labour Party that the Government should run industry.”¹⁴⁰ He wanted to see more private enterprise.¹⁴¹ How far he and caucus allies would go to take the government out of running trading departments was as yet unclear, but several in the inner group were discussing corporatisation.¹⁴²

Only a Rip van Winkle could have missed the leadership’s intentions. Some party members doubtless were shocked by Labour’s reforms when they began to flow as orders-in-council that subverted the managed economy that such legislated powers had initially been designed to serve. But there were also business leaders and journalists who questioned whether a pragmatic Labour Caucus could deliver. Douglas’s ideas which had circulated since 1980, were no secret. Lange embraced them; the road show paraded them. In interviews shortly after his election as leader, Lange condemned state ownership of production and finance as “whacky,” asserted that trade unions had to accept that the party would govern for all New Zealanders, and conspicuously described Douglas as “a significant figure in formulating policy for New Zealand’s economic development.”¹⁴³

Refusing to describe himself as a socialist or a believer in equality, Lange talked about pragmatism, morality, sin, and spirit rather than about the pocketbook. He spoke of New Zealand solutions and set great store in religious, patriotic, and charitable values while distrusting all forms of economic materialism and foreign ideologies. His correspondence discloses someone who never quite secularised. In any event, when he appointed Douglas as finance spokesperson in early1983, he knew what he was doing, and so did attentive observers. Douglas received letters supporting his “alternative proposals.”¹⁴⁴ Press coverage, both favourable and unfavourable, made it clear that Labour’s parliamentary leadership was determined to overthrow Labour’s traditional platform. Endorsed by Lange, Douglas travelled the rubber chicken circuit. To judge from the complimentary letters following his addresses to party branches, service clubs, and trade conventions in 1983–84, many were ready for a change, although they may not have been prepared for all that it would include.¹⁴⁵

The field of economics had changed in the 1970s, and Douglas’s views in 1980 completely harmonised with market economics. Colin James, editor of the National Business Review, summarised the state of the discipline: “The weight of intellectual argument on economic issues for the previous ten years had been away from control and towards a freer and more open economy.”¹⁴⁶ Although not a neutral observer, James was correct. Local evidence included the policy preferences of the influential Federated Farmers, whose executive took a free-market plunge in 1982, recommending reduced central government spending to contain inflation, a phasing-out of subsidies in favour of “a market-oriented economy … supported by market indicators,” less licensing and greater competition, government withdrawal from the wage-bargaining process, and an examination of the relevance of various government trading departments.¹⁴⁷

Under Lange’s leadership, the caucus’s Economic Committee imbibed the ascendant free-market ideas, a newfound interest that heartened Treasury and Reserve Bank officials. Muldoon was now a gift to reformers. So personal and brutal was his style in the early 1980s that no one in the Labour Caucus would throw him a rope if he was drowning. If any Labour MPs agreed with the managed economy that Muldoon had adopted, and some did, they could not say so. As a result, Douglas and Prebble were free to condemn intervention. Prebble believes that “we would never have won the internal Caucus debates without Muldoon’s help.”¹⁴⁸ Senior Treasury officials, sidelined during Muldoon’s lever-pulling years, felt free to float fresh economic and management ideas.¹⁴⁹ New Zealand had both feet in the world economy, whether or not autarkists, socialists, economic nationalists, and fix-it interventionists liked it. In this world, investors routinely scrutinised the country like any commercial prospect. There were rumours that Muldoon’s inconsistencies concerned Japanese bankers at a time when New Zealand was shifting some of its state borrowing in their direction. In a short time, Japanese investment institutions would have notable parts to play in the economic reforms but would not always come away happy with their investments.¹⁵⁰

Assessing the Labour Caucus of 1982–83, Colin James remarks that Lange, Palmer, Moore, Douglas, Caygill, and Prebble “were to form a powerful inner circle.”¹⁵¹ Ann Hercus had spoken of “the crucial place of private enterprise within our economy,” but in early 1984, she wavered, remarking that not all details in the Douglas package had been accepted unanimously.¹⁵² This position relegated her to the margins of what James describes as “a powerful liberal-radical alliance for big change.”¹⁵³ What contemporaries did not comment on, which stands out now, was the predominance of men and the fact that Lange did not welcome feminism.¹⁵⁴ Hercus stirred things up. The caucus’s Economic Committee, with Hercus and Stan Rodger dissenting but not in public, backed tightening the money supply, a major devaluation, ending subsidies, and working for wage restraints to promote job creation. The committee’s majority predicted hard times during which private producers, cut loose from subsidies and the protection of import licences and tariffs, would have to work harder to compete in world markets. Lange endorsed the message. A Labour government “would have to further reduce Government expenditures and continue wage restraints.” Exports did not help the economy if they were subsidised. The economy was “cotton-woolled” and needed to be “more responsive to market-place realities.”¹⁵⁵

With fair winds in his sails, Douglas released four policy papers at press conferences in the executive wing of the New Zealand Parliament Buildings from 20 to 26 July, just prior to the Muldoon government’s 1983 budget. The four papers, condemning interest group politics and resource distribution by state management, predicted economic hardship in the medium term, a vague phrase that haunted Labour in the late 1980s when the public became impatient. As a declaration of their collaboration, Lange and Douglas co-signed these papers. Agreeing that New Zealand needed a programme of once-in-a-lifetime economic restructuring, the core leadership took these scripts on the road, addressing groups normally associated with the National Party. The papers were important for Labour’s fortunes and for the country’s future, as they signalled that the leadership was not equivocating. In a year’s time, their contents became government policies.¹⁵⁶

Muldoon was a tempting piñata for this group, but they resolved to ignore him, judging that the country’s economic difficulties were long-term and structural, which had to be a common message.¹⁵⁷ Reformers stressed that the country required economic growth through improved productivity to support current and future social welfare spending.¹⁵⁸ Bold efforts to diversify, one of Muldoon’s initiatives, had established new state-supported industries in fields where the plants struggled to compete with imports or to find an export niche. Meanwhile, licences and tariffs protected a few privileged so-called screwdriver industries that assembled imported components. Lacking incentives to improve productivity or to contain wages, the country’s coddled industries passed inflated costs onto captive consumers. Meanwhile, in agriculture, where New Zealand had natural advantages, abundant subsidies supported gross production rather than efficiency and diversification.

If Muldoon no longer inspired public confidence, Labour’s real political task remained trying to appear plausible. An editorial in the Dominion in late 1983 posed a big question: “Can Labour be trusted after Kirk and Rowling?”¹⁵⁹ The strategy for achieving office, namely appearing competent, centred on making a convincing statement about readiness to govern with a fresh economic plan. Beating National led by Muldoon should have been easy. According to Richard Prebble, “the real problem was: Why are we such a mess and how can we work together without trying to destroy our colleagues.”¹⁶⁰

One stimulus to a makeover was a television documentary on Australian prime minister Gough Whitlam’s Labor government (1972–75). Shown at a caucus retreat held at a Boy Scout facility called Tatum Park in late March 1983, it impressed Lange.¹⁶¹ Members of the Australian Labor government, he thought, “were unaware of its goals and were inconsistent in their responses to issues.”¹⁶² Prebble admired Michael Gourley of Human Synergistics, an international consultancy specialising in leadership; during the retreat, Gourley urged caucus members to reassess their culture. In late 1983, Mike Moore responded by releasing a guide to success.

Having joined Labour as a teenager, Moore acquired by experience “an intuitive, emotional grasp of politics.”¹⁶³ He went in for campaign innovation. Recalling the 1978 campaign, he wrote that his team’s “computer system worked like clockwork as we quickly identified non-voters and got cars from our carpool to go and pick them up and take them to vote.”¹⁶⁴ He envisioned modernising the party’s organisation, annoying head office staff when he spoke glowingly in public about the campaign techniques that he had seen abroad. Labor in South Australia used polling and “had the guts to learn from it.”¹⁶⁵ Reaching for electoral success, Moore found common cause with the economic reformers, who likewise found the party apparatus entrenched in the past. The inevitable course of party modernisation had knock-on effects. Modernisation required money.

Promoting himself as an “ideas man,” Moore was the convenor for the Committee of Transition, a caucus group studying how to make Labour a long-term government of reform. During overseas trips, he met with politicians in Canberra, Sydney, Melbourne, and London. He admired the public relations initiatives of the Labor Party state governments in Australia as well as the Hawke federal government.¹⁶⁶ He investigated recent Canadian and British experiences. Moore’s conversations with politicians in other English-speaking democracies and reflections on the failings of the Third Labour Government (1972–75) persuaded him that Labour lagged in management skills and an understanding of business.¹⁶⁷ Thus he initiated the Caucus Wednesday Club, which invited business leaders, trade unionists, and academics from outside the party.¹⁶⁸ Michael Cullen took over as convenor in late 1985 and for the October 1985 session invited Hugh Fletcher, managing director of Fletcher Challenge, who introduced the idea that the objective of privatisation of state assets should not primarily be to reduce the debt but to promote competition.¹⁶⁹ Top business leaders attracted the best audiences, and in Moore’s estimation, “it taught us they weren’t ogres and helped convince them that we, in turn, weren’t looney.”¹⁷⁰

At the start of the June 1984 election campaign, Prebble and the party’s director of communications, Simon Walker, flew to Australia to consult with Bob McMullan, the Australian Labor Party’s national secretary, and with a campaign strategist, who recommended that they focus on Lange and avoid campaigning with a duo of Lange and the party’s president, Jim Anderton.¹⁷¹ It was not just Anderton who was sidelined. There would be no repeat of Labour’s giveaways-for-all campaign of 1981. Rather, policy releases were to be reserved for the major issues that had been revealed by surveys, and Lange alone would issue them. Directives for meetings banned distractions so that “the audience and the support team must look at the Leader.”¹⁷² Campaign tactics were calculated to concentrate all eyes on the leader. Thus the reform cadre parted company with the fol and a wartime generation that assented to economic intervention and regulation. The goal of party modernisation was commensurate with the leadership’s youth and internationalism.¹⁷³ The new crew comprised an outward-looking group in a country where, until the 1980s, “the level of information and debate … was very low.” As Prebble puts it, “We just did not know.”¹⁷⁴ His trips to Japan, Taiwan, and the United States prior to the 1984 election were revelatory, bringing home a realisation that, to prosper, New Zealand’s economy had to concentrate on sectors where it had a global competitive advantage.¹⁷⁵

Moore’s first recommendation in his realpolitik guide proposed that the caucus should distance itself from the remit barrage at Labour Party conferences.¹⁷⁶ Special requests flooded in from interest groups and local branches. Delegates lined up at microphones. “The atmosphere,” Lange would recall, “could be angry and ill-tempered.”¹⁷⁷ In his colourful way, he described the challenge of achieving coherence. Remits “are like logs cascading down a river and what is needed is a raft of considered policies that fit together.”¹⁷⁸ Moore put it bluntly. Parliamentarians had to convince the public that Labour MPs were not a bunch of amateurs.

Corollaries followed. When they formed the next government, for Moore was sure that they would, there should be no appointments to public office of old friends, members of unions, or staff from research units. Better a decisive government for all citizens than a friend to longtime backers who expected something in return. “Learning to say no is an important part of preparing ourselves for Government.” He was advising Labour to abandon patronage politics and occupy the broad and culturally widening middle ground of a changing country. Moore recommended that they identify members of minority groups for appointments, become media savvy, and act with “grace and style.” There may have been a pinch of bull in the recipe; some colleagues thought that he was prone to public relations for Mike Moore.¹⁷⁹ Notwithstanding suspicions, his recommendations preached dignity and inclusivity. As for media savviness, the reform group criticised Rowling’s lacklustre presence.¹⁸⁰ In terms of legal diligence and good connections to the party organisation, the parliamentary leadership had an asset in Palmer. Friendly observers claimed that such a group arose once in a lifetime and that its members were as talented as those of any government in the OECD.

“EVERYONE WANTS TO GO TO HEAVEN; NOBODY WANTS TO PAY”¹⁸¹

Inevitable rifts among the parliamentary party, the FOL, and Labour Party officers would require the grace that Moore mentioned. Not mentioned, but certainly practised in the fullness of time, was shrewd organisation. The parliamentary leadership would have to be better organised than their opponents in the party and would have to outsmart them. Grace and style were good notes to sound because these qualities could set the leadership apart from Muldoon. Additionally, Labour politicians had to shed fiery rhetoric and work to moderate any psychological impact that victory could have on the money market. Moore noticed that the election of Australia’s moderate Hawke-Keating Labor government – which had made no rash promises and a minimum of policy announcements – had still been enough to touch off a flight of capital.¹⁸² Cabinet solidarity concluded Moore’s list. Here, it is necessary to repeat that by 1949 the Labour Caucus had evolved a system for electing members of Cabinet.¹⁸³ The prime minister assigned these individuals to portfolios. To tighten unity, Moore wanted it understood that those elected had to accept Cabinet solidarity and could not speak their minds in public. Dissent voiced within party and caucus committees was acceptable. If candidates for Cabinet felt that they could not accept this stipulation, Moore advised that they should not stand for election to Cabinet.¹⁸⁴

Preparing an economic policy package for an election manifesto, not Moore’s task but part of the same reshaping of Labour, proved divisive and reached a stalemate just when Muldoon unexpectedly called an election. Critics of the Douglas package, who preferred the managed economy, complained that parliamentary leaders had not been forthright in laying out their plans during the 1984 election campaign; consequently, they had no mandate for what they did in office. This claim is misleading. The economic team in the caucus had given press releases, interviews, and speeches favouring market-based policies, proposing fiscal restraint, and warning of hard times ahead. Media commentators were not mystified about most of the parliamentary party’s package. If anything, they were dubious about whether the new team could overcome internal party opposition and make it a reality.

A missing statement on economic policies in the party’s 1984 election manifesto accidentally liberated the parliamentary party. This accidental freedom of action was not what they had worked toward. They had their sights set on a clear enunciation of a new order. By July 1983, the members of the caucus’s Economic Committee – Lange, Douglas, Caygill, Prebble, Moore, Rodger, Hercus, and Neilson – were working on a text for an economic statement to go into a party manifesto, a customary statement explaining what the party stood for when seeking election. Douglas’s economic package and Moore’s tactics had the support of key figures in the parliamentary party who wanted to transform Labour from a special interest party, as they saw it, into a reform party governing for a long time in a socially progressive but affordable way. For Douglas, the dichotomy whereby intervention equalled left and market economics equalled right was “nonsense.” The left was dedicated to lifting people out of poverty. As was he. To do that, the country had to generate wealth. Intervention had failed this test. Worse, it was inflicting fiscal and monetary damage.

These arguments did not convince Tizard, who goaded Douglas by speaking out in favour of spending to achieve full employment when the Economic Committee favoured tight money to control inflation. In a future government, Tizard would have enough supporters to be elected to Cabinet. Once in Cabinet, the conventions of collective responsibility precluded dissenting in public. To keep the perks of office, he maintained a grumpy restraint. Jim Anderton was more troublesome. Reformers marked him as an antagonist trying to haul the party “backwards to the 1930s/40s.”¹⁸⁵ According to Lange, being “far down on the food chain,” he had no prospects for election to the frontbench and therefore felt free to campaign against the package.¹⁸⁶

Anderton publicised that the caucus did not set policy on it is own. “The Party,” he told reporters in December 1983, “would hold a series of meetings early next year with the fol to prepare the policies.”¹⁸⁷ As a former party president, he had supporters at head office, among party affiliates, and among “rank and file members.”¹⁸⁸ In late February 1984, the Labour Policy Committee, a body consisting of delegates from the fol, the Combined State Unions, the Labour Youth Council, and the Labour Caucus reviewed the policy papers from the Economic Committee as well as an opposing report from the fol.¹⁸⁹ The blueprint for restructuring that Douglas sent to the Policy Committee criticised imminent wage increases as brakes on employment, easy credit as a source of inflation, the imbalance of revenue and spending as a fiscal encumbrance, and poorly targeted welfare benefits as wasteful. The Policy Committee sent the document to a working group for revision.¹⁹⁰ “The competing prescription” from the unions had the government continuing “to play a leading role in the direction of economic activity.”¹⁹¹ Lange favoured the Douglas package.¹⁹²

Assigned the impossible task of breaking this deadlock, a working group chaired by Geoffrey Palmer completed an anodyne document in May 1984.¹⁹³ Muldoon’s snap election interceded before the Policy Committee could endorse the draft. Palmer would write decades later that “it was by no means easy to get research-based policies into a form where they could be agreed upon and then promoted effectively to the public.”¹⁹⁴ The upshot was that Labour had no official economic policies for the 1984 election. There was no deception in avoiding specifics since none had been approved.¹⁹⁵ However, in speeches by Lange and members of the Economic Committee, the main points of the Douglas package had repeatedly been put before the party and the public since mid-1983, and the package’s prototype had been in print since 1980. As if these were not enough signals, Douglas’s presence as the shadow finance minister declared the parliamentary party’s position on policy.

A gap in the manifesto released the leadership. One commentator put it this way: “The government is now free to search for solutions.”¹⁹⁶ In a 1986 interview, Lange coyly intimated the stalemate’s value. It saved his government from having to draft “a much more recognisable Labour budget” of the type that he disdained.¹⁹⁷ Just before the 1984 election, Lange stretched his best guileful prose to cover over cracks in the party. In the forward to a pamphlet written by Moore about winding down an interventionist economy, Lange wrote that this “is not Labour Party Policy, it is not intended to be, but it does tie together various stands of Labour thought.”¹⁹⁸ Prebble adds that “there is no doubt that the unfinished discussion worked to our advantage.”¹⁹⁹ The official 1984 policy document lifted “apple pie” slices from Palmer’s draft. There were hazy statements about working for growth and full employment.²⁰⁰ But parliamentary leaders had previously indicated that, as a government, they would apply fiscal restraint, phase out subsidies, and favour the market over a managed economy. The manifesto-that-wasn’t had no influence on the reformers.²⁰¹

In his memorandum on political realism, Moore had insisted that a proper government for all had to act for all and could not kowtow to special interests. In early 1984, this declaration slighted the fol. Later that year, diehards at party headquarters cheered the election victory through gritted teeth. Anderton struck back with a threat. He conceded that the party could not control the policies of a government, but it could stop working for candidates.²⁰² The parliamentary party had won its point; a government should not serve an interest group. This message peppered speeches and interviews for years.

A further subtle reality assisted reformers. If a resolution opposing a likely move or past action by the government failed to pass at a party conference, the government would emerge in a strong position. It did not have to present motions in favour of measures, only defeat opposing ones. Ministers and caucus supporters poured over remit books, identified disconcerting proposals, and then circulated counterarguments. In 1987, for example, a remit against the sale of state assets failed to pass at the party conference. Year after year, ministers and supporters organised against adverse remits and worked to retain control of constituency organisations.²⁰³ At the party’s regional and national conferences, they debated critics and rallied votes. In the lead-up to the 1985 conference, party president Margaret Wilson tried to straddle the divide. Acknowledging unease in the party as the parliamentary leaders departed from “the traditional guiding principles of a Labour policy which involves regulation and planning,” Wilson nevertheless urged members to have “open minds and be prepared to accept new solutions.”²⁰⁴

Anderton’s failed insurgency of 1984 was a warm-up match. At the exact moment of his threat that party workers could cease supporting the government, the reformers busily worked at broadening their appeal by launching a carefully orchestrated Economic Summit, staging it for formal impact in the Debating Chamber of the House of Representatives. Anderton and Clarke’s earlier idea for such an event had been appropriated by the people whom they wanted to contain. With astute planning, a summit was not going to tie the government’s hands but greatly enhance its standing.

the summit view: courting business, persuading the public

Labour won 56 of the 96 seats in Parliament in the election held on 14 July 1984. Turnout was 93.7 per cent of registered voters, the highest ever recorded. Most Labour seats were in urban areas.²⁰⁵ The election victory put the parliamentary leaders in a commanding position because during the campaign they had sidelined Anderton, who had been party president from 1979 to 1984. As they had planned, the credit for victory went to Lange. From the start of their takeover of the parliamentary party, reformers blocked dissidents from interfering with the 1983 package of reforms, an approach that included Lange’s dismissal of Anderton and Clark’s suggestion that the party should promise a summit to canvas advice. Defenders of New Zealand’s managed economy made much of a recent Australian Economic Summit that had honed a social accord between labour and government. Such an event in New Zealand held the possibility of disrupting Douglas’s plans, but Stan Rodger and union economist Alf Kirk insisted that the fol “would not be able to enforce a social contract among members.”²⁰⁶ Later, talk of anything like an Australian accord was simply talk.²⁰⁷

Australian prime minister Bob Hawke crafted impressions that his summit had restrained market economics by refining an earlier agreement between the Labor Party (then in Opposition) and the Australian Congress of Trade Unions. A Prices and Incomes Accord, to be ironed out at the Australian Economic Summit, had been announced miraculously before the March 1983 Australian election. It gave a boost to Labor. Parts of the accord, specifically those associated with the left and economic intervention, were never implemented. The publicity was beguiling, and so too were the showy terms “Accord” and “Summit.” In the short-term, the accord’s wage pause, followed by an indexation of national wage awards, was credited with two years of growth and a fall in inflation. By 1985, however, the rigidity of indexation and a deterioration in the terms of trade had contributed to a deficit in the balance of payments current account and to significant inflation.²⁰⁸ Over the next several years, productivity per employee grew more slowly than in most other oecd countries. The external position was unsustainable. At this point, the government had to embark on fiscal restraint, asset sales, and more flexible wage determination.²⁰⁹ In a judgment made in 1988 by New Zealand’s secretary of the Treasury, Graham Scott, the Australian incomes policy “appeared particularly unattractive.”²¹⁰ In 1984, these drawbacks were not yet evident, but the notion of an accord was rejected because the two countries faced different problems and had distinct labour union organisations.

Australia and New Zealand shared some economic troubles; journalists, politicians, and union officials in New Zealand watched developments across the Tasman Sea. To some, it looked like Hawke had redeemed state planning but had used the opportunity to wriggle out of election promises.²¹¹ Judged from this viewpoint, the production went well. Speakers for the Australian Congress of Trade Unions were friendly to the government. The event did not lurch out of Hawke’s control because he blocked the participation of social activists and feminists.²¹² At a Labor Party conference, the right and centre-right defeated attempts to introduce planning and income redistribution.²¹³ By 1987, the accord had to be supplemented by measures that resembled those underway in New Zealand. Champions of a managed economy on both sides of the Tasman misunderstood it, but reformers grasped the significance of the publicity. They had pigeonholed the idea of an Economic Summit until they could run such an event on their terms.

Within days of the July 1984 victory, Lange asked Bernard Galvin, secretary of the Treasury, to advise him on organising the event.²¹⁴ Galvin told Lange that the Australian experience could be helpful, only so long as he realised that national circumstances were different. In Australia, the leading concern was “perceived to be the need to hold down real wage costs if employment was to grow and inflation was to fall; New Zealand has the same problem, but faces a number of other serious structural problems as well.”²¹⁵ He was making the point, shared by the reformers, the imf, and the OECD, that New Zealand’s troubles required adjustment at the macroeconomic scale of fiscal and monetary affairs but equally a reformation at the microeconomic scale of the structural interface between public and private. Never was the New Zealand event intended to steer policy. In August 1984, the idea of consultation on policy was severely circumscribed. Furthermore, as planning developed, the objectives for the summit expanded from gaining the public’s trust to restoring business confidence and making connections with business leaders.²¹⁶

Someone would have to chair a steering committee. In these early days of the government, attempts were made to influence events by individuals favouring slow change and continued intervention, among them the chair of the State Services Commission, Mervyn Probine. For the position, he recommended economist Sir Frank Holmes, who had once chaired the New Zealand Planning Council. Lange’s inner group rejected Holmes and asked Probine to contact prominent business leader Ron Trotter.²¹⁷ Over the next several years, the government repeatedly affirmed non-interventionist economics and a corresponding wish to promote business confidence. The finance ministers turned often to Trotter for suggestions. Lange had managed to convince him that Labour wanted a new style of government that served all socioeconomic sectors, that levelled with the public about the economy’s parlous state, and that worked for “improved growth, employment, and equity.” The use of the term “equity” was meaningful. It did not mean equality, but implied granting more to those who needed it and less to those who did not. By 1984, the parliamentary leadership had abandoned the rhetoric of “equality” in any meaningful social sense, although the term still registered with many in the party at large and with a few in the caucus.²¹⁸

Galvin was correct when he remarked that Australia and New Zealand were unalike, although he was on the mark for more reasons than he mentioned. The Australian Congress of Trade Unions was centrist compared to New Zealand’s fol. Thus, a New Zealand Economic Summit offered fewer prospects of achieving a cordial collaboration of trade unions and government. Besides, reform-minded ministers and officials resolved that government should step away from any idea of tripartite wage talks. Galvin proposed that “it may then be more appropriate for a New Zealand Summit to have a much wider focus than Australia’s, and to look for community understanding of the problems which confront the country and support for the broad framework of policies.” He envisioned involving “important business or community representatives who are not associated with organisations,” advice in keeping with the parliamentary party’s drive to shun special interests.²¹⁹

Trotter recommended a major public relations effort. Recognising that the new government might not want to make many commitments at this stage, he nevertheless hoped that some policies could be announced on new wage-bargaining practices, industrial assistance, “the plight of the low-income family,” and housing. He advised Lange on the agenda, timing, and follow-up.²²⁰ With that done, he flew to Australia. The New Zealand High Commission arranged meetings with organisers of the Australian Economic Summit, who warned of hard work: the preparation of technical papers, controlling the number of participants, and steering discussions toward an uplifting communique.

concluding observations: a duopoly in the limelight

By early August, the New Zealand Economic Summit’s steering committee had guidelines to contain grandstanding and to project dignity: five minutes for statements, no statistics, no flamboyant clothes, no leather jackets, no Dutch courage.²²¹ The government assigned ministers to themes. Employers and labour leaders were accorded places on the three-day agenda, as was the eloquent spokesperson for the unemployed, Jane Stevens. Her appeal for state spending was received politely by ministers and business leaders, who had other ideas. However, she made an impression. Her message long resonated with Labour feminists. During the summit’s three days, 12–14 September, six ministers plus Palmer and Lange spoke, following texts based on the Douglas package. From a public relations perspective, the Economic Summit was a triumph. Organisers hired a communications strategist. One hundred news media representatives attended.²²² Lange’s televised address displaced the long-running soap opera The Young and the Restless. He earned rave reviews.²²³ Union and business representatives affirmed their contrary positions yet did so respectfully – for the most part and for the television cameras. They socialised. Above all, the event showcased Fourth Labour as a team whose members appeared to have a grasp of the problems and a programme of solutions. Ministers connected with corporate heads on a first-name basis,²²⁴ something that came in handy when the government sought experienced corporate directors for its newly formed state-owned enterprises.²²⁵

Although there was no expectation of a big announcement similar to the Australian communique on wage management, the government pulled a rabbit from its hat. The newly appointed minister of labour, Stan Rodger, announced a labour-relations breakthrough whereby the government and the fol agreed that wage fixing should recognise industry-specific circumstances while paying less attention to historic relativities and that there should be more enterprise bargaining on complex industrial sites rather than the perpetuation of craft-based unions that fragmented work definitions and wages. Rodger’s statement was maddening for the National Party because former minister of labour Jim Bolger had worked on reforming labour relations since 1981 and had signed an understanding with union representatives a year earlier.²²⁶ How Labour scooped Bolger’s work and how Rodger transformed National’s groundwork into legislation are subjects covered in chapter 11. For now, it is important to recognise the successful publicity. Moreover, by mid-September 1984, with some coaching from Trotter, ministers were building creditability with business.

Trotter not only shepherded the Economic Summit in an organisational sense but also guarded its dignity. He wanted no distracting ill-tempered explosions and no cheap partisanship. He worried about the government’s other publicity initiative, its publication on the state of fiscal affairs, Opening the Books (1984). Concerned that this pamphlet would undermine the summit, billed as non-partisan, he cautioned Lange, “If it must be released, be low key and don’t invite any special groups. Do not release a summary as it will be considered biased and that will hurt the summit.”²²⁷ Douglas wanted the information released by Lange and himself to supplement summit presentations.²²⁸ With fanfare, Lange and Douglas stood together as a domestic policy duopoly and released the document on 30 August. The pamphlet assembled extracts from briefing papers prepared by the Treasury and the Reserve Bank for the incoming government. These had not been intended for public consumption. Lange justified circulating parts “because the new Government considers the economic situation so serious.”²²⁹ The text was partisan. By comparison, the Economic Summit ran as an inclusive but craftily managed, media-savvy event designed to project Fourth Labour as a government of national deliverance. Off stage, in committee rooms, the work of governing was beginning. So was an act of vengeance by strange bedfellows Muldoon and Anderton, an episode involving monetary policy covered in chapter 5.

The next chapter divulges the enormous behind-the-scenes work generated by an activist government as it turned to international advisers. Already underway in other countries, restructuring created opportunities for financial and management specialists in a worldwide consulting industry. New Zealand was one stop on a global circuit.

2

Political Realism in a Westminster Democracy: The Means and the Will

OVERVIEW: AN EXECUTIVE PARADISE

During the three-day Economic Summit in September 1984, the public as well as media observers believed that they were witnessing a government that cared about suggestions from delegates assembled in the Debating Chamber of the House of Representatives. The summit was masterful theatre in a grand settling. It was also camouflage that allowed Roger Douglas to work flat out on the 1984 budget, which could then appear as though it had emerged from the assembly in response to an emergency. Douglas thought that the summit was “bloody good” and that “whoever came out and complained looked like a bad sport.”¹ So he went full out in new directions, new at least to New Zealand.² His first budget promised a Goods and Services Tax (GST), a fringe benefits tax, a surcharge on the tax of higher-income individuals who received the state-funded superannuation, greater trade liberalisation, an end to farm subsidies, and more. To govern with purpose, what mattered beyond election results and public relations contrivances were power-aggregating invisibles. Aided by Labour Party and parliamentary customs and by astute senior public servants and international consultants, Labour acted quickly to move on a pre-established compass bearing. Gaps in the party’s policy manifesto for the 1984 election let key ministers go ahead with the Douglas package. Cabinet collective responsibility, the distribution of perks, Labour Caucus rules, the small membership of the House of Representatives, and the control of information conferred immense capability on the parliamentary leaders. They occupied an executive paradise.

With an election mandate that legitimatised the authority to govern, and incidentally reminded wavering backbenchers who buttered their bread, leading ministers steered Cabinet committees, which were the government’s decision-making centres. It had been the practice for incoming governments to establish committees that aligned with Cabinet’s priorities. When David Lange became party leader in 1983, older MPs were moved into marginal positions as low-profile Opposition spokespersons. After the election victory in July 1984, he assigned them to secondary or insecure departments. Minister of Energy Bob Tizard, a critic of the Douglas programme, experienced the latter fate. His department’s electricity and coal divisions were incompatible with the government’s intention to commercialise service fees and to reduce state-run businesses. Tizard personified the Second World War generation, which had matured inside the managed economy. Members of a younger generation, who now held all economic portfolios and sat on major Cabinet committees, kept their grip on government, losing some influence in 1989–90 but, even then, accomplishing a lot.

Cabinet committees were the real settings for serious discussions and influential decisions. The core ministers directed their public servants to prepare policy papers in line with the government’s direction and then presented them in appropriate committees. Ministers in attendance went on record to accept or reject summary points. When committee reports reached Cabinet, ministers normally wasted little time debating committee decisions but signed off to confirm approval, making the decision a collective one. In Lange’s Cabinet, ministers rarely voted. He declared a decision, usually invoking consensus. When a minister challenged a committee decision, Cabinet sent it back for reconsideration.³ “The committees,” recalls Richard Prebble, “were the decision-making body.”⁴ Ministers accepted collective responsibility. So strong was this convention of parliamentary democracy that when Lange broke it in late 1987, an incident covered in the next chapter, he knew that he had damaged his government and his own reputation.

Although policy discussions could be contentious, decision making until late 1987 moved quickly toward unanimity. Douglas prepared “the corridor work,” lining up the core of reforming ministers and persuading others. He either carried the votes in his pocket or could count on the backing of strong voices, like that of Prebble, whom he called “very effective Preb.” In Opposition from 1974 to 1984, Prebble had honed debating skills and acquired a thick skin when pestering Prime Minister Robert Muldoon, a politician who excelled at intimidation. This experience, as Prebble tells it, turned him from “being a nice vicar’s son into one of Parliament’s most rugged debaters.”⁵ He played this role to the hilt, making others appear moderate. During a Cabinet meeting over lifting import licences and reducing tariffs, Prebble adopted a radical position so that Douglas could retreat to the desired action. “I had him way down there,” Douglas recalled, “so far out. And we got what we wanted.” “Most of the time, on the really big things,” he admitted, “we’ve had it sewn up before we ever went in.”⁶

Ministers had to support the government over agreed-upon policies or leave Cabinet, surrendering perks and frontbench status. At least one minister from the older generation disliked Cabinet’s direction and despised Douglas but bent in the wind because of financial needs. Then there was pride. The sight of a fallen frontbench adversary retreating to the backbenches lifted Opposition morale. In March 1986, Lange entered the House with binoculars to search out Muldoon, who had just been toppled as leader of the National Party and was relegated to a back row. A National MP reciprocated in November 1988, scanning the chamber with binoculars to catch sight of Richard Prebble after Lange dismissed him from Cabinet.⁷

Besides perks and prestige for Cabinet ministers, there were benefits for a few ministers outside of Cabinet and for parliamentary undersecretaries. Lange appointed six of the latter.⁸ Geoffrey Palmer once remarked that it was useful to have placemen (and women) in the caucus.⁹ Unlike members of Cabinet, who were elected by the caucus in accord with Labour Party practice, the prime minister alone made these appointments.¹⁰ At the time of the 1984 election, the House of Representatives had 95 seats. Labour secured 56. The executive numbered nearly half of the caucus. Most of the rest, Prebble alleges, “stuck to the executive like glue.”¹¹ When the government met with the caucus to discuss pending legislation or major policy matters, it had the votes to get its way.¹² This unanimity could not last forever. Redundancies in several state-owned enterprises (soes) riled a few MPs and ministers whose constituencies suffered job losses. A consolidation of New Zealand Railway maintenance shops in mid-1986 was one instance.¹³ Still, at caucus meetings, the government had its way.

In their history of the Labour Party, Peter Franks and Jim McAloon note that the caucus supported the direction of reforms in the first term in part because “Douglas and the economics ministers liaised with the back bench indicating direction through seminars on economic policy.”¹⁴ Anticipating public questioning of their actions, ministers circulated briefing material to caucus members.¹⁵ Information sessions and bonding worked in multiple ways. After the formation of soes, on Wednesday nights when the House was sitting, Prebble shared takeaways with MPs who wanted to learn more about these enterprises. Their banter kept him abreast of backbench opinion; they became friends and together purchased a racehorse.¹⁶ Adding to the executive’s separateness and hold on power was the convention that Treasury officers should not appear before the caucus unless their minister attended.¹⁷ Perks, rules, agreement with government’s direction, and the management of information sustained caucus discipline in the first term, although Jim Anderton was an enduring exception. In the second term, after the election had brought new members into the caucus and the sale of state assets had widened the gulf between the parliamentary party and the Labour Party Council, Anderton spoke more liberally against government actions. Several newcomers to the caucus chimed in. Anderton would have been effective as an internal critic, except that “his arrogance, much more than his left views,” alienated most in the caucus, explaining why he was never elected to Cabinet and usually sat alone in Bellamy’s, the dining room for MPs.¹⁸

Once a decision was reached in the caucus, party rules obliged everyone to vote in the House in accordance with the result.¹⁹ Dissent voiced in the caucus had to stay there. Naturally, the government’s vigilance aroused media curiosity. Reporters and columnists thrived on the Wellington leaks. Rare in the first term, they flowed copiously in 1988. Editorial cartoonists captured that year’s end-to-end disagreements with devastating accuracy. Every bit as effective as the dispirited parliamentary Opposition, this witty fraternity diminished the government’s stature.²⁰ But during the first term, parliamentary party rules kept almost everyone onside most of the time. Or else. When habitual renegade Anderton criticised the leadership on television in 1985, he earned a jab of Lange’s trademark wit. Asked by a reporter whether he had told Anderton to “pull his head in,” the prime minister replied, “Or whatever part of his anatomy is appropriate.”²¹

Although the customs of the Labour Party and Parliament helped to advance reforms, Anderton remained grit in the gears. “Don’t let [Anderton] talk publicly,” a solicitor advised Palmer immediately after the 1984 election, “till he has learned a bit of discretion.”²² Some in the council, where he had supporters, attempted to rein in the parliamentary leadership. After her election as party president in 1985, Margaret Wilson wanted to establish conference remits as directions for the government. Palmer, who supervised the legislative agenda, convinced her that, since the government had a full schedule, alternate proposals would create public confusion.²³ The government could put party critics in a tight spot. They had to back off or risk a fuss that helped the National Party. In August 1988, however, Anderton abstained from a vote on state asset sales. After he abstained on a related vote in December, the caucus lost patience and suspended him according to the party’s constitution, which made Labour MPs’ caucus membership conditional on abiding by caucus decisions. In April 1989, Anderton resigned from the Labour Party.²⁴ The surprise is not that he defied Cabinet and the caucus but that he was isolated. Even during the Lange-Douglas feud, an affair occupying the next chapter, he could not rally dissidents in Parliament in 1988, when the core ministers were gleeful to see him depart. Lange’s defence of the expulsion affirmed that the power of the parliamentary party was “based on cohesive Party groupings in Parliament that can enforce their collective decisions.”²⁵

The firm sense of direction after Lange became leader, combined with the conventions of parliamentary democracy, caucus rules, and the responsibilities of office, promoted an us-versus-them attitude when ministers faced criticism from within the party. There was an interlocking constitutional and emotional change as individuals transitioned from the politics of Opposition to the work of governing. Scoffing at Anderton’s charge that Douglas had circumvented the party executive on policy matters, the minister of finance pointed out that “when you’re in government you actually have to make some decisions.”²⁶ During the 1987 Labour conference, when a few delegates demanded that the government act on socialist principles, David Caygill spoke for colleagues exasperated by unrealistic remits: “Say what you like, we’ve got a country to run.”²⁷

As a party of diverse membership, home for many causes, it was natural that a few party workers were taken aback by such declarations. Trade union officials, single-issue groups, and committed socialists denounced reforms and went after Douglas because the parliamentary leadership was not merely ignoring these party elements but also asserting that it was in the national interest to do so. The West Coast Branch of the Engineers Union, “shocked and dismayed” by cuts to regional port and rail improvements, voted no confidence in the local MP. Retrenchment was damned for destroying “the Coasters … way of life and community structures.”²⁸ Raised voices punctuated conferences, particularly after 1985, by which time the government was dismantling the managed monetary system, eliminating direct subsidies, announcing revisions to labour relations, and starting to reduce the number of government trading departments. By the late 1980s, self-identified socialist feminists had organised. In addition to promoting issues for all women, they came to conferences with remits critical of deficit-cutting measures, talk of efficiency, and Roger Douglas personally.²⁹ The Labour Party’s general secretary, Tony Timms, inadvertently exposed the distrust between party officials and ministers when he invited Minister of Health Michael Bassett to address the council, remarking in the letter, “I would stress that the concept of having Ministers present is not to call them to account.”³⁰ As a parliamentarian who wanted the party modernised, Bassett felt that the “grizzling” owed something to “old Leninists of [the] 50s and 60s [who] found their way into positions of power in the Labour Party and [are] pushing the Leninist line.”³¹ A split among the Labour Electorate Committees, traceable in Douglas’s correspondence for 1986, suggests that out of roughly forty branches and committees represented among the letters, Douglas had firm support from more than half. Critics were especially unhappy about the GST. Labour’s annual conferences from 1985 to 1988 allowed dissidents opportunities to move motions that demanded policy changes.³² Douglas prepared his side effectively, usually organising a defeat of these remits.

Conflicts in the party between reformers and socialists, internationalists and nationalists, and middle-class professionals and union secretaries intensified after the 1987 election. Unable to block reforms or to counter the ministers’ renewed mandate, left factions, trade unions, and feminists organised for showdowns at the annual conferences, inflicting battle weariness on a feverishly busy Cabinet. Despite bickering between ministers and the council, partisanship carried on. Ministers tore into National, making sport of its leadership whim-whams. The team spirit of Labour’s parliamentary leadership made it difficult for dissidents to characterise reformers as disloyal. Ministers were not going to forfeit their affiliation.

Even when worn down by intra-party mêlées, reformers ran up the party colours. Douglas decided not to run in 1990; however, before packing it in, he counselled Palmer to turn the party dogs lose on Jim Bolger “rather than biting him yourself. Definitely go for him rather than [Ruth] Richardson because he is more likely to put his foot in it.”³³ Despite a tense relationship between most of the parliamentary party leaders and the party head office, ministers continued to be partisans, circulating lists of public service vacancies to the party head office, consulting the Labour Party Council’s appointments committee for names of potential candidates for public boards, and taking on the unexpectedly “challenging” tasks at the Indecent Publications Tribunal.³⁴ Embracing patronage distribution, constituency work, and party social events, the electorate life of a minister connected the corridors of power to the grassroots.³⁵ Being in the party was one thing. However, the matter of “Whose party is it?” posed a question debated by the Electorate Committees and at regional and national conferences. Its awkward appearances in public clashes over the party’s constitution damaged the party’s image.

Time and again, reformers in the parliamentary party defended open-economy changes for the good of the country, in response to which critics on some Electorate Committees invoked party tradition. The conflicting ideas of paramount legitimacy, of new and old, spilled into a constitutional affray over the selection of conference delegates and over candidate selection. Many delegates were appointed by union officials, not elected directly by union members, whereas branch delegates were elected. Furthermore, union delegates had multiple votes. Reformers argued that the party’s structure, forty years out of date, was costing it public support and driving “moderate activists” from the organisation. The core ministers regarded moderates as crucial workers because they were needed to secure the reselection of centrist candidates. From 1987 to 1990, bitter party constitutional disputes and battles over candidate selection dissipated energy.

Seeing no future in leaving Labour and abandoning their tradition, trade unionist leaders resolved to pivot the caucus to the left by stacking candidate selection meetings, resorting to an all-but-neglected practice that gave union secretaries multiple votes, even though the unions kept no record of how many members lived in a constituency or whether the union’s members were Labour supporters.³⁶ In early 1988, reformers counterattacked. Prebble organised the enrolment of Pacific Island supporters, and Douglas’s admirers formed the Backbone Club.³⁷ No dispute-resolution body existed to arbitrate when Cabinet acted on its election mandate to govern or when party elements decided that certain actions by Cabinet violated party “philosophy.” Efforts to devise a process in 1988 could not get around the fact that a determining committee would require an odd number of members plus everyone’s commitment to the process and its outcomes.³⁸

From September 1988 to September 1989, reformers in the Backbone Club and the party executive intensified their earlier dispute over the party’s constitution, which allowed unions to have up to seven delegates per electorate, with no limit on the number of electorates, no requirement that union members vote on affiliation with the party, and no prorating of delegate numbers in line with the number of members they had in an electorate who chose to be party members.³⁹ For example, the executive of the Hotel and Hospital Workers Union, defenders of the awards system of wage fixing (discussed in chapter 10), claimed the right to seven delegates in each of the eleven electorates where they operated. Based on the fraction of members’ approval, a union could leverage more delegates in relation to party supporters than the electorate branches.⁴⁰ The Fourth Labour Government’s ministers discovered that it was as gruelling to build a party of government as it was to confront disgruntled farmers, union secretaries, and public employees when restructuring the economy. It is worth mentioning, therefore, that in the end, their protests changed the party. In 1990–91, the affiliate membership rules were altered, confirming Labour’s move toward a mass-membership rather than a cadre-based party. Three members of the caucus and three from the council had to thrash out policy.⁴¹

GETTING IT DONE: THE POLICY CONDUIT

The government inherited the formidable tools of a parliamentary majority. When implementing reforms, it knew where to look for assistance. On 27 July 1984, Cabinet secretary Patrick Millen wrote a letter of guidance to the incoming prime minister that described the efficiency of Cabinet meetings given the fullness of discussions at Cabinet committees:

The bulk of the submissions can be approved with little or no discussion because they are matters on which there is no disagreement. Nor should elucidation be necessary if a submission has been put together in proper form. One must presume that everyone has read the Submission; obviously it wastes time to traverse aspects already covered adequately by the Submission. Thus, discussion is usually concentrated on a few items – under the guidance of the Chairman (with some assistance from the Minister of Finance and occasionally the Attorney-General if an undisclosed legal point needs to be aired).⁴²

After formalities, if submissions pertained to new initiatives, legislative drafting could begin, starting a tale in its own right. In 1987, Minister of Justice Geoffrey Palmer set out to improve the process for drafting bills and clarifying their content. New Zealand bills had been drafted using practices from the 1950s or earlier. Apart from clarity of language and consistency with other reforms, bills that pertained to restructuring needed to be checked for conformity with the Treaty of Waitangi (1840).⁴³ Based on this charter agreement between the Crown and Maori, court rulings were changing community relations not only in formal respects that had an effect on reforms but also in informal ways that entered the politics of reform.

Besides inheriting decision-driving practices, Fourth Labour innovated in the way that it kept its favoured policies advancing to legislation. An informal strategy group of six met occasionally from late 1984 to late 1988. A related but formal government body, the Cabinet Policy Committee (cpc), coordinated departmental policy papers and responses from the control departments. Such a body was mentioned in Mike Moore’s recommendations for staying in power. He deliberately rejected the term “inner Cabinet,” recommending a Policies and Priorities Committee. In his reminiscences, Palmer claims credit for the idea, an ironic contention since he was well aware of the dangers of executive power in a parliamentary system, a power that the cpc epitomised.⁴⁴ The Treasury’s report of 14 July 1984 to the incoming government had mentioned the desirability of an organisational arrangement:

[It] would include a forum of senior ministers in which the large issues were discussed with officials and understandings reached about the main directions of policy. Previous structures of Cabinet Committees have not been very effective in achieving this orientation. A heavy proportion of the government’s decision-making resources have been allocated to issues which were either minor or brought forward in a manner which precluded a wider discussion of the most effective ways to achieve the government’s objectives in relation to the questions at hand.⁴⁵

The concept of a high-level policy-coordinating committee was circulating. cpc attendance shows that whatever Moore had in mind by disavowing the term “inner Cabinet,” the cpc constituted one. Labour’s history of friction over the selection of Cabinet ministers most likely warned him off this term. By calling attention to a select group, this important restructuring of Cabinet government would have opened old wounds. Writing in 1987, public administration specialist John Roberts summarised that the cpc “exercises control over policy directions, sets the context of debate on major proposals, and defines the overall resource limits for major areas of the Government’s programmes.”⁴⁶ Minutes disclose that Douglas supporters from the caucus’s Economic Committee of 1983–84 took charge of the cpc. Ministers with economic portfolios sat on most committees. Prebble recalls that “if we were unhappy [about a proposal], we would get it shifted to policy [cpc].”⁴⁷ At Cabinet meetings, Lange directed controversy back to committees.⁴⁸ Since the personal management of fiscal and monetary affairs by Muldoon was deemed a disaster by the incoming department, Douglas had two colleagues as associate ministers. They provided support at meetings of the cpc.⁴⁹

Assigning the right ministers to portfolios was critical for moving policies through the parliamentary conduit, plus it was a sign to the business community that the government was in safe hands – hands that pulled together in the right direction. The cpc met 135 times in the first term. Members’ participation during the government’s two terms in office, including the periods when Palmer and Moore were prime minister, show Lange attending 187 meetings and chairing 135, Palmer 215 and 55, and Douglas 163 and 19. A handful of ministers attended many but chaired few or none: Moore 187 and 8, Caygill 214 and 4, Prebble 191 and 2, Stan Rodger 199 and 4, Colin Moyle 192, and Russell Marshall 153. Most cpc members held Cabinet portfolios with economic significance. Lange, Douglas, Caygill, Prebble, Rodger, and Moore had served on the caucus’s Economic Committee from February 1983 until the June 1984 election.

A scale of 1 to 5 based on my reading of the minutes summarises an impression of the relative importance of each meeting. Another measure states a participant’s role: 1 means present for some of an agenda, 2 means present for a full agenda, 3 means chaired part of a meeting, and 4 means chaired all of it. When these two measures are averaged for each attendee and the results multiplied, the crude score places Lange well in front, with a mean of 9.16, as would be expected of a prime minister. Palmer registered 6.45, Moore 5.61, Douglas 5.53, Rodger 5.49, Prebble 5.22, and Caygill 5.19. Most meetings that scored a 5 in significance occurred during the first seven months, when the cpc considered the gst, monetary policy, fiscal cuts, and options for corporatising government trading departments. Lange moved in the thick of policy decisions, not as an originator but as an effective chair. In the cpc or in other committees, he knew whom to call upon and was good “at cutting off the wind bags.”⁵⁰ For three years, he headed a good-natured government, letting ministers get on with their work and coining witticisms or spinning yarns during meetings.⁵¹ Still, he carried the gravitas of office. When he signed off on a policy paper, it meant a lot.⁵² And when he telephoned ministers from England to line up their consent for floating the currency, he was shrewd in his means of achieving unanimity, an incident covered in chapter 5.

In the government’s first days, Palmer as deputy prime minister trimmed the existing Cabinet committees from fifteen to ten, which included the cpc; the nine remaining sent papers to Cabinet through the cpc.⁵³ Ministers with a strong preference for economic restructuring wanted the prime minister to make certain that these nine committees had some “trustworthy people” who would represent Cabinet’s views.⁵⁴ Officials were often invited to furnish information. Douglas maintained that the committee preferred public servants “with a working knowledge of the issues” rather than the “old senior department ‘heavies,’” who were more conservative.⁵⁵ He was impatient with many department heads and deputy heads. However, on task forces where they collaborated to solve problems, younger up-and-coming officials and ministers worked together smoothly. Almost all contentious debates and weighty decisions happened in the cpc. Cabinet’s Social Equity Committee was important too. Social welfare policies plus expenditures on natural disaster relief were tabled there for consideration.⁵⁶ cpc members reviewed – skimmed, one suspects – reams of policy papers. Sponsoring departments listed items to be agreed upon or merely noted. Assessments of these papers, provided separately by the Treasury and the State Services Commission (ssc), the two so-called control departments, listed which items they felt should be agreed upon, rejected, or sent for further study.

Douglas’s leadership style, namely setting things in motion and letting others work on details, was apparent in his attendance at cpc meetings. In 1985, a year of decisive actions, he chaired twelve important meetings, dealing with subjects on his 1980–83 agenda, although they were supported now with Treasury research. When he chaired the cpc, he meant to lead and made that clear. Irked by an official who was delaying corporatisation, his ringing message was, “This will not happen again.” Douglas kept Treasury staff busy, at times exhausted, researching his ideas, many of which agitated a few ministers who came to equate his kite flying with bomb dropping. Only once in Labour’s two terms did a minister manage to advance a major policy from a Cabinet committee to select committee hearings without exposure to cpc scrutiny. Minister of Commerce David Caygill was the escape artist. He kept his proposal for a Commerce Commission with powers to investigate consumer prices and corporate mergers out of the cpc, evading objections prepared by Treasury officials, who wanted a more permissive environment for business. They were incensed. Caygill’s end run was important. It set the regulatory regime for several corporatised and later privatised government enterprises that were dominant industries or natural monopolies.

international agencies and the “newest profession”

Seeking to identify and rank the radical innovators, political scientist Shaun Goldfinch asked well-known figures in the reform drive to list others. His reputational scorecards for financial liberalisation, privatisation, and labour relations reforms agree well with documentary evidence from inside the public service and political papers. The cpc members, senior Treasury officials, and a couple of officials at the Reserve Bank topped his ladders. However, reputation did not signify actual influence. Several of Goldfinch’s important individuals were more like figureheads than activists, several others were underrated, and the list omitted overseas consultants. Innovators could be stumped and needed experienced adjuncts.⁵⁷

Relative to governments in the rest of the developed English-speaking world, Fourth Labour arrived slightly late to restructuring. During its first term, however, it raced into the vanguard of macroeconomic and microeconomic reforms. To shield reforms against local accusations that they expressed a rigid application of new fads, the Treasury presented the policies as originating from the orthodox mainstream of international economics, arguing that the reforms were neither out in front of the norm nor adherent to a narrow doctrine.⁵⁸ There was truth to this claim, as even Opposition leader Jim Bolger acknowledged when explaining the National Party’s defeat in 1987. “Too late we recognised,” he explained at a party conference, “that [the] Labour Party’s economic policies were, in fact, the new Orthodoxy that was being followed by countries of our type around the world.” The seeming pretence of Labour’s conversion galled him since Labour as the Opposition had decried the Muldoon government for deregulating trucking and for delicensing the meat industry.⁵⁹ Except in several areas – such as an unrealised flat tax and a Guaranteed Minimum Family Income proposed in 1988, the passage of the Public Finance Act (1989),⁶⁰ and details in the reformation of the Reserve Bank undertaken in 1989 – officials and ministers worked within the well-established schools of market economics that had coloured the forewarnings of the International Monetary Fund (imf) to New Zealand since the late 1960s.⁶¹ How new were the reforms? Not so new if you had been given advice along these lines for several years and ignored it.

There were distinctive wrinkles to reforms given the accommodation of local circumstances or the need to pay attention to cautionary words from other governments: do not create gst exemptions for any articles whatsoever, keep state-owned enterprises away from public funding, do not let the central bank micromanage the economy. The Treasury’s shyness about claiming innovation was hardly infectious. As reform after reform clicked into place, the country attracted attention. Ministers and public servants began to appear as market-economy celebrities at international conferences. At the decade’s end, Don Hunn, chair of the State Services Commission, overheard a couple of Australians at a public administration conference:

“Did you go to the paper about New Zealand?”

“What! And listen to the Kiwis boasting again?”⁶²

What a delightful reversal of roles!

Tub-thumping was not practised at the beginning of reformation. Thanks to a late start, ministers and officials could study other countries’ reports and seek advice from experienced counterparts in central banks, merchant banks, private consultancies, institutes, and universities. When the government first considered selling an interest in Petrocorp in 1986, it sent a fact-finding team to London in August, which was instructed to inquire into the United Kingdom’s privatisation programme at meetings with officials of the British Treasury and the Ministry of Energy, with investment managers and lawyers, and with agents of Banque Paribas, Lazard Brothers, S.G. Warburg, N.M. Rothschild, Coopers & Lybrand, Kleinwort Benson, Slaughter & May, and de Zoete & Bevan.⁶³ Parties working on the complicated task of corporatising electricity later enlisted outside expertise on contract. Aware of British developments, executives planning to acquire power-generating assets for an SOE decided to “get advice from UK merchant banks who were involved in their floats.” They settled on S.G. Warburg.⁶⁴ New Zealand’s Inland Revenue Department went further than contracting with consultants. Noting that some countries were investigating tax avoidance by multinational corporations, the department recruited “specialist inspectors from overseas.”⁶⁵ ssc officials explored public service restructuring issues with colleagues at the Commonwealth Public Service Commission’s biennial conferences and conferred with senior Canadian officials Huguette Labelle, Peter Aucoin, and Don Quiring.⁶⁶

Officials contracted counterparts and academics in Australia, the United Kingdom, and Canada. The advice of academics in the United States was solicited too, although Prebble maintains that there was “an anti-American bias throughout the civil service.”⁶⁷ This bias did not apply to leading ministers, who realised that their government required top-notch consultants and robust international financial connections. Twelve months before the 1984 election, Prebble went to the United States as a participant in an American government visitor programme to meet an expert at Booz Allen, the world’s largest railway consultancy and an adviser to governments around the world since the late 1950s. It had experience in seventy-five countries. The Third National Government had employed it in 1983.⁶⁸

Later, as minister of railways, Prebble brought his contact at Booz Allen to a New Zealand railway conference.⁶⁹ American contacts blossomed. Finance ministers made annual treks to the United States to visit “the imf, World Bank and investment houses.”⁷⁰ In the instance of the Commerce Act (1986), which governed restrictive trade practices, Labour replaced British-inspired legislation of 1975 with a modified version of “an American/Australian style anti-trust code.”⁷¹ The changes to labour relations in the state sector in 1987–88 included the job-ranking practices of American human resources (chapter 13). The interdepartmental Health and Treasury Task Force to Examine Hospital and Related Services (1987–88) commissioned a study by two analysts from Arthur Anderson and Company of Chicago. The participants in workshops on health care reform included Dr John Goodman of the Dallas-based National Center for Policy Analysis; Walter McNerney, a professor of hospital management at Northwestern University; and Dr David Green of the Institute of Economic Affairs in London. To acquire information on health care more broadly, the task force relied on an international survey of government health policies by Harold Luft at the University of California and by Tavs Anderson at the University of Copenhagen.⁷²

American academic connections widened the sources of know-how. Attorney General and Deputy Prime Minister Geoffrey Palmer had studied law at the University of Chicago and had taught at the University of Iowa. Dr Graham Scott, a leading figure at the Treasury and destined, in due course, to become its secretary, had received his doctorate from Duke University in 1972, had worked for the National Planning Association in Washington, dc, and had attended Harvard University’s Advanced Management Program in 1985.⁷³ Bryce Wilkinson, a director of economics at the Treasury, had been a Harkness Fellow at Harvard. Dr David Culliwack, a partner in the uk accountancy firm Arthur Young and a professor of marketing at Victoria University, had graduated from the Faculty of Management at Northwestern University. Industrial analyst Mary Watson had received her doctorate from Penn State.⁷⁴

Outside information arrived through many channels, often as raw material requested for purposes of local analysis. During planning for a liberalisation of banking in 1985, Treasury analysts looked at the rules of entry for new banks in fourteen countries, assembling material to support their conclusions.⁷⁵ Drawing on central bank experiences in Canada, Hong Kong, and the United Kingdom, a Reserve Bank official insisted that the central bank’s intervention as a lender of last resort was warranted only if the whole system was endangered. It was a good omen for central bank independence, he thought, when the head of a Canadian bank complained that “getting money from the central bank was like announcing you have aids.”⁷⁶ A standard understanding of moral hazard circulated in the tasteless repackaging of a global health emergency; however, the tasteless attempt at humour illustrates familiarity and encouragement. In 1993, during a continuation of Labour’s reforms by the National Party, Dr Don Brash, governor of the Reserve Bank, reported from London that “Dr. Mervyn King, Head of the Bank of England’s economic department … mentioned he had read our banking supervision proposals … and agreed with our general direction.”⁷⁷ At the time, Brash was struggling to convince his hesitant analysts that prudential regulation could never prevent bank failures and thus was redundant. A nod from King was just what the doctor had ordered.

International economic organisations collected and distributed information on a routine and formula basis, supplemented by social events. Dinners, receptions, and weekend excursions smoothed site visits from the oecd and imf consultants, providing informal opportunities for sharing intelligence and asking sensitive questions about domestic politics and union militancy.⁷⁸ The imf’s contingent usually stayed longer in New Zealand than did that of the oecd; imf consultants formed friendships with local officials, and several New Zealanders were posted to the Washington head office.⁷⁹ First names were routine; family members were remembered in letters. Warmed by an environment of cordiality, visitors and government officials discussed how other countries were dismantling regulations or progressively extending the principles of competition in energy, communications, transportation, and finance. The contacts were broad. The Reserve Bank hosted visitors from private banks in Australia, Hong Kong, Japan, the United Kingdom, and Canada. Catching up on financial and monetary policy developments was more than an exchange of information since conveying reliability was integral to banking, a point signalled by Gordon Jones of the National Westminster Bank when he wrote to the deputy governor of the Reserve Bank, Roderick Deane, shortly after the Economic Summit. Jones “emphasise[d] that developments to date have been very well received in the United Kingdom.”⁸⁰ Word percolated through the City of London.

The oecd and the imf transmitted information, analyses, and warnings but not instructions. The imf reserved its firm recommendations for fiscally troubled countries seeking loans. Nevertheless, a few messages for New Zealand were blunt. In 1982, consultants warned that the imf would require substantial structural reforms from New Zealand if the country were to seek a loan while in anything like its current state. In a sharply critical 1983 report, they commented, “We continue to find it anomalous that both this year, and prospectively next year, the level of nominal expenditures on social benefits is rising faster than wages and salaries.” Independent assessments were not directives but peer advice.⁸¹ imf missions were pragmatic, staying alert to local changes for better or worse on a year-to-year basis, and they prescribed different medicine for altered conditions. In 1989, consultants surprised public servants by hinting at a relaxation of monetary restraints to address unemployment. New Zealand officials dismissed the idea, insisting that a premature relaxation could give the impression that loose-money bad habits had returned.⁸² Senior Treasury officers resolved that short-term pain was insufficient for long-term gains in price stability and concluded that long-term gains would in due course benefit the greater number. As they were not facing voters, they were not required to explain themselves.

Unlike consultants from international agencies, overseas specialists commissioned by the government were brought in to make recommendations. New Zealand was late reaching into extensive global networks of management consultants and merchant banks for perspectives on specific reforms. In The World’s Newest Profession: Management Consulting in the Twentieth Century (2006), Christopher D. McKenna recounts how American consultants increased the number of their state assignments in the early 1970s.⁸³ Due to National and Labour hanging onto interventionism until 1984, outside advice arrived in New Zealand relatively late. Local consultants and law firms with business knowledge or prior Treasury experience were retained.⁸⁴ Economists associated with interventionism were excluded.⁸⁵ Not all New Zealand academic economists opposed a more market-oriented approach, although plenty were hostile. One of the exceptions with outside experience was Peter Read, a specialist in energy at Massey University who had previously been at Whitehall. Considering where New Zealand’s managed economy stood, he believed that “it is necessary to look overseas to see what other countries which manage their economies better than N.z. and the U.K. have done to achieve their results.”⁸⁶ Treasury officials preferred advisers from outside because they reasoned that a small clubby academic community, raised in the milieu of an inflexibly managed and subsidised economy, would defend failing practices. Economists at the Treasury and the Reserve Bank wanted advice on how things operated in the central banks, financial services, and utilities of other countries. They understood, and therefore dismissed, parochial gospels.

Brian Easton, director of the New Zealand Institute of Economic Research, was one of the excluded. His stance “that modern economic management requires government to change expeditiously a wide range of instruments of economic management” was an out-of-step appeal to dirigisme.⁸⁷ Immediately after Labour’s election victory, he wrote to Palmer, hoping that “you and David [Lange] will have a series of discussions with the professionals before you commit yourself to the Finance Portfolio.”⁸⁸ Not a chance. Lange wanted Douglas as finance minister. Palmer supported Douglas until about mid-1988. ⁸⁹ Economists who were frozen out claimed that “they were unlikely ever to be asked to do any contract work for the department because they were seen as having a ‘wrong’ economic perspective.” There was a standoff between Treasury officials and interventionist academic economists who were “pissed off” by the government’s monetary measures.⁹⁰ Labour did contact the professionals but not the ones Easton had in mind.

From contacts developed through exchange visits, reforming ministers and supporting officials knew of international research on indirect taxation, monetary policy, price stability, deregulation, productivity gains, tariff reductions, and more. Investigations into the functioning of free-market practices had increased since the collapse of the Bretton Woods system. The Reserve Bank of New Zealand subscribed to leading journals and cultivated important personal connections with the Reserve Bank of Australia, which had established a regional transmission belt for recent international thinking, inviting to Canberra prominent economists from across Australia, the United Kingdom, the United States, and Canada, including Richard Blandy, Richard Cooper, Max Corden, William Dewald, Milton Friedman, Charles Goodhart, John Helliwell, Peter Kene, Lawrence Klein, Anne Kruger, David Laidler, James Tobin, and Harry Johnson. ⁹¹ The Reserve Bank of New Zealand’s deputy governor, Roderick Deane, who spent time in Canberra, got to know the Australian bank economist Austin Holmes, who had studied with Joan Robinson at the University of Cambridge and was a friend of free trader Harry Johnson of Chicago. Deane recalled Holmes’s advice for monetary policy: “First eliminate the fiscal deficit; secondly, float the exchange rate; and thirdly set the money supply on autopilot with an appropriately low annual growth rate. At that stage all central bankers should go home and keep out of trouble.”⁹² Several of the overseas economists who came to Canberra ultimately advised the New Zealand Treasury on central bank operations.

The government formed many task forces or working parties consisting of the capable and sometime antagonistic officials in key departments. Late in the government’s second term, David Caygill appointed a consultative committee on taxation that was made up of private-sector accountants and other specialists. Mixed working groups of public servants and onside local consultants – accountants, economists, and lawyers – set up the GST, established state-owned enterprises, sold plantation forests, restructured electricity, reorganised social welfare benefits, radically altered the machinery of government, and changed the mission of the Reserve Bank. The reformers’ guiding philosophy was well stated by Secretary of the Treasury Graham Scott, who explained that like it or not the world had changed and that “attempts to avoid facing the implications of worldwide change have an inevitable outcome in lower relative living standards over time.”⁹³ To join the new widening economic world, it was thought best to seek ideas from that world, looking outside in order to improve international financial credibility, secure practical help with restructuring, and fend off contrary positions maintained in a few areas of the public service. Interventionism retained supporters not only in the Trade and Industry Department and in the Energy Department, the two closest to planning and managing the regulated economy, but also in the Social Welfare Department, notable for accenting the government’s social responsibilities, and in the Works and Development Department, which was fearful of competition from private businesses. Reformers in Cabinet and the public service disparaged big-state holdouts as “the relic(s) of a bygone culture.”⁹⁴

Within the broad economic reform programme, rivals sought overseas advisers to push their agenda. Reform did not arrive in a paint-by-numbers kit but had attributes of a debating union. In October 1986, contemplating legislative changes to increase the autonomy of the Reserve Bank, a committee of the bank contacted Roderick Deane, now chairing the State Services Commission. This committee was fishing for information “regarding consultants being used by other organisations.”⁹⁵ Bank personnel hustled to get prominent advisers to shore up their vision of the future. With good cause, they were worried. The Treasury was toying with the idea of recommending that the Reserve Bank become a skeleton operation. An official preparing the policy paper was well ahead of the bank, having suggested in May 1986 that “we should also consider asking Murray Petric (Second Secretary, Economic, London) to discuss the proposal with Geoffrey Wood, Shelagh Heffernan, and Michael Beenstock at the City University Centre for Banking and International Finance. Ross Tanner (Counsellor, Economics, Washington) could be asked to discuss them with Sir Alan Walters and Professor Alan Meltzer (Carnegie-Mellon University).”⁹⁶

Consultants sometimes recommended other consultants. In 1988, an American utilities economist hired on contract by the Treasury offered three recommendations for sources of expert assistance with devising a light-handed regulatory regime for the Electricity Corporation of New Zealand: the UK accountancy firm Arthur Young for separating the grid from power generation, Oxford economics professor Dieter Helm for transmission ownership, and the Swedish power service, Swedpower, for hydro storage.⁹⁷ These searches for seasoned experts continued when the National Party returned to office in 1990. Reflecting in 1991 on Labour’s recourse to multiple consultants, Douglas thought that the Labour government had learned from “a different perspective and different issues being raised.”⁹⁸ He was not suggesting that ministers had been exposed to clashing ideologies but acknowledging that although the pool of consultants had never widened to include interventionists, there had been a multiplicity of potential actions within the free-market sphere. Differences, even vehement exchanges, arose over choosing exact courses of action.

In a multitude of areas, all in a great rush but leaving room for interdepartmental rivalries, Labour allowed quests for market specialists to extend across the English-speaking world. Most advisers were men – invariably so when it came to economics. Nudged by the minister of women’s affairs, Anne Hercus, the State Services Commission brought in Dr Sharon Lord from the United States – “the internationally respected management consultant” – to present seminars for the commission’s Equal Employment Opportunities Unit.⁹⁹ Local economists, perhaps especially those experienced with New Zealand state management, were ruled out. After Geoffrey Wood, one of the world’s leading scholars on banking, had appraised a report by New Zealand economist Frank Holmes, Wood asked, “Who is Sir Frank Holmes? He seems politically shrewd, but not much of an economist?”¹⁰⁰

Information occasionally went in the other direction. New Zealand public servants took updates with them to conferences, to secondments, and to overseas positions. Evidence of curiosity appeared when overseas experts tried to understand local terms and practices. When the Reserve Bank brought in Georg Rich, chief economist of the Swiss National Bank, as a guest in February1988, he and his hosts spent hours defining terms. “What it brought through, in this debate, was how different terms mean different things to different people and hence much time gets spent defining what the different parties mean by terms like ‘discretion.’”¹⁰¹ Other local terms confused experts. At an informal meeting in Washington, DC, in 1989, an imf official, aware of the policy shifts in labour relations and price stabilisation attending a Cabinet reshuffle, asked a New Zealand embassy secretary, “What does a Compact mean? An Accord agreement?”¹⁰² Reports and reciprocal visits advanced the cerebral integration of elite policy advisers among affluent countries. Outsiders and locals alike were discovering that from country to country socioeconomic practices, such as in labour relations, central banking, and social welfare, were the same but different. Professionals were learning and thus increasing their utility for future engagements elsewhere. New Zealand was not going to be their last stop. Further, their telephone numbers were bound to be in someone’s rolodex in Wellington. If the public service had been inward-looking, as reformers claimed, consultants contributed to opening it up on policy. For a shakeup of routine administration, zealous reformers at the Treasury favoured hiring department heads from outside the public service. They succeeded.

By the 1980s, it was unthinkable for a consultant not to have had international experience. Prior to Arthur Young’s bid on a contract to monitor the efficiency of SOEs, the firm’s New Zealand director of management services had completed a review of Western Samoa’s government departments “for the purposes of developing appropriate privatisation strategies.”¹⁰³ A few consultancies brought in team members from overseas. When Touche Ross investigated the impact of liberalising telecommunications networks, the firm drew on personnel from the United Kingdom, the United States, and Japan.¹⁰⁴ Four consultants employed by Wellington-based Business and Economic Research Limited had experience in Australia, Belize, Botswana, Burma, the Cook Islands, Fiji, France, Lesotho, Malaysia, China, Tanzania, Thailand, Tonga, the United Kingdom, the United States, and Western Samoa.¹⁰⁵ One of the company’s economists, Bryan Philpott, worked the other side of the street, aiding lobbies that sought a restoration of controls and subsidies.

On account of the diversity and complexity of trading operations embedded in government departments, officials conducting corporatisation and later privatisation retained financial, engineering, and labour relations consultants. To assist Establishment Boards in forming soes, the government funded the boards’ consultants as well as those of the Treasury, producing the peculiar situation of a government paying the costs of its adversaries so that they could fortify their negotiating position on asset valuations. Fees were confidential; however, sums occasionally trickled out in routine reports. The consulting industry was not on one New Zealand gravy train but two (table 2.1). First came the valuation exercises to corporatise, and then followed the steps to privatise. For its valuation of the telephone system, the Treasury hired Rothschild and Sons for $1 million, raising it to a minimum of $2.2 million when the process took longer than expected.¹⁰⁶ For a contract to monitor soes with the aim of discovering how best to maximise their value, Arthur Young bid $230 an hour per person, the brokerage firm O’Connor Grieve bid $3,000 per day (or $110,000) for each soe monitored, the independent investment bank Bain bid $2,000 per day and out-of-pocket expenses, the investment-advising firm Jarden Hancock bid $2,000 per person-day, and the investment bank Goldman Sachs bid $2,500 per person-day.¹⁰⁷

For an asset sale, the government generally appointed a merchant bank (or investment bank in American terminology) at the start of the process; it worked as a financial adviser and disciplined other advisers, namely accountants, lawyers, and advertising agencies.¹⁰⁸ When the government wanted to dispose of the Rural Banking and Finance Corporation, valued at $2.24 billion, the Treasury engaged Goldman Sachs and Jarden Morgan for $400,000. The official historian of the Treasury, Malcolm McKinnon, writes that the department contacted Credit Suisse First Boston “on at least four occasions to provide advice on issues which Treasury lacked the resources of expertise to assess.”¹⁰⁹ To sell Telecom, the Treasury contracted with Buttle Wilson and, once more, with Credit Suisse First Boston to manage the sale, for which a base fee of $1 million would be supplemented with commissions.¹¹⁰ At the sale’s conclusion in 1990, the parties disagreed over commissions. The government proposed roughly $20 million, whereas the advisers sought $35 million. The sums were based on a $4.25 billion sale.¹¹¹ Thus consultants’ fees in this instance ranged from 0.75 to 1.5 per cent of an asset’s estimated value. Enquiries by the Treasury about fees for the involvement of Goldman Sachs in the sale of the state-owned finance company Development Finance Corporation also suggested 1.5 per cent.¹¹² Due to sales and other special projects, Treasury officials planned on spending over $92 million on consultants for 1990–91 and almost $3 million on a dozen projects unrelated to asset sales. To get through a bottleneck of monitoring, forecasting, and accounting, the Treasury contracted out.¹¹³ The recourse to consultants irritated ministers and officials whose departments were being asked to do more with less. The minister of social welfare, Michael Cullen, complained in 1988 that “we seem prepared to spend almost limitless sums of money on ssc and Treasury officials to pontificate on matters social while squeezing the actual delivery of services to the people.”¹¹⁴

Several consulting and banking giants conducted similar restructuring work around the world. Price Waterhouse maintained a Privatisation Services Department dedicated to “making it happen.” In 1990, the firm was tracking developments in twenty-one countries and relied on a case study of the United Kingdom to steer other governments, getting them to think systematically about their privatisation objectives, the process, the priority candidates, the means of implementation, the valuation of the assets, and the post-privatisation regulatory regime.¹¹⁵ This regime became especially interesting in New Zealand, where industry-specific regulation was rejected. The development of the gst (table 2.2) and the revision of the Reserve Bank of New Zealand’s functions (table 2.3) involved consultants too, with the most eminent in academic circles being the economists contacted by the Treasury about changing the latter.

Although New Zealand was not initially in the forefront of economic reforms internationally, with many elsewhere having begun around 1980, swift action in multiple directions after the July 1984 election attracted overseas attention. In early 1986, imf consultants welcomed the extraordinary “shift away from the heavy interventionist approach” and reported that the integrated and ambitious new strategy “has attracted much attention and commendation internationally.”¹¹⁶ Gradually, National Party leadership, freeing itself from Muldoonism, accepted that New Zealand should take imf and oecd advice on monetary policy.¹¹⁷

Beyond the international agencies, serious advice typically came from eminent economists who were not the famous public intellectuals reviewed in survey history accounts of economic thought in the late twentieth century but were scholars with an active interest in finance and entrepreneurship and in the academic study of transaction costs, regulation, moral hazard, and more. When a Treasury official travelled to North America and England in May 1987 to canvass expert opinions on central banking, he found Milton Friedman more interested in discovering what New Zealand was doing than in offering advice. Reform concepts and raw information were flowing in many directions.¹¹⁸

Table 2.1 | Examples of consultants retained during corporatisation and privatisation, 1984–90

* soe model debated but not implemented.

Note: The notation “other” indicates that an operation’s viability was reviewed with the aid of consultants even though the soe model was not an option.

Source: Compiled from research notes.

Table 2.2 | External studies and consultations for the gst, soes, and the Commerce Act (1986), 1985–86

Source: Compiled from research notes.

The incorporation of consultants into the fabric of decision making became conventional. In mid-1986, the Treasury recommended that in the new spirit of decentralisation, departments “may choose consultants themselves” to assist them with locating and selling surplus assets.¹¹⁹ During scoping exercises between 1988 and 1990 to prepare state-owned enterprises for sale, it was routine to engage consultants to produce descriptions of the assets and the competitive environment. When Fourth Labour tacked local government onto its reform projects, specific 1989 legislation empowered local authorities to engage such consultants to assist them in carrying out their functions.¹²⁰ Thirteen appeared on a Ministry of Commerce list for a review of recently corporatised municipal ports that assessed their ability to wield undue market power.¹²¹ Confirmation that the trend to employ consultants was profoundly embedded in corporate and government cultures appeared in a backlash. Exasperated by the irresolute tomes of electricity analysis, the chair of the Electricity Corporation of New Zealand, Selwyn Cushing, submitted his own brief with the remark that “I don’t do it for the consultancy fees.”¹²² Consultants were not sticking around for the nitty-gritty implementation and the fallout. Public servants had to do that.¹²³ Roderick Deane, who chaired the State Services Commission, feels that consultants too often provided “rubbish,” but he recalls that the politicians were comforted by them.¹²⁴

Table 2.3 | Consultants and contacts: revising the Reserve Bank, 1986–89

Treasury consultants or contacts*

Comments

Geoffrey Wood, Centre for Banking and International Finance, City University Business School, London

Price stability is the proper goal for a central bank; bank free from politicians; limit issue of notes

David Laidler, University of Western Ontario

Price stability; bank free from politicians; manage monetary aggregate

Charles Goodhart, London School of Economics

Price stability but will always be subject to shocks; bank free from politicians but

hard to achieve

Kurt Schiltknecht, Swiss National Bank

Hard money advocate; use the monetary base

Georg Rich, Swiss National Bank

Price stability; set target

Anna Schwartz, National Bureau of Economic Research

Minimise central bank activities; control monetary base

Milton Friedman

Abolish central banks; government to freeze money supply

Frank Holmes, Victoria University

Price stability; central bank; government to manage liquidity

* In order of influence.

Source: Compiled from research notes.

Local corporate lawyers were the exception to the rule of favouring outsiders. The local specificities of case law and legislation required local talent, with outreaches when necessary to American firms. Government solicitors were too thin on the ground to handle legal requests for legal opinions and to vet contracts. Two local partnerships conducted the bulk of government business and a third attended to the private sector’s dealings with government.¹²⁵ During the sale of Telecom, these private firms, overwhelmed by government work and sorting out their conflicts of interest, had to decline contracts.¹²⁶

young turks at the new treasury

Outside of the Treasury, government departments in the reform years functioned as branch offices. Despite growing in importance, the Prime Minister’s Office was still small and lacked the depth of career public servants. The State Services Commission, positioned to stand outside of departments in order to review their employment practices, was more than a branch office but not as influential as the Treasury. Both the Treasury and SSC had duties to scrutinise the conduct of departments and policy proposals, the former assessing fiscal implications and the latter reviewing personnel and labour relations. During some reforms, when Treasury officials presumed primacy and encroached, SSC officials cursed. The SSC’s commissioner, Don Hunn, took exception to the Treasury widening its orbit but not taking personnel matters seriously enough. When Treasury officials rolled out their ideas on the industrial relations regime for SOEs, Hunn accepted that the SSC was constitutionally bound to assist in implementing the government’s policies, but it also had a duty to give advice on practicalities. “This may mean in some instances political, industrial relations, personnel or social considerations – to name but four categories – may over-ride economic or business ones.”¹²⁷ Legal obligations and economic priorities did not dovetail. Although senior public servants handled friction along the boundaries of jurisdictions professionally, junior personnel whose memos circulated at a lower level found amusement in calling Treasury officials Gorgons and other names best not committed to paper.¹²⁸

Table 2.4 | Consultants: Treasury Department units and affiliates, 1985–88

Consultant

Treasury efficiency review

Coopers & Lybrand

District offices of Treasury Department

Price Waterhouse; Hitchcock Corp.

Government Stores Board

jnl Searle; Price Waterhouse

Coinage Section

International Service Systems, New York

National Provident Fund

Southpac; Price Waterhouse

Reserves and debt management

David Wright Associates

Policy branches

Logica, Australia

Information-management systems

Glilmour Keenan & Co.

Stress management

T. Watkins and Associates

Communications skills for Policy Branch

Source: Compiled from research notes.

The Treasury’s assumption of a leading role in framing and vetting policies built on its established duty to review department expenditure proposals. With few exceptions, Fourth Labour tightened spending and looked for savings. Treasury officials were its cat’s paws. Officials in other departments complained that the Treasury did not understand their needs. Of course not. The Treasury’s function was to ensure that public money was not squandered. No other government agency had its breadth of responsibility, but it was someone else’s job to make the case for social, aesthetic, and environmental action. Under Fourth Labour, the inspection of spending estimates advanced into the future because abundant policy papers had fiscal implications and because Douglas had directed the Treasury to restructure the economy rather than simply containing programme expenditures. When a policy paper came up at a Cabinet committee, including the Cabinet Policy Committee, a Treasury analyst could be counted upon to ask, “How did this idea get in here?” A department with such a serious mandate and obsessiveness could rightly have posed as the consumer’s or taxpayer’s friend, but Treasury officials and Cabinet missed this opportunity, leaving impressions of both arrogance and a male, Pakeha (European-descended), middle-class ascendency.

Treasury officials leveraged their expenditure reviews into wide policy assessments, assisted by the fact that they wrote and spoke exceptionally well, several “having abilities way beyond other public or private sector individuals.”¹²⁹ They dismissed historically based special pleading, savaging past interventions and subsidies.¹³⁰ In a bureaucracy where intervention had until recently provided considerable employment and had inspired office cultures, the Treasury could never win friends, and that was how it should have been. In tune with their minister, senior officials were instrumental in getting things done. The Treasury was no longer another boring department, seldom mentioned in the press. Its views and activities, real and imagined, awakened public interest in finance and economics. Opportunities for public relations and public information were not taken up. A 1986 communications report recommended press briefings and media skills training, including “a strong component of simulated interview situations.”¹³¹ The Treasury refused, insisting on confidentiality to avoid swaying markets with loose lips. It kept its internal reviews to itself (table 2.4).

More than the Treasury’s budget cutting and aloofness upset other departments. Right from the first months of the Fourth Labour Government, the Treasury criticised policy papers that failed to show how measures proposed by other departments could improve national economic efficiency. In big-spending departments, the distasteful chores of finding reductions and shelving new initiatives were resented. Over and over, the Treasury’s casualties complained about not being understood. Cullen, the minister of social welfare, cleared his pipes with a blistering memo to Douglas that denounced as “grotesque” a claim that welfare expenditures were uncontrolled. Competent analysts “would have raised questions about the reasons for [a growth in expenditure].”¹³² Secretary of the Treasury Graham Scott stood fast, claiming that a rigorous scrutiny of the Social Welfare Department’s non-benefit expenditures could turn up savings in the allotted $481 million of operational funding.¹³³

The Treasury paid no attention to the merits of wished-for programmes. Reaching further into how government functioned than just conventional fiscal matters, the zeal to force efficiency was new, adding correctly to impressions that the Treasury had become more than a rigorously neutral advisor to government and had emerged as a “powerful entity with strongly held views on the correct economic policies.”¹³⁴ Scott wanted to make the Treasury into the best department of its kind in a small country, and he was keen about letting markets work. Occasionally, the recommendations for budget cuts and for furthering efficiency failed at Cabinet committees. The Treasury did not get exactly what it had recommended to ministers in industrial relations, utilities regulation, social welfare, health care reform, and a modified Reserve Bank. In each case, however, the Treasury contributed to easing intervention.

Until the mid-1970s, the Treasury had serviced a managed economy with clerks. When the Bretton Woods arrangements fell apart, the department began advising governments on licensing, tariffs, taxes, wages, and prices. There emerged what Malcolm McKinnon aptly identifies as “the new Treasury of the economists.”¹³⁵ Recognising the changing times, Treasury officials formed a unit, Internal Economics II, devoted to strategy. This unit’s members criticised the politicians’ ad hoc attempts to manage the economy with the aim of achieving full employment, and they favoured microeconomic reforms freeing financiers and producers. On the macroeconomic front, they advised on policies to combat inflation. Concurrently, their counterparts at the Reserve Bank wrote policy papers recommending the loosening of controls on financial institutions.

There were theories, epithets really, about the Treasury’s central importance to restructuring and about its firmness in advocating market solutions. Some believed that it was unduly influenced by “the work of a narrow range of overseas thinkers, notably of the Chicago school of monetarists.”¹³⁶ McKinnon suggests that during the reform period, officials wrote one-sided briefs to avoid handing ammunition to critics through explanations of dismissed alternatives.¹³⁷ The Treasury focused on problem solving, with attention to local circumstances and to the literature on freeing enterprise, and its officials prioritised workplace incentives and containing fiscal deficits, working hastily to the drumbeat of their intense minister. Douglas met with Treasury officials during the 1984 election. They listened to what he had in mind. When he became the minister of finance, he brought his list of reforms.¹³⁸ Straightaway, he required a report on industries that benefited from intervention. The Treasury dusted off studies from 1979 and 1983, and officials drafted a summary of recent overseas critiques of anti-trust laws. They highlighted the idea that agencies enforcing competition could become too comfortable with the parties that they regulated, noting that the cordial arrangements could bring on economic distortions no less harmful than the controls that Douglas wished to eradicate. In New Zealand, deliberations on light regulation had a history, and with Douglas’s urging, their momentum was renewed.

The notion that alien and untried theories ran rampant throughout the reforms brings to mind the sage advice that one ought to think of horses, not zebras, at the sound of hooves. The Treasury pressed for soes and independent boards because of the poor use of state revenues by trading departments, and it later advocated privatisation because of fiscal considerations such as reducing exposure to the foreign currency portion of the debt. True, time and again, the Treasury promoted contestability and market-based solutions, including deregulation, removal of subsidies, reduction of tariffs, revising labour relations, and transforming public finances, but these derivatives were not exclusively the purview of a narrow school of economics but could be found in the actions and the conversations occurring across the oecd. An added factor was the sheer earnestness and capability of Treasury policy analysts. As public affairs columnist and economics graduate Ian Templeton judged matters in 1989, “If others are to compete with Treasury, they’ll have to raise their game.”¹³⁹ Reforming ministers could joke about the earnestness of the typical Treasury official, caricatured by Lange as “a junior Bcom Hons [graduate] drafting Treasury Paper Number 4912 around 1900 Roger Kerr lectures.”¹⁴⁰ Kerr was the former director of a Treasury research unit.

A suspicion that regulatory parties could be captured by their clients extended to the ministers’ and officials’ antipathy toward local academic economists and consultants who held onto intervention and consulted on behalf of interest groups. Economists or policy analysts of this kind formed a Wellington consensus in opposition to state intervention. With their input sidelined, fresh ideas were breaking through. Treasury personnel wrote drafts of potential policies, reviewed papers from “branch offices,” distrusted interventionists, and contributed to the selection of consultants. But it was Douglas who established their “work programme.”¹⁴¹ He freed the Treasury to move beyond the routines of managing things as they were and as they had been since the 1940s.

the pleasures and perils of breaking routines

The leading ministers gained insights and confidence from consultants and senior officials in the public service. However, ministers were driving reform, an undertaking that required their tactical ingenuity. Lange sprang his quips. Cabinet included an exceptional number of astute individuals whose dedication to work was remarkable, setting a scorching pace during the creation of state-owned enterprises, the management of these SOEs, the sale of state assets, and the reform of labour relations in both the public service and the private sector. Contingencies such as shrewdness and energy cannot be discounted. Circumstances and character surfaced time after time. Leading ministers were sharp-witted, well briefed, and not immobilised by self-doubt. In searching for an apt description of their character, elements of Joseph Schumpeter’s entrepreneurial leader come to mind. At times, the parliamentary leadership expressed “the joy of creating, of getting things done, or simply of exercising one’s energy and ingenuity.” They sought out “difficulties, changes in order to change.”¹⁴² After the 1984 election, Douglas, Prebble, and Caygill “pledged to each other to stop being candidates for office” and fight “to save the ship New Zealand from sinking.”¹⁴³ Key ministers were unruffled because they reasoned that the country’s economy needed to be restructured in order to improve export competitiveness. Sometime in late 1987 or early 1988, when they could no longer disguise their conflicting judgments about how far or how fast to go, they lost the appearance of purposefulness that had worked so well.

During the remarkable first term, energy radiated from a young Cabinet. To do what they were doing at top speed, youth was an advantage. The prime minister, the deputy prime minister, and the ministers with financial and labour relations briefs were in their forties. When Lange selected Opposition spokespersons in 1983, an older, downgraded, and resentful Tizard scorned these assignments as “jobs for the boys.”¹⁴⁴ There was an additional source of energy, difficult to document. Leading ministers and senior public servants undertook hard work because they felt that they were part of something significant, something that might happen every half century. Prebble reminisces that the ministers were “trying to make quality decisions.”¹⁴⁵ Bassett recalls that “assisting with the bonding between us all was the seriousness of the crisis.” There was pride in “doing the right thing, as opposed to doing the politically easy thing.”¹⁴⁶ A senior public servant, recalling a variation on this idea, remarks that “if you were in favour of the government’s agenda, this was the time of your life.”¹⁴⁷ Another recalls having worked hard for the programme because she perceived that parts of the public and private sectors had become work-shy but demanding in self-interests.¹⁴⁸ Frustrated by Muldoon’s rejection of their advice in recent years, senior officials found working with Labour ministers more fulfilling, “even if more exhausting.”¹⁴⁹ In certain offices, this heady mood percolated through the ranks; participants bonded with colleagues as with family. The breakup in 1988 was like “parents going through a divorce.”¹⁵⁰

Multipart restructuring demanded attention from officials’ coordinating committees, task forces, and working groups. Some task forces mixed ministers and officials, some assigned work to officials as well as outside consultants. Generally speaking, senior public servants either threw themselves into this work or recognised the government’s resolve and went along. They had their reasons. When working on welfare benefits, for example, the leading public service participants knew that they had to run costing exercises and to cut deep, agreeing that “it would be better to consider rationally how best to save $X, rather than have Ministers take rather arbitrary decisions as to what should be cut.”¹⁵¹ Compliance, let alone agreement, with reform was uneven across the public service. Departmental values, derived from institutional lore and the nature of the work performed, stirred hostile reactions. Several departments, Works and Development for one, were homes to union activists. Facing the prospect of redundancy or transfer, state-sector employees in forestry plantation areas were uncooperative because of conflicting announcements about job security. When the import-licensing functions of Trade and Industry evaporated with the demise of import controls, many employees no longer had functions in a shrinking agency, and the department lost its purpose. Under Fourth Labour, many of the Social Welfare Department’s 2,500 employees had to tighten case management with the aim of reducing abuses, all the while dealing with the stresses of a greater case load due to rising unemployment.¹⁵²

In May 1986, when the government announced its principles for corporatisation, union officials vowed to resist. The chair of the Combined State Unions, Colin Hicks, listed disagreements but said that “we are also prepared to negotiate with the Government on agreed means of meeting our objectives if that is possible.” In April 1987, the Combined State Unions received a 7 per cent wage increase and agreed to interim concessions that enabled SOEs to function like private-sector firms in terms of wage fixing and benefits.¹⁵³ Resistance could be moderated for a price, which on this occasion was a steep one for the government because the increase aroused demands for wage increases in the private sector and added to inflationary expectations. Both indirect outcomes contradicted the government’s hard line on wage increases as part of its broad attack on inflation.

In sum, lots of public servants felt aggrieved. The majority, however, carried reforms forward with a duty to the elected government. In some departments, cooperation was helped by heads who worked closely with staff to find savings and to locate sources of revenue. Required to operate with reduced funding from the public accounts, the permanent head of the Ministry of Agriculture and Fisheries, Malcolm Cameron, impressed the chair of the State Services Commission, Roderick Deane. Cameron, he reported, “was unswervingly loyal to the government, even through some sharp [staff] questioning and took a very positive approach.” Cameron believed that his department could generate revenue and save jobs.¹⁵⁴ Some officials, rather than merely carrying out directives, embraced reforms.¹⁵⁵ The Treasury’s senior personnel led this parade.

The inherited human capital that assisted Fourth Labour certainly included senior public servants, individuals alert to the importance of details that ministers and Treasury officials might have overlooked. Once ministers had Cabinet committee approval for a policy, they took the policy paper to the Cabinet Policy Committee, where papers were scrutinised by officials in the two control departments: the Treasury and the State Services Commission. The Treasury had personnel assigned to superintend particular departments, where they were tasked with assessing the costs of the proposals. These so-called desks, roughly seventy analysts, informed the minister of finance about the departments and their policy proposals.¹⁵⁶ If the cpc called for a detailed study of a reform, the department closest to the area convened an officials’ coordinating committee consisting of representatives from affected departments. Some of these officials were unenthusiastic about reform.¹⁵⁷ In response to some officials’ conduct in 1986, Cabinet reminded the Labour Caucus and senior officials of their respective constitutional places. Officials could not take instructions from another minister or from the caucus.¹⁵⁸ Ministers, not officials, were to answer mps’ questions.

Reforms also required new skills and habits of mind in a public service charged with managing new practices. The implementation of a gst, for example, required a buildup and the training of personnel. During a farm crisis and rationalisation of rural production in 1987–88, the government recruited accountants and asset appraisers in order to convert the loose-money state-run Rural Banking and Finance Corporation into an orthodox bank that would inspect the viability of heavily indebted farms.¹⁵⁹ Two revolutionary bills, the State Sector Act (1988) and the Public Finance Act (1990), required senior officials to commit to planning.¹⁶⁰ Institutional change required training and new specialists.

In the caucus, a dogged few criticised ministers, but the ministers who had signed on for collective responsibility had no scope for dissent. Several did warn colleagues of the resistance ahead but restricted the distribution of their misgivings and never dreamt of leaking to reporters. From his experience as a trade union official, Minister of Labour Stan Rodger knew that disaffected interest groups, plus a few senior public servants, would contest change. In early 1985, he described with canny foresight the political hazards. He thought that “the shock to the body politic would have a further destabilising effect on the community and a major political effect in a range of centres in which the various departments affected are located but would be particularly pronounced in Wellington.” Benefits would come “only after the next election,” and that might be too late for the government.¹⁶¹ He stayed on, holding significant portfolios until that end. Douglas, Prebble, and Caygill had a pact to do whatever it took to make New Zealand competitive in the world economy and thus secure its standard of living. Rodger joined in. Ultimately, he experienced the political and personal costs that he had predicted. Foxy charm served him well, but his task, one that he sought, was to reform labour relations in both the public and the private sectors.

The core ministers, including Stan Rodger, were too immersed in the moment to see themselves as courageous or to regard what they were doing as something worthy of international attention. Such judgments came from outside observers. In its final statement after a site-visit review in April 1985, an IMF team praised the government for “a courageous and enlightened course” but then warned, exactly as Rodger had, that the policies “will certainly bring short-term costs. Benefits will only become apparent later, so patience as well as firmness will be needed.”¹⁶² The finance ministers and senior Treasury officials together embraced firmness as next to Godliness, agreeing that citizens’ inflationary expectations had to change, that labourers had to be open to flexible assignments, that domestic investors’ confidence had to rise, and that international investors had to see a different country. Treasury and Reserve Bank officials plus the ministers with economic briefs recognised that they were engaged in a battle of ideas since there lingered “a not uncommonly held view in New Zealand that direct controls are the most effective instruments of economic management.”¹⁶³

The ministers’ hard stance left open the question of when fiscal and monetary conditions could be relaxed. In 1988, IMF consultants did not believe that the time had yet come: “There may be a time … but that time is not now and will not arrive at least until inflation is firmly under control.” A decline in the exchange rate might be “helpful” but would not be achieved by intervention.¹⁶⁴ It would come naturally when fiscal circumstances improved and when inflation was down. The government had not set specific targets or goals to mark an end to fiscal and liquidity tightness. Firmness coexisted with vagueness, in part because there could be external shocks, making flexibility prudent, and in part because economic activity had become far more dynamic than in the 1970s. Estimations about when problems were licked had to be political as well as economic. The politics did not include backing off but required selling hard times in the medium term for long-term benefit.¹⁶⁵

For Mike Moore and Stan Rodger, ministers who had come up through party and union ranks, leadership entailed more personal risk than it did for individuals who had left professional careers. To some ministers, the political fallout from a determination to hold the line on inflation fighting and at the same time to pursue bold economic restructuring did not matter personally. Doing the right thing was the priority; Douglas and Prebble accepted that conflict was marrow in the bones of politics. Professionals had careers waiting. Prebble, who had once practised law with Lange, was the only new Labour MP elected in 1975. During the wilderness years of Labour Opposition, he had championed causes as a spokesperson for race relations, the interests of Pacific Islanders in New Zealand, freedom of information, and the anti-nuclear movement. A tenacious debater, he sometimes had crossed the line of parliamentary propriety to trade insults with Prime Minister Muldoon. When factionalism appeared at regional and national conferences from 1985 through 1987, Prebble was the government’s orator of choice. In the system of caucus voting for the composition of Cabinet, he had achieved high approval from the caucus, standing fifth, after the July 1984 election.¹⁶⁶

Douglas and Prebble never doubted the urgency of deep unremitting economic reforms across a broad front. Lange, however, was uncomfortable with economics and lacked the resolve to travel some difficult roads. Michael Bassett suspected that as leader, Lange would equivocate: “Oh dear, dodging the hard part again.”¹⁶⁷ Lange absolutely endorsed Douglas’s 1983 package, but he spoke without the self-assurance and dedication of a policy initiator. He deflected questions with clever word pictures. Radio and television transcripts, absent the timbre of his voice – described by political columnist and canny cartoonist Tom Scott as “rich, molten, and nourishing like a cup of hot beef tea”¹⁶⁸ – divulge awkwardness and evasiveness, not due to a lack of enthusiasm for the reforms at first but due to an unfamiliarity with their grounding. As Prebble recalls, he could make “the Wellington phone book sound like the Gettysburg Address, but it was still the Wellington phone book.”¹⁶⁹ From 1983 to 1987, Lange accepted restructuring instinctively as the right course for a new era in productivity, trade, and finance. He grasped supporting arguments not from reading, discussion, and reasoning but from his capacity to absorb briefings.¹⁷⁰ Acquisition of essentials supported his quips, but learning as he went along prevented him from venturing deeper, either as a committed champion or as an insightful critic of his zealous ministers.¹⁷¹ Scott wrote in 1982 that “the ability to grasp an argument quickly had encouraged him to do just that.”¹⁷² If Douglas and Prebble fitted Schumpeter’s description of leadership, Lange did not.

During 1983, when the team first took on the role of Opposition, members projected energy, confidence, coherence, and vision. Lange was simultaneously fuzzily endearing, supportive, and spot-on. “You see,” he said during a July television interview, “it is not a question of being a cargo cult, Father Christmas, lolly scramble government waiting for the three-yearly vote. It is a challenge to New Zealanders to be realistic about their future and not believe that politicians can wave wands anymore.”¹⁷³ A few months earlier, an imf official had warned Muldoon’s National government that “the three-year election cycle was producing an upward ratchet on expenditures” and that “if the community would continue to resist a decline in real incomes, then unemployment would inevitably increase.”¹⁷⁴ Over the next several years, Lange excoriated union leaders and condemned large wage increases. Similarly, he wanted government to get out of running businesses but did not lead on the policies. As prime minister, a chair of Cabinet, and sales agent for policies, he can be excused for some neglect of understanding. For several years, he enjoyed public adulation; he liked mixing with people and telling stories. Others had the goal-driven sense of government.

The diversity of problems, their technical difficulties, the challenge of meshing macroeconomic and microeconomic policies, the political impossibility of arranging reforms in an ideal sequence, and the goal of achieving much in three years strained every government department. At a meeting with the imf mission in 1985, Treasury official Graham Scott admitted that fiscal restraint and tax reform “would work better if we had more time.”¹⁷⁵ Senior officials were placed under pressure on account of time constraints, the accumulation of tasks, and stress among the personnel in their departments.

The Public Service Association’s officials bombarded the State Services Commission and its minister, Stan Rodger, with form letters from state employees demanding that when state-owned enterprises took over, they would retain the public service’s labour relations regime and benefits. In general, actual protests were moderate and soon faded. Following a series of job cuts, the chair of the ssc, Don Hunn, was astounded by the level of acceptance. He had braced himself “for blood in the streets.”¹⁷⁶ There were obstructions, non-compliance, and leaks to the media; however, exemplary honesty, duty to an elected government, and pools of expertise in economics, law, and the machinery of government were strengths that the government relied upon even as it restructured the very public service that it needed.

concluding observations: human capital under stress

Geoffrey Palmer believes that Fourth Labour worked with the finest public service in the country’s history.¹⁷⁷ During the thick of the reforms, Douglas told close advisers that “the State Sector was as good as anywhere in the world.”¹⁷⁸ One small measure of quality that supports these judgments is the literacy evident in scores of policy papers. For Douglas, the problem with the sector was its wage demands, not its quality. The State Sector Act (1988) incited protests because it created chief executives for each department, empowered them to manage budgets, and decentralised wage fixing. Demonstrations against this legislation were impressive but short-lived; absenteeism during the protest was not enduring.¹⁷⁹ Some industrial actions effected modest adjustments but could not block change. When Auckland businessman Alan Gibbs headed the Forestry Establishment Board, he wondered whether the old management could adapt but was told by an official that “those were the rules then, these are the rules now. I have no problem switching.”¹⁸⁰

For the most part, bonds of civility held, supplemented by redundancy payments, redeployments to other departments, and openings in the SOEs.¹⁸¹ Some individuals with “get-up and go” chose to leave the public service and take a position at an SOE because of opportunities and challenges.¹⁸² Not everyone was so inspired. Some did not land on their feet. Public-sector labourers working and living in resource towns were hard hit because alternative employment in their regions was scarce. To survive as an employment area, wrote a West Coast union official, “requires the support of the Government to foster the resources of the region.”¹⁸³ Residents were reluctant to move. By transferring the housing stock to occupants without any intention of providing employment, the government may have unintentionally established poverty-trap villages. Labour Department official Helen Sutch explained in 1988 that structural adjustment “has uncovered the low educational skills of many of the now unemployed – this has left them without the ability to move to new jobs.”¹⁸⁴ Labour mobility and skills were policy postscripts to the immediate tasks of preparing redundancy payments.

Character, a psychological dimension, has a place in the mix of preconditions for an active government. Some in the vanguard had a thick skin and a fallback in professional careers, factors that assisted their ability to drive innovations through the system without worrying about opposition from their own party or agonising about re-election. The leading reformers managed their stress most of the time.¹⁸⁵ After four years of working under self-imposed pressure over contentious terrain, the duopoly of Lange and Douglas admitted to suffering stress. Both had trouble sleeping, and Lange confessed that for him the disputes were the reason for that.¹⁸⁶ He reported that the stress “was killing him.”¹⁸⁷

3

Denouement: Beehive to Hornets’ Nest

overview: agendas and ruptures

The New Zealand experience holds a few lessons for how a government can implement restructuring. Above all, the politics of leadership, as distinct from the mechanics of government, is where to look for cautionary tales, and it would be a mistake to try to systematise character and circumstances. The country’s distinctiveness limits its use as a template for implementing reforms. It is lightly populated, borderless, free from federalism’s distractions, and absent the blight of institutionalised corruption. Under the Fourth Labour Government, Cabinet governed daringly through a unicameral parliamentary system supported by a first-rate public service steeped in neutrality, the sine qua non for effective governance. Cabinet applied these advantages, prompting National Party leader Jim Bolger to complain in 1988 that the country was ruled by “an elected dictatorship.” To bring attention to this concentration of power, he facetiously proposed restoring an upper house, a body that National had abolished in 1950.¹ In 1993, as prime minister, Bolger did not crank-start a way-back time machine but introduced multiple-member proportional representation, which complicated policy development by necessitating more coalition governments.² One consequence has been the revival of political largesse as major parties seek government partners.

Even without a constitutional modification that closed the door to deep and sustained policy shifts, the New Zealand revolution of 1984–90 and its reverberations into the new millennium were destined to be unusual. The convergence of advantageous Labour Party customs, constitutional conventions regarding Cabinet collective responsibility, and the political ascendency of young talented individuals and talented public servants was singular. Notwithstanding uniqueness, the triumphs and shortcomings of Labour’s first and second terms can inform restructuring and retrenchment debates in other jurisdictions. Fiscal practices, monetary measures, bank regulation, central bank functions, labour market regimes, utilities regulation, social welfare philosophy, superannuation practices, health care organisation, and local government configurations have remained lively issues throughout the oecd and beyond. Fourth Labour took them all on.

Lessons, or at least instructive parables, about leadership can be extracted from the true-life drama of clever politicians becoming exasperated with one another. A bitter falling-out is this chapter’s narrative centre. Much of it transpired in the executive wing of the New Zealand Parliament Buildings, popularly known as the Beehive due to its shape. The name accords with wry humour. Imagine ministers as busy bees. The building’s intimacy, adjacent grounds, nearby botanic gardens, and the proximity to cafes and pubs enabled ministers and public servants to bounce ideas around during noontime rambles, lunches out, and after-hours drinks. Such discussions also happened at dinner parties and horse races. These ways of socialising point to the government’s gendered social side and to the soft power of personality.

Male conviviality gave way to conflict and stress in late 1987. For the next twelve months, a remarkable amount was accomplished, especially considering that the Lange-Douglas partnership buckled beyond repair in early 1988, although troubles had begun two years earlier with disagreements over the direction of social welfare policy. In parliamentary government, the prime minister and the minister of finance must trust one another and, better still, understand one another. Even as the relationship disintegrated, Roger Douglas insisted in public that he and the prime minister were “pointing in the same direction.” He knew the importance of maintaining the fiction of their duopoly for the sake of stabilising the confidence of local business and international finance. When interviewed in 1988 during a leadership dispute, Douglas performed verbal alchemy to transform leaden conflict into golden unity. The fact was that David Lange objected to the process for asset sales and attempted to wrest its management from the Treasury. Implausibly, Douglas told reporters that “in fact he’s taking some direct responsibility for that. Now that’s a very strong commitment.”³ Reforms kept coming in the second term. Cabinet started another ambitious legislative programme, completed asset sales, set others in motion, pursued budget savings, restructured the public service, radically trimmed local government, investigated health care, and retained tight liquidity. It remained an ambitious reforming government, although an unhappy one.

As far as such things can be traced, a great falling-out between Lange and Douglas originated in February and March 1986 when the government was well along with reforms that were common throughout the oecd. A year later, the dispute heated up. In New Zealand, the oecd types of reforms were coming late, but Fourth Labour was catching up in haste. Lange supported every one of these measures, often snapping at traditional Labour supporters.⁴ He repeatedly blasted strike-eager trade unionists. In early 1986, Lange and Douglas each wondered what big vision the government should pursue in a second term. Douglas had a head start, building on ideas that had been circulating among Treasury analysts and a few other departments even before Fourth Labour was elected. Officials at the Labour Department wanted a better interaction of the benefits and taxation systems in order “to provide both an equitable distribution of income and a reduction in disincentives to work.”⁵ Treasury wanted to build fiscal prudence into the statutory fabric of all governments, including containment of social welfare benefits.

In December 1984, Douglas and Minister of Social Welfare Ann Hercus sponsored a social welfare and tax task force. Over 1,300 submissions were analysed by computer, assisting Douglas in identifying problems with the status quo. The task force’s report of February 1986 mentioned that the stigma of means testing could be removed by “a system of individual entitlement which would be compatible with that used by the tax system.”⁶ This idea and a reference to flattening the marginal tax rates in order to reduce tax avoidance stayed with Douglas. He confessed to Lange later that he could not stop thinking about ways to improve the country’s economic performance, including taking the national culture more decisively toward individuals and families accepting some responsibility for their circumstances. In his conversations about the future, individual responsibility and targeted benefits were to supplant Labour’s legacy of government responsibility and universal benefits. The tax system presented a way of targeting.

Douglas’s foray into social welfare stirred Lange to stake his claim. In March 1986, he drafted loose terms of reference for a Royal Commission on Social Policy. In his memoir, he concedes that they were too broad, adding that he intended for them to shield social welfare from the Treasury.⁷ This recollection is perhaps embellished, but his retrospective version nevertheless accords with the suspicions that he and his advisers had about Douglas in early 1986. Douglas and the Treasury were planning to fold a diverse collection of universal benefits into a rationalised system of attending to targeted needs. Many ministers disapproved of the royal commission’s wide-open mandate, but Douglas was bent on doing more than shaking his head in disbelief about its flaws. In April 1987, he began to shape a tax system scheme that provided rebates for income maintenance. Contrasting visions and questions of control were racing head-on toward a collision.

Lange and Douglas had words over Douglas’s novel linkage of the tax system and income maintenance. Douglas told Lange that “if you do decide against a forward-looking strategy, you need to tell me what you want in the [1987] Budget, because it becomes much more your Budget than mine. I am not complaining about that, but I can’t think that way – you have to help.”⁸ Lange later explained that in this April exchange with Douglas, he opposed income tax cuts and an increase in the Goods and Services Tax (GST) and told his finance minister of his abhorrence for “means-tested benefits or income subsidies.” However, he agreed with commercial asset sales.⁹

Douglas was undeterred by Lange’s censure of targeting. With Treasury research, he refined his ideas. From early October 1987, either he or his supporters began leaking contents to sympathetic journalists.¹⁰ There was no likelihood of reciprocal understanding between them after April 1987 because the differences in their approaches to income-maintenance policy brought out personality differences. Lange digested briefings well on short notice, left Cabinet papers to the last minute, and avoided economics.¹¹ Chairing rather than directing Cabinet, he was unused to refining his ideas, or working the corridors, or cajoling colleagues. Drawn to economics and political strategy, Douglas deliberated and lined up support. Most officials and ministers who worked closely with him never questioned his integrity and respected his “energy and ideas.”¹² But they did not embrace every idea.

Douglas’s fondness for invention frustrated Lange, who once told Richard Prebble that he had realised that Douglas was “never going to stop.”¹³ Cabinet colleagues marvelled at Douglas’s concentration and reading. When MPs flew home from the capital on weekends, he occasionally drove to be alone and reflect, and time spent in Air New Zealand lounges was never wasted. “There it is,” he told confidants in October 1986, “there on that piece of paper I wrote on the plane the other day. Next year’s Budget.” Knowing his chief’s penchant for kiting ideas, economic adviser Doug Andrew piped up: “I’ll take that. Might save New Zealand from many things.”¹⁴ A habitual note writer and doodler, Douglas was forever planning Labour strategy and reform.¹⁵ To the policy and personality differences in the great falling-out, we can add the weaponization of polling. The revolution in political campaigning spilled into party infighting.

In mid-1986, Mike Moore introduced an old friend, J.P. Heylen, director of Belgium’s Instituut voor Marketing-Diagnostiek, to Tony Timms, general secretary of the Labour Party. Intended for strategy sessions to deal with the National Party, polls intrigued Douglas, who summarised findings in memos circulated to colleagues and who intended to combat unanchored policy wish lists. During the falling-out, polls played a role for the first time in a leadership struggle. Heylen specialised in state-of-the art questionnaires to “delve beneath the consciousness and rational dimensions of people.”¹⁶ These findings armed Douglas when he warned colleagues in early 1988 that polls showed that Lange had become unpopular. Lange’s staff questioned their authenticity. Either way, the entrenchment of polling in political life changed how leaders were assessed.

Douglas’s big policy visions, interest in what people were thinking, and attention to the arts of persuasion marked him as more than a competent finance minister. He engaged his office and department staff to serve a revolutionary state of mind. Lange operated inside a thin shell with few friends and a thinly staffed office. Intent on shifting the government’s centre of policy gravity to social welfare, he was at a disadvantage due to reliance on rushed briefings and social isolation from ministers. Ill-prepared for a serious contest with Douglas, his chosen measure, namely the royal commission, was not the same thing as an incisive policy, and its findings lay in the future. Without a distinct counterposition, he could merely react and was unsure of Cabinet backing. His lead adviser on social policy, Helen Sutch, advised against convening a committee of officials and ministers to refine the terms of reference for the royal commission, believing that Lange would lose control of the exercise. The Treasury favoured adding terms that required commissioners not only to investigate how to get individuals to accept greater responsibility for themselves and those around them but also to assure that state assistance went to those in greatest need. In May and July 1986, some ministers and senior officials urged Lange to direct the royal commission toward precisely these objectives. Douglas chimed in that he wanted commissioners to consider ways to remove inadequate and inappropriate assistance by the state.¹⁷ He had considerable Cabinet support.¹⁸ Inclined to think of the terms of reference as a form of political manifesto, Sutch did not want to risk officials adjusting them in committee.¹⁹ Left unbounded, the royal commission, established on 30 October 1986, was charged with reviewing existing policies and practices so that a more just society could be achieved.

Following the election victory in August 1987, Douglas resumed work on “the package,” a term that suited his dismissal of undirected wish lists. A package contained things. In September 1987, he instructed Treasury officials to prepare, in coordination with other departments, a collection of complicated policy proposals, which he envisaged as coming together as an integrated whole. By addressing tax reform, social welfare rationalisation, health care management, local government streamlining, and asset sales, Douglas attempted to set the second term’s agenda.²⁰ He believed the package to be “so powerful it’s political dynamite.”²¹ It certainly was.

Business confidence was one of the package’s indirect objectives since Douglas intended to put tax revenue and social welfare on steady courses and to advance asset sales.²² He held that private investment best generated employment and income, which people drew upon for consumption or savings, whereas state-based employment diminished consumption and savings by requiring more taxation. Investors required confidence in the state’s predictable handling of fiscal and monetary affairs, labour laws, and regulations. The task of building confidence grew in significance due to the October 1987 crisis in the share market. Labour did not look infallibly clever after the share market’s collapse. Unemployment was grim. Douglas was fortunate that the Opposition was weak. After the 1987 election, National Party leader Jim Bolger travelled the rubber chicken circuit to insist that Labour “has been incompetent, bitterly divided, and lacking in a clear policy direction.”²³ However, his interventionist predilections did not sit well with free-market members in his caucus. During interviews, he projected indecision.²⁴ He polled poorly. Douglas believed that Labour could march unobstructed into and throughout the 1990s to the fanfare of his transformative package.

THE LADY OR THE PACKAGE?

After Labour launched its campaign for the 1987 election, political columnist Colin James remarked to Stan Rodger that it looked like things were going well. Rodger was not sure that Lange was still onside. In that case,” said James, “you’re in trouble.”²⁵ Ministers sensed a change. Michael Bassett was certain that Margaret Pope, his speechwriter and lover, was drawing Lange to the “wet” (spendthrift) side of Labour and away from his “dry” (fiscally tight) friends.²⁶ According to this interpretation, Lange had misgivings about the package, especially the social welfare features. But he broke decisively with Douglas over a simple question: whose government was it? His ministers reassured him that he was captain. Pope allegedly suggested that he had become “the show captain”²⁷ and that possibly he was no longer even that. The package’s scope would have determined the government’s course for the entire second term, and Lange was losing personal approval. A late-1986 survey of married women aged twenty-five and over concluded that “Lange has lost rather than gained in terms of communicating with these women. And perhaps surprisingly, Douglas is admired by many for taking a consistent stand, albeit an unpopular one.”²⁸ Those close to Lange, not only Pope but also advisers, may have encouraged him to stop Douglas from posing as the instrumental minister.

On the night of the 1987 election victory, Lange was “surprised” when Douglas showed up at his headquarters to await results.²⁹ Wearing a pale suit that made him stand out in the packed room, Douglas paraded symbolic unity to dispel uncertainties about the reform drive, uncertainties that could encourage special interests to step up their lobbying.³⁰ “Credibility,” he often said, “is hard to earn, but can easily be lost.”³¹ Confidence rested on composure. Never blink, he once advised.³² He made this conspicuous appearance as a silent announcement to impress upon the domestic business community and overseas financial markets not only that the Lange-Douglas government was alive but also that New Zealand would maintain its current fiscal and monetary policies. In a capitalist democracy, the pose was a responsible undertaking, although resented by Lange.

Douglas spoke often of “the Prime Minister and I.” False notes of unity and presumptions of leadership parity distressed Lange.³³ On that night, he wanted to end the pretence, plus what he regarded as Labour cosying up to business.³⁴ For months beforehand, he had been thinking of distancing himself from Douglas. During the election, therefore, he posed as the heir of the Labour idealists from the past.³⁵ One of the National Party’s quickest wits, Ruth Richardson, explained Lange’s plight as a Faustian deal with Douglas: “The trouble is Mr Lange still wants to keep his restored youth, but now he wants his soul back.”³⁶ Faustian deals had entrapped the entire Labour Party. In the minds of some, it was losing its soul. Objecting to the government’s first-term policies, several unions disaffiliated from Labour.³⁷ Behind the scenes, Labour’s embrace of slick campaigning put the party in such dire financial straits after the 1984 election that it sought contributions from businesses while paying dues to the Socialist International and financing the trips of MP delegates to the organisation’s meetings.³⁸ In mid-1986, the party’s fundraiser was instructed to approach the merchant banking house of Fay Richwhite for advice and possibly a restructuring loan of as much as $2 million.³⁹ The topsy-turvy of ideological deviation and breaks from the past created a wake of ironies.

After the 1987 election, Lange saw Douglas’s high standing with the business community and concluded that the 1983 plans for a centrist party of reform pulled Labour too far from its “home ground.”⁴⁰ At head office, traditional Labourites and pragmatists locked horns over Douglas’s appeal to business. Organisers accepted that the party needed corporate donors. In April 1988, head office wanted Douglas to provide a list of individual contacts from among the several dozen corporate donors who had helped to finance the 1987 campaign.⁴¹ Despite the risks of marginalising Douglas and losing his contacts, Lange parted company with him particularly on social welfare questions. Worried about unemployment, he favoured an economic stimulus. To Douglas and supporters, a tax-and-spend programme was premature. Lange was alarmed by hardships and letters of complaint addressed to him but was temperamentally averse to confrontations. In the midst of simmering tensions within the government, along came Douglas’s package, which infuriated Labour traditionalists and new-wave feminists because it made income tax rebates, not tax and spend, the core instruments of social policy and broadened the tax base by eliminating progressive steps in the tax schedule. The left disapproved of these innovations and could point to specific groups of beneficiaries who would be in the lurch if they were applied. Leaving aside the complexities of making the package work, it had appeal. Deputy Prime Minister Geoffrey Palmer thought that the “merging of the tax and benefits systems into a form of guaranteed income seems … to be the appropriate direction to head in.”⁴²

Lange demurred and allowed concurrent inquiries into social welfare. The Law Commission busied itself with refinements to a rehabilitation compensation bill, and a Social Welfare Department task force probed income maintenance. The royal commission studied the same subjects. Health care was coming under examination too, and many in the party wanted it absorbed by the royal commission to shield it from the Treasury’s number crunchers. Repelled by ad hoc open-ended policy making, as epitomised by the royal commission’s loose terms of reference, Douglas intended to cross the policy finish line first, carrying his package. He started early with his ambitious Government Economic Statement of 17 December 1987, an astonishing document that includes income-maintenance features, described below, and a commitment to asset sales, health care, and local government reform, plus an overhaul of state-sector superannuation. Relevant departments were directed to refine the pieces in time for the 1988 budget. Everything was to be put into operation by October 1989, setting daring departures on a breakneck schedule.

Douglas’s predilection for big and unprecedented policy moves inspired Ruth Richardson to label him “The Minister of Quantum Leaps.”⁴³ If he warmed to that designation, Lange did not. In early 1988, the prime minister told Douglas to back off on social welfare reform: “[The] public has had a gutsful; be softer.”⁴⁴ Properly explained, the social welfare parts of the package could have passed as a progressive initiative. To get it over the hump of opposition would have required a push against Labour Party gravity since Douglas’s scheme eliminated the progressive tax rates and a family benefit. Yet it had vote-getting possibilities. A single nominal tax rate or flat tax could have widened the real tax base to capture more revenue from the wealthy, who had ways of putting their taxable income at the lowest rate. A tax rebate would have put greater income distance between low-wage working families and welfare beneficiaries. The package’s Guaranteed Minimum Family Income (gmfi) provision was presumed to incentivise unemployed individuals to redouble their searches for employment. Lange was unconvinced. The package departed from conventional social welfare practices and truly needed supporting data to sheet it home. Incomplete in this respect and buffeted by tough questions on fairness, it sailed into an armada of social welfare recommendations coming from other directions.

Prior to the Christmas holiday in 1987–88, Lange suspected that the package’s income tax and rebate features would create more losers than winners and that, rather than generating more tax revenue, they could add to deficits. Douglas believed to the contrary that the package could slash the public debt by 50 per cent, cut the deficit by $1 billion, reduce income tax significantly for many, and increase targeted assistance for low-income groups.⁴⁵ Meticulous studies were required for credible forecasts of how many individuals would lose or gain, who exactly would lose or gain, and whether revenue would rise or shrink. An adverse fiscal outcome would have squeezed department budgets, not to mention undercutting new programmes, some potentially emerging from the royal commission’s recommendations. Lange may have wondered whether the package was an ingenious way for Douglas and the Treasury to contain social welfare expenditures by entrusting a large chunk of income maintenance to the computerised reckonings of tax rebates. By the end of 1987, the great falling-out had polarised members of the Labour Caucus and Beehive staff.

THE PACKAGE: TOO FAR TO DELIVER

Although the package was both spark and tinder, many more developments fuelled the rivalry. Bassett remarked that “governments are living organisms. From the day they take office they gradually change over time, shedding a few supporters … while gaining others.”⁴⁶ The organism changed partly because the environment had. Another government had been blamed for economic woes in 1984. Now Labour was blamed. Douglas admitted in May 1987 that “the average back-bencher lives very close to the pain involved in making economic adjustments … particularly in provincial areas … And would like to do something about it.”⁴⁷ The caucus was not the same as the class of 1984. Several members elected in 1987 had not experienced the disarray of 1981–82 and had not witnessed the caucus debates of 1983 leading to the 1984–87 reforms. The Labour Relations Act (1987) forced union consolidation, undercutting the influence and sinecures of union secretaries.⁴⁸ Several struck back, challenging reformers in their constituencies and at Labour Party conferences.⁴⁹ Criticism from the caucus and the party organisation unnerved Lange.⁵⁰ The disinflation tonics of fiscal restraint, tight liquidity, and high interest rates contributed to insolvencies.⁵¹ It was one thing to warn of hard times but another to wear them.

There was more. The dispute broadened to take in pop psychology and constitutional propriety. Prebble thought that Lange had become unhinged,⁵² and Lange thought the same of Douglas, remarking in his memoir that “it was an unaccustomed addition to the burdens of office to have the finance minister take leave of his senses.”⁵³ The disagreements spread to charges that Lange had broken constitutional precedents. In reaction to a flurry of policy proposals championed by Douglas, Lange acted presidential rather than prime ministerial, deciding which policies to reject and speaking out to dismiss or promote proposals in violation of Cabinet collective responsibility. Lange lacked Douglas’s tenacity and adherence to the forms of Cabinet government. He was in poor health and irritable.⁵⁴ His signature quips covered less and less effectively for deficient preparation than in the first term. Beyond discomfort, beyond any influence by Margaret Pope, beyond disavowal of an interest in economics, significant issues agitated him. He suspected that he might not be able to defeat them in Cabinet. Douglas came incomparably prepared thanks to Treasury papers and to briefings by his dedicated assistant Bevan Burgess. Lange relied on quick briefings and his snappy style. Therefore, to attack the package’s credibly on a technical basis, his advisers reached out for professional support.

To understand how a tax and rebate scheme impinged on social welfare, collectivism, and individualism, it is essential to understand the package. In late October and early November 1987, Douglas and the Treasury worked on a revised version of the April ideas, not completely disposing of uncertainties about fiscal balance and administrative details.⁵⁵ The full package was never put to a meeting of Cabinet because the background papers stacked a foot high. Cabinet considered a pared-down version drafted by Lange, Palmer, Prebble, Moore, Rodger, and Douglas. Cabinet approved this summary on 14 December, with the understanding that studies would have to be done to confirm fiscal credibility and to establish more precisely how tax rebates to low-income families through the gmfi would impact current welfare benefit studies and fiscal projections.⁵⁶

The government had recently established a modest gmfi to offset some of the impact of its Goods and Services Tax, discussed in chapter 5. Now the plan was to enhance and index the gmfi in order to offset the increase in the base income tax for low-income families. The position taken was that single individuals were not supporting others, whereas families had more challenges and were raising the next generation. Support would go to the non-earning or lower-income partner in two-adult households. Benefits currently going to individuals under eighteen would be terminated and funds redirected to the lower-income parent through the gmfi. A family-support benefit introduced in 1986 was to be replaced by a tax rebate, effectively ending a scheme run by personnel at the Social Welfare Department and targeting the equivalent amount as the rebate through the Inland Revenue Department’s computers.⁵⁷ In public service terms, it would shrink the department.

With final decisions deferred until 1 April, the statement planned for 17 December had to be toned down and details fudged.⁵⁸ The delay put preparations for a budget announcement on a tight timetable. Meanwhile, concerned that the package threatened to replace an existing family-support programme with the gmfi, Lange commissioned a task force to study the package and the flat tax. The whirlwind review concluded that the linked measures benefited low-income families with children, but it also found that a substantial number of families whose incomes went slightly above the gmfi eligibility cut-off point would lose out. There had to be a cut-off somewhere. Task force members did not think that this issue was “as serious as it would seem.”⁵⁹ A tightly targeted family-support top-up to supplement the gmfi would solve it. Any hint of targeting, however, was anathema to Labour’s left.⁶⁰ The task force also concluded that the number of families projected to suffer loses from the package was “hypothetical rather than plausible.”⁶¹

Lange highlighted the report’s negative statements and perceived the package as a furtive attack on all current social welfare expenditures. Others chimed in with similar concerns. Judge Ivor Richardson, who chaired the Royal Commission on Social Policy, complained to Lange that Douglas’s package would pre-empt social policy. The Labour Party Council feared the same.⁶² Likely, the package was intended in part to neutralise the commission. A year later, near the climax of a leadership feud, Douglas referred to “a flaky-left social policy” and “no means to pay for it.”⁶³ Back in late 1987, he had been receiving updates on the commission’s progress and supposed that the government was careening into an on-rush of social welfare studies that would not pay attention to costs.⁶⁴ Under pressure, the Social Welfare Department was also studying reforms and running task forces.⁶⁵ Meanwhile, the royal commission gathered submissions from agencies and civil-society groups. In Douglas’s estimation, the commission’s boundless worthy visions would ignore cost estimates and conflicts in groups’ aspirations and would merely energise the tax-and-spend lobbies. Social welfare in the form of income maintenance, as he knew, was also unpopular among farmers, who believed that they were carrying an inordinate share of restructuring sacrifices.

The flat tax irritated tax-and-spend lobbies as well as several departments, and its very flatness was a symbolic liability, yet data supported the position that the flat tax adhered to a progressive logic. Current income tax data, expressed as the percentage of tax paid by households relative to total income, showed a de facto flattened curve running below incremental steps in the marginal rates of a progressive tax code.⁶⁶ Legal tax avoidance produced a flattened reality, confirming that in themselves steeply rising schedules of marginal tax rates did not mean that higher-income individuals paid more in taxes. However, the real tax returns and what they meant for low-income earners were difficult to explain because they entailed acceptance of a counterintuitive argument that in its operation a progressive income tax was not functionally progressive. Further, a flat tax remedy was easily misrepresented. Erroneous comparisons were made with the dubious, later discredited, Laffer Curve, economist Arthur Laffer’s graphic illustration to support his premise that the more heavily an activity was taxed, the lower the revenue generated. Since the Douglas flat tax had a different basis, it was no Laffer matter.⁶⁷ Moreover, the full package, a far-reaching document, proposed steps to reduce tax avoidance and to reduce exemptions. Corporate taxes were to be reduced to encourage investment in New Zealand, but the package proposed a tightening of tax treatment for dividends.⁶⁸ Corporations might be spared but not the shareholders.

The package outlined an upheaval. Although background papers swarmed with numbers that critics disputed with their data, the crux was emphatically cultural, not numerical. The many parts were intended as a unified thrust to create business confidence and to reward individual effort. Douglas thought that there was an inadequate margin between the incomes of people wholly dependent on income support benefits and those working full-time; some people in full-time work received less income than a few beneficiaries, and allegedly that kept them on benefits. His summary for Cabinet was that “the focus of this package is therefore to make major changes in the climate determining the creation and demand for jobs. The income margins for people who work and the effective reductions in marginal tax rates are the centrepiece of the package. They are aimed at sustaining the present position of people who do not have jobs but at the same time will give them much better incentives to go and look for jobs.”⁶⁹

Arguing that his objective as a Labour politician was to aid low-income workers, not to subsidise the middle class or to fund benefits that sustained a poverty trap, Douglas went on to point out that a progressive income tax, combined with the fiscal drag of inflation, meant that low-income earners currently found themselves lifted upward into a higher tax bracket, where they felt the bite of marginal tax rates and experienced relatively greater harm to their standard of living than was the case with the wealthy. The purpose of a flat tax, set at a higher rate (23 per cent) than the current lowest band in a progressive scale (17 per cent), was to capture more revenue from the affluent by making it impossible for them to avoid taxes through strategies such as engineering a step down to a lower bracket since there would be none. This idea was not new, but those governments in the oecd countries that had considered the flat tax had backed away because of the perception that it would have a regressive distributional impact.

The tax’s fiscal effects also required careful study. Secretary of the Treasury Graham Scott worried about fiscal consequences.⁷⁰ Supportive of economic reforms, he nevertheless was a fuss-budget. Governments had to be made aware of fiscal trade-offs. Treasury officials believed that putting hard numbers to both the gmfi tax rebates and tax revenues was impracticable because of multiple assumptions behind each variable comprising the estimates. ⁷¹ The package handled uncertainty by proposing that a fiscal miscalculation and resultant deficit blowout would be avoided by its compensation for reductions in health, housing, and benefits. This proposal upset the party council and meddled with Lange’s conception of social supports and income maintenance. It crossed the grey line from fiscal to social; it encroached on his turf. That made a showdown inevitable.

Douglas revelled in “exploring ways” to do things, opening with a provocative questioning of current practices.⁷² Resisting him required taking a stand backed by facts or finding an alternative. Without curiosity about economics or the will to extend his learning beyond briefings, Lange could not immediately drill into Douglas’s schemes and pry them apart on his own, although he presumed with some cause that the December package would be unpopular, at least with the left. Occasionally, Prebble found that he could deflect Douglas’s impulse to fix by replying “that’s interesting. I’ll look into it.”⁷³ That may have worked at the margins, but the package was not something to be diluted or divided. The parts dovetailed. Douglas thought that it was the bees’ knees.

If the flat tax was defensible, the gmfi raised technical difficulties, challenged fairness, and infuriated feminists. A great deal of work was required to define eligibility, calculate abatements, and determine when and how low-income individuals would receive their income top-up. Having worked through other big challenges with Douglas, Treasury officials believed that they could pull it off with help from the Inland Revenue and Social Welfare Departments. The timing would be tight, and apart from the Treasury, the departments were resistant.⁷⁴ One advantage of the gmfi, according to the Social Welfare Department, was that “assistance provided by way of tax rebates or concessions is generally better perceived by the public than programmes requiring application at a department.”⁷⁵ Moreover, as never before, public support for income maintenance was deeply divided (chapter 10).

What sent the package into cold storage were critical assessments of fairness. To assist Lange in countering Douglas, his adviser on economics, Alf Kirk, checked and critiqued available data to identify groups that would lose money under the flat tax compared to their existing benefit payment. The director of the Prime Minister’s Office, John Henderson, an admirer of First Labour’s launch of a welfare state, commissioned Susan St John of the University of Auckland’s Economics Department to evaluate the gmfi.⁷⁶ She found it to be an administratively complex arrangement that replaced the simplicity of a well-understood tax schedule, although she conceded cheerfully that the flat tax would reduce tax avoidance and put a lot of tax advisers out of work. She questioned assumptions and possible outcomes.

In St John’s opinion, the gmfi might not offer enough incentive to entice some unemployment beneficiaries to seek employment when employment opportunities were scarce, as they now were. Besides, overseas studies on incentives to end poverty traps appeared to show that young single adults, not low-income working families, were the most susceptible to tax incentives to leave welfare benefits. An important problem, as she saw it, was that eligibility for the gmfi derived from being employed full-time and having children. Several groups would miss out, including women anxious to work part-time, single-parent benefit recipients, and the sick and disabled, who were, she alleged, “genuinely desperate for work.” This urge to work was a disputed point, with evidence on both sides. Finally, since the gmfi was intended to replace a recently established universal family benefit, it was condemned for removing one support that went to all women with children. Douglas was dedicated to targeting those most in need, and a universal benefit did not do that, hence its proposed elimination. On receiving St John’s ammunition, Lange declared that government decisions on income maintenance would be delayed so that full consideration could be given to the work of the Royal Commission on Social Policy.⁷⁷ Carefully chosen words masked a high-stakes dispute over who controlled social welfare philosophy.

the beehive’s stings of embitterment

In early 1988, officials working with ministers witnessed a profound change in mood at weekly briefings. All bonhomie and the glory of working with smart and engaged ministers had vanished.⁷⁸ When disputing the fiscal costs of the package in early January 1988, Douglas and Lange began communicating through intemperate letters. On 28 January, with Douglas on his way to the World Economic Forum at Davos, Lange met with the caucus. Without discussing Douglas’s package, he left the meeting and proceeded to a press conference, announcing that there would be no flat tax.⁷⁹ The timing kept Douglas out of the picture. Lange took full responsibility, remarking later, “I have had more cause than Roger to regret that he was not duly informed of my press conference of 28 January.”⁸⁰ When he violated Cabinet collective responsibility by not waiting for the officials’ studies and a Cabinet decision, he knew that he had transgressed a convention of Cabinet government.⁸¹

Douglas flew back in haste and met with Lange privately on the evening of 31 January. There was enough past collegiality for a face-to-face encounter. “It was all very friendly,” Douglas recalled, “but it didn’t get us anywhere at all.” The next day, a row in Cabinet exposed mutual distrust.⁸² “Cabinet cohesion,” Lange would admit, “was gone for good.”⁸³ To reassure business, the two stitched together a compromise for a joint press conference on 1 February, the first of two truces in 1988.

The two affirmed that the government would proceed with elements of the 17 December statement. Details would be modified by committees.⁸⁴ A reworked package established a simplified two-tier tax system that reduced taxes for high-income earners and companies.⁸⁵ Lange knew the essence of the criticisms of the gmfi being prepared by Susan St John; she conveyed her preliminary results to John Henderson by phone on 24 January and promised the written report by 2 February.⁸⁶ Under this criticism, Douglas withdrew the gmfi and shifted his interest in containing social welfare’s part in income maintenance to budget reviews and to a Social Welfare Department task force that was devising reforms to rationalise income maintenance through a generic benefit adjusted by assessments of need (chapter 10). The flat tax idea was replaced by a simplified two-rate structure of 24 per cent and 33 per cent.⁸⁷ A disappointed Douglas wrote in a note to file that “if they want another Minister who will take it step, by step, okay. Not my style, and I don’t believe I could do it well.”⁸⁸ Summer recess intervened. Lange, his youth restored, as Ruth Richardson later quipped, slipped away to enjoy a newfound diversion driving in motor sports.⁸⁹ He was at the wheel, albeit not as a ship’s captain but as a sportsman enjoying a respite from government, and he was gaining favourable publicity as an everyman with a cool hobby.⁹⁰ It was relaxing, he wrote to those who worried about his safety, and “it helps to relive the pressures which accumulate due to my position as Prime Minister.”⁹¹

Debates over the precise impact of the gmfi and its fate overlapped with mopping up problems from the first-term reforms. These matters aggravated tensions, although the direction of social welfare was the original and transcendent source of conflict. The fact that Douglas was well connected with the business community added to the strain. Undoubtedly, Douglas’s relationships improved business confidence, a proper objective for a minister of finance. From February through December 1988, Lange and Douglas got on with routines while clashing over fiscal matters that by their nature touched most departments. The caucus largely backed Lange.⁹² The flat tax debate faded as a source of trouble. Other provocative issues arrived: asset sales, public service restructuring, a higher deficit projection, and a related dispute about whether to meet the deficit by raising taxes or by cutting spending.⁹³ Even in happier times, the topics of 1988 would have tested consensus. Illness and adjustments in his personal life distracted Lange, although he still proceeded against Douglas, who appeared in his opinion to be coming down on social policy through the budget and Treasury voices on the Social Welfare Department task force.⁹⁴ He was constrained by Cabinet conventions and had no suspensory veto. But if Douglas was going to impinge on social policy, Lange was going to retaliate and comment on Douglas’s economic agenda. He resorted to press statements and speculative remarks meant to irk and challenge Douglas, including an off-the-cuff comment in Parliament that a capital gains tax was “entirely predictable.”⁹⁵ Douglas had long opposed it.

In April, a report on health care stirred debate, less for its recommendations and more for scathing claims of inefficiency appearing in a study prepared by Arthur Andersen and Company. The more radical schemes under discussion, although not the leading recommendations, were challenged by local hospital boards, nurses, and doctors but defended by Douglas.⁹⁶ Minister of Health David Caygill distanced himself from them, adding to press speculation about a government coming unglued.⁹⁷ Next, in May, the 4,004 pages of the report prepared by the Royal Commission on Social Policy landed with a thud. Commissioners had received 6,000 submissions. Although Lange used the commission’s deliberations as a reason to set Douglas’s package aside, upon seeing the report, he dismissed it as “hardly coherent and its length would make it an instant laughing stock.”⁹⁸ The commission complicated the government’s immediate relationship with nurses, doctors, teachers, social workers, the party executive, and union secretaries. It also complicated the work of the Social Welfare Department task force looking at income maintenance.⁹⁹ On the one hand, department officials worried about the costs of a recommendation that the individual, not the family, should be the unit for income maintenance.¹⁰⁰ On the other hand, officials noted with satisfaction that the commission had recognised that a large part of income maintenance “must be targeted if it is to be effective but still fiscally sustainable.”¹⁰¹

Outside of Cabinet, the royal commission’s report raised expectations of those Labour supporters and trade union officials who insisted on a spending stimulus. It is understandable that serious unemployment bothered Lange; hardships bothered him, as they had when he was a South Auckland lawyer. Douglas, too, was concerned about the disadvantaged, although he stressed targeting “the hardest hit.” “Having delegated out the formation of policy options” to the commission, it was the duty of the government to “ensure that we devote scarce funds to areas of highest priority.” Social welfare, in his estimation, required disciplined thinking on costing, the relative roles of the state and parents, and universal versus targeted welfare benefits.¹⁰²

An exasperated Lange precipitated a dispute in June 1988 that could have damaged Douglas if enough ministers had gone along. Lange wanted Cabinet’s support on a proposed tax increase, a measure that would have spared many ministers the discomfort of cutting pre-budget estimates. Due to an unexpected rise in the Treasury’s deficit forecast, Lange had told Douglas that “he wanted him to consider tax increases rather than spending cuts.”¹⁰³ Although ministers naturally balked at pre-budget reductions to their estimates, Douglas opposed raising taxes, arguing that during an economic slump, the public sector’s demands on private savings should be limited. In his memoir, Lange admits that he did not trust Douglas and believed that the updated dismal forecast from the Treasury was a contrivance for taking “the axe to social services.”¹⁰⁴ Other ministers, however, were less suspicious. Palmer was one. As a loyal deputy prime minister, he stood by Lange throughout the year of struggles, yet he recalls that “Douglas was a fairly open guy to deal with. And he wasn’t any problem, I thought. I mean not all his ideas were good, but quite a lot of them were and you had to talk them through.”¹⁰⁵ He did not doubt Douglas’s integrity.

Lange nearly had Douglas pinned on the tax or budget cut question. Michael Cullen, Helen Clark, Russell Marshall, and Margaret Shields, respectively the ministers of social welfare, housing, foreign affairs, and women’s affairs, met to plan support for the prime minister. The minister of defence, Bob Tizard, Douglas’s long-time adversary, “hoped to settle some old scores.”¹⁰⁶ Cullen, a fierce combatant, was furious when Douglas, backed by arguments from the Treasury, reduced the sums that the Social Welfare Department could retain as a reward for earlier major budget cuts. Cullen stressed that due to rising unemployment, the department was a special case.¹⁰⁷ There was a decisive argument in favour of searching for expenditure reductions, namely that a failure to trim would have shown an unwillingness of ministers to share sacrifices that others had made for fiscal discipline and for economy-wide improvements in productivity.¹⁰⁸ Ministers knew full well that farmers had taken a hit during first-term restructuring. Exporting manufacturers and import-substitution manufactures were experiencing the withdrawal of subsidies, concessions, and protection. For the sake of retaining the wider support base that the leadership had courted since early 1983, most ministers grudgingly accepted that they had to set an example of thrift.¹⁰⁹ The Treasury spent several months reviewing expenditures, using the reviews to test the recent State Sector Act (1988), which had replaced permanent department heads with contractually employed chief executives.¹¹⁰ Departments had to relate their expenditure estimates to presumed outputs, an expression of control that was soon forthcoming in a public finance bill sponsored by the Treasury (chapter 13).¹¹¹ Douglas won this round, and the Treasury had an opportunity to test its pending innovation in public finances. Meanwhile, outside of the Beehive, columnists speculated that Lange was trying to ease Douglas out of the Finance Department. The party organisation was a casualty of intimations that Douglas was on the way out, with the head office fundraiser reporting “a falloff in Business House contributions.”¹¹²

Lange and Douglas knew by late August 1988 that one or the other had to go, essentially because of the wrangling over who controlled social welfare. From 29 August to 6 September, Lange finagled to get Douglas’s resignation or acceptance of a new portfolio as a toothless minister of economic affairs.¹¹³ During this exact period, a few resolutions that attempted to restrain the Douglas reformers were passed in Dunedin at the Labour Party’s conference of 2–5 September 1988. Although the left rallied by singing a socialist anthem, “The Red Flag,” the effort to move the conference against the government misfired because Lange was not in the left’s camp and did not condone its attacks on his government, despite the festering conflict with Douglas. Lange defended the first-term reforms against resolutions that “are saying that this Party would rather be a martyr to some sacred ideology than a Party which forms a government.” The “warm fuzzies of ideological self-indulgence” were not his cup of tea, but neither were some package contents that Douglas kept promoting.¹¹⁴

Prebble led Cabinet resistance to the September attempt to remove Douglas from the Finance Department, and many ministers advised Lange that his scheme was unacceptable. Pro-Douglas backbenchers warned of a coup against Lange if he persisted. Little wonder that at the party conference in Dunedin, Lange departed from his script to say that “there were times when he felt very much alone.”¹¹⁵ He received party support by promising that his government would henceforth consult more assiduously with the party organisation, an undertaking that, if realised, would have complicated Cabinet government and electoral prospects. The promise advanced Lange’s short-term advantages but promised a quagmire. Should or even could fiscal or monetary policy be negotiated with party functionaries? What about asset sales?

When the best possible replacement for Douglas, David Caygill, refused to accept the position of finance minister, Lange’s move collapsed. Drafts of an extensive Cabinet shuffle lay fallow on his desk.¹¹⁶ Instead, he made minor adjustments and, more boldly, assigned Moore to look into the feasibility of a tripartite compact of government, unions, and employers, contrary to the government’s prior determination not to come charging into the labour market.¹¹⁷ Moore had championed the idea of a compact or accord with unions in the early days of Lange’s leadership. Stan Rodger doubted the feasibility of any such arrangement, for it required cooperation from the fragmented craft unions, including their union secretaries, whom many thought were eager to strike.¹¹⁸

By now, the structural reforms exposed considerable inefficiencies in the public and private sectors, leading to the sudden elimination of thousands of jobs, upsetting lives, and leaving material relics: derelict railway and forestry houses, shuttered post offices, and the abandoned shops of dying townships. Farewell parties were common. For all that, Lange nevertheless accepted something that was “quite different from the Australian Compact with its focus on managed wage increases.” He instructed Moore to steer clear of the current round of wage discussions and to dwell on how state, labour, and employers could build up the industries where New Zealand had “real comparative advantage.”¹¹⁹ Some ministers regarded Moore’s agreement to head up this toothless exercise as evidence of his flightiness and self-promotion and as proof of Lange’s bewilderment. Not suspecting that their idea of a compact was far from Lange’s idea and desperate to recover the old the days when Labour governments listened to them, trade union leaders endorsed a tripartite council. “The new breed of university educated unionists,” however, thought that such a council was redundant since unions increasingly negotiated directly with employers.¹²⁰ Presented as a Productivity Council with diverse aims, the idea died when the necessary legislation, the Productivity Council Bill (1989), was abandoned.¹²¹ The feud had produced a final, half-hearted attempt at tripartite economic management.

In the wake of the prickly 1988 Labour Party conference, Palmer, the established conciliator for in-party squabbles, drafted an agreement that set aside the flat tax, put social policy development under the auspices of the Social Equity Committee, and noted that Lange would review Cabinet portfolios in December.¹²² Lange’s advisers suspected Douglas of trying to revive parts of the package.¹²³ The conference and Palmer’s conciliation overlapped with the government’s launch of asset sales, a process that had begun in May 1988 when the Treasury approached consultants to monitor the state-owned enterprises (soEs) in order to better prepare them for the best valuations in the event that the government decided to sell them.¹²⁴ Lange approved of privatisation, as did most caucus members. However, in the wake of his failed attempt to replace Douglas, he kept the feud alive with an intervention into the mode of asset sales.¹²⁵ To reduce Prebble’s standing as the minister of state-owned enterprises, he appointed Bill Jeffries as an associate minister, giving him responsibility for overseeing the sale of the New Zealand Shipping Company and the first big asset sale, Air New Zealand.¹²⁶

Sparring persisted. In late October 1988, the Cabinet agenda included two competing papers on how assets should be selected for sale and on how sales should be conducted, one prepared by a unit from the Treasury and the State-Owned Enterprises Department and another by the prime minister’s advisers. Co-signed by Lange and Palmer, the latter paper implied that the sales process had been mismanaged during the first round of bids for equity in Air New Zealand, an affair covered in chapter 8. The co-signatories of this paper compounded impressions of maladministration when they recommended that the Treasury be barred from managing future sales. The paper was seen by Douglas’s allies as symptomatic of Lange’s personal obsession with him.¹²⁷ The paper further proposed that “the decision to maximise price in order to repay debt rules out other objectives which might be politically more attractive.” By selling to the highest bidder, for example, control could go to foreign interests.¹²⁸ Henceforth, nationalism and state ownership were set against a drive to maximise returns.

Lange had found a way of striking at Douglas through his shield, Prebble; he knew that Prebble would disparage this paper and defend Douglas.¹²⁹ As minister of state-owned enterprises, Prebble had worked on the initial policy for sales and opposed any politicisation of the process as well as restrictions on buyers since limits and conditions could reduce the pool of bidders and drive down bids.¹³⁰ On the basis of their disagreement on SOE policy, Lange removed Prebble from the SOE portfolio on 4 November 1988 but could not remove him from Cabinet. Lange did not shine in the affair. At a press conference to explain the demotion, he slipped into what a critic on an earlier occasion called “prime-ministerial burblings.”¹³¹ Prebble remained in Cabinet for a few more hours, until in a television interview a day after his removal from the SOE portfolio, he mentioned that stress and lack of sleep troubled the prime minister. In a second interview, calculated to get him ejected from Cabinet, Prebble said that Lange’s conduct was not only as dictatorial as Muldoon’s measures had been but also irrational.¹³² Rather than issuing a statement that the prime minister’s asset sales paper was supported by neither Cabinet nor government advisers, Prebble made a personal remark. Taking the comments as an insult and a betrayal of a private conversation about his anxieties, the prime minister ejected Prebble from Cabinet on 5 November.¹³³

Prebble was convinced that after Lange’s September failure to pry Douglas loose from the Finance Department, the prime minister would continue a vendetta and destroy the government. Once fired, Prebble was no longer bound by Cabinet confidentiality. As a backbencher, he could speak to members of caucus about Lange’s mental state as he saw it.¹³⁴ Personalities were not simply clashing in a domestic spat but were also feuding before audiences with influence over transactions in the global monetary system. On news of Prebble’s removal, the dollar weakened, a record $1 billion in currency futures were traded, and interest rates on government bonds rose. As a currency dealer remarked, “This is just confirmation of the very deep split within the Cabinet. It doesn’t engender a lot of confidence.”¹³⁵

THE DOUGLAS RESPONSE

Lange’s support among the ministers was so thin that in November 1988, as a December showdown neared, his advisors recommended that he “say nothing that will enflame the Cabinet.”¹³⁶ Douglas worked on this fragility. After Lange ejected Prebble from Cabinet, Douglas reminded Cabinet that several of Lange’s interventions had pre-empted the discussion and resolution of matters before Cabinet. Douglas had three questions about government process: “Who defines strategy – Cabinet or the Prime Minister? Once it is defined, how do we ensure that it sticks? What means are acceptable for changing agreed strategy?” Douglas highlighted the constitutional and policy-making side of the showdown. In a wily appeal to colleagues, he combined nostalgia with constitutional principles, remarking that he wanted Lange in place “as the brilliant leader of a sound, strong, consistent government.”¹³⁷ The statement granted Lange credit for his roles in the first term, but that prime minister was no longer present. For Douglas, the year-long rupture was a tragedy for his policies, the government, and the economic health of the country. Governing with a Cabinet fast losing confidence in him, Lange felt drained and was a physical wreck. National could not effectively exploit Fourth Labour’s self-destruction because of its own sharp leadership disagreements between interventionists and market advocates.

In a symbolic end to the 1983–87 alliance of talents, Prebble hosted a party when vacating his ministerial residence. His November “state tenant’s eviction bash,” held Kiwi-style with a barbeque, sandflies, and rain, drew a crowd of individuals intrinsic to New Zealand’s comprehensive restructuring: members of Labour’s Backbone Club, Secretary of the Treasury Graham Scott, and Ron Trotter, the corporate leader and founder of the New Zealand Business Roundtable, who had steered the Economic Summit of 1984 and afterward had advised the government on SOEs. The “fish and chips brigade” of 1980 was dissolved at “a moving occasion” over sausages and beer.¹³⁸ Tension in the Beehive escalated. Staff in the Prime Minister’s Office told pollsters not to give Douglas a preview of the poll results that followed Prebble’s removal. The individual distributing them to Cabinet exclaimed, “The games that Big Boys play!”¹³⁹ The polls showed that since the August 1987 election, Lange’s poll numbers had been dropping faster than the government’s.¹⁴⁰

Columnists scooped crumbs from the Cabinet table dropped at chatty luncheons. At a gathering of agricultural exporters in early December 1988, for example, Lange averred that without Douglas as minister of finance, he would depress interest rates and engage in a fiscal stimulus.¹⁴¹ The climax of the row, the review of the finance portfolio promised in the accord of 7 September, was coming soon. On 14 December 1988, ahead of this critical meeting of the caucus, Douglas circulated a summary of the government’s dismal showing in polls, Lange’s even worse numbers, and a personal appraisal of their feud. Lange was coming to the caucus soon to look for support. Douglas wrote to all government MPs that “if David is re-elected Prime Minister by Caucus,” Douglas “would not be available to act as Minister of Finance.” Douglas did “not rule out the option of standing against him myself if that offers the Government our best hope of restoring the confidence we need for a sound recovery.”¹⁴² Lange seized upon this letter as Douglas’s resignation as minister of finance and on 17 December announced that Douglas had stepped down and was out of Cabinet. On 21 December, Douglas unsuccessfully challenged Lange’s leadership.¹⁴³

In his 14 December 1988 epistle to the caucus, Douglas had expanded on his reasons for losing confidence in Lange. First-hand interpretation, admittedly a one-sided salvo, holds clues to how it had all gone bad. On recent occasions, Douglas explained, Lange had acted without benefit of Cabinet support. He did not say so yet, but the social policy gulf between the two had precipitated the power struggle. Douglas cared most in his political career about the health of the economy and its consequences for the standard of living. He knew, however, that some mps and most of Cabinet were dismayed by Lange’s assumption of executive authority, so he pitched that to colleagues and reminded backbenchers from marginal seats what the poll numbers meant for them. Douglas had reasons for presuming that Cabinet would have supported him on most major policy controversies. Any battles in the Cabinet Policy Committee and in Cabinet would have been waged on his ground and with his recourse to the Treasury’s intellectual capital. Not surprisingly, he was willing to abide by Cabinet decisions, believing with reason that he could win most. Lange chose not to be defeated that way and reached over Cabinet with public statements. If a prime minister made public appearances to expose differences with the minister of finance, “that had to affect perception of the Government’s ability to hold a steady course in the future.” As finance minister, Douglas asserted that he was “responsible for the preservation of confidence.”¹⁴⁴ In a world of globalising finance and trade, he had an obligation to enhance the reality and the appearance of New Zealand as a stable destination for capital.¹⁴⁵

Douglas drafted his remarks to mps to position Cabinet decision making as the concern that they should ponder. He knew his audience and guarded his emotions. In the extensive coverage of this falling-out, it was “hard to find instances of David Lange and Roger Douglas resorting to personal denigration of each other.”¹⁴⁶ But hard feelings did break through in Douglas’s challenge to Lange’s leadership. He divulged that several of Lange’s actions offended him. He was close to his energetic assistant and press secretary Bevan Burgess. When Burgess’s contract came up for renewal, Lange vetoed it on the grounds that press secretaries served the government and that Burgess had engineered defamatory press leaks whenever Lange attempted to restrain Douglas.¹⁴⁷ From September to December, staffers on the ninth floor (Lange’s area) and the sixth floor (Douglas’s area) of the Beehive shot dirty looks at one another on elevators and across parking lots.¹⁴⁸ Douglas remained bitter about Lange’s discarding of the gmfi. He told the caucus on 8 December 1988, “I personally have taken a whole heap of shit ever since, for giving to the rich at the expense of the poor – whereas my gmfi was intended to give them unheard-of direct benefits.”¹⁴⁹ Since the cost of the gmfi was uncertain and the flat tax rate was not agreed upon, Lange had asked Douglas in early 1988 not to publicise numbers. Douglas complied, respecting Cabinet conventions. Silence on the estimates was warranted since different assumptions produced different figures. Silence left the impression that the scheme had fatal defects. This outcome soured Douglas. The parable of leadership now merges into a personal tragedy, one of many astounding aspects of this market revolution.

Although the poll numbers and Douglas’s criticism eroded the caucus’s confidence in Lange, adverse public opinion rested on other matters too. The public’s fading confidence in Fourth Labour was not merely a product of Lange’s erratic conduct and quarrels with Douglas.¹⁵⁰ This understanding of the government’s woes has been preferred by Douglas’s admirers. There was more going on. The Douglas camp and Douglas himself disregarded the latest polls, which showed that people were interested in their immediate household budgets. Based on extensive polling, an October 1988 report concluded that the decline in public support had begun with the stock market crash. Support was falling months before the political turmoil. Unemployment and the cost of living were serious concerns, particularly among women. Polling found that the extensive news coverage on economic efficiency, free markets, corporatisation, and privatisation “just left [women voters] dead.” A lot of women noted and appreciated the government’s efforts in respect to women in the workplace, but many “would now like to see more attention to their role in the home.”¹⁵¹ The government had failed to develop communications “tailored to the female electorate.”¹⁵²

An April 1989 memo from Douglas to government MPs updated poll numbers and rehashed the record of Lange’s statements that had undercut Cabinet. It was “a diary of events correlated with major poll movements.”¹⁵³ In a straight contest between Douglas and Lange for prime minister, a Heylen poll taken at that moment placed Douglas with 52 per cent and Lange with 32.7 per cent.¹⁵⁴ Clearly important to Labour’s election prospects in 1990, Douglas was invited by Lange, Palmer, and Caygill to discuss election strategy and the possibility that Douglas could return to Cabinet and take part in the campaign. Too physically drained and politically enfeebled to resist Cabinet and the growing caucus support for Douglas, Lange caved in to this overture under pressure but promptly attempted to contain Douglas’s influence, asserting in media interviews that he would determine the government’s strategy before there were any changes in Cabinet composition. The stalemate culminated in another test of leadership. In July, Douglas published his vision for New Zealand in the New Zealand Herald, and on 8 August, the caucus voted him back into Cabinet. The Economist quipped that the Jolly Roger was back.¹⁵⁵ He had been out of Cabinet since 14 December. Lange resigned as prime minister immediately after the caucus reinstated Douglas.¹⁵⁶

Douglas had precipitated a second leadership race to press the case for centrist measures, claiming that he was taking the path of European social-democratic parties, not that of the British Labour Party. He doubted that he could defeat Deputy Prime Minister Geoffrey Palmer, concluding that Palmer had the numbers in the caucus, but he argued that in a national election, television would not assist Palmer.¹⁵⁷ Once elected prime minister by the caucus, Palmer deliberated long over the type of government that he wanted.¹⁵⁸ His designation of Helen Clark as his deputy was welcomed by the Labour Women’s Council as a potential boost to flagging party membership.¹⁵⁹ In late 1989, he reaffirmed that Douglas would be a campaign asset and invited Prebble to run for Cabinet in order to fill one of the positions vacated by ministers who decided not to run in the 1990 election. Prebble was elected and reinstated as minister of state-owned enterprises. Douglas declined to run in 1990 but stayed in Cabinet until the election, acting as a special projects advisor to restore business confidence.¹⁶⁰ The spark was gone. “The turning point,” he insisted, “came with the vetoing of the flat tax package. That policy would have made us the natural Party of Government.”¹⁶¹

Negotiations between Palmer and Douglas over the latter’s exact role collapsed. Marshall, Tizard, Douglas, and Rodger, as well as Colin Moyle and Trevor de Cleene, announced that they would not run in 1990.¹⁶² Having lost caucus support, Palmer resigned on 4 September 1990. Moore became prime minister for eight weeks, leading the party into the 1990 election defeat, but he almost brought it back into office in 1993.¹⁶³ When Moore led the Labour Party into the October 1990 election, the party’s general secretary, recalling that the 1984 campaign had centred on Lange, recommended that the campaign concentrate on Moore and a very few issues. Now entrenched was this shift in campaign methods away from party-driven wish-list manifestos and meeting halls and toward a few issues “repeated and repeated on radio and television.” This strategy required serious funding.¹⁶⁴ The 1990 election campaign exposed the peril of campaign modernity when coupled with doctrinal purity. Elections now stretched finances to the breaking point.¹⁶⁵ The old standbys of flea markets, raffles, and bake sales could not raise adequate funds; marginal seats often lacked fundraising strategies, although in a few cases the government’s policies had enabled local appeals to small businesses and “business houses.”¹⁶⁶ During the 1990 campaign, Tony Timms pleaded with Douglas to approach businesses: “We desperately require further funding … I need your help.”¹⁶⁷ When real estate mogul Bob Jones’s firm donated $20,000 for the exclusive use of Mike Moore, Timms told Moore that as much as he disliked donors assigning funds to an individual rather than the party, “one does not look a gift horse in the mouth.”¹⁶⁸

Funding elevated pragmatism and barred the party’s full-throated return to the politics of regulation, subsidisation, monetary tinkering, and undisciplined spending. At the beginning of the great falling-out and up to the 1990 election, the head office and many electorates identified the importance of having small and large businesses contributing to Labour. Often the electoral success of Fourth Labour in 1987 has been attributed to an anti-American thread in its foreign policy and to its symbolic “nuclear-free” stance. The latter ranked low on opinion polls, far lower than law and order, which was a big community priority. Structural reform of the state sector was popular. As for the foreign policy, distinguished diplomat, public servant, and historian Gerald Hensley proposes that if Lange had not revoked the visit of an American destroyer, the Buchanan, “the full weight of the Left would probably have been brought to bear on the Government’s domestic policies.”¹⁶⁹ The considerable weight of the left was brought down on the government! Business donations enabled the party to campaign competitively.

The Palmer and Moore governments maintained the general bearings that Douglas had set in 1985–87, along with several course adjustments away from the liabilities of the December 1987 package. Minister of Finance Caygill restrained spending and approved asset sales.¹⁷⁰ When serving as minister of trade and industry from 1984 to 1988, he attended more meetings of the Cabinet Policy Committee than anyone. On account of diligence, firmness, an understanding of the portfolio, and care in making few enemies, no better person could have replaced Douglas, a fact that briefly made Caygill a pawn in the feud until he rejected presumptions about his availability to assist Lange in dumping Douglas.¹⁷¹ Douglas, who admired his intellect and discipline, “consult[ed] him a hell of a lot.” But he once told Caygill that he was “not getting hated enough to make a mark on the world.” To which Caygill replied, “Yes, I know that. In part it’s deliberate.”¹⁷²

In its collapse, as in its rise, this was no ordinary government. Its two finance ministers embodied opposing temperaments and correspondingly brought different touches to policy, and they had the knowledge required to discuss these differences as colleagues. Forty years old when he became minister of finance, Caygill exemplified this government’s youth and intelligence. From his reading of American Democratic Party operative Larry O’Brien’s 1975 memoir No Final Victories, he concluded that gradualism was essential to the art of politics.¹⁷³ In relation to confrontation and urgency, the contrasts with Douglas could not have been greater. But on big policy questions, they agreed. “Dry as dust,” Caygill used the Public Finance Act (1990) to carry out existing plans for departmental budget reforms that required officials and ministers to provide details on what their departments were planning to do and on how much these activities were going to cost.¹⁷⁴

Douglas credited Caygill with successful deficit reduction.¹⁷⁵ The political dramas of 1988–89 upstaged the fact that deregulation, fiscal restraint, and asset sales continued after Douglas’s exit from Cabinet in December 1988. Reforms continued, although the great falling-out interrupted favourable outside perceptions. At a Washington party, a representative of the International Monetary Fund (imf) asked an embassy official, “What does the absence of Roger Douglas mean? How does one interpret Caygill’s threat to reduce interest rates by Government action?”¹⁷⁶ Agents in world financial circles had appreciated the 1984–87 duopoly of Lange and Douglas. Although Caygill lacked Douglas’s international reputation, he and Palmer did what they could to restore local business confidence, addressing a number of Business Breakfasts in the cities.¹⁷⁷

CONCLUDING OBSERVATIONS: LET THE DOG SEE THE RABBIT

Could better communications have reduced public exasperation? Doubtful. Ministers aimed to get the greatest number of changes up and running in a hurry. Support was a secondary consideration for several in the core group, but they were few in number and exhausted. In a 1989 paper for the Mont Pelerin Society, now former finance minister Douglas averred that reforms required that the public be shown the rabbit, meaning their objective. He himself did not show it, but in another sense, his greyhound racing allegory was apposite.¹⁷⁸ He favoured fast bunnies to lead a reform race.

Tempo was a startlingly feature of a government determined to reform the state and the economy. Determined to achieve a lot in a short time, reformers put themselves and others under pressure as they tried to beat the clock. The pace damaged collegiality, health, and clear thinking. Richard Prebble explained this problem to a talk-radio interviewer in December 1988. The government had been working full-out in Parliament since February 1988 and had been “under urgency now for two weeks and you keep working ’til midnight, you think you can’t do it, but in fact it hits you and the truth of the matter is that all Ministers, all MPs are now tired, and when you’re tired you don’t make your best judgements.”¹⁷⁹ Ministers with finance and labour relations responsibilities, namely Douglas, Prebble, Caygill, and Rodger, were overloaded. Bassett found that the Health Department required endless dealings with powerful interest groups. Ann Hercus and Michael Cullen had their hands full at the Social Welfare Department and in their budget-trimming encounters with Douglas and the Treasury.¹⁸⁰ Staff touched by the feuding in 1988 were stressed-out and left feeling like “the world is collapsing.”¹⁸¹

Yet several ministers, along with a few senior officials, lobbyists, and economists felt that instead of excessive haste, there had been damaging delays in completing important reforms.¹⁸² The assistant secretary of the Treasury, Michael J. Moriarty, was apprehensive about the pace of labour relations reforms. Any more deferrals “would in Treasury’s view significantly jeopardise the momentum of its economic strategy.”¹⁸³ Stan Rodger uniquely practised delay as a tactic; Palmer and Caygill were cautious by nature. Douglas kept the greyhounds running; speed was ascendant and complicated ministerial decisions about how much, if any, consultation their projects required. Several ministers cast aside personal political ambitions to act decisively when opportunities arose. Doing what was possible, sometimes as fast as possible, without worrying about re-election, required a single-minded selflessness that marginalised the importance of entrenching the reforms’ underlying values. The attitude of knowing the makeup of the declared national good detracted from bringing the public into confidence. Of course, there usually were ample consultations and requests for submissions to parliamentary select committees. The consultations that preceded the rollout of the GST were exemplary; they had to be because businesses of all sizes were going to collect the taxes and had to do it correctly. Public meetings with forestry workers and farmers to explain disruptive changes that grieved them were decent acts that may not have resulted in policy changes but did earn ministers some respect for fronting up. Long consultations about a green paper by Rodger on labour relations and extremely rushed ones about Bassett’s local government reform reflected the time left in the government’s life and the tactics chosen by the ministers responsible.

Crafty plotting sometimes involved circumventing consultation and communication, as happened most blatantly with passage of the State Sector Act (1988), surprise legislation that restructured the public sector, which comprised many state-paid professions.¹⁸⁴ Stan Rodger sprang the bill on Parliament just before the 1987 Christmas recess. Rumours had it that “the drafting of the Bill was done within 12 hours and immediately preceding its introduction into the House.”¹⁸⁵ Staff scurried to complete last-minute speeches for their ministers.¹⁸⁶ Caygill, a colleague in Cabinet, comments that “Stan has been a naughty boy, a naughty boy.”¹⁸⁷ Ministers and officials involved in the lead-up to this public service reform agreed that intransigent union officials made so-called consultation pointless (chapter 13). Occasionally, there was dissembling. When state assets were put on the market, some justifications, if not utter falsehoods, highlighted the most publicly acceptable explanations. The form, duration, and content of communications varied as ministers read their political tea leaves.

Technicalities and political sensitivities rendered several policies difficult to explain. After two years of monitoring New Zealand’s reforms, the IMF’s executive board worried that the government might not be getting its big message across: “In the more difficult areas the Government must take time to build a constituency for change if it is to be successful in achieving permanent reform.”¹⁸⁸ Reform-minded ministers were not buying it because they had their hands full bricking in the changes.

Haste left little time to bring the public along on every measure, something that sympathetic party workers had warned about. A union leader and friend of Lange likened the early days of the government to “a cyclist travelling like the Starship Enterprise at Warp Factor 7 or whatever.”¹⁸⁹ The Hauraki electorate organisation wrote to Douglas in mid-1985, advising him to “hang in there, no U-turns,” but it suggested that he “slow the pace down and explain things more clearly.”¹⁹⁰ Agreeable public servants fretted as well. Graham Scott, secretary of the Treasury, informed Douglas in late 1987 that flattening personal income tax rates could reduce tax avoidance, but “there seems to be little community understanding of the issues.”¹⁹¹ A Treasury official was a strange messenger to warn about public incomprehension. Any broad acceptance of the Treasury’s economic outlook, according to individuals and groups who dealt with it, were offset by insufficient explanations of policies and of “what sort of society” its advice fostered.¹⁹² Journalists had a hard time finding someone at the Treasury to interview and complained that officials’ conduct was overly strict, considering “the more open atmosphere of the 1980s.”¹⁹³ Of course, it was not the place of public servants to go public.

Douglas had opinions about the government’s failure to get its messages across. The speed factor, he claimed in July 1988, had to be discounted because the first term had been a whirlwind of action, yet the government was re-elected. He drew the lesson that, in its first term, Fourth Labour had presented the clear message that “special interests had to take a back seat.” Critics lacked convincing alternatives, or so he believed.¹⁹⁴ He was wrong to discount speed. It exhausted colleagues, public servants, and the public. Public servants reported backlogs of work, lack of sleep, and the need to hire short-term workers with “common sense and the ability to write clearly.”¹⁹⁵ Writing to Douglas in mid-1986, Secretary of the Treasury Bernard Galvin reported an office crisis. The departure of the Treasury’s analysts had “reached an annual rate of over 100 percent. There will be no staff left within the next 12 months if the trend is allowed to continue.” He added that “some staff have been working extraordinary long hours for so long that I regard it as inevitable that their efficiency should be deteriorating and their morale and health also threatened.” The Treasury was becoming “an increasingly less attractive place for good analysts to work in.”¹⁹⁶ Pay was a consideration now that restructuring brought officials into contact with well-rewarded specialists in the private sector.

A poll taken in June 1988 signalled that New Zealanders wanted a slowdown.¹⁹⁷ Then and later, Douglas ignored the polls that he had previously poured over, adopting instead the claim that errant colleagues or party officials, pulling the rug from under Cabinet, had caused confusion. Combatting internal obstructions, he continued, had depleted energy and helped to publicise “pressure group wish-lists.” For a government to endure, he insisted, it had to show that it possessed an agenda, not a scattering of spending programmes.¹⁹⁸ He may have deluded himself about the deeper causes of Labour’s declining approval. Party membership had been falling since 1986. Valid macroeconomic and microeconomic reasons for further restructuring remained, but the political reasons were more problematic than he allowed.¹⁹⁹

Media-savvy, proactive steps often mixed informing the public with partisan politics. Douglas contacted an advertising firm in mid-1986 to promote the latest budget. The distinction between government business and public opinion research, useful to a party short of paying members, was blurred. Labour had moved from suspicion of advertising in 1984 to contemplating a $2.1 million communication’s strategy for a budget rollout. What was the objective? “Win elections.”²⁰⁰ In 1988, five public relations firms submitted strategies for informing the public about local government restructuring.²⁰¹ A consultancy bearing the too-perfect name Consultus helped with “early strategy options.”²⁰² Knowing that they had to deal with community identity and political bailiwicks, ministers and officials integrated communication to inform the public while justifying reforms in a partisan way. The public’s right to know was subsumed into the government’s instincts for survival and its knowledge that the party ran on a tight budget. In the new media era, politicians called up professional auxiliaries. For hot issues on their turf, ministers circulated staff backgrounders to the caucus. By late 1988, party organisers were advising backbenchers on “wordsmithing” for a new direct-mailing system.²⁰³ Douglas wanted the caucus to spread positive expectations about the future.

If ministers had needed to worry only about the public at large, they might have been more forthright, but union secretaries and factions in the party scrutinised legislation. Fair enough. Practically speaking, ministers found it time-consuming to meet their obligations to respond to intraparty dissent. Some studied the party conference remits books, prepared counterarguments, and marshalled supporters.²⁰⁴ Douglas loyalists had to convince Labour traditionalists that it was impossible to follow the path opened by the revered First Labour Government because the current government’s attitude was that it had a different job to do; nobody else was as well equipped to do it. Nevertheless, it was impossible to compete with the iconography of saintly dead leaders from the past. Their legacies made it important to put across the idea of partisan team play. Reformers were not going to relinquish their access to power by spurning the allegiance that won seats and delivered power. There was even a trace of rally-the-troops arrogance in the endeavour. Douglas reiterated that if Labour did not restructure the economy, “the Nats will impose their own idiotic answers.”²⁰⁵ After his ejection from Cabinet, Prebble did not concede that Labour was on its way out because “the alternative is so bad.”²⁰⁶ He was committed to Labour’s re-election at least in 1990. Since reform leaders were in a hurry, they did not have the time to operate as a grand national tutorial or the credibility to play up Labour tradition. Instead, they audaciously enlisted party allegiance while attempting to modify what the party represented. National helped with partisan jabs of its own, uniting Labour to a degree. Cabinet members were in a squabbling family, but at least they kept up appearances.²⁰⁷

Ministers with high-profile social briefs, such as Phil Goff in the Housing Department, churned out solid press releases on home loans, granny-flat day, kitset houses, and so forth.²⁰⁸ Their impact is hard to assess, but they featured in the government’s endeavours to ride as much free coverage as possible. To judge by press clippings, media outlets were ably courted. Interactions with the media were calculated for partisan advantage in other ways too, particularly the arts of avoidance. Political manoeuvring inside the party in 1988 inhibited reform ministers from speaking candidly on all issues; additionally, polling pundits advised against arguing on behalf of some measures, notably asset sales to foreign investors since that “would only draw attention to a massively negative issue.”²⁰⁹ The party executive, wanting to keep a lid on party squabbling in public, barred the press and external lobbies from contentious sessions at the 1988 annual conference.²¹⁰ The government tried to control the information tap by opening and closing it as needed, allowing advantageous leaks, and trying to block damaging ones.

When it came to frequent criticisms by primary producers that reforms hit them before trade union members or social welfare recipients, ministers said little except that the government would help all citizens in need but not revert to subsidies and financial concessions. Statements of regret or extended explanations in these or other circumstances would have aggravated party trouble and confused financial markets by intimating a policy reversal when the conduct of fiscal and monetary policies was meant to be consistent in order to build trust in financial markets. The government was determined to instil expectation of stable prices, and some of this effort demanded consistent messaging. Since ministers were constrained by Cabinet rules, trusted journalists floated ideas or distractions for them.²¹¹ A few stories were leaked to divert attention from a major development; some originated from unnamed, unsourced staff. When the government took some heat over preparing the Bank of New Zealand for sale, Lange considered “very gently redirect[ing] the journalists.”²¹²

Backtracking on rash promises by public officials and ministers demanded attention. The postmaster general’s assurances that after initial restructuring there would be few post office closures had to be explained away. When subsidies for low-use post offices ended, the government had to field complaints from the post office union and from an action committee that was seeking to save them.²¹³ Early promises by the government that the formation of the SOEs would not lead to privatisation backfired during asset sales in 1988–90.²¹⁴ Although the official rationale emphasised debt reduction, the state was starting to earn good dividends from its SOEs, maybe not as much as Douglas had once forecast but good all the same. The embarrassing policy reversal on an issue of great magnitude was explained by ministers with economic portfolios as a means to improve fiscal conditions and to upgrade the performance of the former state enterprises by exposing them to the scrutiny of real private-enterprise boards and shareholders.²¹⁵ The concept of instilling productivity gains and thus efficiency across the economy, all in the service of making New Zealand more competitive internationally, was not easily presented to a public that wanted quick solutions to unemployment and inflation. Then, too, the appointment of individuals from the investment side of business to the boards of the state-owned enterprises, when combined with the later sales of these enterprises, presented conflict-of-interest possibilities. No formal accusations of impropriety stuck, and business expertise on SOE boards was intrinsic to the success of the new profit-oriented environment of operations and sales. Still, appearances and innuendo mattered as communication.²¹⁶

Some consequential topics challenged ministers’ explanatory skills. Douglas and his associate ministers of finance had to be on the ball because it was tough to summarise many of the subjects, namely discount rates, foreign exchange liquidity, valuations for asset sales, marginal tax rates, indexation, and benefit abatements. The encroachment of specialised idioms into several policy fields made communications challenging because internal discourses had slipped into recondite jargon. Insiders would forget to translate for the public. In the first term, Lange could front reforms with a wall of witty fog; later, as ministers faced challenges over past and present actions, they needed to provide more serious explanations. Quips were no longer helpful. Memorably entertaining at one time, Lange’s speeches descended into caustic remarks during the great falling-out. Reporters no longer saw the passionate, entertaining campaigner, as in 1984, but witnessed petulance.²¹⁷ As a pithy combatant, Prebble came to the rescue in parliamentary debates and at party conferences, but counter thrusts did not suffice to explain the type of society that reconstruction was fashioning. Although Palmer excelled at getting things done and gave repeated service to the party and to Cabinet as a conciliator, he found politics frustrating, stayed close to his legal paddock, and worried.²¹⁸

The small group that took over parliamentary leadership in 1983 was just that: small. Their hopes for building a constituency for change depended crucially on appearances of unity, with their talents coming across as complementary. They almost carried it off. A National Party strategist identified Fourth Labour’s impact on making Labour more centrist and more challenging for National to defeat. In early 1988, pollsters assisting National pointed out that Labour had long appealed to voters for “caring about people.” Labour still basked in this aura of caring and fairness, but now it “was also seen as best at handling the economy and reducing inflation, National’s previous strengths.”²¹⁹ Fourth Labour’s revolution had gone far, requiring National to reposition its emotional and rational appeals. Everything had been shaken up.

A powerful medium for public education was available. Television had unfortunately become an accomplice to the great falling-out. Lange had achieved brilliant success in front of cameras at the Economic Summit of 1984. Four years later, these cameras broadcast dysfunction. The medium magnified turmoil as willingly as triumph. Douglas warned the parliamentary party’s Strategy Committee in early 1988 that the media amplified disunity. Pessimism was “feeding into apathy and directionlessness among our staff.”²²⁰ A focus on Beehive buzzing between Lange and Douglas can overwhelm interpretations of the government’s fall from grace. A public that undoubtedly heard the noise had also experienced the swarms of disruption. For a happy gang that had once been to the summit, 1988 was an unhappy year. When determination with haste had exhausted everyone, the government was finished, but many personal sagas would yet develop outside of politics in the tragedies of life. From a hospital bed in 2005, a chronically ill David Lange wrote, “I was pleased to speak for a while to Roger Douglas a few months ago, because whatever happened between us in the end, he is someone who tried and achieved, and was once very important to me.”²²¹ Now we turn to what they achieved.

PART TWO

The Macroeconomics of Restructuring

Bounties upon exportation are … frequently petitioned for … A greater quantity, it is said, will thus be exported, and the balance of trade will thus be turned more in favour of our own country … The effect of bounties … can only be to force the trade of the country into a channel much less advantageous than that in which it would be run of its own accord.

Adam Smith, The Wealth of Nations, vol. 2, bk 4, ch. 5

Every new tax … always occasions some murmur and meets with some opposition. A suspension of the payment of the debt … occasions neither murmur nor opposition. [The observer] does not consider that the capital which the first creditors advanced to the Government, was, from the moment in which they advanced it, a certain portion of the annual produce turned away from serving the function of capital, to serve in that of a revenue – from maintaining productive labours to maintain unproductive ones – and to be spent and wasted … When the public expense is defrayed by funding, it is defrayed by the destruction of some capital which … had before been destined to for the maintenance of productive labour, towards that of unproductive labour.

Adam Smith, The Wealth of Nations, vol. 2, bk 5, ch. 3

Government subsidy is sheer economic madness.

Future minister of finance Roger Douglas,

There’s Got to Be a Better Way: A Practical abc to Solving New Zealand’s Major Problems (1980)

We cannot make New Zealanders wealthier by giving tax concessions to one group of taxpayers at the expense of higher taxes on another.

Minister of Finance David Caygill,

“On a Consultative Document on the Reform of Capital Income Taxation,” 18 November 1989

4

The Invisible Handicraft: Monetary Policy in Practice

overview: money and the making of monetary policy

Travels through the thickets of reform best begin at monetary policy since efforts to change New Zealand were intended to improve macroeconomic performance, easing the balance of payments, which was a trade-dependent country’s ticket to a good standard of living. Starting here is dicey. Monetary policy is unlike anything else. Before the global waves of economic restructuring in the 1970s and 1980s, international finance had long operated as a dynamic reality throughout the developed world. It was anything but static.¹ A pioneer in the study of monetary policy warned in 1957 of the elusiveness of finance and monetary policy, writing that “it is idle to say that one can somewhere find an ultimate form of money and rule that off as the grand regulator of the economic situation, a regulator that can be made to behave properly by a legislator’s orders. Our economic systems are not like this.” Financial intermediaries, he continued, could work around regulations because controls “alter the liquidity position of people who make up the economy.”²

By the early 1970s, some slippery eels were shaping the money supply and credit in New Zealand, as elsewhere. They complicated the state’s ability to control monetary affairs. The recent easing of international capital flows, collapse of the Bretton Woods system for currency stabilisation, whopping fiscal deficits, and balance of payments problems undermined the interventionist state’s management of monetary affairs.³ Working in this milieu, the chief economist at the Reserve Bank of New Zealand, Roderick Deane, doubted whether interventions could achieve a defined policy outcome. As he explained in 1979, complex influences on liquidity required thinking about a range of possibilities that should rule out direct controls. Specific indictors “may simply lend the analysis an air of spurious accuracy.”⁴ For many years, the Reserve Bank had held “a strong philosophical view about the importance of the role of markets in economic activity” and had considered markets to be useful for monetary policy applications.⁵ Political guidance, or call it interference, by both major political parties exiled the market preference until fresh realities from inside and outside of the country intervened. Identifying the global Zeitgeist, which included New Zealand, economist Peter Dorman writes about the 1970s that “in a few years … a new generation of economists, reflecting the political shifts taking place around them, came to see the private sector as rational and the government as a meddling, clumsy leviathan.”⁶

This chapter goes back in time to sketch a global and local narrative, proposing benchmarks in monetary affairs that should help to explain the profound monetary policy changes and restructuring events of the 1980s. The chapter that immediately follows turns to the Fourth Labour Government’s alterations of monetary policy, which were directed toward more efficient allocations of capital, improving the balance of payments, and reducing inflation. Monetary policy interacted with fiscal conditions, the fate of state enterprises, adjustments by rural producers, labour relations, and lobbying by New Zealand’s robust interest groups. To grasp monetary controversies is to gain clearer understandings of reforms, their local critics, and their connections with a deepening and broadening of global integration.

The manoeuvres of brokers and private bankers meant that central bankers required “a disposition to discover novelties and to be versatile in technique.”⁷ To appreciate the agents and central bankers, I turn to history, keeping in mind that in a search for versatile techniques, many central bankers aspired to keep their country’s liquidity expanding while trying to maintain price stability. In opposition, economic agents, ranging from commercial bankers to trade unionists, have protested since at least the late-nineteenth century that quests for stability screwed down money and credit too tightly for economic growth or creditor comfort.

Centuries before the conception of monetary policy, rulers punished coin debasers to maintain trust in a currency. Essential to almost all economic activity, trust was required of money. Despite efforts to protect trust, every exchange system devised has been debased: coins clipped, notes forged, cheques bounced. However, it took the industrialised wars of the twentieth century to displace the authorities’ protection of credibility in favour of interventions that undermined trust, an agenda still pursued by some nations today. During the First World War, desperate governments monetised state debt on an unprecedented scale and accepted inflation as a necessary evil. A few states that lacked central banks before 1914 promptly established them after the conflict, giving Europe almost full national coverage by the late 1930s. The state’s attention to managing the money supply first acquired the label “monetary policy” around 1920 and had become the explicit field of economics by the mid-1950s, although some basic ideas predated this field’s appearance by over a century.

Well before the world wars, bankers, debtors, and political economy writers in Britain deliberated over the public’s ease of access to money and credit. Money’s guise as a medium of exchange led certain commentators to favour expanding supply. However, money’s other guise, as a store of value, drew savers and cautious bankers into conflict with supporters of relaxed liquidity. Since substantial world trade was soon financed with the City of London’s credit facilities, the City incubated innumerable treatises on bank operations and their influence on liquidity.⁸ The topic of control over the quantity of money has been a vital ingredient of economic theory and an enduring practical issue for governments.⁹ Defenders of bankers’ discretion to issue bank notes clashed with supporters of containment. A few bankers handling provincial business challenged the notion that the creation of money depended to a large extent on the balance of payments. Comprising a so-called banking school, they recommended that the stock of currency should grow with robust internal activity. Experiencing an increase in deposits and the discounting of commercial bills in their bailiwicks, they appealed for a right to augment liquidity by issuing bank notes, claiming that such expansion would be confined to agricultural districts and could not upset countrywide price stability.¹⁰ They championed local relaxations of liquidity as in the public interest, an entreaty for easy money continuing to the present.¹¹ Their mistake lay in claiming that a local expansion of liquidity had no wider influence on price stability. Against these expansion-minded bankers, a so-called currency school countered that the quantity of money should vary as though all money were gold so that the country’s balance of payments would guide money supply.¹²

Most commentators believed at the time that currency should be convertible to gold because it imposed stability, restraining even those who preferred a money supply governed by the bankers’ good sense and competence. The rival opinions about money supply arose when the peacetime state rarely intervened in private-sector finance, although during the wars of the long eighteenth century, British governments seized on the fact that debt instruments had market value as securities. With the discovery that financiers who discounted commercial paper could be beguiled into discounting state commitments, governments found that they could monetise debt, linking monetary affairs to fiscal direction.¹³ Although there were developments connecting private banking and the fiscal-military state, bankers continued to manage the bulk of a monetary system with precious metals as an implicit foundation. However, even the Bank of England practised discretion, shuffling around the reserve deposits of local and foreign banks, testing its way amid widening international trade.¹⁴ Discretion operated as a silent companion idea to the apparent golden rules. A rules-versus-discretion scrum has typified monetary affairs ever after.

THE BANKERS’ WALTZ AGE

For most of the nineteenth century, gold and silver served as stabilising mediums for the advance economies’ international exchange and monetary systems.¹⁵ Specialised wholesale investment banks, large commercial banks, and local family banks transferred precious metals or their deposit certificates to settle accounts. By the end of the nineteenth century, gold had triumphed as the preferred medium. Central banks, serving as reserve deposit centres, remained rare. Either as privately chartered companies with some obligations toward the state (the Bank of England) or as public institutions (the Swedish Riksbank), central banks managed current accounts and capital accounts on the basis of an amount of gold fixed to the national unit of currency, a relationship known as parity. A currency was either convertible into gold at an established parity or into another currency convertible to gold. A waltz age for bankers – slow movements, familiar partners, very few discordant notes, and glints of gold – lasted from the 1870s to 1914.

A gold standard was the cherished nugget of the currency rule proponents. Gold restrained the growth of money circulating in a country. As economies throughout the world expanded, the amount of gold usually did not grow commensurately, a constraint that enforced price stability. Beginning with the California gold rush in 1849, several large gold discoveries loosened money supply and assisted debtors through moderate inflation; additionally, banks manipulated reserves to provide flexibility.¹⁶ In general, however, labourers carried a disproportionate burden for trade adjustments. Stability and modest inflation were the heads and tails of gold coins, coins that did not wear out workers’ pockets. By the late nineteenth century in a few leading capitalist societies, trade unionism, manhood suffrage, and labour parties had begun to advance the case for inflationary policies to ease personal debts, at least nominally.¹⁷

All the while, cautious directors of large clearinghouse banks kept in mind a safe level of reserve holdings of gold or convertible currencies, establishing by guesswork and lore the reserve ratio of gold or equivalents to their liabilities. A reserve asset of commercial paper or gold held at a major institution on behalf of a lesser one, seen from a certain angle, could amplify the smaller bank’s credit business so long as the ratio remained fixed. As a reserve grew, lending could too. Conversely, the draining of a reserve could force a credit pullback and a rise in the discount rate. If balance of payments deficits eroded the reserves of gold or convertible currencies, these assets would dip toward the bankers’ danger threshold. Major banks reacted by denying credit to clients or by raising the rate on commercial paper that they discounted from corresponding banks, for practical purposes raising the system’s interest rates.

Beginning in the early seventeenth century, ideas about trade, money, credit, interest, and liquidity evolved through experiences acquired in northwest European commerce. Later in the history of monetary affairs, the scale and speed of capital flows added a complication. Developments in the system as it existed before the escalation in capital movements came through discretionary actions; in other words, even though the gold standard was pre-eminent, it was not automatic. The Bank of England did not follow a rule for base money growth when setting the bank rate or presiding over international transfers. Although sensitive to gold movements, directors determined the discount rate according to cases and circumstances.¹⁸ Historical accident permitted the pretence that the gold standard ran like clockwork. Gold discoveries provided barely enough of the metal to meet economic growth. By chance, the demands for gold held in London did not converge into a big call on the Bank of England’s holdings of reserves. Luck held until the First World War, when belligerents suspended convertibility, allowing expansion of unfunded debt to finance military expenditures. Such an expedient could never dispel the bankers’ nightmare that a convergence of demands might someday overwhelm reserves. That nightmare became the punishing reality in June and July 1984 when demands on the Reserve Bank of New Zealand depleted its liquid foreign currency reserves.

During the waltz age for bankers, the City of London led the world in available financial services, with the Bank of England acting as principal repository for the reserve assets of the major financial institutions of many countries. On account of the advanced state of City finance, John Stuart Mill’s Principles of Political Economy (1848, revised until 1871) became the most influential treatise on economics at mid-century and perforce included a classic account of price-specie flow. Significantly, he also detected that “the passage of precious metals from country to country is determined much more than was formerly supposed by the state of the loan market in different countries, and much less by the state of prices.”¹⁹ Beginning in the late-nineteenth century and continuing throughout the twentieth, capital movements that crossed borders grew.

Outside the Bank of England’s doors, the City of London accommodated a teeming network of financial service specialists who, until the 1850s, made it the world’s leading financial centre. Activities extended from discounting the commercial paper of small provincial banks to lending vast sums to sovereign states. New York was coming on formidably. In a history of the “capitals of capital,” Youssef Cassis points to two major changes in banking that emerged after the mid-nineteenth century: the increased concentration of capital through joint-stock banks and “the strong growth in capital exports.”²⁰ Capital export, as Mill observed, was an escalating feature in global monetary affairs. Let us look ahead momentarily to the last quarter of the twentieth century, when the movement of capital was hugely volatile and when there were large transfers attributable to the unprecedented peacetime borrowing by states and to developments in consumer credit. With regard to the former, New Zealand by mid-1984 used thirty cents of every tax dollar to service the fiscal debt. To apply a different measure, the servicing of all state debts, including losses from government trading departments, took more than 20 per cent of export receipts.²¹

Returning to the bankers’ waltz age, we see that the gold standard made linkages between trade and monetary relationships stable and fairly reliable but imposed social costs during periods of trade adjustment. A rise in a country’s interest rate elevated money’s cost, slowed economic activity, limited price increases, and put downward pressure on wages. According to the price-specie theory, these adjustments eventually made exports more competitive and likewise contributed to switching from imports to domestic products. In theory, foreign investors shifted funds to the higher-interest jurisdiction, alleviating shortages of foreign currency through the country’s capital account.²² Processes were more complicated. Adjustments could be slow. There were variations on the banking school’s observations, as money was not entirely about flows but also encompassed credit, an easing of liquidity that reflected local activity. Including credit, money could thus be conceptualised as a quantity as well as a flow. To complicate matters, overseas brokers and investors weighed international news to reach quasi-subjective decisions about capital investments or loans. Some countries were deemed splendid, with grand opportunities to be seized, whereas others were relegated to the margins as dismally unreliable.²³

Image preference endured. Near the end of the turbulent 1980s, officials at the Treasury and the Reserve Bank, dealing with New Zealand’s status on the receiving end of broker appraisals, wondered how best to influence perceptions as a means to secure good financing terms on fiscal deficits and to reduce expectations of inflation. Officials were grappling with the so-called time-inconsistency problem of monetary policy; in other words, authorities talked of non-inflationary monetary practices but later caved in as they attempted “to boost employment temporarily.”²⁴ They wondered, too, which indicators were used by financiers to assess the stance, direction, and objectives of monetary policy. By at least late 1987, officials were recommending talking points for ministers’ speeches, contacting journalists at influential dailies, “correcting” columnists, and softly badgering the government to show that it could manage spending.²⁵ Aware of the several alternative theories connecting the balance of payments, exchange rates, interest rates, inflation, and wages, Treasury and Reserve Bank economists paid attention to the role of perceptions and anticipations.²⁶ During the preparation of the Reserve Bank of New Zealand Act (1989),²⁷ the time-consistency issue figured in the many-sided economic and political arguments over what a central monetary institution could do to achieve price stability or indeed whether that should even become the paramount concern.²⁸ With a lean toward price stability, the entire time framework of monetary policy shifted from short-term to very long-term.

The global monetary turbulence of the 1970s and into the 1980s made the past look quaint. From 1870 to 1914, capitalist countries sleepwalked in a lucky reverie of price stability during a worldwide economic expansion.²⁹ Prosperous years in the developed economies could have been inflationary but were not remarkably so. Bankers’ management of the gold standard worked against debtors by maintaining domestic price stability or occasional deflation. There was another expression of banker-directed steadiness. Leading European banks trained understudies, and a few emigrated, transmitting prudential values to colonies and later to newly emergent countries.³⁰ Fraternal bankers ran monetary affairs with little direct political interference, although some states reached out to private bankers on account of revolutions, war, reconstruction, and reparations. Nineteenth-century France was notable.³¹

By discretion, tacit rules, personal familiarity, and the gold standard, a country’s senior bankers handled monetary matters. The openness of economies and a recognised connection among the balance of payments, gold, and domestic prices provided “the accepted frame of reference” –one that highlighted an equilibrating tendency in commerce.³² In the context of the turn-of-the-century emergence of nation-states and the male voting franchise, this system’s restrictions on policy options that inflicted hardships on labourers and rural producers carried political liabilities. In the context of the hard reality of international market competition, gold furnished exacting clarity on economic performance since it was a special asset, not a liability of any financial institution, and therefore free of direct control. When traded goods had their prices equalised by a common standard, a country that ran a balance of payments deficit had to adapt sooner or later. An outflow of gold to cover purchases affected credit and spending, meaning that “the gold standard was a kind of information standard.”³³ Some believed that it could automatically achieve price stability, but the reality was somewhat different. Bankers understood that a rule-governed system was unattainable. The governors of the Bank of England made judgments according to circumstances. To make the best of a combination of gold and discretion, trading partners established convertibility accords. Smaller countries hitched themselves to a major currency, typically that of a big neighbour. In 1866, France initiated a Latin Monetary Union comprised of France, Italy, Belgium, and Switzerland.³⁴ The colonies of European powers associated their monetary system with that of their imperial metropolis. Bankers and governments in most British colonies were affiliated with the pound sterling, a system anchored with the gold sovereign. To facilitate trade with the United States, Canada broke away and adopted the dollar in 1858.

New Zealand entered the budding international monetary system as a cadet member of the pound sterling club. British notes circulated. Prior to 1934, six local trading banks added their banknotes and conducted foreign exchange transactions. An association of Australasian banks housed in the City of London handled the balance of payments current account and the capital account.³⁵ When this consortium supplied foreign currency to cover New Zealand’s imports, members drew on reserves generated by exports, capital movements, and operations in gold markets. Until 1929, the Australian and New Zealand pounds were connected in the City of London at a one-to-one parity and traded at this parity against the pound sterling. Then, in early 1930, the association began selling the New Zealand pound at a 9 per cent discount.³⁶ In a desperate step to promote exports, the government further devalued the nation’s currency in 1933, selling the pound at a rate of 1.25 to 1. Par exchange was restored in 1948. In 1967, the country adopted the dollar, aligning it with the Australian dollar. From 1971 to 1973, the currency was tied to the US dollar. Parity was becoming complicated.³⁷ The content and tempo of adjustments to the nominal exchange value of New Zealand’s currency mirrored turbulence in the world economy and its transition from the Atlantic to the Pacific economic sphere.

Returning to the less volatile bankers’ waltz age, we find that the United Kingdom recirculated some surplus through investments abroad, adding to the capital account of other countries, especially the settlement colonies, including New Zealand. The injected capital tended to be long-term and connected to public-works projects. In effect, a leading trade-surplus country transferred some of its balance of payments surplus, helping to maintain the international monetary system more or less in equilibrium. It helps to think of personal banking. The balance of payments can be thought of by its alternate name, the current account. As with an individual’s current account at a commercial bank, earnings go in and expenditures go out. A personal banking analogy is less suitable for the capital account. Consider it similar to a loan. In some instances, it was a loan, money borrowed by the state. The capital account dealt with assorted injections and thus presented the challenge of figuring out how much of this money should be mopped up to bring money supply into line with national economic growth.

Capital injections in the nineteenth century came through imperial channels. The big winners in the British Empire were not metropolitan manufacturers and financiers but settlement colonies, which received better financing than if they had been independent countries.³⁸ Subjectivity in monetary affairs played a part in these capital movements. Settlement colonies were believed more trustworthy than other locales, notwithstanding Australian booms and busts.³⁹ When the United Kingdom purchased exports from food-producing neo-Europes like New Zealand, these purchases also helped with the balance of payments.⁴⁰ The First World War upset the money cart, but prior developments in private banking in the City of London were recognised as capable of causing instability too, presaging volatility from capital flows at later dates. For example, in the mid-nineteenth century, the United Kingdom introduced limited liability for banks, and most banks choosing this form of incorporation were new entrants to the trade.⁴¹ Furthermore, the growth of big-deposit banks during the railway age meant that “more and more, it was the market [discount] rate … the rate set by commercial banks” that served as the benchmark. By the 1890s, the Bank of England could no longer control the international money market.

At different speeds and scopes, many countries’ authority over money and credit devolved to private-sector agents and their networks. When Bank of England directors realised that this change had occurred, they began working with other central banks and foreign governments.⁴² The intimacy of the City of London’s brokers and bankers also extended to an enlarging international community of bankers, for there was no equivalent of a central bank for countries or national central banks. A century later, a comparable spreading-out of the monetary system to include a variety of agents frustrated what the Reserve Bank of New Zealand could do to counter inflation. The gross flows of the capital account stood out, exercising enormous significance in global monetary affairs. By the 1970s, capital flows were multilateral and global rather than bilateral and imperial. What mattered was the net capital flow. Bankers’ arranged networks to handle the volatility of in and out transactions. Banker networks served New Zealand well when its Reserve Bank required short-term loans immediately to cover its runs on foreign currency in June and July 1984. This crisis and its resolution form an archetypal episode, displaying the risks associated with monetary policy in a managed economy and the advantages of floating a currency. The liquidity problem and a separate campaign to control inflation generated flurries of contentious and confidential correspondence, depicting monetary activity in fast-moving conditions. Speed and networks, defining traits in a progression of global integration, were remarkable in finance. They challenged central bankers.

EXPOSURES TO POLITICS

As the international monetary system grew, it accumulated risks. But as long as currencies were convertible to gold, price stability remained ascendant. The colossal spending on the First World War destabilised financial arrangements when belligerents suspended gold convertibility.⁴³ At a League of Nations conference in late 1920, one of many assemblies dedicated to putting Humpty Dumpty together again, delegates feared that debts on the scale incurred by the belligerents were a path leading to general ruin. Their report recommended that countries without a central bank should establish one.⁴⁴ Many did exactly that; however, most of these banks promptly abandoned price stability when their governments instructed them either to print money in order to finance the war debt or to loosen credit for an economic stimulus. The inability of central bankers to stop funding state deficits tipped the balance away from price stability and toward liquidity.⁴⁵ Monetary policy was out in the open, exposed to politics and debates in a new field of formal study.

Inflation and debt levels varied so much from country to country that finding agreement for a reconstructed international economic order was doomed, particularly since states could not agree on trade arrangements to help adjust the balance of payments.⁴⁶ This problem would never disappear. Extensive negotiations throughout the 1920s were not without result. Central banking took an international turn in 1930 when a rescheduling of German reparation payments required a special bank to manage arrangements. Expanding from its original European and American operations, this Bank for International Settlements in later decades provided central bankers with research and data while assisting countries that faced foreign exchange crises. New Zealand was one.

There was a less inflationary approach to funding the First World War. The United Kingdom and the United States ended wartime government domination over their central banks in late 1919. To finance its war effort, the United Kingdom made greater use of taxation and the capital resources of the community than did other belligerents.⁴⁷ Extremely long-term bonds were sold to the public, although subscriptions fell short of needs. The Bank of England plugged the gap by a masterly deception to buy bonds itself.⁴⁸ The purity of central bank independence was a lesser or greater fiction. The central banks of France, Germany, Belgium, and Italy continued to lend to their governments after the war, a financing of national reconstruction that led to currency devaluations and hyperinflation.⁴⁹ Governments had to reverse course. Due to inflationary crises, “the large number of central banks which were newly established or reorganised after the war had their powers of making advances to the State or their buying of Government securities severely restricted.”⁵⁰ From his study of the big inflations of the early 1920s, economist Thomas J. Sargent (who would win a Nobel Prize in 2011) draws a conclusion to remember. The measure that ended hyperinflation in Germany, Austria, Hungary, and Poland was a wide public understanding “that the government would not rely on the central bank for its finances.” The banks refused the governments’ demands for more unsecured credit, and the governments increased taxes. Bank note expansion continued, although it was backed by securities and an unmistakeable commitment by governments to pay their overdraughts.⁵¹

It is convenient to note here, rather than later, that during the 1980s the New Zealand state was restricted to an overdraft not exceeding one-quarter of total taxation in the preceding financial year, and the public account could not be in overdraft at the end of the financial year. Not all states had learned the lesson of the 1920s; New Zealand’s Treasury had done so, but it resented the Reserve Bank’s demands for government securities when the overdraft limit was exceeded, as happened in 1985.⁵² As part of a wide-ranging rearrangement of public accounts (chapters 5 and 12), Fourth Labour transferred deficit management to a separate Treasury Department office, believing that it could negotiate with international financial institutions to secure better terms than could be obtained by instructing the Reserve Bank to put securities out for tender. Essential to most modern states and financial markets, deficit financing was far better understood in the 1980s than in 1920. Consequently, there was a much less severe bout of inflation. In damping down what was nevertheless dangerous inflation in the 1980s, New Zealand implemented measures – namely fully funding deficits and broadening the tax base – that had worked for inflation-burdened central European states in the early 1920s.

The gold standard had a brief revival from 1925 to 1931. In Britain, a controversial political decision pegged gold parity to the pound at the pre-war rate, thereby restricting money supply, undermining exports, and curtailing employment. As a result of nationalist economic policies run in part by competitive devaluations of currency, the return to gold produced accumulations in the United States and France. Gold’s scarcity in Britain and throughout the remainder of the international monetary system imposed far too great a deflationary influence. Finally, to improve liquidity and to stimulate trade, state after state abandoned gold. The most influential financial countries had wandered separately and uncooperatively into unchartered monetary territory.⁵³

The demise of the gold standard decoupled nominal exchange values from the real values, but very few countries could ignore the balance of payments, which influenced the real exchange rate. Throughout the capitalist world in the bankers’ waltz age, smaller countries that had persistent balance of payments deficits found their growth threatened and their access to foreign exchange squeezed. In these decades, they could meet deficits by reduced state spending and by tightening liquidity, actions intended to reduce factor costs and to restrain imports. There was a politically comfortable option, namely using central banks to advance credit at below market rates to producers and to the state itself.

New Zealand politicians embarked on the latter course in the late 1930s. The establishment of a state-run central bank capable of expanding the money supply came late relative to the increase in the number of central banks in Europe, which had risen dramatically in the 1920s. In 1934, a coalition government chartered the Reserve Bank of New Zealand, which briefly operated as a semi-private entity. In 1936, the First Labour Government reorganised it as wholly government-owned and in 1939 placed it under ministerial direction.⁵⁴ The scope of state intervention waxed and waned with the country’s economic fortunes, changes in government, “the relative strength and influence of the people involved,” and the appearance of international monetary agencies.⁵⁵ Generally, the state acquired more tools for intervention in monetary affairs until 1984.⁵⁶

The Reserve Bank’s functions snowballed. After First Labour’s 1938 re-election, the government began banking with the Reserve Bank, whereas some central banks, such as the Bank of Canada and the Federal Reserve System in the United States, did not handle government cash.⁵⁷ None of the Reserve Bank legislation in 1936, 1939, 1950, 1960, 1964, and 1973 specified clear and measurable objectives but stated undefined aspirations. Understandably, the bank kept the Public Account, which included the Consolidated Fund, the Social Security Fund, the Public Works Fund, and others. Incrementally by the 1980s, it had also ended up maintaining accounts for the Dairy Products Marketing Commission and for the Apple and Pear Board, and it advanced loans to government departments, agencies, and the dairy commission at rates far below the market.⁵⁸

Next, the state became a client-cum-master that willy-nilly acquired trading departments. Using the public accounts at the Reserve Bank, it could conceal losses incurred by these government enterprises, covering them by means of cross-subsidisation from state revenues, the bank’s revenues, or the state’s fiscal deficit, funded by sales of state-issued securities. Apart from a lack of transparency with respect to who was subsidising whom and the trouble that it created with trade relations, the handling of state overdraughts and the associated management of injections of liquidity were not easily harmonised because of their size. Overdraughts at the Reserve Bank, running into hundreds of millions of dollars, caused serious difficulties for monetary management. For two months in the 1982–83 fiscal year, the dairy commission’s overdraught at the bank exceeded $1 billion.⁵⁹ To neutralise the printing of the money needed to cover overdraughts, a government striving to fully fund its deficits had to sell bonds, an operation contributing to inflation, because local and foreign investors eyeing the country’s troubles demanded a good return, which set the government competing with banks or loan companies for investors’ capital. In this circumstance, the money market’s discount rates drive up the interest rates charged to borrowers. The Reserve Bank’s multiple duties obstructed clear messages about its monetary policies. Commercial banks functioned more efficiently if they could make reliable judgments about liquidity across the economy. Government interventions, losses from state trading departments, and Reserve Bank coverage of marketing board overdrafts hindered these assessments.

No neat progression describes the accumulation of Reserve Bank responsibilities that impinged on credit and money supply. In 1953, Prime Minister Sidney Holland and the First National Government (1949–57) directed that the bank should not be required to grant interest rates below the market to government departments. Apart from that, the trend was decidedly interventionist.⁶⁰ Piecemeal populism, nation-building aspirations, and faith that public officials had enough information to micromanage the economy added to the bank’s functions. By the 1960s, the Reserve Bank’s governors oversaw complex economic decision making with a distinct lack of enthusiasm for government intervention. Governors Gilbert Wilson and Alan Low criticised interventions for their unintended distortions in the finance and credit sectors.⁶¹ Interventions of growing importance applied to foreign exchange.

Labour and National governments employed the Reserve Bank to manage foreign currency, responding to changing conditions. In distinct periods and circumstances, control of foreign exchange involved import licensing, currency controls, and setting parity rates by a variety of methods.⁶² The idea of manging exchange arose forcefully in the Great Depression and was practised by First Labour’s minister of finance, Walter Nash (1935–49). On arriving in office in 1957, the Second Labour Government (1957–60), led by Nash, almost had to borrow overseas to deal with a dire balance of payments deficit but instead resorted to increasing import controls.⁶³ In 1960, this expedient proved inadequate due to the near depletion of the bank’s reserves. For the first time, the Reserve Bank engaged in short-term overseas borrowing to cover the foreign exchange needs when the balance of payments current account and capital account came up short. The episode foreshadowed the foreign currency liquidity bind in June and July 1984.⁶⁴

The balance of payments problem of 1960 led National Party prime minister Keith Holyoake to sign on to the Bretton Woods Agreement the following year. New Zealand had been one of the last holdouts, along with the Soviet Bloc, Portugal, Switzerland, and Liberia. Labour opposed membership. Nash’s biographer, Keith Sinclair, caricatures opposition as “anti-American leftists, anti-American funny-money men, Social Creditites, and economic troglodytes in general.”⁶⁵ Nash suspected that affiliation with the International Monetary Fund (IMF) would nudge New Zealand toward fiscal discipline. War provided an escape from austerity. American expenditures for the war in Vietnam began to pump money into the world economy in the mid-1960s.⁶⁶ In 1971, a quarter-century-long international experiment with managed parities ended, removing a measure of discipline without which many countries expanded their money supply more rapidly than before.⁶⁷ To understand the unruly transition in worldwide monetary policies during the 1970s, I need to revisit the impact of war, this time looking at 1944 and the Allies’ efforts to avoid a disequilibrium in the balance of payments after the Second World War.

WISHFUL PRONOUNCEMENTS ENCOUNTER INEXORABLE REALITIES

The Allies negotiated a system of currency exchange rates in July 1944 at the New Hampshire resort of Bretton Woods. The agreement aimed to shore up international cooperation on the maintenance of liquidity in the world economy, an objective to be accomplished by supervising exchange rates and trade practices. Founding states steered clear of rules for capital flows and economic development. The objective may have been narrow, but it still concurred with postwar enthusiasm for international cooperation and planning.⁶⁸ Economic organisation by wartime belligerents “helped push post-war economic policies in the developing world toward state intervention.”⁶⁹ Bretton Woods and its agencies – the International Monetary Fund and the General Agreement on Tariffs and Trade – cautiously advanced the regulated-economy spirit of the times, fostering the careers of public servants and economists in state and transnational agencies. The hope was that soft coordination of exchange rates could mitigate the influence of national politics on international liquidity. The quantified measures of desirable adjustment were national balance of payments accounts. In terms of New Zealand’s history of dirigisme, a healthy current account meant taking steps to encourage exports and to restrain imports in order to prevent a series of annual balance of payments deficits. Stabilisation legislation of the late 1940s and subsequent amendments perpetuated the state’s powers of intervention, many to be exercised by the Reserve Bank on instructions from the government of the day.

Unless a country required an emergency loan to assist liquidity, the Bretton Woods system relied on member countries voluntarily accepting changes to their domestic policies in order to reduce discrepancies among their balance of payments circumstances, either deficits or destabilising surpluses. Reflecting on the system’s collapse in the early 1970s, Roderick Deane explained in 1976 that “countries were too often reluctant to undertake, or even contemplate, changes in exchange rates despite growing evidence of incompatibility between nations’ domestic policies and their exchange rate policies.” Countries with balance of payments deficits and others with surpluses resisted varying their exchange rates to reflect imbalances. Capital flows had a “vastly increased magnitude.”⁷⁰ Deane was writing in the aftermath of a “silent revolution” of August 1971, when American president Richard Nixon responded to balance of payments deficits that were depleting American gold reserves by abandoning the system. There followed repair efforts, including guidelines for a floating exchange rate.⁷¹ As economist Charles Kindleberger of the Massachusetts Institute of Technology stated in 1972, international monetary relations also had “a high content of pure politics.”⁷² Bretton Woods died, but its agencies lived on to smooth liquidity.

By 1973, it was apparent that a renewed stab at well-ordered parity arrangements was unlikely. Resigned to a new order, the IMF accepted greater freedom of member countries to adjust exchange rates. To maintain some stability, major countries agreed to intensify their consultations via central banks and finance ministries. Political scientist Louis Pauly, who has studied the resurrection of the IMF, puts his finger on the challenge, as well as on an achievement that was more robust than it seemed, when he explains that national political responsibilities conflicted with global economic imperatives to shape “a weakly institutionalised regime for macroeconomic policy coordination.”⁷³ It has been significant that members of the IMF, the Group of Seven, the OECD, and the Bank for International Settlements “subject their policies to the scrutiny of their partners.”⁷⁴

Without a solid greenback anchoring the system, monetary officials in many countries worked at strengthening their relationships with commercial banks at home and abroad. In a history of finance capitalism, Ranald Michie stresses that “with the collapse of the era of fixed exchange rates in the 1970s, international money and foreign exchange markets regained their importance.”⁷⁵ Standby arrangements for help became an integral safety measure in the foreign exchange aspect of money supply. Starting in 1977, the Reserve Bank of New Zealand established official but expensive standby facilities with Lloyds Bank, Citicorp, and the Bank for International Settlements.⁷⁶ More linkages were formed during and after the crisis of June and July 1984. Reserve Bank historian John Singleton and colleagues remark that the emergence of Pacific area cooperation in the 1990s extended to “accelerating the development of bond markets in the region.” Several young Chinese central bankers came to Wellington for training and experience.⁷⁷ Important relationships with Tokyo joined those with London, New York, and Washington.

Once the greenback’s convertibility into a gold parity was gone, there remained an underlying need for monetary discipline, a need expressed by the conjectural real exchange rate, known variously as the equilibrium rate or simply the real rate. It influenced sales and purchases of a currency regardless of a government’s wishful pronouncements on parities or its influence over a central bank. In the 1970s and 1980s, economists modelled the real rate with various conjectures. No clear-cut winning model resulted, but an underlying rate, an accepted reality, threatened as a verdict on a country’s relative competitiveness.⁷⁸ Governments might ordain a nominal rate and require the central bank to defend it, but the real rate stalked in the balance of payments, waiting to pounce on the more glaring fictions of declared parities.

Central banks charged with supporting an exchange rate had to buy foreign currencies and pay the vendor’s premium. A black market often communicated the real value. After the collapse of Bretton Woods from 1971 to 1973, many economists and monetary policy experts accepted that floating exchange rates were necessary to cope with the costs of combatting speculative opportunities in the breach between nominal and real exchange rates. Among the advocates was James Tobin (awarded a Nobel Prize in 1981), who pointed out that floating could be “credited for accomplishing economically desirable revaluations without currency crises.”⁷⁹ In Silent Revolution: The International Monetary Fund, 1979–1989 (2001), James Boughton explains the turn of events as arising from a presumption that floating rates “would adjust quickly toward equilibrium ppp [purchasing power parity] levels” and that “market forces would keep actual exchange rates close to equilibrium in the absence of government intervention.”⁸⁰

Instead, New Zealand joined many countries and opted for a fixed parity, which was not truly fixed but occasionally devalued. Specialists who traded in currencies estimated the divergence in a country’s nominal from its real rate and punted on when a devaluation would have to be announced. So long as a government tinkered with the nominal rate, there was no true market for the currency, except perhaps the informal or black market. To preserve trust in the financial system, New Zealand purchasers of foreign currency who bought at the nominal rate in due course had to be serviced by the Reserve Bank, which, in the absence of a market, immediately carried costs that ultimately were borne by taxpayers. In common with the other hidden subsidies attending an interventionist economy, the cost of the pegged rate was not visited directly on individuals but sapped state resources and contributed to fiscal deficits. Although voters did not feel these reallocations directly, they cut into the state’s consolidated revenues.

Robert Muldoon, prime minister and finance minister rolled into one, was loath to accept market judgments. For a short time, however, he almost accepted that nominal and real rates had a relationship. This happened when he introduced a crawling peg in 1979. A better arrangement than a more sustained pegged rate with large periodic revaluations, a crawling peg set parity in relation to a set of trade-weighted currencies. If the balance of payments deficits had not been so serious (at about 5 to 8 per cent of gdp), a peg that inched down might have functioned as a stabilising mechanism linking the nominal exchange rate to the real rate.⁸¹ As with the fixed peg, the central bank still had to buy and sell currencies in order to keep parity within a bracket of values. The periodic adjustments interacted with fiscal and other monetary measures, making money supply inordinately variable.⁸² New Zealand’s crawling peg slid as its balance of payments fell into the red. The dollar declined enough to be blamed for some inflation but, in producers’ estimations, not fast enough to help exports. The costs and risks of providing currencies at parity were carried by the Reserve Bank. Plus there was a microeconomic influence attending the fixed peg and to a lesser degree the crawling peg. Along with the country’s cornucopia of subsidies to rural producers, pegged rates obscured price signals, which producers needed for a sense of export markets and shortcomings in production chains and in marketing relative to their competitors.

As part of a heterodox offensive against inflation that employed a wage and interest rate freeze, Muldoon reinstituted the fixed peg in July 1982, ending a brief experiment with liberalisation.⁸³ When demands for foreign currency to meet business requirements were combined with the state’s scheduled overseas debt repayments, now substantial and often denominated in foreign currency, New Zealand’s reserves required very careful tending. The nightmare of demands converging on a shrinking supply could be deferred; at a cost, foreign currency could be secured to defend the nominal rate. The Reserve Bank could also provide businesses with forward contracts to relieve immediate pressure. Rigorous currency controls were another possibility. All defences of the nominal rate required central management, which made intermediation costly and awkward for businesses. Queues formed, and smaller borrowers “invariably [found] themselves at the end of the queue.” Thus, as well as being inefficient, exchange management was unfair.⁸⁴

In an economy with poor productivity, the pegged rate put pressure on New Zealand’s reserves.⁸⁵ Divergence between nominal and real rates presented one monetary predicament in the managed economy. Others included the difficulty of fully funding fiscal deficits by bond sales when Muldoon resisted tendered bids because they would have allowed market assessments of his government.⁸⁶ Failure to fully fund the deficit injected money unjustified by domestic economic growth.⁸⁷ Additionally, there was the Reserve Bank’s social policy requirement. Historian Gary Hawke stated in 1973 that “the bank has accepted that full employment is a desirable objective,” and he noted that a loose credit policy “allowed [import consumption] to remain higher than the balance [of payments] advised.”⁸⁸ The balance plunged catastrophically in 1975–76 and descended deeper in the early 1980s. Price sensitivity for commodities had returned to the world economy. Furthermore, the United States was pressing for a phasing-out of subsidies in compliance with the General Agreement on Tariffs and Trade.⁸⁹ On the other side of the ledger, exports were in trouble. In 1980, the largest plant closure in New Zealand history embodied the structural failure. The Southdown Freezing Works ceased processing meat for export, eliminating 1,000 full-time jobs in an industry suffering overcapacity. Deteriorating competitiveness in meat exports meant that the balance of payments deficits had to be financed with volatile capital inflows.

Economist Brian Easton supposes that although “a fall in terms of trade [could] bring import substitution, this did not happen because the country needed so many new high-tech items: photocopiers and aircraft for example.”⁹⁰ In 1974–75, the terms of trade collapsed, with the export to import price ratio decreasing from 106 to 66, before hovering at around 72 for the next ten years.⁹¹ This picture needs modification. The high-tech imports were part of the picture; there were also consumer imports.⁹² In a small market that imported consumer goods, raw materials, components, and capital equipment, basic consumption compounded the difficulties. An overvalued currency and inflationary expectations invited immediate import spending that exacerbated a balance of payments deficit. Only in five of the years between 1953 and 1983 was a balance of payments surplus achieved. A short commodity price boom in 1972–73 produced a slight increase in net exports but was treated as though it were a permanent increase in national income. Then in 1974 the balance of payments fell sharply into deficit and stayed in the red, gdp per capita fell (before holding fairly static for fifteen years), the savings rate plummeted, and business confidence nosedived.⁹³

Domestic adjustments that might have aided did not happen; quite the opposite. The macroeconomic policies of both the Third Labour Government (1972–75) and the Third National Government (1975–84) were pro-cyclical in a Keynesian sense, boosting an import demand that prevented improvements in the current account. Since the deficits in the current account were financed by increased foreign liabilities when long-term interest rates were rising, the cost of servicing loans fed back into the current account as an outflow. ⁹⁴

New Zealand had to trade its way out of difficulties because it had only an infinitesimal income from intangible services.⁹⁵ A few politicians and public servants recognised that the country’s long-term economic challenge was “to break the constraint of the balance of payments on our economic growth and on our standard of living.”⁹⁶ There were courses of action. First, by various inducements, exports could be increased and imports restricted. This approach doubled down on existing interventionism. Second, structural reforms could be introduced in an attempt to bring down factor costs, hopefully making production competitive without reliance on subsidies. The country’s interventionist economic structure after the Second World War, particularly labour relations, would make restructuring painful and politically risky.⁹⁷ Standing pat was no solution. To break the constraint and avoid a painful unwinding of interventionist practices, which Prime Minister Muldoon did not want, he pursued three expedients: subsidies for rural producers, export inducements for manufacturers, and state-funded diversification of the economy. On account of the immense overseas borrowing required, the latter programme, known as Think Big, destabilised monetary balance by injecting money through the capital account at a time when Muldoon blocked bond discounts of the scale needed to mop up the money borrowed to meet fiscal deficits. There were inflationary consequences.

think big, think small, and subsidise

Unfurled by Muldoon in 1980, the Think Big slogan presented the semblance of a coherent policy for major new energy projects, although there was also a commitment to a state-owned steel mill. “The term came to embrace almost any new factory opening,” but energy projects were the centrepiece. An experimental refinery and a methanol plant, subsidized through state partnerships with private companies, were exposed to a drop in petroleum prices. The Energy Department was predicting greater demand for electricity and embarked on building dams and generating stations. When it appeared that this infrastructure would provide surplus power for some time, the government looked for new users, settling on aluminium refineries.⁹⁸ Concessions were made to private-sector business partners.

Minister of Energy Bill Birch (1978–84) was close to Muldoon, having supported his leadership during a fizzled coup. One official said of Birch that “he was very much into aluminium smelters, steel, synfuels, and anything else that was really big.”⁹⁹ Big was in. Birch pushed ahead with projects that realised cost overruns. Price rigidities in an overcontrolled and overprotected economy, which had the effect of denying downward flexibility in real terms, fostered a cost-plus mentality and led to the state covering the excess. In defence of the energy projects, forecasting future demand and supply was complicated by the 1971 and 1979 oil shocks. In 1977, the National government continued energy expansion with what was in effect a “think small” programme, taking an approach that, in relation to uncertainties shared by other oecd countries, made sense. In haste, however, vital cost-control measures were not exercised. A Swiss loan was taken out to assist local authorities with building local generating facilities. Some schemes experienced cost overruns and produced electricity at costs above bulk rates. Eventually, there was a $200 million foreign exchange loss on the loans. The government had committed the state to assuming all financial risks.¹⁰⁰ Although ill-considered, development projects typified a method tried by a few countries. After the supply-control actions of the Organization of the Petroleum Exporting Countries (opec), energy independence figured in the picture.¹⁰¹ Historical memory possibly inspired emulating Julius Vogel’s Great Public Works Policy, the loan-funded nation-building scheme of the 1870s.¹⁰²

When in office in the 1960s and 1970s, both National and Labour prepared an alphabet soup of programmes to nourish exporters. Exportled growth was fine so long as the country’s strengths were allowed to emerge naturally, but tinkering was a political temptation with fiscal costs. Nothing in the history of export supports for manufactures recommended this practice.¹⁰³ The Export Guarantee Office, set up in 1964 by the Second National Government (1960–72), insured exporters against non-payment by foreign buyers. The minister of commerce had the authority to compel the office to write a contract in the national interest. The state paid the insurance losses. In 1973, the Third Labour Government (1972–75) used the state-owned Development Finance Corporation to manage an Export Suspensory Loan Scheme to assist businesses that promised the development of products with a high export performance. Applicants had to promise a net increase in New Zealand’s exports. Interest paid went to cover the expenses incurred to manage the scheme. If a firm achieved a 40 per cent net increase in the value of its exports, the loan converted to an outright grant.¹⁰⁴ Public servants managing the scheme were ill-equipped to handle the shrewdness of producers. In 1982, a miscalculation of grant conversions left the Trade Department short of programme funds.¹⁰⁵

Aware of the desirability of achieving a trade surplus, Third Labour created the Export-Import Corporation in 1974 to aid producers who lacked the resources to market exports. The undertaking, which favoured centrally planned economies, including those of China, North Korea, Venezuela, and the Eastern Bloc, achieved little.¹⁰⁶ An Export Performance Incentive programme, run as a tax credit, was a greater failure. A schedule that ranked products by their proportion of domestic input was lined up with the product’s estimated return to the balance of trade. Producers could claim a percentage of this export return as a tax rebate.¹⁰⁷ For the three years of 1980–83, the cost was $263 million.¹⁰⁸

The public works and the export aids required borrowing. Although costly, it was dangerously easy. The availability of international money in the 1970s and 1980s made delays in adjustments easier to finance.¹⁰⁹ As Harold James writes in a history of monetary cooperation, such facility “seemed to lend a new attraction to the older populist argument about the excessively high costs of adjustment.”¹¹⁰ A time of reckoning might have arrived earlier except for American expenditures on the war in Vietnam, a massive injection of money into the developed world. There was also a recycling of opec money. The Third Labour Government found that it could borrow due to funds accumulating in the accounts of oil-rich countries. ¹¹¹

Other projects benefited from budget expansion too, and there is no doubting the design and engineering expertise in public works. For thousands of public-sector employees who later experienced the shock of economic restructuring, the corporatisation of their departments contravened “the unarticulated idea of what New Zealand was about,” namely state-led development.¹¹² But this was not the Vogel era. There was a mature economy, a reality recognised when Roger Douglas and his associate finance ministers turned to disentangling the state from projects that were not demand-led or that did not support infrastructure helpful to a variety of enterprises. They agreed that the borrowed funds could have been more wisely spent if commercial rather than political actors had made the decisions, a belief contributing to decisions to sell state enterprises.¹¹³ Attempts to control capital movements in aid of currency stability were dissolving in the 1970s, rapidly so in the early 1980s, not only because of the fiscal indiscipline evident in state-supported efforts to diversify the economy but also because of the growth of financial institutions, consumer credit, and financial instruments. Foreign entities with capital were cheerfully ushered through the backdoors of the regulated economy by some of New Zealand’s established financial intermediaries. New lenders operated in spaces beyond the reach of the Reserve Bank’s controls over credit expansion.¹¹⁴

the monetary populism of muldoon’s “final daze”¹¹⁵

Muldoon tackled inflation and fiscal deficits in erratic moves because he was convinced that high interest rates stoked inflation. In 1981, he tried to avoid a full funding of the deficit by an expedient for selling bonds outside market judgment.¹¹⁶ Trading banks were required to deposit assets with the Reserve Bank in accordance with a government-stated ratio to their liabilities. A minister of finance could lower or raise the ratio. In 1974, for example, the Third Labour Government undertook a stimulus by releasing funds through the banks by lowering the ratio, permitting banks to sell bonds held by the bank and to lend the cash realised from the sales.¹¹⁷ Muldoon’s tinkering with reserve ratios was a fiscal grab.

Coinciding with the launch of the Think Big projects, he began ignoring Treasury officials.¹¹⁸ They warned of inflationary effects since fiscal conditions currently required overseas borrowing, which loosened money supply. In time, the projects added to the costs of construction materials and tightened the market for skilled labour. Officials from the Treasury and the Labour Department were not convinced that these projects did other than redistribute employed individuals.¹¹⁹ Muldoon shrugged off the price-instability implications of running large fiscal deficits while exercising his new-found preference for imposing limits on interest rates. “Since he wished to avoid high market rates,” he occasionally cut off sales to institutions whose tenders substantially discounted the bonds, and in July 1983, he drastically cut interest rates on government securities, which also cut the rates on local government bonds, interfered with local bodies’ ability to raise capital, and disrupted small brokers.¹²⁰ His interventions highlighted a predicament created by large fiscal deficits. Sales of government securities met a fiscal need and mopped up the excess liquidity of deficits, but they simultaneously exposed a government to judgments by brokers and, in New Zealand’s case, also set off a competition between the Reserve Bank as a seller of securities and the private finance sector, which was seeking its own funds.¹²¹ Desperate to sell debt at an unappealing yield to investors, Muldoon increased the categories of eligible agents and started a radio campaign.¹²² With reluctant assistance from officials, he resorted to anything short of market pricing.

Abundant liquidity existed since one of the more important changes in the makeup of monetary institutions in the economically advanced world in the 1970s and 1980s was the growth of consumer credit, facilitated by hire-purchase (time payment) borrowing from finance companies and loan companies. A National Party government in 1965 allowed the trading banks to operate subsidiary loan companies.¹²³ These offices were busy in the 1970s and early 1980s. A substantial part of the money supply consists of loans from financial institutions, but lending expanded, too, through solicitors’ offices. Free from the reserve requirements of institutions, they matched investors with borrowers. Their loans-to-deposits ratio was 100 per cent.¹²⁴ As long as trading banks had to abide by a reserve ratio, they conceded a portion of credit business to less rigidly supervised lenders. Consumer demand for credit was all but impossible to measure or control. That was a feature of liquidity across and beyond the oecd. Local additions to liquidity came from government subsidised loans and outright subsidies.

In a report to Muldoon about his 1982 budget, Treasury official Graham Scott remarked that the fiscal debt’s ramifications “are certainly not consistent with an economic strategy which has inflation as its primary focus.”¹²⁵ Barry Gustafson, author of a sympathetic yet disciplined biography of Muldoon, rationalises the prime minister’s interventions as shaped by experience with the economic interventions of the Second World War. Muldoon had entered politics during fairly prosperous times; balance of payments deficits were modest, and surpluses occasionally appeared. Subsequently, in the mid-1970s, he found himself in “a rapidly and markedly changing world.”¹²⁶ Michael Bassett explains Muldoon’s actions as naked politics, citing his contention that the trouble with advisors was that a government would inherit the pain of their recommendations at the next election.¹²⁷ Whether a product of his generation, cynical vote buyer, national leader whipsawed by world economic events, or all of these things, Muldoon was an obdurate, at times menacing, populist whose overconfidence in his instincts delayed structural adjustments.¹²⁸ Guided by political intuition, he forthrightly yielded to pressure from farmers, manufacturers, and unions.¹²⁹

Muldoon now clashed regularly with Treasury and Reserve Bank analysts, who stressed the inflationary consequences of inadequately funded fiscal deficits. Raising ratios in order to force banks to buy more government securities could not endure as an annual expedient.¹³⁰ Besides, there was a monetary element to the Reserve Bank’s purchases of securities. The larger the proportion of sales to comply with the ratio, the smaller the sums of cash available for some institutions. Certain types of investors tended to hold bonds that locked up cash; nevertheless, because reserve ratio requirements enabled banks to leverage their bond holdings in order to expand their balance sheets, liquidity leaked back into the economy. Some analysts believed that if the prime minister had permitted interest rates to rise, instead of fiddling with the ratio of required securities, he could have dampened consumer spending and eased pressure on prices. With Muldoon resisting interest rate hikes and the Reserve Bank stuck with the decision, the central bank’s arsenal of liquidity controls was reduced to moral suasion. The Reserve Bank advised Muldoon to exhort the chartered bank’s executives to show moderation in their expansion of consumer credit. Moral suasion was used by central banks elsewhere too, but when it failed in New Zealand, Muldoon was in a self-imposed corner, never to concede that markets should set interest and exchange rates.¹³¹ His opposition to the Reserve Bank’s “understanding of the link between interest rates and inflation” foreshadowed “a return to greater reliance on administrative mechanisms for monetary control.”¹³² Control duly arrived on 22 June 1982 with a freeze.

When New Zealand’s inflation began to climb into double-digit territory in 1974, there were well-known theoretical explanations. Treasury and Reserve Bank officials were mindful of them and would have preferred applying remedies associated with both. The older theory proposed that increased spending raised the prices of goods and services, maintaining that an increase in the money supply, including credit, drove demand-pull inflation. Prices rose in response to an excess of aggregate demand over the supply of goods and services. It stood to reason that inflation was controllable by reducing demand through monetary and fiscal policies directed at containing cash and credit; however, this mode of containment operated on total demand across the entire economy, working indiscriminately. The Western world’s experience with the economy during the Second World War and immediate postwar period was fertile ground for a newer cost-of-production line of reasoning. Events during these years positioned producers and trade unions advantageously. They were credited with raising prices and wages above the level presumed to exist in conditions of real competition.¹³³ In New Zealand, the cost-of-production theory was tangible. The Federation of Labour and the Manufacturers’ Federation were protectionists. In the absence of competition, some members conceded wage increases.¹³⁴ The applicable modes of control did not operate across the whole economy but focused on wage fixing.

New Zealand also imported inflation, which was worldwide, although not quite as acute as locally.¹³⁵ New Zealand’s inflation had several origins. The country was an extreme showcase for the demand-pull and cost-push explanations. First, monetary injections were inadequately mopped up, and credit was unmanageable. Second, protected producers and a peculiar labour relations regime influenced prices. The contribution of organised labour to inflation (chapter 10) stemmed from a distinctive labour relations system. For years, some unions and some employers had cosied up in a corporatist embrace and had passed the wage increases on to consumers living in a market with import controls.¹³⁶ In structural circumstances that allowed a passing-on of wage increases without pressure on employers to improve productivity, Muldoon’s freeze could survive only as an interim measure, ignoring pent-up demand and the circumvention of wage controls by sneaky commitments from employers who promised employees future retroactive increases.¹³⁷ His freeze delayed demand-pull inflation, but his fiscal and monetary policies eventually caught up with the inevitable. A study of the only American experiment with peacetime mandatory controls over prices and wages, conducted from August 1971 to April 1974, had shown that their influence on inflation was minor and that, once ended, the artificially depressed prices “snapped back” above what they would have been without the controls.¹³⁸ New Zealand’s prices did exactly that and remained high.

Besides everything else that he was trying, Muldoon stepped forward in the early 1980s as a would-be global monetary reformer, ostensibly aspiring to overhaul the international monetary system in order to loosen credit.¹³⁹ He scolded the IMF for its uncompromising treatment of debt-encumbered developing countries. New Zealand had greater institutional completeness than developing countries, but due to poor terms of trade, it now languished, too, as a commodity producer.¹⁴⁰ So-called developing countries, however, had access to Cold War foreign aid for infrastructure, in accord with both American capitalist and Soviet communist economic development theories.¹⁴¹ Of course, to diversify and attain the economic take-off promised in development theory, Muldoon could not seek aid and had borrowed.

Muldoon’s ideas would have taken the IMF beyond its mandate. Major capitalist countries had countenanced the IMF only as a liquidity agency, not as an easy-going bailout agency, let alone as a development fund. In September 1982, weeks after a fiscal debt crisis in Mexico, Muldoon embarked on an international drive for a new world monetary regime to replace Bretton Woods and to relax IMF conditionality, the agency’s restructuring requirements for loan-seeking countries. The left in the Labour Caucus shared Muldoon’s objections to IMF conditionality.¹⁴² At a meeting of Commonwealth finance ministers in London in early September, he proposed greater flexibility than that allowed under the current IMF emergency loan policy, which required fiscal discipline. Muldoon further recommended establishing a World Economic Security Council, doubling the IMF quota for special drawing rights, and making these IMF-fabricated reserves available to countries with long-term structural problems.¹⁴³ Muldoon’s proposals were endorsed by many African, Asian, and Caribbean Commonwealth members. The United Kingdom, Canada, Australia, and a pro-business government in Jamaica opposed them.¹⁴⁴

On his way home, Muldoon stopped in Toronto. Besides enjoying an excursion to Niagara Falls and visits to Woodbine Racetrack, he raised the subject of a new credit regime at an annual joint meeting of the IMF and the World Bank. The prime minister and his overseas supporters wanted assistance on generous terms to relieve internal problems. In addition to a split in opinion over what international monetary bodies should do – rescue governments from themselves or concentrate on the well-being of the system – governments in several of the world’s larger economies had recently tightened money to combat an inflationary crisis. Canadian and American officials favoured tight money.¹⁴⁵ Rebuffed by tight-money heavyweights in the Commonwealth and the United States, Muldoon sought backing from the Commonwealth heads of government in the Asia-Pacific region when they met in Suva, Fiji’s capital, on 14 October 1982. Australian prime minister Malcolm Fraser knocked Muldoon’s ideas, alleging that the word’s economic problems originated in imprudent borrowing and domestic policy failures. Not one to let criticism pass without an escalation, Muldoon scorned Fraser. “He is not a Finance Minister,” he exclaimed. “It is not his field. That is not a criticism of Mr. Fraser. It is a fact.”¹⁴⁶

In May and June 1983, the prime minister resumed his crusade with a trip to Paris and Belgrade. Among major developed countries, only France showed interest, although merely for studying his ideas. French politicians long favoured a new form of IMF credit expansion.¹⁴⁷ Unwilling to relinquish his self-professed role as spokesperson for poorer countries, he took his proposals to Commonwealth leaders meeting at New Delhi in November 1983. The organisation agreed to establish a consultative group to promote a consensus on economic issues.¹⁴⁸ But by March 1984, his ideas for credit expansion had stalled.¹⁴⁹ In 1985, the IMF’s managing director supported the secretary of the American Treasury, James A. Baker, in his calls for more effective structural lending by multilateral development banks and for expanded lending by commercial banks. The IMF was evolving but not toward Muldoon’s plan.¹⁵⁰ Member countries qualifying as “developed” were expected as before to rectify their balance of payments woes with internal restructuring.

Critics wrote off Muldoon’s travels as diversionary stunts or junkets to build an image as senior statesman. It would be difficult to rule out this motive, although his initiatives also slipped into a global debate about the IMF and the ever-enduring challenge of recycling balance of payments surpluses. At home, his grandstanding ricocheted. The fact that the prime minister promoted a new monetary order to rescue debt-ridden countries fed uncertainty about New Zealand. His peregrinations roused journalists to review the history of the international monetary system and to publish economic indicators. They were uncomplimentary. Muldoon’s international overexposure, his accompanying he-doth-protest-too-much reassurances about fine economic health at home, and his policy stubbornness made currency speculation against the dollar a safer bet than ever. Time was running out.

5

Time Frames: From Short-Term Interventions to Long-Term Commitments

forex frenzy: a freeze, a run, a cut, and a float

Robert Muldoon’s freeze of nominal currency rates obstructed market judgment on the economy and fiscal debt. James Tobin has suggested a political reason for resistance to changes in parity, a reason that applies well to Muldoon in the early 1980s. Devaluations were “a loss of face and a blow to pride.”¹ Deferrals were feasible, but they were not an unconditional escape from the market’s judgment. As Tobin puts it, there was nothing worse than a pegged rate because governments rarely revalued upward. Any moving peg with periodic devaluations simplified speculation to a matter of timing a move against the target currency. New Zealand’s major businesses, producer boards, and astute speculators recognised an overvalued currency and appreciated that within certain rules the Reserve Bank of New Zealand had to satisfy calls for greenbacks at nominal exchange rates. For traders to take advantage of this requirement, their purchases had to be justified. Every trading bank, export marketing board, and importer worked with a maze of rules and controls rendered in a manual 10 centimetres thick. Reserve Bank traders referred to a pecking-order guide to the acceptable transactions.²

Rules notwithstanding, the private sector had moral claims to currency since it provided the main part of exchange earnings and had less exposure to exchange liabilities than the state, with its debt obligations. Legitimate deviousness, however, provided the real basis for profiting from the peg. What monetary expert Barry Eichengreen would say years later about capital controls applied to currency regulations in 1984. They “are less effective when applied to sophisticated financial markets, where investors often find ways to skirt the restrictions.”³ A widening current account deficit such as New Zealand experienced could cause an entire system of controls to “collapse in a heap.”⁴ Even interventionist-minded Paul Krugman, who thought that controls should at least be considered in an emergency, conceded that they are “hard to implement and enforce, they disrupt normal trading relations, and they may impair confidence for a long time to come.”⁵ New Zealand had traders who knew how to defeat enforcement.⁶ First, payment dates for exports were set overseas, making it impossible to force immediate returns in order to help with a run against the New Zealand currency. Exporters could finesse a delay in the repatriation of their proceeds until after a devaluation of the currency. Second, importers could make advance payments. So-called lags (the offshore funds held back by exporters) and leads (the advances of foreign currency to importers) make possible legal wagers against the nominal rate. The above-board movements of money through the mechanisms of the balance of payments current account bypassed capital controls.

New Zealand was no stranger to runs on foreign exchange. Historian Keith Sinclair describes the country in 1938–39 as “a tattered utopia.” Export receipts were falling, and “the trading banks were heavily oversold in sterling.” Loans and wartime demand in the United Kingdom for New Zealand meat saved the day.⁷ Periodically from 1952 to 1958, the Reserve Bank beat back runs by enforcing controls. Finance and trade were more sophisticated in 1984. Controls would have upset contracts and negotiable paper denominated in foreign currencies. Access to exchange was certainly not meant to serve speculation, but unavoidable legal gaps facilitated trading that exploited an opportunity made by Muldoon. Furthermore, conditions by 1984 were different, even from those during an election-precipitated run in 1981.⁸ In late 1983, the agency Standard & Poor’s had downgraded the country’s credit rating; the balance of payments had weakened further. Prior to the 1984 election, newspapers reported an overvalued dollar.⁹ The dreaded hour of implacable convergence ticked closer. Economic indicators and knowledge of structural problems in the economy convinced parties familiar with exchange dealings that nominal rates could not survive. Fixed interest rates, part of Muldoon’s freeze, undermined the nominal exchange rate. Without the inducement of market-based interest rates and lacking favourable terms of trade, demand for New Zealand dollars contracted.

The crisis of June and July 1984 affords insights into a run’s origins, momentum, and spread to other parts of the financial system. It was a classic episode. The potential claims on New Zealand’s reserves included the external liabilities of the state, the Reserve Bank, the trading banks, many businesses, and households. The latent potential for a convergence of demands became manifest. In early 1984, Reserve Bank officials assumed that it would occur during an imminent election. If it looked as though Labour would win, demands from all who claimed access to greenbacks would soar since Muldoon alone rejected devaluation.¹⁰ He may have believed that New Zealand could hang on until the terms of trade improved. However, studies of these terms, hovering at 25 to 30 per cent below the long-term average, indicated that they had settled. The oil shocks had worn off, and these terms of trade weighed heavily on the side of a devaluation.

Muldoon could have been bluffing about defending the peg, attempting to save face before an election, after which he, too, would have devalued. His belief that a freeze could stamp out inflation makes this possibility unlikely. His political fortunes were destined to fall when the real rate dictated the pace and scale of speculation, a telltale escalation in the purchases of greenbacks at the official nominal rate. A judicious custom prescribed that, even if they were not bipartisan in origin, nominal rates were off-limits during election campaigns.¹¹ Silence benefited reformers in the Labour Caucus, who did not want to drive off voters with the awful truth that the rates would devalue. To their annoyance, the Labour Party executive heeded interventionist economists. The Labour Party Council accordingly opposed devaluation.¹² The subject faded into a prudent impasse until the reformers’ stance was carelessly leaked during the campaign when Labour’s spokesperson on agriculture, Colin Moyle, indicated his understanding of an overvalued dollar and the export situation.¹³ Muldoon kept the subject alive by reiterating that Labour would devalue the dollar. Close to Election Day, the New Zealand Herald reported that the IMF considered devaluation essential in order to leave room for dismantling import protection and export incentives.¹⁴

Certain that an election would precipitate a run, Reserve Bank officials stocked a war chest to handle a rush. Building liquid reserves was problematic due to routine currency sale commitments; however, there was a cache of Japanese yen-denominated bonds. The Treasury had locked up roughly half of its $1.2 billion of foreign currency in these long-term bonds. An emergency liquidation would force discounting when the yen was weak. Unfortunate, but so it had to be. The yen had to be converted to greenbacks. The bank’s deputy governor, Roderick Deane, had advised the Treasury months earlier to begin liquidating these bonds and converting the funds to greenbacks so that liquid funds would be available. Secretary of the Treasury Bernard Galvin had not yet done that, and the costly manoeuvre took time. On 14 June, Muldoon caught everyone off guard by calling an election for 14 July. The Treasury had expected it for November.¹⁵

There was speculation later that, fearing an exchange squeeze before November, Muldoon had slyly found a pretext to go early. Barry Gustafson’s forthright description of a rancorous meeting between Muldoon and National Party backbencher Marilyn Waring puts this notion to rest. In a rage, the prime minister made an impulsive decision. Waring had announced that she was leaving the National Caucus, but Muldoon’s administration could have survived with support from two Social Credit Party MPs. The snap election seems to have been called to teach Waring a lesson. An inebriated prime minister then held a press conference to announce the election date.¹⁶ Years later, a Cabinet colleague would remark that Muldoon had “lost his baskets.”¹⁷ The Thursday night election call determined a busy Friday at the Reserve Bank.

Managing the bank while Governor Spencer Russell was in Europe, Deane delayed opening exchange trading the next day. It was Friday, thankfully. Nevertheless, there was time enough for a big run to start. The bank received only spot purchases or swap orders. Reuters screens showed no traders giving quotes on forward cover, a chilling absence that convinced some businesses to go immediately to the spot market, accelerating the depletion of liquid reserves.¹⁸ In a few hours on that Friday, reserves fell by over $250 million. In the early afternoon, Deane called Muldoon to advise that the prime minister immediately announce a 15 per cent devaluation. He was told to put that out of his mind and asked about other options. Deane mentioned that the bank could provide forward contracts to relieve immediate pressure and borrow to build up reserves. He was told to take these steps. The provision of forward cover consisted of a contractual agreement to deliver, at a specified future date, a quantity of foreign exchange at the rate when the contract had been made. The bank was committed to taking losses on these contracts if there was a devaluation before the delivery date. On the weekend, Deane telephoned several central bankers and standby credit providers.¹⁹ Calling on standby arrangements, the Reserve Bank secured $500 million but discovered that “it could not access all its credit lines with overseas banks” because they quoted unacceptable interest rates.²⁰ Nevertheless, global connections and transnational trust helped enormously. On Monday, 18 June, the run continued. Muldoon held a Cabinet meeting that day. It seems unlikely that Muldoon showed them Deane’s advice to devalue by 15 per cent because several complained later that the prime minister’s refusal carried Cabinet collective responsibility, technically making them parties to a decision without seeing essential information.²¹

Stepping in to provide forward cover, the Reserve Bank initially charged a premium of 12 per cent, keeping it low to lure buyers away from the spot market. Thanks to a curiously convenient failure of a telephone connection, it dodged one trading bank’s order for $500 million of greenbacks, possibly originating with a producer board. Henceforth, the Reserve Bank intensified controls on potentially devastating demands, banning state-owned enterprises (sOEs) from borrowing foreign exchange, closing the market to non-residents, and lifting the forward premium to 20 per cent. If left unchecked, the demands from government trading enterprises could have exhausted the liquid reserves. The run slowed. Four weeks later, the reserves had been built up with loans totalling $1.7 billion. Funds came from the International Monetary Fund (IMF), Japan, the Netherlands, and the United Kingdom.²² Muldoon’s costly stand almost worked. In the background, however, the rush to dump New Zealand dollars had tightened liquidity among financial institutions and disrupted business. The post-election briefing paper that Reserve Bank officials prepared for an incoming government stated, “We would like to explore with you the possibility of a floating exchange rate.”²³ The day before voters went to the polls, a second run began. Treasury and Reserve Bank officials asked Muldoon to close the exchange for Monday. He refused.

From what became known as Black Friday the Thirteenth until the following Tuesday, Muldoon postponed the inevitable. Labour won the Saturday election. On Sunday morning, 15 July, Treasury and Reserve Bank officials held an emergency meeting. The latter explained that the bank could not withstand another run. That same day, they prepared a long briefing paper for David Lange, recommending a prompt deregulation of interest rates and “an investigation of moving to a floating exchange rate.”²⁴ The idea of a float was being instilled. Muldoon would remain prime minister until a Labour government could be sworn in, but that was days away. A stubborn, defeated, but presiding prime minister had to be persuaded to devalue the dollar. The Sunday morning group delegated the head of the Prime Minister’s Office, Gerald Hensley, to arrange a conference with the prime minister for later that day. Muldoon declined but agreed to one on Monday morning and consented to closing the Reserve Bank’s foreign exchange “window.”

On Monday morning, the start of a strange day in politics, Galvin, Russell, and accompanying officials met Muldoon at his Beehive office. The prime minister deplored a devaluation, claiming that it would undermine what he had accomplished in bringing down inflation through the coupling of a fixed parity with the wage and price freeze.²⁵ Galvin and Russell subsequently flew to Auckland to brief Lange. While in flight, Muldoon telephoned Lange in Auckland to suggest a joint communique that the dollar would not be devalued. Lange reportedly said that he would decide after he had been briefed. He went to the airport, where Galvin and Russell brought him up to date, along with Roger Douglas and David Caygill. Deane furnished more information in a phone call. Lange flew to Wellington and waited in his parliamentary office to see what Muldoon would do.²⁶ Muldoon waited to hear from the officials who had seen Lange in Auckland. Lange evidently told the officials to inform Muldoon that there would be no joint statement. The officials did not think that it was in their place to report Lange’s rejection of a joint statement since they had gone there to brief Lange. Eventually learning that Lange had imposed a twenty-four-hour news blackout on the exchange issue, Muldoon reported that he was rejecting Lange’s advice. Muldoon decided to go public.²⁷ During a Monday evening taped interview, he insisted that he would never devalue the dollar and lectured that “you don’t give in to every pressure.”²⁸

In a televised reply, Lange pressured the National Party. It had a responsibility to the country. National Party ministers who saw or otherwise learned of Muldoon’s television statement were alarmed. In the early hours of Tuesday, at least four MPs told Muldoon to do what Lange instructed or forfeit his leadership.²⁹ Although Muldoon folded, Lange insisted that he had to do more than devalue the dollar; he had to implement additional measures to stabilise the economy until the government-elect could act.³⁰ Muldoon had to serve as the incoming government’s agent. An overdue devaluation on 17 July 1984 delivered a bonanza to a few, a circumstance resented by those in no position to profit from Muldoon’s “pig-headed refusal to shift the exchange rate.”³¹ The state lost about $250 million on the forward contracts issued by the Reserve Bank.³²

Muldoon flailed on in Opposition. Soon after the new government was sworn in, Parliament’s Public Expenditures Committee formed a subcommittee to investigate the devaluation. On 13 September, when the Economic Summit showcase was in progress, the country’s four leading officials connected with monetary affairs looked in from the corridor while waiting to appear before the subcommittee. There was drama in public and in the wings. Galvin and Russell made a point of standing by their officials, Roderick Deane and Graham Scott, insisting that as heads they, not Deane and Scott, took responsibility. However, since Russell had been in Europe during the initial crisis and Deane was acting governor, Muldoon insisted on putting Deane on the spot, making it clear that he was the subject of an inquiry, not there to provide information. Deane was permitted no counsel.

During the crisis and later phases of the Fourth Labour Government’s reform drive, Deane was a pivotal figure.³³ By the mid-1970s, he had acquired outstanding experience with and knowledge of international banking. In research papers for the Reserve Bank, he critiqued how New Zealand’s financial system and the state interacted. When Muldoon briefly turned to economic liberalisation in the late 1970s, Deane cautiously praised this break. It was a false start. By 1982, the two were on a collision course; in both 1982 and 1984, Muldoon overrode the recommendation of the bank’s board that Deane should become the bank’s governor.³⁴

Trained in accounting in 1961–62 and educated in commerce and economics at Victoria University, where he graduated with a bachelor of commerce degree in 1964 and a doctorate in 1967, Deane was an award-winning scholar. His dissertation, later published as Foreign Investment in New Zealand (1970), was examined by economist Charles Kindleberger of the Massachusetts Institute of Technology. Employed in several capacities at the Reserve Bank from 1963 to 1974, he spent several months at both the Reserve Bank of Australia and the Bank of England in 1973. Overseas secondments like his exemplified efforts by central banks to build relationships in a financially integrated world that had to adjust to the collapse of parity controls. From 1974 to 1976, Deane had been the alternate governor for New Zealand at the IMF, returning to Wellington as chief economist of the Reserve Bank. Promoted to deputy governor of the bank, he served as its guiding hand from 1982 to 1985.³⁵ A period as an instructor at Victoria University and his publications meant that Deane’s arguments could never be dismissed by Muldoon in the way that he had scorned Australian prime minister Malcolm Fraser for his lack of experience with finance by proclaiming, “It is not his field.”³⁶ But Muldoon twice rejected Deane’s appointment as bank governor. There was a history between them.

The subcommittee staged a confrontation where Muldoon could exercise his specialty of declarations fused with denunciations. His intention, to scapegoat Deane, failed because his know-it-all pose loosened his tongue, exposing how far he had been willing to damage the country’s financial system. Jim Anderton, the subcommittee’s chair and arch-interventionist in the Labour Caucus, agreed with Muldoon that legislative or regulatory steps surely must have been available to stop the run.³⁷ Muldoon monopolised the first and only meeting. In earlier press interviews, he had characterised Deane as “excessively pessimistic almost panic stricken” and as providing “the kind of bad advice which unfortunately has come from the Reserve Bank far too often.”³⁸ Employing a barrage of questions, he probed for confirmations. Deane maintained that there had been serious concern because the government’s heavy borrowing and need for more loans that year made borrowing to defend the dollar difficult. Keen to show that the dollar’s defence had been working until weaker souls lost their nerve, Muldoon insisted that demand for exchange had been falling. Currency buyers had exhausted their money, marketable assets, and credit. They could not have continued.

Muldoon based this claim on warnings that he had received in late June that finance companies and merchant banks could find no market for their holdings of government securities. They could not liquidate them for cash to meet a big run on their reserves and deposits if such should arise. They were vulnerable and already looking to borrow to prepare for runs. The complication was that trading banks had been restricting credit to serve their subsidiary loan companies.³⁹ Muldoon had let it drop that the developing liquidity pinch was fine by him, proof, he had insisted, that his freeze on interest rates and exchange rates was working. When pressing lending institutions to draw down their interest rates in 1983, he had developed a raging contempt for the finance industry, telling one of their representatives at the time, “I don’t care if you do go broke.”⁴⁰ An estimated 750,000 investors had deposits with loan companies.⁴¹

The minutes of the subcommittee state that “Sir Robert put it to Dr Deane that this [tight liquidity] was good news for a Minister of Finance, that people were coming up with problems of liquidity and their ability to pay.” For Deane, the surge of cash into foreign currencies, the lack of a market for bonds, and the sudden squeeze on loan companies were no cause for celebration. The pinch had not suppressed inflation, as Muldoon implied, but had threatened particular financial institutions. The chairs of the Bankers’ Association, the Finance Houses Association, and the Merchant Bankers’ Association had met with Deane on 3 July to warn him that short-term tightness could bring down several financial institutions.⁴²

At this point, the proceedings ended. Realising that the subcommittee distracted from their Economic Summit, Fourth Labour dissolved it.⁴³ At the time, Paul Keating, finance minister in Australia’s Labor government, remarked to Douglas that he and Prime Minister Bob Hawke would have killed anything similar stone dead before it had begun.⁴⁴ On 19 September, the solicitor general advised that the subcommittee should never have moved into a devaluation inquiry. It exceeded the parent committee’s standing orders.⁴⁵ A vengeful Muldoon used the committee to blame others for the high cost of defending the peg, claiming improbably that the peg had deliberately been poorly defended to force a new exchange policy. A new policy had been discussed, but the innuendo of sabotage diminished Muldoon. For many months, Deane had suspected that pegging was a fiscal liability as well as an ineffectual barrier to inflation. As early as mid-1982, he had contemplated the advisability of floating the currency, remarking that “domestic policy can only cope with inflation if the exchange rate is free to find its own market level,” whereas a pegged exchange rate imported world monetary phenomena by attracting footloose capital transfers that undermined domestic policy.⁴⁶ Months later, officials at the Treasury and the Reserve Bank set up research groups to consider how Muldoon’s freeze could be unwound when the time came.⁴⁷ The exits would be difficult to manage. For example, abandoning the peg and returning to a crawling peg begged the question of an opening rate.

In February 1984, Deane had arranged for a seminar led by an official from the Reserve Bank of Australia, who recommended a float, abandoning the interventionist theories of “nirvana economics,” and dealing with “the world usually faced by policy makers.”⁴⁸ Deane kept things moving with a paper in March that opened staff discussions on the pros and cons of floating.⁴⁹ Other New Zealand economists had similar ideas. University of Auckland economist Robin Court, a pioneer of econometrics in the country, remarked during the election that the dollar should have been floated in 1967 when it was devalued by nearly 20 per cent. “He believed the dollar was currently overvalued by about 30 per cent.”⁵⁰ In late July 1984, several interest groups – Federated Farmers, the Chamber of Commerce, the Manufacturers’ Federation, and the Retailers’ Federation – recommended a float, fiscal discipline, and reform of labour relations to loosen the national awards system. Running with the foxes and next the hounds, the farm and manufacturing bodies later complained when the float produced what they considered a high exchange rate.⁵¹

Occupied with his first budget – “a hell of a lot of work” – and with financial deregulation and unable to get unanimous support from the Treasury for a float, Douglas postponed a decision.⁵² Later, he regretted not doing it in November.⁵³ The delay meant that high interest rates and an exchange peg made New Zealand attractive to overseas mobile capital, frustrating a tight monetary policy directed at inflation, at least so long as the dollar was pegged. In November and December 1984, a float was a routine subject in Treasury and Reserve Bank analyses of the volatility created by the previous government’s deficits and freeze.⁵⁴ To brief Douglas about a float, Treasury officials in December 1984 prepared a long cautious review of alternatives and an analysis of the standard criticisms of a float.⁵⁵ On balance, the authors favoured floating. Some of his colleagues, however, preferred a delay or a constrained float.⁵⁶ Bank officials kept pressing Douglas.

A float’s hazards – a rise in the dollar’s value that could hurt exporters, the thin exchange market in a small country, the potential for manipulation by a powerful institution, and the poor economic performance of 1976–82 when the crawling peg operated – were described and sidelined.⁵⁷ The Treasury’s report stressed that a float should not be compared against an imagined ideal state for producers but measured against the results of alternative exchange practices tried abroad, which, it was argued, had performed worse than a float. The international fixed-rate regime had simply collapsed. A clean float could end the state’s expenditures on defending the dollar, plus it was capable of choking off capital flows. A fixed or crawling exchange regime was still steady enough to attract foreign speculators prospecting for relatively high interest rates and thus bringing capital into an inflationary setting where the money markets kept rates up.

The Reserve Bank concluded that currently the dollar was undervalued at its post-devaluation peg. Attracted to high interest rates and undervaluation, speculators were now pouring money into the country. New Zealand businesses were being offered offshore financing as a means by which overseas speculators could secure exposure to a rising dollar. Douglas supporter and caucus tax specialist Trevor de Cleene nudged Douglas to act: “I am in favour of floating the dollar so that we do not have to put up with the uncertainties of this money game played with our money. If we float, they are only playing money [games] with themselves.”⁵⁸ In other words, in addition to making speculation a matter of small daily moves, the float meant that the state was no long that rare thing in gambling: a house that could lose.⁵⁹ Years later, James Tobin would point out that the 1997 Asian financial crisis would have been less severe if regional currencies had been floated. Foreign lenders might have been more careful if they had understood that exchange rates were not guaranteed. What they expected to gain on better interest rates and tempting investment appreciations, they could lose on a devaluation.⁶⁰

In New Zealand in the mid to late 1980s, critics who worried about a floating currency rising in value and hurting exporters may have been unaware that Treasury and Reserve Bank economists knew about overshooting the equilibrium, understanding it as a reaction to financial markets adjusting faster than real goods and labour markets.⁶¹ However, the critics’ preference to liberalise trade policies and labour relations prior to a float was armchair economics and absent political realism, and it disregarded Fourth Labour’s problems with its party organisation over labour market reform. Besides, some analysts thought that floating could support disinflation and contribute fiscal savings since it could draw down interest rates by ending the premium that the Reserve Bank had to pay foreign banks for resources to defend the dollar.⁶²

Douglas had a lot to consider. Australia’s Labor government floated the dollar in December 1983, but no economy as small as New Zealand’s had taken the plunge. On 21 February 1985, the Treasury finally and emphatically recommended that Douglas initiate a float. Two considerations remained. First, could the financial sector handle the business? In mid-1983, Muldoon had approved the Reserve Bank’s recommendation to allow the licensing of dealers to trade in the spot market and to allow forward cover.⁶³ Douglas thought that they and the trading banks were up to the mark and that the private market would be strengthened once the country opened up to foreign banks. Second, there was the question of timing. Douglas concluded that he had to act soon because circumstances had changed. In mid-February 1985, the post-devaluation influx of money had reversed. In five days up to 27 February, New Zealand sold $364 million from its reserves. A float could halt a gathering run. The government recognised a brilliant opportunity to catch speculators off guard. Lange was in the United Kingdom preparing to debate American evangelist Jerry Falwell at the Oxford Union on the immorality of nuclear weapons.⁶⁴ No one anticipated a momentous domestic step during his absence.

Deane flew to London to brief Lange and to get his consent to secure immediate Cabinet approval for the float. Deputy Prime Minister Geoffrey Palmer was a sceptic, and Douglas did not want to risk a Cabinet meeting chaired by him. Lange readily endorsed the action, telephoning ministers in a sequence starting with those most favourably disposed, thus isolating foot-draggers. Later, at a Cabinet meeting on 4 March, all members (Lange and several others effectively signing in absentia) agreed “with the proposal of the Minister of Finance that the Governor of the Reserve Bank cease its current practice of setting explicit buy and sell rates for the NZ$/us$ relationship and instead allow the exchange rate to be set in the first instance by direct market pressure.”⁶⁵

Douglas watched as markets opened. There was no sharp move.⁶⁶ In Parliament two days later, interventionists who had prepared for a snap debate were caught off balance. Anticipating a drop in the value of the New Zealand dollar and a crash in living standards, they had prepared speeches accordingly. But the dollar rose. From mid-1985 to early 1987 the dollar was strong. Interventionists now protested that the benefit of the July devaluation to exporters had been erased at a time when rural producers were overleveraged and coping with the removal of subsidies (chapter 12). Producers who had earlier recommended a float now regretted doing so. They had assumed incorrectly that the dollar would drop and improve exports. Furthermore, unnamed producer boards, the country’s major exporters, had gambled on speculation that the dollar would fall. When the float was announced, they were holding funds overseas hoping to cash in on a drop in the New Zealand dollar. Since it did not fall and with their routine business in New Zealand requiring funds, they either had to take a loss on an exchange transaction or borrow funds in New Zealand dollars at high interest.⁶⁷ Moreover, in the future, producer boards could not make big plays in currency speculation. The daily incremental steps of a floating spot market ended the action available with a crawling peg or a big-adjustment peg. New Zealand had joined several states that since the early 1970s had “usually been willing to sacrifice exchange rate stability when their monetary independence has been threatened by inward or outward capital movements.”⁶⁸

The float was one of many signs that this Labour government had demoted union leaders to the status of heads of interest groups. Federation of Labour officials complained that they should have been consulted “on a matter of concern to working people’s incomes.”⁶⁹ Some economists called for a return to controls or for a silent intervention, a so-called dirty float to drive down the dollar. During the disinflation campaign, a few of the interventionist economists produced related briefs for producer groups.

LEFT HAND, RIGHT HAND: FINANCIAL DEREGULATION AND DISINFLATION

Douglas was intent on loosening controls over the financial sector, recognising that a competitive economy required a sophisticated, undistorted financial sector. This recognition was overdue. As early as 1967, Reserve Bank officials complained that government intervention was irresponsible, that a monetary policy focused on controlling trading bank credit had reached the limit of usefulness, both because borrowers who were turned away by the banks found credit elsewhere and because the size of the economy was great enough that controls could not be precise enough to be effective. Successive governors of the Reserve Bank considered controls to be an unfair favour to specific banks that transacted more rural business than rivals. A balance of payments policy geared to assist exports by steering credit to rural producers meant that favoured banks were allowed a higher ceiling for their loan business and could expand their balance sheets. Others could not do so to the same degree.⁷⁰

Over the years following these unheeded warnings, controls and concessions continued to warp finance, driving general credit business away from banks and into more expensive loan companies. Moreover, concessionary loans to rural producers had crowded trading banks out of rural business and had fed rural real estate speculation (chapter 10). The controls and subsidies prevented producers from coming to terms with real factor costs. Shortly after the July 1984 devaluation, the chief economist at Westpac Bank, Rufus Dawes, remarked that “when your major exports can’t be shipped without massive subsidies you are shot.”⁷¹ But deregulation had hazards. There was the danger of loose money. If all banks and finance companies were free to build their balance sheets, they surely would expand credit. In the new environment of consumer credit, institutional lenders could “create” a great deal of money. Unless monetary policies neutralised credit expansion, the liberalisation of finance could aggravate inflation. As Labour’s teamster for the economy, Douglas drove an unmatched pair of policies.

The Great Depression demonstrated that there are worse things than a bit of inflation, but New Zealand during most of the 1970s and 1980s had more than a bit. Citizens on a fixed income were badly affected. The affluent guarded against it by investing in assets that increased in value, including rural real estate. Workers sought higher wages to cover rising costs. Employers hesitated to hire younger workers since wages in the prevailing labour relations system were inflexible. Consumers were disinclined to save because they expected the cost of goods and services to continue rising. Fiscal drag pulled wage earners into a higher tax bracket. Farmers had to contend with unpredictable factor costs, and as OECD countries successfully beat back inflation before New Zealand did, they faced market prices falling faster than their costs.⁷² Any sensible campaign to bring inflation under control had to attend to future expectations, an area where reactive controls fell short. They could not run for long unless there was a national consensus on opting out of the world economy and adopting a siege economy or unless the state sector could contain the turmoil of exiting a protracted freeze. As it was, dismantling Muldoon’s two-year freeze proved disruptive. The indexation of superannuation and other welfare benefits by separate indicators left Fourth Labour with the challenge of adjustments. Significantly, the freeze fuelled a stock market boom because shares and real estate remained uncontrolled. Rural property values also rose, attracting urban investors.

By freeing trading banks from restrictions, Douglas relaxed liquidity. As it happened, the first monetary actions after the emergency devaluation furthered both liberalisation and disinflation. Douglas went in both directions at once. On 18 July 1984, he removed most controls on interest rates introduced by Muldoon, establishing more attractive bond yields. The tendering of government securities resumed on 27 July. With market-based interest rates, these sales had good prospects. But the several finance-friendly measures added to volatility and inflation. Minutes after devaluation and resumption of currency trading on 18 July, a tsunami of funds flooded in.⁷³ The return of $450 million in the first half hour and predictions of $800 million over two days worried government economists, who predicted that bond sales would be required to absorb money in order “to prevent excited New Zealanders splashing their new found credit too liberally.”⁷⁴ In late August, the country’s financiers thought that the New Zealand dollar was now undervalued by 5 to 10 per cent.⁷⁵ Days later, on 31 August, Douglas removed a 1 per cent per month growth-rate restriction on the credit business of financial institutions, a move that allowed lender discretion on credit expansion. All inward and outward controls on foreign exchange were removed on 20 December. Next, on 14 February and 11 March 1985, came the relaxation of bank reserve requirements that specified the ratio of government securities that banks deposited with the Reserve Bank; the government could no longer oblige banks to acquire long-dated securities. Foreign owned banks were permitted to expand into the country through measures enacted on 11 November 1985 and 1 April 1986.

To slow the expansion of the money supply underway in late 1984 and to offset the credit expansion that accompanied all of this financial deregulation, Douglas announced liquidity-tightening measures on 21 December.⁷⁶ The Reserve Bank would buy on demand only government securities that were six months or less away from maturity. In central-banking circles, restricting buyback conditions for government debt was an accepted tactic to contain money supply. Effective 1 January 1985, banks that engaged in settlement processes that completed large transactions were encouraged to retain significant balances at the Reserve Bank by receiving 5 per cent interest on the settlement deposits. The goal was to slow the injection of money into the economy.

Record inflation continued, and in mid-1985, Douglas sought public service advice on disinflation in preparation for a major policy review.⁷⁷ A year after the election, disinflation became a leading policy preoccupation and remained so for the life of the government. When it met on 13 August 1985, the Cabinet Policy Committee had an agenda packed with issues accompanying the first wave of restructuring. Late on the agenda, the Treasury circulated a grimly realistic paper, “Policy Responses to Inflation: Outline.”⁷⁸ The sources of chronic inflation and potential countermeasures were known to Treasury and Reserve Bank economists. They hailed the float of 4 March 1985 for helping the assault on inflation. A rise in the dollar, an overshoot of the equilibrium, meant that parties who pursued what were now relatively high interest rates in New Zealand had to ponder a possible drop in the dollar’s parity and a net loss on their flutter. With the collaboration of Treasury officials, Douglas and allies in Cabinet prepared market explanations to defend the float and tight liquidity against spirited lobbying from an assortment of interventionists: Muldoon devotees, dissidents in the Labour left, some financiers, a few manufacturers, a faction of economists, and particular types of primary producers.

To rationalise a tangle of memos, briefings, and actions, the disinflation campaign is now best explained by a series of subjects: duration, objectives, agencies, disagreements, global context, opponents, and monetary tools.⁷⁹ Duration was going to test the country’s patience and the government’s commitment. The Treasury’s August 1985 paper forecast no quick victory. The medium term, three to five years, was believed realistic. Since 1981, perhaps earlier, a bolder notion had circulated among a few economists. In his Reserve Bank publications, Deane often insisted that fine-tuning in the short run had no merit. Information was inadequate and models imperfect. In a frank exchange of the type that economists delight in, at least when fundamentally in agreement, Peter Ledingham, a member of the Task Force on Tax Reform, submitted that Deane had not gone far enough. Actions in the medium term were open to criticisms similar to those that applied to short-term actions. Thinking long-term, the challenge in macroeconomic policy was “how to bring the political objectives function into line with the national objectives function.”⁸⁰

Although this challenge went beyond current monetary and fiscal outlooks, Ledingham identified a predicament that had been encountered in many countries since the abandonment of the gold standard. Economists were challenged by an old problem. As one monetary policy specialist dryly expressed in 1975, “a fundamental problem [for any country] is that of reconciling internal equilibrium characterised by full employment with external equilibrium in the balance of payments.”⁸¹ The search was on for a monetary system that restrained political expediency to safeguard stability. Such a monetary system, performing something vaguely like the functions of the gold standard in the bankers’ waltz age, would allow greater freedom to set factor costs and, hopefully, to reduce balance of payments deficits. With stability, enterprises could plan, possibly helping the country to start earning its way to an improvement in living standards. Deane kept Ledingham’s challenge in mind and called upon him in early 1986 to report on how the Reserve Bank might be restructured, a topic covered at the end of this chapter.

By 1985, senior Treasury officials’ thinking was very long-term, projected across decades perhaps. They wanted to transform New Zealand into an exemplary hard-money country. Germany, Switzerland, the Netherlands, and Japan inspired them. Getting bankers, brokers, and fund managers at home and abroad to esteem the New Zealand dollar was a supreme ambition. For the moment, however, they had to concentrate on stabilising capital flows in and out of the country and on stabilising prices. The time frame for these goals was the medium term. According to the Treasury’s paper prepared for the Cabinet Policy Committee, the Reserve Bank in the medium term would have to work hard to contain credit and liquidity in order to achieve price stability. For its part, the government needed to cut expenditures, reducing deficit-induced injections into the economy; it would have to stop competing with the private sector for funds and cease frustrating the bank’s tight-money operations with deficient deficit forecasts and the overdraughts that followed. The insistence on getting control of department expenditures, an objective that senior Treasury officials also embraced, led to radical budget innovations, although not until passage of the Public Finance Act (1989) late in the government’s life.⁸²

During the disinflation campaign from mid-1985 to late 1988, fiscal contributions were clearly difficult and thus anaemic. This circumstance left the Reserve Bank’s monetary measures as mainstays. In April 1988, late in the campaign, Secretary of the Treasury Graham Scott summarised the situation: “There is an imbalance of policy instruments with monetary policy carrying too much of the burden of the Government disinflation policy.”⁸³ The government could not easily balance the budget when superannuation, education, health care, and public-sector wages were huge, politically sensitive commitments. Several years before efforts to achieve price stabilisation in New Zealand, inflation had become a leading concern among economists in the Americas and the United Kingdom. Interest in the topic in major oecd countries peaked between 1972 and 1982. Thomas J. Sargent’s historical accounts of beating inflation stress the importance of governments acting decisively with “interrelated fiscal and monetary changes that can be interpreted as abrupt changes in regime.”⁸⁴ Not words but bold concrete changes in conduct were fundamental. The fiscal aspect of the interrelated attack was easier to state than accomplish. To a swift adoption of radical tactics, there was a recent addition, a long-term line of attack to counter the conditioning of fifteen years of high inflation. Internationally, many economists looking into inflation brought so-called rational expectations into their theories, leading to a conclusion that the public had to be convinced that a rule was in place and unlikely to be reversed. The rule and the assurance came together presently in the Reserve Bank’s reformation.

Senior officials running the disinflation campaign imagined policy commitments over the long term. A generation or more might be needed to change the country’s image in global capital markets and to crush domestic expectations of inflation. Leading international financial experts, along with Treasury and Reserve Bank economists, accepted that medium-term measures and even medium-term achievements of targets might not be enough to entrench their preference for unexciting predictability. Officials had no idea how long it would take to convince financiers and brokers that the current government would not turn soft as others had done. A few reasoned that durable price stability required evidence of minimal inflation lasting a full business cycle plus a bipartisan commitment to disinflation.⁸⁵ When inflation started to come down in 1989, ministers and officials decided to maintain tight money. Doubts about measures to be taken in the short, medium, or even long term tied into Ledingham’s thoughts about bringing into line the political objective function (social welfare or what he called redistribution) and the national objective function (balance of payments or what he called growth) through an overhaul of the Reserve Bank.

There was an institutional problem. Treasury and Reserve Bank officials each had some influence over liquidity but worked through separate and unaligned channels and had distinctive mind sets. Senior officials saw deficits from distinct institutional angles, glimpsed in a telling exchange of notes from mid-1988. Similar ones doubtless preceded it. Treasury officials and Douglas wanted relief from the bank’s sale of Treasury bills in recognition of the government’s measures “to bring forward Government revenue flows.” However, the bank’s deputy governor, Lindsay Knight, reminded Douglas that “the net New Zealand dollar public account injection must not be financed by increases in the Government’s bank overdraught.”⁸⁶ Message: overdrafts should not be covered by printing money. The discussion occurred late in the disinflation campaign but summarised an inherent conflict, one that brings clarity to conversations about making the Reserve Bank more independent of governments.

The government’s tax take, borrowing, and expenditures affected monetary policy, which was the bank’s responsibility. A Treasury economist recounted some of the intricacies for Douglas’s benefit. The funding of deficits put pressure on the real exchange rate because “given the high degree of integration of international capital markets, large budget deficits attract foreign capital and divert domestic borrowers, who would otherwise be ‘crowded out’ by high interest rates, to foreign finance centres.”⁸⁷ Contributing to the divide, the Reserve Bank routinely worked with the diverse players in the finance sector, directing, helping, and cajoling them. Interaction between the bank and lenders under Fourth Labour, a relationship critical to price stability, entered a cantankerous phase during disinflation. In a publication jointly authored with the bank’s assistant governor, Peter Nicholl, and with bank researcher Richard G. Smith, Deane maintained that liquidity by the early 1980s had become higher than desirable, partly on account of active lending by building societies, insurance companies, and loan companies.⁸⁸ Since financiers were adroit at expanding credit, the bank struggled to make an impression during the disinflation campaign. Deane also implicated fiscal deficits. Bank officials looked for Treasury colleagues to pitch in and separately urged Douglas to enforce fiscal discipline in the state’s big-spending departments. The ensuing budget exercises in 1987–88 aggravated Cabinet tensions and undercut morale in departments with social missions.⁸⁹

Disagreements between the Treasury and the Reserve Bank inspired politely terse reports that crossed Douglas’s desk. Most were professional and insightful. Still, the two key economic agencies had distinctive cultures, and the Treasury was Douglas’s workforce. His officials had his ear; they also had his marching orders. A few Treasury memos made wisecracks about the abilities of the other team. Recent history contributed to chariness. It rankled bank officials that Treasury had been slow to liquidate its Japanese bonds in order to help prepare for the run on the greenbacks in June and July 1984. It annoyed Treasury that the bank superintended the overdraughts on public accounts, and during disinflation, the bank’s monetary instruments were immediately available, whereas a balanced budget was not.

Adding to this interagency family feud was an external complication. The global disinflation campaign did not immediately work to the advantage of the local campaign. The United States, Canada, France, and Italy had accomplished price stability around the time of Muldoon’s globe-trotting to promote relaxed credit. Inflation fighters elsewhere had tightened money during a recession, an ordeal less arduous than restraining liquidity during a recovery. During upswings, financiers competed to expand their balance sheets, with inflationary consequences.⁹⁰ Fourth Labour tightened at a moment when real interest and exchange rates were high locally, interest rates abroad had eased, and the world economy was building up steam.⁹¹ Now Reserve Bank officials wanted financiers to restrain interest rates voluntarily.⁹² Lenders protested. To hear them, they were mere messengers delivering rates driven up by the market for high-yield government securities. “Until our borrowing rates come down,” insisted Max Bradford, executive director of the New Zealand Bankers’ Association, “the lenders’ rates can’t.”⁹³ The Reserve Bank’s governor, Spencer Russell, retorted that “if you are aware of any mechanism by which pressure could be taken off interest rates and the exchange rate without a weakening of monetary policy, I would be interested in hearing it. It would be a breakthrough of some substance.”⁹⁴ Russell warned lenders that they had to endure policies that squeezed their margins, and he wanted them to restrain interest rates voluntarily. Compliance was variable. Sensitive to the bad publicity of high mortgage rates, some lenders kept home-finance profit margins thin but increased rates on hire-purchase (time payment) and on credit cards.⁹⁵

Opponents of tight money, especially a few Wellington academics and interest group advisers, had specific concerns, most hinging on the statement of purpose for the Reserve Bank articulated in the Reserve Bank of New Zealand Act (1964): “The Minister [of Finance] may from time to time communicate to the Bank the monetary policy of the Government, which shall be directed to the maintenance and promotion of economic and social welfare in New Zealand having regard to the desirability of promoting the highest degree of production, trade, and employment and of maintaining a stable internal price level.”⁹⁶ Some economists in universities, commercial banks, and producer interest groups maintained that tight money knocked back the traded goods sector and contributed to unemployment. Fourth Labour’s reformminded ministers and senior officials at the Treasury and the Reserve Bank were not disputing claims that tight money caused trouble but remained committed to a course that they trusted would bring better, more-lasting outcomes. Short-term interventionist tactics, sometimes freely labelled Keynesian economics, were downgraded in favour of policies aimed at long-term stability.⁹⁷

As Roger E. Backhouse and Bradley W. Bateman state in Capitalist Revolutionary: John Maynard Keynes (2010), “the problem in the 1970s was that there was no obvious way to use the Keynesian tools to address the appearance of inflation and unemployment simultaneously.”⁹⁸ Treasury analysts had arrived at this conclusion in early 1984, warning Muldoon that a Keynesian trade-off between inflation and fiscal or monetary boosts to employment was impossible when there was high inflation and grounds to expect more. For Keynesian spending to achieve a sweet spot of strong employment and real wage gains, people had to be fooled into believing that nominal wages and prices were real, a doubtful prospect in an inflationary period characterized not only by workers and employers who were conscious of inflation but also by the demands of the former for raised wages, which employers passed on to consumers.⁹⁹

Until the reorientation of the Labour Caucus in the early 1980s, many – maybe most – politicians and public servants were dedicated to concatenations of short-term measures.¹⁰⁰ After 1985, the time horizon of economic and fiscal policies shifted to medium- and long-term policies. David Lange had little time for economics but accepted a frank briefing from Roderick Deane, who told him that the disinflation campaign would take four or five years. Although visibly shocked, the prime minister said in effect that “my country is more important than my career.”¹⁰¹ The short-term policies were to be winnowed; the metrics and institutions that guided them were to be simplified in order to improve transparency. The trouble was that whereas the so-called Keynesian practices could not guarantee full employment without inflation, the new policy directions could not guarantee a socially costless reduction of inflation.¹⁰²

We can catch a glimpse of the mindset of financiers in scenes from lobbying by Len Bayliss, a former chief economist at the state-owned Bank of New Zealand. The mildest of interventionists, Bayliss admired the government’s deregulation initiatives but disapproved of fully funding deficits, an approach that drove up interest rates, contributing to a strong New Zealand dollar. He supposed that tight credit and the dollar’s high value hurt exports, thus requiring a loosening to assist producers, as other countries were doing.¹⁰³ Although a number of OECD countries had relaxed liquidity, Bayliss did not mention that they had applied tight-money measures earlier and consequently had inflation under control.¹⁰⁴ New Zealand was behind. With Treasury and Reserve Bank assistance, Douglas drafted a reply to Bayliss, hoping that the message would circulate among institutional lenders. There would be no relaxation. Tight money served the government’s longer-term goal of price stability.¹⁰⁵

Other moderate interventionists or liberalisers who were backsliding into some interventionist positions disparaged particular parts of the monetary and financial initiatives, often pointing the finger at the sequencing that put financial deregulation ahead of the liberalisation of labour relations or ahead of producer adjustments to the removal of subsidies.¹⁰⁶ Rejecting these lenient reproaches, radical interventionists relentlessly recommended restoration of most, if not all, of the status quo ante and called for a return to controlled interest rates.¹⁰⁷ The contrast with the government was total: interventionists stood for diverse, short-term fine-tuning of the economy as it stood in order to get specific economic outcomes, whereas the reformers stood for objectives that focused on long-term stability. Advocate of state management Bryan Philpott insisted that “you have to use as many policy instruments as possible.”¹⁰⁸ In a brief on behalf of the New Zealand Dairy Board, he proposed interventions to the floating exchange rate, but “it would require great secrecy.”¹⁰⁹ His policy shotgun contrasted with the government’s policy rifle on monetary affairs, which aimed at simplification so that the financial community at home and abroad could make reasoned decisions about the future using transparent signals from the market.

Dirty floats were unacceptable. For one thing, secrecy would be hard to maintain. More importantly, once or twice applied, they could become a political habit. Unwavering interventionists, allied with the New Zealand Manufacturers’ Federation and with Philpott, wrote an appeal for controls on incomes, wages, lending, and foreign exchange, touting them as powerfully anti-inflationary plus capable of restoring international competitiveness. Gone was the early interventionists’ forecast of a damaging fall in the dollar that would undercut the standard of living.

A slowdown in the economy in 1988 revived interest in short-term economic-management techniques. The resolutely interventionist Manufacturers’ Federation and related consultants wanted freedom from free enterprise, recommending import protection, compulsory reserve ratios, compulsory lending guidelines for banks, and the reimposition of extensive exchange controls.¹¹⁰ The federation alleged that intervention was enshrined in the Reserve Bank of New Zealand Act (1964), which specified that the bank should promote the highest degree of production. This opinion implied that any new legislation should tie successive governments to a policy. It also supposed that the federation’s policy preferences could achieve high production.¹¹¹ The first point, the supposition of an enduring policy commitment, was soon to be taken up by the government, although it was considering the entrenchment of price stability, a policy that contradicted one of the federation’s pet measures. As a voice for business, the federation faced a formidable rival. The founding of the New Zealand Business Roundtable in 1986 by former Treasury economist Roger Kerr had introduced complexity to the lobbying scene since its members generally rejected intervention.¹¹²

The fragmentation of the business lobby was symptomatic of larger reconfigurations of all manner of parties seriously concerned with how economies functioned. Around the capitalist world in the 1970s and 1980s, the field of economics was shifting, moving incompletely away from a previous consensus on fiscal stimulus, capital and exchange controls, and state-run enterprises and toward markets and privatisation. The time horizon of thinking changed too. Belief in the efficacy of short-term interventions retreated in universities across the Anglosphere and vanished at central banks, which were acquiring greater independence to deal long-term with the end of the Bretton Woods system and were disappearing at many state treasuries, where a new generation of economists dealt with deficits by introducing tax innovations and a scrutiny of public accounts.

Fourth Labour’s reformers and supporting officials were not travelling on a lonely path. For years, Treasury and Reserve Bank economists watched short-term interventions produce unpredictable results; they could not be counted upon to do more than stimulate a first round of spending. Government fine-tuning in the short term was a poor approach to improving fundamental economic performance. Douglas certainly disliked short-term interventions and applied his own earthy reason. He credited the public with distrusting promises on everything. In 1986, in the thick of the reforms, he recalled the heyday of Labour Party promises in the early 1980s. “We promise every bloody thing and no bastard believes it. I certainly don’t! And if I don’t, I am sure a lot of people out there don’t.”¹¹³ Politicians and key personnel from Treasury and the Reserve Bank concurred. The longer the evidence of commitment, the greater the credibility.

In their official history of the bank, John Singleton and colleagues conclude that the broadest and more determined of the interventionists “never defined a feasible option that was clearly superior to the policy settings being followed.”¹¹⁴ However, New Zealand had a distinctive historical legacy loaded with current political-economy implications. The extensive history of state economic management fostered the resilience of interventionist ideas and short-term objectives. Interest groups were accustomed to negotiations among economic-sector representatives and public officials, and a cadre of economists picked up consulting work for interest groups. In public discourses, interventionists juggled the short term with the hallowed past.¹¹⁵

Financiers voiced specialised complaints. Not all bankers’ suits were cut from the same pinstripe cloth. Whereas some lenders wanted to end tight money, several merchant bankers and brokers watched market rates and scrutinised government conduct; they wanted clarity and consistency from a government. Minsters could shout commitments to stability until blue in the face, but bankers, lenders, and brokers had heard promises before. They looked at monetary aggregates, discount announcements, and budgets. They considered fiscal deficits to be the reason why the state was losing control of monetary policy. Speaking in 1985, Tim Brown, investment manager at Southpac Merchant Bank, summarised what he saw as the tie between fiscal deficits and a loss of monetary control: “The level of interest rates and monetary policy are totally out of the hands of the Government. I mean they are totally in the hands of a bunch of people around town who are buying and selling securities.”¹¹⁶

Tacitly agreeing with Brown’s understanding of securities, government debt, and money supply, senior analysts at the Reserve Bank again and again advised Douglas that price stability required better fiscal control.¹¹⁷ Bemused by the interventionists’ allegations that the bank was deploying a faddish “monetarism,” officials countered that, although control of money supply was a necessary condition to counter inflation, it could never do the work alone.¹¹⁸ Fiscal prudence and the reformation of labour relations were also essential yet difficult for Fourth Labour. Monetary actions did indeed become the principal devices for countering inflation, but this approach came about by default, not from a doctrinaire belief in Milton Friedman’s dictum that “inflation is always and everywhere a monetary phenomenon.”¹¹⁹ Although the monetary tools were subjected to criticism and opposition from many directions, the government held its course. With officials fussing at one another, politicians wobbled.

Besides eliciting contradictory stands from a diverse banking community, the tightening of liquidity started roundabouts of blame within the public service and led nervous politicians to make confusing statements. The Treasury criticised the Reserve Bank for an excessive relaxation of liquidity to meet special conditions, such as easing liquidity to reduce seasonal tightness created by tax collection in a small economy.¹²⁰ Bank staff complained that the Treasury’s deficit estimates were too inaccurate to facilitate control over the money supply. Prime Minister Lange, never comfortable with economics, told reporters that “I think we were moving to absorb more than needed,” yet in the next sentence, he stated that his government was not going into an expansionist mode: “We will get something which is sensitive.”¹²¹ Suspicious financiers and brokers, reading the runes, were not reassured.

Overlapping drives both to free up finance and to control liquidity formed incompatibilities. Liberalisation and disinflation made sense separately, but when concurrent, they functioned at cross purposes. Several examples show the practical problems as well as the strained relations between the Treasury and the Reserve Bank. The government requested help from the bank to sell its new Goods and Services Tax (gst) by loosening liquidity. The bank’s deputy governor, Lindsay Knight, informed Douglas that tight liquidity was required to keep the disinflation programme going; it would be inconvenient to relax simply in order to help the government politically on the inflationary impact of the gst. The bank agreed to adjust primary liquidity for the first round of the gst’s impact, when collection of revenue would take money out of circulation, but not to ease pressure on any second-round wage or price increases that would come in the wake of the gst.¹²² There were more such kerfuffles.

In early1987, the opening-up of banking to permit foreign banks to set up branches in the country drove New Zealand trading banks to build their balance sheets rapidly in anticipation of competition. They did so by expanding credit.¹²³ Although nominal interest rates were high, the expansion of credit, combined with hot real estate and share markets, supported prices in both for a while, but personal debts were rising, and asset volatility was building. The troubles coming for rural land speculators are considered in chapter 12; the share-market hazard can be mentioned now. The market was red hot. In January 1987, when the government considered selling some shares in the Development Finance Corporation, brokers warned that it might not be a good time since “40 to 50 share issues were ‘queued to come onto the New Zealand share market [in the next three months], plus an unusually large number of rights issues, so the market conditions were wrong for adding another large share sale.”¹²⁴ Some financiers were trying to cool down a market that some of their colleagues were making unmanageable.

Meanwhile, the newly created state-owned enterprises busily secured their equity by paying off “loans” to the state. Some began sending “dividends” to the Treasury (chapter 7). Initially, these transfers withdrew cash from circulation, putting it into the state’s consolidated account; however, there was the possibility of a government spending the proceeds. The uncertain time frames of withdrawals and injections in a small economy had monetary implications. The Reserve Bank assured Douglas that with effort it could work with banks to keep liquidity in order, but it advised that the government’s general revenues and spending programmes were big unknowns that needed to be better supervised.¹²⁵ Comments such as these coming from the bank were not appreciated at the Treasury.

The country’s monetary and fiscal agendas, jointly overseen by the Reserve Bank and the Treasury, operated on different wavelengths. The interference patterns made when they collided confused private-sector agents and brought officials at the Treasury and the bank into decorous conflict. A further complication entered the scene. Expectations of inflation surfaced as a newly appreciated psychological adversary of price stability, probably supporting both the unusual high interest rates and strong credit growth, two things that normally did not occur together.¹²⁶ The different circumstances of individuals makes it impossible to spell out all the personal calculations, although if people anticipated lingering inflation, they might well have borrowed at even high interest rates to buy inflation-proof assets or household durables before there were more price increases. Officials handling monetary policies discovered fresh conundrums and areas of inquiry as they pursued disinflation. They resolved never again to address them with short-term interventions. With all that was transpiring with credit, uncontrolled capital inflows, the share market, SOEs, and tight money, any reversion to interventionist practices would have wreaked havoc. In the short term, Treasury and bank officials crossed their fingers and worked to embed medium and long-term objectives.

Economists and consultants comfortable with short-term instruments and goals chilled outside the government tent, finding warmth among interest groups that had benefited from intervention. Economists backing loose-money bankers and the New Zealand Manufacturers’ Federation were unduly optimistic about what intervention could do to boost exports. As early as 1982, a study on exports advised Muldoon “that the most satisfactory means of assisting export growth would be to modify the economy to bring down the rate of inflation itself.” This report blamed inflation on increases in the money supply from budget deficits.¹²⁷ Decades later, research by Bryce Wilkinson showed that the export portion of the GDP rose slightly during the tight-money interlude, suggesting that the loose-money advocates had been wrong in a macroeconomic sense about the damaging impact of tight money.¹²⁸ At the individual level, tight money and austerity brought hardships that senior officials and government ministers knew were coming once they embarked on reforms. One statement among many captures this awareness in a technical idiom that gives a taste of a new style of discourse among policy analysts.

Commercial bankers and central bankers clashed over responsibility and tactics but were of the same mind in believing that the pressure on interest rates would ease if the government managed its fiscal affairs better. Reserve Bank officials berated the government for not cutting spending deeply enough and for not leaning firmly on employers, including government departments, to restrain wage settlements. When the government could not deliver a balanced budget to eliminate the need for full funding, the bank applied conventional monetary controls to rein in oversupply.¹²⁹ Ministers wanted to suppress inflation but had little to work with; they had started later than other countries and worked in a world economy moving into recovery.¹³⁰ Fiscal retrenchment was miserable in these circumstances. Sales of state assets would help but came at a political price. There was a further complication. By resolving to stay completely out of wage fixing (chapter 11), the government abandoned interventionist tools, including the oft-mooted device of tripartite meetings, to establish wage brackets for economic sectors.¹³¹ In 1985, 1986, and 1987, ministers stood aside and watched with fingers crossed, hoping that their policy of letting employees and employers negotiate on their own would bring modest increases. They were disappointed until the 1987–88 round.

With fiscal and wage tools sidelined by political realties for the time being, the Reserve Bank deployed well-known standard operations to contain money supply and liquidity, announcing the government’s intention to continue full funding of deficits and signalling to lenders that they should tighten credit. Liquidity tightening included long maturity dates for government securities, reduced sales of short-term Treasury bills, restrictions on repurchases of securities to those with upcoming maturities, and raising the discount rate. Another technique invoked the daily settlement cash. Commercial banks cashed cheques issued by the government for wages and benefits. To assist banks with liquidity at peak times, the Reserve Bank released additional cash. To restrict liquidity, it announced a reduction in the usual sum of $50 million to $30 million in December 1986 and from $30 million to $20 million in September 1987, putting banks on notice that if they did not restrain credit, they might have to borrow among themselves to meet cash demands.¹³² The Treasury preferred this liquidity restraint as a disinflation tool. However, attending to the health of the banking system, the Reserve Bank favoured raising the discount rate, which in the Treasury’s eyes meant larger redemption payments on the securities sold for state financing.¹³³ In early 1988, moods at the Treasury and the bank lightened. Five years behind Canada and Australia and four behind the European Economic Community, New Zealand’s inflation rate fell without arbitrary controls to mid-single-digit territory. It was the first time since 1973.¹³⁴ Treasury staff quietly acknowledged that monetary operations had been largely successful, although there would be no easing up until the trend was judged secure.

Fourth Labour’s messy inheritance included irony in the institutional conflict between the Treasury and the Reserve Bank. Douglas and his associate finance ministers set out to dampen consumer spending while hoping for the sort of healthy economic activity that needed consumer spending. Reform-minded ministers and senior Treasury officials dearly wanted to separate fiscal, monetary, and private-sector financial practices. The entanglements included tasks imposed on the Reserve Bank over the decades that prevented the separation of its fiscal operations of selling government debt (i.e., bonds and treasury bills), acting as the state’s banker and lender, serving as a banker for producer boards, and applying assorted tools to manage liquidity in the economy. To take one example of a circular complexity that was mixed up with fiscal and monetary responsibilities, the yields on bonds that were required to fund deficits, and thus to gain a degree of monetary control by soaking up some fiat money, were substantial. The monetary objective of sales was to help reduce inflation. High bond yields, however, came back to bite a government as a fiscal-servicing cost. Although the Treasury liked to remind the Reserve Bank that its use of debt sales impinged on fiscal health, the bank ungraciously reminded the Treasury of its fiscal responsibility to hold down government deficit spending.¹³⁵

More quarrels involved the multiplicity of the Reserve Bank’s roles. After the float, it continued to deal in foreign exchange on the state’s behalf and was indemnified by the state for losses on these transactions. The Treasury wanted the bank to pay interest on the large sums of money that it claimed were held in the public account, but bank officials “thought [the state] was in overdraft more often than not.”¹³⁶ In 1985, Douglas directed Treasury staff to start investigating active debt-management practices, looking for institutional buyers of debt in overseas markets rather than relying on bank tendering.¹³⁷ This change led to the reform of debt-management practices that accompanied the hugely significant revision of the Reserve Bank, an initiative that continued the quarrelling, revealing how the global and local intersected in monetary affairs.

SPELLING OUT POLICY AND EXPANDING ITS TIME HORIZON

Ministerial directives and central bank operations left open the possibility that executive action could lead to reversals in the future. Douglas had used statutory powers to unwind the very regulatory actions for which such powers had been created. His own exercise of authority was one thing, but allowing future governments access to the same power was unacceptable. Looking at the long term, Douglas wanted to lock in the transformations. In late 1985, he signalled that he wanted to increase the Reserve Bank’s autonomy (thus Muldoon-proofing the bank) by legislation. Senior Treasury officials wanted more than that. They saw an opportunity to rationalise the public accounts and to remove the sales of long-dated securities from the bank. Secretary of the Treasury Graham Scott mentioned to Douglas that the public sector’s financial management and the operations of monetary policy had become intertwined, meaning that now “various functions need to become unravelled, reassessed and then reassembled into a much stronger institutional form.”¹³⁸ Douglas endorsed a grand sorting-out of monetary policy.

Together, Scott and Treasury economist Howard Fancy worked to make a restoration of monetary interventionism extremely difficult. To this end, they concentrated on finding an uncomplicated technique for entrenching price stability while realising that central bank autonomy presented well-known quandaries. On the one hand, flexibility was needed to meet contingencies. Moreover, the constitutional implication of constraining future governments was a troubling consideration. On the other hand, flexibility, taken to the extreme of routine monetary and financial interventions, had fallen into disrepute. The Reserve Bank’s governors had been directed, against their advice, to do the bidding of governments since the late 1960s. Now this state of affairs was more dangerous than ever; the 1980s were not the 1960s. Internationally, the decade was a turbulent time of imbalances and states going into capital markets to finance the imbalances.¹³⁹ Locally, ministers and officials, familiar with the crises of 1982–84 and the buildup of quiet subsidies through the Reserve Bank, wanted monetary policy isolated from partisan electoral pressure as far as this isolation could be made consistent with democratic government.

Distrustful of short-term swings in objectives and practices, the Treasury and most bank officials applauded Douglas’s abandonment of the previous techniques of monetary management, namely controls, quotas, and ratios. The government entrenched Douglas’s ministerial directives on financial liberalisation with its passage of the Reserve Bank of New Zealand Amendment Act in December 1986.¹⁴⁰ By then, Treasury and bank personnel were investigating ways to increase bank autonomy. The Reserve Bank’s position paper had been developed between March and July 1986, and the Treasury had drafted its position paper in September and October 1986. Each agency designed an institutional middle way to permit flexibility in an emergency while making it difficult for a future government to relax the money supply in hopes of stimulating the economy.¹⁴¹ However, their schemes could not have been more different. From March to October 1987, they reviewed one another’s papers, secured opinions from experts, argued at meetings, and disputed through memos. An attempt at interagency compromise was postponed until February and May 1988, partly due to the shift in research priorities that Douglas required for his flat tax and basic income ideas. Douglas handed over the resolution of differences to Peter Neilson, who from 1987 to 1990 was minister of the Revenue, Customs, Works and Development Department as well as associate minister of the State-Owned Enterprises and Finance Department.

Owing perhaps to delays and friction, the results were impressive. The parties had deliberated. For years afterward, interventionists protested otherwise because the ideal of Reserve Bank independence collided with the emotive legacy of the 1964 legislation’s requirement that the bank promote the highest degree of production, trade, and employment while maintaining a stable internal price level. During the disinflation campaign, critics of tight money referenced these goals, believing that by loosening money the bank could reduce unemployment. However, circumstances other than tight money were driving unemployment, including the adverse terms of trade, a labour relations regime with a steep unit wage cost that did not favour young people seeking a first job, redundancies (in the thousands) at SOEs, and distorted allocations of capital in a subsidised economy (chapters 10 and 11).

In 1984, for the first time in its history, New Zealand adopted trustworthy unemployment data. Calculated and reported using a Household Labour Force Survey, the practice accorded with international standards. Previous so-called unemployment data, based on the number of individuals coming into Labour Department offices to look for jobs, provided low, rosy numbers since individuals could secure unemployment benefits by dodging, as many did, the requirement to register and actively seek work (chapter 10). The earlier meaningless data helped to associate the employment aspiration in the Reserve Bank of New Zealand Act with astonishingly low unemployment. You see, interventionists could claim, the old way worked rather well. This myth was contradicted by data on applications for the unemployment benefit, which were submitted at the offices of the Social Welfare Department. In twelve months spanning 1983–84, there had been 220,000 applications for the unemployment benefit, and 170,000 had been granted. As of 31 March 1984, 47,000 individuals were receiving the benefit, at a cost of $316 million per annum.¹⁴²

The National Party government in 1983–84 knew about the data, interpreting it as evidence of an undue willingness of individuals to go on “the dole.” The supposition led to inquiries about “the California scheme,” requiring young single beneficiaries to carry out twelve to fifteen hours per week of community work to earn the unemployment benefit.¹⁴³ Fourth Labour wrestled with the related matter of who, the state or the parents, should support young people under twenty. Although unemployment was a historic reality, the restructuring did increase it. The recently adopted household surveys showed between 100,000 and 105,000 unemployed in the late 1980s.¹⁴⁴ If the 47,000 figure is a reasonable estimate of unemployment in 1984, then unemployment had more than doubled in five years. Local confirmations worried Labour backbenchers in working-class constituencies.

Ministers and officials charged with the economy’s underlying health, not merely with shuffling state revenues and tinkering with capital flows, focused on the long-term concerns of low per capita productivity, a fiscal debt of 49 per cent of GDP, monetary instability, and inflation. Soon to be replaced, the mandate of the Reserve Bank, with its employment statement, would have clashed with the disinflation campaign. The policy preference surely cost the government support and caused hardship for the vulnerable. Generally speaking, women by 1988 were especially disaffected. The National Council of Women submitted a brief on the bank’s restructuring, declaring that “full employment should rank alongside and at least equal with inflation and economic growth as one of the key objectives of all policies.”¹⁴⁵ Senior Treasury and bank officials had no faith in the capability of monetary policy to deliver full employment, as though that could be attained, but did believe that, in the long run, price stability could indirectly aid growth and employment while protecting people on fixed incomes. It was impossible to secure a consensus for long-run lines of reasoning in the Labour Party or probably across the country for that matter.

Treasury and bank officials warmed to Douglas’s directive about the Reserve Bank’s autonomy, noting that it could become a commitment, a measure to counter inflationary expectations. Some analysts believed that it would help to constrain fiscal deficits through the mechanism of market rates on securities. The assumption of fiscal discipline through central bank independence seemed plausible during the period of high interest rates in the 1980s. Officials interested in monetary policy, the government’s finance ministers, and some Opposition MPs saw the bank’s independence as a way for New Zealand to achieve an international reputation for policy consistency. Yet it exposed a divergence in political-economy outlooks dating back to the bankers’ waltz age. The old choice between an independent bank, which was capable of invoking tight money but whose hands were tied to do more, and a bank that could expand liquidity was alive and well and living in Wellington. Before a host of touchy bank-related issues were aired publicly, there was an internal tempest. Notwithstanding shared outlooks on the blight of high inflation, the blueprints for monetary management prepared by the Treasury and the Reserve Bank were incompatible. Senior Treasury officials approached a reformation of the bank as a contest between us and them. The ultimate resolution was feasible because both sides wanted price stability, an end to short-term interventions, and a clean-up of bank functions. It took them a while to get there.

The momentum for a new Reserve Bank received a boost from Fourth Labour’s decision to form commercially oriented SOEs out of nine government departments. In March 1986, Cabinet had agreed to a set of principles to guide these SOEs, including a commitment to pursue profits. SOEs were the vogue de jour. Roderick Deane assigned Peter Ledingham to investigate whether the SOE structure or some other organizational arrangement could achieve autonomy for the Reserve Bank while enabling it to fulfil other central bank functions. Completed in late March, Ledingham’s paper rejected the SOE structure. He soon left the bank on secondment to the Central Bank of Kenya. Deane left the bank to head the State Services Commission, where he directed the formation of the SOEs.¹⁴⁶ But when Douglas called for a formal investigation, the bank had Ledingham’s report on file. It aided Assistant Governor Peter Nicholl with his report, completed in July 1986.

The Reserve Bank’s position was straight forward. A new bank should not be a run as an SOE or as any other form of commercial bank. Profit seeking could distract from its principal functions. At the same time, it “was desirable to insulate monetary policy from short run political pressure.” No automatic rule or rigid target of money supply, foreign exchange, or interest rate should determine a policy path. Instead, the single-minded pursuit of price stability should be delegated to one individual, who would have clear responsibility and incentives for maintaining price stability. To preserve a measure of independence, the bank needed to retain its current independent revenue stream derived from seigniorage.¹⁴⁷

The Treasury went hard against the Reserve Bank’s plan. Adopting a paper prepared by economist Paul Atkinson in October 1986, officials endorsed the SOE concept. That meant establishing a central bank with a profit motive. Atkinson drafted plans around this motive. Educated in Massachusetts first at Williams College and then at Cambridge, where he had completed a doctorate in economics, he specialised in macroeconomics. But on this occasion, he adapted a microeconomic approach to a macroeconomic challenge. He and others at the Treasury questioned the usefulness of an autonomous central bank since a government could pressure it into short-term actions. They wanted the bank constrained to a single-minded pursuit of price stability, free only to deviate in an absolute emergency. Cognisant of the intellectual history of banking and conversant with the rich trove of ideas in English publications and parliamentary commissions dating from the first half of the nineteenth century, Atkinson had models to draw upon when he imagined “a proper bank,” not a state bank.¹⁴⁸ Atkinson’s bank would start life with a balance sheet of banknotes as liabilities and government securities as assets. It would then deal in these securities to make a profit, selling and buying securities to achieve, he argued, a money supply that brought price stability free from political directives.

The requirement that SOEs had to seek profits, if applied to a central bank dealing in securities, was supposed to prevent the institution from hoarding its banknotes. When buying securities, it would release cash; when selling, it would tighten liquidity. If a government attempted to pressure excessive purchases of government securities, the bank would risk depleting its reserves. In these imagined scenarios, the profit incentive and the risk of bankruptcy inhibited folly and served price stability without government directives, rules, or complicated tracking of money aggregates. But here was the hitch. If the bank’s routine operations accomplished price stability by the invisible hand, there still had to be a visible iron hand that determined the value of banknotes released for circulation. The debate between the banking school and the currency school, mentioned in chapter 4, applied to this conundrum of containment.¹⁴⁹ Atkinson’s solution was partly modelled on the United Kingdom’s Bank Charter Act (1844), which had limited discretionary interventions and kept the money supply tightly associated with gold reserves.¹⁵⁰ The gold standard was a dead issue. So Atkinson proposed that the bank be authorised to issue banknotes up to a fixed limit set by Parliament, which would let the limit rise steadily over the medium term at a rate consistent with long-term price stability. He suggested increasing the value of banknotes at a rate of 2 per cent per annum.¹⁵¹

The Reserve Bank’s governor, Spencer Russell, invited Secretary of the Treasury Graham Scott to a showdown meeting in March 1987. Scott replied that the Treasury had ideas. He brought Atkinson and his “bombshell” paper.¹⁵² After the initial meeting, the bank’s team went to work poking holes in Atkinson’s paper. The Treasury engineered a resolute and cagey campaign to sell it. In April, Atkinson travelled overseas to meet with Milton Friedman, David Laidler, Geoffrey Wood, Anna Schwartz, Kurt Schiltknecht, and Georg Rich. The first four were chosen because they were likely to be unsympathetic with the bank and the last two because they could give insights into the bank’s internal thinking.¹⁵³ “Game on,” as the saying goes. Atkinson circulated his paper to selected economists, hoping to land champions. Senior New Zealand academic economist Frank Holmes wrote a solid account of recent volatility but wanted the Treasury and the bank to manage monetary affairs jointly.¹⁵⁴ No help there. During his overseas trip in April, Atkinson had a fine meeting with Laidler and left him with copies of his paper. Laidler wrote a supportive appraisal. He was on board. Wood, professor of banking and finance at City University in London, read Atkinson’s paper and followed up with advice.

In the Reserve Bank’s corner, staff prepared for an interagency brawl. Bank directors met with Treasury officials in early May 1987. Despite insisting that monetary policy should not be made commercial and that the bank should retain the independent income that it earned from seigniorage, directors conceded ground. The Reserve Bank would agree to permanently abandon short-term fine-tuning, to adhere to a clearly stated and relatively immutable purpose, and to give up the management of the public account.¹⁵⁵ Russell reported these points to Douglas in a memorandum. It had a powerful effect on the outcome.¹⁵⁶ The bank had support from Charles Goodhart, professor of economics at the London School of Economics, who recognised Atkinson’s work as sporting a “distinguished pedigree” in the form of the Bank Charter Act (1844) but criticised this legislation and Atkinson’s paper. A commercial central bank was unacceptable since it would be difficult to avoid conflicts of interest. More troubling was the provision to have Parliament set a limit on banknotes. In his estimation, central banking hinged on reputation, not rules.¹⁵⁷ Goodhart’s Law states that “any monetary aggregate was well-behaved until one began to control it.”¹⁵⁸ Another complication, as he saw it, was the unpredictable rate at which money changed hands, weakening the usefulness of money aggregates. Therefore, “such quantitative targets are being abandoned all over the world.”¹⁵⁹ The Reserve Bank’s analysts reacted similarly: “The money tail seemed to be wagging the monetary conditions dog.”¹⁶⁰ Goodhart recommended bankers’ discretion and putting monetary conditions ahead of aggregates and rules. During recent years, the bank had attempted to manage monetary affairs by collecting and analysing several standard measures of money supply, a practice increasingly criticised as looking in the rear-view mirror while moving ahead.

Transformations in the world monetary system dictated the new idea that a central bank should focus on price stability. Noticing the Reserve Bank’s rejection of a rules-based monetary policy, Goodhart concluded that its officials implicitly believed that they could outperform rules. Why not let them try? Agreeing with most of the other experts consulted, he wanted the bank’s independence contained and, to this end, recommended that the governor’s salary be set inverse to inflation and suggested that the entire management team might be dismissed if the price level moved out of a given range.¹⁶¹

The Treasury kept Geoffrey Wood on a retainer, planning to call him for assistance during the final negotiations.¹⁶² But the Treasury’s efforts to get Atkinson’s scheme adopted suffered a setback in late September 1987. Wood told Treasury economist Howard Fancy that Russell’s memorandum of May 1987 was a good compromise. It set price stability as the appropriate target for monetary policy and made useful suggestions for placing the responsibility on individuals. Wood wrote that “it is not the 1844 Bank Charter Act model we started from,” which had been the inspiration for Atkinson’s paper, “but it has certain desirable characteristics.”¹⁶³ The Treasury side did not give up. Fancy insisted that the Reserve Bank’s thinking had dangerous elements evident to the Treasury but apparently not to Wood.¹⁶⁴ Scott and Fancy still wanted to establish the money supply by statute.¹⁶⁵

Discussions between the Treasury and the Reserve Bank climaxed between February and May 1988. All along, the Treasury seemed well informed about the bank’s thinking. When Georg Rich visited the bank, the Treasury soon had a copy of his report that “fell off a truck.”¹⁶⁶ Treasury officials knew that a few bank employees favoured returning to reserve ratios, leading a Treasury official to write disparagingly that “down in the dungeons” of the bank building “lurk[s] every breed of interventionist known to economic theory since Aristotle.”¹⁶⁷ If the bank housed interventionists, it was no less true that the Treasury had a team “working on a project to close down the Reserve Bank.”¹⁶⁸ Peter Neilson required the parties to debate the issues in his presence in March 1988, subsequently favouring the bank’s positions and instructing Treasury and bank officials to write a joint paper for the Cabinet Policy Committee (cpc).¹⁶⁹ The areas of agreement were substantial, especially since bank representatives acknowledged that the Reserve Bank did not need to retain the public accounts in order to manage monetary policy. At a May 1988 meeting, the cpc considered the joint paper and “agreed that it is desirable to place the Reserve Bank on a more autonomous legislative basis than at present in order to improve the medium-term consistency of monetary policy, but subject to the right of Government ultimately to determine policy.”¹⁷⁰

Twelve points fleshed out the cpc recommendation to Cabinet. Most importantly, the cpc accepted that the bank’s “statutory objective should be to formulate and implement policies which will make the maximum possible contribution to achieving, and maintaining the stability of the general level of prices.”¹⁷¹ Other recommendations were that the governor’s employment contract with the minister of finance should include an agreed-upon track for inflation over five years of the governor’s term in office, that the governor and the board can be dismissed, that all non-policy functions should be contestable and should be required to operate on commercial principles, and that the bank should retain the monopoly on note issuing and should have independent income. Working parties of officials put these principles into a shape that could guide the legislative-drafting office.¹⁷² Upon completion of a draft, public submissions were invited. Most made specific suggestions; however, several interventionists connected with economist Bryan Philpott opposed the focus on price stability, as did the New Zealand Council of Trade Unions and the National Council of Women.¹⁷³

The government appointed Don Brash as governor effective in September 1988. Brash had previously steered passage of the Goods and Services Tax Act (1985).¹⁷⁴ After promulgation of the Reserve Bank of New Zealand Act (1989),¹⁷⁵ Minister of Finance David Caygill and Brash negotiated the governor’s terms of reference and set the inflation target at 0 to 2 per cent.¹⁷⁶ Although later agreements would establish slightly different ranges, the adoption of an inflation target simplified the Reserve Bank’s mission. Previously, officials had debated the merits of tracking and controlling several monetary aggregates: physical paper and coin in circulation, all of that plus demand deposits, and all of that plus shares in the money market and savings deposits.¹⁷⁷ To maintain the level of inflation, the bank henceforth concentrated on setting the interest rate charged on overnight loans to commercial banks.¹⁷⁸ This rate in turn influenced rates across the economy. The bank retained responsibility for the financial system’s health but no longer routinely supervised and regulated banks; instead, it had authority to investigate individual institutions and clients free from court injunctions, a power that drew objections from the financial services industry and the Law Society.¹⁷⁹ The bank remained under democratic supervision; a minister of finance could direct the governor to implement a different economic objective for renewable twelve-month periods. Transparency was served by a simplification of the bank’s roles to the single inflation objective and by the government’s contract with the governor.¹⁸⁰

The agreement that the bank’s non-policy functions should operate on commercial principles facilitated creation at the Treasury of a Debt Management Office, an agency charged with securing the best market information on securities and establishing relationships with merchant bankers in London and New York.¹⁸¹ Overseas markets, not the Reserve Bank, now became the real overseers of government overdraughts. The bank had previously used Treasury bills to influence liquidity, but with control over them gone, a new security, the Reserve Bank bill, was introduced and “became the sole discountable instrument within the liquidity management framework.”¹⁸² Not long afterward, in April 1989, the government transferred the state’s retail-banking activities from the Reserve Bank to Westpac, a commercial bank.¹⁸³

The monetary authorities of four OECD countries followed New Zealand and announced inflation targets as their monetary policy goal: Canada in 1991, the United Kingdom in 1992, and both Sweden and Finland in 1993.¹⁸⁴ Inflation targeting continues to win over central bankers.¹⁸⁵ In 2001, Lars E.O. Svensson of the Institute for International Economic Studies at Stockholm University conducted an independent review of the Reserve Bank, part of the accountability commitment. Submissions for his review split between supporters of the current course and interventionists. At the end of a long careful report, Svensson “found that monetary policy in New Zealand is currently consistent with the best international practice of inflation targeting: flexible inflation targeting with a medium-term inflation target, which is consistent with avoiding unnecessary variability in output, interest rates and the exchange rate.” He recommended marginal improvements and praised “the qualities of the current Governor,”¹⁸⁶ referring to Brash.

CONCLUDING OBSERVATIONS: THE BRAND WAS ORIGINAL

Financial deregulation and the disinflation campaign from 1984 to 1988 did not harmonise. Furthermore, both ran behind equivalent operations in other countries. Both had an air of improvisation. The shaping of monetary reforms displayed pragmatism, internal friction, side issues, measures that ran at cross-purposes, and an overdue unwinding of short-term interventions that had fallen out of favour in other OECD economies. The notion that New Zealand was a global leader or experimenting with untried practice was generally not true but deserved for inflation targeting, although the targeting initiative was anchored in old ideas about matching money supply and economic growth. The impression of radical change owed a lot to the fact that it was a Labour government that conducted the reforms. This novelty excited attention, such as when “a fraternal member of the Socialist International,” the Capital Territory Branch of the Australian Labor Party, called on New Zealand “comrades” in 1988 to reconsider current policies.¹⁸⁷

Local opponents found rhetorical leverage, claiming that Douglas and the other ministers with economic portfolios followed a script of untried theories. “Monetarism” was a favourite term hurled in these attacks.¹⁸⁸ Disgruntled Labour Party members and social democrats elsewhere perceived Douglas as a threatening apostate. In 1989, Canadian New Democratic MP Sven Robinson asked Deputy Prime Minister Geoffrey Palmer to stop Douglas from speaking abroad since he was undermining sister parties in the Socialist International.¹⁸⁹ In 1993, a Canadian television documentary featured the reforms, erroneously claiming that they were needed because “New Zealand’s credit finally ran out.”¹⁹⁰ Journalist Linda McQuaig exposed this exaggeration and then proceeded to err, citing a report from the United Nations Children’s Fund claiming that starting in 1984 New Zealand had “demolished a cradle-to-grave social welfare system in the name of economic efficiency.”¹⁹¹ This allegation was patent nonsense.¹⁹² The past is a repository of experience, and it would be wonderful if commentators paid attention to it.

Fourth Labour’s reforms fired up partisans. In international debates over structural reforms, they delighted free-enterprise liberals and infuriated the left.¹⁹³ A torrent of monetary measures and the concurrent battle against inflation roused economists as never before or since. As the reforms kept coming, which they certainly did, it is tempting to see only opposing camps, failing to notice institutional cultures, individuals, and complications. Now we momentarily leave the many identities of money only to come across it next in the guise of an inevitable: taxation.

6

“Deep in the Heart of Taxes”: The GST and Capital Gains

the master stroke

The ambitious government in a hurry implemented certain domestic measures more adroitly and responsibly than others. The Goods and Services Tax (gst) stands out as a first-rate achievement.¹ Its implementation harmonised public service research, community reactions, and politicians’ will. Most major initiatives engaged specialised expressions associated with a policy field. The far-reaching changes often strained common discourse. Language underscored the break from the past, making it essential for post-mortems to explain terms and relate them to how things were to work. For example, the subject matter here is an indirect tax, which is by definition collected by an intermediary and then remitted to the government. If a tax is applied to the purchase of goods and services, consumption tax is the apt term. Advocates of tax reform from 1981 to 1986 sought a consumption tax that would be collected indirectly. They envisioned a European-style indirect tax whose features and variations will soon be explained; there were optional bells and whistles. Despite the existence of varieties, rationalised with terminology developed abroad, the gst quickly became ordinary. With international roots and mundane reach, this tax transports us from the capitals of the Organisation for Economic Co-operation and Development to the Beehive, Labour Party conferences, and the corner dairy.

In his autobiography, Incredible Luck (2014), Don Brash summarises his contribution to the gst and credits teamwork.² Many public servants refined and implemented the tax. Approached by Roger Douglas to chair a panel reviewing public submissions on the proposed gst, Brash ultimately led extensive deliberations over how to design a consumption tax and, behind the details, how to reconcile social goals and fiscal well-being. These matters are richly documented for New Zealand, where a distinctive form of gst emerged from international consultation, public service studies, the solicitation of public comments, and Douglas’s supervision.³ Fierce opposition to the gst from some of Labour’s usual supporters could not block a triumph for Douglas. The implementation of the tax was a political victory, although more meaningfully a step toward fiscal stability. Soon after implementation, the gst supplied a quarter of the country’s revenue.

Laurels for a fiscal accomplishment could have crowned the National Party if not for opposition from Prime Minister Robert Muldoon, doubling as minister of finance. His resistance to consumption taxes began in 1967. A hefty report prepared by a Taxation Review Committee published that year recommended a sales tax to offset income tax reductions. Muldoon opposed the consumption tax as a levy that weighed heavily on low-income households. As well, by the early 1980s, he evaluated any new consumption tax as inflationary in a period of unprecedented inflation. Experience with tax innovations also made him wary of possible political costs because in 1970 he had introduced the system whereby employers deducted income tax from employees’ salaries and wages. He believed that “pay as you earn” (paye) had cost National the crucial support of the business community during the 1972 election.⁴ Furthermore, by the early 1980s, his hubristic presumption to know best led him to pay less heed to Treasury and Reserve Bank economists than earlier in his administration.⁵ Precisely at this moment, however, his understanding of fast-moving changes in the global economy would have benefited from expert analysis, but instead he reacted with quixotic initiatives.⁶ An editorial in the Dominion in February 1984 described him as “the one armed paperhanger working alone.”⁷ Muldoon became frustrated, touchy, and exhausted. Meanwhile, proponents of tax reform had been mobilising to lobby for an indirect tax since early 1981.⁸ Blocked by Muldoon, they waited for a change of government.

a taxing innovation: global history in a local setting

When it came to indirect taxes, New Zealand lagged behind Europe, where such taxes had originated in the 1920s. At first, they had consisted of low-rate levies applied to every business turnover. Turnover taxes produced a tax-on-tax effect, or tax cascade. A product was repeatedly taxed on its gross value as it moved through a production and distribution chain. The cascade had undesirable effects. For one thing, firms at the end of the chain passed the far-from-transparent tax load on to consumers. European governments discovered, too, that those turnover taxes encouraged the vertical integration of companies because such amalgamation reduced the taxable turnovers. The tax thus had the unintended outcome of weakening commercial and industrial specialisation. In 1948, to obviate these unwanted effects, France innovated by allowing taxpayers to claim a credit on taxes paid up to the point of the final sale. All turnover tax moneys were rebated up to the transaction when the product reached the consumer. This arrangement became the value added tax with credit.⁹

Soon German and Italian exporters wanted their nations’ domestic turnover taxes remitted too so that their products could compete in foreign markets. To bring order to tax regimes and fairness to trade, the European Economic Community in 1962 began to standardise members’ indirect taxes, which meant including the credit offset.¹⁰ Permutations appeared. Besides the value added tax with credit, there was zero-rating with credit, where the final sale incurred no tax but where taxes were collected on inputs and subsequently rebated; there was also the value added tax with exemptions, where no final tax was collected on certain articles but where taxes paid on inputs were ineligible for rebate. A specialised lexicon served an epistemic community of tax specialists working in the capitals and the universities of the oecd countries.

After the Labour Party’s election victory of 14 July 1984, a tax revolution was primed to go thanks to economists and tax analysts at the New Zealand Planning Council, Treasury, Inland Revenue Department, and to a lesser degree, Customs Department. All had personnel aware of European developments.¹¹ The background narrative begins in February 1981 when Federated Farmers, the Chamber of Commerce, the Employers’ Federation, the Manufacturers’ Federation, and the Retailers’ Federation sponsored a conference on taxation.¹² Victoria University economist Sir Frank Holmes, who chaired the gathering, headed the New Zealand Planning Council, the body established in 1977 to advise government on social, economic, and cultural policy. Holmes regarded tax reform as urgent.¹³ Since an election was coming, a parliamentary committee did not seem a good way to proceed, so Holmes recommended that the government appoint a task force.¹⁴ Cabinet duly appointed one to review taxation, draw on international experiences, and make recommendations. An interim report was required by 7 December 1981 and a final one by 7 April 1982. With accountant Malcolm McCaw as chair, the nine members consulted widely but were conscious of Muldoon’s abhorrence of consumption taxes.¹⁵ Economists at the Treasury made submissions and monitored the task force’s deliberations. Holmes, as well as these economists, scorned the task force as Muldoon’s feckless instrument.¹⁶ They had hoped for an emphatic endorsement of indirect taxation and for exploration of relationships between taxation and the economy.¹⁷

Influenced by the February 1981 conference, a submission to the task force from the New Zealand Manufacturers’ Federation included an almost perfect description of the tax eventually adopted.¹⁸ At the Treasury, someone underlined this section approvingly. For those suspicious that Labour’s reforms expressed a takeover by friends of business, this brief might have offered support. However, early advocates of a gst had been diligent researchers. Among member countries of the oecd, the form of gst described by the federation was state of the art. Moreover, a Treasury official dismissed most of the federation’s other recommendations as special pleading, marking several with acerbic criticisms or a scatological symbol that inside the Treasury denoted “balls.”¹⁹ Meanwhile, retailers submitted that a gst would depress spending.²⁰ In sum, unanimity was elusive. Distinct business communities and the Treasury were not quite on the same page. The final report listed taxation options and agonised over splitting household income.

In early 1982, consultants from the International Monetary Fund (imf) arrived to conduct the annual review of New Zealand’s economy. Then, as now, the imf consulted annually with each member government to assess a country’s economic health and hopefully to forestall financial problems. As the imf team saw it, the terms of trade were poor, economic growth was stalled, labour costs were too high, the debt was too big, and the dollar was overvalued. No improvement in the terms of trade, they believed, could be expected without structural changes to the economy.²¹ The debt had begun to rise in the late 1970s. A decline in the terms of trade contributed to unemployment, which diminished government revenue due to considerable reliance on the income tax. Job losses drove up expenditures on welfare and make-work projects just when the takings from the income tax, wholesale tax, company tax, and customs duties were falling.

The consultants advised a prompt reduction of spending. “The need for this upward trend to be arrested was seen as paramount.”²² They doubted whether fiscal discipline alone could avert a debt-management crisis because the government’s extensive trading operations drove a base load of expenditures that could not be appreciably reduced in the short term. In other words, the government was a big employer running debt-burdened, money-losing operations. There were other fiscal problems. More than three-quarters of the government’s external debt would mature within five years; it seemed that a lot would have to be rolled over at high interest rates.²³ The visitors submitted that even if cost-cutting was adopted promptly, it might prove inadequate for debt reduction; “the authorities therefore needed to address the issue of tax reform without delay. Further, the suggestion to introduce a vat [value added tax] or more broadly-based sales tax deserves immediate consideration.”²⁴

In a matter of months, two strands of analysis converged in support of a gst, although the McCaw report offered weak endorsement.²⁵ A few members of the National Caucus, however, had already recognised the importance of getting the debt under control with assistance from an indirect tax, but the task force had not been assertive enough to help their cause.²⁶ Not without reason, Muldoon feared that unions would denounce the GST as a regressive tax and would increase their wage demands. He considered the consequences “inconsistent with the immediate commitment to reduce the rate of price increases.”²⁷ Beyond a one-time unknowable effect, the inflationary impact of a GST depended on whether the government used the revenue to retire some of the debt or to expand public spending.²⁸

From mid-1982 until mid-1983, Muldoon responded to fiscal and especially monetary trouble by embarking on a globe-trotting crusade to promote a new world financial order – a new Bretton Woods Agreement – that would relax imf credit for debtor nations.²⁹ Public servants in departments with fiscal responsibilities looked outward too but investigated realisable measures operating in other countries. By now, Muldoon was regularly ignoring critical advice from Treasury economists.³⁰ As servants of an elected government, most Treasury sceptics could not collaborate with the Opposition; however, since 1977, a Treasury official had been assigned to the office of the leader of the Opposition. As Labour’s finance critic, Roger Douglas accessed this expertise. Technically, the Reserve Bank was not a part of the government, so its economists could share their analysis. Ideas and respect between economists and the party’s finance critic criss-crossed Bowen Street along narrow but legitimate constitutional paths. Concerned economists in the public service were keen to brief Labour immediately after its election. On 25 July 1984, the Inland Revenue Department provided papers to inform the incoming government about tax avoidance, tax-free fringe benefits, and the need for a GST.³¹

National had run into problems with adopting the GST, but so did Labour. Tax reform developed into the first major test for Cabinet at the party’s regional conferences in 1985. Trouble was foreshadowed by a policy dispute in late 1983. Factions fought over the wording of a statement on economic policy that had been drafted by Douglas and the economic adviser assigned by the Treasury to the Opposition leader, economist Doug Andrew, who had been educated at the University of Auckland and at Princeton University in New Jersey. Shortly before the snap election, Geoffrey Palmer had refereed as the sides cobbled together a vaguely worded compromise. Its anodyne sentences gave Cabinet enough cover and leeway to act as it deemed necessary, but the statement’s emptiness also permitted left Labour critics, not without cause, to complain that radical measures had been veiled for the election campaign.³² Recurrent disputes over who controlled policy and what constituted a mandate for action beset the Fourth Labour Government during its two terms.

The factions expressly disagreed over the projected impact of an indirect tax on lower-income families. Assertions that the working poor would be better or worse off due to a consumption tax rested on assumptions about expenditure decisions and concurrent adjustments to the income tax.³³ It was also difficult to predict whether a particular tax system would increase or decrease the incentive for people to work, save, or invest more. Supply-side economists believed that high marginal rates of income tax deterred hard work and savings, although for people who set targets for saving, a progressive income tax could have a neutral or positive effect on the urge to work. Disputants could marshal arguments, not irrefutable evidence; moreover, some party affiliates remained appreciative after the election win. The Labour Youth Council’s president, Callum Reid, wrote that “in no way is it our intention to attack the Government over this issue.” Surprisingly, the council rejected gst exemptions and, like Douglas, preferred to see relief move through the social welfare system.³⁴

new Zealand’s growth sector: tax avoidance

Left Labour favoured raising corporate tax rates and the rates charged in the upper brackets of the income tax. New Zealand’s income tax already had steep marginal rates that rose through narrow income ranges, an arrangement that encouraged avoidance as individuals sought ways to dodge moving up a bracket. Furthermore, the inflation of the 1980s accelerated upward shifts of nominal income, causing bracket creep, whereby more people each year moved into a higher tax bracket, although their purchasing power had not necessarily increased. For the government, creep translated into fiscal drag, whereby inflation increased nominal tax revenue and gave an unduly good impression of the government’s fiscal state of affairs.³⁵ At the time, three remedies for creep and drag were mentioned. First, the tax brackets could be linked to a consumer price index. Second, the tax rates could be flattened to produce a so-called proportional income tax, one that was levied in proportion to income and that avoided marginal rates. Third, the revenue furnished through indirect taxes of consumption could allow income tax reductions. This remedy had the advantage of snagging everyone in a big net and thereby contributing to a stable revenue flow.³⁶

A gst net had few holes. It had attracted wide interest among oecd countries because a gst with credit required a paper trail that assisted with compliance. To receive credit for any gst paid on inputs, a business had to register and retain invoices. Without a tax number and invoices from suppliers, it could not claim credits. The requirements served auditors because if the tax revenues handed over at regular intervals to a government did not appear to be plausibly aligned with the credits that a business claimed, an intense audit could ensue on suspicion that someone was not collecting. A retail tax levied only by the final vendor at the checkout counter, a so-called final transfer tax (ftt), would have been simpler but, because it lacked an incentive for businesses to acquire and retain invoices from suppliers, it was open to tax dodging. Specialists calculated that rates in excess of 5 per cent made an FTT prone to evasion, whereas a GST with credits could support a rate up to 25 per cent.³⁷ As well, because an FTT required a definition of a retailer or final vendor, it had not worked well in practice.³⁸ Cracks of imprecision in tax codes invariably became tax-avoidance chasms. In Australia, Bob Hawke’s Labor government backed away from a promise to introduce a GST and adopted an FTT. His party’s rank and file had vehemently opposed a GST. One tax expert branded Hawke’s retreat “a very stupid thing to do.”³⁹ The risk of tax avoidance with an FTT was a red flag to New Zealand’s tax experts because of a wider problem of tax dodging.

Bracket creep had promoted income tax avoidance at the higher marginal income tax rates. In a conversation with a member of the Planning Council in early 1981, corporate head Hugh Fletcher remarked that “he had noticed, over the last 12–18 months, a far greater interest among his executives and employees in tax avoidance.”⁴⁰ A year later, in a letter to Prime Minister Muldoon, the chair of an association of New Zealand tax lawyers and accountants alleged that “our accounting and legal members are being asked to assist either in carrying out or covering up evasion on a scale which has become a source of acute discomfort to them.”⁴¹ Evidence went beyond anecdotes. A government survey of 3,500 households, conducted in 1985 and presented in a graph, depicted the country’s progressive tax rates alongside the actual income taxes paid on earnings above $60,000 a year. Once incomes reached this sum, the trend line for the taxes that were actually paid flattened, suggesting that avoidance made a progressive income tax regressive in its operation.⁴² Farm investments and family trusts were a means of reducing taxable income, contributing to the perception abroad that tax evasion had become New Zealand’s fastest-growing economic sector.⁴³

Additionally, numerous New Zealanders collected untaxed fringe benefits. Employers had resorted to them to forestall wage increases in an inflationary era and to provide employees with a means of avoiding a higher marginal tax rate. Company cars, discount-shopping facilities, employee shared-purchase schemes, and subsidised mortgage loans slipped through the income tax net. Perks were no small matter. In 1985, there were 293,000 cars registered to companies; Fletcher Challenge alone had 3,000.⁴⁴ The imputed value of a car in off-hours was substantial. When the tax was imposed, the Kiwifruit Authority gave employees the option of continuing to use the “company car” or taking $7,000 in cash.⁴⁵ Such privileges were socially corrosive. Tax enforcement personnel noticed that wage earners sometimes justified moonlighting in “the black economy” by asking, “Why should I pay tax on my weekend job when my next-door neighbour gets a tax-free company car?”⁴⁶

Several fringe benefits were available to public servants, violating an equity principle. Most citizens whose taxes paid public servants did not have “the same opportunity to substitute fringe benefits for salary and wages.”⁴⁷ Public servants gained from below-market interest charges on mortgages and from subsidised shopping at a chain of shops owned by the Public Service Investment Society.⁴⁸ Other New Zealanders paid for these items with after-tax dollars. The fast-growing hostility of the leadership in the Public Service Administration toward Fourth Labour can be understood not only in terms of the socialist doctrines that some championed but also as a reaction to the fact that Douglas was targeting their perks. Moreover, the administration’s members had recently been shaken by the government’s announced aim to corporatise several government trading departments, a transition that they feared would cost them benefits when industrial relations were no longer managed by the State Services Commission.

Douglas did not want to penalise initiative by raising the marginal income tax rate on higher earnings but pursued improvements in the efficiency and social equity of the overall tax system. Before going all out for a gst, he pressed for a tax reform with an explicit social-fairness edge. The McCaw task force had stepped back from recommending a perks tax due to well-known difficulties with valuations.⁴⁹ Muldoon remarked that a fringe benefits tax (fbt) was a “can of worms.”⁵⁰ Trusting that tax specialists in the Inland Revenue Department could untangle worms, Douglas set them to work finding ways to value benefits.⁵¹ They succeeded quickly, and in December 1984, Douglas introduced a bill to levy a 45 per cent tax on a list of fringe benefits.

The gst and the fbt were counterparts but asymmetrical because the latter was not going to be a huge source of revenue. Although the fbt worked for equity and raised some revenue, the gst plucked the goose very effectively. The fbt exposed Muldoon’s worms, the practical problems with any tax applied to a benefit or luxury. For example, analysts had their work cut out setting a dollar value on the use of a company or government car for personal purposes on weekends and after hours. New Zealand’s fbt was deliberately unique. No other government levied it on employers rather than employees. Great care went into preparing employers for their critical role in calculating and reporting the benefits that they conveyed to wage earners.⁵² Of course, they still found it a nuisance. Therefore, many shifted remuneration into pay packets, where it was exposed to income tax.⁵³ The Inland Revenue Department had to hire an additional 400 to 425 staff to administer an fbt expected to draw in an extra $150 million to $400 million.⁵⁴ In the first year, it brought in around $130 million, far less than anticipated, although this disappointing yield reflected some of the shift of remuneration to payrolls.

The fbt increased the friction between the government and the Public Service Administration. Taxes on the public service perks accounted for about $10 million; almost half came from the Housing Corporation.⁵⁵ It is easy to understand the irritation of public servants in Wellington branches of the Labour Party.⁵⁶ A few business leaders denounced the fbt as “yet another form of business tax.”⁵⁷ Douglas defended the fbt as a means of capturing revenue from those who could afford to pay. The equity argument was clear-cut: private and public employers hid remuneration to the benefit of a fortunate few. In Douglas’s estimation, a gst attacked privilege too. This proposition depended on the assumption that the affluent would spend more than other folk.⁵⁸ However much he believed in eliminating privilege, equity was not the driving force behind the indirect tax on consumption. A gst was simply wonderful for revenue collection.

in the eye of the beholder: elegant, regressive, or simply effective

Specialists by the early 1980s judged taxes by the breadth of their base and by their simplicity, neutrality, and fairness. To use a term beloved by economists, they pursued “elegance.” In a pure uncompromised form, the gst was supremely elegant. It had an inherently wide base, for it applied to most acts of consumption. No one could escape. It made the rich pay, along with criminals, prostitutes, and tourists. The base widened in another dimension as well. If zero-rating or exemptions could be contained, the transactions covered would be profuse.

Simplicity extended to crisp rationalisations. Tax specialists described the gst with minimalist exactitude: “Ultimately the consumer should bear the burden of the tax.”⁵⁹ The mode of tax collection and supporting philosophy also projected simplicity. The gst applied to every chargeable transaction that took place as a good or service developed and moved toward consumers; purchasers paid the vendors, who became tax collectors gathering revenue for the government. The taxes charged along the way became tax credits for purchasers in the chain until the ultimate sale to consumers who could not claim credits. They were not buying inputs but consuming. Looked at another way, purely economically, the gst taxed people for what they took out of the economic system in consumption rather than for what they put in through savings and labour.

Tax specialists aspired to keep rates simple. Many countries imposed three to five rates for categories of goods or services; however, tax experts throughout the oecd disparaged this practice. Confining the tax to one rate with credit reduced administrative costs. Along with the determination to apply one rate, tax experts in New Zealand’s public service insisted at the outset that no entity supplying a good or service should be exempt from collecting the tax on patrons or clients. A newspaper headline dramatized this as “Churches, Charities Treated as Businesses.”⁶⁰ Made at the start of public consultations, this attention-grabbing claim had lost meaning by the end because Cabinet agreed to exempt entities that had less than a $24,000 turnover per annum. Another concept guided tax purists. The apposite term was tax neutrality. No tax system should disadvantage one business or type of business. A privileged activity, whether good or service, could attract more consumption than had been the case prior to the tax. Meddling could produce unfair distortions. Reference to neutrality blocked many appeals for zero-rating or exemptions.

The honesty of tax experts on a crucial issue merits comment. They maintained that consumption taxes like the GST hit low- and middle-income earners more heavily than the affluent in the sense that individuals in these groups had relatively less discretion in their consumption. Analysts labelled as regressive taxes those with an unequal impact. The New Zealand Manufacturers’ Federation in its submission to the McCaw task force admitted that a GST “was regressive in its impact.”⁶¹ To address the regressivity of a GST, experts recommended modifying progressive income tax rates and extending social security benefits. The Treasury’s study of other countries showed that, rather than allowing relief through zero-rating on necessities, they had initially adopted social welfare measures to offset the impact of the tax. Over time, however, many countries introduced lower rates on particular articles.

Most of the statements from Fourth Labour that addressed the regressive attributes of the GST stressed that offsetting measures in income tax rates and improvements in social benefits would be forthcoming. On a few occasions, advocates advanced a different argument. They denied regressivity by proposing that high-income earners, as extravagant spenders, would necessarily pay more tax than ever before.⁶² Thus, the GST captured revenue from people who could afford expert advice on income tax reduction. They could not dodge the GST.

The weight of these arguments hinged on conjectures about consumption practices among the wealthy. If they consumed what lower-income individuals did, but in greater volume and quality, the notion of a progressive dimension had legitimacy. However, the affluent did more than spend. They saved and, by saving, avoided the GST, whereas poorer people could not afford to save. As well, prosperous individuals could take vacations overseas, where the GST did not apply, whereas poorer families, contributing to the local economy on their vacations, would pay the GST.⁶³ The debate over regressivity played out with references to household surveys that projected much greater tax revenue from the top 10 per cent of households than from the poorest 10 per cent. When the government maintained that it would redistribute some GST revenue through income tax cuts and changes to benefits, it was making the case that the poor would be taking more out of the system than the affluent. In a sense, this objective was progressive.⁶⁴ Nonetheless, this redistribution argument struck some Labour Party members as a defence of social inequalities because it was a reminder that the affluent could spend more and did not address this difference.

Good logic was not a good look. A better practice was to admit to probable but incalculable regressivity, stress the urgent need to reduce the country’s debt burden, develop income tax relief, and increase social benefits. Fourth Labour did these things, although for months it could not provide details on either the gst rate or the compensatory measures. Trevor de Cleene, parliamentary undersecretary of the minister of finance and a busy spokesperson for the gst, could say little until the completion of consultations, a process delayed due to the complexity of discussions about taxing financial services.⁶⁵ Next he had to wait for a budget announcement. During the interlude between the release on 26 March 1985 of a white paper that included the draft legislation and an announcement on 20 August 1985 about the gst rate, offsetting tax cuts, and social benefits, critics of all stripes predicted troubles.⁶⁶ De Cleene admitted that “until the figures are released for discussion the ordinary person in the street is entitled to be unpersuaded by the protestations of the politicians.”⁶⁷

By arranging a period of consultation to refine gst administration, which then meant necessarily having to defer statements on the gst rate or on offsetting tax cuts and benefits until Parliament was informed, the government exposed itself to five months of trade union attacks without strong recourse, although not all union leaders attacked the gst. Despite agreeing with Douglas that the gst would catch tax evaders, the general secretary of the Electrical and Electronics Trade Union, Tony Neary, lamented that the government had not “communicated the consequences of the gst and other initiatives.”⁶⁸ In the circumstances, it could not have done so.

During public discussion about the gst in 1985, there were references to an existing wholesale sales tax (wst) levied on the one-time transaction between a wholesaler or manufacturer and a retailer. Muldoon thought highly of it as a blend of luxury tax and import control.⁶⁹ Whereas a carefully devised gst could approximate elegance, the wst had grown ungainly.⁷⁰ It drew curses from merchants entangled in its obscurities.⁷¹ New Zealand had introduced this tax in 1933. A simple 5 per cent tax initially applied to all wholesale transactions. Parties who sold to retailers collected the tax and remitted takings to the government; in this sense, it was an indirect tax. Since the collecting businesses were mainly larger enterprises geared to invoicing, the bookkeeping burden was absorbed. During the Second World War, the First Labour Government increased the wst to 10 per cent and later to 20 per cent. After the war, both parties exempted or raised the tax rate on specific articles in relation to policy themes, although tinkering was more extensive in National Party budgets.⁷²

By the 1970s, higher WST rates on alcohol and tobacco were intended to target health and social costs.⁷³ Even though its specialists favoured a GST, the Treasury advocated retaining the WST where “the social costs exceed private costs of consumption.”⁷⁴ But many WST rates were poorly justified. The number of articles covered had mushroomed not only through budget measures but also at the hands of enforcement officials. By the early 1980s, tax rates ranged from 10 to 60 per cent. The spread on similar articles encouraged producers and wholesalers to redefine products in order to drop them into low tax categories. Luggage was taxed at a high luxury rate; sports and school bags were taxed lower as necessities. In consequence, bags were relabelled. Pottery was a notorious example. It was taxed at 10 per cent if tableware and at 40 per cent if decorative, and it was exempt if art. Boats that operated regular passenger schedules had a low rate; passenger boats that operated irregularly had a higher one. Boats belonging to members of sailing clubs qualified for a lower tax.⁷⁵ Accounting for over a tenth of the country’s revenue, the WST lacked a tight rationale, coherence, and transparency.

Fourth Labour eliminated the WST for most articles when it implemented the GST. The shift from a WST, with its complicated schedule, made it difficult to compare model household budgets before and after a GST. Estimates made at the time suggest that a 10 per cent GST would have boosted consumer prices by 3 to 7 per cent. ⁷⁶ The inflationary ratchet depended on the scope of cuts to the WST, consumer resistance, and whether parties in a chain of transactions passed on the benefit of the rebate.⁷⁷ The government hoped that market-place competition would restrain the erroneous markups, or else, as de Cleene put it, “the inflation cascade will be dramatic to our political detriment.”⁷⁸ Would businesses in the supply chain regard the rebate as a nice windfall for them or perceive it correctly as a way to eliminate a tax cascade rolling downstream to the consumer? An unpredictable degree of inflation was a social cost of introducing a GST. Muldoon and left Labour stressed the pessimistic possibilities and recommended exemptions for necessities, a difficult concept to define, as other countries had discovered. As noted earlier, cracks broadened to chasms.

Years of political pressure in European states had created diverse rates for several categories of goods and services. Many states allowed lower rates for some food and clothing items. Some imposed a 3 to 8 per cent tax on defined essentials but maintained rates from 18 to 30 per cent on other goods and services. From their studies of states with a GST, New Zealand analysts reached a firm conclusion. Stay away from exceptions. To offset revenue lost by zero-rating, exemptions, or lower rates, most countries had to raise the base rate substantially. Experience suggested, too, that variation increased the administrative burden on small businesses.⁷⁹ “Go very hard for a comprehensive, single positive rate from the outset,” British Customs officials advised in early 1985.⁸⁰

EVERYONE IS SPECIAL: LISTENING AND LEARNING

A wide tax base forced fine-tuning because the diversity of business activities precluded impeccable consistency. For example, at the start, it was unclear when the government would require businesses to hand over the tax money that they had collected. Was it to be when the final instalment was paid, when the invoice was issued, or when the product was delivered? Depending on how tax authorities defined a completed transaction, a business could have been temporarily out of pocket for some of the tax revenue due to be turned over to the state. The possibility of cash flow problems being exacerbated by the duty to collect and remit taxes worried farmers and exporters, whose revenues could arrive after the deadline for payments. Since businesses could be subject to penalties for late transfers, many groups wanted flexibility on the deadline.⁸¹ Their needs were addressed by modifications.

Tax experts anticipated that there would be problems that public servants could not anticipate. For this reason, Douglas had initiated consultations to coax these difficulties into view before implementation. For the first time in New Zealand history, draft legislation was taken to the country before it was introduced in the House of Representatives. Public soundings began on 26 March 1985 with the circulation of a white paper that included the draft legislation plus legislation from the United Kingdom and the Republic of Ireland.⁸² The white paper asked for submissions to focus on nuts and bolts, not philosophy. Imposing such a limitation was unrealistic. The first report on submissions could not help but note fundamental dissent: “A small number of those who made submissions made it clear that they were opposed to any form of indirect tax, typically on grounds of regressivity.”⁸³

Don Brash wrote this summary. Douglas had recruited Brash for at least two reasons. First, as an activist minister, Douglas practised considerable delegation once he set a policy in motion, although he appears to have been more routinely involved with the GST than with several other measures that he and the Treasury zealously pursued.⁸⁴ Second, he wanted to increase the government’s legitimacy with business and finance, a step in building business confidence.⁸⁵ When a written submission arrived at the panel’s office, a secretary drafted a synopsis for the panel. Brash convened the panel on several occasions; it met for days at a time to discuss patterns adduced from the summaries, some of which were orchestrated. Included in the submissions, for example, were 400 coupons printed and circulated by interest groups. The largest category of submissions came from non-profit organisations: sports clubs and service clubs (199), charities and churches (56), and professional associations (53). Among businesses, exporters were prominent (72), followed by producers, small traders, retailers, and transport operators. Accounting firms flashed professional erudition.⁸⁶ The more than 1,100 written submissions ranged from lengthy recommendations to terse condemnations.

Clubs depicted social life. The panel heard from bowling clubs, gun clubs, mountain and tramping clubs, bridge clubs, and rotary clubs. Clubs and charities feared that their fundraising sales, membership fees, and newsletter subscriptions would be charged and that they would require an appropriate bookkeeping system. The panel took seriously the anxieties of groups that ran cake stalls and church fairs. The executive director of the Council of Christian Social Services praised Brash.⁸⁷ As the son of a moderator of the Presbyterian Church in New Zealand, Brash understood how congregations and social services raised funds through local events. Small operations wanted the turnover threshold set higher than the $2,500 mentioned in the white paper; $50,000 was often proposed. Going against this higher exclusion line was an observation that in the United Kingdom some businesses split operations, sneaking under the threshold to avoid collecting the tax. Accepting the panel’s advice, the government set the threshold at $24,000, a level of activity that exempted clubs, except those associated with major sport federations as well as golf or country clubs with bars and restaurants. Tax neutrality held that they should be taxed like the businesses with which they competed.⁸⁸

Submissions from dairies and hobby shops claimed that the obligation to remit taxes collected every two months imposed a heavy bookkeeping obligation. To obviate this burden, some submissions recommended a so-called tax fraction method. At the end of the year, all sales and all input costs would each be multiplied by the tax rate; the notional tax paid for inputs would be deducted from the notional tax collected on sales, and the difference would be remitted to the government. There were objections. Annual lumping would create a logjam at the Inland Revenue Department. The expedient would grant businesses extended use of tax monies. Finally, in a small economy, government revenue collection affected liquidity and hence short-term interest rates at the March and September income tax peaks. The annual collection of the GST revenue could also pinch liquidity by taking money out of circulation and putting it, at least temporarily, in government coffers.⁸⁹

Many letters recommended zero-rating for food, clothing, medical services, and charities. The writers “were often motivated by a concern for low-income consumers of those goods and services.”⁹⁰ In some instances, there was alarm about the impact on culture and education. Schools and bookdealers wanted zero-rating with credit. Far fewer submissions advised the government to resist pressure for zero-rating or variable rates since these measures would raise compliance costs. “The only chance of keeping compliance costs within acceptable limits would be to have a single tax rate, and avoid massive problems created by different rates of GST, and exemptions.”⁹¹ The submissions described a healthy civil society. People were engaged. Radio and television interviewers interrogated politicians and experts.⁹² Comments made through submissions and at meetings influenced operational details, but in the end public servants and key politicians paid rapt attention to overseas advice on zero-rating or exemptions. All foreign experts canvassed by the public service warned against bending. Overseas experience helped to settle the matter.

Moreover, the WST had shown that tax exemptions paved the way for an erosion of the tax base through demands for further exemptions. The exemptions granted for that consumption tax had frustrated businesses due to their apparent capriciousness and the uncertainty of charges on new items.⁹³ From high street to bargain lane, the GST would undoubtedly impose burdens, but variable rates could make matters worse. The Federation of Labour chimed in to recommend the zero-rating of necessities. In a process of public consultation, the federation became just one interest group. It was unused to such treatment because tripartite consultations by both National and Labour had often put unions in a privileged position. Cabinet moved assiduously away from negotiations with the unions about economic or fiscal policy.⁹⁴ Slighted by this new stance, union officials felt that their party had been hijacked. They challenged the Labour Party’s policies at its conventions.⁹⁵

While it was churning up the Labour Party, the GST question exposed differences among retailers. Second-hand dealers presented a shared problem. They bought stock from individuals who, as unregistered vendors, could neither collect the GST on the sale nor issue tax invoices that allowed dealers to claim a credit. The solution was to trust dealers to take responsibility for recording the transaction, identifying the GST content, and forwarding the GST sum to the seller who would forward it to the government.⁹⁶ Explanation was cumbersome, although once in place practices became routine. Second-hand dealers also feared competition from private sales that escaped the GST net. Used car dealers, an organised and astute group, felt especially disadvantaged because on a big-ticket item like a car, the GST could add enough to the price to swing buyers toward the untaxed market created by classified ads.⁹⁷ The government left it to these dealers to drive hard purchasing arrangements in order to retain market share and profit margins.

To function as tax collectors and to benefit from offsetting tax credits, most small retailers had to improve recordkeeping. Dairy owners and fruit and vegetable dealers were nervous.⁹⁸ They scorned suggestions that better recordkeeping could improve their bottom line or that they could use the added cash flow for a month or two. By contrast, larger retailers could adjust readily. Not only was the GST perceived differently by small and large retailers, but it also divided them. Department and chain stores objected to any thought of exempting small businesses. Hallensteins condemned the idea as a violation of tax neutrality. Foodstuffs Limited, the Grocery Manufacturers’ Association, Chamber of Commerce, and Meat Retailers’ Federation took the same position.⁹⁹ The $24,000 participation threshold protected a few of the very smallest retailers. Unsuccessful requests for special treatment arose from the tourism sector. The Tourist Industry Federation and the Travel Agents’ Association proposed that inward tourism should be treated as an export industry because consumers resided outside of New Zealand. Other exports were exempted because they were not consumed in New Zealand; the tourism industry associations insisted that theirs was the only export industry where consumers were taxed.¹⁰⁰

Many organisations and individuals requested exemptions for booksellers, historical societies, museums, and art galleries on the grounds that they promoted culture and education. Sports clubs and crafts suppliers insisted that they, too, supported worthy social activity.¹⁰¹ Where would one draw the line on what constituted a worthy activity? Booksellers organised the most vocal lobby.¹⁰² Cultural pleas died because they begged tough questions. Who would separate the earnest from the frivolous, the elevating from the profane? Most European states with a GST taxed book sales.¹⁰³ Medical associations appealed for an exemption for medical charges. The Society of Physiotherapists wrote that it was “unfair to charge a consumer of service who is usually an accident victim or patient suffering from a chronic disease.”¹⁰⁴ Foundations wanted exemptions for fundraising sales or subscriptions. They included the National Kidney Foundation, Royal New Zealand Federation for the Blind, Asthma Foundation, Arthritis and Rheumatism Foundation, and Save the Children Fund.¹⁰⁵ National resurrected these appeals during the parliamentary debate on the GST bill but also suggested that a higher rate was needed to bring down the debt.¹⁰⁶

Brash’s advisory panel submitted two reports. The first recommended administrative changes, such as revising the turnover threshold, allowing small businesses to turn over takings every six months instead of two, and requiring the Inland Revenue Department to make tax-credit payments promptly. A second report came later and dealt with financial services.

REAL POLITICAL BATTLEGROUNDS: PARTY CONFERENCES

Pre-existing party fissures opened wide when the Labour government released its white paper on the GST on 26 March 1985.¹⁰⁷ Left Labour insisted that, instead of a GST, company profits should be taxed at a higher rate. So did the leadership of the left-inclined Public Service Association. Angered by the government’s seriousness about converting several government departments into corporations, the association’s executive regarded the GST as a symbolic threat to a presumed compact between government and business. Its executive argued that the government ran services that assisted business; a higher corporate tax would acknowledge this arrangement. The country needed economic planning and thus a tax system “built up with a recognition that companies gain from the range of services that the Government provides and that they should therefore pay a fair share of the tax burden.”¹⁰⁸

Raising the corporate tax appealed to many Labour Party members but had problems that explain its rejection by Cabinet. In terms of international comparisons, New Zealand was on a par with the OECD, with just over 8 per cent of all government revenue coming from a corporate income tax. The tax rate currently stood at 48 per cent, but that was half the picture. Company profits were taxed twice, once as a tax on profits and then as income on shareholders’ dividends. The double taxation feature pushed firms toward satisfying capital needs by debt rather than by equity.¹⁰⁹ There were other complications. No one could determine who finally paid such a tax. Companies could pass it on to consumers in price increases, to employees through staff reductions, and to investors in reduced dividends. Shareholding by life insurance companies indirectly drew many wage earners into the corporate economy through the investment of policyholders’ premiums in company shares. In a period of stalled growth, raising the higher marginal corporate tax rates could have impeded initiative and spurred more tax avoidance.¹¹⁰ Finally, raising the tax on companies was not an effective means to increase revenue when profits were falling. Securing a reliable revenue flow, an urgent need, was best achieved by widening the tax base and reducing tax avoidance.

The government’s commitment to the GST alienated some base support, whereas a few business leaders and columnists applauded it. GST salesman de Cleene, who explained the tax to roughly fifty groups, was surely correct when he claimed on radio, “I’ve never seen so many people with rotary badges congratulating the Labour Party.”

“You should think about that,” retorted trade unionist Rob Campbell.

“Yeah, well I know. It worries me a bit, Bob.”¹¹¹

It worried Campbell that the parliamentary party no longer spoke emphatically for workers. It worried de Cleene that some trade unionists opposed Labour’s pursuit of a national good. At the party’s regional conferences in 1985, comparable exchanges had a sharper edge because the GST white paper reactivated the election-eve disagreements about the parliamentary party’s freedom to direct the country’s affairs. Campbell was a gritty and effective critic. Besides dwelling on regressivity, he alleged that the resources supposedly being “poured into policing the GST” could be used to better advantage “policing the loopholes in a more progressive income tax system.”¹¹² It sounded plausible but was flawed. To secure an estimate on staffing requirements, the government called in IMF consultants, who proposed that after an initial buildup of temporary GST agents at the Inland Revenue and Customs Departments, there would be a drawdown over several years. The temporary staff would assist businesses, after which processes would seem routine.¹¹³ By comparison, income tax avoidance was difficult to stop.

To enable opportunities for members to express themselves and to allow the parliamentary leadership occasions to explain themselves while rallying volunteers, Labour held regional conferences prior to an annual national conference. From early March to late May 1985, the party held regional conferences at Ruatoria, Westport, Mosgiel, Auckland, Palmerston North, and Wellington. At Auckland, Douglas declared that “the goods and services tax … has become the central focus of the economic debate at regional labour conferences.”¹¹⁴

The regional debates over the GST exposed ambiguities about the relative authority of the parliamentary party and party members. Tension about party control persisted throughout the life of Fourth Labour. The democratic ideal of members’ voting on resolutions, so-called remits, was muddied by the existence of a by-law that allowed union executives to request a card vote, meaning that their vote would then carry the weight of their membership despite the fact that members were not present for the discussions.¹¹⁵ A card vote was not valid unless the motion passed by 60 per cent. There were voice votes, hand votes, and card votes. Complicating matters further, even if the conference endorsed the regional remits, these endorsements had no immediate standing as directives to the parliamentary party. Following a close vote at the Ruatoria meeting, Prime Minister David Lange asserted that “the conferences did not make policy, the Party policy council and the government in power did that.”¹¹⁶ That was the party’s constitutional reality at the time.

At five regional conferences, a compromise had been worked out; the majority of delegates accepted the GST so long as the government accompanied it with income tax cuts and social welfare measures that would improve the circumstances of middle- and low-income wage earners.¹¹⁷ Comparable amending motions were ruled out of order at Wellington, where the hostile chair allowed only a voice vote on the main motion. She later declared that it had passed by 60 to 40 per cent.¹¹⁸ Outside of the Labour Party, or at least beyond its dissident group, support was increasing. In late July, Federated Farmers announced that its members would endorse the GST if the WST was repealed, if personal income tax was reduced, if GST revenue would not be used to reduce the debt, and if there would be no GST on land sales between registered traders.¹¹⁹ The farmers’ group wanted the debt reduced by spending restraint. As momentum favouring the government grew, party factions prepared for the annual conference in Christchurch in late August and early September. The Federation of Labour launched its assault with a pamphlet that attacked the GST as regressive.¹²⁰ The federation and the Combined State Unions girded for the fight.

Some in the Federation of Labour wanted poverty addressed by maintenance of the national wage-fixing awards, which achieved wages high enough to provide a living wage irrespective of “the market value of work done.”¹²¹ A few union officials and sympathetic academics alleged that by promising to extend welfare, the government undercut the unions’ efforts to achieve social improvement through wage awards.¹²² When Fourth Labour asserted that it would counter regressivity through benefits and income tax reductions, it disturbed union solidarity because the promise of a family care package and tax reduction appealed to unions with low-paid workers. One of them, the Hotel Workers’ Union, found the government’s promise of benefits linked to the GST too good to reject. To pay for benefits, the government needed the GST. From the perspective of syndicalism, however, the tax was a diabolical means to get workers “to fund their own minimum standards of living.”¹²³

The government had surprises in store for GST opponents.¹²⁴ As parliamentary champions of the GST, Phil Goff, Peter Neilson, Bill Jeffries, and David Butcher had formed an ad hoc committee on tax reform soon after the Australian Labor Party government took a drubbing over indirect taxes from its members. The reversal across the Tasman, Prime Minister Bob Hawke’s “very stupid thing,”¹²⁵ heartened left Labour.¹²⁶ Cabinet wanted to escape a comparable humiliation. For six weeks prior to the conference, the ad hoc committee’s members “worked intensively inside the trade union movement and lower levels of the Party to break down opposition to the tax.” They laboured to ensure that delegates from the branches supported the GST.¹²⁷ The carrots, sticks, and arguments cannot be recovered in detail; however, the career of prime opponent Rob Campbell, secretary of the Distribution Workers’ Union, is of potential interest. Immediately before the Christchurch convention, he said that he would accept the GST so long as the government monitored its impact on poor wage earners. A year later and further along his road to Damascus, he stated that anger had undermined the unions’ ability to engage constructively with the government. Fourth Labour appointed Campbell a director of the Bank of New Zealand in 1985, a member of the body corporatising the Post Office in 1986, and a member of a commission to review industrial pricing in 1987.¹²⁸

Douglas administered the coup de grâce to opponents a few days before the Christchurch conference when he announced the income tax cuts and compensatory social welfare benefits. The elderly would be helped with a 5 per cent increase in tax-based superannuation, called National Superannuation, and lower income families would be assisted by a grandly named Guaranteed Minimum Family Income (gmfi), a modest income tax rebate. Very soon afterward, this concept of delivering welfare benefits through the income tax system progressed from a minor affair into the major policy proposition that ripped apart the Lange-Douglas duopoly (chapter 3).¹²⁹ By issuing the statement on relief for the gst a month before the next budget came before Parliament, Douglas intended to influence delegates.¹³⁰ Over the next several days, newspapers published budget specials that showed the “average family is better off weekly.”¹³¹ Douglas had fulfilled commitments made at regional conferences.¹³² The gst bill was introduced to Parliament on 22 August 1985.¹³³

Resistance persisted at the Christchurch conference. A Wellington motion to have Labour implement “a planned, self-sufficient socialist economy” was soundly defeated, as was a Wellington motion to reject the gst. A majority of delegates called for implementation of the tax and threw out proposals for zero-ratings. The New Zealand Herald assessed the conference as the most placid in decades, but delegates certainly erupted.¹³⁴ Applause greeted Douglas’s introduction of the economic debate, and more applause came when a voice vote rejected the remit opposing the gst. The gst bill had been introduced in the House of Representatives, so opposition would have undermined the government. For many, that was a step too far. However, anti-gst luminary Jim Anderton topped the polls for party officers.¹³⁵ Left Labour had largely been outdebated and outmanoeuvred. At the annual meeting in Wellington the following year, critics tried to have the party adopt zero-ratings on food, clothing, and books. All of these remits failed.¹³⁶

Fourth Labour had a battle on its left but none to speak of on its right. National Party parliamentarians remained off balance on account of Labour’s 1984–85 achievement in conveying images of confidence, vigour, and even non-partisan dedication. The government’s publication on the state of fiscal affairs, Opening the Books (1984), followed by its well-choreographed Economic Summit of September 1984, undercut National’s credibility as the steward of the country’s fiscal affairs.¹³⁷ Beyond its members making several ill-considered and contradictory statements – that the gst was a socialist measure, that the wst was better, that National would repeal the gst, that the rate was not higher enough to tackle the debt – the Opposition party identified and accented technical issues that unless corrected would inconvenience small businesses and farmers.¹³⁸ During the twenty-seven-hour marathon parliamentary debate over the gst bill in November 1985, National shored up its position as the party of small government.¹³⁹

INELEGANT DETAILS: INEVITABLE EXEMPTIONS

New Zealand’s tax specialists wanted no itemised exemptions. Therefore, even municipal taxes and government fees required a levy on the grounds that these were service charges. In some cases, the municipal service had private-sector competition.¹⁴⁰ The principle of tax neutrality, which required equal treatment, clashed with the principle that there should be no tax on a tax. Conflicting principles and protests from local councils led to a revenue-sharing agreement. By comparison to the taxing of government service charges, several goods and services presented truly unsolvable complications. The consumption of shelter and financial services were brainteasers.

Land sales escaped the GST because analysts deemed land a raw factor of production; the taxable value added would arise only when buildings were constructed. New buildings included new houses. Building contractors would have to collect the GST from homebuyers in order to capture the value added by construction. Since a tax on rent would have been political folly, a decision had been made to exempt rent payments.¹⁴¹ Tax neutrality decreed that a tax subsidy should not go to tenants alone, or else one segment of the housing sector would be advantaged. A partial solution was to exempt the resale of the family home. However, this measure in turn violated neutrality since it put new home vendors at a disadvantage in competition with realtors selling family homes. To moderate this effect, Minister of Housing Phil Goff introduced a discounted mortgage rate for new homes.¹⁴²

Every country that had applied the GST had tripped over financial services. Transactions between institutions and individuals perplexed specialists. Almost all individuals availed themselves of financial services; they borrowed money and paid interest changes. To charge tax on the consumption of a financial service, one had to know what proportion of the interest rate on a loan was a service fee, separate from an opportunity cost for a foregone investment and separate from an offset for inflation. Presumably, each financial institution had an idea of this breakdown since service was their business. However, the service charge remained invisible and variable across different types of institutions as well as across institutions of the same type. If simplicity was a goal, a tax could have been levied on the entire interest charged to consumers. This approach would have gone further than taxing the consumption of service and so would have brought the system into great disrepute. After all, the tax was not levied on institutions but charged to consumers. Loans covered a lot of transactions.

Brash asked Douglas for more time to consult commercial banks, investment banks, loan companies, and insurance companies. He wanted to prepare a second report that dealt exclusively with financial services. The delay upset the implementation schedule and was one reason why left Labour had a long hunting season on the gst.¹⁴³ When Brash consulted the financial institutions, he found no unanimity, although commercial banks operating on high volumes were appalled by the accounting effort that would be required to identify and track the service value. Backed by the Inland Revenue Department but opposed by the Treasury, Brash and his panel proposed that rather than attempting to find the service cost, the whole sum of interest should be taxed. The Treasury argued that with this expedient, the tax collected could be driven up according to inflation rather than according to the cost of the service.¹⁴⁴ Brash countered that there were other businesses, such as interior decorating, where the whole sum of the invoiced amount was to be exposed to a gst even though services or goods were only part of the gross figure.

A Treasury economist recommended that Douglas reject Brash’s notion. The crux of his position was that no jurisdiction applied the gst to financial transactions and thus that no one knew what impact it would have on the economy.¹⁴⁵ Brash’s keenness to tax consumers for financial transactions was motivated by his concern about the debt, a point that he returned to when he mildly rebuked Douglas for bringing in a 10 per cent rate on the gst when a 12.5 per cent rate – or better, a 15 per cent rate – would have reduced the debt faster.¹⁴⁶ Douglas stayed in charge of the gst process, although he delegated tasks, as he did with Brash. To his junior colleague in the Cabinet, Phil Goff, Douglas explained that how New Zealand did things was going to be different from how other places implemented a similar tax. To keep a single low base rate, there would be no zero-rating or exemptions.¹⁴⁷

To lay observers, the notion that financial transactions were going to escape the gst seemed class-biased, especially when the interest that escaped was for loans to cover investments. Referring to betting shops run by the Totalisator Agency Board, one angry observer wrote during the public submission phase that “for have nots gambling is the tab and they pay a gst on it,” whereas “for the haves gambling is stocks and bonds and they don’t.”¹⁴⁸ Globally, tax experts expressed fatalism on account of the financial sector’s sophistication and flexibility. Interest was not the only financial service that escaped. So did brokerage and other fees. Investment advisors and lawyers could refine instruments and practices – asset swaps, redemption premiums, discounts, price adjustments, and borrowing from unregistered lenders – that would circumvent any financial service tax. Besides, money was an input, and the gst was intended to tax consumption.¹⁴⁹ Country after country had already conceded defeat. The European Economic Community required member states to exempt financial services, and the Government of Canada had decided that complications precluded a rational tax on financial services.¹⁵⁰ Yet significantly, Fourth Labour did not allow financial services to escape unscathed.¹⁵¹ Transactions would be zero-rated without credit; financial institutions could not claim reimbursement for GST paid on inputs. They fumed.¹⁵² The episode is but one example of how quick and dirty analyses of contentious events can be misleading.

One technical matter conferred a slight benefit on exporters. The GST could help to offset the withdrawal of subsidies run through tax rebates. In the 1970s, the liberalisation of trade under the General Agreement on Tariffs and Trade put New Zealand’s tax subsidies (tax expenditures) for animal-product exports in jeopardy. More importantly, by the early 1980s, criticism within the country meant that the days of tax expenditures to aid government-selected sectors were numbered; many farmers preferred a currency devaluation and resented being thought of as welfare recipients. Fourth Labour delivered the devaluation and the end to subsidies. However, the GST could aid export producers without running afoul of the General Agreement on Tariffs and Trade. In the case of a zero-rating with credit, inputs were eligible for tax rebates. The European Economic Community had pioneered this feature. Exports could justifiably be zero-rated because they were consumed outside the country; meanwhile, producers could receive a rebate on taxes paid on their inputs.¹⁵³

A final matter required resolution. It split Cabinet and produced conflicting ministerial announcements.¹⁵⁴ How should prices be displayed? They could be stated with GST included or with GST excluded; vendors could be given the option, but if the GST was excluded, the vendor had to state that the GST applied. International practices offered no guidance. In New Zealand, the Wholesale Grocery Distributors’ Association, the Retailers’ Association, and individual retailers pressed for the option with the GST excluded because it presented a lower price. Also, if the price had to include the GST, vendors would have to recalculate prices on weekly sale items. The Consumers’ Institute and the minister of consumer affairs, Margaret Shields, insisted on a GST-inclusive price.¹⁵⁵ Brash’s advisory panel had recommended the optional approach, with a requirement that the price ticket indicate that GST applied.¹⁵⁶ Douglas concurred. Shields, however, announced that GST-inclusive pricing could be made a legal requirement by way of her Fair Trading Act (1986), then moving through Parliament.¹⁵⁷ The optional approach won out. Perhaps because of the threat issued by Shields, most retailers voluntarily adopted inclusive pricing.¹⁵⁸

In post-budget interviews and talk radio shows, Douglas candidly mentioned disaffected groups. He acknowledged that “there’s not a great deal in the budget” for young people in temporary positions, apprentices, and students.¹⁵⁹ The tax system could not assist them. Other departments had to develop programmes, but doing so would be difficult in a time of spending restraint.

A GRAND ACHIEVEMENT

The GST had an international lineage. Social democracies and mixed-economy states in Europe had adopted it. A GST was conventional and urgently needed. Due to recent experience with the WST and supported by unanimous international advice, the government determined to pursue a GST with particular features that set it apart from those currently in operation around the world. Uniquely, New Zealand held the line – for the most part – against zero-rating and exemptions and thus had a low initial rate. It established a tax that Australian experts envied.

Cabinet members realised that political and social considerations required that a GST be part of wider tax reforms. Thus Douglas introduced the fringe benefits tax and reduced income taxes. Contrary to reforms in other countries and to a remit passed at the Christchurch conference in August 1985, Fourth Labour did not introduce a capital gains tax. The McCaw task force had discussed it and rejected it in 1982, alleging that it brought in little revenue for big effort. Certainly, there were problems defining a capital gain and enforcing the tax.¹⁶⁰ In conditions of high inflation, it would have been difficult to separate real from nominal gains.¹⁶¹ Even so, a capital gains tax had a probable benefit. It could have moved some investment out of real estate and into more productive areas.¹⁶² Around the world, tax-reform initiatives had produced mixed systems that embodied trade-offs among tax principles, local politics, and current economic circumstances. The outcome was the same in New Zealand, where the government went ahead with a distinctive fringe benefits tax, a GST with rare exemptions, and no capital gains tax.

Shortly before the GST became law, the government mounted a public relations programme to assist with the rollout. In a fifteen-minute video, humourist, “deer culler, and good keen man” Barry Crump portrayed a possum trapper who explained the GST to a bewildered businessman: “There is nothing to it.”¹⁶³ A GST coordination office prepared a speakers’ kit, complete with cue cards holding stock answers and witty quips.¹⁶⁴ Yes, there is humour in taxation. By the time these materials were available, Fourth Labour had survived its tax crisis. Exposing draft legislation to public consultation had opened space in the media for opposition. For obligatory reasons, the government had to delay responding with details. De Cleene felt that this delay had hurt the government.¹⁶⁵ Had it?

Prime Minister David Lange supported the GST, but he let Roger Douglas, David Caygill, and Trevor de Cleene lead from the front. New Zealand voters had punished previous governments that innovated with taxes. As Lange put it, “You never win a debate on tax. You win a debate on benefits.”¹⁶⁶ The consummate debater was only partly right. His government was defying precedent. In June 1985, interviews with a sample of 1,000 individuals showed considerable understanding of the tax, and more than 60 per cent believed that it was a fairer system.¹⁶⁷ Two-thirds agreed that the government had to take drastic action to sort out economic problems.¹⁶⁸ By associating benefits with the gst, the government accrued further support. Very little interest was shown in the select committee hearings on the bill in September 1985.¹⁶⁹ A year later, slightly more people approved of the gst than disapproved.¹⁷⁰ Thanks to public consultations, debates within the public service and Cabinet, astute preparation across departments, and work with various business federations, gst implementation “arrived with a whisper not a roar” on 1 October 1986.¹⁷¹ An epic turning point for the Labour Party and fiscal reform ended in a non-event.¹⁷²

ironing out the creases, not changing the fabric

Fourth Labour’s engagement with tax reform extended beyond the gst and the fringe benefits tax. Recognising that tax legislation had not kept pace with business practices, Douglas directed Treasury analysts to prepare reports on a variety of tax matters in preparation for his December 1987 package. Although the flat tax attracted the greatest attention, there were other features, notably taxing dividends and capital gains. When Treasury officials considered tax reform, their guiding principles were transparency, ease of collection, minimising tax avoidance, dealing with the fiscal drag of inflation (which lifted income earners into a higher marginal tax bracket), eliminating double taxation on the same income, and equity. One rationalisation of the tax system – removal of the double taxation of a company’s profits – went ahead with little fuss. The first of the double taxes was the levy on corporate profits, and the second was the tax on shareholders’ income from dividends. Resolution came through “imputation.” Shareholders received a tax credit imputed to the income tax paid by the company.¹⁷³ Imputation delivered fairness and was giving, not taking. Several additional measures tightened collection. In technical steps, taxation was applied to income from insurance annuities and superannuation funds. As well, accrual rules were expanded, requiring reports on income when it was earned, not when it was paid.

A capital gains tax (cgt) was a separate matter. Prior tax studies left a stalemate: in 1967, a committee reviewing taxation noted arguments in favour but did not recommend a cgt due to a concern that it would stifle capital investment; in 1978, a study by the New Zealand Planning Council recommended it on equity grounds and as revenue support for the income-maintenance features of welfare benefits; in 1982, another review committee recommended against it, citing complexity for little return; and in 1987, discussions on the gst led to comments on a cgt and once more a rejection on the grounds of complexity. The subject heated up in 1988. The Royal Commission on Social Policy concluded that, based on equity, capital gains should be considered income for tax purposes. The Planning Council now rejected a cgt, concluding that it could direct capital away from productive investments.¹⁷⁴ In his December 1987 package, Douglas mentioned that a cgt was a possibility, a likely pacifier for the party but not something that he favoured. When Caygill replaced Douglas, he picked up the possibility with asbestos gloves.

A cgt projected a fairness appeal and offered something more: it fitted with the reformers’ efforts to reduce state-made distortion of the economy. The absence of a capital gains tax affected investment. Substantial differences in the tax treatment of returns on different forms of holding capital operated as incentives to invest in certain asset classes. Assets that appreciated over time as capital had an advantage, it was argued, over those that earned dividends from economic growth. The distortion favouring capital appreciation, so it was argued, detracted from equity investments. Furthermore, the fact that New Zealand did not tax income from a capital gain allowed higher income groups, aided by accountants and lawyers, to recharacterise assets, enabling tax avoidance and possibly easing some privileged taxpayers into a lower tax bracket. Whereas domestic loopholes could be closed without invoking a new tax, overseas investments were tougher to regulate. Proponents of the tax pointed out that most oecd countries had adopted a cgt. The Unted Kingdom introduced it in 1965, Canada in 1972, and Australia in 1985. Although there were precedents and reasons for a capital gains tax, complications invariably intruded.

The impossibility of taxing capital gains as they accrued meant that they had to be taxed at the time of their realisation. This circumstance raised issues. From November 1988 to August 1989, while the Treasury, the Inland Revenue Department, and a consultative committee reviewed the cgt, inflation had only just started to fall in New Zealand and remained on the minds of analysts. Concerned about taxing real capital gains, not nominal appreciation, they puzzled over indexation. If gains were indexed, the door would be opened to the indexing of offsetting costs. The burden of administration was a concern, although the United Kingdom indexed. In addition, the holder of a capital asset could long defer realisation, giving rise to the question of whether to tax at the time of an estate transfer or to tax after the asset owner’s death. The treatment of a loss had to be considered, particularly whether it could be applied as an offset for other income. Above all, the definition of taxable assets was sensitive. The United Kingdom, Canada, and Australia exempted the principal residence, although doing so could distort investment decisions and failed to serve equity objectives. Plus there was a class of assets, such as artwork and collectables, that involved the intent to consume or enjoy as well as investment.¹⁷⁵ How much of a gain should then be taxed? In other countries, CGTs were usually related to stock market activity. Financial markets in New Zealand at the time were new, but there had been recent investments in forestry and kiwifruit orchards. Unlike stockholders, farmers and farm investors were unaccustomed to the idea of taxing a capital gain as income, and some believed that the CGT was a tax on capital itself.

Polls in December 1989 showed overwhelming opposition.¹⁷⁶ Thus the government promised only to release a report by a consultative committee of private-sector tax specialists, refusing to commit to a CGT before the next election. Admitting that his government “was not going to put the wind up the electorate,” Prime Minister Geoffrey Palmer had to defend this tax dance against accusations that “the whole business is a ruse for the left of the Party.”¹⁷⁷ Fourth Labour was in poor shape. The press had turned on it, and the National Party promised to repeal any CGT. That killed it.¹⁷⁸ A CGT absolutely had to be long-term. National’s leaders recognised that the question of a CGT, along with debate over social welfare reform (chapter 10), had trapped the government midstream between the bank of caution and the left bank. When the Young Turks set out to conquer the party and the electorate in 1983–84, they went for the middle ground, not expecting to end up midstream.

CONCLUDING OBSERVATIONS: A POSTSCRIPT ON INEQUALITY AND TAXATION

In OECD countries, crude impressions and refined measures of inequality have long drawn attention to taxation, which, when coupled with social benefits, has served as a mechanism for modest wealth redistribution. The fringe benefits tax was an instance, as was Douglas’s reasoning for his proposed flat tax. Whereas the Treasury concentrated on taxation’s fiscal function, several departments implicitly allocated revenues to redress inequalities. The topic of inequality also entered political discourses from another direction. New Zealanders discerned wage inequalities with counterparts across the Tasman Sea. Australia’s long mining boom, a natural advantage, had helped to vault its wages ahead of many OECD countries. Since such contrasts of wealth and poverty are within a country’s borders rather than across them, they are not skewed by special resource endowments. They may legitimately appear in the politics of fairness.¹⁷⁹ However, this circumstance begs the question of how best to measure inequality. Choosing extremes — the very rich and the very poor — does not accurately depict the subject society, for it ignores the whole populace. If a government were to attempt a reduction in the gap between stark extremes, then taxing the immensely rich to lift the abject poor would require huge expropriations, precipitate the flight of capital, and present complications with definitions and boundaries.

Notwithstanding the realities resident in the extremes, various measures of inequality among an entire populace provide a truer picture. One of several measures, the Gini coefficient has this advantage, although the point at which the coefficient designates either a high or low level of inequality is subjective. Still, it is far better than selecting extremes to load an argument. For income, the Gini data covers the whole population and relegates cherry-picked extremes to their proportion of the whole. OECD data on income inequality is based on the comparison of cumulative proportions of the population against the proportion of net household income that this proportion receives. The coefficient values range from zero, where everybody has the same income (meaning perfect equality) to the value of one, where all income goes to one person. With coefficients in the neighbourhood of 0.30 and 0.35 for France, Germany, the Netherlands, Switzerland, Spain, Australia, and New Zealand, the implication is general fairness.¹⁸⁰ Household asset comparisons are not widely available. Although there have been recent signs of increasing inequality, taxation and redistribution have contributed slightly to reductions in the coefficients.

As regards the period covered in this book, reconstructed Gini coefficients show a slight rise in inequality from the early 1970s to the early 1990s (from 0.30 to 0.40). The same values applied to Australia.¹⁸¹ All things being equal, it seems that the performance of Australian governments was no better than that of New Zealand governments. Trends for the 2000s, however, showed the gaps between rich and poor widening, not only in the usual high-inequality countries “but also – for the first time – in traditionally low-inequality countries, such as Germany, Denmark, and Sweden (and other Nordic countries), where inequality grew more than anywhere else in the 2000s.”¹⁸² In New Zealand, where fairness is valued, inequality packaged as extremes or presented as Gini coefficients has not been sufficient to deliver a CGT. Released in 2018, the latest tax study recommended it on the grounds of fairness.¹⁸³ Labour’s collation partner, New Zealand First, opposed it. Labour backed away. The narrative of redistribution resumes with a probing account of social expenditures in chapter 10.

7

State-Owned Enterprises: Values and Productivity Gains

overview: the fall of leviathan as entrepreneur

As a main act in global economic restructuring during the 1980s, many states shed businesses that they had previously financed and run through government departments. The United States was not among them, a fact that that illustrates the flaws with lumping together Thatcherism and Reaganism.¹ However, dozens of countries did sever businesses from public accounts. Steps to eliminate state control marked a phase in the history of government as well as capitalism.² Far from being straightforward, these transformations of government departments into enterprises produced diverse capital and management arrangements.³ Some states retained considerable equity along with management authority, whereas others directly privatised. The Fourth Labour Government did both, undertaking corporatisation from 1985 to 1987 and commencing asset sales in 1988. Each corporatisation or sale produced a messy timeline due to political interventions, regulatory uncertainties, and capitalisation details; each business removed from a government department was a discrete enterprise, and getting it settled into the open economy took many months. Several New Zealand governments participated in what became one of the world’s more extensive processes of corporatisation and privatisation.

Investigations to uncover marketable assets were a response to fiscal problems and exposure to overseas loans. There were other reasons. When looking into the losses racked up by state trading departments, analysts discovered inflated payrolls, inept bookkeeping, useless inventory, and commitments to large projects without accrual accounting. Governments from roughly 1950 to 1984 showed little interest in careful costing or the charging of fees. The first important warning about the perils of outdated accounting came in 1981 from the chair of the State Services Commission, Mervyn Probine, who told the secretary of the Treasury, Bernard Galvin, that the absence of accrual accounting meant that there was no basis for government planning: “In my view this will not do in the future.”⁴ Until 1984, the governments of both the Labour Party and the National Party had cringed from increasing charges for electricity, telephone, postal services, and coal to fund capital projects. Self-funding was far below the level of private-sector firms.⁵ Instead, tax revenues and borrowing helped to finance operating costs and expansion. Government-owned banks gave concessionary loan rates to favoured groups. There were early warnings. In 1978, public servants and ministers started discussing the debt burdens, record of poor productivity, and poor service.⁶ Officials advised that “redundancy must be considered when thinking about improving productivity.”⁷ Prime Minister Robert Muldoon nixed further study of public-sector redundancies in early 1979.⁸

Fiscal repair was not the only reason for corporatisation adduced by Minister of Finance Roger Douglas and Treasury economists.⁹ Reviews of performance found low productivity relative to workers in the same industry in other countries. The concept of productivity gains was important. For one thing, there was no other reliable way to estimate the fiscal benefit of state-owned enterprises (soes) since their prior existence as government departments lacked proper accounts, which made it difficult to identify their capital. For another, the government was embarking on restructuring to achieve efficiencies throughout the economy. Treasury analysts predicted that corporatisation could realise productivity gains, but first there would be “redundancy bills.”¹⁰ In potentially viable enterprises, such as electricity, telephone, and postal services, there was room for better returns once business-minded leadership improved services, developed new products, and initiated redundancies. This line of reasoning went further. New Zealand’s balance of payments could be improved by greater per capita productivity and by business-savvy enterprises, which could pass on savings and improved service to producers. From 1984 to 1999, this aspiration for an efficient economy survived changes in government. Although it was easy enough to recommend a company structure, the process encountered obstacles. The assets would have to be appraised in order to compensate the state for its investment. Furthermore, a new relationship to government would require the enterprise to balance profit making with political awareness to some extent. Just how far politicisation could or should go remained unresolved throughout the corporatisation of 1985–87.

The valuation of a trading department, required to establish its debt to the government, was ostensibly a technical matter, but the SOE Establishment Boards’ razor-sharp negotiation tactics surprised and overwhelmed the government. Additionally, the working relationships of SOEs with this government raised constitutional issues because under New Zealand’s mode of corporatisation, the state retained all equity, which two ministers held in trust. This arrangement put the soes in an ambiguous position; they had to return good dividends, and depending on the government in power, they had to be conscious of political objectives. As well, the shareholder circumstance meant that, notwithstanding Cabinet denials, clients and lenders would assume a state guarantee of debts. This tacit safety net reduced pressure on managers to lift the corporation’s performance, and it was exactly this element of pressure that was often adduced internationally to explain an advantage of privatisation over corporatisation.

The mode of soe adopted by Fourth Labour was not the only way to reduce losses and to improve productivity. Some countries left these businesses in government departments but insisted that they charge commercial rates and eliminate hidden subsidies. The disadvantage in this condition was the absence of free-market shareholder pressure on managers. Other states raced in the most radical direction and privatised, although it helped to have a real corporate balance sheet before selling an asset. The mix of practices varied from country to country and within countries. New Zealand’s soes had the freedom to function as real businesses and to determine the dividends that they would hand to the Treasury. Yet the minister of finance and the minister of state-owned enterprises were ex officio the sole shareholders, so there was no barrier to political interference by a future government. Business plans in the form of “letters of corporate intent” had to be submitted to Parliament before an soe acted on anything beyond day-to-day management.¹¹ Labour’s way of corporatisation was distinct from that of the preceding National government. For one thing, Labour plunged into deep water, taking on nine transformations at once. For another, when National corporatised the sizeable Railway Department in 1981–82, it was integrated with the executive branch of government. The New Zealand Railways Corporation was a government trading department accountable to the minister of railways.¹² Labour wanted to cut ties between enterprises and former departments.

The National government had been unsettled by an encounter with a state-owned enterprise from 1981 to 1984, which made Treasury officials realise that special legislation spelling out the relationship between the state and its enterprises was indispensable. When Petrocorp, one of the Think Big projects, first attained a revenue stream from a natural gas field, Muldoon and the minister of energy and national development, Bill Birch, insisted that the firm start paying the state its agreed-upon share of returns because the fiscal debt load needed urgent attention. Birch pushed aggressively for direct access to the company’s revenue stream. Petrocorp executives pointed out that, since the firm was incorporated under the Companies Act (1955),¹³ a dispersal of revenue had to go through the company books. Only after taxes and depreciation could it issue dividends, but these payouts would equal about half the amount that the government claimed under the revenue-sharing agreement. The government was on shaky ground when insisting on tapping the revenue.¹⁴ When Labour formed the government, it learned through the Treasury that dividend arrangements between SOEs and the state required careful attention.

To appease public-sector unions and to dampen complaints about corporatisation from some in the party organisation, the government provided statutory obligations for new SOEs to conduct themselves as good employers and socially responsible businesses. The new entities continued to develop long after Fourth Labour completed its corporatisation spree in 1987. Two of the new SOEs, electricity and telephone, were at the forefront of technological and managerial innovation in advanced capitalist countries. Consumer groups, new rival entrants into these industries, and populist politicians gave these two SOEs considerable attention.

From about October 1984 to October 1986, the creation of SOEs was preceded by lively discussions and private expletives among public officials and politicians. By the time nine new corporations were established on 1 April 1987, formal constitutional arrangements had been sorted, although not all valuations were completed. To enable the incomplete SOEs to function, the government issued temporary licensing agreements. When assets were at last transferred to the SOEs, some ministers and policy analysts depicted the corporations as half way to privatisation, whereas others pronounced them 90 per cent privatised.¹⁵ Advocates of restructuring sold the SOE idea “to the grassroots of the Labour Party as a new, improved socialism.”¹⁶ Confusion was understandable since the capital structure and reporting practices of SOEs deviated both from the clear-cut categories of trading departments and from joint-stock companies. Every SOE operated in an industrial sector that had its own peculiarities. The fact that there were commonalities among equivalent industries in OECD countries facilitated consultation and the occasional migration of managers. Around the world, a coalmine was a coalmine, a railway was a railway, an electricity grid was an electricity grid, and a telephone system was a telephone system. Management’s tactics were evolving along an international front. Owing to politics and institutional legacies, especially as they concerned staffing levels, thousands of employees facing redundancy were devastated despite severance payments.

Some New Zealanders resented that a Labour government would, as they saw it, betray social democracy. The fact that New Zealand’s trading departments had not been created to suit doctrine but to fill service gaps in a small country made it slightly easier for reformers to reconcile restructuring with their Labour affiliation.¹⁷ Not all ministers welcomed SOEs since they knew full well that productivity gains meant redundancies. However, corporatisation and asset sales could reduce budget deficits and ease the minister of finance’s demands on other ministers to cut spending in their departments. The pressure that they felt when the Treasury reviewed their budgets contributed to a grudging acceptance of SOEs and later of the more contentious privatisations. Leading ministers and a cadre of senior public servants drew on scholarship, consultancy firms, and examples from around the English-speaking world.

Privatisation was fashionable, except at the federal level in the United States. On several occasions, officials reviewed Canadian developments, noting that Prime Minister Brian Mulroney had appointed a minister of state for privatisation in June 1986, but such frankness was impossible for Fourth Labour because it would have aggravated opposition from within the party and unions. Soon, however, the scope of reform surpassed the undertakings of most countries, and its backers became more effusive.¹⁸ Speaking to a select audience in Brisbane in 1989, Stan Rodger, at the time the minister of state-owned enterprises, exclaimed that until recently “one could readily have thought we were in the Eastern Bloc.”¹⁹ The trend of asset sales extended beyond the Anglo world. In 1988, a World Bank paper reported that in recent years there had been 1,343 cases of privatisation in eighty-six countries.²⁰ Price Waterhouse, as noted before, offered privatisation services.²¹

ENERGY LOSES POWER

Formed in 1978 to manage conventional electricity, geothermal electricity, state coalmines, and natural gas, the Energy Department kept consumer prices artificially low in the wake of the oil shocks of the 1970s, thanks to its privileged access to capital and price controls. Beyond the challenge of unwinding price controls, the department had to deal with the issue of peak demand (both daily and seasonal). The bundling of electricity and coal in the same department contributed to an overreliance on coal produced from low-productivity mines. Natural gas, recently arriving from the Maui fields, made thermal power generation cheaper and more flexible than coal, but the transition to gas came later as an SOE management innovation. In 1980, electricity exemplified the disadvantages of fine engineering without attention to efficient productivity. A scathing review of electricity and coal in that year concluded that “too many nice guys” ran operations. The Energy Department needed a “bastard to take the hard decisions.”²² Corporatisation was identified as a possible remedy. Nothing happened immediately.

Overbuilding and poor accounting advanced the case for corporatisation on the grounds that the Energy Department’s operations had escaped the menaces of bankruptcy, takeovers, and shareholder irritation. All of these pressures purportedly kept private-sector managers striving for internal efficiency, new customers, and improved service. Adapt or perish. Appreciating that spending had soared and that they had to discover why, department officials invited an investigation of financial management and pricing practices. Analysts, working from April to July 1984, recommended that the Energy Department adopt commercial practices.²³ The Treasury estimated that poorly monitored gold-plated projects and below-market capital costs contributed an estimated $1 billion dollars to the national debt.²⁴

By August 1984, members of the Cabinet Policy Committee (cpc) knew of the Treasury’s estimates on electricity’s contribution to the national debt. Faced with the damning data, officials at the Energy Department and the State Services Commission (ssc) accepted that electricity and coal should indeed be commercialised but proposed that a chastened department could achieve the desired results by commercial pricing. As well, they invoked a parliamentary accountability argument, insisting that state investment meant that the state had to have a close continuing interest.²⁵ Douglas and his associate finance ministers, Richard Prebble and David Caygill, worried that the debt, future recurrences of managerial carelessness, and political interference argued otherwise. Electricity and coal, they maintained, had to be corporatised as soes and should retain only an attenuated relationship to Parliament. At a critical meeting on 20 November 1984, the cpc directed Bob Tizard, minister of energy, to cooperate with the control departments in developing a plan for separate corporations for electricity and coal by 1 April 1985.²⁶

Not long afterward, directed by business leader Ron Trotter, a delegation from the New Zealand Business Roundtable met with Douglas and Tizard to implore them to make certain that if electricity was “commercialised” it would not operate as a monopoly with a cost-plus fee structure. The country’s major businesses wanted an efficient utility with a reasonable (for them) fee structure.²⁷ Business interests were not a consolidated power behind so-called neoliberalism, nor were all business leaders free-enterprise purists. In late May1985, Tizard learned that his department would be broken up and its units corporatised.²⁸ Energy was not a department of which he would have chosen to serve as minister.²⁹ Upset first by demotion and now by a dismemberment of his department, he agitated among backbencher friends and remarked in public that the Treasury was going berserk. Prime Minister David Lange had to remind Tizard of the Cabinet system of government.³⁰ Mindful of the emoluments of office, Tizard reluctantly got onside rather than resigning.

Commercialisation proved difficult to implement, and the Business Roundtable’s leaders identified a crucial policy matter that devilled governments for years. Essentially, they were looking for lower power rates and, early in this quest, reminded Douglas that as long as electricity was managed by a department, it was subject to the control of a minister whose interventions might benefit business. In light of assumptions about business, the Business Roundtable supported commercialisation but was wary of an unregulated future. Labour eventually had to face the dilemma of reconciling commercial goals with providing the lowest reasonable power rates that could be defended as beneficial to enterprise and social welfare alike. First, it had to create the commercial enterprises.

MAKING A LIST AND CHECKING IT TWICE

On 11 September 1984, months before the directive to the Energy Department, the CPC instructed the Treasury and the SSC to study the means for commercialising other government operations. Things were moving fast. The CPC directed the control departments to put arguments in concrete terms by investigating two large and subsidised operations, the Housing Department and the Post Office. The Treasury and the SSC had to bring solid recommendations. Their homework produced contrasting models for state-owned enterprises. For ministers who believed that political management would jeopardise commercial practices, the favoured management model was one that barred governments from giving instructions to enterprises, retained state ownership of the equity, and paid dividends and taxes to the state. An exception was made with the Housing Department. It had extensive undertakings financed from the parliamentary vote. The CPC wanted this unit to act like a corporation and to borrow at market rates from the private sector. The political risks of outright corporatisation with a profit incentive exempted the department from the list of potential profit-seeking enterprises.³¹ The escape proved fortuitous because in 1987–88 the government needed to offload houses when several Establishment Boards for corporatised departments refused to take over departmental houses. The boards wanted to concentrate on business and to discard social duties previously required by legislation governing the trading departments.³²

When the Post Office came under review, it was running postal services, the telephone system, and a savings bank. It was not merely the scope of its activities that came under review but also the distribution of offices and the practice of charging standard rates regardless of locale. An exposed giant with around 1,200 offices, half in low-use remote areas, the Post Office could not avoid restructuring. Its director general, Frederick McInerney, insisted in vain from December 1984 to January 1986 that user-pay measures administered by his department could achieve results. He undermined this stand when his budget projections proved wildly optimistic.³³ In May 1985, the Treasury had completed its study of the Post Office and recommended corporatisation of its separate businesses.³⁴ By January1986, CPC members, exasperated by budget problems at the Post Office, concurred.³⁵

In April 1985, while plans advanced for the breakup of the Energy Department and while the Treasury and the SSC deliberated over the future of the Post Office, Douglas added the Forest Service to the list. It operated ninety commercial plantations.³⁶ As a major employer of rural Maori, this department carried social objectives. Governments after the Second World War had publicised new forestry communities as agents of economic progress among people whose attachment to their regions curtailed labour mobility.³⁷ Qualities that made the department socially significant contributed to its unprofitability. Moreover, it administered incompatible conservation and commercial operations.³⁸ An emergent conservation movement made commercial operations in native forests embarrassing. A decision to separate the incompatible functions and to reduce the size of the workforce widened restructuring, putting in play concerns about employment relations across the state sector. Citing a duty to repair fiscal affairs, Douglas advised the minister responsible for the Forest Service that corporatisation was in the cards.³⁹ The service was to be broken into a Conservation Department, a Ministry for the Environment, a Land Development and Management Corporation, a Commercial Forestry Corporation, and an Office of Survey and Land Information.

The Energy Department, the Post Office (postal service, telephone, and bank), and the Forest Service yielded to corporatisation after shows of resistance. Their services touched consumers and thousands of employees. As plans for corporatisation matured in May and June 1986, officials from the unions threatened work stoppages because rash assurances of no job losses in the forestry sector made in the previous year went unconfirmed. Moreover, union leaders were on a collision course with the government over which industrial relations legislation – the State Services Conditions of Employment Act (1977) or the Industrial Relations Act (1973) – should apply to employees transferring from the public service to the SOEs.⁴⁰ Did they carry their public service rights and benefits with them? These pieces of legislation had established separate wage-fixing systems, essentially because public servants’ wages were not based on assessments of performance due to fears of subjectivity and favouritism. As well, core public servants were not in jobs found in the general labour market.⁴¹ For this reason, under the conditions that then applied, tribunals for the state sector could order wage adjustments based on wages in similar but not exactly the same private-sector trades.⁴² The ins and outs of state-sector labour relations are taken up in chapter 13.

Uproars over corporatisation from rural folk were inevitable because it was no secret that changes to fees were coming with the transition. The cross-subsidisation of services, a practice that gave rural residents convenient postal services, as well as cross-subsidised telephone and electricity fees, were threatened by commercialisation. The Business Roundtable was edgy; the general public was equally so and had more votes. At the same time, the pending dissolution of the New Zealand Forest Service, according to its deputy director general, Alan Familton, brought “frustration, bitterness, anger, and anxiety.”⁴³

The addition of the government’s office buildings, airports and air traffic management, and Crown land development and management to the initial corporatisation list was accepted with less controversy than occurred with electricity, postal services, and forestry, but the industrial relations question applied to them too. With a list completed, the Establishment Boards of shell corporations could be appointed and legislation drafted, namely the State-Owned Enterprises Act (1986).⁴⁴ Known as the Electricity Corporation of New Zealand, the Coal Corporation of New Zealand (Coalcorp), New Zealand Post, the Telecom Corporation of New Zealand (Telecom), the Post Office Bank, the Forestry Corporation of New Zealand (Forestcorp), Government Property Services, the Airways Corporation, and the Land Corporation (Landcorp), the shell corporations had an estimated worth of $20 billion. Corporatisation would affect 20,000 government employees directly and another 60,000 indirectly.⁴⁵ In early 1988, the New Zealand Railways Corporation was brought under the 1986 legislation, ending its interlude as a distinct type of state-owned enterprise; later the Public Works Department was corporatised. Saddled with a huge debt burden, the railway paid no corporate taxes and lived on subsidies. In late 1990, the government wrote off its debts, restructured its balance sheet, gave it the appearance of a going concern, and groomed it for sale.

NINE WITH ONE BLOW: INDEPENDENCE AND ACCOUNTABILITY

While the departments slated for conversion to SOEs were being identified and warned to prepare, ministers and officials discussed which of two constitutional setups should apply: Crown corporations with close government scrutiny and access to state revenue and credit or SOEs somewhat free from government supervision and barred from access either to government revenue or to government-guaranteed loans? Or should there be immediate privatisation? The government could not do it at this time. The entities had no balance sheets, debt, or equity, all of which were required for good returns from privatisation sales. The latter possibility produced discord in the party at large; ultimately, as the next chapter explains, more political groundwork and sheer determination led to asset sales. Although the parliamentary party had won an election without a clear economic statement in its manifesto, the unratified draft manifesto negotiated by Attorney General and Deputy Prime Minister Geoffrey Palmer included a statement that “the Party has no plans to sell off publicly owned concerns.”⁴⁶ During Fourth Labour’s first term, an unspoken truce on privatisation held. Ministers largely stuck to debating the relative merits of Crown corporations versus SOEs. Public servants refined discussions around these options. The Treasury circulated briefs favouring the standing of SOEs as enterprises insulated from political meddling, whereas the State Service Commission preferred the standing of Crown corporations as enterprises accountable to Parliament.⁴⁷

The specialisations of the Treasury and the SSC nurtured philosophical differences. SSC personnel felt pressured to do things without purpose. Why rock the boat?⁴⁸ Treasury officials were impatient with legal niceties. Why obsess about labour law? When they delved into corporate purposes and accountability, the two could begin with the same questions. Should fees for utilities reflect true costs, or was there room for reduced rates to assist needy consumers? Should universal cross-subsidised fees continue as public policy without presenting good justifications for current beneficiaries? Questions about the purpose of fee structures paralleled debates over the appropriate model of governance. Should the new entities be tied to Parliament, enduring primarily as agents of public policy with a modest commercial outlook, or should they operate like private companies, with social functions returned to the government for management in residual departments? Could unprofitable but socially desirable services be retained through state contracts with the SOEs, contracts based on negotiations between the government and the enterprise that, by the way, would expose the genuine costs of subsidisation? The accountability debate separated the SSC and the Treasury, widening and becoming more sensitive when B.H.C. Tyler, the auditor general, insisted that state-owned businesses had to be closely supervised by Parliament since public funds had created them. He and others also proposed that Parliament should review the business plans of SOEs.⁴⁹ To the advocates of SOE independence, this arrangement could expose corporate strategy to potential rivals and diminish returns to the taxpayer.⁵⁰

Working quickly in late 1984 and early 1985, SSC-based critics of the Treasury’s model set about discovering how large corporations managed subsidiaries. Their intent was to build a case for retaining trading departments within departments by pointing to comparable private-sector examples. If canned-goods producer Watties and appliance manufacturer Fisher and Paykel, both iconic New Zealand firms, could hold subsidiaries accountable yet permit semi-autonomy, then departments ought to be able to retain trading activities while instituting user-pay practices.⁵¹ The exploration for alternatives went international. In December 1984, SSC staff telexed New Zealand embassies in London, Paris, Washington, Canberra, and Ottawa to gather information on how their governments managed state enterprises.⁵² What they learned reinforced their critique of the Treasury’s model. In Australia and Canada, governments had recently increased parliamentary accountability but not without controversy.⁵³

The Treasury promoted corporatisation to reduce the national debt, to trim public payrolls, to convince foreign observers that New Zealand had resolved to live within its means, and to bring pressure on management. Close political accountability could upset these objectives because, so went the argument, corporate heads in such an arrangement could succumb to political pressure when they should to be totally entrepreneurial. From the Treasury’s perspective, trading departments eluded rigorous accountability. Unlike private corporations, trading departments secured capital from the parliamentary vote and escaped banker or shareholder scrutiny. The interconnected subjects of corporate purpose, governance, accountability, and sources of capital surfaced at ministerial meetings, in officials’ reports, and in dinner conversations. Ministers and public servants who pressed for the Treasury’s mode of corporatisation encountered resistance from the Labour Party outside of Parliament as well as from sceptical public servants outside of the Treasury. The core ministers could not be deterred, and the public service had a duty to help them to accomplish their policies. The deeds would be done. Nevertheless, senior public servants could slow the process.

By October 1985, several planners within the Energy Department had prepared a defence that denounced the “more market” approach as “unjustifiably … downgrading the past contribution of the energy planning process.”⁵⁴ This denouncement was a last stand by those public servants who agreed with Mervyn Probine, chair of the SSC. From the start, he had questioned the Treasury’s data on the Energy Department’s wastefulness and had persisted in contesting the Treasury’s model of corporatisation until the end of his term in office, when he was replaced by the deputy governor of the Reserve Bank, economist Roderick Deane. Moreover, Probine and Auditor General Tyler had concurred that SOEs should be held accountable by Parliament.⁵⁵ As the finance minister, Douglas resolved otherwise.⁵⁶ Probine claimed that government operations achieved efficiency; contrary reports were “very damaging publicity for the Public Service.”⁵⁷ He harboured misgivings about the pace of change and disapproved of giving SOEs freedom to behave like businesses when he thought of them as public services.⁵⁸

The SSC’s location at the centre of the machinery of government put its leaders in a difficult spot. SSC commissioners were the official employers of public servants, with whom they generally identified. At the same time, they advised the government on labour relations. Having identified problems, Probine and affiliated critics of the Treasury’s model expected labour resistance and administrative errors during implementation.⁵⁹ For example, the scope and speed of corporatisation exceeded the government’s capacity to meet its self-imposed deadline of 1 April 1987. The fuzziness of asset valuation and the speed of restructuring made it impossible to determine whether the state was adequately compensated when an Establishment Board took over a trading department or, on the contrary, whether the board secured a bargain. Moreover, the government’s solid commitment to corporatisation meant that it was not a free vendor able to back out. It had too much at stake. As well, New Zealand’s SOE scheme relied on solo buyers, namely the government-appointed Establishment Boards, which were charged with forming viable SOEs. The vendor could not seek alternate buyers.

Proponents of SOEs countered by pointing to debt reduction. SOEs were to repay capital, disburse dividends to the state, pay normal business taxes, and operate without public finance. Following Deane’s replacement of Probine as SSC chair, corporatisation went ahead according to the Treasury’s design. SOEs were to operate at as far a remove as possible from parliamentary management, to eliminate public service employment contracts, to secure capital from the private sector at market rates, to apply user-pay practices, to make profits, to refund the state for their capitalization, and to pay dividends to the state. The Cabinet Policy Committee sought appointees for Establishment Boards who would have the experience to bid for the departments’ commercial assets and to direct them as profitable enterprises.⁶⁰ Geoffrey Palmer, the attorney general who had piloted the SOE legislation, would later recount that the government “chose outstanding and experienced commercial people … not the hacks who often turn up in government appointments.”⁶¹ Appalled union leaders pressed for representation of the Federation of Labour on Establishment Boards, but right from the start, the government ignored these insistent requests for consultations and the right to nominate appointees to statutory bodies.⁶² SOE board appointees brought Labour politicians, public servants, and business leaders into working relationships that proved to be testy.

CREATION (10% INSPIRATION, 90% PERSPIRATION) AND OUTCOME (50% SURPRISE)

The Establishment Boards were cagey. Ministers and senior public servants had envisioned due diligence processes comparable to friendly takeovers. They assumed that there would be trouble-free agreements on asset valuation methods, asset lists, net cash flow estimates, discount rates, and the debt and equity ratios. The government hoped that in a short time Establishment Boards and Treasury negotiators would reach consensus values for assets. Instead, feisty boards worked to establish lower asset values than the Treasury, pursued strong market positions when the Treasury wanted competition, and attempted to dispense with non-commercial services.⁶³ Establishment Boards insisted on private-sector labour relations, but public service unions wanted a transfer of public-sector conditions of employment. As chapter 13 explains, these conditions were soon to be altered for all public-sector employees, a huge operation. Having embraced a particular form of corporatisation, Cabinet could not risk having unhappy board members resigning, nor could Cabinet sack them early in the reforms.

With respect to union coverage, the parties compromised so that SOE employees would be covered by public service unions initially but could later vote for another affiliation, and many employees in management roles were to be exempt from union membership. The understanding was helped by the good-employer statement in the 1986 legislation, a statement that originated from a conversation between Anne Hercus, speaking as minister of women’s affairs, and Margaret Bazley of the State Services Commission. Hercus wanted to see an equal employment opportunity clause in the SOE legislation. Bazley and her SSC colleague Don Hunn saw merit in the concept, although the government disapproved of labour relations clauses that would tie the hands of the SOE boards. Nevertheless, the SOEs were required to be good employers and to advance equal employment opportunity.⁶⁴

Establishment Boards had cornered a government that had gotten what it wanted but could not control what it had created. There were good reasons why Fourth Labour was outfoxed on valuation and assets. The Cabinet Policy Committee had managed to attract experienced board members with promises of start-up aid, access to department files, and a free hand. When the CPC approved of guidelines for Establishment Boards, it allowed them to hire consultants.⁶⁵ After learning that a board had hired a consultant, an SSC official wrote all boards and asked that in future they inform the SSC about what they were doing. None of your business came the reply. As it had from the beginning, the SSC insisted that boards were spending public money and still performed a few public services. They should report to Parliament.⁶⁶ Once the valuation process was set in motion, ministers and public servants faced shrewd board members proficient at discerning the revenue potential of the targeted assets. Negotiations over several enterprises fragmented into technical affairs, with each side resorting to consultants’ reports on finance, industry structure, legal entanglements, regulatory environment, and engineering developments.

The diversity of activities among targeted departments recommended separate acts of incorporation. Such acts had been used before by both National and Labour to set up small government companies and to reorganise the Railway Department into a corporation. But nine separate bills would have overwhelmed the legislative agenda of an exceedingly ambitious and active government. Attorney General Palmer conceived of a means to reduce effort and to contain occasions for dissent by interested parties who would have been making submissions to nine select committees, giving these parties opportunities to stall. On 5 May 1986, Cabinet approved a recommendation by the cpc that officials draft an umbrella statute for all soes.⁶⁷ Proponents hoped to avoid replays in public view of wrangling at cpc meetings over the relationship of soes to ministers or Parliament.⁶⁸ At Cabinet, critics wanted certain guarantees that, if granted, would complicate restructuring in the near future. Critics argued for the statute to include a clause requiring the soes to apply the ssc conditions of employment, modified as necessary.

Cabinet also debated whether equity in soes could be sold. In February 1986, the cpc recommended deferring the sale of shares in the Bank of New Zealand pending “consultation with the Caucus and Council of the Labour Party.”⁶⁹ This decision had repercussions. From a Westminster constitutional perspective, this concession to the party was out of place since the people, not a partisan body, elected the government. The core group of ministers stood behind this principle when in Opposition and during the 1983–84 disputes within the party. At a Cabinet meeting on 5 May 1986, when the subject came up again, differences among ministers produced a statement that pushed a final resolution into the future. At a subsequent meeting, Cabinet agreed that the government was “opposed to privatisation of soes but does not rule out public investment in a limited way.” Another resolution applied directly to the new soes: “Agreed that that the umbrella legislation should prohibit the sale of the Crown’s shares in state owned enterprises.”⁷⁰ Such Cabinet and cpc resolutions in 1986 temporarily constrained but did not bar equity sales. Lange endorsed selling assets “but not so as to remove government control.”⁷¹ When sales began in 1988, this fishhook brought no end of trouble.

Cabinet gave other directives on corporatisation in 1986. The Special Ministerial Coordinating Committee (mcc), appointed to implement corporatisation, was instructed to consider social costs arising from corporatisation.⁷² The resolutions seemingly foiled privatisation.⁷³ But there was fallout from another direction. Resolutions on conditions of employment, equity sales, and social costs sparked distrust from Establishment Boards because their members saw the waffling as a sign that the reformers, although hanging onto authority, were yielding points. For the moment, there was no harm to the boards’ interests, but the situation called for vigilance. Several additional compromises revealed more about the struggle between advocates of accountability and the champions of independence. New soes would not only be required to prepare an annual statement of corporate goals but would also be under the jurisdiction of the ombudsman and the Higher Salaries Commission and would have to comply with access-to-information requirements. These deviations from corporate confidentiality eventually complicated asset sales in 1988–89. soes had to be severed from the legislation that had established them in order to prevent potential buyers from using the state’s access-to-information process as a means to acquire strategic information.⁷⁴

The soes’ enabling legislation, passed in December 1986, set 1 April 1987 as the day for launching all soes simultaneously. Labelled “concurrence,” the transition promised coordinated changes in employment for thousands of state employees. Corporatisation now broke along unanticipated courses that demanded ad hoc creativity. Palmer, who sold the legislation to the Labour Caucus and to Cabinet by denying that it was a step toward privatisation, was prescient when he warned officials that immense problems awaited: “The negotiation process will involve a great deal more than simply reaching an agreement on the valuation of assets. There are conservation issues that will come up, Maori land issues, social policy questions under section 7 of the soe Act and the inter-relations with the first Statements of Corporate Intent.”⁷⁵

The supervisory machinery for implementation was in place, namely the mcc, which Palmer chaired. From June 1986 to May 1988, it met on sixty occasions.⁷⁶ Six core members reviewed 345 papers from officials, coordinated public service efforts, and deliberated over crises. For across-the-table negotiations with the Establishment Boards, the mcc relied on Treasury personnel.⁷⁷ At first, the Treasury understaffed the effort because it underestimated the boards’ wiliness and because it had to supervise other projects. Here was the hazard of attempting to do a great deal all at once. At a Treasury negotiators’ staff meeting prior to the launch date of 1 April 1987, participants vented frustration and showed fatigue: “It is much more satisfactory to have two people for [the] negotiating team as [there is] too much for one to handle and concentrate.”⁷⁸

Boards dragged out negotiations, working hard to pull down valuations. In February 1987, when the deadline of 1 April appeared unattainable, a negotiator attributed failure to “an apparent coyness on the part of some State Enterprise Boards.”⁷⁹ Ministers and public servants who had recently been gratified by implementing their mode of corporatisation erupted in frustration. They singled out “nit-picking lawyers on Boards rather than the businessmen.”⁸⁰ Lawyers worked over the implications of contracts, licenses, pending litigation, Maori interests, and regulations. Complications reduced valuations. A submission from the Electricity Corporation of New Zealand (ecnz) to the parliamentary committee on the Treaty of Waitangi (State Enterprises) Act (1988) explained the property rights issue from a business perspective, accenting that a “fettering of title” would deter potential buyers or lessees.⁸¹ This commercial prediction was validated during several asset sales between 1988 and 1999.

By mid-1986, negotiations had stumbled. The government wanted several corporations to deliver unprofitable services on a contract basis. The cpc requested that boards identify non-profit activities that they would be willing to operate for a fee. Treasury expected that this valuation would expose subsidies that, if socially desirable, might then be continued with a transparent subsidy. However, if subsidies redistributed resources toward higher-income earners, they were to be eliminated without question.⁸² Stalwart supporters of corporatisation often remarked that the Energy Department had cut its electricity rates to big industries and that the Post Office’s telephone rates taxed the poor, who were more numerous in high-density areas, whereas the affluent were more common on low-density lifestyle properties. The whim of getting the boards of soes to separate commercial operations from subsidised services was unrealistic. The cost-conscious government soon backed away from subsidies, and the boards for the ecnz, Coalcorp, and Forestcorp rejected social functions as distractions and derided subsidies as “nuisance money.”⁸³

The unappealing responsibility for explaining a service elimination became a new negotiating point. Key ministers met with Establishment Boards in September 1986 to tell them to trim the lists of services that they might take on contract. As it happened, boards were wary of helping the government to deflect political damage. In early 1987, the Energy Department asked the ecnz whether it would subsidise rates. No. The board reminded the department that subsidies were “a matter of political determination.”⁸⁴ The manoeuvring over who delivered bad news to consumers surfaced in dealings with the Post Office’s board, which did not want to take over hundreds of low-use post offices, noting that any austerity-minded government would have closed them in any event.⁸⁵ Telecom’s board was nervous about the government proposing that it remove rate subsidies in 1989.⁸⁶

The greatest field for discord was valuation. To the public and some critics of corporatisation, the valuation of a business may have seemed a simple matter of recovering the state’s capital expenditures; however, investors focused on future returns. Past expenditures were irrelevant.⁸⁷ There were several methods for estimating future returns. The simplest applied an industry-wide ratio of prices to earnings. Several trading departments had no earnings, precluding this method. A specialist in valuation quipped that the government could adopt this method only if “it is the Government’s intention to pay people to take the soe away.”⁸⁸ Some trading department accounts were dispersed in a parent department’s budget. Telecommunications had no balance sheet separate from Post Office accounts.⁸⁹ Additionally, without free-market firms in the same fields as trading departments, valuation could not proceed using a convenient industry-wide ratio of prices to earnings. With this shortcut ruled out, parties had to harness the workhorse of finance, the discounted cash flow (dcf) method. A trading department’s current value was calculated as the future net cash flow that could be removed without damaging operations, and then this sum was discounted back to the present. The method overflows with assumptions.

Formulas used for the dcf employed two variables: discount rate and net cash flow. Board members as individuals could not acquire and profit from equity, but on business principles, they still pursued low valuations. This approach put them at odds with Treasury negotiators. A cash flow presumes business operations; however, trading departments were not cleanly defined businesses. A lot of the disputes over valuations related to locating income-generating units and imputing their net cash flows. Government and boards quarrelled over lists of properties, liabilities, and contracts, as well as about the discount rate, which represented the cost of money. They disagreed about this cost in current New Zealand conditions. Boards seeking to lower valuations insisted on a higher discount rate than the Treasury. In effect, the issue concerned whether future net gains could outperform interest rates. During the thick of negotiations, Forestcorp, the ecnz, and Telecom stood by the higher rates.⁹⁰

How boards were to pay for assets was also contentious because the arrangement opened the door to privatisation. soes were to have a capital structure that combined debt (loans) and equity (shares). Boards favoured a greater proportion of equity, but for fiscal reasons, the Treasury insisted on fast and large paybacks and preferred more debt. Eventually, parties settled on ratios commonly found among private-sector corporations. Debt repayment schedules varied from five to six years. The inclusion of equity in soes’ capital structure, something not available with Crown corporations, meant that a future government could raise money by selling its shares, a fact not lost on unions that represented state-sector employees. Rumours spread around the government precinct. As early as August 1986, the general secretary of the Public Service Association complained that the idea of a capital structure for soes made it too easy for a future government to abandon public ownership.⁹¹

The points in contention during valuation varied with each business activity. Consider Coalcorp. In late April 1987, when draft “Statements of Corporate Intent” began to arrive for government review, public servants deemed some boards good but complained that Coalcorp’s board was “creating problems (as usual).”⁹² Government negotiators felt frustrated by their political chiefs, who “have indicated that they are unwilling to sack the Board.”⁹³ Two decades of losses made Coalcorp the runt of the litter. Complicating matters, coalmining communities were historically and electorally important to Labour. The government juggled irreconcilable aims: a high valuation, viable mining communities, and the sale of undeveloped seams to competitors. Coalcorp’s board pulled out all the stops to drive down asset value, even floating the idea of negative goodwill, arguing that the department had performed abysmally and deserved the insult. While running down value, the board coveted every asset, including undeveloped reserves. The Treasury wanted undeveloped seams sold to competitors to offset market dominance.⁹⁴ Coalcorp’s board advised that if it possessed reserves, it could run a longer-lasting operation, a strong pitch to coal towns. This disagreement put the government in a bind.⁹⁵ Over the Treasury’s protest, it conveyed the reserves.⁹⁶

The Forestry Service’s Establishment Board identified non-commercial assets spread across impoverished regions. It would take over mills in these areas only if the operations were subsidised because milling was most profitable near urban markets, not in the forests. There were other complications. Conservationists had campaigned to protect West Coast native forests that supplied logs to profitable mills. Environmental activism made these mills vulnerable.⁹⁷ Another issue concerned the valuation of new forest plantings that served soil conservation on rugged land and would be difficult to harvest.⁹⁸ Negotiations reached a stalemate. This embryonic soe operated for over a year without a capital structure and no finalised repayments.⁹⁹ However, the bulk of the assets could be partitioned into cutting rights for sale.

Although the ecnz shared the discount rate stance on dcf valuation models with other would-be soes, its particular failure to come to a valuation agreement before the deadline of 1 April 1987 embodied electricity’s uniqueness rather than the discount rate. The Establishment Board and executive officers disagreed with the Treasury’s particular dcf models, a dispute hinging on two unsolvable puzzles: the likely pricing strategy for electricity in the future and the extent of potential competition at a later date. The Treasury repeatedly hypothesised high prices, and thus high profits, and it projected a fittingly high valuation. Reasoning rested on an assumption that the outlays for recent generating capacity would be recovered by raising rates equivalent to the marginal cost of the increased electricity units. Calculating rates at new units’ marginal costs, rather than sunk costs, would have lifted rates higher than other modelling techniques. The Treasury insisted, moreover, that the ecnz could get away with gouging its consumers by trying to recover at marginal costs because the fairly high entry threshold would deter rivals from coming in to undercut the ecnz.¹⁰⁰ To drive down asset value, ecnz officials argued that moderate power rates would prevail due both to the ecnz’s excess capacity and to competition coming soon from natural gas. The board also countered that if rates went up too fast, consumption would fall, dropping revenue; consequently, all forecasts for cash flow had to be lower than the Treasury’s. The lobby for the electricity retailers, who represented the local distribution industry, entered this debate on pricing theory for wholesale electricity, sponsoring a newspaper advertisement in which it claimed that the Treasury’s higher valuation would require raising consumer rates – “rate shock” – to discharge the ecnz’s debt to the state.

The retailers further argued that higher rates would be unfair to consumers because they would be paying twice for power-generating facilities: once as the taxpayers who had funded the Energy Department and again when, it was alleged, they would have to pay higher rates to cover the soe’s discharge of its debt to the government. The government countered with a press campaign that pointed out how taxpayers gained from a large repayment to the Treasury. Complicating matters, on 6 May 1986, Cabinet had approved in principle a deregulation of the generation and distribution of power but envisioned placing the new corporation under the recently passed Commerce Act (1986), which prohibited abuses of market dominance.¹⁰¹ One outstanding question, therefore, was how a government would calculate an unfair return from monopoly dominance.¹⁰² In the immediate circumstances of a valuation, the Treasury took the position that the ecnz would abuse its monopoly and eventually ramp up rates, with a peak coming by 2000. A high valuation would capture some of the unearned economic rent. The Treasury added that the low valuation favoured by the board was evidence of self-interest, for directors and executives could claim bonuses for rescuing an enterprise, promptly achieving a remarkable improvement in value.¹⁰³ Resorting to conjectures about future behaviour, both sides refused to budge and failed to reach an agreement by the deadline of 1 April 1987. The ecnz had to operate under a licence from the state. This expedient did not end the valuation saga because the absence of an agreed-upon valuation had both taxation and business-planning implications, and it discouraged self-interested directors and executives, who in time would want full control of a proper enterprise. A licence came nowhere near control.¹⁰⁴

In February 1988, the government directed all soes to prepare their books in anticipation of privatisation. At this time, the ecnz still had no valuation to guide a sale, and in March 1988, it had to resume wrangling with the Treasury, whose officials proposed a debt-equity ratio that would drive up the share capital. Objecting to this measure, ecnz officials argued that it was intended “to reduce the % return that we would make on equity, thus providing them with a rod to beat us.”¹⁰⁵ Conjectures and posturing threatened a long impasse. The Treasury may have been bluffing when it raised its 1987 estimate to around $11 billion. Its new model assumed a lower discount rate and thus a strong demand for equity control of a utility, and it projected an averaging of sunk costs rather than the marginal costs of newer facilities. These assumptions accented profitability. The ecnz’s board took gloomy positions on each variable, setting its valuation at $5 billion to $6 billion.¹⁰⁶ During an earlier round of failed negotiations, Treasury official Doug Andrew had written to the ecnz’s chief executive officer, Roderick Deane, that the Treasury was interested in “middle ground solutions.”¹⁰⁷ In April 1988, Douglas met privately with Deane. Away from negotiating teams that had argued from entrenched positions, they settled on a compromise price.¹⁰⁸ Additional questions about the shape of the utility precluded a transition from corporatisation to privatisation for years: should it be one dominant firm or several competing firms, should the high-voltage transmission line be a separate entity, and should there be regulation of power rates? Corporatisation was no simple affair due to the shift to private-sector labour relations, staff redundancies, the introduction of the profit motive, and paying down the debt to the state.¹⁰⁹

If Coalcorp was the runt and the ecnz was the Great Dane too big to let run without a leash, Telecom was a pedigree without papers, wanting inventories and a balance sheet. To prepare data for a dcf valuation, accountants had to work inside, assessing operations. Both sides enlisted technical assistance. The guidelines for Establishment Boards granted them control over staff and records given the assumption that boards would soon be managing full-fledged soe operations and needed to prepare for the handover.¹¹⁰ The decision to grant control over records and personnel proved naive since the buyers had command of the vendor’s information. The board limited the Treasury’s access and slowed negotiations. If the Treasury side wanted to speak to Telecom staff, it had to write for permission and allow the board to set up a supervised meeting with board members and their consultants. The lack of cooperation made a timely completion impossible.¹¹¹

When there was “not a chance in hell” that all boards would sign purchase agreements by 1 April 1987, ministers scrambled to reassure the public and to solve the problems of transferring employees to shell corporations that technically had no assets. To bolster confidence that the Establishment Boards would in due course form corporations, the boards signed “sale and purchase agreements” that created pseudo entities. Eight of the nine soes went into operation on 1 April without a final agreement on the asset valuation.¹¹² Negotiations on the Post Office Savings Bank progressed on time because as a financial operation it alone had proper accounts.¹¹³ Forestcorp never completed the transition. Haste left loose ends.

productivity gains

When Fourth Labour appointed Establishment Boards, it selected people who either had business experience or knew something about the operations of the particular trading department. Ron Trotter, who had piloted the Economic Summit of 1984, cooperated again. He canvassed members of the New Zealand Business Roundtable for names to recommend to the government for Establishment Boards. Trotter promoted participation on the grounds that properly run soes would help the entire economy, that the tasks were going to be stimulating, and that exposure to government policy making would be educational for all concerned. He warned against conflicts of interest.¹¹⁴

Of the 103 initial board members whose occupation details have been located, 21.6 per cent (n = 22) were managing directors in established businesses, and 6.9 per cent (n = 7) were senior public servants. If occupations are compressed, the business experience is more striking: 58.8 per cent (n = 60) had some high-level business position, 8.8 per cent (n = 9) were professionals, 7.8 per cent (n = 9) were union officials, and 4.9 per cent (n = 5) were professors. The group had been drawn from seventy-four different businesses or organisations. A selection gives an idea of the appropriateness of appointments. The board at the Airways Corporation included the president of Air Freight, at Coalcorp an executive from Fletcher Challenge, at the ecnz a dean of engineering, at Forestcorp a public servant from Public Works, at Landcorp an executive from Advanced Meats, and at the Post Office an official from the Distribution Workers Union. There was a hefty presence from Fletcher Challenge, the country’s leading international conglomerate. Six of its executives sat on soe boards. Ron Trotter chaired the board at Fletcher Challenge. Accounting firms Deloitte and Peat Marwick had three and two executives on soe boards respectively. Board members were overwhelmingly male (n = 84). Men and women alike were in their mid-forties to early fifties, vigorous, and experienced. The chief executive officers hired by the boards had a similar profile.

To populate boards, the government looked for individuals who had business rather than technical skills. It wanted to appoint a few academics, but here again, it had preferences. If an academic was to serve on the ecnz’s board, the person “should be from marketing, not engineering.” With electricity operating in a consumer-sensitive environment, “advantage could be made in appointing a sensible women’s consumer type.”¹¹⁵ The attention to consumers was an international trend, described by Christopher D. McKenna in his history of management consulting as “the increasing power of sales and finance departments over the product people.”¹¹⁶ Restructuring ran deep.

Board members and executives understood that enterprises could make profits by cutting unnecessary expenditures, selling assets that were surplus to need, refinancing at better interest rates, upgrading equipment, developing new product lines and services, and increasing market share through vigorous sales campaigns.¹¹⁷ Telecom did all of these things. Infamous for abysmal service, the telephone branch of the Post Office, recreated as Telecom, established retail centres to display its products. Significantly, it trained customer account managers “to understand and look after the complex communication needs of our major business customers.”¹¹⁸ Telecom reported having “achieved a staff productivity gain of 12% over our first 12 months and we confidently expect even greater future gains as a result of actions being taken.”¹¹⁹ On the eve of its creation as an soe, Telecom had around 25,000 employees; three years later, it employed about 16,500 people.¹²⁰ As part of retrenchment, some employees were encouraged to buy tools and vans and to subcontract. The profit incentive raised the number of jobs carried out by the same people from two to six or even eight per day.¹²¹ Cognisant of fast-moving technological change, management believed that high-skilled employees would escape redundancies in the short term, but “things may not be so bright as computers take over some staff services.”¹²²

SOEs were obliged to do things that trading departments had escaped, operating as they had within budget appropriations. The SOEs had to pay taxes, discharge the loan portion of their capital structure, and deliver dividends to shareholders (effectively to the Treasury). Richard Prebble monitored their productivity. If they succeeded in discharging the loan from the government, they would increase shareholder equity. The quantifiable measures of executive success, such as profits and rising shareholder equity, were known, and performance was rewarded. The former state trading departments had measured sheer output (such as tonnes of coal, kilowatts, and letters carried) and the scale of operations (such as employees, miles of rail, and new farmers put on the land). Growth had validated success. Attention to bulk numbers complied with older ideas of colonial and national development, but the protected status of trading departments and their attention to aggregates left them with “an acute lack of information on the performance of the organisation.”¹²³ This was a common lament by SOE boards from the moment they began valuations. When they probed, they discovered low productivity. For example, whereas Bell Canada managed with a ratio of 5 staff to 1,000 lines, at Telecom the ratio was 20 employees to 1,000 lines.¹²⁴ Profit gave a reading on efficiency. Neither the trading departments nor their clients had previously grasped the real costs of products and services. Department personnel had been given no incentives to respond to customer tastes and new technology; they had relied on the parliamentary vote, ultimately the taxpayers. One of the first tasks of an SOE management team was to establish a proper accounting system in order to discover areas for improved productivity and pricing.

The creation of SOEs and the implementation of reforms generally coincided with the digital revolution. The first computer spreadsheet ran on an Apple personal computer in late 1979. As a revolutionary aid for projecting the financial implications of changing assumptions, the spreadsheet became a necessity overnight. A journalist writing in 1984 commented that “the spreadsheet is a tool, and it is also a world view – reality by the numbers.”¹²⁵ For users, that was its beauty. For critics of the bottom-line understanding of contemporary life, this worldview presented an insuperable challenge. Alternate claims to value had little chance. Politicians were courted and impressed. In mid-1983, while in Opposition, Lange and Douglas had planned to attend “a presentation on Productivity in Government and a demonstration of the ibm personal computer” in the Adventure Room of the James Cook Hotel.¹²⁶ The Post Office Bank and Telecom started to work with computerised records in 1988, and the Post Office followed in 1989. Landcorp distributed laptop computers to field managers in 1990 to assist them in monitoring farm performance.¹²⁷ Managers who embraced competition understood that new technologies could improve service. Thus in 1991 the Post Office purchased state-of-the-art optical character readers for the high-speed sorting of machine addressed mail.¹²⁸ Telecom reported increased costs associated with “higher depreciation rates to reflect increasingly rapid technical obsolescence.”¹²⁹

Cost cutting at soes essentially meant redundancies. Despite reductions, productivity did not suffer. Trading departments had served veiled political, welfare, and social functions. At Coalcorp and New Zealand Railways, productivity gains per employee were insufficient to put the corporations in the black; domestic coal use was receding, and the railway had to cut freight rates to meet competition from a deregulated trucking industry.¹³⁰ Coalcorp had a hard time despite equipment upgrades, sales campaigns, and successful negotiations over freight rates. It is notable, however, that the output per man-shift doubled in the first year of soe operations.¹³¹ When the ecnz negotiated a contract for natural gas from the Maui gas field, Coalcorp lost a major client.¹³² By means of voluntary redundancies, the railway dropped from 22,000 employees in 1982 to around 5,500 in 1992 under New Zealand Railways.¹³³ Management tried to improve the balance sheet by selling land and houses and by developing an outdoor advertising subsidiary. It remained commercially unviable. A few days before the 1990 election, Labour wrote off over $1 billion of its debt and established a new corporation, New Zealand Rail Limited, which the National Party government sold to an American-led consortium in 1993 for a price remarkably well above independent valuations.¹³⁴

Job losses were dispiriting legacies from previous governments’ unrealistic endorsement of hiring by trading departments. Judgments about past errors were cold comfort to individuals in the present. As best they could, officials at the State Services Commission looked after the individuals who officially were ssc employees. The ssc and the Public Service Association hammered out “a deployment package” that equated severance payments to years of service. Employees with one year received 8 per cent of their base pay for the previous year; those with twenty or more years, received 84 per cent.¹³⁵ In cash terms, redundancy payments in the two most troubled organisations, New Zealand Railways Corporation and Coalcorp, were around $25,000 to $30,000 per person, a sum equal to the annual salary of their mid-level managers. Some recipients were eligible for the Guaranteed Minimum Family Income and for the unemployment benefit.¹³⁶ Household income losses were offset for a while, although ssc officials worried in later years that many former employees had not managed payments prudently. Certainly, SOEs were not hiring liberally, which contributed to youth unemployment.

Over and above the published payment schedule, there were unofficial adjustments. The real average severance cost at New Zealand Rail Limited was $40,000.¹³⁷ The Airways Corporation’s board offered a particularly generous severance package because “the industrial leverage on the employee side was strong.” If word had spread, however, others might have insisted on larger settlements, as had been the habit seen with wage fixing by relativities.¹³⁸ Some individuals were eligible for National Superannuation.

Several SOEs strained to get into the black. Against a background of unresolved land claims advanced by Maori and a depressed property market, made worse by several SOEs dumping excess real estate, Government Property Services performed poorly.¹³⁹ The government was anxious to sell it. The Post Office Bank’s management believed that it had to change the corporate culture and get the organisation to function as a real bank, ending the concessionary mortgage rates imposed on it by the previous government and bringing in an entirely new senior executive team with outside banking experience. To recover losses in market share, the bank invested in management skills, technology, product development, and staff training.¹⁴⁰ There were cost-cutting measures too. About 140 employees took voluntary redundancy payments that averaged $3 5,000.¹⁴¹ The bank started closing some of its 1,200 uneconomical outlets, an action challenged in court when aggrieved citizens applied the legislation’s requirement that SOEs be socially responsible employers. Since the bank had made alternate arrangements for customers, the court ruled in its favour.¹⁴² In its first year, it went from losing money to a modest profit. The Airways Corporation brought in the international consultancy Booz Allen to steer its billing for its flight control services to airlines. It promptly turned in a profit. To finance new equipment for air traffic control, the Airways Corporation went to the commercial finance market and had no need of a government guarantee.¹⁴³

Eight of the ten SOEs operating by 1988 generated dividends and paid taxes. They reached these benchmarks by a combination of active management and redundancies. For example, Landcorp took over 142 government-run farm-development blocks (536,000 hectares) and 22,600 leases (5 million hectares). It soon commenced buying and selling land to balance its stock-raising properties by including fattening operations, and it imported new breeding stock. It branched into fee-based consulting on land management, withdrew from mortgage lending, and unloaded low-paying leases. The scale and diversity of its operations suggest the inroads that the state had previously made in primary-production enterprises.¹⁴⁴ From 1987 to 1989, staff numbers dropped from 1,020 to 790.¹⁴⁵ The corporatisation of the large Public Works Department occurred a year after the formation of the original nine SOEs. The new Works and Development Services Corporation faced keen tendering competition on domestic construction projects and adapted by opening offices in Singapore and Australia and by seeking opportunities with international-aid banks. In its first year, it reduced personnel from 6,179 to 4,980 and paid taxes and dividends.¹⁴⁶

The board and management at the Post Office made the most of an opportunity. Realising that their employees understood the core business of delivery, they built on an expertise in logistics to expand services in growth areas and to reduce them in stagnant ones. They inaugurated a courier service in 1990, a door-to-door parcel service in 1991, a direct-mail advertising service in 1992, and warehousing in collaboration with the Total Logistics Company in 1993. Support for urban clients grew, but many rural offices were replaced by reorganised delivery routes and community mailboxes. From 1987 to 1991, the Post Office went from 1,445 offices to 890 and from 9,500 employees to 8,200. Redundancy payments averaged $35,000 to $38,000. By 1993, the corporation had almost completed restructuring its property portfolio, which involved selling buildings and turning basic stamp services over to shopkeepers.¹⁴⁷

At the ecnz, the installation of a business-like leadership and the reduction of an engineering culture meant greater attention to marketing, personnel, and debt management.¹⁴⁸ Senior managers were invited to reapply for their positions, thereby indicating their willingness to participate in transforming the organisation. Management then reorganised the former branch of the Energy Department into four units: design and construction, production, marketing, and transmission. The first three could compete as profit centres, doing so not on the basis of the provision of identical services but on the basis of their ability to make profits from discrete activities. Some managers were eligible for performance bonuses. Transmission remained a politically sensitive cost centre since it constituted a natural monopoly. To eliminate allegations that the transmission unit made the ecnz a monopoly, corporate managers agreed in 1990 to surrender the grid subsidiary, Trans Power, which subsequently functioned as a stand-alone break-even maintenance operation.¹⁴⁹ Further difficulties experienced by governments trying to control electricity without a regulatory agency are recounted in chapter 8. A parade of consultants analysed the industry’s complex technical and commercial structure with a mandate to find a way to disentangle power rates and politics. Compared to an interminable sequence of studies and later reorganisations, productivity gains at the ecnz came quickly.

By marketing electricity as cleaner than coal and by holding down rates, the ecnz achieved slight gains in market share for energy at the expense of coal. But its great source of profitability came from productivity gains realised by cutting costs. In common with other trading departments, it had been overstaffed. In the first year of soe operation, the ecnz reduced a workforce of 6,000 by 20 per cent; after five years, the number of employees stood at 3,700. In a world informed by ever more refined numbers, the power firm gauged productivity gains with the modern metric of the gigawatt hour (GWh), or 1 million kilowatt hours, expressed as GWh per employee. On the efficiency front, the ecnz was enormously successful, recording GWh figures per employee of 4.66 in 1987 and 8.89 in 1992. During valuation and restructuring, however, the ecnz forfeited the protective aura of an imposing national public work, the subject of documentary films celebrating Kiwi know-how. Several groups felt free now to hammer the ecnz.¹⁵⁰ When hiking rates, retail power distributors, the local power monopolies that purchased wholesale from the ecnz, blamed the soe for the increases.¹⁵¹ Municipal authorities lobbied the government for the right to charge resource utilisation fees for the ecnz’s use of water flows at hydro plants. The ecnz’s status perplexed governments throughout the 1990s.

concluding observations: old and new measures of progress

Michael Bassett once drew attention to the discrepancies between outsiders’ impressions that New Zealand “was a social engineer’s dream” and the reality of helter-skelter pragmatism followed by wholesale political bribery.¹⁵² In the election campaigns of the 1950s and 1960s, the earlier pragmatic rationales for state intervention, leading to poorly coordinated state activities, were superseded by “auctions where parties tried to outdo each other with competing promises to spend the taxpayers’ money.”¹⁵³ An overregulated, oversubsidised, and overprotected economy gave short-term benefits to particular privileged groups, such as meat and wool producers and public servants. If these big sectors had included only people of like mind, Fourth Labour would have encountered stiffer resistance than it did, but rural producers were varied, and the public service had departmental cultures and ranks.

By the mid-1970s, the state-managed economy was failing, and there were doubts about whether it could be reformed to work for long-term prosperity.¹⁵⁴ Bassett’s explanation for the rise of a state-managed economy and its hazards emphasises happenstance and downgrades ideology, or at least dismisses any role for socialism. His reasoning and examples are compelling, although during the struggle for control of the Labour Caucus in 1982–83 and in the debates over commercialising the trading departments and the later round of asset sales, there was an ideology that did rally defenders of state management. National pride fabricated a picture of past well-being, a society of supports and relativities, and an economy guided by central controls but also a place vulnerable to the Yankee dollar, German mark, and British pound. The steps in New Zealand’s deeper and wider integration into the world economy incited a mode of economic nationalism, a nostalgia blended with utopianism. It was promoted in print by a coterie of academics and backed by union secretaries, former recipients of terminated subsidies, and a few public servants. Douglas experienced the visceral reaction of economic nationalism when his family’s business was sold to a German company. His response aligned with his reform internationalism. The sale “will result in increased employment and foreign exchange earnings for New Zealand.”¹⁵⁵

SOEs were not the be-all and end-all of quests for productivity gains. Labour markets were to be rendered more flexible, workers’ productivity was to be incentivised by introducing merit into wage fixing, and regulations were to be relaxed. American economist Robert Anderson, who joined the Treasury in 1988, remarked on a difference between the reforms then affecting utilities across the United States and those in New Zealand: “The goal of economic efficiency is given greater emphasis here.” In American states, the emphasis was on finding “a just and reasonable price,” an effort in America that spun a web of regulations whose unintended consequences were the professional identification of regulators with the regulated, political interventions, and inefficiencies.¹⁵⁶ Here and in other fields of restructuring, New Zealand’s distinctive path comes as a reminder that loaded labels like neoliberalism, Thatcherism, Reaganism, and Rogernomics impede knowledge.

Fiscal benefits from the SOEs were realised quickly. Over the first two years of operation, the new SOEs returned approximately $1 billion to the state in taxes and dividends. This was only 40 per cent of the returns that Douglas had predicted in a report to the Cabinet Policy Committee in April 1986, but 25 per cent more than the sum projected without corporatization.¹⁵⁷ The SOEs undoubtedly contributed to state revenues and promoted efficiencies. Shortly after their creation, the programme changed. Ministers with economic portfolios, overseas consultants, public service officials, and onside academics pondered how to sustain good service, good dividends, and fair rates at the ecnz and Telecom. In keeping with the thrust of the country’s restructuring, one that uniquely pushed for a “green field” (or first principles) approach, tough regulation was thought vulnerable to political considerations and capable of distorting corporate conduct. Both American-style fair-price regulation and British price-index regulation were distrusted by Treasury officials and by many utilities’ consultants brought in to look at the ECNZ and Telecom. Privatisation, competition, and light-handed regulation were favoured as restructuring entered the phase of privatisation. Once their boards had put the SOEs on a commercial footing, the liberated businesses compelled several governments to confront antithetical positions: on one side, consumer lobbies and economic nationalists; on the other, the pursuit of an efficient economy. These matters are clarified in the next chapter.

8

Privatisation and Networks: Airline and Railway, Electricity and Telecom

overview: a fiscal banquet with mixed reviews

In early 1987, decisions to sell certain state-owned enterprises (soes) drew the country further into global financial markets, initiated debates about regulating the two most dominant corporations, namely the Electricity Corporation of New Zealand (ecnz) and Telecom, and began a sequence of ownership changes for Air New Zealand and New Zealand Rail Limited (nzrl).¹ Sales aggravated tensions between Cabinet and the Labour Party organisation and figured in the great falling-out between David Lange and Roger Douglas. By the end of its second term, the Fourth Labour Government had grossed almost $10 billion. Sales continued under other governments. By early 2014, $14 billion had been added (table 8.1). One could include the savings realised by shedding subsidies but then deduct consultants’ fees, commissions, and litigation. Accurate numbers for savings and costs are not available but could balance out. In any event, the returns from sales were of a greater magnitude than the peripheral transactions. The saga of sales did not end with the new millennium, as seen with the restricting of telecommunications in the early 2000s, the renationalisation and subsidisation of the rail system in 2008, and the sales of equity in electricity soes in 2013–14.

Popular assumptions about the basis for an enterprise’s value clashed with the commercial reality that value was tied to what it could earn, a point covered in the previous chapter. The difference in perceptions gave impressions of fire sales.² With several enterprises, the offers exceeded estimates: nzrl, the Bank of New Zealand, the Development Finance Corporation, the Post Office Bank, and the State Insurance Office. The Treasury set the book value of nzrl at $1.475 billion and valued its core rail business at $140 million, but the true business value was in the red.³ For some sales, the amounts were lower than expected because of politically motivated restrictions on the purchasers’ control of the enterprise, which erased the premium for control (as with Air New Zealand and Telecom) or because of complications with land title and a loss of control over access (as with the state-owned plantations). Potential buyers, over fifty in the case of the Development Finance Corporation, offered less than the book value of state-owned financial institutions. Seasoned bankers correctly reckoned that the corporation’s personnel, the real asset in any bank, generally lacked credible banking experience. Some physical assets were engineers’ dreams, having been built with little thought of cost or financial returns. Consequently, bids fell well below what a government had spent. A leading example was the Government Printing Office. Its seemingly gold-plated plants exceeded government or private-enterprise needs.⁴ No reasonable bidder would have offered a book value that reflected poor costing. As for the fuel and steel enterprises of Robert Muldoon’s era, they succumbed to global vicissitudes, which were worsened by their experimental nature.

Not only was each asset unique, leading to different valuation controversies and results, but the deals struck for each could also be astoundingly complicated. The disposal of New Zealand Steel, for example, exposed complex dealings in capital markets. Muldoon’s National Party government had started a joint venture with New Zealand Steel to help expand the latter’s export operations, hopefully assisting the balance of payments. The steel project was financed largely by debt guaranteed by the government. Steel prices slumped. Cost overruns plagued construction. Legal commitments made by National left Fourth Labour without happy options. Deviating from his preference to keep the state away from running businesses, Douglas had the Crown take over $1.138 billion of the project’s debts, acquiring 81 per cent of New Zealand Steel’s equity and the authority to appoint a new board.⁵ Keen to elude further risks, the government entered into a complicated transaction with Equiticorp, an aggressive seeker of Asian capital for Australasian business acquisitions. The Auckland firm paid the Crown with a combination of cash and shares in Equiticorp, adding a provision that Equiticorp could later buy back these shares. When a buyback did eventuate, its shady finances violated the Companies Act (1955).⁶ Shortly afterward, Equiticorp became insolvent, and the managers of its assets in bankruptcy successfully sued the Crown for failing to carefully investigate the buyback arrangements. The Crown settled with a payment of $270 million to the statutory managers of Equiticorp assets.⁷

The labyrinthine dealings with Equiticorp were not indicative of Crown asset sales. Actually, nothing was indicative. Each sale proved controversial, quirky in its own way. The sale of the State Insurance Office brought out an oddity arising from the history of an early state activity. Created in 1903, the office had no equity and was never a mutual insurance company; financed entirely on profits, it held a surprising 40 per cent of domestic fire and general insurance. For no particular reason, it owned and operated a chain of state theatres. Ambiguity of ownership had to be clarified by legislative action that made it a state enterprise prior to its sale.⁸ Another of the many examples of peculiarities pertained to the sale of the tottering Development Finance Corporation. Fortunately for New Zealand, Salomon Brother’s bought a 20 per cent stake in the corporation because a Salomon’s employee was “an admirer of the economic policies of the New Zealand Government.” The investment broke with company policy, and the individual’s “position in the firm [was] very much on the line.”⁹ When the more substantial state enterprises were privatised, teams of lawyers and bankers, spanning the globe, worked with local professionals and public officials on a scale that could not have been imagined a few years earlier. Sales produced an Auckland-Wellington white-collar bonanza, with ancillary work carried out in Sydney, Melbourne, Hong Kong, Los Angeles, Washington, New York, and London. Not counting support staff, the vendor working group handling the sale of Telecom engaged 100 key individuals in twenty organisations in ten cities.¹⁰ Transitions similar to those in New Zealand soon were in play in the former communist countries of eastern Europe, but they proceeded with far less openness, leaving the New Zealand experience as a unique open window.

Table 8.1 | Asset sales by settlement date of agreement, 1988–2014

Source: New Zealand, “Income from State Asset Sales.”

ONE CHURCH, TWO CATECHISMS

Things moved rapidly in Fourth Labour’s first term. In March 1987, Douglas discussed with his associate ministers and Treasury officials the advantages and implications of selling, in whole or in part, the state’s equity in the several soes due to be incorporated on 1 April 1987. nzrl, Air New Zealand, Petrocorp, and New Zealand Steel, predating the State-Owned Enterprises Act (1986), were added to the list.¹¹ The justifications marshalled for persuasion and the deeper reasons for embarking on sales were distinct. For public consumption, Douglas and Richard Prebble emphasised paying down the debt.¹² The ministers with finance portfolios did worry about the fiscal debt’s exposure to $18 billion in foreign exchange.¹³ For the benefit of backbenchers, they added that the government could eventually afford new social programmes. Some mps who embraced Labour as the party with the social welfare conscience patiently accepted this argument. A few others complained about an abandonment of public ownership. More than the debt figured in the longing to sell.

The country’s low per capita productivity concerned an inner group of reform-minded ministers and officials. They certainly were not going to object if soe boards and executives trimmed their workforces to align with production requirements. As the reformers saw things, the next challenge was to keep soes free from a future government’s interference. Furthermore, soe boards might not always have the incentives or support to act on opportunities of true private enterprise executives. Sales were the answer; they precluded backsliding, and in theory at least, the private sector favoured creativity since private enterprises had the best reasons to seek the latest information and to innovate. They also had to bear responsibility for their actions. Douglas, Prebble, and David Caygill believed, too, that taxpayers should not be exposed to the risks of potential business losses.

To make their points, the opposing sides in debates about privatisation drew upon world events and local history. Advocates drew attention to privatisation initiatives in Australia, Belgium, Canada, Chile, France, Italy, Japan, the Netherlands, Nigeria, the Philippines, Singapore, Sweden, and more. A note on Douglas’s copy of a report on the phenomena read that “this makes us look timid. Everybody’s doing it.”¹⁴ On the other side, Ken Douglas, the president of the New Zealand Council of Trade Unions and a member of the Socialist Unity Party, exhorted delegates to the Labour Party’s annual conference in 1988 to censure the government for dismantling import controls and sales of assets. State-owned financial institutions existed “to break the chains of ‘colonial bondage.’”¹⁵ Douglas called this “pathetic jingoism.” Prebble caricatured the creed: “You still hear arguments that if the State owns a monopoly on electricity or telecommunications then somehow, we, as a result, are all wealthier citizens. If it were as simple as that, the people of Romania, where the State owned everything, would have been the wealthiest people in the world.”¹⁶

Proponents highlighted the risks of commercial losses, but not every asset posed a risk, and many soes achieved productivity gains. Meanwhile, Labour Party socialists concentrated on what they considered strategic assets: financial institutions as well as transport, rail, and ships. From mid-1986 forward, several unions, local election committees, and the Labour Party Council opposed any sale of Bank of New Zealand stock, alleging that it was “an important tool of economic and social management.”¹⁷ A group of trade unionists appealed to MPs to oppose floating shares since “it represents a philosophical change in direction from … policy formulated in the 1930s and 1940s.”¹⁸ In many encounters between the government and left critics, the latter drew upon history. Deficient management at the bank had allowed far too many non-performing loans, a state of affairs that, although not exclusive to state-owned banks, did put them in a bad light.¹⁹ Moreover, the drawback with state lenders was systemic; apart from less urgency in risk assessments, there was an unclear notion of purpose. The bank was not alone. Substantial losses forced the Development Finance Corporation to suspend operation shortly after it was sold. Bereft of banking experience, socialists lacked the insights that MPs and ministers acquired when high-risk borrowers among their constituents asked them to intercede with the Bank of New Zealand, the Rural Finance Corporation, or the Development Finance Corporation.²⁰

Privatisation’s international acceptance drew admirers in both major parties. A free-enterprise faction in the National Party favoured it, enabling Don McKinnon to take an energetic lead on the subject in late 1984. In mid-1985, a group of National parliamentarians, including Opposition leader Jim McLay, tested the idea at public meetings.²¹ Attempting to distance the party from Muldoonism, they were stopped in their tracks when Jim Bolger replaced McLay as leader.²² Bolger – “New Zealand is for Kiwis” – embraced economic nationalism. However, his hand-picked finance spokesperson, Ruth Richardson, was gung-ho, condemning Douglas for foot-dragging.²³

Free-enterprise MPs who backed sales divided over means and objectives. Although Bolger promised a kinder and gentler government, one that would maintain his brand of economic nationalism, he allowed colleagues latitude to speak, so long as they tagged Labour ministers as cold-hearted elitists.²⁴ Ian McLean, National’s spokesperson on asset sales in 1988, could still proclaim that “the government should steadily be moving its businesses into the private sector.” He proposed using sales to build “popular capitalism,” which meant undertaking share floats that favoured distributions among New Zealanders even if this mode of sale yielded poorer returns than one that gave control to a bloc of foreign investors.²⁵ The float idea had the political advantage of mixing privatisation and nationalism without curdling. In contrast, Fourth Labour’s ministers with finance portfolios – Douglas, Prebble, and Caygill – were committed to selling large blocks of equity to institutional investors or operators in the relevant field, presuming that they would pay a premium for consolidated interests that conferred control.

Douglas tried to appease some Labour critics by announcing sale principles in his 1988 budget. Taxpayers were promised that they would receive more from the sale of a targeted business than they would have from continued ownership, and the sale had to make a positive contribution to the government’s economic and social policies.²⁶ Once sales were moving ahead, around mid-1988, criticisms and counterarguments shifted to regulation. How were charges to consumers by networks – natural gas, electricity, and telecommunications – going to be controlled, if at all? Three positions that emerged between 1986 and 1988 would remain in contention for years: heavy-handed, industry-specific regulation; light-handed regulation with a trust in contestability and the belief that the potential for competition would be enough to control rates; and light-handed, general regulation with a trust in competition. Internationalists and economic nationalists put their backs into a fresh tug-of-war over these positions. To achieve fair pricing in electricity or telecommunications, open-market internationalists preferred competition or the presence of non-discriminatory access to networks: gas pipelines, the electricity grid, and telephone trunk lines. Access was the essence of contestability. Whether fair rates were sought by competition or contestability, Fourth Labour was committed to light-handed regulation, a far cry from state oversight when departments ran trading operations.²⁷

Treasury officials objected to even light-handed regulation, but Cabinet accepted that some surveillance was necessary. Utility rates and profits were politically sensitive. Consequently, the Commerce Act (1986) revised the original 1975 legislation to better oversee the conduct of network enterprises and much else besides.²⁸ Although its coverage of monopoly and corporate mergers in the private sector fall outside this study, an apparent preference for light-handed regulation added another grievance to the list cited by the party’s internal opposition because during the 1984 election, Labour had promised that “undesirable trade practices will be firmly dealt with.”²⁹ Several interest groups, interventionist economists, unions, and party officials complained that the government was now abandoning this pledge and allowing too much liberty through ill-defined terms in the Commerce Act.³⁰ Some commenters recommended separate agencies to regulate each network industry, a practice prevalent in other OECD countries.³¹

Business leaders and law firms, frequent contributors to select committees reviewing draft legislation, divided over this bill. Some firms and interest groups complained that it permitted dominant enterprises to function unscathed in the name of public benefit and that it failed to clarify when this benefit might transform into undesirable trade practices.³² Persistently protectionist, the New Zealand Manufacturers’ Association maintained that international companies should be watched to make sure that they did not thrive “at the expense of consumers.”³³ The rival business interest group, the New Zealand Business Roundtable, suspected that the term “public benefit” would favour consumers rather than shareholders and that weighting would conflict with allowing businesses to get on with producing an efficient economy, a lesser appreciated public benefit.³⁴ Several ministers responsible for utilities and transportation wanted to make sure that enough regulation remained to protect and encourage competition. Despite these qualms, and in a departure from the tightly regulated economy of the past, more things were being left imprecise and thus left for negotiation and litigation instead of bureaucratic judgments. It was a new game for all concerned, and debates over its rules depict a robust discussion on law and economics that was not about to be settled definitively.

The expansion of the SOEs operating with the profit motive and the conversion of many SOEs into private enterprises required ministers and officials to consider how – or whether – the state should regulate service and charges. Each case was unique, unexpectedly intricate. For example, the country’s corporatised ports, instructed to adopt the profit motive, promptly went after productivity gains. Ports of Auckland Limited reduced its workforce by a third, requiring staff to diversify. Some savings were passed on to port users.³⁵ Although port operations could not form a network monopoly, they were of such importance to export that officials kept an eye on their operations. When corporatised to run as profit-making ventures with a blend of municipal and private shareholders, port companies could restrain competition through multiple ownership of competing ports, through shipping companies investing in ports, and through land ownership that constrained rival facilities. On the docks, some controlled the stevedoring equipment and by this means could influence intra-port stevedoring.³⁶ At the very least, they were going to be watched to see that reasonable costs, part of the government’s effort to make the export of primary products more efficient, were maintained.

There were discourses about whether there could be only “bad” monopolies. If enterprise profits and efficiencies were deemed important and if state second-guessing leading to regulation was thought by reformers to inhibit these objectives, did this prioritising mean that there were “good” monopolies? New Zealand First, a populist party founded in 1993 by Winston Peters, emphasised the “bad” and insisted on close regulation. The 1996 election, the first held under a system of multiple-member proportional representation, produced an uncomfortable coalition between National and New Zealand First. Debates and editorial about the national economy, public benefit, and the status of consumers engaged white-collar professionals, their vocabularies, and recent analytic tools. Economic nationalism lingered, but minsters, senior officials, and consultants moved on, dealing with concepts absent from political-economy discussions prevalent until recently. One administration after another in the 1990s put its hand to reorganising the network industries. Despite objections from economic nationalists and pressure from consumer lobbies, Labour and National by and large rejected close regulation and interference with industry rates. Keeping hands off was not easy for Bolger’s National government, which had not completely disposed of Muldoonism. In office for most of the 1990s, National alone and in coalition with New Zealand First investigated electricity’s natural monopolies, eventually doing away with them by instituting competition.³⁷

Competition had exceptional stature in New Zealand because, unlike other oecd countries, it never had industry-specific regulatory bodies in natural gas, electricity, and telecommunications. Before the formation of soes, network utilities were managed by the Energy Department and the Post Office; no regulatory bodies were needed because legislation required ministers to fulfil social duties when managing these assets. The formation of soes shifted responsibility for the public benefit from ministers to the Commerce Commission, which opted to protect consumers by insisting on competition, a difficult state to achieve unless there was some unbundling of the networks. Understandably, executives at the ecnz and Telecom preferred contestability to competition because it left their enterprises alone. Treasury-based champions of contestability reasoned that the mere prospect of new entrants would make a dominant network hold rates in check and improve service. Furthermore, so the argument went, if a network was open to new entrants, the latter could threaten the network’s dominant provider, making its executives hustle to hold their jobs. Management self-interest was to bring public benefit.

restricted versus unrestricted sales

The incompatibility of economic nationalism with maximising value unfolded as a tale, one of restricted versus unrestricted sales. Restrictions were implicit in resolutions for the initial sales approved at a meeting of the Cabinet Policy Committee (cpc) on 25 May 1987. On a recommendation from Douglas, the cpc approved sales of equity in three older soes – Petrocorp (100%), the Development Finance Corporation (100%), and Air New Zealand (25%) – and it approved the sale of equity bonds, which here meant a preferred share, up to the value of 25 per cent of the equity in Government Property Services, as well as the sale of state-owned forestry enterprises and the issue of equity bonds up to 25 per cent of the equity of the remaining seven new soes.³⁸ Petrocorp, the Development Finance Corporation, and Government Property Services were losing money. The sales were announced on 18 June in a pre-election budget statement that, apart from reducing the tax surcharge on National Superannuation, was devoid of vote-catching sweeteners.³⁹

Geoffrey Palmer had reassured Cabinet and the Labour Caucus in 1986 that the new soes were not preludes to privatisation.⁴⁰ For the moment, the terms of sale approved in May 1987 fell short of full and wide-scale privatisation; Telecom was not on the list, and the amounts of equity bonds were limited. However, the resolution required that sales should maximise returns to the taxpayer, leaving the door open for the sale of enough equity to confer control on a single buyer or consortium. Equity bonds vanished. Subsequent phases in the privatisation saga exposed the contradiction between maximising returns and retaining state involvement, tracing a division in the caucus between economic reformers and advocates for a state-run economy. Those members who favoured unrestricted sales emphasised debt reduction.

New Zealand’s debt relative to its gdp was high and had damaging consequences. Interest payments amounted to nearly 20 per cent of the government’s net expenditure in 1987, restricting new spending in other areas.⁴¹ By international standards, however, New Zealand had barely entered the amber-light warning zone.⁴² There was no danger of default, although there were embarrassing reminders of rating agencies’ assessments. When American Technologies and Bell Atlantic, the buyers of Telecom, disputed with the government over ownership of the interest accruing from an escrow trust account held during the sale process, the buyers pointed out that their “rating was better than New Zealand’s.”⁴³ Several of the government’s own short-term outlays made prompt debt reduction difficult. The government had effectively cut income taxes for lower-income families in order to win acceptance for the Goods and Services Tax (gst) and had made up-front redundancy payments during the formation of soes. Additionally, recent wage-fixing rounds had given senior public servants large increases. Any substantial reduction of social welfare expenditures – namely on education, health, and benefits, representing a huge portion of annual budgets – would have incensed Labour’s base, which was already wavering.⁴⁴ These considerations meant that the government could use dollops of cash. For plausible reasons, the trio of finance ministers wanted to unlock the equity in soes.

Several ministers who had championed the soes in 1985–86 wondered in 1987–88 whether soe governance adequately insulated commerce from politics. As well, Prebble was worried about the risk of losses from some poorly performing soes. Many of these considerations were aired in September 1987 when the New Zealand Institute of Policy Studies hosted a seminar on the pros and cons of soes. Several discussants insisted that the various forms of ownership affected corporate efficiency. Since corporations depended on managers (or agents), Treasury officials zeroed in on “agency costs.” Fresh terms signified recent economic thinking. Agency cost, for example, was linked to productivity. In most large businesses, the owners delegated management to agents. Through their knowledge of operations, agents were known to capture businesses and protect their jobs. The ministers and officials managing the former public-sector trading departments, the theory argued, lacked the means to gauge individual performance, allowing institutional capture. Agency costs were alleged to be high and avoidable.⁴⁵ Private shareholders alone, and certainly not government ministers, it was argued, could measure their agents’ ability to improve productivity by monitoring share prices. Despite susceptibility to manias and panics, stock markets were touted by proponents of the agency problem as the best obtainable means to track leadership in the imperfect conditions of modern corporate enterprise.

Given this background on theories of management and productivity, it was easier, and certainly politically safer, to accentuate debt reduction. Astonishingly, consultants from the International Monetary Fund (imf), suspicious of the debt reduction argument, extracted an admission. At an April 1989 meeting with officials from the Prime Minister’s Office, the Treasury, the Agriculture and Fisheries, Commerce, and Labour Departments, and the Reserve Bank, the imf team probed, casting doubt on the notion that the government would gain much revenue or further productivity gains by selling SOEs. Most SOEs already had accomplished efficiency gains, and several were pouring money into state coffers. Wasn’t that good enough? A Treasury official answered that “the Government shouldn’t be in the business of running businesses.”⁴⁶ Another added that “economic efficiency arguments were still underlying the asset sales programme, but they were just not publicised as much recently as before and were more difficult to explain.”⁴⁷

So debt reduction endured as the official line. It was plausible and, indeed, held with conviction by many in Cabinet and the caucus. For the finance ministers taken collectively, reducing the debt, minimising agency costs, and removing the government from running enterprises outweighed the loss of dividends. Privatised corporations would continue to pay taxes, something that they had not had to do when their activities were run as state departments. However, there were individual perspectives on sales, as Douglas admitted at the 1990 International Privatization Congress in Saskatoon, Saskatchewan. Debt reduction, he felt, was not the greatest benefit. The monitoring of corporate conduct by “professional analysts and the share market” delivered efficiency.⁴⁸ Proponents had difficulties explaining in public how this outcome could be measured or achieved on the microeconomic scale but could point to Warsaw Bloc economies, as Prebble had done. The labour output of privatised corporations was the unspoken factor. In contrast to Douglas and Prebble, David Caygill emphasised the fiscal-stability angle. One additional argument carried weight. Corporatisation was supposed to separate the government’s social objectives from an soe’s commercial performance, but there was no guarantee that a future government would behave that way. Over time, political factors could return.⁴⁹ The evidence was there. A 1983 consultant’s report on the railways explained that despite National’s experiment with corporatisation, the government’s participation in strategic decisions and basic operations remained extensive.⁵⁰ Sales eliminated these possibilities.

planes and trains

In August 1987, with the election over, proponents of sales returned to the topic. Almost immediately after the election, the ministers of finance and state-owned enterprises (the two shareholders defined by statute) initiated studies to find and remove obstacles to selling entire going concerns or large blocks of equity, not merely what was approved in May 1987.⁵¹ They had electricity in their crosshairs. As a dominant industry with an island country of captive consumers, it certainly presented the regulatory issue. In February 1988, the two shareholding ministers, Douglas and Prebble, recommended to the cpc the appointment of an Electricity Task Force to review the structure and regulatory environment of “the bulk electricity supply industry.” If the ecnz were to be sold, they wanted to understand how the electricity industry could be organised with a minimum of regulation yet achieve fair rates.⁵²

Now, the finance ministers had more sales in mind and wanted to lift the limits on the equity in Air New Zealand (anz) that could be sold. Cabinet gave the go-ahead in February 1988 for officials to investigate the possibilities of selling more than 25 per cent of anz equity.⁵³ In March, Prebble asked the cpc to recommend to Cabinet that all soes be managed “on the basis that they must be ready for the possibility of transfer to private ownership without delay.” Non-commercial activities remaining in an soe had to be removed.⁵⁴ Going all out for a separation of the government’s commercial and non-commercial activities aggravated the row between the Douglas and Lange factions in Cabinet. “I am worried,” Palmer replied to Prebble and Douglas, “that we are getting ourselves into a position which we cannot sustain politically.” He warned of market dominance, potential overseas control, the failure to enumerate the targeted entities, and the absence of a statement on economic benefit.⁵⁵ The call for privatisation transgressed his assessment of party and public support. He characterised a readiness to sell without delay as “absurd” and asked where sales would stop: prisons, schools, and defence installations?⁵⁶ Douglas and Prebble derided his criticism. “Raising the bogey about the sale of schools, prisons, defence installations etc. is irrelevant and unnecessarily, pointlessly divisive and inflammatory.”⁵⁷ In the end, the cpc lifted limitations; however, it took seriously some of Palmer’s concerns and instructed officials to prepare papers on the costs of debt servicing, various means to limit overseas buyers, and the regulation of natural monopolies.⁵⁸ Lots went unresolved, but extending the list of assets for sale and lifting equity limits had been approved.

The two ministers responsible for the state’s ownership of all shares in soes circulated invitations to interested parties to bid on a strategic stake in anz, a sale that became complex and was drawn out. Roughly eight months passed from the invitations until an agreement in late December 1988. This stop-go sale embodied the whole sales show, with its complexity, global equity sales, economic nationalism, and scenes from the Douglas-Lange feud. And it added something new. Any sale of government equity in an enterprise could proceed in one of two ways, each with different objectives, buyers, and outcomes: floating or tender. Shares could be floated through a public offering; Margaret Thatcher’s uk government favoured this technique to spread public interest in capitalism, and the National Party adopted it. But New Zealand Treasury officials, guided by consultants from Credit Suisse First Boston, recommended that Labour implement sales by tender.⁵⁹ Since a large block of equity could confer control, tendering was better placed to maximise the amount realised from a sale but risked a political blowback from selling to a group that could later be resented for its handling of the enterprise and for conspicuous profits. Selling a state airline, a prestige flag carrier, exposed the political hazards of a sale by tender.

In the case of an airline, a technical barrier intervened to prevent the sale of anything close to 100 per cent of equity to an overseas buyer. The international aviation industry operated with bilateral agreements that required an airline with non-stop service between two countries to be substantially owned – 65 per cent seemed the accepted amount – by its home government or by nationals as a condition for securing landing slots at another country’s airports. As a result, the sale of the state’s shares in anz through tendering had to be carefully managed.⁶⁰ Treasury officials handling it had to maximise the return to the state as well as find a buyer, most likely a foreign airline, that could improve anz’s performance, lifting the value of equity remaining in the state’s hands. Plus any on-selling (or future sales) of shares by a successful bidder had to be structured to keep majority ownership in New Zealand, although the purchaser of a strategic controlling block could be a foreign airline. Substantial ownership of 65 per cent, scattered among nationals, would mean that control could still be exerted by a consortium holding perhaps 25 to 35 per cent.

The government conducted two rounds of purchase offers. In the first, it let bidders determine the size of the stake that they wanted – the percentage of equity that they believed would give them control – keeping in mind the limit on foreign holdings required by bilateral agreements. There was discussion among ministers about a 100 per cent sale to a single buyer with an undertaking by the successful bidder to reduce holdings by on-selling shares to New Zealanders. This possibility was not pursued during the first round; rather, the invitations let bidders assess what they thought they needed to achieve control. Received in early August 1988, the bids ranged from taking 20 to 100 per cent of equity. When evaluating bids, the government dithered over how much equity to sell; if it sold 100 per cent to a foreign buyer, it would have to limit that party’s retained holdings to 35 per cent and require it to on-sell the remaining stock to New Zealanders.

The problem was that on-selling saddled the initial buyer with a risk; it could end up paying more than it would realise from the 65 per cent it had to on-sell. One airline with a strong interest, Qantas, would take 25 per cent. Anything more, and its board wanted warrants protecting it from losses incurred during on-selling. The government had to consider a further point. When looking at bids for minority stakes, it had to assess how the objectives and abilities of an active minority stakeholder with effective control, such as another airline, would affect share values and dividends. An inept or hostile buyer could depress them. The Qantas bid split the ministers handling the sales of soes. Bill Jeffries, associate minister of soes and the minister in charge of this sale, prematurely announced that Qantas was a preferred buyer, but the statutory shareholders, Douglas and Prebble, were suspicious of the airline’s intentions. They also wanted to sell more than 25 per cent equity.⁶¹

In the meantime, a poll taken in September showed that public approval was just enough “to get away with asset sales”; however, “any mention of foreign ownership makes the numbers impossible.”⁶² Yet a foreign airline that had good synergies with anz and was looking to buy enough shares for control was a highly desirable buyer if both immediate returns and remaining asset values were to be maximised. If the sale could be structured for 100 per cent of equity, with the buyer on-selling to comply with bilateral agreements, so much the better. That left the challenge of finding a way to satisfy public opinion on foreign control. However, after weeks of haggling with Qantas, Lange terminated negotiations on 18 October. Personally, he disliked the Treasury supervising asset sales and disapproved of a tendering process that solicited corporate bidders. This practice was normal when a vendor was seeking the best terms. The earlier sale of Petrocorp, the state-owned oil explorer, had involved tenders.⁶³ The Douglas-Lange feud muddied the murky waters. Lange’s office leaked unsupported innuendos that Douglas and Prebble had interfered with the anz sale to allow business contacts opportunities for participation.⁶⁴ Lange also envisioned a share float, which could lead to share distributions among anz employees and the public. Tendering for equity brought the state into direct contact with corporate or merchant banking interests, a circumstance that Lange characterised as damaging to the government’s standing and as diverting Labour from its ideological traditions.

In a paper put forward for Cabinet consideration, Lange and Deputy Prime Minister Palmer recommended removing the Treasury from the sale process, establishing a Cabinet Asset Sales Committee appointed by the prime minister, allowing goals other than maximising returns, and giving serious consideration to share floats rather than tendered bids. Prebble had a rival proposal ready for Cabinet, recommending the sale of 100 per cent of anz equity, with the buyer on-selling 65 per cent of shares to New Zealanders. On-selling could scatter shares, leaving the initial buyer with effective control. To assure that a government could influence any foreign-owned controlling block, the state would retain a special-rights preference share, a so-called Kiwi share.⁶⁵

The tortuous affair spiralled. Lange insisted that Prebble agree to the paper that he and Palmer were bringing to Cabinet. The two pairs agreed to have their officials bang together a joint paper for Cabinet consideration. In the meantime, the caucus discussed asset sales. In Prebble’s judgment, this involvement of the caucus led to too many individuals believing that they “had a right to a hand on the tiller.”⁶⁶ Again and again during 1988, the question of who rules in a parliamentary system intruded. Suddenly, Lange jettisoned the joint-paper idea and insisted that Prebble accept the paper that he and Palmer had approved. As we saw in chapter 3, Prebble’s refusal gave Lange the pretext for removing him from the soe portfolio. Cabinet later adopted Prebble’s approach to all sales and revived the sale of anz equity.⁶⁷ New bids were invited.

By the end of November 1988, two consortiums had made offers. There was a bid for a strategic block by British Airways and a Japanese investment fund, with the rest going to a consortium of the New Zealand Development Finance Corporation, the New Zealand–based Todd Corporation, and Salomon Brothers. The rival bid came from Qantas, New Zealand–based Brierley Investments, Japan Airlines, and American Airlines. Both consortiums offered to take 100 per cent of equity. Brierley could get offshore financing and on-sell to New Zealand nationals. Douglas opposed the Qantas-led offer because he suspected that the Australian airline would be less interested in seeing anz grow than would British Airways. The latter gambled that its superior synergies with anz would permit it to win with a lower offer, but the government’s guidelines on asset sales specified maximising returns. The Qantas group was selected and paid $660 million. Brierley took 65 per cent, Qantas 19.9 per cent, and Japan Airlines and American Airlines 7.5 per cent each. Brierley committed to on-sell 30 per cent. These shares could be held only by New Zealand nationals.⁶⁸

Despite the Lange-Palmer attempt to oust the Treasury from supervising sales, it remained in charge and continued to follow guidelines established before the appearance of the Lange-Palmer paper, with its alternate path. If Cabinet approved of a sale, four steps were to keep things on the up-and-up. First, a scoping exercise would establish a well-defined asset and identify liabilities. Consultants would be used. Second, the Ministry of Commerce would review an enterprise’s market power and consider whether regulation was needed or, better from a Treasury perspective, how competition or contestability might be achieved. Third, preparations for sale would require a study of marketing. Finally, ministers would receive offers but hand them to a team of public servants. Without dimensioning the importance of the issues being disputed, I submit that the sale of the airline became a battle in the Beehive war of slamming doors.

By late 1988, as the anz deal was closing, the Treasury was overseeing sale processes in various stages for city airports, the Bank of New Zealand, Coalcorp, the Government Printing Office, Government Property Services, state-owned irrigation schemes, Landcorp, the Post Office Bank, the Rural Bank, the Shipping Corporation, Tourism Publicity, and the Tourist Hotel Corporation.⁶⁹ The regulatory environment for the ecnz and Telecom were under study. Treasury officials were also meeting to discuss sales with managers from the Government Life Insurance Corporation and the Works Department. Some of these prospects were not sold immediately. Due to unauthorised reckless lending by the Bank of New Zealand’s Sydney branch to an Australian property speculator, the sale of the bank was postponed in March 1989 pending restructuring.⁷⁰ National sold it in 1992 (table 8.1). As a special case where economics, recreation, and conservation converged, the state-owned planation forests are examined in chapter 9. The New Zealand Railway Corporation (nzrc) was special too. It was a substantial employer and a major presence in several railway communities.

Days after the anz sale was finalised, the policy of competition was applied to aviation, and at short notice the government allowed private carrier Ansett New Zealand to connect New Zealand to foreign airports under certain conditions. No longer an soe, anz was severed from government protection in order to promote tourism, already the country’s number one foreign exchange earner. If pride in a national flag carrier had been in the national interest, the national interest had been redefined as promoting efficiency in a leading industry.⁷¹

anz and the nzrc affirmed the changing world often detected in restructuring. These transportation networks showcased new and old: the airborne and the grounded, the urban and the rural, flashy modernity and oily maintenance, vitality and seniority, the human resources criteria and the politically motivated hiring practices. In keeping with the instruction that soes had to prepare themselves for a possible sale, the railway’s board appointed the American transportation consultants Booz Allen and Hamilton to conduct a review, sharing the findings with Treasury officials in August 1988. Despite productivity gains, the board faced an impossible situation since the deregulation of the trucking industry by the Muldoon government had established efficient competitors for freight. Consultants advised the board to consider downsizing into regional segments or shutting down and liquidating property and rolling stock. The interisland ferry and an up-to-date fibre-optic communications network were bright spots but were outside the core business. The communications system eventually contributed to competition in telecommunications.

Although a purchaser of the nzrc would take responsibility for employee severances, this arrangement still put Cabinet in a tight corner politically because railyards and shops were home to trade unions that supported Labour. An election was due in late 1990. The announcement of a sale would likely “create problems with staff.”⁷² Moreover, for a sale to succeed, the business had to be made presentable. That required time. As a going concern in 1989, the nzrc had been valued at $155 million; if shut down, the liabilities (including redundancies) would absorb all sums realised from a liquidation. The nzrc had value only as an operating business, but the business’s viability was doubtful. In October 1990, when it seemed clear that National would win the upcoming election, Labour wrote off over $1 billion of railway debt and incorporated the soe as a limited liability company, New Zealand Rail Limited.

By late 1992, small profits had made nzrl presentable. Taking the same approach to sales as Labour, National relied on tenders rather than a stock float. One hundred potential buyers in the United States, Australia, Asia, and Europe were contacted. The best offer, $400 million ($328 million after recent debts were deduced), came from the Wisconsin Central Transportation Corporation, Berkshire Partners in Boston, and Fay Richwhite in Auckland. It exceeded earlier valuations and expectations. Rebranded as Tranz Rail, the private operator could not make the system pay. After government bailouts and a short period under new private ownership, Fifth Labour paid $600 million to renationalise the system as KiwiRail in 2008.⁷³ A 2016 review “found that there is not enough demand for rail to enable KiwiRail to fully fund the infrastructure, including tracks, signals, bridges and tunnels so the company will always rely on a level of government support.”⁷⁴

goldilocks regulation

In 1984, the state employed a substantial bureaucracy. Decades of accumulated legislation endowed some departments with the authority to set assorted prices, rates, and quotas. Through its control of import licences, administration of subsidies, and oversight of a Commerce Commission that scrutinised mergers and commercial practices, the Trade and Industry Department had exerted enormous influence on the profitability of individual businesses. Some of this prior authority was being swept away as Labour dismantled import licensing. Department officials strained to find a new purpose in this era of small government. Some hoped that Labour would not dare cancel the department’s regional development programmes. But it did, replacing them with grants to aid research into business opportunities. The department was stripped of functions and profile.⁷⁵

Accepting new realities, a study team at the Trade and Industry Department planned how the department might adapt by specialising in analysis and policy. In these areas, the Treasury possessed talent. The Trade and Industry Department had gotten by with “the continual shift of ‘roving history graduates.’”⁷⁶ A residual faith in the managed economy, the trauma of restructuring, and the humanities’ suspicion of market solutions fostered an oppositional culture in the department at the moment when the Commerce Act (1986) intervened to save its raison d’être. Reborn as the Ministry of Commerce, the department cultivated a remnant mission. Since 1975, it had been in charge of the Commerce Commission, the watchdog for fair conduct in trade and industry and thus a protector of consumers. While Labour was deregulating the economy, the commission kept the regulatory embers glowing. Politicians in the National and New Zealand First coalition later fanned them because they distrusted the market power of the ecnz and Telecom.

The starting point for understanding so-called light-handed regulation is the period from 1986 to 1988. Interestingly the label light-handed was disputed by some business leaders as well as by those responsible for the Commerce Commission. Corporate heads found regulation excessive, whereas public officials were at pains to establish that they were not softies. “Light-handed” seems the right term, as the regulation was light-handed at least compared to other jurisdictions. Labour’s concurrent deregulation programme and its creation of soes required a clean-up of statutes because the ministers responsible for various soon to be eliminated trading departments had statutory duties and powers. Each soe had to be severed from them. Efforts to unwind these commitments for airways, postal services, electricity, and telecommunications were squeezed into the State Enterprises Restructuring Bill (1987), which ultimately had to be broken into separate legislative acts and orders-incouncil. There was plenty to tidy up because several soes that could not be readily duplicated were natural monopolies and after privatisation would be completely freed from ministerial control.⁷⁷

In overseas jurisdictions, similar situations were usually covered by specialised regulatory agencies; however, Labour was dedicated to a simplified universal deregulation. Besides, there were circumstances where dominance was justifiable. The Airways Corporation was a case in point; air traffic was hardly a place for competition. So there could be restrictive trade practices serving a public benefit, but the large soes were potential monopolies. Public benefit rationales for dominance were feasible but contentious, politically risky, and not as transparently defensible as in the case of the Airways Corporation. The government’s relentless campaign for deregulation dismayed some in the public service. In 1989, the minister of commerce, David Butcher, instructed his officials to work on deregulating natural gas, petroleum, and harbours.⁷⁸ They were manifestly unenthusiastic. As zealous as many ministers were to deregulate, the political climate required that firms benefiting from a deregulated environment had to accept that the Commerce Commission would be watching or investigating.

Crucially, the new Commerce Act set the tone and direction for business conduct in the deregulated setting. The legislation’s purpose was to promote competition. Exceptions for the public benefit were envisaged but left undefined. Competition and stiff penalties for abuse were intended to protect consumers. Yet enterprises had scope for innovation and efficiency. For once, the Treasury had failed to manage a piece of keystone legislation. Its senior officials were furious that they had been cut out of preliminary deliberations. David Caygill, as minister of trade and industry, managed to keep the draft bill out of the Cabinet Policy Committee, where Douglas would have presented the Treasury’s case to loosen regulation further, proclaiming economic efficiency to be mitigation for a dominant enterprise. Treasury officials recommended, and continued to recommend, a bill with this radical intent.⁷⁹ They wanted the legislation to establish economic efficiency as a declared objective. Competition could advance efficiency in many instances, but where competition and efficiency clashed, the Treasury insisted that efficiency should prevail.⁸⁰ A dominant industry, so went the argument, could be countenanced for the good of the country in a competitive world economy. From the Treasury’s perspective, it was naive to think otherwise.

There was a time-preference factor mixed into the controversy. A consumer-friendly interpretation of public benefit privileged the short-term and did not help with global competition. On the one hand, holding down electricity or telephone rates left consumers with more money to spend domestically and on imports. On the other hand, a dominant industry could argue that it had to set rates that supported its long-term capital spending plans while building security of service that yielded national benefits. In the 1990s, exactly these positions were cited when governments deliberated over what they wanted utilities to accomplish and how they should go about doing it.

The Trade and Industry Department had a foot in the door to this interesting future because earlier the Commerce Act (1975) had empowered it to promote the interests of consumers and the development of national economic efficiency by encouraging competition.⁸¹ The new bill introduced an approach that required network industries to make certain disclosures and to show public benefit from their dominance.⁸² Although the department went along with the light-handed approach and supervised the Commerce Commission, the legislation’s softer line maddened some politicians, consumer advocates, and officials. They challenged the bill’s seeming promotion of contestability over competition. Other agencies’ analysts did not share the Treasury’s vision. Looking for a role in the new world, the Energy Department recommended “pro-competitive regulatory systems.”⁸³ Most serious was opposition to contestability from the commission. No paper tiger, it asserted independence and attempted to broaden authority and function as a quasi regulator.⁸⁴ Under the spirited direction of Susan Lojkine from 1989 to 1994, a regulatory impulse was conspicuous. She opened a high-profile investigation of Telecom to gain an understanding of the industry, publicised her disapproval of dominant firms, and secured budget increases to hire lawyers and investigators. This was an instance of character influencing circumstances, of dynamics overtaking the lifeless presumptions of theory.

the many phases of electricity

The day-to-day management and the long-term planning of electricity provision had been separate affairs until the bill arrived, and neither had been of much interest to consumers, whose electricity had previously been more affordable. Locally, the ecnz was dominant, benefited from inelastic demand, and for the time being, enjoyed excess capacity.⁸⁵ To reduce regulatory intervention, many governments, not just New Zealand’s, had started to review the pluses and minuses of dominance, the cost structures of utilities, and how components might be unbundled without damaging coordination. Economics, management, and engineering mingled in an interminable series of inquiries into the industry’s optimal structure. One research objective was to determine whether competition or contestability could best balance fair rates for consumers and fair returns for operators.

Utilities analysists and international anti-trust experts evaluated a number of options: dividing up generating facilities to create competitors, allowing new facilities to connect to the grid, creating wholesale markets, and reorganising retailers to weaken their hold on local markets. In a country with chilly winters, an oceanic climate, and inadequately insulated houses with single-glazed windows, the cost of electricity to households was bound to be political, more so when the system was in transition from a public utility to a profit-making enterprise. Michael Moore noted in 1987 that “power bills were, and are, a great campaign issue.”⁸⁶ The future of the ecnz was put on hold until, as Douglas expressed it, “the Government had set up a means of neutralising its monopoly of the national grid. That’s true of telecoms and a number of them.”⁸⁷

Officials in the Treasury and in the Energy, State-Owned Enterprises, Commerce, and Environment Departments followed the international academic controversies and local politics of electricity, as did the ecnz’s chief executive, Roderick Deane, who supported privatisation but believed that first it was appropriate “to review the various industry structural issues including the complex interface between analytic concepts and technical practicalities.”⁸⁸ Facing irate consumers over rate increases and occasional power shortages, successive governments from 1987 into the new millennium kept rejigging the industry’s structure to assist market economics at each of electricity’s four branches: generation, grid, wholesale market, and retail market.

When plotting the ecnz’s future, Fourth Labour occupied an awkward position. First, ministers wanted a good sale price or decent dividends. Second, as politicians, they had an interest in holding down rates to consumers. Prebble gave a legitimately neutral answer when asked about the conflict between rates and asset valuation: “There was value in both views.”⁸⁹ Third, ecnz directors were uncertain what their role was in the soe setup, with its two government shareholders. Fourth, Douglas and supporters wanted to let markets do the regulatory work across the entire economy. If there was adequate competition, they believed that light-handed regulation could serve consumers; however, experts disagreed over the number of electricity producers required for a competitive market: two, three, four, five? Some economists theorised that competition was unnecessary because contestability would contain rates.

Contestability theory maintained that if it was feasible for a competitor to put power into the grid, eroding the market share of the dominant producer, then managers of the dominant firm would hold down rates to discourage potential newcomers from entering the market. The ecnz’s management prepared data to show that it could hold down rates to deter new producers because short-run marginal-cost pricing at the ecnz could be arranged to come in below current rates. The ecnz could juggle its excess capacity to run only its highest-efficiency generators for a while and cut rates to discourage would-be startups. The conundrum was how to signal this threat to potential entrants.⁹⁰ If contestability could hold down rates through bluffs to ward off competition, this tactic required the government to condone a cunning use of monopoly power. In view of the policy quandary, the Commerce Commission prepared hard questions for the ecnz. Would entry truly be easy for rivals? How could one countenance the containment of rivals, as implied in contestability? The answer was that this containment could be justified by showing public benefit. The Commerce Act allowed this justification. Commissioners were sceptical.

Ministers and officials looking into electricity encountered a unique industry where the producer had to meet demand in the exact instant required. There was no practical way for producers or users to inventory power, nor could they queue up for rationing during peak-use periods. A shortfall in supply meant a reduction for everyone in the system, and that could damage equipment. Some users switched off, which came at a cost to the economy. What this situation highlighted was that the interdependency of producers and consumers was far tighter than in other industries. Telecommunications, a seemingly comparable network industry, was not analogous. Firms there could invoke a busy signal. Electricity producers might establish a rolling blackout for areas, but that required coordination among generating stations and retailers. Coordination was needed at every phase and physical node of electrical supply, both immediate and long-term.

Immediately, producers had to forecast demand, aim for efficiency by adding supply first from the generators with the lowest marginal cost, manage voltage regulation, maintain spinning reserves, update knowledge of water reserves at hydro systems, and know how quickly idle generators could be brought online to meet a spike in demand. In the long term, producers, grid managers, and retailers also had to coordinate capital expenditures. Over the years, a number of analysts claimed that the imperatives of immediate and long-term coordination pointed to possible economies of scale and that scale gave better coordination, leading to security of supply. There was a case for a dominant producer.

Discussions of scale involved another consideration. Electricity is not a unified product, although it may appear so since consumers receive a bland current without choice of colour or style. Variations existed, and still do. Residential consumers receive a relatively low voltage; some commercial clients need a higher voltage. Demand fluctuates throughout the day and seasonally. The ups and downs have marginal cost consequences for generators. Economies of scale apply to homogenous products, but this cannot be the case with electricity because of these inevitable variations in the products. In fact, scale could be a disadvantage to a generator that built excess capacity to furnish supply during a limited number of peak-demand periods. It left excess capacity most of the time.⁹¹ Possibly, a combination of small, well-coordinated units owned by different firms could generate a range of outputs at a lower cost than one dominant firm.⁹²

Even if small units could produce at a lower cost, and that seemed likely, the coordination and security of supply could favour the single-producer model. In a small country with unreliable hydro supply (as there are only three large river systems and periodic droughts), consumer gains from competition could be judged less important to the whole community than the efficiency and security delivered by a single generator with excess capacity. For all of the above reasons and to the consternation of Labour’s reform-minded ministers, consultants could not agree on the optimum arrangement. When the government broke up the Energy Department in 1985, Douglas and Treasury officials had no blueprints for the industry’s structure, although Cabinet agreed to stand by a minimisation of regulation. The Cabinet Policy Committee had endorsed a Treasury paper recommending that by 1 January 1988 regulation of the electricity industry would be relaxed. The system’s transmission facilities were to be made available to new producers; retailing would be liberalised to establish an operating environment with commercial principles.⁹³

The next order of business was to form an interdepartmental committee tasked with putting retailing on a commercial basis by ending the monopoly that the Electrical Supply Authorities (esas) exercised in local markets. esas were the numerous local bodies that acquired and distributed power from the grid at transformer stations, which reduced the high voltage used in transmission to a lower voltage employed by consumers. The Electricity-Power Boards Acts of 1918 and 1925 permitted the formation of boards that purchased electricity from generators.⁹⁴ Worldwide, this separation of producers and distributors was not unusual, although it was uncommon among American states and contrasted with vertical integration in the United Kingdom. In New Zealand’s setup, retailers could raise rates beyond the generator’s increased charges to them and blame the generator for the increased billings to consumers.⁹⁵ In 1959, an inquiry counted eighty-three esas. A recommended reduction to twenty-six upset community boards that had local subsidisation practices.⁹⁶ Douglas designated the esas as commercial operators, not as local government bodies, thus subjecting them to income tax beginning 1 April 1987. A cpc meeting of 9 December 1987 resolved that esas should lose their local monopoly licenses and undergo consolidation into a limited number of companies, establishing an electricity market free from local politics and cross-subsidisation.

paralysis during analysis

As Douglas and Prebble widened the asset sales at the end of 1987, they realised that preparing the generating business of the ecnz for sale would be a difficult undertaking, hence the appointment of the Electricity Task Force to review the structure and regulatory environment of “the bulk electricity supply industry.” It was important to understand the industry’s current structure, cost and pricing practices, monopoly-conferring units, and current international models. Ministers and officials reacted to the industry’s mind-boggling complexity by – what else? – a mind-boggling expenditure of time in eleven working groups.⁹⁷ Some unbundling was accomplished quickly. ecnz executives knew that Douglas and Prebble wanted to make the grid, the network’s conspicuous natural monopoly, accessible to any new generating companies. In 1987, the ecnz ring-fenced the grid by making it into the stand-alone subsidiary Trans Power.

High-voltage lines totalling 13,000 kilometres linked generators to the esas. From 1965, the grid included 40 kilometres of cable under the Cook Strait that transported electricity from the generation-rich South Island to the populous North Island. Although the grid was a natural monopoly, it required a good revenue stream for the maintenance of a vital system running through rough terrain. The dilemma of keeping the grid out of pricing decisions but allowing adequate revenue branched into specific questions. Should Trans Power remain part of the ecnz (monopoly risk), become a separate soe (monopoly risk), take the form of a non-profit body or so-called users’ club mandated to accept new generators (fragmented control), or emerge as a Crown corporation (a non-profit as opposed to a profit-seeking soe)? Ultimately, the Fourth National Government decided to form a completely different industrial structure from what had existed before 1984.

Labour’s Electricity Task Force – with eleven working groups – commissioned thirteen reports by eight consultants, who produced several common recommendations and pages of nuanced disagreements. Although many accepted that the grid and the esas were natural monopolies and that the ecnz was a dominant generator, they did not agree on whether restructuring was needed or, if needed, which structural arrangements should be adopted to protect consumers.

Some consultants acknowledged that there were economies of scale, useful to a small country. Others claimed that the ecnz was so dominant that it might stir up trouble for the government over rate hikes. Ministers on the Cabinet Policy Committee decided that there should be no immediate large-scale breakup of generation but rather further study of a limited breakup and the creation of a wholesale electricity market. The ecnz conducted its own studies, looking at energy use in oecd countries and concluding that the government’s future policies on electricity would be crucial for prosperity. Across the developed world, energy intensity was falling, but electricity intensity was rising. ecnz officials argued that New Zealand would be well advised to structure an especially efficient system of industrial organisation. Overseas utilities were typically large, vertically integrated monopolies that controlled customer areas and worked in a regulated environment. Energy efficiency had not yet received priority in such systems. The ecnz argued in favour of dominance, claiming that New Zealand could gain an advantage through a reorganisation that helped primary producers by achieving high efficiency in the production and supply of their energy needs.⁹⁸

Due to the economic nationalist strand running through politics and the possible advantages to scale, Labour deferred restructuring despite recognising that it would be easier to accomplish before rather than after privatisation.⁹⁹ Nevertheless, between 1987 and 1989, the options for restructuring each component of the system were known to officials and the ministers concerned. When National formed a government in 1990, it was unclear what would result, although initially National attempted to intercede with ecnz rates.¹⁰⁰ Unhappy about an increase, the government complained to the ecnz that it was “quite unacceptable” and that rates should not rise any further. The chair of the ecnz’s board fired back that the soe Act “does not permit such a direction.”¹⁰¹ Although the social and commercial elements of electricity had been separated in 1987, National was striving to contain expenditures on the country’s costly revenue-supported superannuation scheme; it wanted winter relief for pensioners and attempted to squeeze the ecnz. A realisation that the soe was in earnest about rejecting political interference tainted relations between National and the ecnz, leading to government actions that peeled away ecnz units, the first being the removal of Trans Power from the ecnz and the formation of a non-profit Crown corporation in 1994 dedicated to maintaining the grid. The discarded idea of a users’ club for the grid was an approach that had been pioneered by Chile when it unbundled its electricity industry in the early 1980s. This prior experiment had included a wholesale electricity market, a concept that interested many industry specialists and soon entered New Zealand.¹⁰²

There were deliberations, too, over what to do with the dominant generator’s production capacity. From 1987 to 1989, Labour could not decide if it should break the ecnz into several firms. In 1990–91 and from 1993 to 1995, National considered breaking up the ecnz, eventually deciding to do just that, trusting that competing producers, going after market share, would lower rates and go to the market for capital to fund new generation plants. Taking a motley set of ecnz hydro stations, National created Contact Energy in 1995–96, and it returned to breaking up the substantial remaining generating capacity held by the ecnz and initiating modest privatisation in 1997–98. During roughly the same time as its studies on breaking up the ecnz, National reviewed the proposition that a wholesale market would assist with coordination among suppliers and between them and consumers.¹⁰³

After forming Contact Energy, National continued to address consumer suspicions that the ecnz took advantage of light-handed regulation. One innovative remedy for both this concern and coordination was a wholesale market, an idea partly fleshed out by the experience of Northern Ireland Electric, under formal review in New Zealand in early 1994, and realised by the incorporation in 1996 of the Electricity Market Company, an soe engaging in day-ahead pricing on a spot market.¹⁰⁴ To arrive at a price, it accepted retailers’ bids for power at specified periods of the day and put them out to the generating firms; it allowed trading in contracts among generating firms, retailers, and financial intermediaries for future delivery. Anxious to retain the ecnz’s remaining generating stations, its management supported the scheme, hoping that it might take the political heat off rates and undermine the esas.¹⁰⁵

The wholesale market concept fitted the broader trend, allowing corporations and individuals to make decisions rather than imposing government controls. For example, the new procedure for setting consumer electricity prices resembled Fourth Labour’s currency float: prices were set by markets, institutions and governments could shed some responsibility, and price changes could be hedged. A differential pricing arrangement, one determined in market circumstances, produced a more politically neutral determination of power rates for generation added to the system as demand rose, and this institutionalisation of demand-price variations eliminated cross-subsidisation and incentivised consumers to adjust consumption in order to avoid peak rates.

These changes left the esas standing as local monopoly suppliers. Consultants were commissioned to investigate how to organise retail competition. Once again, inquiries drew on international experience.¹⁰⁶ And once again, analysis proved inconclusive. However, National’s ministers of energy and finance, Max Bradford and Bill Birch, pressed ahead with deep changes, in part because National wanted to demonstrate to voters that it was working to reduce rates. Taming the esas featured in this effort. Now on a roll to restructure electricity, National was not going to leave the ecnz alone. Officials and ministers believed that the ecnz’s continuing dominance as a producer gave it the ability and incentives to manage wholesale bidding, influencing prices in short-term bursts sufficient to deter the entry of new producers and, consequently, maintaining highly profitable rates in the long run. This conjecture led to another. Over time, rates might become politicised, as they had been when electricity was overseen by the Energy Department. Industrial users and household consumers would pressure governments of the day to adopt a regulatory counterweight or ad hoc interventions.¹⁰⁷

Thus competition in generation was added to restructuring. As noted, in 1995–96, the government had carved out of the ecnz a small generating soe, Contact Energy. In 1998–99, National completed its breakup of the ecnz, establishing Genesis Energy, Meridian Energy, and Mighty River Power as competing soes.¹⁰⁸ Contact Energy was unaffected, but in March 1999, National announced the sale of a 40 per cent shareholding in Contact Energy to US-based Edison Mission Energy for $1.208 billion and soon sold its remaining share in May 1999 to more than 225,000 investors. Sale revenue, including from the 40 per cent share acquired by Edison Mission Energy, brought in more than $2.3 billion. If National had not been in a coalition with the interventionist New Zealand First Party (1996–98), it might have moved earlier to split and sell.¹⁰⁹ In hesitant steps, Labour and National tried to achieve market perfection: fair rates and reliability without an industry-specific regulator.¹¹⁰ Not satisfied that real competition had been realised, Fifth National embarked on sales of shares in Mighty River in 2011, selling a state asset by public offering rather than tender. Opposition and market conditions delayed the actual sales until 2013.¹¹¹

While restructuring in public view was stirring things up, the privatisation revolution, now embedded, was rolling ahead with innovations outside the public’s ken. Those competing generators created by National in the late 1990s adopted sophisticated business plans and strategic alliances with gas producers; they expanded into the wider field of energy and bought and sold hedging contracts. What once had been the domain of public servants and engineers who believed in a helpful state, electricity had been transformed into a leading example of market experimentation. The new order percolated throughout the industry. In 1988, the general manager of the Auckland Electric Power Board had seen enough to contrast the old and the new. He complained about the pricing practices of the ecnz, a “problem that did not exist in the old days of ministerial control when political considerations ruled the roost and there was an easy, give and take, approach. We must go forward,” he conceded, “to a new and more sophisticated regime.”¹¹²

At century’s end, electricity had been transformed into a new style of industry where managers were attuned to spot markets, contracts, productivity reviews, employee versatility, marketing, and public relations. By unbundling electricity and opening it to competition, successive governments boosted specialisations in law, economics, and management. Private sector legal advisers, commercial managers, and data analysts laboured to wring advantages from contracts with other parties in the energy industry. The specialists’ submissions for pricing and connection agreements kept the Commerce Commission’s members occupied as they leafed through hefty binders to decipher rival microeconomic analyses of marginal costs and pricing.¹¹³ The commission raced to keep up with business innovation, asking the government in 1992 for more funding to hire six litigating lawyers, economists, and accountants. Since the network industries – the ecnz and Telecom – contained units that could function as natural monopolies, the commission’s new employees would need to have “the industrial organisation skills to analyse such markets.”¹¹⁴

In the vastly more varied regulatory environment of the United States, comparable developments were underway too. Julie Cohn concludes in The Grid: Biography of an American Technology (2017) that “the configuration of the power industry in the twenty-first century differs dramatically from the collection of companies that generated and delivered electricity to consumers in the twentieth century.”¹¹⁵ Apart from the fact that one generator had long dominated in New Zealand, the generalisation applied there as well. Five years after the formation of the ecnz, political resolution of the industry’s coordination problems and rate changes effected a migration of decision making away from the public service and into private-sector offices. Although deregulation was a discernible global trend in the 1980s, the local history of distinctive industry arrangements is no less important. At both levels, global and local, economic life and social organisation started to change in the last quarter of the century. The restructuring of electricity was indicative of international quests for market-based efficiencies, and in this industry, the resulting developments soon stimulated market-based thinking about conservation and reducing carbon emissions.

Telecom’s privatisation and its encounters with the Commerce Commission were distinct from the experience of the ecnz, but the restructuring of both networks invigorated private consultancies, merchant banks, law offices, and stock brokerages. Innovations to the structure of network industries added to the scope and penetration of finance capitalism.

competition: telecom and the “clear” solution

Overtaken by trucking’s flexibility, the forlorn railway reverted to deficits and subsidies. Coalcorp lingered as a losing proposition. No buyers showed interest. It remained an unwanted soe, rebranded as Solid Energy in 1994. The collapse of coal export markets sent Solid Energy into voluntary receivership in 2015. Meanwhile, during the 1990s, the ecnz thrived, even as study after study proposed alternative designs for the industry. Of all the soes, Telecom was the one best positioned to benefit from amazing technological breakthroughs and from the growth in consumer services. During the 1990s, it rocketed to riches through clouds of advanced engineering and management intricacies, providing consumers with improved and diversified service. Under Post Office management, service had languished. A University of Auckland electrical engineer judged its systems as “out of the ark,” noting that “toll bills were months behind.”¹¹⁶ This was the local context. There was a global one as well. Structural reforms in telecommunications became “a veritable worldwide wave of change” that swept the oecd in the late 1980s and early 1990s.¹¹⁷ The scope of technical and managerial innovation that occurred in this sector was astounding.

From mid-1987 to mid-1989, the telecommunication network’s future configuration was a policy topic that initiated disagreements among Telecom, the Treasury, and the Ministry of Commerce. As with the ECNZ, there were opposing opinions about whether a dominant firm with enough freedom to thrive could be trusted to deal fairly with customers. In telecommunications, unlike electricity, a breakup of the dominant corporation into several vertically integrated firms was impossible. An existing network could not be split into parallel units competing across the same territory. Although regional firms could be permitted to spread into another territory, this was a poor alternative. Somehow competition would have to come from private enterprise establishing a rival or rivals. Deregulation, the first step in making that possible, rattled Telecom’s board members and executives. During Telecom’s first months as an SOE, they prepared for industry deregulation, cringing at the prospect of overseas businesses coiled to pounce. In August 1987, a bemused public servant who was handling an appeal to protect Telecom’s viability complained about the corporation’s assistant chief executive: “What does he think competition is all about? Instead of moaning about it why won’t [T]elecom position themselves to meet the competition? If they are simply relying on frighten[ing] the Gov’t to avoid competition. Perhaps they need to be spoken to at a high level.”¹¹⁸ Ministers and officials were soon discussing Telecom’s future with its board.

Government officials and consultants, wondering whether deregulation alone would attract competitors or make Telecom responsive to contestability, considered weakening the corporation to move things along. Treasury officials argued that the Post Office monopoly in telecommunications had endowed Telecom with dominance in loop, trunk, and international services while assuring tight arrangements with subscribers. Some thought that these cumulative advantages might frighten away competition. Divestiture could reduce Telecom’s paramountcy and extend a welcome mat to competitors. In the United States in 1984, AT&T had been forced to divest, and this mid-1980s model for advancing competition was known to consultants, Telecom officials, and a few analysts in the public service.¹¹⁹ For a brief period in 1989, there were rumblings about bringing Telecom to heel by requiring it to shed its cellular phone spectrum, its regional divisions that operated the loops, and its international service.¹²⁰ The enfeebled remnants would have to build afresh, creating several rivals that could perhaps be based on Telecom’s existing regional divisions. Officials at the Ministry of Commerce were sceptical about divestiture and contestability. In their hearts, they wanted to see Telecom held to industry-specific regulation.¹²¹

At the very instant when intra-bureaucratic discussions over divestiture versus regulation peaked, deregulation and enterprise began to deliver competition, opening a Wild West rush of small and large enterprises into the wide-open possibilities of telecommunications. Until then, Telecom had functioned both as a wholesaler providing trunk-line services and as a retailer running the loops that tied households and businesses into its long-distance trunk service and, through that, to its overseas facility. In a newly deregulated environment, Telecom’s standard practice of providing loops for major businesses enticed enterprising opportunists to sign up for loop capacity not in order to serve a business but in order to become a business. They set up as retailers connecting clients to Telecom’s loops, fighting Telecom over fees, access to customer information, and the extra initial numbers that Telecom required these clients to dial for access to the independent providers.

One year after deregulation, eight suppliers of telephone services piggy-backed on Telecom’s loop capacity, and dozens of “one man and a van” businesses competed with Telecom to provide fax machines, telephones for businesses, pagers, and answering services. Telecom executives were not amused that new entrants were free riders that had not contributed to the firm’s capital costs; however, they made a business decision tinged with sensible politics. The cost of fighting independent retailers was a waste. Better to grow this business. Thus Telecom set up a division whose sole job was to link petty competitors to the Telecom network. Jack Lee, an American elated to be working in the world’s only deregulated arrangement, organised the Competitive Operations Group, determined to prevent litigation that could provoke regulation.¹²²

It was one thing to nibble at Telecom’s edges, providing clients with access to Telecom’s loops and trunk service, but quite another to establish a trunk service. Here the most plausible competitor for Telecom, a joint venture of Chicago-based Microwave Communications Incorporated (mci) and the local Todd Corporation, initiated limited competition in early 1990 but soon went after more market share.¹²³ The Todd Corporation gave mci local business connections, but mci was the lead enterprise and a wily pioneer in breaking into dominant networks. Formed in Chicago in the early 1960s, it began as a logistic-support operation with a series of microwave relay stations to interface with limited-range two-way radios used by truckers on the interstate highways. In addition to radio relay services, mci planned to offer business customers services in voice telecommunication, computer information, and data communication. Next, through litigation, mci won the right to create a new industry in the United States that would enable privately manufactured telephone devices, not Bell products, to be connected to an existing Bell network.

Through entrepreneurial chutzpah, mci had grown into the second largest telecommunications company in the United States by 1990, operating a fibre-optic trunk network and demanding interconnections with local loop operators, usually a regional Bell company owned by at&t. Relations between mci and Bell companies were fraught because the latter were reluctant to do business with a firm that was eating their parent’s lunch. However, court rulings favoured mci, authorising it to connect to Bell loops.¹²⁴ A consequence was AT&T’s divestiture of regional Bell companies. MCI’s monopoly-busting business model fitted smoothly into New Zealand’s lightly regulated market. To secure a trunk network, mci teamed with the railway to make use of its fibre-optic cable, which ran under the tracks.¹²⁵

Two additional challengers insisted on access to Telecom’s loops. Each proposed a unique way to avoid building a trunk network from scratch. Broadcast Communications, a partnership of Television New Zealand (tvnz) and Bell Canada, used tvnz’s microwave system. A small Australian company, Telpac, intended to use satellite communicadons.¹²⁶ Telecom directors and executives thanked their lucky stars for Telpac because this tiny upstart wanted to arrange access to Telecom loops and would agree to almost anything to get established, a weakness that Telecom officials planned to use. Negotiating a tough agreement on access would provide Telecom with a handy precedent during negotiations with the two more significant enterprises entering the market.¹²⁷

Order descended on a wired Wild West with startling suddenness. Telpac never went into operation. mci and the Todd Corporation merged with tvnz and Bell Canada in late 1990 to form the Alternative Telephone Company.¹²⁸ Rebranded as Clear Communications, it scarcely had enough business to pose a threat yet just enough to let Telecom continue in one piece – for the time being – as a dominant firm. Suddenly, with Clear, there was an alternative and thus a competitor. Telecom had agreed that if Clear got 9 per cent of the market, it would provide Clear’s subscribers access without having to dial an access code. In August 1990, Clear claimed 12 per cent of the market. Clear and Telecom achieved an agreement on local service interconnection in March 1996. Clear complained often to governments about Telecom’s advantages and sly practices. Each firm had the ear of a well-placed minister sympathetic to its side of an issue.

Other developments in 1990 underlined the vigour of global integration in technology and finance. The first was the privatisation of Telecom, a subject coming up shortly. Second, in 1990 and again in 1993, there were tendering scrambles for the rights to particular radio spectrums for cellular phones.¹²⁹ The costs of cell phones (mobiles) and services had plummeted since their introduction in 1987. In 1990, New Zealand had 95 per cent coverage; residents were among the world’s heaviest users. There was speculation that eventually this technology would challenge wired trunk lines.¹³⁰ For Telecom and potential cell phone competitors, the bones of contention were particular radio spectra. Devices and frequencies had been developed together; therefore, acquisition of a certain spectrum could enable future expansion or deny it on the part of a rival.

The sale of Telecom by Geoffrey Palmer’s government was as tangled as the Air New Zealand sale. The reshuffled Cabinet was committed to debt reduction, and Telecom’s board favoured privatisation; however, there was backbencher opposition, and officials at Labour’s head office favoured public ownership. Trade union secretaries were opposed, knowing that a privatised company would take a harder line with wages and staffing numbers.¹³¹ By mid-February 1990, the parliamentary Labour Party – committees, Cabinet, and the caucus – had approved a sale of 49.9 per cent of SOE equity.¹³² But consultations with party officials stalled. Finally, a party committee that included Palmer and Labour president Ruth Dyson was struck and reached a decision. Dyson was hostile, but with an election coming, she conceded rather than exposing more disunity.¹³³ The National Party’s critic on SOEs wanted considerable New Zealand ownership, even if that meant a lower price.¹³⁴

An arrangement to satisfy economic nationalism had been worked out. Called the Kiwi share, it had nothing in common with the preference share in the anz sale but comprised a suite of obligations. A privatised Telecom would have to provide free local calls and a standard phone rental, keep rural phone rentals at a rate no higher than in urban areas, and retain residential service as wide as existed in November 1989. A requirement that charges could not increase beyond increases in the consumer price index meant that Telecom had to profit from long-distance trunk charges where Clear could compete. Half the Telecom board had to be New Zealanders; the government had to approve of share sales that gave a shareholder from overseas more than 10 per cent of the shares.¹³⁵ Heavy-handed regulation by an industry-specific agency was avoided for the moment, but the Kiwi share did impose restraints and represented a retreat from discontinuing cross-subsidisation. Truly committed to debt reduction and inclined to listen to his minister of finance and to the governor of the Reserve Bank on fiscal subjects, Palmer approved of the sale with these provisions, brushing aside objections. “If you read them closely,” he said, “the restrictions would not affect the bids.”¹³⁶ It was true that experienced telecommunications executives knew how to build value with this asset. There was a curious side effect of the Kiwi share requirements. They made Telecom an unofficial regulator for the industry because, to compete, firms had to come down to Telecom’s restricted rates.

On several occasions during restructuring, reform purists expressed disappointment with politicians, recognising that the deal undermined the government’s principle that each sale should maximise returns to the state. The Kiwi share interfered with corporate initiatives and could have depressed the price; moreover, its stipulations enshrined political goals rather than efficiency. Efficiency, a beacon for restructuring, was supposed to give New Zealand a competitive edge in world markets.¹³⁷ There was disappointment all around since caucus members with left leanings, thinking that the Palmer government would be to their liking, were shattered by the prime minister’s approval of the sale. Prebble maintained that a sale ought to be welcomed and that foreign control was not a concern. The world had become a “global village.”¹³⁸ Except for the Kiwi share, which amounted to a slight move of the pendulum toward nationalism, the sale ratified Prebble’s claim.

Economic nationalists and supporters of public ownership were opposed to the sale; free-market advocates were disappointed with the restrictions on enterprise. The price realised would be debated for years, in part because opposing camps had academic outposts whose scholars kept the topic alive. Controversy was inevitable, too, because of a last-minute deviation from the announced bidding process, public misunderstandings about asset valuation, the fortunes made, and boasts about these fortunes. The structure of the sale opened the door to controversy because once more the government chose to invite tenders for the equity rather than implementing a share float. Tendering meant selecting offers from consortiums of business executives and merchant bankers, bones in the throat of some in the Labour Party. On the other side of the ideological divide, a few New Zealand business leaders had favoured a public offering of shares because it would have increased the importance of the budding stock exchange. Treasury officials, in contrast, had worried that a public offering would have disrupted investments because fund managers would have had to sell some current holdings in order to take on purchases of Telecom shares. Besides, government guidelines specified selling as much as possible at the best return. Bids were due 12 April 1990.¹³⁹

As an example of economic nationalism facing the onrush of global integration and of East Asian businesses arriving in the Anglosphere, the sale is outstanding. Prebble was correct about the global village, although village laneways were criss-crossed with the expressways of finance capitalism. Twelve firms showed interest in Telecom; three were New Zealand enterprises. The first two, Brierley and Fay Richwhite, were investment groups hunting once more for assets and, ultimately, for the opportunity to get rich by on-selling shares. The third, the Freightways group, a trucking firm and the county’s largest private employer, operated a business communications unit with Telecom called Netway Service. As the chair of the board of Forestcorp, the Freightways ceo, Alan Gibbs, had insight into the operations of soes. Overseas inquiries came from Southwest Bell, Bell Atlantic, Australia’s international carrier the Overseas Telecommunications Commission, the uk firm Cable and Wireless, Spain’s Telefonica, and three Japanese companies. Interested parties had to secure clearance from the Commerce Commission that their current operations, when combined with those to be acquired from Telecom, would present no threat to competition. Five approved buyers arrived at the Park Royal Hotel in Wellington for the final round of negotiations.¹⁴⁰

A few days before offers were due, the government received notice of a non-conforming proposal for 100 per cent of Telecom’s equity, not 49.9 per cent. Led by Fay Richwhite and Freightways (10%), whose heads had earlier lobbied the Palmer government for 100 per cent of equity, the consortium also included Bell Atlantic (24.9%) and Ameritech (24.9%). The latter two were among the seven regional Bell companies created following the breakup of at&t in 1984. The remainder was to come from New Zealand and overseas investors (40.1%). Other bidders were given twenty-four hours to match this bid. None did. At $4.25 billion, the sum exceeded Telecom’s book value of $2.4 billion and even exceeded the Treasury’s valuation by $1 billion.¹⁴¹ A provision was made for on-selling 50.1 per cent of the equity, the 40.1 per cent plus the nearly 10 per cent of shares going to Fay Richwhite and Freightways. The offer appealed to Cabinet since it contained the fewest warrants and demands, left no lingering equity issues, and allowed ministers to speak of fiscal strength before an election. Many regarded it as a fair price.¹⁴² Having put up no capital in advance, David Richwhite and Alan Gibbs made fortunes from the on-selling fees and from a well-timed sale of their shares.

These dealings raised concerns. Could Telecom have been sold for more? By 1993, on-selling had produced 35,000 shareholders, and Telecom was the most valuable company traded on the New Zealand exchange.¹⁴³ There are several observations. First, vendors were cautious in their expectations of a fair price, recognising that wireless technology could upset the wired network and erode value. Second, allegedly, no one on the vendor side anticipated that the customer base was a splendid asset. Third, an entertaining lottery pool for guessing the winning bid, open to individuals on the vendor side, produced an interesting judgment by someone involved. Not wishing to appear insincere in pushing the Treasury to go for a valuation of around $4 billion, his pool figure was higher than what he thought might result.¹⁴⁴ The winning bid exceeded his guess. Finally, the initial share prices on the stock exchange were not remarkable. The big gains came later, not at the instant of the transaction. A change in executive management and a trimming of staff raised the firm’s profitability.

At the Ministry of Commerce, an official who studied deregulation concluded in 1994 that reform “provided significant benefits to consumers and to the economy in general.” But rapid streamlining of operations brought immediate redundancies. Other positions opened up within the industry but to a lesser extent than the job losses.¹⁴⁵ The Telecom story continued past the 1990s. National-led governments debated whether or not to retain Fourth Labour’s light-handed regulatory environment. National retained it but insisted that Telecom work with Clear Communications and provide the government with greater information on pricing.¹⁴⁶ Fifth Labour (1999–2008), led by Helen Clark, distrusted business more than any government in a quarter of a century. In 2000, her government revisited regulation, divestiture, and competition. Subsequently, over a six-year period, Telecom was forced to unbundle into three separate business units: Telecom Retail, Telecom Wholesale (which provided access to the loops), and Chorus (which took over network infrastructure). In 2011, unbundling was complete. Telecom and Chorus were listed as separate companies.

concluding observations: share market awakenings

Successive governments studied and studied electricity and telecom before taking the plunge and experimenting. The ensuing restructurings affected the utilities of daily living, inscribing global practices onto the local family silver of the state. On the local front, one set of clashes set economic nationalists against market internationalists; another set put the advantages of coordination by dominant firms up against the benefits of competition. But the global features were striking too, appearing in consultants’ reports on management structure and sales tactics, as well as in the expressions of interest from investors in America, Europe, and Asia. Technological know-how and a few managers migrated. From time to time during negotiations, asset buyers divulged global business practices and the profound worldwide transformations overtaking network ownership. The international law firm supervising the prospectus for Telecom shares insisted on an American format since it would be familiar to the institutional investors likely to snap up the initial public offering. In justification, the firm referenced a global phenomenon: “Telecom is not the first foreign issuer to consider this issue in connection with a global offering. See for example British Telecom, Hong Kong Telecom, Telefonica, and each of the privatised British companies (Steel, Gas, Airways, and Petroleum) all of which prepared their prospectuses in accord with standard U.S. practice.”¹⁴⁷

New Zealand expanded its presence in the global capitalist world in another respect. The sales of Telecom equity contributed to the growth of market capitalisation at the New Zealand Stock Exchange, which had been consolidated in 1983. Telecom gave the market its first “widows and orphans shares.”¹⁴⁸ Deemed safe investments with good dividends, shares in utilities democratised the idea of investor confidence, which was no longer dependent only on the reactions of major overseas markets. Shareholders and institutional investors handling pension funds had an interest in seeing stable markets, ones that did not welcome uncertainties touched off by government interventions.

Market capitalisation rose from just under US$9 billion in 1985 to around US$100 billion in 2022.¹⁴⁹ Network industries were well represented: Air New Zealand, Contact Energy, Genesis Energy, Mercury Energy, Meridian Energy, and Spark (Telecom). Across the world, stock markets were opening in country after country, coincident with the end of command economies, many of which had been backed by the Soviet Union. The growth of stock markets was assisted by the optimism of worldwide robust economic growth led by the United States in the 1990s. One-third of the roughly sixty stock exchanges in the British Commonwealth originated in the 1980s and 1990s. A quarter of Europe’s seventy appeared in the same decades.¹⁵⁰ Privatisation of state assets on a global scale elevated the prominence of share markets in national economies. New Zealand’s experiences were characteristic of world events as well as shaped by national history.

9

Capital in Nature: Global Integration and State Forests

In early 1988, Roger Douglas and Richard Prebble persuaded Cabinet colleagues that the government should sell the state’s planation forests. A year earlier, the government had removed the commercial branch of the state forests from the Forest Service. The plan had been to transfer the plantations as well as some native forests to a state-owned enterprise (soe) that would manage commercial forests, produce forest products, and cut and sell logs to sawmills and pulp plants. This scheme faltered because the government and the Establishment Board that it had appointed to create the Forestry Corporation of New Zealand (Forest-corp) quarrelled over a dollar value for the forests.¹ To make it easier for them to claim skill in adding capital value, board members haggled for a low valuation of $1.5 billion. Treasury negotiators, seeking bigger gains for the public purse, put the value at $5 billion.² Hard-nosed negotiations over assets with good income potential have been mentioned already (chapters 7 and 8), along with the accompanying theme of enterprise diversity. In the forestry matter, the parties disputed the quality and maturity of trees, the expense of getting logs to market, and other details, but the disagreement reduced to different projections of how much future cash flow would come from good management by the board versus how much would come from trees that simply grew.

Without a valuation, Forestcorp lacked a capital structure of debt and equity and a proper legal identity. To exit from stalled negotiations, improve fiscal affairs, and achieve efficiency in an export sector, the government resolved to cash in by selling off individual forest parcels. This abrupt advance in modes of commercialisation – by which the plans for an soe that was to discharge a debt and pay dividends to the state would be replaced by an outright sale of assets – drew opposition. Critics impugned the insistent economic perspective by eulogising the forests’ non-commercial features and defending state ownership as an accompaniment to a wider planning of forestry. Proponents of sales retorted by mentioning the country’s fiscal debt, a hoped-for injection of overseas capital, and new technology to help exports. The historic entanglements of capital and nature in New Zealand were distinctive. This uniqueness included climate and soil, uncommon native tree species, an aggressive clearing of forests by settlers, a period of great enthusiasm for tree plantations, a state-led forestry industry, special coloniser and Maori relations, and a shift of economic ties from the Atlantic to Asia.

FROM DEPLETION NIGHTMARES TO MONOCULTURE MANIA

The state’s involvement with forestry originated with the establishment of a conservator of forests in 1875, who was assigned chiefly to surveying the availability and value of regional timber resources.³ There was no immediate concern about depletion. Assessments changed after turn-of-the-century forest clearances for grazing and horticulture. After the First World War, the government established the State Forest Service, which embarked on an ambitious programme of reforestation. The state borrowed and invested heavily in plantations during the mid and late 1920s, concentrating on the unsettled expanses of the pumice plains at Kaingaroa.⁴ There were smaller plantations, but nothing less than 10,000 acres (4,050 hectares) was considered desirable.⁵ In 1925, several older experimental plantations were supplying over 20 per cent of national timber production.⁶ New Zealand foresters boasted in 1930 that the country led the British Empire in plantation coverage, with 245,000 acres (99,150 hectares).⁷ The objective was 300,000 acres (121,400 hectares).⁸ The favoured species was radiata pine (Pinus radiata), also called Monterey pine, which matured in thirty years in New Zealand.

An emergent plantation monoculture was furthered by private ventures aligned with the speculation manias of the Roaring Twenties. A private company, Perpetual Forests, sold forest bonds, which comprised legal interests in an unspecified block of trees. Bond-sale revenues were earmarked for planting.⁹ When trees reached maturity, the company committed to selling logs to a mill on behalf of bond holders. The state-operated and private-enterprise plantations had to acquire land. Perpetual Forests employed an agent with Maori ancestry to negotiate purchases of collectively held Maori land blocks.¹⁰ The company’s bond-based financing scheme required clear land titles. By contrast, the state’s plantings proceeded across leased tracts and over what was assumed to be Crown land. In fact, as Fourth Labour discovered during its SOE asset valuation, Maori title had not always been cleared. During the Great Depression, the abandonment of bankrupt farms created opportunities, and with assistance from welfare employment schemes, state plantations expanded further. New Zealand’s plantation coverage reached 420,000 acres (170,000 hectares) by late 1936.¹¹ At the end of its growth era, Kaingaroa formed the largest contiguous plantation forest in the southern hemisphere.

The state and private plantations faced the same challenge. What was to be done with the sudden maturation of radiata? In the late 1930s, the First Labour Government erected sawmills.¹² The state’s forestry business escalated appreciably in 1946 with the establishment of a state pulp mill. A National Party government continued Labour’s project.¹³ At mid-century, the State Forest Service operated state mills, provided worker housing, oversaw scenic and recreational spaces, and attended to conservation and the protection of endangered species. Directly and indirectly, state plantation forests contributed to the country’s economy, outdoor culture, and landscapes. The private-enterprise plantations made similar moves. During the late 1940s, to process the trees financed by Perpetual Forests’ bonds, New Zealand Forest Products was brought into existence through business reorganisations. By the mid-1950s, it operated a combined wallboard, pulp, and kraft paper operation at Kinleith and a company town at Tokaroa. The mill and town were sites of a bitter industrial labour dispute in which union leaders misjudged their negotiating position, assisting Fourth Labour with the restructuring of labour relations.¹⁴ The episode is covered in chapter 11.

Years of state favouritism antagonised the expanding private enterprises in logging, milling, and pulp and paper. Their boards and managers resented a state entity that was not only a privileged rival producer but also a controller of logging licences and, in some locales, the supplier of logs to mills. Hard feelings over royalties, restrictions on competition, and government subsidisation left the State Forest Service without industry defenders, but government operations cultivated the support of forestry towns, Maori forestry workers, and professional foresters. In and around plantations, people accepted them as integral to outdoor culture. Native birds could not survive among soldiered rows of radiata, but plantations provided habitat for feral boar.¹⁵ Hunting with dogs and knives was and remains a rite of passage for some. People living in and around the exotic plantations had become acculturated. Seen from Wellington, forestry restructuring was an abstraction; experienced in the communities, it was a social and cultural debacle.

Political tensions involving the State Forest Service widened to include environmental activists during the 1970s. Protestors opposed the managed exploitation of indigenous forests. Logging in native forests had never ceased. Labour tensions, conflicting ways of valuing plantations, and diverse outdoor activities, all bottled up in the State Forest Service, poured out after Fourth Labour’s announcement of forest corporation and later sales. Politicians, public servants, professional foresters, international consultants, multinational companies, labour unions, and civil society studied and debated the meanings of forests that formed a national estate. After the first generation of exotics matured in the 1960s, the State Forest Service had planted a second generation due to mature in the 1990s. Plantations created an advance-and-retreat sequence of thirty to thirty-five years. At the start, planting and thinning were labour intensive, but as maturity approached, chores diminished. In the mid-1980s, plantations were approaching the second maturation stage. No longer occupied with early growth upkeep, employees with idle time stood out on balance sheets. In 1988, a pending big harvest promised rewarding sales. At that instant, several unique elements in New Zealand’s forestry saga upset plans for a tidy formation of an soe comprising state plantations.

the invisible hand touches the treaty of waitangi (1840)

State plantations shaped the economic destinies of many who toiled there, or who relied on their log supplies, or who competed with them. Maori were disproportionately affected when the second maturation approached. Until Fourth Labour’s reforms, the Forests Department attended to reforestation, silviculture research, conservation, commercial processing, log delivery to independent mills, recreation, employment in remote communities, and forestry town management. These activities brought the department into a tacit alliance with Maori and with the Ministry of Maori Affairs. In the Fourth Labour Government, two Maori held the ministerial posts connected to forestry. Koro Tainui Wētere (1935–2018) served as minister of Maori affairs and minister of forests. When state forests were removed from departmental management in 1987, another Maori, Peter Tapsell (1930–2012), became minister of forestry. The subtle distinction in their titles between forests and forestry marked the policy shift away from state-run operations. The minister no longer directed the development of forests but directed forestry regulation. Many Maori living in the central-east North Island retained economic, social, and legal interests in the plantations coming under transformative pressure, and Maori, understanding that the land used for state planation forests had been “negotiated with a view to develop local industry,” were rattled by talk of a sell-off.¹⁶

During the late 1970s and early 1980s, the bundling of diverse forestry functions into a single department could not solve contradictions. During these years, forest preservation protests and a heightened awareness of endangered flora and fauna challenged the State Forest Service. Particularly in the country’s Southland region, conservationists who were committed to saving native forests complained that the department was collaborating with the enemy because it worked with loggers. At the same time, the single-department arrangement respected qualities; it promoted in-house problem solving and sustained the green facade of a national estate. The convergence of a fiscal emergency and an escalation in conservation concerns led to the department’s breakup in 1986 into a Conservation Department, a Ministry of Forestry, and Forestcorp. The valuation deadlock between Treasury negotiators and Forestcorp meant that the latter functioned in a legal and capital limbo for a year. It maintained the state forests, delivered logs to mills, paid employees, tried to shed its company town duties, and held business-like board meetings. For many months, the board of directors, operating executives, and employees acceded to uncertainty because they envisioned that Forestcorp would ultimately emerge intact as a forestry giant.¹⁷ This prospect divided the industry.

Professional foresters and forestry educators admired the old department, knew its people, and shared their interests. Having transferred their allegiance to Forestcorp, they rallied to shield it from dismemberment. The New Zealand Institute of Foresters commissioned Allan Priestley Thomson, a former director general of the State Forest Service (1971–74), to draft a critique of privatisation.¹⁸ Thomson explained potential drawbacks. Foreign ownerships might leave New Zealand short of timber. Buyers would pick the best and leave the rest, would have no interest in regional development and company towns, and would bar access for recreation and hunting.¹⁹ Condemnation of sales, however, was far from universal in forestry circles.

Mangers of large and small private mills distrusted Forestcorp as an industry hegemon. They wanted it dismantled because of suspicions that, as a profit-seeking soe, it might manipulate log supplies to mills that did not control their own forests. There were an estimated 400 modest operations; a lot of their mangers felt vulnerable. The New Zealand Timber Industry Federation, which represented them and allied logging contractors, argued that forestry’s future was in exporting logs. Sales of forest blocks would enable local loggers, thus assured of tree stocks, to participate in export markets.²⁰ At a conference in early October 1988, federation members rallied behind the block sales as an opportunity for the industry to “sharpen up its act” by dismembering the lumbering behemoth astride its path.²¹ Not all small enterprises saw opportunities for themselves. A sawyer from Waimea, unable to afford new technology, wanted a guaranteed log supply. “It is our right.” The fishery was his model since it operated on quotas. As he saw things, inefficiency was a social good that justified a guaranteed log supply because his mill kept more men employed than if he modernised.²² The State Forest Service had fostered an industry, but with this achievement came incompatible visions of how forests should serve the people.

Right from the beginning of ministerial deliberations on making the state forests operate commercially, officials wondered how to prevent a private oligopoly.²³ Logging raised a classic economic question. Since regulation can be gamed and politicised, how could any dominant supplier be prevented from practising market supremacy? The question usually applied to utilities, but in New Zealand it was asked of forests too. As was the case with electricity, one New Zealand solution to industry dominance was to break the supplier into competing units. In forestry, concerns about state supremacy had a history.²⁴ After the Second World War, private forestry corporations encountered problems with the government on account of its forestry investments. Several heavily capitalised private plants processed logs from their own plantations, private suppliers, and plantations of the State Forest Service. Large private concerns were regional heavyweights expanding their mills near the state’s operations. New Zealand Forest Products was the most self-sufficient of these majors and owned plantations on 427,500 acres (173,000 hectares). Fletcher Challenge had a reasonable supply from 262,000 acres (106,000 hectares).²⁵ Carter Holt Harvey supplemented logs cut from its 98,800 acres (40,000 hectares) with a government supply contract. These firms regarded Forestcorp as an advantaged competitor and, potentially, an unfaithful supplier of logs. At the very least, they wanted it broken into regional forestry SOEs.²⁶

Meanwhile, dismantling the Forests Department proved complicated. Besides turning over some functions and indigenous forests to the Conservation Department and assigning regulatory duties to a skeleton Ministry of Forestry, a few activities went to the Surveys and Land Information Department. The breakup of 1986 required detailed administrative shuffles since the old department had an internal communications system, fire service, housing, public service employment arrangements, contracts to supply logs to private mills, and agreements for army manoeuvres.²⁷ One intangible change was the institutionalisation of conflicting attitudes over the future of state forests. After the announcement of sales, opposing viewpoints incubated in the new institutional homes staffed by public servants knowledgeable about operations. Staff members were professionally acculturated either to work with the Treasury or to operate at a philosophical remove. Economists and legal analysts who transferred to the newly formed Ministry of Forestry and to Forestcorp focused on economic and legal matters. The Conservation Department’s employees took up recreation, beautification, and conservation.²⁸

The reorganised machinery of government guaranteed that rival conceptions of the state forests would get attention from public servants established in departments with divergent missions. All officials acknowledged, however, that forest sales concerned Maori. Corporatisation came shortly after a surge of Maori demands that the government right the wrongs of colonialism.²⁹ State forests beckoned as a storehouse of assets that could be transferred to settle claims. A history of dishonest conduct made Maori sensitive to changes in resource distribution without consultation; certainly, the government’s programme to convert many departments into soes implied changes in property interests. The lack of consultation incited the Maori Council in early 1986 to object to the transfers of land to soes. Forestcorp and to a lesser extent the ecnz, Telecom, and Coalcorp were affected. Maori sued successfully to retain legal interests in land that had not been properly acquired by the Crown. The triumph potentially blocked the final steps in creating soes. Attorney General Geoffrey Palmer directed the Crown Law Office to contest the ruling. The appeal failed and a court ruling set a deadline for Maori to identify areas of spiritual significance and allowed more time to identify conventional land claims.³⁰ An incredulous government scrambled to find a solution that could maintain the corporatisation agenda, satisfy the courts, and appease the Maori Council. Respect and pragmatism at the leadership level enabled a solution.³¹ In the plantation forests themselves, the story was not at all positive.

The government’s formation of soes encountered Maori objections about the absence of consultation on land titles. As well, Forestcorp’s declared lack of interest in the forestry towns aggravated tension and anxiety. Maori comprised the majority of residents. In late 1986 and early 1987, it became obvious that the towns’ future would not be what Maori had imagined. A government survey of the social impact calculated the number of people dependent on State Forest Service housing in forestry towns: Kaingaroa (626), Minginui (226), Murupara (186), Rotoehu (98), Maiotapu (74), Wairapukao (48), and Mamaku (6). If state plantations were run as an unsubsidised soe or sold to private companies, there would be redundancies and an end to this housing. State forests had once bridged the consumer economy and whakapapa (the sense of connectedness with ancestors). Maori social and legal connections with state plantations complicated the sale programme.³²

When it embarked on its soe programme, Fourth Labour launched redundancy packages, employment adjustment programmes, and loans to small businesses. Forestry was bound to be the most difficult sector to overhaul. Plantations had created opportunities, but the sites of towns all but guaranteed that alternate employment would be negligible. Job losses would threaten the towns’ very viability. Late in 1986, a Cabinet committee reviewed employment estimates. An organisational chart from late 1986 reported that the now defunct State Forest Service had employed 2,794 staff, 3,761 wage earners, and 1,097 contractors. In the new setup, the Conservation Department had taken on 1,180 staff and 753 wage earners, and Forestcorp had hired staff and 3,470 to 3,715 wage earners. There would be 1,300 to 1,500 redundancies. Social impact initiatives were prepared. Provision was made for $34 million to cover voluntary severance packages.³³ Another fund financed grants to study the feasibility of small businesses, such as forestry subcontracting and mechanics’ shops.³⁴ To assist the government during a grim time, Forestcorp agreed temporarily to employ 10 per cent more wage earners than required. Consistent with its abandonment of subsidies of all forms, the government pledged to support only individual initiatives and relocation, not community development. It was pulling the state out of communities deemed unviable. In common with resource communities globally, forestry centres lacked employment alternatives. Civic life suffered as personnel moved away.³⁵

Strikes forced employment extensions for some workers and helped to secure their housing arrangements for a while.³⁶ At the same time, the legality of the forest sales required fixing. Through hasty diplomacy, the government reached an accord with the Maori Council on the broad matter of land title for all SOEs. The cornerstone measure, the Treaty of Waitangi (State Enterprises) Act (1988), provided for a so-called tagged title for any interest in land that was transferred from the Crown to a new SOE.³⁷ If the Crown and Maori agreed at a later time to restitution for a misappropriation of land, tagged land could be compulsorily resumed by the Crown and returned to Maori, with the erstwhile owner being compensated by the Crown. The list of interests that required a tag included deeds to land, a leasehold, and a profit à prendre, or right to the produce of another’s land. The immense plantations at Kaingaroa were on contested territory. If their transfer to Forestcorp had ever been formalised, the transfer would have activated tagged titles.

The forests were never legally transferred to Forestcorp and thus remained outside the terms of the 1988 legislation. A Ministry of Forestry solicitor, Ann Callaghan, analysed the situation. Although the government could use the loophole to ignore tagging, “the public outcry could be deafening.” Maori claims would still remain, and court decisions had not favoured the Crown. Fresh legislation might pre-empt litigation, but statutory measures would devour time. She asked, “If the Government were predisposed to ignore the tumult, and fund the defence of a multitude of applications for injunctions, in theory, which pieces of legislation ought to be amended?”³⁸ The prospect of revising statutes in the midst of the government’s broad and complicated economic restructuring precluded any thought of evading Maori legal interests. The Cabinet State-Owned Enterprises Committee listed “Maori Issues” as its first concern.³⁹ To get capital out of the forests without political damage, the government had to design a legal interest that appealed to buyers and simultaneously brought Maori into partnership.

The idiosyncratic legal standing of some state forests was one of several topics studied by a special Forestry Working Group appointed to report on obstacles to and options for sales. Chaired by John Chetwin, a Treasury exponent of asset sales, it included John Valentine, assistant secretary at the Ministry of Forestry. Valentine was a realist who had already informed colleagues “that privatisation has been discussed in the Cabinet and an announcement is likely in the Budget (or maybe before). Government is committed to privatisation (needs cash), the question is ‘how’ rather than if … The concerns now are how to raise the maximum in cash from any sale and how to best support and improve the forestry sector.”⁴⁰ The working group had to find ways to minimise legal and conservation complications that could deter picky buyers.

Sales would be no cakewalk. By the second half of the century, capital in global forestry had become sizeable because mechanical pulp had overtaken timber as the leading forest product; chemical pulp then overtook mechanical. To justify investment in wood fibre plants, corporations required long-term security for their log supply, and for that, they preferred ownership of forests or else long-term contracts with firms that had clear ownership. The announcement of a sale of forests and the breakup of Forestcorp pleased some local companies, but not ones that depended on logging contracts with the State Forest Service or Forestcorp. The executive chairman of Carter Holt Harvey threatened a lawsuit because his firm and its Japanese partners had invested $500 million in mills on the understanding that state forests would furnish the logs.⁴¹ International giant Weyerhaeuser insisted on operating equipment on terrain that it controlled.⁴² Its executives wanted to see the forests, not trees.

The government entrusted Forestcorp’s directors to manage the sales, an assignment richly ironic since the directors had tried to drive down the value during the SOE negotiations. An unidentified member of the working group noted that Forestcorp “have done a ‘great job’ talking down the asset value and knocked the product.”⁴³ To help sales, directors now tried to change the image of New Zealand forestry, and one way was to counter a reputation for a low-productivity workforce. A sleek sales book, Sale of State-Owned Forests in New Zealand: Prospectus (1989), described the forests and economic environment, mentioning the government’s restructuring and pointing to the Industrial Relations Act (1987).⁴⁴ The government “has withdrawn from direct involvement in wage negotiations and has removed the previous requirement for compulsory arbitration.”⁴⁵ Promotion was a global and social affair. Adopting the theme “Forestry: A Multiple Use Enterprise,” New Zealand foresters hosted the 13th Annual Commonwealth Forestry Conference at Rotorua in September 1989. Two hundred and twenty delegates arrived from thirty-three countries, and the Forestry Assets Sales Group hosted the cocktail function.⁴⁶ Although these overtures signified the foresters’ international network and the enduring doctrine of multiple use, none improved sales prospects.

Finding a saleable property title meant giving security of tenure to buyers, satisfying the Maori Council, and garnering decent returns for the Treasury. But the puzzle’s solution turned state forests into a suite of legal rights and fees, the very thing that international firms reviled. And with global options, they could walk away. Complex property law and industrial relations deterred Weyerhaeuser from bidding, a blow to Cabinet ministers’ hopes for top prices and their supplementary wish for offshore investment in high-wage processing.⁴⁷ The working group’s remedy was that until negotiations with Maori sorted out land ownership, the Crown would separate freehold estate from the cutting rights. The state would sell the latter and charge a ground rent. To bestow security, cutting rights would extend to two crop rotations. If during this cycle, the Crown and Maori reached settlements on land titles that favoured Maori, freehold title would pass immediately to Maori, subject to a continuation of the cutting rights until they expired. After that, any future cutting rights would belong to Maori claimants, who could negotiate with firms.

A settlement with the Maori Council included these terms plus a trust fund – the Crown Forestry Rental Trust – that collected an annual ground rent from the companies that bought cutting rights. Until land ownership was determined, the trust would invest the rental proceeds – estimated at $17 million a year – and apply the interest to help claimants prepare, present, and negotiate land claims that could involve state plantations.⁴⁸ The accumulated annual rental fees would eventually be turned over to successful claimants or to the Crown. Forests of non-indigenous radiata, the climax results of arboreal colonialism, were poised to assist with the redress of maltreatment by colonialism.

sylvan images of the people’s plantations

The creation of the Conservation Department and Forestcorp in 1986 carved up the forestry realm. Conservationists stirred apprehensively. Boundary disputes required arbitration. During negotiations over Forestcorp’s ill-fated valuation, the Establishment Board and Treasury representatives heard from parties unhappy about the designation of particular forests as either protected or exposed to logging. A Ministerial Committee on Land Allocation responded to rival complaints. Tighter restrictions were imposed on commercial operations in certain indigenous forests on the South Island, in North and South Westland, and in Western Southland. Between 80 and 100 conservation covenants were negotiated to protect indigenous forests that had no immediate commercial value. As well, forest strips along the coast, lakes, and rivers were safeguarded, along with many public-access easements. In turn, the Conservation Department conceded cutting rights to indigenous trees in about fifty areas. The boundary adjustments were accomplished when it still looked like Forestcorp would take over the state forests.⁴⁹ As in other instances when enterprises were removed from government departments, efforts to set up a forestry soe forced a definition of assets and a coming to terms with dilemmas. Previously, with departments handling the pricing of their outputs, they had obfuscated contradictions of purpose and buried errors in judgment. Suddenly, corporatisation and privatisation called for statements of purposes, brought attention to regulation or unbundling, exposed cross-subsidisation, and precipitated disputes over what was productive labour and what was subsidised employment. One thing was indisputable: Fourth Labour was creating a lot of work for public servants and consultants. The look of surprise was almost palpable. How were they to get out of this entanglement? What next? As forests are settings for dark cautionary folktales in European cultures, it is fitting that these forests held modern twists and surprises too.

The proposed sales of state forests, spelling the end for Forestcorp, reignited conservation anxieties and protests. When the report of the working group reached the Conservation Department for comment in October 1988, David McDowell, the department’s director general, drafted its official reaction. His response captured an attitudinal division that accompanied the institutional split. Free to crusade for conservation and recreation, McDowell enumerated conservationist misgivings. Other SOEs, he asserted, truly resembled business operations, but this was not the case with forests because of recreation, aesthetics, and a need for continued central conservation planning. His department, furthermore, had qualms about whether covenants would protect public access to forests once they were sold. But if the forests had to be sold, the Conservation Department preferred a transfer to Forestcorp because familiarity with staff members now reassigned to the commercial operator would make it easier to guarantee public access.⁵⁰

Loath to relinquish a planning role, McDowell, speaking for the Conservation Department, argued that commercial operators might cut and sell when prices were high, forcing the country to import lumber later. Due to the original 1920s plantings and 1960s replanting, state forests matured almost all at once. With the right world market conditions, McDowell claimed, firms might cut all at once, taking profits, evading a responsibility to replant, and leaving the country with a timber famine. The department wanted a requirement to replant inserted into the cutting rights. Replanting was unrivalled as a community concern. The appeals for aesthetic reserves, recreational access, and replanting obligations concerned Minister of Forestry Peter Tapsell. John Valentine, fresh from a meeting of American forestry firms, shared with Tapsell advice that he had picked up on how to handle such community demands. Tapsell would be wise to suggest that there may be some future action, Valentine told him, and “don’t panic – very low key & will be talked through. Good lesson from my visit to Seattle.”⁵¹

There was no finely balanced contest between the Conservation Department and the working group. The latter had the upper hand due to Cabinet’s focus on cutting deficits, especially throughout 1986–90. Charged with the task of advising the government on the means to get the best price, the working group opposed placing conditions on cutting rights. Moreover, its members and like-minded public servants in several departments hoped that buyers of rights would be large concerns with existing plants or else outside interests intending to build them. In either case, such buyers, good for job creation, would not likely agree to have arms twisted to commit to reforestation. It was hoped that they would at least take a long-term view on their investment and replant. Regardless, the working group accepted that the plantations’ future would be guided by enterprise judgments, not by a state-formed status quo.⁵²

Advocates of sales reasoned with dissidents who defended a status quo, drawing on passionate objections to the country’s overall economic restructuring. Champions of commercial operations and defenders of non-commercial values not only disputed the future of state plantation forests but also recognised commonalities with the restructuring of the Post Office (comprising the mail service, the postal bank, and telecommunications), the provision of electricity, hospital funding, and state-run lending institutions. State forests were immense swaths of pine swaying in a greater debate.⁵³ They had become viscerally important in locales where they secured pride in a way of life now under attack. The green outdoors was glorious, restorative; it had status as a birthright. Hunters, hikers, amateur naturalists, professional foresters, tourism operators, school children, and town councils enlisted connotations of nature and beauty to defend the people’s forests.

As the date for sales drew closer, the minister of forestry responded to objections from scores of organisations, including the Royal Forest and Bird Protection Society, the Women’s Division of Federated Farmers, the New Zealand Catchment Authorities’ Association, the Bay of Plenty Pig Hunting Club, the Rotorua Orienteering Club, and the New Zealand Motor Caravan Association.⁵⁴ Each had a particular interest in retaining state ownership. There were also emotional pleas. Following a school field trip in April 1989, a teacher at the Waikari Primary School near Dunedin had students write to the minister of forestry: “We think that Hanmer Forest is [a] very special place that provides all sorts of opportunities for children to learn about the environment and we are very worried to hear that there is a possibility that private companies might be able to come in and chop down the trees in the areas we went.”⁵⁵ The Rotorua town council imposed its own, unenforceable, regulations on cutting in the Whakarewarewa Forest.⁵⁶

Both Hanmer and Whakarewarewa had played parts in the turn-of-the-century plantation trials. To some, they were historic as well as scenic locations. The Secretary of the Combined Beneficiaries Union complained to Tapsell that Fourth Labour was abandoning history. “It is within personal knowledge of many elderly New Zealanders that the planting of large areas of pine trees assisted in the country’s emergence from the great 1930s Depression.”⁵⁷ This social-uplift nostalgia tinted the past in a rosy hue. The reality was not so grand. Unemployed relief workers had in fact moved into the remnants of abandoned prison labour camps that served afforestation from 1901 to 1921. Court-martialled soldiers and returned soldiers also planted radiata.⁵⁸ State plantation forests had become artefacts of selective memories. Ultimately, some scenic areas were maintained by restrictive covenants.⁵⁹

New Zealand’s impressive civil society had swung into action: clubs met, Maori convened hui (assemblies), individuals wrote letters to local papers, and members of Parliament heard from constituents. Ministers dispatched form letters in reply, arguing for privatisation on the grounds that forestry exports had to be competitive, that firms would replant accessible cutover areas due to self-interest, and that companies with forest holdings had a history of replanting.⁶⁰ Shortly before tendering began, the government prudently announced limits to cutting on several plantation forests that had historic or scenic value.⁶¹ Replanting persisted as a hot topic into the election of 1990 when the National Party made it a campaign issue.⁶² When National was elected, the public service presented the new government with the facts of law. Cutting rights could not be undone to insert a replanting covenant.⁶³ However, when Fourth National set about selling the remaining cutting rights, it required replanting. Permanent Forests, the crafty corporate name for the forest bond company in the 1920s, had become a widely accepted ideal. When it came to the requirement to replant, sentiment and good sense proved more resilient than good market economics.⁶⁴

Returning to 1988–89, we recall that Fourth Labour had to counter criticism from opposing directions. A handful of ministers had to defend not only commercialisation but conservation, archaeology, and history too. In Southland, regional employment vied with the survival of native forests. The government did not retreat from preservation. Forestry Minister Tapsell, who had green leanings and opposed the cutting of native forest in Southland, informed the West Coast Forestry Enterprise Investing Company that “at best one sawmill might survive on a greatly reduced cut.”⁶⁵ During years of anxiety, the fiscal exigencies and conservation appeals rallied rival representations of state forests. The conflicting meanings described a politicised country at a moment of unprecedented restructuring, after which it possessed clearer boundaries between preservation and commercial exploitation and acquired a better understanding of Maori entitlements. The separation of the forest domain into cutting areas and other uses required surveys, covenants on conservation and archaeology, the protection of sand dune forests, and covenants on forest research.⁶⁶

Nationalism coloured comparisons with forests abroad.⁶⁷ New Zealand, some claimed, was being sold out. Critics correctly assumed that American, Japanese, Taiwanese, and Chinese establishments would be interested in buying cutting rights and might satisfy the government’s goal of maximising returns. When a delegation from China arrived in January 1990 to look over several forests, Forestcorp officials handling the sales circulated business cards to Ministry of Forestry colleagues with a caution: “To help preserve the anonymity of the Party, I ask that their identity is revealed to others on a need-to-know basis only.”⁶⁸ A marketing outreach collided with nationalism and national character. Any prospect of self-imposed economic and technological isolation would have been costly for a country with a consumer society, social welfare commitments, and perennially poor terms of trade. The economy required improved competitiveness in fields where it had opportunities, and forestry was one of them. Full value meant inviting outside capital and accepting the logic of log exports rather than milling or processing on-site.

For opposing reasons – markets versus aesthetics – antagonists imagined state forests as a treasure with few equals in the world. The plantations impressed Asian visitors. The managing director of Nippon New Zealand Trading Limited, S. Tejima, recalled his first visit to Kaingaroa in July 1969. “When I looked over Kaingaroa forest from the observatory at the top of ‘Rainbow Mountain,’ I was overwhelmed by its boundless expanse … I thought of Black Forest in Germany, the ‘Spruce forest’ in Alaska, ‘Conifer forest’ in Western and Eastern Canada, and ‘Tropical Hardwood forest’ in Sabah … I admired the way a few fast growing species had been selected from over 100 worldwide.”⁶⁹ State plantations were a fibre source for a part of the world notable for loggers’ destruction of indigenous forests.

Where advocates of sales noted that the Pacific Rim presented a market opportunity, opponents imagined asset stripping or, in the case of the Industrial Union of Workers, decried the fact that mere logs, not finished products, were exported.⁷⁰ Several years later, in 1993, New Zealand was second only to the United States as a global supplier of logs.⁷¹ A thorough economic evaluation in 2000 concluded that “New Zealand has a comparative advantage in wood forestry production, and does not have a comparative advantage in wood products.”⁷² At the time of the sales, critics would have been unmoved, for they countered the global integration of capital and markets with their own comprehension of global affairs. The New Zealand Institute of Foresters explained that “many countries maintain a greater or lesser degree of community control over forest management and control by statute.” New Zealand had exercised de facto management through ownership. With this management ending, the institute proposed that New Zealand adopt Scandinavian practices, namely the requirement that forestry firms replant and the placement of limits on foreign ownership.⁷³ In addition to the influence of foresters’ opinions, it was imagined that logging at home had connections not only to the sacking of iconic forests in Indonesia and Brazil but also to clear-cutting in British Columbia.⁷⁴ How plantation forests were perceived is of interest. On the one hand, economic restructuring exposed how extensively capital had formed nature and presented the idea that the time had come to cash in; on the other hand, objections intimated how an altered state of nature, including forest plantations, had become naturalised and nationalised. Purists insisted that only indigenous forests had deeper meaning for national identity.⁷⁵ This attitude notwithstanding, plantation forests had defenders for whom a forest was a forest, and even better for some, many plantation forests were state-owned and accessible.

conclusions: timberlands, trusts, and tramping

Sales did not go smoothly, although in the long run they produced a fiscal benefit. During the first round of sales, international interest was lower than hoped for due to the incomplete property rights on offer and a reputation for low productivity, labour strife, and cumbersome labour laws.⁷⁶ Malaysia-based Rimbunan Hijau and Japan-based Nissho Iwai Corporation initially bought some rights. At first, American companies backed away. Fletcher Challenge and Carter Holt Harvey emerged as major purchasers. The State Forest Service’s contract to supply logs to a pulp mill operated by Carter Holt Harvey and its Japanese partner, Oji Kokusaku, postponed the sale of the Kaingaroa plantation. A settlement reached in the midst of a lawsuit required the government to retain Kaingaroa through a Forestcorp subsidiary, Timberlands (Bay of Plenty). By this means, the government fulfilled its commitment to Carter Holt Harvey.⁷⁷ To secure more logs in 1990, this firm then purchased additional cutting rights to the state forests but, as a result of expansion, suffered financial indigestion. In 1993, it sold its interests to Oji.⁷⁸ In the course of the 1980s economic restructuring, connections with Japan multiplied since New Zealand buyers of state assets found financing in Japan.

Timberlands (Bay of Plenty) was sold in 1996 to a consortium of Citifor (based in China), Fletcher Challenge, and Brierley Investments. The latter, a New Zealand investment firm, bought other state assets with Japanese finance.⁷⁹ As per its business model, it intended to flip the assets by selling equity. In 1998, the Asian financial crisis brought a sharp reduction in log prices. Brierley Investments left the consortium and drifted into obscurity. In 1999, Fletcher Challenge Forests was recapitalised, and parent company Fletcher Challenge wrote down over $500 million of its investment. As one analyst expressed it, the transactions of the 1990s “shifted the write-down of forest assets as a result of the 1998 Asian crisis from the Crown to Fletcher Challenge and its consortium partners. Clearly in this case the price received for the asset was, with hindsight, excellent.”⁸⁰ But the returns fell short of what Fourth Labour had wanted when it launched the assets sales in 1988. In 2003, Harvard University used its endowment fund to purchase cutting rights that included Kaingaroa. The New Zealand Superannuation Fund bought back a portion of the rights in 2006.

The capital to be derived from nature, at one time coming from a mix of small private and state sources, had become fluidly international. The destination of logs and pulp confirmed New Zealand’s integration into the western Pacific economy and, if competition from Canada and Chile are considered, into the economy of the Pacific Basin.⁸¹ What is more, the country’s small and relatively undiversified economy meant that state plantations entered the market economy via the few local companies able to buy sizeable assets. Several such firms dealt in restructuring, which involved risky activities that contributed to volatility in forest ownership.⁸² The forestry upheaval of the late 1980s separated commerce and conservation, initiated the state’s withdrawal from commercial logging, removed social welfare from plantation economics, and deepened participation in the Asian branch of the global economy. The controversies of a political moment resolved into two forested estates: the commercial and the protected remnants. This was a separation of capital and nature. Or so it might seem.

The Conservation Department’s ventures into tourism initiated a fresh blend of means to capitalise nature, apparent in promotions of New Zealand as a global youth-adventure destination and in the implementation of user-pay charges for tramping huts, “Great Walks,” and “Great Journeys.”⁸³ As had been a reality since colonisation, forests served people integrated into the commercial world beyond the treeline. At the end of the twentieth century, this pervasive economy included leisure travel to places of interest, among them New Zealand’s remnant forests. There was a further development. Unexpectedly, an old contest between famers and foresters revived. From 2000 to 2014, the profitability of dairy farming started another spell of forest clearing, this time by means of the mechanised uprooting of trees.

PART THREE

Opening the Microeconomic Environment

The difference between the money price of labour in China and in Europe, is still greater than that between the money price of subsistence … The proportion between the real recompense of labour in different countries, it must be remembered, is naturally regulated, not by their actual wealth or poverty, but by their advancing, stationary, or declining condition.

Adam Smith, The Wealth of Nations, vol. 1, bk 1, ch. xi

The natural effort of every individual to better his own condition … is so powerful a principle, that it is alone and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations.

Adam Smith, The Wealth of Nations, vol. 2, bk 4, ch. 5

The growing of wool is not the chief purpose for which the sheep farmer employs his industry and stock. He expects his profit, not so much from the price of fleece, as from that of the carcase.

Adam Smith, The Wealth of Nations, vol. 2, bk 4, ch. 8

The main thrust of the government’s economic policy is to provide an environment in which the responsibility for decisions rests with the parties involved … Interventions in the past have manifestly failed to solve the problems they were designed to address and have created the need for further government action. It was, and still is, an impossibly slippery slope.

Prime Minister David Lange to Ken Douglas, Secretary of Federation of Labour, 22 September 1986

The transmission of market messages from consumers back to producers has been obscure and uncertain. This has been a production-led, chronically over-regulated [meat] industry.

Jim Sutton, farmer and Labour MP for Waitaki, Hansard, 9:55 p.m., 28 November 1989

10

Philosophies of Welfare: From Equality to Equity

overview: seeing liberality in context

In the mid-1970s, the income maintenance programmes anchoring New Zealand’s state-financed welfare system were extensive. Their early foundations, established from 1898 to 1912 and reaffirmed from 1938 to 1940, and their seeming progressivism were often hailed, although New Left critics found them parsimonious, racially skewed, and controlling.¹ Feminists noted that the supports presumed a nation of male breadwinners.² Income maintenance, a group of benefits distributed to fend off abject poverty, appeared to be politically unassailable. In recent times, the system had expanded from a base created in the two foundation periods. Responding to new contingencies, governments after the Second World War added supplements, make-work schemes, training programmes, and tax adjustments. Late-twentieth-century cultural and economic turmoil, along with every government’s yearning to brand programmes, produced supporting measures so changeable that it is impracticable to search for start and finish dates of innovations.³ The core benefits retained social security’s original guiding features, put in place between 1938 and 1940. State revenues funded monetary benefits for anyone who matched a defined category. Eligibility presumed community solidarity and equality. Since anyone could experience troubles not of his or her making, the First Labour Government had determined that the community should help through state auspices. Besides legislated measures, there were ad hoc rebates and concessions granted by state trading departments.⁴ Additions and adjustments, both formal and informal, went unquestioned during the relatively prosperous years from 1950 to 1974.

But then, from 1975, social welfare underwent rapid changes, prompted by growing concerns about the system’s costs, rationality, fairness, and equity. A 1991 note on a 1980s flow chart encapsulated the speed of modifications. “This is a very old version. Terminology has changed.”⁵ Seasoned union leaders suspected that more than terms had changed. The secretaries of the Federation of Labour and the Combined State Unions claimed in 1985 that the welfare state had once been based on “targeted taxes (ability to pay) alongside a benefit system that is universal.” However, the current government “is moving toward a universal system of taxation (the Goods and Services Tax) and targeted benefits.”⁶ They were correct.

In the late 1970s, the press and the National Party government started to question parts of the system. Later, during the mid-1980s, the Fourth Labour Government initiated studies, analysing benefits in ways that expressed a triple transformation in Western welfare thinking. First, beginning in the late 1970s, officials started to consider the specific needs of individuals. Equity was overtaking equality as the guiding principle.⁷ The union leaders were correct about that. Second, theories about human behaviour or rational self-interest entered discourses on benefits. When public service officials and politicians encountered alleged welfare abuses in the 1980s, they reacted by hiring investigators and by attempting to understand behaviour through reviews of explanations coming from the system’s alleged abusers. The purpose was to find a way to incentivise beneficiaries to enter the labour market if they were able to work. Third, even as politicians in oecd countries worried about fiscal deficits, they kept welfare spending at roughly the same percentage of gdp year after year, attempting to innovate without allocating new money.

Social welfare reform in New Zealand had once been aided by considerable political momentum. But over a ten-year period, reform lost support. In early 1987, Rob Laking, deputy director general at the Social Welfare Department, described for the Royal Commission on Social Policy how favour had shifted away from categorical benefits and toward targeting needs and, wherever possible, toward using the tax system to deliver assistance rather than to direct payments.⁸ As he well knew, Roger Douglas was developing his package along these lines. In his submission, Laking went on to identify how the triple transformation had impacted First Labour’s legacy.⁹

In the early 1970s, a consensus not only backed the existing welfare system but also embraced benevolence to the point that public servants managing benefits favoured relaxing the rules.¹⁰ Toward the end of the 1970s, public attitudes started slipping into criticism, intimated in a report by the New Zealand Committee on Women. It warned that world economic changes made it “less and less possible to expand expenditure on welfare schemes [and that] the problem is then to redistribute slender resources to the areas of greatest need.”¹¹ Media reports and rumours of alleged abuses of the unemployment benefit and exploitation of a recently initiated Domestic Purposes Benefit (dpb) forced governments to investigate both this benefit for solo parents and the unemployment benefit since an individual’s eligibility to continue receiving such income maintenance relied on honesty in self-reporting. That was a feature distinctive to both income-maintenance programmes. A beneficiary’s status could change, and failure to report a change allowed payments to continue, producing what were euphemistically called overpayments. Once criticism started about lax administration, it opened policy discussions about the scale and rationality of the entire system. A hardening of public attitudes preceded changes.

In common with other developed countries, New Zealand’s social welfare spending programmes had been put in place prior to 1980. In most of these same affluent countries, the welfare expenditures as a percentage of gdp subsequently remained much the same year after year. In New Zealand, from 1980 to 2000, it was roughly 16 to 17 per cent of gdp, slightly more than the oecd average.¹² Politicians in democracies after 1980 were less eager to promise or boast about spending a lot more on benefits and instead looked for ways to economise by repackaging existing programmes and by devising inexpensive progressive measures, such as requiring employer compliance with good practices. Public servants combed for savings in established programmes and particular communities. By 1984, studies from the Social Welfare Department had identified communities where a pattern of overpayments stood out, and the department had begun studying why some individuals felt that they deserved more than legal entitlements.¹³ The exposure of a few egregious frauds drew headline attention.¹⁴

Whether stressing abuses or accenting hardships, commentators turned attention to individuals, redirecting public and government sentiments about welfare away from equality and toward equity. In the equality setup, everyone was purportedly treated the same, although means testing continued unbroken from social security’s beginnings.¹⁵ In any proposed equity setup, more was to be given to those who needed it and more taken from those who did not. The proposition that equity could aid the vulnerable more effectively than equality was reasonable in theory. But it was iffy in practice given that flawed case decisions could hurt people in need and that adjustments to eligibility could serve fiscal rigour more than equity. Implementing equity in income maintenance required plenty of personnel, although computers were on the cusp of altering interdepartmental relationships across the public service.¹⁶

New figures of speech voiced the changes. Academics and public servants spoke of “incentives” to reach “outcomes,” of moving people “from benefits to wages,” of requiring family members to take greater “responsibility” for a beneficiary, and of pursuing “liable parents” to help support solo moms. Critics of categorical benefits complained about an absence of sensible “relativities” (comparisons among the sums paid for each benefit in pursuit of equity) and about “replacement rates” (the net amount of income from employment replaced by a benefit payment). Reformers wanted a “targeting” of needs, “efficiencies” across the whole economy, reduction of “dependency,” and elimination of “the poverty trap.” Public service specialists wrote about the “displacement rate,” the impact of moving individuals off a benefit and onto a “make-work scheme.” A few parliamentary leaders expanded the discussion, maintaining that “all economic policy is essentially social policy.”¹⁷ They tied social welfare into improving national productivity, proposing that benefits could be fine-tuned to entice individuals to seek work actively, which would help to realise a more efficient economy. From 1985, public servants and ministers deliberated over the fiscal, social, moral, and gendered meanings of welfare. New terms operated along one side of a fault line of policy discussions. On the other side, traditional language aligned with earnest social concern. Social welfare payments were still called benefits, and old-age security was called superannuation, venerable labels that were adopted to prevent stigmatising recipients.

Fourth Labour engaged in welfare retrenchment, zealously so from 1986 to 1990. The savings achieved through tighter controls, recovery of overpayments, and manipulation of indexing were overwhelmed by spending on superannuation, an untouchable benefit established in 1975. It swallowed over half the budget allocated to the Social Welfare Department and 15 per cent of all state expenditures.¹⁸ The quest for fairness, honesty, efficacy, and efficiency justified scrutinising benefits. Attention focused on the dpb and on unemployment benefits. Reformers in the Treasury and Cabinet wanted to direct benefits to individual needs, uphold integrity, reduce unjustified disparities among benefits, and establish benefit rate relativities that were appropriate to weekly wages in order to give beneficiaries an incentive to seek employment.

Reducing welfare dependency was a Treasury preoccupation from at least 1984 and likely much earlier.¹⁹ Reformers hoped for a broad clean-up of relativities, one that would bring Accident Compensation Commission payments into line with sickness benefits and align both with a basic weekly wage.²⁰ In equity schemes, a weekly wage provided the base figure for calculations. Proponents of equity supposed that computers could manage well-conceived relativities as well as rationalise programmes scattered across separate departments. Thus computers were welcomed for reviewing eligibility, detecting overpayments, and assembling material for policy formation.²¹

The idea of a stigma-free single benefit was first mooted by the task force sponsored by Douglas and Ann Hercus in December 1984.²² Although Douglas’s treasured Guaranteed Minimum Family Income (gmfi), with its implied targeting, was dead and buried in 1988, Cabinet approved of a scheme in late 1989 that would target individuals in need.²³ A complicated omnibus bill would have established a benchmark, a so-called generic or universal benefit, adjusted to individuals’ circumstances. Caseworkers with the Social Welfare Department would have had to interview clients to assess their capacity to work. Placed on the legislative agenda late in the life of a government fast coming apart, the bill ran out of time. Ministers and senior officials wondered about its administrative costs. Across the developed world, other governments similarly spent intellectual capital studying welfare reforms, eventually consigning root-and-branch change to “the too difficult box.”²⁴

categories and conditions

In 1973, when the consensus on welfare was still firm, the Social Welfare Department administered six categories of benefits: war pensions, an invalids’ benefit, a widows’ benefit, a sickness benefit, an unemployment benefit, and a benefit for single parents. The latter had been added by the Third Labour Government (1972–75), following a recommendation from the Royal Commission of Inquiry into Social Security. Apart from superannuation and invalid benefits, all remained means-tested. In emergencies and instances of need that fell outside the rules, the Social Welfare Department could provide special assistance. Administrators had authority to apply discretionary judgment. Impressions of fairness and compassion thrived, backed by narratives that eulogised the country’s pioneering welfare initiatives. These accounts opened in 1898 when a Liberal Party government (1891–1912) established a means-tested publicly funded pension for persons of good character aged sixty-five and over.²⁵

The Old-Age Pensions Act (1898) was the sole welfare measure of any lasting importance to emerge from this first period of welfare legislation.²⁶ Other welfare measures from the Liberals concerned conditions of work, wage fixing by arbitration, and reform of land tenure, all intended to advance the economic welfare of the Pakeha populace. The pension system established by the Liberals was to include widows (1911), Pakeha Land War veterans (1912), miners (1915), and the blind (1924). Eligible individuals were defined by indisputable circumstances. From time to time, the value of pensions was increased, and eligibility was relaxed. In 1926, a centrist-conservative Reform Party government (1912–28) introduced family allowances paid to mothers based on the number of children and subject to a means test.

First Labour (1935–49) initiated a second era in social welfare with the Social Security Act (1938), a label lifted from the American New Deal.²⁷ It extended the eligibility and increased the amount of existing pensions. Social security was intended to provide subsistence to all citizens who, due to difficulties arising from exceptional or unavoidable circumstances such as unemployment, sickness, or old age, could not maintain themselves or dependants.²⁸ The benefits were ascribed to categories of people. “Each category,” as social security historian Margaret McClure notes, “acknowledged a valid expected cause of hardship.”²⁹

The notion of a “valid expected cause of hardship” determined by defined categories was reasonable at a time when they roughly matched individual need. Later, need diverged from the qualifying categories due to wider prosperity, greater income disparities, public service benefits, and private retirement plans.³⁰ Not everyone in a category had the needs equivalent to those prevalent in the late 1930s. Moreover, although the old system did not completely ignore women and minorities, they were on the system’s margins. The Social Security Act provided the basis for a comprehensive health service but did not deliver comparable coverage to Maori. In principle, the health scheme was contributory, with a levy on all income but with no relationship between an individual’s contribution and the benefits received. In a minor way, this system redistributed wealth.³¹ In common with democracies worldwide, social welfare philosophy during and immediately after the Great Depression was moderately redistributional with respect to the families of a dominant settler population.

First Labour introduced the term “benefit,” long used for sickness and burial payouts funded from friendly societies. It communicated dignity and implied that payments were paid through contributions.³² They were not. First Labour expanded the state’s social welfare role from the provision of charitable assistance for the destitute to the delivery of benefits for people at large. It bears repeating that these benefits were trimmed by means testing, which accorded with a notion of fairness, namely all receiving according to their needs and all giving according to their means. Payments were helpful to many, and the categorical approach simplified administration, a feature with enduring appeal. For the next thirty years, it was unwise for politicians to challenge the system. During good times, it loosened. In 1946, a family benefit dating from 1926 was increased, and the means test was dropped. During the 1950s, governments authorised supplementary grants. These grants were increased in the 1960s to include a telephone concession and assistance for nursing home fees. Unofficially, conditions were eased.³³

It took a new categorical benefit to rattle a tacit consensus that favoured big-hearted generosity.³⁴ An international cultural upheaval made problems for categorical benefits. In the 1960s, New Zealand, in common with many economically advanced countries, experienced fewer formal marriages and greater intricacy in family composition.³⁵ Public servants and politicians puzzled over how best to extend the state’s responsibility to divorcees left without support and to children when parents separated. “The state,” as McClure writes, “was being drawn more forcefully into this confusing new arena of family finances.”³⁶ Gender entered the social welfare picture as never before. Current benefits helped widows but not women who were separated or divorced or who had been in a de facto relationship. Support for a solo parent did not fit current status categories. A new category with an appropriate definition was required to update a decent society. To be sure, the National Party was not wedded to a categorical approach to this issue and favoured discretionary aid.³⁷ Thus the Second National Government in 1968 introduced an emergency benefit earmarked for solo parents, deserted wives, and separated or divorced women.

Third Labour converted National’s emergency benefit into a legislated categorical benefit for single parents with dependent children irrespective of the causes of their circumstance, including women who had been in a de facto relationship.³⁸ The Domestic Purposes Benefit fitted the time-honoured social security makeup; funded by state revenue, it was a benefit for individuals defined by their status. By regularising the benefit, Labour made it secure, uniform, and better known. Critics accused it of increasing marital breakdowns and pregnancies out of wedlock. Disapproval spilled across class and party lines. In his 1976 account of Third Labour, Michael Bassett wrote that although solo parent groups claimed that the government was penny-pinching, aid “was substantial enough to alienate many traditional Labour supporters.”³⁹ Some working families on Struggle Street were leery of these beneficiaries. McClure discovered unneighbourly bitterness from poor working couples.⁴⁰ Resentful neighbours reported women who had a “fellow living there,” took in boarders, held a job, and all the while drew the dpb.⁴¹ Members of Parliament and public servants received letters presenting anecdotal evidence for and against. Social welfare more generally became a casualty when questions about integrity and eligibility widened.

consensus lost: parents, workers, shirkers

Simultaneous with the new fluidity in family composition, more women were working, which affected means testing for the Domestic Purposes Benefit. Joint custody further complicated the assessment of children’s needs and mothers’ capacity to support themselves. The dpb plunged personnel at the Social Welfare Department deeper into sensitive work that connected benefits to the sexual revolution and women in the workforce.⁴² Claims that the dpb had precipitated changes in domestic relations were tendentious, but claims and denials about its alleged corrosive influences persisted.⁴³

A fault with a related support measure, the Domestic Proceedings Act (1968), further undermined trust in the dpb.⁴⁴ The legislation unintentionally allowed men in de facto relationships to escape court orders to support partners and children while obligating married men. De facto couples were outside the legislation’s coverage, meaning that some men could evade responsibilities. In response to sundry administrative and philosophical complications, Third National appointed a Domestic Purposes Review Committee in August 1976.⁴⁵ Chaired by a magistrate, Jack Raymond Poppleton Horn, the committee contacted eighty organisations.⁴⁶ Over half made submissions, overwhelmingly women’s groups.⁴⁷ Consistent with the conservative makeup of many well-organised women’s groups, plenty of recommendations criticised the dpb as currently framed but not the excellent intentions. The committee concluded that it “had no difficulty in agreeing that such a benefit is necessary for the alleviation of hardship.”⁴⁸

The welfare of parents and children was uppermost in the committee members’ thinking, but they favoured targeting benefits. The report’s leading recommendations included marriage conciliation before granting the dpb, prompt action by courts to issue maintenance orders, steps to bring the maintenance obligations of de facto partners into line with married individuals, counselling for unmarried expectant mothers, employment training for women alone when their care duties ended so that they could be taken off the dpb, adjustments to means testing in order to allow single parents to earn more before the benefit was abated, recruitment of more social workers, speedier application processing, and advice on budgeting practices by solo parents. The Horn report cited crude calculations to bolster one of its recommendations, namely that the benefit should be reduced for the first six months to discourage couples from separating to draw the dpb. The committee unwisely accepted an overestimation of the ex-nuptial birthrate and blamed the dpb. Flawed data left the general impression that the dpb induced behavioural effects – divorce and a rise in pregnancies – that could be remedied by reducing the benefit or imposing a six-month stand-down period.⁴⁹ These mistakes were important but had less public impact than the proliferation of rumours about de facto couples feigning a separation and dishonestly securing the benefit.⁵⁰ The fact that provisions for widows remained more generous and had conditions less stringent than the dpb expressed a tacit community judgment that solo parenthood arising from circumstances beyond control (death of a spouse) gave a stronger claim to assistance than solo parenthood that appeared to be social or partly voluntary in origin (pregnancy and no supporting male). Benefits reflected community attitudes and judgments about individuals. The consensus was breaking up.

The Horn report exemplified classic liberalism because it promoted individual responsibility. It was a historic gathering-up document, revelatory for a history of ideas connecting gender, public opinion, and social welfare. The report’s many heterodox recommendations – there were a lot – highlighted the unsettled state of opinion in the mid-1970s and the previously veiled tensions and weaknesses in the Social Security Act’s original details. For dpb eligibility, the committee wanted personnel at the Social Welfare Department to examine circumstances and then, based on inspection, to make discretionary decisions. It also pointed to inadequate child care facilities; it claimed, too, that the dpb had an adverse influence on adoption.⁵¹ For the next twenty years, this report on needs and benefits, not an external body of ideas about the proper role for the state, was a wellspring for social welfare changes and controversies.

Recommendations wandered in many directions. Crucially, the report did endorse assistance for solo parents. However, not long after its publication, dpb abuse erupted as a staple of sharp disagreement at all levels of society. The report identified why this abuse might have happened. Neighbours of some solo parent beneficiaries were incensed when they saw the parent fail to report a re-established or new de facto relationship. As the report put it, “The problem involved in a de facto relationship is not only in deciding qualifications for a benefit but also deciding where and when a relationship becomes a disqualifying factor for a benefit already granted.”⁵² The report dismayed defenders of a status quo at the Social Welfare Department because it asserted the responsibilities of the other parent, required department agents to work harder to save marriages, and raised the equity topic of personal and family means. As well, the idea that a failed marriage could be patched up by mandatory conciliation was an unduly rosy hope. In fairness, the report emphasised that no spouse should endure abusive conduct.⁵³ An intimation that more young solo mothers should consider placing their babies up for adoption was awfully tendentious.⁵⁴

The report exposed the swing from equality to equity, stressing that individuals in difficulty should have assistance consistent with proven need but insisting that once clear of their emergency, they should support themselves.⁵⁵ There would always be beneficiaries for whom self-sufficiency was implausible. For them, the report recommended state incentives for employers to hire and train them.⁵⁶ This idea was utopian. Yet the underlying unease about benefits promoting welfare dependency corresponded to First Labour’s conception of social security, namely that benefits should be for emergencies, not perpetual support. The challenge was to create rules that served this principle as well as fairness to parents and children. In her 1993 history of income support for women, Ann Beaglehole wrote that more women than ever before were dependent on state support and explained that “while these women would clearly be worse off without such provision, this also gives cause for concern.”⁵⁷ Welfare needs had obviously changed in the half century since 1938. Inherent strains between universality and means testing, now part of debates circulating in public, were joined by the tension developing between a categorical and a time-limited benefit. Additionally, the status and poverty of women, never considered when social security was established, were now front and centre in a major social welfare controversy.

Disappointed by the Horn report, officials at the Social Welfare Department commissioned their own study of solo parents’ circumstances, aiming to challenge the idea that women who received the dpb and whose children were attending school or had left home should seek employment rather than relying on the dpb. Hypothetically, a solo mother could have working-age children in her early thirties. Should a benefit continue in these circumstances? The department’s study, known as the Wylie report, purported to discover evidence that discredited criticisms of the dpb, but it was an imperfect retort capable of producing only results that accented positive outcomes from the dpb. Instances of real needs and rescues were undeniable but improbably preponderant in this study due to biased research techniques. The Social Welfare Department invited a number of women to participate in the study; it was not a randomised inquiry. The response rate was one in four, except in South Auckland, where it fell to one in ten. Community workers provided names of individuals from this area to raise the number of Maori informants. They could have been selected by parties who saw the dpb’s good effects and wanted to collect positive accounts. Individuals who exploited the system would not have been recruited or have volunteered.

Lines were drawn. The Horn report informed policy debate for a long time. The Wylie study sustained defenders of the status quo. Eventually, the Third National Government confronted the predicament of non-contributing de facto partners by adding an administrative layer to the dpb in 1981. A so-called Liable Parent Contribution scheme required non-custodial parents to contribute to dpb payments. This measure closed a loophole that disadvantaged married men, but it threw enforcement onto the Social Welfare Department and was of dubious legality.⁵⁸ Applicants had to name the other parent. In principle, the other parent had to help support the mother and child. The department was to help solo parents but also to urge them to seek employment or to coax ex-partners, even parents, to contribute to maintenance. The pursuit of fairness was becoming exceedingly complicated and lining up conditions that invaded privacy. Taking cues from the Horn report, some officials and ministers wanted to calibrate the dpb so that individuals who could work would cease being beneficiaries after their children had reached a certain age.⁵⁹ Concerns about welfare abuse, welfare dependency, sexual conduct, child care, and male responsibilities were spinning the welfare compass. Direction was missing. Then fiscal realities intervened.

Until 1972, New Zealand had more or less escaped fiscal pressures. The big budget deficits began in fiscal 1972–73 and exploded in 1975–76. Optimism still coloured the 1973 report of the Royal Commission of Inquiry into Social Security, which recommended that benefit rates should enable beneficiaries “to belong and participate” in the community, but the report implied a concurrent conceptual “narrowing [of] the ideal of social security to the amelioration of poverty, which in turn meant a strong preference for selective (stronger means-tested) benefits.”⁶⁰ This targeting outlook “differed from the earlier Labour concept of solidarity, in which the nation was notionally unified by sharing in universal benefits.”⁶¹ The 1973 commission proposed a twist to means testing, endorsing the idea of supplementary assistance beyond standard benefits but only if accompanied by “stricter eligibility tests.”⁶²

Although policy ruminations in the capital city showed a lively interest in means testing, now packaged as targeting, the mood at regional offices of the Social Welfare and Labour Departments remained relaxed and munificent. In summertime during the early 1970s, a few young men left work voluntarily, collected unemployment, and shunned reporting to district offices of the Labour Department. To some officials in the Social Welfare Department, these neglectful “surfies” were not layabouts but lads taking a break at locations where coincidently there were no employment offices. They would seek work after Christmas holidays.⁶³ To others, these voluntary unemployed beneficiaries sought isolated locations to avoid call-ups, exemplifying the drawbacks of a system that relied on honest self-reporting but split responsibility for tracking beneficiaries between the Social Welfare and Labour Departments. The business of two departments risked becoming the business of neither.⁶⁴ Evidence of this likelihood showed when a Labour Department district superintendent remarked to head office in 1984 that if the Social Welfare Department wanted to grant a benefit without having the individual “enrolled as a jobseeker with us then that is a decision for Social Welfare.”⁶⁵

Voluntarily leaving a job and drawing the unemployment benefit without registering for work irked employers, who wrote MPs to complain about incidents at least into the mid-1980s.⁶⁶ It likely persisted longer, for as good as the public service was, there were system administrators who did not know what was going on or care to know. It was not only men who took advantage of weaknesses in the system. Some young women in rural areas received the unemployment benefit even if there were no employers in the region, and applicants close to family were disinclined to move for a job.⁶⁷ Deceptions were varied, and the Social Welfare Department’s policing was an uncomfortable chore. Treasury analysts throughout the 1980s suspected that the department’s agents administered eligibility requirements “in a relatively loose manner.”⁶⁸ Overemployment in state-owned enterprises, a separate but related matter, cloaked welfare as earned wages. Income maintenance was now exposed and required attention because so many had relied on it, with the most deeply affected communities often being those with the least capacity to provide retraining or new employment.

A changing world derailed New Zealand’s managed and subsidised economy, but personnel at the Social Welfare Department could not imagine or countenance cutbacks. Accustomed to a run of good years, some of the department’s caseworkers ran their branch with optimum generosity, which was not merely out of step with the current fiscal situation but also out of step with the principles present at the system’s creation in 1938. Thus an accommodating official complained in 1972 that the guiding philosophy for an unemployment benefit dating from 1938 was to make “receipt of the Unemployment Benefit as difficult as possible for the payee.” This aim was accomplished, he argued, by requiring weekly reports to the Labour Department. Unemployed beneficiaries had to supply the names of employers that they approached about obtaining employment.⁶⁹ The staff of the Social Welfare Department in the 1970s included many more whose attitude was more permissive than that of the system’s founders, in part because they could not identify with the bygone culture of the Great Depression era.⁷⁰

A decade later, plenty of caseworkers held the view that it was wrong to review clients as if they were criminals. All the same, reports of abuses and fraud were undermining support for liberality. By at least 1980, critics at large as well as in the public service were emboldened. Both political parties denounced abuses. Socially conservative interest groups maintained that the Domestic Purposes Benefit undermined the traditional family. None of the studies that marshalled statistical analysis gave uncontested results or ideal solutions, but along with reports from the Social Welfare Department’s regional managers, formal investigations exposed loopholes and administrative gaps in those two highly controversial and open-ended benefits, unemployment and the DPB. Criticism was spreading beyond them. Medical benefits were growing due to greater awareness of psychological ailments and of alcohol and drug abuse. In 1989, half of the medical benefit payments pertained to these three matters.⁷¹ The reassessments of social welfare reflected not some new ideology but changing conventions around marriage, employment, health, gender, intoxicants, hallucinogenic drugs, economic stagnation, and fiscal troubles.

Institutional inertia in the Social Welfare Department’s regional offices contrasted with ferment in the capital. The 1970s style of forbearance persisted into the 1980s. At some of the department’s seventy to eighty offices, an aversion to checking on beneficiaries’ eligibility implies that quite a few employees believed that “the Department generally has an altruistic function and the appropriateness of it becoming heavily involved in seeking out fraud is questionable and perhaps damaging to public relations.”⁷² When K.I. Jeffries, the department’s director of benefits, wrote this remark in 1983, fiscal difficulties already heralded resource constraint. Jeffries resented searching for abuses. “How far do we go? Police tactics? Asking neighbours?”⁷³ Another official scribbled in the margins, “What does uk do? Australia?”⁷⁴ It was soon discovered that they conducted inquiries. Social changes and fiscal realities put liberal spenders at the Social Welfare Department on the defensive and sent Treasury analysts looking for international advice.

opportunistic abuses

In the early 1980s, senior officials at the Social Welfare Department were starting to accumulate information on beneficiaries and advice from international sources on how to stop abuse. In 1984, the department reviewed records for 47,000 maintenance orders and Liable Parent Contribution agreements. The successful collection rate was only 38 per cent because individuals were “deliberately defaulting on their responsibilities and keeping their whereabouts unknown.”⁷⁵ Revelations weakened the long-standing consensus in support of the unemployment benefit. Rumours of misconduct and rising expenditures led the department’s director general, J.W. Grant, to investigate in late 1981 and early 1982. Inquiries focused on whether beneficiaries, whose payments were handled by the department, were abiding by requirements to seek employment and, when returning to employment, to report this change so that benefits could be terminated. At this moment, Jane Stevens of the Wellington Unemployed Workers Union lobbied on behalf of “the thousands not receiving [benefits] who should.”⁷⁶ Rhetoric referenced vague numbers – thousands – for authority; however, in this contest, the state had the advantage of records and research capabilities.

To discover the scale of abuse, the Social Welfare Department manually matched the names of beneficiaries with names on the Labour Department’s Job Seekers Register. Labour registration was a condition for the benefit. A sample study (n = 18,726) disclosed that 9 per cent of unemployment beneficiaries could not be found on the register. A sample for Auckland (n = 3,228) found that 17 per cent had not registered. For Auckland’s industrial neighbourhood of Henderson (n = 839), it was 29 per cent. Based on imperfections in the manual linkage of records, studies likely underestimated the problem. Scepticism fostered appeals for computerised recordkeeping. In late 1982, senior officials at the Labour Department planned to adopt computers to maintain the register, recognising that they could link cases from several record sets to determine abuse and to secure addresses.⁷⁷ Fast reliable linkage required assigning social insurance numbers to individuals.⁷⁸ In the name of privacy, a few public servants opposed this step, although the Cabinet Policy Committee charged ministers with the task of finding ways to police benefits.⁷⁹ With an objective of “more effective policing and administration of the benefits system,” Minister of Social Welfare Michael Cullen revived the subject of record linkage in 1988, launching a study of social insurance numbers in other countries.⁸⁰ Local circumstance, global practices, and technology merged to support a new mode of politics. Policy makers wanted facts, not party remits, anecdotes, or rhetoric. Here, as elsewhere in the state sector, the computer facilitated Fourth Labour’s revolution in the conduct of the state.

The merits of an identification number for the administration of benefits were legion. Initial registration with the Labour Department was required for the unemployment benefit; continuation of the benefit required beneficiaries to visit a department office periodically and to come in for an interview if called. A 1982 study examined compliance with call-ups. Six regions with large numbers of unemployment beneficiaries were selected: Auckland, Henderson, Manukau, Hamilton, Otahuhu, and Christchurch. Altogether, 11,042 beneficiaries were called, and 9,134 complied. Most others had plausible reasons for missing appointments. Only a handful of benefits were cancelled; no overpayment was recovered. It emerged that the more significant transgression was failing to register with the Labour Department but still applying at the Social Welfare Department for the unemployment benefit.⁸¹ Without a social insurance number, checking was cumbersome. Avoidance of registration made official unemployment figures unreliable, gave credence to rumours of cheating, and required parliamentarians to defend the welfare state by condemning rule breakers.

Those who registered with the Labour Department showed a commitment to work; however, by 1982, prospects had diminished. Interviews with long-term unemployment beneficiaries disclosed that many had “very little going for them.”⁸² Some lived in remote areas and would not move; they lacked skills, self-confidence, experience, and references.⁸³ A few were shocked to learn that they would be expected to move if offered a job in another area. The incredulous included young people living with parents. Another problem involved beneficiaries who had returned to work and failed to report this change. Once again, divided jurisdictions, this time involving the Social Welfare and Inland Revenue Departments, permitted abuses. In late 1982, the Cabinet Family and Social Affairs Committee informed Grant that the government, concerned about rising costs, believed that the Social Welfare Department was losing control over its decisions on applications and case management. Newspaper coverage of a meat works employee convicted in 1983 of defrauding the department of $20,654 by failing to report his return to work spread the idea that cheating was prevalent because it was easy.

Senior department officials in early 1983 contacted counterparts in Australia, the United Kingdom, and the United States. General director Grant and his Australian counterpart, Tony Ayers, shared information. Grant learned in 1983 that Australia’s Social Security Department assigned agents to investigate suspicious circumstances. They talked to neighbours, inquired into the suspect’s spending, worked with other departments, and developed a profile on “risky types.” The United Kingdom had studied welfare abuse and concluded that about 8 per cent of payments were “fraudulent.” Fraud squads had been established. Studies in the United States advised acting on individual cases sooner rather than later. Welfare agencies there relied on training caseworkers to spot deceit.⁸⁴ Grant concluded that his department could tighten up its investigation of applicants. Department personnel found their work more challenging in scope, intensity, and client attitudes. The latter started to include hostility. The global penetrated the local. And the local went global. In the late 1980s, closer contact with Australian authorities was considered because “anecdotal evidence suggests that Australia is a refuge for many defaulters” on taxes and Liable Parent Contribution payments.⁸⁵

From 1983 forward, rule enforcement tightened. The fact that benefits for single individuals and youths were at a subsistence level led many to disdain the system and to practise deceptions as a right. One detested technicality required an unemployed applicant to wait a month before receiving benefits. The stand-down period was defended as a precaution in case claimants were promptly re-employed. For individuals without savings, the delays inflicted hardship, although the Social Welfare Department had this circumstance covered. Applicants could apply for special assistance under a hardship policy, and during the mid-1980s, an estimated 70 to 80 per cent of unemployment and dpb applicants required special assistance.⁸⁶ As pressure mounted to screen applicants more rigorously, the department’s employees faced more “hassles.”⁸⁷

Vulnerable women suffered these upheavals, although the opinions of women at large showed anything but feminist solidarity. Individual circumstances and suspicions of welfare abuse entered popular discourses, dividing women. Yet there were shared fears of male violence and brief glimpses into gender-based social and economic history.

rallying women, realising diversity

Poverty profoundly and uniquely affected women and children and still does.⁸⁸ Women thus had particular types of encounters with social welfare. There were a substantial number of solo moms, approximately 90,000 out of 110,000 individuals, who received the Domestic Purposes Benefit in 1989.⁸⁹ The remainder were eligible men. There had been 17,000 recipients when the benefit started in 1975.⁹⁰ Blanket condemnations of alleged immorality and welfare abuse unfairly thrust the moms forward as a uniform social type. To address this and other gender equity situations, it made sense that the minister of social welfare, Ann Hercus, was also appointed as the inaugural minister of women’s affairs. An energetic community activist – “all brisk and bristling with efficiency” –she had an agenda. Construing government as a grand agency for mobilising women, she wanted an “action oriented” ministry with a “feminist clearing house function” and staffed by feminists.⁹¹ She pressed unsuccessfully for extraordinary powers for the Ministry of Women’s Affairs, seeking status equivalent to the Treasury and the State Services Commission. To second-wave feminists, the subsequent rebuff pointed to patriarchy. Hercus responded by launching a series of Women’s Forums around the country.⁹²

The forums were intended as a feminist counterpart to Fourth Labour’s Economic Summit in September 1984.⁹³ Hercus and her staff aspired to fire up regional support for affirmative action, abortion rights, and an end to sexist language. There were twenty-one meetings. Maori women held several hui (assemblies).⁹⁴ The forums’ reports were not free expressions of representative views. Labour MPs and local Labour Party organisers directed proceedings that promoted party policies. An estimated attendance of over 15,000 suggests healthy interest, although turnouts for feminist sessions were modest. Only the Canterbury meeting, in Hercus’s backyard, endorsed feminist proposals. Meetings for the Manawatu and Horowhenua region, Wellington, and Otago were moderately supportive thanks to participants from universities. Even here, attendees disagreed over how to treat the status of women in the home and whether New Zealand should even ratify the 1979 United Nations Convention on the Rights of Women.

Forums at the Bay of Plenty, Gisborne, Marlborough, Nelson, Rotorua, Taranaki, Taumaranui, Timaru, Tokoroa, Waikato, Wairarapa, and Whanganui leaned to the right. In addition to a forum for Pacific Islanders at Tokoroa, Maori held several separate hui. Jill Abigail, an employee of the Ministry of Women’s Affairs, wrote a summary for Hercus. At pains to explain “the dissention,” Abigail attributed some opposition to fundamentalist churches and fear of change, asserting that “some women find it terrifying to contemplate the implications of equality for women.”⁹⁵ Older women did express anxiety about change but seldom showed concern about or interest in feminist causes. Few rural women came to the forums; when they did, they emphasised the economic crisis in the countryside and funding threats to rural schools and clinics. In Prime Minister David Lange’s opinion, the forums needlessly stirred opposition to the government.⁹⁶

An emphasis on affirmative action inadvertently upset homemakers. Their concerns needed to be addressed by acknowledging that individuals should have “the right to choose their own lifestyle.”⁹⁷ The New Zealand Working Women’s Charter, adopted by the Federation of Labour in 1980, had made this point by promoting the right to work for everyone. The charter’s proposals, and opposition to them, animated women’s groups throughout the 1980s. The charter also brought up a social welfare matter that bedevilled Douglas’s gmfi and challenged governments for years. It recommended shifting the basis for the distribution of some benefits away from families or households and toward gender-neutral individuals. This adjustment would have had fiscal implications since benefits going to families or households were abated to consider an economy of scale. The second person in a household did not double the unit’s expenses; therefore, the benefit was not to be doubled. A system based on individualised benefits, the approach favoured by some feminists, would have increased costs. Time and again, the idea of individualising benefits was rejected for this reason.⁹⁸ Gender equality, the definition of family, the responsibility of the family, the criticism of the patriarchal family, and integrity converged in academic and public service discussions over the leading social welfare benefits.

The Ministry of Women’s Affairs next floated the idea of a toll-free line to its switchboard. Although its budget could not stretch that far, it provided a free phone service for three days in 1987 to elicit women’s concerns. Hercus and her successor, Margaret Shields, wanted up-to-date information on women’s concerns for a submission to the Royal Commission on Social Policy. There were 787 individuals who called to speak with a department representative.⁹⁹ The most common comments, voiced by 146 callers (18.6%), concerned a lack of respect for work in the home. Callers remarked that “children need one of the parents at home when they come home from school.”¹⁰⁰ These callers recommended cultural sponsorship for traditional ideas about what constituted women’s work. One said, “If you’re caring for children, you’re doing a job for the country.”¹⁰¹ Another explained, “I care about the future generations; [I am] first and foremost a wife and mother.”¹⁰²

Status bothered some. A thirty-five-year-old believed that “the status of the housewife and mother diminishes in comparison with working women.”¹⁰³ A thirty-three-year-old was fed up with expressions like “just a housewife” or “just a mother.”¹⁰⁴ Still another, also in her mid-thirties, “felt discriminated against, particularly in social situations when asked ‘what do you do?’”¹⁰⁵ Interest groups undoubtedly orchestrated many such calls. Regardless, the Ministry of Women’s Affairs had the same opportunity, and the callers quoted here, whether coaxed to call or not, shared vignettes of life. The family question that separated women was profound. Even in Parliament, feminists presented themselves as a sisterhood; however, such unity did not extend to National mp and new mother Ruth Richardson. Historian Barbara Brookes recounts how Labour women mps refused Richardson “the right to a pair (a courtesy not to vote when a member across the floor was absent) that would enable her to attend to the needs of her premature baby.” Richardson attributed this refusal to her failure “to pass the political correctness test.”¹⁰⁶ With a division across the country that extended into Parliament, it is not surprising that callers’ comments reflected the diversity. Traditional or conservative values did not dominate. A young woman wanted her children to grow up in a society “with less bias toward traditional gender roles.” There were more who shared her outlook.¹⁰⁷

Welfare benefits were mentioned by seventy-seven callers (9.8%). The Social Welfare Department had already begun to check dpb eligibility and to recover overpayments. A mother in her forties recommended changing the name of the benefit to “childcare” so that what had become “a dirty word” could have a fresh start that emphasised the child.¹⁰⁸ Callers questioned the honesty of dpb recipients but never that of other beneficiaries. Several mentioned that benefits were insufficient for widows, the disabled, the chronically ill, accident victims, and the unemployed. A few complained about anomalies in the benefits’ relativities.¹⁰⁹ They saw that as an individual’s categorical status changed, so did the amount of the benefit even though needs remained constant. A government review of the system expressed the situation this way: “The different treatments accorded to different beneficiaries were historical anomalies which add nothing to the efficiency and equity of the income maintenance scheme.”¹¹⁰ The tables of benefit rates, calculations of wage relativities, and concessions and subsidies had evolved without rationales for the accompanying sums.¹¹¹

A few callers blamed the dpb for nurturing dependency.¹¹² Whereas these parties stressed personal responsibility, others revered the state. A retired teacher believed that the country needed “a more socialistic economic policy, e.g. Sweden.”¹¹³ Others agreed, commending “a strong welfare state,” and recognised that current retrenchment combined with high inflation made life difficult for those on benefits.¹¹⁴ A few proposed widening eligibilities. “All students should be paid dole equivalent,” recommended a fifty-year-old whose mindset was not unusual.¹¹⁵ Welfare officials sometimes received high praise.¹¹⁶ An older caller remarked that there were “nice people” at the Social Welfare Department.¹¹⁷ Most appraisals, however, were scathing. Caseworkers, according to a twenty-seven-year-old receiving the dpb, made her feel like “a moron.”¹¹⁸ They assumed “that beneficiaries are dishonest and undeserving.”¹¹⁹ One young caller intimated that the best way to get help was to feign distress and “go in there in tears.”¹²⁰

Callers reported abuse and fraud.¹²¹ Opinions traversed a national debate. Means testing was fair, according to some, but was denounced as demeaning by others.¹²² A middle-income mother “saw purple” when people said that they wanted means testing because the benefit gave her “the independence to buy her children things.” All of us “have worked for the right to get it.”¹²³ To many callers, the dpb was not seen as a right; married women with low incomes were among its sharpest critics. A former public health nurse maintained that the “family should be responsible [or we] will get generations of people who remain on benefits.”¹²⁴ It “almost encourages them [teens] to have babies.” It left “too many children growing up without male role models.”¹²⁵ A young married couple on a low income resented the dpb because they did not qualify.¹²⁶ Another believed that friends on the dpb were “better off” than she and her husband.¹²⁷ Through her social work activities, a twenty-seven-year-old knew of two sixteen-year-olds “planning to get pregnant to get the money.”¹²⁸ Anecdotes were not proof of widespread abuses; however, they confirm that rumours had currency. A twenty-five-year-old, disgusted by alleged laxity at the Social Welfare Department in pursuing biological fathers, thought that de facto relationship status was being exploited for the dpb.¹²⁹ “A lot of dpb beneficiaries do undeclared work,” according to a twenty-eight-year-old.¹³⁰

No sooner had a critic spoken than a grateful beneficiary phoned to say that the benefit “must not go. Children will be hurt. Mustn’t reduce the mother’s ability to look after children.”¹³¹ A young caller applauded the dpb because “it seemed so easy for my husband to walk out the door.”¹³² Another recounted a long struggle to raise children after her abusive and adulterous husband walked out: “All the dpb money I have got has gone to raising three children.”¹³³ Ambivalent assessments confirm the breakup of what had been a social welfare consensus: “Some of these payments are necessary but people are ripping [off] the system.”¹³⁴

Women understood social welfare in the widest meaning. Child care was prominent, with seventy callers (8.9%) mentioning child care in the workplace, child play groups, afterschool activities, standards for daycare, provision of equipment, or tax credits for expenditures on daycare.¹³⁵ A few callers shared insights from having cared for seniors, asserting that people take “for granted that single women will take care of elderly members of the family.”¹³⁶ Health care concerned sixty-six of the callers (8.4%). These women wanted the government to increase community health units, rural nurses, mobile clinics, women’s clinics, breast-scanning facilities, pap smears for cervical cancer tests, natal clinics, medical advice centres, homebirth, birthing units in hospitals, pregnancy testing, family planning, and fertility clinics.¹³⁷ Rural residents envied facilities in cities.¹³⁸ Country women found that their lives were “very unequal with town.”¹³⁹ To correct this situation, it was suggested that “county families should be subsidised so that there was an equal quality of citizenship.”¹⁴⁰ The rural-urban employment divide endured as an intractable problem during an economic restructuring drive that was intent on rescuing only viable farms.

There were sixty-six seniors among the callers (8.4%) who found transitions difficult. Women who had once felt culturally secure realised that their values were losing their former currency. They wished to return to old-time values,¹⁴¹ including the repeal of “homosexual law reform,” a basic-skills education system, the restoration of “home economics” for girls, more discipline in the schools, Bible lessons in school, and radio programmes to suit older age groups.¹⁴² The issues of violence, order, and morality, which formed a substantial body of concerns, were raised by sixty-two callers (7.8%). A few confessed that they were “scared of violence in the community.”¹⁴³ One noted, “Biggest problem. Domestic violence.”¹⁴⁴ Another said that the education system should teach “men to control their tempers.”¹⁴⁵ Violence and sex on television were said to be “degrading to women.”¹⁴⁶ Among the callers were sixty-one divorced women (7.8%) who disparaged the courts and pleaded for emotional and legal support. There were fifty-one women in waged work (6.5%) who complained of working conditions. A few proposed that the Labour Department inspect a particular employer’s “sweatshop and pathetic wages.”¹⁴⁷ Unions did not escape criticism. A solo parent asserted that “casual and part-time workers should not have to pay full-time union fees.”¹⁴⁸ The exhaustion of working and mothering was mentioned, along with appeals for equal pay for equal work.¹⁴⁹ Callers exposed nepotism, a lack of clarity in promotions, sweatshop conditions, and unhealthy workplace environments.¹⁵⁰

Women’s viewpoints on welfare topics contributed much-needed gendered insights into troubles and aspirations unaddressed by core benefits; these wider accounts spoke of community health care, workplace harassment, domestic violence, work in the home, equal pay for equal work, and child care. But conservative women and feminists clashed, mainly over the dpb but on other issues too. Their differences showed the public rifts cracking the once sturdy welfare consensus. In the union movement, it was the same: women opposed one another and were clearly divided politically. Second-wave feminists encountered a reality. There were limits to the gender revolution.¹⁵¹ At the same moment, officials gazed anxiously into a fiscal sinkhole opened by superannuation.

super conundrums

From 1940 to 1975, New Zealand’s system of retirement benefits maintained both equality and equity features. The equity benefit was the older of the two. A successor to the 1898 old-age benefit, it was available to poorer people over the age of sixty. They had to meet a means test. The more recent equality benefit was the deceptively named superannuation established by the First Labour Government and available without a means test at age sixty-five. Its universality implied equality. Third Labour opened a can of worms when it introduced a contributory scheme in 1974, one that required the compulsory collection of employees’ contributions for investment in a sovereign wealth fund. Compulsory contribution plans worldwide were intended to shift part of the burden for supporting retirees out of the state’s consolidated revenues and onto individuals themselves. These plans made no provisions for non-wage earners; however, New Zealand’s two older tax-funded benefits provided a welfare safety net for these seniors.

The universal payment without means testing was funded by a social security tax that covered other benefits too. As the driving force behind this benefit, the minister of finance in First Labour, Walter Nash, justified universality because old age was inevitable; however, Treasury officials in 1940 warned Nash that an immediate move to a full payout would be ruinous. Therefore, distribution was phased in and not available at the full rate until 1960.¹⁵² The universality feature in Nash’s scheme simply “ignored the diversity of old people; the aged were not necessarily weak, dependent or poor.”¹⁵³

In the 1975 election, National Party leader Robert Muldoon offered “the biggest election bribe in the county’s history” by promising to repeal Third Labour’s contributory plan, merge the two older benefits, increase the combined payments, and eliminate the means test.¹⁵⁴ Labour went into the election without popular prime minister Norman Kirk, who had died in August 1974. Kirk supported a contributory scheme and might have defended it with conviction.¹⁵⁵ Muldoon’s ploy succeeded. Tax-based superannuation, called national superannuation, was granted to each woman or man over sixty-five on an equal basis at the income-replacement rate of 70 per cent in 1977 and then 80 per cent in 1978; the income replaced was the national average weekly wage before taxation. In expectation that economic growth would be favourable, taxes were not raised to match the expansion of the benefits, and in consequence the scheme contributed to consecutive deficits.¹⁵⁶

In the mid to late twentieth century, governments of prosperous democracies reviewed and revised retirement benefits for seniors. Social welfare economist Peter Lindert found that across the oecd “the drift toward lowering the poverty rates more for the elderly than for children and those in working age is clearly tied to a bias in expenditure policy.” The reason seems to have been grey power.¹⁵⁷ In good years from 1950 to 1975, political and social urges to be generous to the elderly dominated. Later came the fiscal pressures.¹⁵⁸ Ethnic variations in longevity and the increase in diverse household composition complicated fairness; social and cultural revolutions in the developed world were making fairness by categorical definitions elusive. Distribution by age, despite presenting an objective threshold, was unfair to segments of the population that had a lower life expectancy. In New Zealand, Maori died younger than Pakeha.¹⁵⁹

National superannuation could not achieve perfect fairness, but simplicity reduced administrative overhead. Family composition presented another challenge since ministers and officials asked what constituted a fair payment to married couples, to singles living alone, to singles flatting together, to low-wage earners, and to people who had been self-employed. At least the tax-based benefit avoided the gender bias of a wages-based compulsory contribution scheme.¹⁶⁰ Yet it was a hostage to fiscal conditions and to any great increase in the dependent population. In 1989, the 450,000 recipients of superannuation accounted for 65 per cent of individuals receiving benefits and for 15 per cent of the population.¹⁶¹ At the time, a rare contemporary academic critique of the country’s welfare state judged that it had “built into it a strong tendency to run to excess, and an incapacity for balance or control.”¹⁶²

When it was realised that the original terms were fiscal quicksand, Treasury officials reviewed the age threshold. Distribution was fraught in other ways too. It was necessary to establish a fair as well as a fiscally responsible income-replacement rate. Officials presented ministers with policy questions. Should a retiree receive a 50 or 100 per cent replacement of a common wage? Somewhere in between? Where? Which definition of a common wage? What would constitute a fair as well as affordable replacement rate? Could it be kept out of politics? If an index applied, should it be tied to a typical wage or some version of a consumer price index? How often should distributions be increased to keep up with the index? The influence of grey-power voters made it politically perilous to adjust any variables in order to reduce payments. Margaret McClure would criticise the growth of tax-funded superannuation, calling it “the explosion of state funding on the old.”¹⁶³ Bothered by the poverty and dependency of many women, she moralises that superannuation consumed welfare funds that could have been channelled more responsibly to younger people in need. The Treasury had a different concern with the scheme, one expressed in the dry prose of the Treasury’s secretary, Bernard Galvin. Writing to Muldoon, Galvin explained that “while a system of tight controls is necessary to contain Government expenditure, reversing the upward trend of the last decade is only likely to be achieved through a willingness to reduce particular areas of Government activity.”¹⁶⁴

By the mid-1980s, international specialists were advising governments on retirement plans. In late 1987, a New Zealand government working group contacted Joseph Stiglitz at the University of California. Stiglitz recommended against any overhaul that relied predominantly on investment in private plans. Subsequently, in 1988, a major report on benefits dismissed this option.¹⁶⁵ The variety of possible sources of funding, adjustments to eligibility, and amounts paid, plus the political sensitivity of superannuation, assured a diversity among schemes internationally. The provisions for the income maintenance of New Zealand retirees was unusual but not exceptional. In any event, each adjustable part – age threshold, income replacement, indexation, recipient unit, fiscal burden, and tax exposure – was familiar to managers of other national systems, consultants, academics, and administrators of private pension funds.

Many individuals over sixty had other income, so the tax-based benefit with a high income-replacement rate contributed to increased consumer spending when the balance of payments was deeply in the red, prompting National to restrict individuals’ time spent overseas while drawing superannuation.¹⁶⁶ For individuals over sixty who had no additional income, estimated at more than 30 per cent of the cohort, indexation of superannuation to wage increases seemed insufficient in the face of inflation, the ravenous bogey of people on fixed income. The twice-yearly adjustments never came soon enough.¹⁶⁷ Even with restrictions and downward adjustments, the cost to the state quickly doubled. For the 1979 budget, National lowered the benefit to a married couple from 80 per cent of the before-tax average earnings to 80 per cent of the after-tax average earnings, a sleight of hand that reduced the benefit from 87 per cent of after-tax average earnings to 80 per cent.

By mid-1986, officials and academics wondered whether superannuation was sustainable in its present form. After examining the Australian, British, Canadian, and American schemes in 1989, Labour altered the income-replacement rate to a minimum of 65 per cent and a maximum of 72.5 per cent. Two years later, National began raising the qualifying age; a coalition government of National and the New Zealand First Party (1996–98) set the replacement base at 60 per cent, and a coalition government of Labour and the Alliance Party (1999–2002) restored the band of 65 to 72.5 per cent.¹⁶⁸ In view of adjustments and a parade of welfare task forces, the Council of Trade Union’s submission to a 1989 review of tax-funded superannuation forecast that inquiries supplied “different bases on which politicians can tinker with the well-being of the elderly from now to eternity.”¹⁶⁹

Superannuation returns us to the Economic Summit of September 1984, when the minister of social welfare, Ann Hercus, reviewed New Zealand’s main income-redistribution mechanisms and concluded that “the major single item is national superannuation, which is nearly twice the size of the next largest single item, namely hospital services.” Almost 70 per cent of the Social Welfare Department’s budget went to 15 per cent of the population. She associated social welfare with economic welfare because the standard of living depended on “improvements in economic performance.”¹⁷⁰ Until that happy day, benefit programmes were scrutinised for savings, and overpayments were collected. At the same event, the former chair of the New Zealand Planning Council, Sir Frank Holmes, a recipient of national superannuation himself, was loudly applauded when he argued that the benefit needed to be looked into because the government had to find ways to finance the deficit.¹⁷¹

In its first weeks, Fourth Labour increased spending on superannuation to redress an anomaly carried over from Muldoon’s price and wage freeze. The fact that superannuation and unemployment benefits were indexed to wages meant that both fell relative to other benefits that were indexed to consumer prices, which had not been frozen. Such were the complexities of a benefit; such were the distortions of freezing prices and wages. The catch-up in foregone benefit payments was estimated to cost $200 million per annum. The government could have exploited this accidental legacy of the freeze but decided otherwise since the anomaly affected the poor disproportionately. In his 1985 budget, Douglas levied a surcharge on the tax of beneficiaries’ other income. Technically, it was not a tax on superannuation, but it reduced payouts of the benefit and eliminated some altogether. Individuals who had saved for retirement were outraged since the tax was ostensibly aimed at other income.¹⁷² Even Lange’s mother condemned it as a departure from a universal benefit. Her generation came “to distrust the Labour government.” Polling showed that a majority of citizens did approve of targeting as opposed to universality.¹⁷³ In the first year of the surtax, about 10 per cent paid back the equivalent of their superannuation in tax payments, and roughly 13 per cent paid back a partial amount. National in 1991 increased the surcharge; then the coalition government of National and New Zealand First abolished it in 1998.¹⁷⁴ Tax-based superannuation oscillated, suspended between fiscal watchdogs and grey-power voters.

policing and incentivising

In the medium term, governments could not achieve major savings in the social welfare budget. Superannuation saw to that. Economic growth was critical. Until that happened Treasury officials and ministerial supporters of fiscal restraint pressed Minister of Social Welfare Ann Hercus to trim expenditures, incentivise beneficiaries to seek employment, and move to an equity-based welfare system. Aware of the fiscal situation, Hercus could not let her department coast on its 1970s-style spending course. At the Economic Summit, she had levelled with her audience: “We are in a period of resource constraint … We will not get over our difficult times quickly.”¹⁷⁵ This hard truth and welfare abuse left her wrestling with her instincts, for she favoured public consultations and had misgivings about a radical restructuring of benefits. At first, fiscal tightening left the Social Welfare Department unscathed, something that immediately irked primary producers following the removal of their subsidies. Several months following the election, Cabinet approved of spending $231 million per annum on a Family Care Programme that targeted non-beneficiary working families. After applying, the caring parent, mother or father, could receive a tax-free grant of $10 per week per child. An associated benefit was available to families with special needs.¹⁷⁶ The programme assisted working families, especially solo moms with part-time jobs.

Applications were supposed to be reviewed for eligibility (means testing), although staff of the Social Welfare Department sampled only for eligibility due to workload. Out of 198,858 applicants, almost 90 per cent (176,673) were accepted. To manage this programme, the department hired 440 permanent and 260 temporary staff at a time when its staff ceiling was around 6,000. As unemployment rose and state-sector restructuring accelerated, requests for more staff became routine. Appeals for more staff were granted, with understandings that when unemployment started to drop, the department would shed personnel.¹⁷⁷ The volume of current work and the prospect of more funds for equity-based benefits help to explain why Douglas looked for ways to evaluate need and to distribute aid to low-income working families through the income tax system rather than the Social Welfare Department. The department’s targeting schemes increased state-sector employment.

Attention to working families in the Family Care Programme agreed with the Treasury’s unwavering drive to incentivise beneficiaries to seek work since under this scheme they could receive assistance along with wages.¹⁷⁸ Regrettably, regional economic disadvantages meant that many locales did not have part-time work for women, who thus were ineligible. To appraise the programme, the Social Welfare Department conducted a sample survey, one of many expressions of social science research spreading into applied politics (polling) and policy making (sampling opinion). Out of 799 families sampled, 382 received the new Family Care Benefit, and 73 per cent of all those contacted rated the programme as good or better. Of those receiving the benefit, 93 per cent rated it as good or better.¹⁷⁹

In its early months, the new government’s welfare spending included social assistance outside the management of the Social Welfare Department. Core benefits formed only a part of a broader welfare picture. The July 1985 budget included a commitment to spend on labour retraining, replacing National’s Project Employment Programme, which had funded local government make-work projects. The new measures were intended to help the unemployed acquire skills, not to employ them on subsidised community projects of this kind.¹⁸⁰ Training fitted the government’s commitment to self-reliance, private-sector employment, and clear messaging.¹⁸¹ Prior to the 1987 election, Lange told the Federation of Labour Council that his government’s attitude toward the unions’ proposal for fully subsidised community-based make-work projects was “emphatically negative.” Unable to protest since “everyone appreciated that a Labour defeat would be catastrophic for everyone, whatever the differences might be,” the federation feigned a “positive image of relations with the Government.”¹⁸²

The changes in policy that ended make-work projects and emphasised targeting put Hercus in a difficult spot. Some in the party organisation criticised the government’s intention to target benefits, a concept “totally opposed to Labour’s traditional policy of distributing universal benefits.”¹⁸³ Hercus treaded a tightrope. Below on one side were the Labour Party traditionalists for whom equity was apostasy. On the other side were the triple changes overtaking Western welfare programmes. Hercus had to confront complaints about abuses, contain welfare spending, and incentivise beneficiaries to enter the labour market if they were able to work.

Her first step in dealing with these challenges had been to appoint a task force, imagining that it would include community representatives and would recommend only marginal reforms. The Cabinet Policy Committee rejected her policy paper. The Treasury’s rival paper proposed a task force composed entirely of officials who were to be rigorously analytical in promoting “equity and efficiency in New Zealand and its economy.”¹⁸⁴ In December 1985, she abandoned community involvement and agreed to two task forces “comprised of officials representing relevant Departments, with consultants where appropriate.”¹⁸⁵ One group investigated the challenging topic of income maintenance, seeing whether benefits were fair, helpful, and easy to understand and whether they encouraged self-sufficiency.¹⁸⁶ The second task force was to examine social welfare services, essentially the management of grants to charities and the question of whether deinstitutionalisation of individual in-care would provide a better life for individuals with impairments or a learning difference. Like so much else in the field of social welfare, this subject was an international concern, and the fact that New Zealand was a bit behind the pack meant that research for its task forces could report on reforms abroad.

While the task forces convened, Hercus had staff investigate abuses. The Social Welfare Department had a reputation for giving up on overpayments. Renewed investigations unearthed an annual loss of $17.3 million in the unemployment benefit and the DPB. For a department that spent $6.2 billion a year, this was small beer. However, abuses undermined public trust.¹⁸⁷ Convicted of obtaining $100,000 by fraud, much of it from benefits, one individual “told police that it appeared so easy that he saw no reason why he should not do it.”¹⁸⁸ Hercus decided to boost the system’s legitimacy. Furthermore, abuses had become worse in areas where they once had been low. Chasing abusers, she explained, sent a message about the department’s integrity.¹⁸⁹ By late 1986, she had ready a new position between the department’s liberality and the Treasury’s severity, specifically a crackdown on welfare abusers that combined empathy with the certainty of punishment. In December 1986, her report to the Cabinet Social Equity Committee reiterated a preference for earning compliance by removing stand-down periods and the taxation of unemployment benefits. It was argued that they eroded respect for rules and drove applicants “into a situation where they are tempted to resort to fraud and abuse to meet their needs.”¹⁹⁰ The Cabinet Policy Committee encouraged concrete action to discover dishonesty, but it deferred action on stand-downs and tax relief until it heard from the income maintenance task force.¹⁹¹

Therefore, in mid-1987, the Social Welfare Department initiated a pilot project to reduce welfare abuses. An earlier report identified Otahuhu, Manukau, and Henderson as hot spots. Department personnel telephoned unemployment beneficiaries and referred them to the Labour Department for interviews. The calls were intended to see whether beneficiaries could be located; if not, payments ceased. The Social Welfare Department engaged a private collection agency to locate liable parents who owed support and beneficiaries who received more than their entitlement. Practices in regional welfare offices were a long distance in philosophy and budget awareness from Wellington. Personnel in the communities hesitated to cut people off “the dole” and alleged that staff workloads prevented “policing functions.”¹⁹² Hercus chose not to run in the 1987 election, explaining that “it’s sometimes a rotten life, in politics.”¹⁹³ She had worked loyally for the government and believed that its leadership had hindered her initiatives.¹⁹⁴

envisaging a universal benefit

Hercus’s replacement, Michael Cullen, wanted “to breathe new life” into old provisions in time for the fiftieth anniversary of the Social Security Act (1938).¹⁹⁵ He had grand ambitions and also had to carry the now standard responsibility for finding savings. The multitude of welfare-spending channels presented several opportunities for cheese paring. Under pressure to review expenditures in 1988, Cullen changed the status of superannuitants whose spouse was too young to qualify. Previously, this circumstance had been treated as though the eligible recipient resided in a single-person household. Considering the recipient as married, the accurate but less generous designation saved $43 million a year. The next year, the Social Welfare Department found savings of $200 million a year by altering the basis for the standard annual adjustment for benefits using a formula that favoured a wage index rather than a consumer price index.¹⁹⁶ Other administrative steps made it more difficult for school-aged individuals to secure unemployment benefits.¹⁹⁷

To recover overpayments, ten benefit control teams went into action in June 1987 and ten more in early 1988. Cullen hailed their success. Cabinet wanted more teams.¹⁹⁸ Private agencies were contracted to investigate older files and hard cases.¹⁹⁹ Aware of the dangers of discriminating against particular groups, he nevertheless recommended trial programmes that would test “a series of risk profiles” in order to guide interviewers to identify clients “involved in theft and abuse while … providing a deterrent.”²⁰⁰ This initiative to screen applicants more carefully demoralised staff, who witnessed poverty and were not interested in fiscal deficits or in the inequities attending successful abuses of the system. For staff to move from dispensers to assessors entailed an adjustment in office culture.²⁰¹ Head office worked on bringing about this shift. Cullen appealed to the public “to dob in welfare cheats,” calling them “thieves from the public purse.”²⁰² No New Zealand government, he lectured, “has had a completely accurate picture of the actual level of benefit fraud and abuse.”²⁰³ As for the dpb, “a solo parent had no right [to the benefit] … if the beneficiary was found to be in a de facto relationship.”²⁰⁴ If Cullen exercised a sharp tongue in public, he was no less direct in dealing with Douglas, who had insisted in 1988 that Cullen cut deeper into expenditures. Cullen called this “grotesque” and said that “even the most cursory breakdown of the growth in expenditure would have raised questions about the reasons for it.”²⁰⁵ But he made the cuts, continued to attack overpayments, and worked with the Labour Department to run mandatory work-assessment interviews of long-term beneficiaries who were “not actively using the Labour Department’s Employment Service.”²⁰⁶ By 1990, officials could claim that expenditures on suppressing “benefit fraud and abuse” saved $12 for every $1 spent.²⁰⁷

The task force on income maintenance started by Hercus published its findings in December 1987. It recommended adjustments to benefit rates in order to reduce anomalies.²⁰⁸ Douglas and Treasury officials wanted bolder thinking, insisting on a generic benefit that could be altered to hold the income-replacement rate low enough to make employment an attractive alternative to “the dole,” assuming that work was available. They thought that income maintenance should include supplements for the working poor so that they were not tempted to coast on benefits. This proposal was reminiscent of Douglas’s package.

Cullen developed a passion for the generic benefit.²⁰⁹ The Cabinet Social Equity Committee had agreed with him in late 1987 that an advisory “working Party” should start looking into details.²¹⁰ A mixed group of officials and academics deliberated from January to October 1988. Complicating its work, the Royal Commission on Social Policy rejected the generic benefit, so to get around this opposition, the “working Party” resorted to the expression “benefit rationalisation.”²¹¹ Language contributed to either gilding or tarnishing welfare benefit programmes or proposals. It happened with the family benefit, domestic purposes benefit, flat tax, and now benefit rationalisation. Cullen presented the group’s papers on retirement incomes, indexation of benefits, benefit rate relativities, and benefits’ adequacy to the Cabinet Social Equity Committee.²¹² The report on adequacy of current income maintenance showed that 25 to 40 per cent of recipients of either the dpb or the unemployment benefit were doing poorly. Integrity and the work ethic leaned toward cutting benefits, whereas addressing poverty leaned toward increasing benefits.²¹³

The report on income maintenance treaded a familiar path, forecasting that spend-as-you-go superannuation would be difficult to sustain. Immigration could help but required paying attention to newcomers’ age profile. Conceding that superannuation was “a large complex issue,” the group presented the government with the advantages and disadvantages of schemes found in the oecd, firmly rejecting Australia’s system, which was based on private annuity carriers. The group narrowly favoured compulsory wage deductions to build up a sovereign investment fund, acknowledging the measure’s mandatory nature and exclusion of women and men who were not wage earners.²¹⁴ As of March 1989, there were over 270,000 men and 215,000 women receiving superannuation, a fifth of the population.²¹⁵ Phasing out superannuation while phasing in a new scheme would have been a nightmare.

At least New Zealand did not suffer from the corruption that plagued comparable schemes in some countries.²¹⁶ At one point, Cullen had favoured a superannuation levy of 5 per cent on all sources of income, to be paid into an independent retirement fund, with payouts being equivalent to the generic benefit.²¹⁷ The idea was not pursued, but he remained committed to the notion that individuals who could afford to save for their retirement should do so. As minister of finance in the Fifth Labour Government (1999–2008), he returned to the idea and established the KiwiSaver scheme in 2006. Drafts of a generic benefit bill reveal that it would have abolished all categorical benefits, replacing them with a core benefit that could be scaled to an individual’s needs and capacities. It threatened a philosophical and administrative revolution.²¹⁸ Cullen was enthusiastic. Colleagues on the Social Equity Committee wanted more study. In July 1989, they approved of proceeding cautiously to fix those relativities that irrationally correlated existing categorical benefits to one another. From this experience, the government could draw lessons, deciding later whether or not to scrap all categorical benefits and instead to rebuild logically around a core generic benefit. The committee wanted to see a plan that provided “reasons for entry into the generic benefits system.”²¹⁹

Interpreting the directive freely, Cullen instructed officials to draft an omnibus bill that aimed to revise relativities, introduce equity, incentivise people to become work-ready, save on superannuation, and absorb the Accident Compensation Commission. The amount of public service preparation for the bill was sizeable, and its single point of entry for clients into the entire benefits system aroused interagency rivalries. Officials on the commission were responsible for providing compensatory benefits for personal injuries. Close to completing a major amendment, they detected threats to the country’s unique no-fault scheme. The Treasury saw the generic benefit as a means to end the commission’s funding of quite a lot of health care.²²⁰ Officials at the commission fought back. Other groups scrambled to protect their interests.

The draft scheme covered diverse eventualities. The bill defined a generic benefit fixed at between 32.5 and 36.5 per cent of the net average weekly wage. The unemployment benefit, dpb, and family benefit would vanish into formulas that adjusted the generic sum to meet personal circumstances. Moreover, a benefit could be denied if the applicant was able to work but did not seek employment or accept a work assignment. Welfare advocates responded that “a work test is a crux of the new income maintenance scheme and requires highly trained culturally sensitive staff who will not abuse the discretion they have.” The Maori Affairs Department (renamed Manatu Maori from 1989 to 1992) insisted that the Social Welfare Department had a “responsibility with regard to Maori.” For low-income families, the bill provided a Guaranteed Minimum Family Income that made up any gap between income and the generic benefit for a married couple. The purpose was to prevent able workers from thinking that benefits were almost as good as working. Additionally, beneficiaries who claimed a single’s benefit but were discovered living with a partner would receive a reduced sharing rate. This threat to a “living alone allowance” upset Manatu Maori because it claimed that individual Maori were more likely than individual Pakeha to actually reside with individuals from an extended family but not necessarily with a partner.²²¹ It was feared that benefits could be abated for recipients who seemed to have income and expenses that were blended even though they were really on their own.

Determining whether an individual in fact lived alone had fiscal importance. A 1991 report prepared for the Fourth National Government estimated that if all benefits were calculated on an individual support basis rather than abated when parties shared accommodations and expenses, then the annual additional cost would be in excess of $1 billion dollars.²²² By extension of the abatement logic, families were the fiscally responsible destinations for benefits, a presumption that some feminists deplored. Under a generic scheme, personnel at the Social Welfare Department would have to work with individuals to determine circumstances and needs rather than working for them to see that they received a categorical benefit. Targeting income maintenance involved a trade-off between fiscal savings and upsetting some cultural and gender sensitivities. Regarding superannuation, an eligibility threshold under the generic scheme would have risen from age sixty to sixty-five by 2025.²²³ There were going to be individuals who lost part of their current benefits. Officials at Manatu Maori argued that Maori and Pacific Islanders would benefit least because they were overrepresented among the unemployed, the injured, the sick, and the solo parents.²²⁴

The bill condensed a quarter of a century of intricate debate only to be dead on arrival. There was not enough time left on the legislative calendar before the 1990 election.²²⁵ When an election defeat seemed inevitable, there was no point in committing the public service to a huge adjustment that lacked bipartisan support.

concluding observations: a transnational liberal club

Ideas for transforming social welfare circled around and around in the 1980s and 1990s, occupying the public service and academics, spreading text and tables across reams of paper, and exposing striking continuities among reports that spanned many years. The generic benefit idea, a form of targeting, addressed one of the Horn committee’s concerns about the Domestic Purposes Benefit. Noting that dpb payments with “additives and concessions” exceeded the net wage of some single-income families, the 1977 report recommended an investigation of “relativities.”²²⁶ Cullen’s bill shared this objective and dealt, too, with this report’s suggestion that the dpb should be time-limited. A solo parent whose youngest child was over twelve would be put into a part-time work-ready category as of 1989. In 1999, the National government required solo mothers whose youngest child was over fourteen to seek full-time work. More refinements followed, and the numbers of dpb recipients dropped substantially in the new millennium.²²⁷ There were other continuities over time and across party lines. The Horn committee recommended child care assistance; Labour in 1989 and National in 1999 considered it beneficial to the family but also favoured it as a way to keep the relativity of the dpb to wages low enough to discourage welfare dependency.²²⁸ Children would be attended to but not through this benefit coming as a payment made to a parent. The idea of an adjustable generic benefit and the ongoing investigations of welfare abuse led to a 1998 trial work-capacity assessment of beneficiaries by the Accident Compensation Commission.²²⁹ The Fourth National Government (1990–93) and the coalition government of National and New Zealand First (1993–98) took on board the equity philosophy that had dominated Fourth Labour’s watch.

Generally, Labour and National preferred targeting benefits to individuals according to demonstrated genuine need, making payments time-limited, curtailing an accumulation of benefits that could approximate low wages, applying a willingness-to-work test, and looking for fiscal savings that were achievable. These objectives tied into the basic ideas that assistance ought to be based on real-life circumstances rather than on categories of legal status and that state agencies should discover who could work when jobs became available.²³⁰ Computers were procured to calculate the benefit payments derived from complex family and individual circumstances and to find savings by record linkage. Cullen initiated the replacement of “eight different computer systems written at different times in history,” hoping to reduce overpayment “mistakes” of $60 million a year.²³¹ By 1993, information-matching protocols gave the Social Welfare Department material about beneficiaries from the records at the Accident Compensation Commission to stop people from double-dipping, from the Customs Department to stop certain benefits from being collected overseas, from the Education Department to stop students from getting both student allowances and welfare benefits, and from the Inland Revenue Department to stop people from getting unemployment benefits while still working.²³² Solutions summoned problems. Tight inspection could encourage people to enter “the black economy.” The Inland Revenue Department still had difficulties locating several thousand people a year, including people who shifted often to avoid tax liabilities.²³³ With various spotlights turned on abuses and an election coming, Fourth Labour steered away from a left turn.²³⁴ Within days of the 1990 election, Prime Minister Mike Moore hit out at the “daylight robbery” of an estimated $500 million a year by benefit and tax thieves. He reported meeting individuals who admitted that “they were working fulltime and taking the dole.” He considered introducing identity cards.²³⁵

When proposing targeting, neither Labour nor National suggested that individuals were responsible for their circumstances. Rather, the conditions – health, age, skills, and opportunities – that impeded an individual’s ability to work were to be assessed in order to adjust income-maintenance benefits and to identify retraining possibilities. When in government, both parties aspired to transform beneficiaries to wage earners by directing benefits to working families, hopefully enticing beneficiaries to redouble their efforts to join the labour force if they were able to work.²³⁶ Unionists denounced this approach as a tactic to depress the wages of the poorly paid.

Rabid partisanship masked commonalties in social welfare policy. Given the limited scope for sizeable reductions in most areas of government expenditure, fiscal savings were sought in the social welfare budget, and the parties encountered similar roadblocks. National opposed Cullen’s bill with its interviews-for-equity solution, claiming that it required hiring too many caseworkers, yet National’s targeting scheme using community service cards, promoted by Minister of Social Welfare Jenny Shipley, required 500 to 700 staff to check on income eligibility.²³⁷ Even if staff at the main office were bitter, they had to be onside with the government. Regional offices, however, were bastions of empathy or, as critics put it, centres of client abuse.

The Social Welfare Department escaped the scare of a generic benefit but not the criticism of other departments over its superabundance of red tape and not the reform attention of National.²³⁸ Prime Minister Jim Bolger’s Change Team agreed with reducing administrative costs and was not infatuated, as Labour had been, with task forces, working parties, and policy studies. National was “not attempting to re-design all aspects of the welfare system” but was proceeding with largely technical adjustments to ensure that “assistance is offered to the right people, at the right level, and the right time” and was concerned with “minimising fiscal costs.” Counter to feminist recommendations, the usual receiving unit remained the family or household.²³⁹

There were dissimilarities between the parties. As the great falling-out of 1988 had shown, the Labour Party was conflicted over targeting, and the Labour government accordingly wriggled in a morass of task force reports, trying to retain its base of supporters as the consensus on categorical benefits was coming to an end. National took the position that public goodwill simply demanded improvements in social welfare spending without delay.²⁴⁰ Furthermore, National came to office in October 1990 with a conviction that increases in employment opportunities could diminish welfare expenditures and that enterprise contracts in the field of labour relations would incentivise firms to hire.²⁴¹ Additionally, National’s team targeted benefits more aggressively than Labour. Rates for many benefits were lowered for individuals under twenty-five. Administrative expenditures were curtailed. Targeting need was to include an estimate of assets, not merely income. Manatu Maori officials thought that this feature lacked flexibility and cultural sensitivity. These officials spoke carefully but suspected that National’s reforms would be unfair to Maori. If individuals were individuals, then collective values and community agencies were in jeopardy. If assets were valued when determining social welfare need, taonga tuku iho (ancestral treasures) should be exempted even though they had “liquidity values.”²⁴² What was a reasonable asset base before a benefit should be subject to a reduction? The pursuit of fairness ran into particulars.

In late 1990, National’s ministers of social welfare and finance immediately sought savings of over $1 billion in the first year.²⁴³ oecd statistics show that New Zealand’s expenditures on social benefits to households dropped from almost 15 per cent of gdp in 1990 to 11 per cent in 2000 before bottoming out at 9 per cent in 2005, late in the life of Prime Minister Helen Clark’s fiscally cautious Fifth Labour Government (1999–2008).²⁴⁴ Social security historian Margaret McClure has identified conflicting pressures on social welfare in the 1980s. There was an impulse among many to achieve “a more generous society” and a “return to the gentler world of the 1970s,” but successive governments felt that the fiscal situation “was out of control.”²⁴⁵ Abuses, it should be added, offended many. From 1977 forward, official reassessments of benefits were contentious, emotional as well as technical, replete with discussions of ethnic and gender vulnerabilities, and informed by neighbourhood gossip, by sample studies, and by international consultations. It all condensed to a change in philosophy. In return for income maintenance, the state placed an obligation on many recipients, other than retirees, to move toward independence as soon as possible.²⁴⁶ New Zealand had become “a full member of the liberal club,” not because of a particular doctrine but to manage the fiscal burden imposed by superannuation and because many who experienced hard times resented income maintenance for individuals whom they judged lacked a genuine claim or abused the system.²⁴⁷

11

Ending Exceptionalism: Private-Sector Labour Relations

overview: the world comes to the shop floor

The structure and operation of labour markets had strategic importance for New Zealand’s trade-dependent economy as well as for the Fourth Labour Government’s anti-inflation programme. An idiosyncratic labour relations system impeded competitiveness in the reawakened global economy, which had returned price sensitivity to New Zealand’s export commodities. Starting in 1974, the county’s real wage indices were rising while productivity was falling. Wages and on-site labour management were bound to be issues in any genuine attempt to improve the balance of payments current account. Recognising that international competitiveness constrained the country’s economic growth, Roger Douglas told audiences during extensive labour negotiations in October 1986 that he wanted “parties in the wage round to reach agreements in line with industrial productivity.”¹

Without productivity gains, real wages, low by international standards, could only fall on account of adverse terms of trade. Besides wages, workplace efficiency involved other outstanding issues, including flexible work assignments, new technology, training, retraining, shift designations, working hours, and the rewarding of skills. At the same time, Fourth Labour’s tight monetary stance was hampered by insulated employee groups, notably the large public service.² All employee groups looked for pay increases to keep pace with rising prices; however, the government wanted to end public service perks and wage-setting tribunals so that anti-inflationary pressures could diffuse throughout society. Working for trade effectiveness and ending privilege were positions on one side of a serious societal disagreement. Protecting workers was on the other side.³

Labour relations practices in New Zealand deviated from those in Europe and North America. Australia had used a similar system but had embarked earlier on its reformation. The unions were considered less militant.⁴ New Zealand retained a unique system.⁵ The original Industrial Conciliation and Arbitration Act (1894) had been substantially amended, but the Victorian legislation carved a cornerstone that weathered almost a century.⁶ In a small country with few domestic producers of goods and services, regulated labour relations made good sense. Over many decades, a succession of governments concurred, accepting that strikes and lockouts were a ruinous way of settling differences between employers and employees. Despite its uniqueness, the New Zealand system nevertheless covered the contested topics of labour relations found throughout the OECD: the recognition of unions, their coverage, the determination of membership, negotiation protocols, grievance procedures, and more.

By the period of reform, many union officials had rallied to defend the labour relations system with appeals to equality, social justice, and state protection. Although most union officials opposed changing the system, some accepted the inevitability of its collapse, and a few believed that their members could do better outside the system. Breaches between unions representing skilled labourers in scarce supply and those with casual labourers in abundance had erupted by 1980. Union presidents, general and regional secretaries, and negotiating advocates tried to patch this divide with appeals to solidarity, Marxist slogans, and nostalgia. Capitalist serpents in the garden were blamed for introducing new machines and for moving shops toward shift work, extracting far more labour value than they returned to society.⁷ Marxist contentions were less disconcerting for employers and governments than declarations by union officials that unions, not the government, should establish minimum wages through the administration of nationwide wage awards. The uniqueness of the country’s labour relations came close to making this bid for standing a possibility until Fourth Labour refused to play along, and soon afterward the Fourth National Government terminated the awards system.

In the early 1990s, union officials had to adapt to a completely new system.⁸ Gone were union expectations of a decade earlier when unions had insisted on tripartite discussions, claimed a place in setting economic policy, and captured headlines with strikes. Class-struggle language remained. A statement by the Council of Trade Unions (formed in 1987) characterised National’s radical change in labour relations in 1991 as “little more than a call to indulge greed, to facilitate exploitation and to patronise power.”⁹ By then, however, pragmatic union leaders had started working for their membership within a new system, one that they did not necessarily like. A completely new labour relations regime compelled the council to move from a trades base (such as carpentry and plumbing) to an industries base (namely construction) and to shift from trades militancy to industrial matters affecting whole workplaces.¹⁰ Employers and their organisations were likewise in transition. Traditionalists accepted the status quo. Protected against import competition, they passed the costs of wage settlements onto consumers. A dissenting view was held by the corner offices as well, one articulated in 1990 by the chief executive of Freightways, a major logistics firm. “The rigidity of the formal labour relations system,” Trevor Farmer wrote, “is such that the costs of seeking to innovate with the system exceed any potential benefits. To the extent that all New Zealand firms are affected equally the structure spreads and enforces mediocrity of performance.”¹¹

an industrial relations club

The penetration of public life by labour relations issues and actions was intense during the 1980s. For years, the system had been losing touch with the world of work, and now came the days of reckoning. The core ideas and practices of an earlier era had been carried forward across the decades, entrenched in the structure of the union organisations and the national awards. The unions and awards were backed by legislation, court rulings, and an associated web of state-administered regulations.¹² Because of the complexity of the legalised negotiating process, employers left the determination of the awards, monitoring of compliance, and resolution of breaches to industry associations, spawning employer and producer federations, such as the New Zealand Manufacturers’ Federation, which represented 2,300 employers and serviced forty trade groups.¹³ Within this environment of bloc negotiations, there flourished a service industry of industrial lawyers and negotiation advocates employed by both sides, supported by an apparatus of government departments, a mediation service, inspectors, and a labour court. An industrial relations club saturated with paternalism fought to retain the status quo.¹⁴ Politicians who wanted to overthrow the system faced a city club with branches in the provinces.

Employers and some union officials recognised the system’s incompatibility with modern workplaces. Union economist Alf Kirk in 1985 described the system as “pretty well broken down.”¹⁵ Communist and union leader Ken Douglas and a minority in the Federation of Labour (fol) executive wanted mergers and consolidations.¹⁶ Meanwhile, employers wanted an end to unlawful strikes. During the period of an award, strikes were legal only in defined circumstances, but the grounds for allowing them could readily be stretched, and since the labour court was not a court of common law, awards were not enforceable in the manner of contracts. When inflation was combined with the specifics of labour relations, militancy was in the cards. New Zealand had gone from being the least strike-prone country in the oecd in 1970 to being the most strike-prone by 1987.¹⁷ This trend could not continue if the country was to improve productivity. From 1980 to 1984, National’s minister of labour, the affable hands-on politician Jim Bolger, convened a tripartite Long-Term Wage Reform Committee aimed at enabling experiments with enterprise or industry-wide negotiations in place of the traditional trade-based ones. Participants accepted that in certain new industries, prominently pulp and paper, a dozen or more trade unions on an industrial site was cumbersome. The committee agreed on principles to guide revisions in union representation and to accept wage fixing that acknowledged that skilled workers in modern industries could seek wages above the national award for their trade.¹⁸

Progress toward agreement stopped in 1983. National began preparing for the next election. Leadership hopefuls, manoeuvring for the future, were tough on unions. National legislated voluntary unionism.¹⁹ The newly elected Labour government straightaway built on Bolger’s groundwork and passed a bill removing the unions’ exclusive right to invoke compulsory arbitration, promoted bargaining at the industry or enterprise levels, and provided for tripartite meetings on the economy and wages.²⁰ The latter initiative was an unenforceable concession to the fol. By comparison, the introduction of voluntary arbitration, seemingly with the agreement of key union leaders after tripartite talks, was astonishing. It erased the union tactic of unilateral calls for binding arbitration.²¹ With alarm, some unionists recognised that the loss of this tactic would disadvantage them during wage rounds.²² The legislation’s provision for tripartite meetings was hollow because Fourth Labour had not the slightest intention of giving organised labour any say on policy.²³ The government was determined to replace central planning and tripartite consultations with a market economy. Minister of Labour Stan Rodger wrote to a shocked interventionist backbencher that “unions must learn to stand alone.”²⁴ Rodger steadfastly prevaricated when union officials ask to be consulted on legislation.

On the eve of reform, ten interconnected characteristics directed labour market operations in New Zealand. First, trades remained the basis for union coverage, and second, trade unions had to be registered by a government official to be legally recognised and able to take advantage of the wage-fixing conditions provided by the 1894 legislation and its successors. The Registrar of Unions could refuse registration if a registered union already provided plausible coverage. Unions that immediately joined “the gold rush” to register in the 1890s matured into defensive gatekeepers, resulting in a few instances of “perpetual coverage.”²⁵ No competing coverage allowed! In most oecd countries, unions had to persuade employees to join them. In New Zealand, the process of approval by a government official conferred monopoly representation rights. Once a trade award had been negotiated, it covered everyone in that trade throughout the country. Each individual automatically became a union member, at least until 1983 when National legislated voluntary unionism, a move that torpedoed Bolger’s efforts to promote enterprise agreements.

Voluntary unionism was a challenge to a union’s passive acquisition of membership. Talk of ending registration and permitting employees to seek coverage by a union of their choosing rallied union officials to warn of class-based plots and the wastefulness of coverage battles. By at least 1980, the claim that union registration avoided misspent resources was doubtful since trade unions were clashing with one another in any event, disputing which gave proper coverage for new industrial occupations. Demarcation disputes frustrated employers, many of whom wanted unions to amalgamate. On the waterfront, where containerisation was revolutionising sea-to-land transportation, demarcation put the staff of the Waterside Workers and Harbour Board at odds.²⁶ The disputes among union organisers were more than symptoms of how work was changing. They had wage bill implications because a union that achieved a good settlement and subsequently absorbed new members could bring them under the award.²⁷

The third of the interconnected characteristics directing labour market operations was the fact that most negotiations between advocates of trade union negotiating and agents of employer federations occurred in conciliation councils with a conciliator. Fourth, private-sector agreements emerging from councils became the national awards, documents of wide application that fixed the minimum terms and conditions of employment. Once registered at the labour court, private-sector awards governed relations until their term expired.²⁸ In a period of high inflation, unions wanted annual awards. Fifth, since trades defined unions, awards were occupationally based, generally extending to all in that occupation throughout the country, irrespective of the local costs of living or the financial health of the employer. Secondary negotiations held after the award could accommodate some local circumstance. These second-tier agreements moved wages upward. They were of no help to fragile firms because, sixth, awards applied to all employers covered by the award’s coverage clause, whether or not that employer had been cited as a party to the award negotiations.

Seventh, as noted, a year prior to Fourth Labour’s election, the Third National Government made union membership voluntary. During the 1950s, National had advocated ending a firm compulsory union rule that had existed since 1936. By an amendment in 1961, parties to an award could include in the agreement “an unqualified preference clause” by which any worker not yet a member of a union was bound by the award to become a member, but if there was no such clause, membership was voluntary.²⁹ Prime Minister Robert Muldoon eliminated this middle-of-the-road position in February 1983. Membership was simply voluntary. Unions expected Fourth Labour to overturn that. Eighth, since the Second World War, the negotiating parties had moved away from discussing the profitability of businesses, the ability to pay a wage demand, or the market demand for a particular trade. Rather, discussions centred on relativities, meaning a comparison of wage settlements with attention to trades deemed to have comparable skill levels. In the state sector, tribunals looked to the trade union awards as guiding references. In circular fashion, the private-sector unions looked to tribunal awards. The fairness quest had become hermetic and mechanistic. Ninth, the unions arranged through their umbrella organisation, the fol, to commence the negotiating season with the trade most likely to bring home the best award. A generous opening settlement influenced negotiations throughout the round.

Finally, until 1985, if negotiations were not progressing as unions wanted, they alone could insist on arbitration. Business leaders and some public service analysts thought that labour court judges (bewigged, robed, formal, and dealing with an assortment of issues) and arbitrators were committed to their field of jurisprudence and losing sight of the current business environments in which labour markets functioned. Union officials, by contrast, lauded the labour court as a “legal backup on which the unions have been … able to rely for 100 years.”³⁰ From 1985 to 1991, there were heated arguments between critics and defenders of the separate labour court, with its conception of jurisprudence based on equity rather than common law.³¹ The insertions of the state into industrial relations came through statute and case law but also through extra-legal understandings that involved public servants and occasionally the minister of labour. A Labour Department report on industrial relations prepared in 1985 explained that judicial, administrative, and legislative involvement had become thick and deep because “many important processes in industrial relations which underpin negotiations have become matters of public policy.”³² Although unions had grown dependent on the state through formal and informal ties, fol leaders envisioned the relationship taking on a different meaning. They pressed for tripartite policy making on the economy.

Fourth Labour’s ministers realised that to improve the country’s balance of payments, its woeful productivity had to be improved. The structure of the labour relations system prevented employees from adapting to real market demand for their services, but the part of the government’s political base that supported a cooperative alliance would resist substantive change. Nevertheless, Fourth Labour attempted a compromise reformation in 1987 and amended it in 1990. When National returned to power in October 1990, it eradicated the old system, and in 1991 it adopted the essentials of the North American arrangement of contract negotiations at individual enterprises. As in other areas of restructuring, New Zealand leapt into the mainstream of the oecd.

closing the minister’s door to unions

During wage-fixing rounds, both sides arrived at conciliation councils armed with data, unions bringing up inflation and the historic relativities of wages across trades.³³ Some fol officials had grander ambitions, wanting to shape union connections with the state into a full partnership for setting social policy. In 1985, the Combined State Unions, representing state-sector employees, declared that unions had fought for basic rights, including “the right to be an equal party to social and economic planning in New Zealand.”³⁴ Prominent fol officials felt that ministers should contact them for information. They presumed a special access to ministers, supposing that they could summon them to fol council meetings. Stan Rodger was having none of it. As he wickedly explained to other ministers regarding one such summons, “I undertook to pass on this invitation. Unfortunately?”³⁵ From the 1984 Economic Summit to the 1987 consultations on the Labour Relations Act, the fol’s president, Jim Knox, and its secretary, Ken Douglas, claimed special status ahead of all other interest groups.³⁶ When union officials were stonewalled at toothless tripartite meetings, Knox could not understand why the government did not first discuss “the interests of the country” with the fol.³⁷ At the 1988 Labour Party conference, Ken Douglas rebuked the government for not thinking of the labour movement as bonded to it.³⁸ Although unions and employers tested Rodger’s will to resist stepping in to end disputes, he remained convinced that governments should not attempt to solve everything.

Employers were adamant that labour relations should never be used to deliver social objectives because these gains would come at their expense. Social welfare was government’s duty. Most of Fourth Labour’s ministers agreed, withdrawing bit by bit from the formal and informal labour relations processes and continually proclaiming that they, not unions, determined social policy. Shortly after the 1984 election, Roger Douglas warned Knox that the government’s income maintenance policies were going to be pursued “through the Budget tax/welfare framework [rather] than through the wage system. The wage system is too blunt.”³⁹ Assertions of state paramountcy in social policy were soon confirmed by tax and social welfare measures refined to assist low-income groups. Year after year, Douglas insisted that the working poor deserved special assistance from the government. fol officials had more in mind than negotiating awards. Although employers, ministers, and senior public servants were increasingly interested in the free market, fol officials wanted to extend the existing statutory framework, with its substantial state involvement, to include macroeconomic and social policy deliberations at the national level.⁴⁰

Besides the legal and customary structures, informal practices, and understandings, there were negotiating tactics. If there had been instances of generous wage fixing in the public sector, union officials mentioned them. Splendid wage awards by a public service wage-fixing tribunal could embarrass government ministers, whose efforts to ensure that employers would not cave in during campaigns to hold down inflation were instead met with grand increases awarded by the wage-fixing tribunals in their sectors. For their negotiating stance, employers pointed to declining profits and the inflexibility imposed on regional employers by the national awards. Some employer federations readily capitulated, counting on consumers to carry the resulting price increases. The protection of domestic manufacturers made that possible until this ring-around-the-rosy gambolled into world markets. New Zealand had to compete in export markets where it was losing.

The regulatory statutes and protectionist postures that interlocked unionists and employers were not rock solid. A few unionists were interested in ending the awards system. Some employers found it useful; some found it harmful. The former’s attitude rested on several pillars: hidebound caution, fear of a competitor getting a better wage rate with enterprise negotiations, and a reluctance to overhaul labour relations in a period of turbulence.⁴¹ Smaller employers wondered whether larger rivals agreed to generous awards in order to drive the smaller out of business. Big dairy interests allegedly accepted high-wage agreements to consolidate the industry.⁴² Peter Harris, head of technical services at the New Zealand Council of Trade Unions in the 1990s, recalls that “when an enterprise followed the award, it as often as not went broke.”⁴³ Peter Palmer, a member of the New Zealand Planning Council Secretariat, accepted that firms should fail if they were too small or fragile to pull their weight after a national award. “Letting the dead ducks die,” he claimed, was the admirable attitude of European Trade Unions. New Zealand should follow suit.⁴⁴ Little wonder that the employer federations and unions were occasionally referred to as an unholy alliance or an old boys’ network.⁴⁵ The negotiating parties “fell into each other’s arms.”⁴⁶

The business solidarity that had once shored up state regulation, subsidies, import protection, and central wage fixing was fragmenting.⁴⁷ In August 1986, after consulting their membership, officials at the New Zealand Employers’ Federation discovered that they had no member mandate to negotiate a centrally managed wage round. Union officials were taken aback to discover that employers were leaning toward individual contracts.⁴⁸ When Treasury official Roger Kerr in 1986 accepted an appointment as executive director of the New Zealand Business Roundtable, Labour MP Peter Neilson wished him good luck and hoped that he could convert its members to capitalism.⁴⁹ The humour was telling. Here were Labour MPs and ministers directing “the entrepreneur to adapt to a freer market environment” for their own good and the good of the country.⁵⁰ Reforming ministers relished confounding the coddled Manufacturers’ Federation and gaining the trust of market convert Ron Trotter, who left the federation and took his deregulation outlooks to the roundtable.⁵¹

During award negotiations, the sides played room games. Getting into the room early was presumed to show the upper hand. It also enabled a team to put the sun in opponents’ eyes. Posturing and harangues, what Secretary of the Treasury Bernard Galvin called “exchanging pleasantries,” were ritual features of tripartite meetings.⁵² To project staunch conviction, unions placed chief advocates in the middle of delegations as a means to keep rival unions apart. Union and employer delegations favoured short breaks to prevent hallway discussions that could bring to light a side’s internal disagreements. Feigned outrage was a tactic. On a pre-arranged signal, boisterous delegates shouted to intimidate. Allegedly, some unions brought in rough-looking characters, “the heavy breathers.” Like athletes before a big competition, a few negotiators took care to rest well and eat carefully.⁵³ For the 1985 round, the starter’s pistol was fired on 19 September 1985, and the marathon continued into February 1986.

Stan Rodger took longer to set a policy and to draft legislation than several colleagues wanted, and during that time, he did not grant unions an inside look. The complicated existing system required study and public consultations, but there would be no privileged input from unions. Thus Rodger, who had a lot on his plate, adopted the strategy of lying on the ropes to delay and wear down adversaries. Finally, making his position clear in May 1987, he announced that reforms were “an ingredient in the shift from an inflexible arbitration-based system to a flexible bargaining system.”⁵⁴ On 18 December 1987, he introduced his bill to Parliament. A select committee held hearings on its 380 clauses and made 200 alterations.

The Labour Relations Act (1987) was a mammoth, intricate document.⁵⁵ Several sections set out to change unions themselves, undermining some craft unions by requiring a minimum of 1,000 members. Whereas certain sections of the legislation empowered these restructured unions, other sections gave employers some of what they wanted. The legislation attempted to give tactical tools to both sides within a new framework for negotiating wages and conditions of employment. Rodger sold the legislation as “a careful balancing of the conflicting aims of the main participants in labour relations.”⁵⁶ Some Treasury analysts had desperately wanted a purely adversarial system. The Labour Department successfully resisted.⁵⁷

The Labour Relations Act, coming from Labour, had to include something for the unions. Therefore, blanket awards for the whole country were retained. However, the legislation altered the framework for second-tier negotiations with the stipulation that employers could not be caught off guard by negotiating an award only to have unions seek more. Unions had to declare at the start of negotiations which firms they would exclude from awards in order to pursue special agreements. Arbitration was retained but still required both parties to agree to it. The legislation also shook up union organisation and governance. As a sinuous attempt at compromise and balance, it was destined to be a short-lived halfway house. Nevertheless, it made a lasting contribution by opening debates during the most comprehensive review of labour relations law and practices undertaken in the country. The legislation failed to bring about more enterprise negotiation. National wasted no time erasing it with the Employment Contracts Act (1991).⁵⁸

THE INFLEXIBILITY CHORUS, 1980-87

The buildup to the 1987 and 1991 legislative acts requires comment. Many disputes in the country’s labour relations involved questions of flexibility. Union officials accented proof of the system’s flexibility; employers condemned it as horribly inflexible. Critics described how statutes and practices had created a host of inflexibilities: the inflexibility present in the government’s authority to register unions, which restricted the rights of workers to organise; the inflexibility of demarcated union jurisdictions; the inflexibility of workers’ coverage by an established union; the inflexibility of national awards; and the inflexibility of applying wage relativities. Some employers and human rights advocates added that any requirements in an award that compelled union membership under an unqualified preference clause amounted to a denial of rights.⁵⁹

National awards did not suit small local businesses running on slender margins. Printers, for example, complained that unions applied “national strategies that do not allow local conditions and relationships to be considered in many instances.”⁶⁰ Unions and large employers were suspected of agreeing to terms that left smaller regional employers in a bind. Centralisation did not serve local conditions.⁶¹ That, too, was inflexibility. The requirement that union membership consist of workers in related trades did not function well in modern industries. That, too, was inflexibility. In the county’s five pulp and paper mills, there were new occupations and multitasking assignments among the more than 8,000 employees. Some of these positions did not fit neatly into any existing trade union, hence the demarcation disputes.⁶² During a highly publicised strike at the Tasman pulp and paper mill in Kawerau in mid-1986, Prime Minister David Lange explained in local terms the national disjuncture between poor productivity and rising wages. “The simple fact,” he said, “is that a large exporting company can’t be run as a branch of a social welfare or large p.e.p. scheme (a community make-work programme).”⁶³

For older workplaces that concentrated on a particular skill, the trade union approach no longer worked well due to an expansion of clerical and engineering positions. In the country’s important meat works, skilled boners remained prominent, but variations among plant improvements led to distinctive layouts and developments in marketing and hygiene. Employers wanted the freedom to have each plant negotiate separately rather than accepting national awards for the separate trades found in each.⁶⁴ In the mid-1980s, the average meat works had seventeen awards, and one had twenty-five.⁶⁵ When employers decided who would perform a job in a changing work environment, they risked an industrial disruption. That was inflexible. At larger ports, the introduction of container operations demanded trained crews working full-time for a company, but unions assigned waterside workers on a rotation where none were the exclusive employees of a particular employer.⁶⁶ Craft unions and modernising industries were incongruous.

For some New Zealanders, the system was a trophy in the historical showcase of progressive go-it-alone ingenuity. When union officials wanted to stir emotions, they turned to patriotic speechifying and, in the 1980s, to anti-Americanism. Dire outcomes were predicted if labourers were allowed to form rival unions. “Contestation” would lead to “taking over membership which was exploited by the mafia in the USA.”⁶⁷ Any deep reform effort meant looking outward to countries that had experience with enterprise negotiations.⁶⁸ The changeover from a government immersed in industrial relations to one inclined toward private-party negotiations demanded a type of union that could research, bargain, enforce contracts, and achieve amalgamation so that labour court officers did not have to visit worksites in order to determine who would go into which trade union.⁶⁹ On the government side, a transition to labour relations conceived of as a private rather than a public affair would alter workloads in departments and courts. This change was incendiary in public service Wellington.

Stan Rodger directed the Labour Department to study current labour relations and policy options. Cabinet could not back enterprise negotiations. Still, what ministers revealed about their plans for labour relations angered union officials, who, a year after the election, were disturbed by most of Fourth Labour’s stated policies. Union leaders who backed Cabinet felt pressure from militant colleagues. “I wanted to be more supportive,” wrote one of them to Roger Douglas, but “I was unable to do so.”⁷⁰ Advocate of union modernisation Alf Kirk let Douglas know that, in his estimation, prominent unionists, “people like [Ken] Douglas, already realise the need to move to an industry style of bargaining. Their problem is carrying their members.”⁷¹ A few union officials were conflicted, realising that if they raised their voices, “many of our enemies would jump on the [opposing] band wagon.”⁷² Others were simply furious. Garment workers objected to a planned reduction of import protection that would allow the country to be “flooded with inferior garments from low-cost countries.”⁷³ At their annual conference in early 1985, electrical workers complained about the currency devaluation, the removal of rent and price controls, tight-money policies, new user-pay charges for some government services, the fringe benefit tax, and the Goods and Services Tax (gst). “The shock and dismay of loyal Labour supporters” made any reform of labour relations a delicate business.⁷⁴ Ministers were asked by system defenders how many union members “reside and work in your electorate?”⁷⁵ Any reformation had to confront the system’s sheer complexity and had to come packaged as a substantial piece of legislation, not as an amendment. But in this legislation, the government retained the national award concept. Fourth Labour’s dance of compromises on every substantial issue left parts of the old system intact and eliminated a lot too.

Not content with altering the structure and informalities of labour relations, reformers aspired to transform the internal political processes of unions by introducing greater compliance with democratic practices. The focus was on helping, as they saw it, union members to clear leadership positions of militant ideologues, who would be replaced by officials who could work constructively with employers. As a union member confided to Stan Rodger in 1987, “I and other workmates are beginning to feel that apathy is our biggest danger.” The anecdote pushed the case for greater democracy in unions, with the payoff being pragmatism.⁷⁶ Rodger consistently vowed that he wanted unions to be “self-reliant and strong.”⁷⁷ These words irritated old-style union officers as much as they confirmed the suspicions of hard-nosed employers that Fourth Labour could not break with the fol. Employers would have been wrong to assume that Cabinet sang the socialist anthem, “The Red Flag.” with the gusto of firebrands.⁷⁸ Having missed the experience of the 1951 dockworkers’ strike, the reform-minded ministers and a younger group of unionists could not bond with the militants, who appeared to them as doctrinaire, uncreative, and backward-looking.⁷⁹ Along with self-reliant and strong unions, Rodger and like-minded Cabinet members looked forward to the day when unions would be led by new people who had a more realistic perspective on negotiations and who were “capable of delivering a better service and wider range of facilities such as legal advice and health and safety information.”⁸⁰

The fol’s inflexibility when combined with arbitration had worked well for militant union officials, for until early 1985 the system had allowed them to retreat into arbitration without losing face. Reminiscing about this recent past, Peter Harris suggests that the essential skill for union officials was to start a dispute and to have the system settle it. “If the settlement was favourable, it was a demonstration of the might of militant unionism; if it was adverse, it was because the bosses’ courts were suppressing worker rights.”⁸¹ Negotiating ploys tarnished the awards system. In early 1985, shop workers reached an agreement with employers for a national award, and some employers agreed to top it up. Union officers claimed that if employers could do that, the award was surely too low, and they were going “to seek a lift,” and “if they didn’t get it they would strike.” Union officials were looking after members, but they played into the hands of critics, who could characterise them as untrustworthy enterprise partners. For this judgment, there was public support, and not all union members wanted to strike in order to lift other members. The growth of second-tier agreements fostered discord within the fol.⁸²

The trustworthiness of union leadership was being questioned on another count. Labour law specified that unions could be fined for invoking a strike for a spurious reason during the period of an award. The meaning of a legitimate reason depended on the distinction between a dispute about an interest or a right. A right was a feature imbedded in the award; if the employer violated the right, proper recourse was through the labour court. An interest was defined as an important new development that required negotiation; an impasse in negotiations could lead to a strike. Governments were loath to fine a union for calling a strike for something that looked like a violation of a right but that a union claimed to be an interest and thus a legitimate reason for action.⁸³ Employers complained that the law was abused and that certain unions were unreliable associates when it came to working for viable operations. Unionists asserted that inflation and Muldoon’s freeze justified all-out struggles for large catch-up wage settlements. The country’s economic plight, labour market structures, militant personalities, and recent strike history undermined trust and respect.⁸⁴

Certain leaders – Pat Kelly, Ken Douglas, Bill Andersen, and Con Devitt – had been able to take hard stands with employers, getting media attention, and could exercise their right to call for arbitration. Ideological inflexibility on the part of a few union presidents and secretaries joined structural inflexibility to thwart constructive information-sharing negotiations of the kind found in other countries. Arbitration, apart from being easy, had usually been a far-reaching win for union officials since the labour court’s award could appear to approve of further settlements at the arbitrated rate.⁸⁵ With one of its first legislative acts in 1984, Fourth Labour had ended the possibility of this outcome by requiring the joint agreement of employers and unions.⁸⁶ The provision was restated in the new legislation, and as much as anything else, it drove fol officials to try to take back the party by going after ministers through conference remits and through candidate selection meetings for the 1987 election.

Inflexibility had thus been moderated, and it was not absolute even in the national awards system, which permitted some leeway on wages, although only in one direction, namely upward above the award via second-tier agreements. Additionally, the unqualified preference feature, the basis for compulsory union membership, was not entirely inflexible because individual exemptions were possible on application, most originating from the Clerical Workers Union, whose membership was 80 to 90 per cent women.⁸⁷ Compulsory union membership did not guarantee members’ loyalty, and in this case, a union’s “existence had become dependent on protective legislation.”⁸⁸

appeals to equality and unity

In the last quarter of the twentieth century, few, if any, oecd countries matched New Zealand as a jurisdiction where some union leaders claimed to champion a fair go for working people. Until then, the welfare system had been little concerned with employed workers because national awards ostensibly made it unnecessary to have minimum wage laws or tax concessions for low-income earners.⁸⁹ Some union officials went further than defending awards as a social welfare safety net and condemned wage differentiation, holding onto the concept that pay was for the job, not for individual attainment. In speeches, interviews, and submissions to Parliament, union officials pressed the idea.⁹⁰ References to social justice survived in a rhetorical landscape of labour relations that had become overgrown with technical expressions unique to the New Zealand scene. Social justice aspirations appeared alongside references to the wage-fixing round, tripartite wage conferences, blanket awards, second-tier negotiations, in-house agreements, composite agreements, pass-on agreements, horizontal relativities, new matters, interests and rights, unqualified preference, and demarcation disputes.

Technical language aside, the ideals of equality and unity, proclaimed regularly by union officers, retained a place in political culture. The Federation of Labour preached the faith into the mid-1980s. In a labour issues course taught at the University of Canterbury in July 1986, at a moment when the government was announcing plans to reform labour relations, an fol speaker listed concerns. It was terrible that the director of the Employers’ Federation wanted wages paid on the basis of what the employers thought the job was worth rather than considering social need.⁹¹ In the 1970s and into the 1980s, some union officials proclaimed that they covered social need through the national awards. Judging that the awards system was under pressure from outside but also inside the unions, a number of union leaders appealed to their members to recognise it as a pillar of social welfare. This message encountered the state’s social welfare presence, which extended beyond individual workers to include households and the unemployed. Immediately after the 1984 election, the government set to work strengthening the state’s standing with workers and rejected the fol’s appeal for a national wage increase, announcing instead that it would address low incomes through the tax system.⁹² At stake, as some unionists saw it, was labour’s primary gratitude and loyalty. At stake, as some politicians saw it, was who ruled.

For several reasons, Fourth Labour criticised the fol’s presumptions that awards defended the working poor. In the first place, ministers opposed all union pretentions of a partnership with the state. Second, they wanted to do whatever was necessary to deflate wage demands, even at the cost of increasing certain welfare benefits. Cabinet resolved to help “low-income earners in difficult economic circumstances” as part of an appeal for union restraint in the upcoming round of wage negotiations.⁹³ A few union officials countered that wage awards were a safer bet for social welfare, remarking that tax-supported welfare was subject to changes in policy. Third, the government wanted to target social welfare as a fiscal and equity matter. Awards were another type of universality, philosophically at odds with the government’s insistence on efficiencies, markets, and needs. When opposing all forms of blanket or universal spending practices, whether wages or benefits, the government was reiterating that the country could no longer afford largesse in any form, whether direct subsidies, indirect cross-subsidisation, concessionary rates, perks, protection, categorical benefits, or national wage awards.

Militant unionists and socialists realised that in words and deeds Fourth Labour had initiated a debate at its most intense within a circle of acquaintances in the Labour Party. At stake were rival conceptions of New Zealand’s essence and future. The most vocal internal critic was Jim Anderton, who fancied a corporatist economy of guided and regulated enterprise. He dismissed not simply the market economy but also the notion that most New Zealanders wanted it, insisting that he knew better what the public preferred, which was a command economy. People would accept a narrower range of consumer products at a greater cost if the alternative was to live with unemployment and its social costs. This was a spurious dichotomy.

Several union officials made a comparable case for sacrifice to achieve equality when appealing for the awards system on behalf of vulnerable groups. Representing the New Zealand Federated Hotel, Hospital, Restaurant and Related Trades Employees’ Industrial Union, Peter Cullen defended the system as sustaining a practice whereby “those in the stronger jobs” could “give the weak ones a lift during the awards round.” Ending this arrangement of allowing skilled workers in demand to seek the best wages possible would cut the others “asunder and let them sink and I call that a shocking position for a Labour government so called to be taking.”⁹⁴ Three-quarters of Cullen’s 50,000 members were women.⁹⁵

Employers, ministers, and officials countered with arguments and facts. First, they proposed that a growing misfit between a craft-and-trades labour relations system and an industrial economy made firms hesitate to invest or hire, adding to youth unemployment. Second, plenty of aspiring individuals, including union members, wanted wages set by enterprises with attention to merit separation, and they wanted choices as consumers. Third, within the broad family of unions, there were officials who insisted that state underpinnings of the labour relations system would not be necessary once unions were suitably led. The independently minded secretary of the Electrical Workers’ Union, Tony Neary, remarked that if unions lost membership during the operation of voluntary unionism, “one can only conclude that the union must have been poorly organised and not servicing its members properly.”⁹⁶ Finally, there were the results of the interlude of voluntary unionism. Unions representing commercial travellers and sales representatives lost 70 per cent of their members, Auckland clerical workers lost 33 per cent, cleaners and caretakers lost 17 per cent, and carpenters lost 10 per cent. Part-time employees, workers on marginal incomes, and people working independently were leaving unions. Young people aged fifteen to twenty-four were overwhelmingly opposed to compulsory unionism.⁹⁷

Some union officials maintained that their organisations not only endeavoured to lift the weak but also sought to level society by calling attention to the rich, noting incidentally that their union’s modest dues could not match the profits of big employers, who led the employers’ group negotiating awards. “We are not about to improve the living standard of the Hugh Fletchers and the Ron Trotters,” exclaimed fol secretary Ken Douglas in 1985.⁹⁸ To make its point, the fol selected examples of class enemies. References to asymmetry were both correct and misleading, correct because of society’s undeniable inequalities at the extremes and misleading both because the society as a whole was not typified by the extremes and because rich employers were not the only ones whose balance sheets were impacted by awards.⁹⁹ Quite the contrary. The average number of employees in New Zealand businesses was twelve. Sixty per cent of the country’s 7,000 electrical contractors consisted of operations with two to five employees.¹⁰⁰

Forthright union officials admitted that singling out prominent business leaders was mere posturing. For the same reason, they promoted the “cloth cap” image, bringing in negotiators who looked the part of seasoned workers. To play up asymmetry, unionists compared the profits of leading companies to the slender budgets of individual unions funded by membership dues. But unions, if truly in solidarity, were not lacking assets. A visiting delegate from a foreign labour ministry asked Peter Harris how many union members there were. The answer was 400,000. “And what are the dues?” The answer was $250 per member. “How is the $100,000,000 used?”¹⁰¹ Harris thought it an incisive question. Stan Rodger believed that with resources consolidated and with down-to-earth leadership, unions could stand up to employers.

The accent on class asymmetries diverted attention from irreconcilable divisions among trade unions themselves, divisions caused by new industrial operations, technically sophisticated trades, and workers’ aspirations. Negotiations now were exposing the difficulties faced by union officials when they tried to draft a common awards document that covered individuals in high demand and those who were less sought after. Some large unions had tremendous problems trying to prepare an award that did justice to all. It was to be expected that corporate executive Douglas Myers, chair of the Business Roundtable in 1986, characterised defenders of current labour relations as living “in a gumboot at the bottom of the ocean.”¹⁰² But by 1987, a few union officials had also criticised the system. “That is heresy, I know,” admitted Jackson Smith, president of the Transportation Division of the Distribution Workers’ Federation. He wanted his members to get a better wage than they would receive if combined in an award with workers who were in less demand.¹⁰³

As well as appealing to a defence of the vulnerable and bracing for pressure from go-getting groups within unions, apologists for the system predicted that abandonment of the awards when combined with welfare benefits would produce “an army of welfare dependants. Perhaps the United States is an example of this.”¹⁰⁴ Welfare dependency was being condemned, ostensibly by the left, but the accompanying remark about America inverted the true situation among oecd countries. Despite their centralised industrial relations, France and Italy at that time had armies of young welfare dependants; the United States, with its decentralised system, experienced high employment.¹⁰⁵ These remarks about welfare dependants from Peter Palmer of the Planning Council Secretariat were in reply to the stated preference of Don Brash for high employment, lower wages, and income supplements rather than for high wages and high unemployment.¹⁰⁶ Palmer accepted that workplace restructuring was inevitable, although he had misgivings about the impact on individuals. To protect the most vulnerable workers, he wanted the retention of national awards.

As for “an army of welfare dependants,” in some occupations and locales, this characterisation was being applied to the country’s state-sector employment.¹⁰⁷ In mid-1985, the Treasury recommended that some of the Forest Service’s replanting in “employment sensitive areas such as West Coast, East Cape, and Northland” be budgeted “by explicit subsidy,” to be billed to the Labour Department.¹⁰⁸ It is a measure of the intensity of arguments about the impact of the labour relations system that they could descend into ill-tempered jibes about welfare dependency.

thawing out and heating up

The discussion in this chapter has concentrated on a period of transition without mentioning how organised labour’s past struggles in New Zealand, Australia, and the United Kingdom forged the hard edge of some older unionists, who were now suspicious of innovation and protective about what had been won. Younger officials with economics or management training clashed with trade union stalwarts. Old hands, Marxists, and socialists branded the new generation apprentices. Internally, the labour movement had reached a crossroads where the heroic past encountered a technological present. Legacies meant that union structures, fields of influence, and priorities, if continued into the future, could deliver some gains to workers and psychic satisfaction to a few union leaders but little that was helpful to the country’s international trade. Rural primary producers were incensed that the costs of awards flowed into their operations.¹⁰⁹ Structural reform was Fourth Labour’s chosen option for a recovery of a higher material standard of living, although some unionists, academics, and citizens imagined a socialist alternative.

Two measures by the outgoing National government left dilemmas for incoming Labour. First, there was Muldoon’s wage freeze, which lasted from 22 June 1982 until Fourth Labour became the government in 1984. When Cabinet decided to end the freeze, it suspected that the unions would lobby to have the government invoke the Economic Stabilisation Act (1948), ordering an across-the-board wage order to make up for losses during the freeze.¹¹⁰ To no avail. The government was beginning a disinflation campaign, not by controls but by allowing the market to work. Ministers wanted to see wage increases contained as a product of real bargaining.¹¹¹ Second, the incoming government had to do something about Muldoon’s imposition of voluntary unionism in 1983.

The freeze posed the conundrum of how to arrange an exit. Fourth Labour had to end it and accept a likely blowout of wages. The major feature of the lead-up to an interim negotiation round was the government’s resolve to withdraw from fixing wages or interfering with negotiations in any way. There would be no general wage order.¹¹² Union secretaries, expecting some broadly directed increase and perhaps indexation of wages, complained to ministers. Immediately, there would be an abbreviated wage round and a postponement of intense negotiations until the next full round, normally due to begin in mid-1985. In public speeches and interviews, ministers warned that union leaders needed to learn to uphold the terms of the awards and not initiate illegal strikes.¹¹³ The fol and affiliates had no doubts that the government was blocking their bids for direct political influence. They won the first encounter.

Ministers who hoped for restraint during the first full negotiation round in 1985 were disappointed. The settlements followed the leader in a tight array of increases that were higher than the government had wanted. Inflation and the freeze had naturally entered discussions. More than the size of the awards frustrated the government. First, their similarity bolstered Cabinet’s resolve to reform the system. In a note to Roger Douglas, Richard Prebble remarked that a good reason to move quickly to reform industrial relations was “the difficulties we have experienced during the wage round.”¹¹⁴ There was an inevitability to this disappointment. The awards responded to inflation but then helped to make it stick. Some gains of the freeze were lost. Second, an informal coupling of wage fixing through relativities in the private and public sectors meant that departmental budgets were going to have to be amended, requiring trimming and the deferral of new initiatives. The unions had a setback too. During the election campaign, Labour promised to end National’s imposition of voluntary unionism, but once in office Labour dragged its feet, noting by way of an excuse that voluntary union membership had been written into a number of awards and that employers clearly would not reopen them to insert an unqualified preference for union members in the workplace unless unions granted concessions elsewhere in the award.¹¹⁵ By deferring the much-anticipated action, the government kept pressure on the fol to relax its insistence on national awards, work toward a consolidation of unions in large plants, and work for an amalgamation of unions to reduce craft-based inflexibility.¹¹⁶

Voluntary unionism affected some unions more than others. A clerical and shop employees’ union lost substantial numbers and had difficulty enlisting new members.¹¹⁷ Union officer Pat Kelly complained that dropping membership would undermine weaker unions when wage negotiations resumed.¹¹⁸ For a government that wanted less militancy from union executives and more pragmatism, there was a paradoxical side to letting voluntarism linger. It kept a few unions in the hands of the energetic faithful, who were more militant than the workers who opted out.¹¹⁹ All the same, Fourth Labour wanted to promote industrial unions that could hold onto members by their achievements without state props. Eventually, the government diminished voluntary unionism without absolutely ending it. Cabinet recognised that the public approved of voluntarism. A poll taken in December 1984 showed that it was supported by two-thirds of the 2,000 people sampled.

The Labour Department reviewed several membership schemes until in April 1985 Cabinet risked a solution, introducing a bill that made union membership mandatory for eighteen months. Afterward, unions had to hold a ballot to test support for a continuation of unqualified preference in awards. As well, workers under eighteen would not be bound by compulsory provisions in an award, and the Labour Department’s Union Membership Tribunal could hear and determine requests to opt out.¹²⁰ From 1 July 1985 to 31 December 1986, 273 exemptions were granted out of 472 applications. After this modest “flush of activity,” numbers dropped.¹²¹ The modifications to compulsory membership, showing that the government regarded unions as interest groups, prompted a union official to ask, “What in the name of God is going on?”¹²² Shortly after the election, Stan Rodger had announced his intention to change industrial relations, introduced by a green paper discussion document.¹²³ The Labour Department could not meet an ambitious target date for the paper due to work on lifting the freeze. A master of tactical delays and surprises, Rodger was not disappointed in slow-going research. Months passed. The unions had no word on developments. When pressed by fol officials in late 1985 to hurry up and bring a draft copy to the Joint Council of Labour for consultation with union representatives, he sprang the news that the final version was set for printing. He would supply a copy.¹²⁴ His conduct sent a message.

Public servants enlisted from the Labour Department and the Treasury wrote background papers on the issues and options worth consideration.”¹²⁵ The comprehensive study culminated in a two-volume green paper released in mid-December 1985. Consultation with unions and employers followed, although Rodger dismissed any illusions of reaching a consensus. There would be, he said, a “thorough sounding out of the views of the community.”¹²⁶ What he could not state but knew was that no substantive compromises were ever going to come from so-called consultations. Rodger was going to make neither labour nor capital happy.

trouble inside a wage round

At the end of the wage freeze in November 1984, the government had recommended that the parties negotiate interim wage adjustments, which were soon to be followed by full-fledged negotiations in mid-1985. The fol set them to open in September 1985. Unions and employer organisations resumed the old practices that had prevailed before the freeze. Prior to the round, the fol and the Employers’ Federation held their strategy sessions. To make up for the years without awards and to help workers deal with inflation, union officials wanted advocates at each table to press for substantial wage increases. Negotiations could not follow the old ways since unions had been deprived of the authority to insist on arbitration. The fol’s strategists impressed upon the affiliates that blanket national awards were the mainstay of union claims to protect the vulnerable since awards put a safety net under the rate paid to workers isolated in small, scattered sites.

However, the interests of low-paid union members and the interests of the poor outside union coverage were not the same. Citing emotive cases, like those of low-paid women in the restaurants, hotels, or shops, was valid so far as it went, but it evaded awkward questions about how national blanket awards impacted the unemployed and the young who were looking for their first job. Treasury officials insisted that an outdated system that made employers hesitant and overly cautious hindered young people, Maori, Pacific Islanders, and women who wanted to get into the workforce.¹²⁷ In reply to such arguments, the fol held that the abandonment of awards and the introduction of regional pay scales would amount to “cynical exploitation of workers in depressed regions.”¹²⁸ The instruction was that unions meeting with employer counterparts should reject second-tier agreements as far as possible. These agreements were wedges that contributed to toppling the craft union system.

By at least 1980, unions and employers had fashioned expedients that acknowledged the diversity of skills among union members. Second-tier agreements, censured by slang as “tuckaways” or “funnies,” were occasionally agreed upon as supplementary to national awards. Even as the fol criticised second-tier agreements, defenders of the awards system discovered plenty of them and presented this finding as evidence that the awards system was flexible. In 1989–90, labour studies researchers Pat Walsh and Raymond Harbridge, the latter a former union education officer, found that second-tier agreements applied to 23 per cent of employees covered by registered awards or agreements, a figure that “showed an important degree of flexibility in the labour market despite the market being stigmatised as inflexible.”¹²⁹ It was a desperate argument. It is striking that the inflexibility-flexibility dichotomy appeared often during the structural reformation, namely in the discussion of currency exchange rates, interest rates, the operations of utilities, and welfare benefits.

The awards system was not flexible, just breaking down. Moreover, as long as the awards system endured, numerous employers were constrained to negotiate only upward to a minimum for everyone in a trade. What some groups wanted was greater freedom to match wages to skills, the actual job performed, and the regional or enterprise circumstances. Union officials disputed among themselves about the efficacy of breaking with the awards system by pursuing second-tier negotiations. The secretary of the Food and Chemical Workers’ Union, Garth Fraser, pledged that he would never seek second-tier agreements because the presence of some workers in strong demand helped him to negotiate national awards at premium levels. The strong pulled up the vulnerable. Stalwart supporters of the national awards practice protested that when sisters and brothers in other unions adopted second-tier tactics, they undermined the award for the less skilled in the union at the next year’s round.¹³⁰

Departing from solidarity once they had achieved a base wage in a national award, other unionists took a run at a list of targeted employers whom they judged able to give up more in a special wage settlement. The largest union, the New Zealand Union of Engineers, had a very diverse membership that encompassed workers “without market advantage” as well as highly skilled members in great demand. The latter’s presence forced union leaders to pursue more second-tier agreements than any other union. Still, they voiced support for the awards system and “wage equity.”¹³¹ On the ground, however, they struggled to convince specialists in hot trades that the awards system was noble and that the skilled could have the satisfaction of pulling up the wages of others. In reference to their union work or life in general, union leaders may well have asked themselves, “If we can’t help one another, what are we here for?” Even in New Zealand, where comradeship inspired some trade unionists and socialists in the Labour Party, the second-tier agreements were causing division among and within unions. Without overwhelming buy-in for self-denial, the unions’ negotiating advocates had to make special deals for the skilled in high demand. Officers at the Union of Engineers creatively described their practice in negotiations as “the encouragement, if not the guarantee of equitable outcomes.”¹³² Although this union’s second-tier agreements supported claims of flexibility, they exposed fractures.

At the outset of the 1985 round of negotiations, an astute reporter wrote that the “real concern” of the unions “is to ensure that the national awards system holds good and that the flexibility the Government is promoting occurs only at second tier.”¹³³ The government wanted to see a spread in settlements, something to reflect market demand and professional skills. Union leaders recognised that the awards system fell short of flexibility, which was precisely why some insisted that it should never be surrendered. Inflexibility buttressed comradeship and membership.¹³⁴ If some employers stigmatised awards as inflexible, others celebrated this inflexibility. The problem that the award-focused unions faced was that other unions, ones dedicated to enabling individuals to secure differential wages, could poach members from the strength-in-unity organisations during demarcation contests. Unions insistent on the awards system and fearful of enterprise negotiation came under pressure from several sides. Many employers opposed it. Government welfare measures, income tax reductions for working families, and minimum wage regulations weakened the social wage concept. Indeed, a week before negotiations began, in a move calculated to cut ground out from under the fol’s justification for national awards, the government issued an order-in-council to increase the country’s weekly minimum wage from $100 to $170.¹³⁵ Some major unions had to contend with ambitious groups within their ranks; additionally, large numbers of individuals did not want to pay membership dues.

A wobbly accord among unions to hang onto the awards system and to work for a close array of wage settlements survived during the 1985 round, although the system was bleeding support. The Electrical Workers’ Union stayed out of the fol to secure a better deal for its highly skilled and sought-after members. Electricians and their contractor employers thought that “everybody else is standing on the sidelines waiting to jump on a bandwagon in which they don’t fit.”¹³⁶ This self-assured remark recognised that electricians’ wages, through the practice of relativities, could help to secure good settlements for workers who lacked comparable skills. The electricians and their employers “don’t fit the stereotypes of your cloth cap unionists and your rich industrialists.”¹³⁷

The secretary of the Electrical Workers’ Union, Tony Neary, stood for differentiation in wages, predicting that unless new technology was acknowledged in union structures, leading to better wages for his membership, “this country will continue to lose many of its highly skilled technicians.”¹³⁸ Whether or not an exodus was underway, his claim meshed with the government’s concern about low productivity. A loss of skills was not what the country needed. The fol’s determination during the 1985 round to stand up for the awards system prompted formation of the Coalition of Non-Aligned Associations and Unions, a group whose 60,000 members wanted to see wage fixing settled “within the workplace between employers and employees and their respective organisations.”¹³⁹ Alerted to this fol initiative, Roger Douglas’s executive assistant, Murdo Beattie, recommended that Douglas work “more actively to meet with Unionists outside the fol-csu [Combined State Unions],” alluding to Neary. He urged that Douglas “move to have them become more actively involved in high level wage talks.”¹⁴⁰

It was not only the scarce, skilled, and ambitious who wanted an end to the awards system.¹⁴¹ Workers at Dunedin’s Lion Breweries knew that their employer was under cost pressures, but the Stationary Engine Drivers’ Union opposed changing work arrangements to help the firm.¹⁴² Employers were divided too. In early 1985, the Employers’ Federation met to rally members to a common position for the wage round. Its officers and staff wanted no reckless wage concessions from individual employers. Neither did the government. Prebble hinted that Cabinet might investigate tariff protection for industries that made “silly” settlements, a veiled threat capturing the government’s understanding of the interconnections among industrial relations, subsidies, privileges, the balance of payments, and inflation.¹⁴³ If a group of employers could afford to increase wages substantially, perhaps they should operate without protection, subsidised apprenticeship programmes, or escalation clauses in government contracts that indemnified their concession of wage increases. Without the bounty of benefits, some employers might be obliged to take a harder attitude in negotiations, as unions were being urged to do. In addition to holding the line on wages, employers’ organisations were advised by the Employers’ Federation to seek agreements that deviated from relativities and recognised demand for skills. The opposing scripts were ready for the big show.

With objectives laid out, the opposing groups selected the line-ups of advocates who would travel to Wellington, Auckland, or regional centres. It had been the practice of governments to pay the travel expenses of union representatives. Teams would meet with a conciliator in no-frills conference rooms, down bad food, and engage in tricks of their respective trades. The hiatus of the freeze had occasioned no change in negotiating tactics, the first of which was to select the industry that would begin the sequence of meetings. Unions opened the negotiations, astutely designating a union whose trades were in strong demand and whose employers might be pushovers. The relativities ratchet would then come into play.

To see how the wage round proceeded, I reviewed twenty negotiations reported in newspapers. In a combative mood and letting his wit get the better of him, Prime Minister Lange quipped at the start of the talks that employers “needed to lift their negotiating above the level of a Chihuahua.”¹⁴⁴ Classic Lange, the remark soon embarrassed the government. From the perspective of the Employers’ Federation, the government undermined its own policies when Lange commented in another off-the-cuff statement that fair wage increases could come in at 10 to 12 per cent, but he also mentioned that he hoped workers in high demand would benefit from secondary bargaining and see their wages reach 15 per cent.¹⁴⁵ His purpose had been to undermine the blanket awards system and to encourage a dispersal of wage rates; instead, 15 per cent became the unions’ goal for the awards.¹⁴⁶ Shortly after Lange’s widely reported remark, the Electrical Workers’ Union settled for 15.5 per cent. That set the trend, as a union advocate had predicted. Everyone did “jump on the bandwagon.” Distribution workers, metal workers, dairy factory workers, carpenters, waterside workers, and many more occupations settled for agreements that brought their wages up by around 15 per cent¹⁴⁷ When the last of 147 negotiations was completed in February 1986, wage increases averaged 15.5 per cent.¹⁴⁸

The uniformity of awards should have come as no surprise due to inflation and the pent-up demands for wage increases occasioned by the freeze, although more than the size of wages concerned Cabinet. Appeals for a spread of wages based on skills and demand – greater dispersion – had failed.¹⁴⁹ Lange quipped that “the employers’ federation had been subverted by the far left.”¹⁵⁰ A complete assessment would have seen some blame placed on the state sector’s High Salaries Commission, which in October 1985 had ordered settlements from 15.5 to 37.3 per cent.¹⁵¹ From the government’s standpoint, the 1985 round had been a disaster, although in his appeals to the unions to support reform, Stan Rodger varnished the settlements, making them shine as if they were part of the government’s design, praising a shift from “inflexible” to “flexible bargaining.” He put it to the secretary of the Wellington Regional Labour Council that “the campaigns that resulted were by and large very successful. The previous rules would have stultified this process.”¹⁵² It was a heroic claim of success, consistent with the reformer’s pledge to project competence.

A UNION PRESIDENT’S MISCALCULATIONS

In September 1986, the government fell into an unexpected opportunity to gain support for labour relations reform and its policy of detaching the state from the unions in the public’s perception and reality. Cabinet received a gift from the gnarly, combative, and seasoned union leader Jim Knox, president of the Federation of Labour, who supported a strike by one of thirteen unions at the Tasman Pulp and Paper Mill, owned by Fletcher Challenge, at Kawerau in the Bay of Plenty.¹⁵³ Another pulp and paper mill, the Kinleith Mill near Tokoroa, had experienced a strike in 1980 that ended with a large wage settlement, but even victorious union leaders agreed with the government and paper industry employers that there had to be a better way forward in labour relations. Subsequently, Bolger formed the Long-Term Wage Reform Committee. Well-reported events, including the Kinleith events and the Kawerau strike, contributed to public consternation about wastage caused by small trade unions and their demarcation disputes in large plants.

Pulp and paper plants were advanced engineering enterprises whose diversified workforces exposed the inflexibility of trade union organisation. The Kawerau strike developed in August 1986 during a round of negotiations for a new agreement. The company insisted that unions accept six points: (1) the right to introduce changes in its operations and manning patterns to meet changing work practices in the industry, (2) the right to keep skeleton crews in place when the union held stop-work meetings, (3) the right of workers to affiliate with a new union if they chose, (4) the right of the company to engage in job training as a normal part of all jobs so that employers could be adequately prepared for movement on the shop floor and for advancement, (5) a formal agreement that specified the terms of redundancy packages, and (6) immediate changes to manning patterns.¹⁵⁴ Most unions acceded.

However, members of the Northern Federation of Pulp and Paper Workers, an unregistered union engaged in a demarcation dispute with the Timber Workers’ Industrial Union of Workers voted not to go back to work. The vote of 267 to 189 was no ringing endorsement for a strike, especially since the union denied a secret ballot. There were allegations of intimidation.¹⁵⁵ At the town hall the next day, speakers for and against the strike spoke at a well-attended public meeting. Inadvertently, Knox helped the government to achieve what he opposed because his attendance at the meeting along with local union activist Tama Iti produced an embarrassing moment. Constables rescued both from a hostile crowd that wanted employees to go back to work. The back-to-work supporters included the low-paid crews that cut timber for the mill.¹⁵⁶

Two weeks earlier, Rob Campbell had resigned from the fol executive. Campbell had conditionally supported the gst and had come around to some of the government’s positions on economic reform. When he left the fol, he gave as a reason his belief that the old-style leadership obstructed the unions’ path to becoming modern outward-looking organisations.¹⁵⁷ He had fallen out with Knox over strategy. Now Knox, having lost a young voice for the fol, was in a fix as he faced trouble in a mill town. The company had tactical advantages, and Knox, a veteran of confrontation who had played a role in the 1980 Kinleith victory, failed to appreciate that there had been a fundamental change.¹⁵⁸ A worldwide oversupply of newsprint had depressed prices, and the company, which also operated a Canadian mill, resolved to endure a long strike, taking losses as a price worth paying to gain control of the shop floor.

Ownership of the Canadian mill gave the company an inside look at a more efficient workforce. Fletcher Challenge made sure that these contrasts received media attention.¹⁵⁹ The Canadian plant required 2.3 man-hours to produce one tonne of newsprint, and at Tasman it needed 6.4. The difference was not attributed to deficient equipment or unskilled New Zealand workers but to a trade-based industrial system that divided and isolated tasks. Fletcher Challenge’s head, Ron Trotter, not an impartial source, claimed that “the Canadians did not have over-manning, restrictive work practices, one man carrying another man’s tools, one man driving another man’s car.”¹⁶⁰ The general point had merit. New Zealand’s craft-based labour relations system kept tasks segmented by trade. Demarcation inflexibilities undermined international competitiveness. The Kawerau strike allowed imports to erode local market share. Concerned about the fate of newspaper workers who might be unemployed without newsprint, waterside workers allowed Tasman to import Canadian supplies.¹⁶¹

The 1985 wage round had embarrassed the government; press coverage presented it as spineless or hypocritical. But thanks to Kawerau, it had been handed a second chance to showcase its mettle.¹⁶² An intentionally combative strategy had been set by the government prior to the strike. In March 1986, Stan Rodger spoke at an employers’ conference to stress that the government would withdraw from settling disputes; unions and employers needed “to slug it out,” he said, and both would occasionally take a hit on the chin. The idea that the government would intervene in any way, including through arbitration, “assumed that many unions depended on the protection of the state for their viability, an interesting conundrum in itself for those unions.”¹⁶³ He felt that several union officers repaid state support with irresponsible conduct arising from ideological agendas. That was at an end.¹⁶⁴

Shortly before the Kawerau strike, in May 1986, Lange blasted trade unions at their conference in Wellington’s Old Town Hall. It was hypocritical to argue for awards and not to respect them; union leadership stood lower in the public’s esteem than politicians. “I am in the camp that would argue for radical reform,” Lange declared.¹⁶⁵ Fourth Labour’s conversion of arbitration into a voluntary measure in late 1984 was about to turn the tide. At Kawerau, Knox had to face the consequences. He expected to play the arbitration card if the impasse continued, but arbitration now required consent from both parties. After the strike vote, which he advocated as a tactic to force Fletcher Challenge into arbitration, he asked the company to agree to arbitration. Not a chance.¹⁶⁶ Since the company had closed the familiar exit, Knox hoped that the government would convene a tripartite meeting. This course of action, too, was denied. Cabinet’s determination to let unions and employers negotiate on their own originated partly from a belief that withdrawal would promote maturity in relations between labour and management and partly from a desire to avoid sanctioning a trend-setting wage rate.¹⁶⁷ Minister after minister declared that the parties had to decide on their own, insisting that the ministers would not intervene.¹⁶⁸ As Lange put it, if a union did not want the government to intervene when a union was “knocking over an employer for wage increases, clearly that union is not in a position to ask the government for intervention when the reverse is true.”¹⁶⁹ The minister of labour would no longer act like a chief industrial mediator.

Knox was taken aback. “Even under the National Government, you know, at times Bolger would ring me up and say ‘well, look, what’s the situation?’”¹⁷⁰ Although Bolger introduced voluntary unionism in 1983, his sociability and the traditions of the old labour relations system meant that he had acted as “New Zealand’s chief arbitrator and negotiator.” He recalls that “nearly all disputes landed at my door.”¹⁷¹ Those days were over. Lange exploited the publicity around Knox’s stubbornness and his almost certain defeat by a resolute company. A ten-week strike ended in “complete and utter capitulation.”¹⁷² To isolate Knox, Lange made a point of contrasting his negotiating skills with those of other union leaders, suggesting that although socialist “Red” Ken Douglas had ideological differences with the government, he could at least negotiate a settlement that benefited employees.¹⁷³ The changes in labour relations that the government had in mind would facilitate changes in union leadership if members were willing. The criticisms of Knox were almost certainly calculated to embolden grassroots rebellions at the fol.¹⁷⁴ His militancy cheered a few in the Labour Party, and he was determined to make things difficult at party conferences.

A HOMEMADE HALFWAY HOUSE

The release in December 1985 of the Labour Department’s two-volume synopsis of labour relations and policy options was followed by the circulation of notices inviting interested parties to comment. In August 1986, Rodger’s department received 188 submissions, many expressing support for changes but no consensus on the elements. Employers and unions had the sharpest differences, although there were divisions within these camps. There was enough innovation to upset everyone and not enough to please anyone entirely. Indignation flowed from officials in the employee organisations not directly affected, namely the Public Service Association and the Combined State Unions. In a brief submitted to the parliamentary select committee considering the terms of the Labour Relations Act (1987), officials of the Combined State Unions admitted that its members’ wages were “largely based on relativities with the private sector.”¹⁷⁵ Its officials were furious about losing a handy guide to relativities in the form of wage-awards tables.¹⁷⁶

The public consultation alerted the Labour Department to the intensity of opposition and to the arguments that it needed to answer as it moved ahead with the bill. Rodger and his department’s senior personnel knew roughly what they wanted, but to shape the research, consultations, and firm preferences into an orderly draft, they formed a working party to prepare a white paper, or official statement, on policy.¹⁷⁷ Most ministers in the group wanted to end the awards system, whereas parliamentarians were known defenders. To the dissatisfaction of some ministers, the outcome of the deliberations was an arrangement that retained awards as the default option for wage fixing. The intricate business of establishing the basis for union membership remained and was mixed in with concerns about irresponsible union leadership and a hope that the size stipulation of 1,000 members and a process for changing union coverage would drive turnovers among union officials, expunging ideology and installing pragmatism.

Any legislation attempting to make relations more flexible had to end the narrow trade union arrangement, hence the threshold of 1,000 members, and gone with the narrow arrangement was the state’s role in union registration. Other countries had alternative practices. In the United Kingdom, unions and employers negotiated recognition; in Canada and the United States, employees voted on whether a local branch of a union would serve as their bargaining agent.¹⁷⁸ The threshold measure did not impress large employers, who predicted that it would intensify demarcation struggles at their plants. Unions would raid one another to keep membership above 1,000. Although the threshold imposed organisational work on unions, it assisted in preventing the formation of local or plant-based sweetheart unions. The legislation balanced employer-employee interests, leaving plausible arguments for the government to pitch to sceptical party members. From the standpoint of senior Treasury officials, the legislation was a messy initial step, barely moving to reduce state intervention.¹⁷⁹

By mergers, unions could accumulate finances to diversify services and move into areas formerly restricted by legislation and now to be opened up. The downside for the majority of unions was the reorganisation effort. Two-thirds of the country’s 233 unions needed to find partners to take them across the threshold.¹⁸⁰ Between 1986 and 1989, the number of unions declined to 112; the average size increased from 2,198 to 5,793 members.¹⁸¹ Militant unionists faced the possibility of submersion by the diverse attitudes of larger constituencies. The union size requirement doomed small activist unions, some of which had closed whole pants during their strikes. The Kawerau event had been such an incident. There were more. Whatever the merit of small-group grievances, public opinion was running against work stoppages on their account and against the grandstanding of union officials. Opinion also favoured voluntary unionism.¹⁸² There were allegations, too, that a few unions were undemocratic. Rules governing who could be a union officer had been left to the unions; however, the white paper recommended that unions hold elections every five years, open offices to any member of the union, give ten days’ notice of motions, and hold secret ballots.¹⁸³ Little wonder that a few union officials stirred opposition to certain ministers in candidate selection meetings.¹⁸⁴

If it had been within his power, Rodger would have eliminated the awards system and replaced it with enterprise negotiations. At the same time that he was working on industrial relations in the private sector, he was preparing a deep reform of the public sector that would include an upheaval in its wage fixing. Instead of wages set by public-sector tribunals, department heads would be empowered, in the capacity of employers, to negotiate with employees. Rodger took on the portfolios of the Labour Department and the State Services Commission with the ambition of reforming and harmonising industrial relations in the private and public sectors. He had to compromise on the private sector due to vigorous support for awards in the FOL and party organization.¹⁸⁵

The best that Rodger could manage was to advance flexibility slightly and to make the system more transparent. These goals were to be achieved by allowing unions to negotiate awards and then compelling them to be forthright if they intended to chase down second-tier agreements. They would henceforth have to register a list of employers marked – the term was “cited” – for separate agreements. Cited employers and negotiating unions left the awards system; their agreements stood apart from awards and were not top-ups to the awards. Zeroing in to criticise this compromise, executives at the Employers’ Federation knew precisely where to focus their lobbying. The federation’s general director, Jim Rowe, declared that “the government would be better off throwing out its white paper on industrial relations and adopting the principles in the state sector document. If the government as the country’s major employer can have a work force with enterprise bargaining then everyone should have that opportunity.”¹⁸⁶ Stan Rodger had just released a discussion paper proposing an end to awards for the state sector, a subject covered in chapter 13.

In preparing the draft of the Labour Relations Bill, Fourth Labour had needed to re-enter the briar patch of voluntary union membership. Employers and human rights advocates insisted on it.¹⁸⁷ The government now rejected voluntarism, leaving the problem of deciding precisely how membership should be established. Rodger stalled, telling the unions in early 1985 that a bill “will appear as soon as technically feasible.”¹⁸⁸ Labour’s 1985 overturning of National’s voluntarism was accompanied by a requirement for a vote by current members; if the majority agreed, then everyone had to be a member. The current question was how, after that vote and under new legislation, membership would be determined. In labour relations, actions by governments seldom remained settled. Thus, in keeping with Rodger’s position that more issues should be settled by face-to-face negotiations between employers and unions, the government favoured letting membership be part of negotiations, leaving the decision to the parties most familiar with the workplace.¹⁸⁹ Again, the balancing act made its appearance. In the event that employers wanted to make sure that the wishes of a majority of workers were honoured, they could refuse to insert a membership clause into an agreement. In that case, employees had to be balloted.¹⁹⁰

A row erupted over union coverage. It could not have been otherwise in the Labour Party. In September 1986, the annual party conference passed a remit against any measure that enabled workers to show dissatisfaction by replacing an existing union. Union officials warned of unbrotherly campaigns to filch members. They maintained, too, that the contestability of coverage would lead to ever greater on-site bargaining, ultimately destroying the awards system, which for many unions represented the realisation of class solidarity.¹⁹¹ As for coverage, Cabinet had agreed that workers should be allowed to break away from the coverage of registered unions. The subject split the Labour Caucus. A compromise proposed permitting workers to seek the registration of a new union but only when they were no longer covered by an award. They had to wait until the end of an award period.¹⁹² fol unions saw the compromise as fudging “an element of contestability.” A coalition of non-fol unions with 70,000 members was irritated that the retention of awards was a retreat from “wage bargaining free from government intervention.”¹⁹³ Some employers proposed that the give-and-take left a compromise that constrained their employees’ right to determine their community of interest.¹⁹⁴

“Simply bullshit” was how Douglas characterised this compromise departure from the Cabinet position, explaining that it was merely cosmetic. He hinted to Lange that the government’s non-traditional backers might be so disappointed as to hold back campaign contributions.¹⁹⁵ Douglas and Treasury officials believed that the compromise process by which workers could replace one union with another would be slow, with outcomes falling short of what restructuring required of the labour market. New Zealand, they insisted, needed genuine and speedy flexibility.¹⁹⁶ In the end, the legislation incorporated the compromise.

Business opinions varied, with some business leaders delighted that arbitration remained voluntary. This reaction displeased unions. They lost a tactic and were not getting it back. Employers shared a handful of objections to the legislation. Many focused on the union’s right to “cite” employers and to have them negotiate agreements outside the awards. It was not that employers disliked the idea of employer or plant-based agreements; on the contrary, they argued that it was unfair that unions alone controlled access to these negotiations.¹⁹⁷ Treasury officials had failed to persuade the government to grant employers the same right to opt out of an award, forcing what amounted to an enterprise negotiation.¹⁹⁸ As if to make up for granting unions an exclusive citing licence, the government promised financial incentives to unions in order to assist them with drafting enterprise agreements that brought a number of unions together in a single workplace. Employers had long favoured these composite agreements as a way to simplify relations on large worksites. Wanting more composite agreements – indeed, an entire system based on them – the Employers’ Federation held twenty regional meetings, placed half-page ads in newspapers, and sponsored a letter-writing campaign to members of Parliament.¹⁹⁹ Labour researcher Pat Walsh dryly summarised that the legislation “attempted a complex reconciliation of diverse policy objectives, deployed a mix of policy instruments to do this and accepted the need for trade-offs among those objectives.”²⁰⁰ Here, a Labour government, even one in the hands of resolute reformers, could only bob and weave.

During the 1987–88 wage round, the first under the reformed system, no big initial settlement drove wages. With a few exceptions, agreements came in at half the rate of the 1985 round.²⁰¹ The government had stayed outside the process and welcomed the modest wage increases as a contribution to price stability and ultimately competitiveness.²⁰² Because he took a hands-off attitude and declined requests to intervene, critics called Rodger “side-line Stan.” Say what they might, his cumbersome, adroitly balanced reforms were transformative. Employers and unions agreed to work for more single agreements covering a plant. Union officers spoke about a new spirit of bargaining that could recognise the needs of individual industries and companies.²⁰³ The employers of metal workers represented by the New Zealand Union of Engineers agreed to open their books to union economists so that “union negotiators in future will be able to base their claims on the economic circumstances of each industry.” A joint union-employer committee would work out the details for a move to separate industry bargaining so that negotiations would be organised according to industry groups.²⁰⁴ Flexibility was not zooming into place to the satisfaction of everyone, but as Stan Rodger confessed, he had to find something that “can at least be lived with.”²⁰⁵

More than previously, conflicts broke out in some unions since they had to be transparent about their choice of negotiating format. If the executive members of a large union with diverse membership stood firmly for an ethos of all for one and one for all, they faced opposition from groups in the union who, seeking higher wages, wanted to be cited for enterprise negotiations.²⁰⁶ It was impossible to forecast how union reorganisation would shake down under the legislation. Ministers trusted union leadership to work it out, meeting the costs of keeping specialty teams working in larger organisations. Union officials, who signed letters “yours in unity,” were dismayed by the bursts of interest in specialisation. Surprisingly, in light of the solidarity theme in New Zealand’s labour culture, some union officials welcomed a total abandonment of national awards, and “the sooner the better.”²⁰⁷ The leadership of the Council of Trade Unions – newly formed from a merger of the Combined State Unions and the Federation of Labour to bring together unions from the private and public sectors – recognised that the economy had changed. Unions had to do so too. They considered how to operationalise the legislation’s provision that unions could take on wider roles to serve members. Rodger believed that some unions would disappear because of workers exercising choice, but he maintained that collectively the union movement could emerge strong and effective.

Unions were adjusting to realities.²⁰⁸ This development distressed certain Labour Department employees, who pleaded that they had “a depth of experience and understanding which would be wasted” if unions were allowed to stand on their own two feet.²⁰⁹ A conference of the department’s senior industrial officers resolved that “it is nonsense that workers can look after their own interests.”²¹⁰ The industrial relations club battled for its jobs and for retention of the culture of protectionism, the very thing that reform ministers wanted to extirpate. Indeed, these ministers succeeded. The public service combed the statute books, and the government repealed legislation that included labour relations arrangements for specific groups: tramway workers (1910), harbour board employees (1950), seamen (1952), marine engineers (1974), waterfront workers (1976) agricultural workers (1977), coalminers and fisheries workers (1979), health services workers (1983), and Whangarei refinery workers (1984). The Labour Relations Act would apply to each. For the free-enterprise champions, the repeal of statutory regulations for these industries would advance flexible labour relations and the enforcement of work practices. The hope was that employers in several strategic areas would seize opportunities to reduce labour costs and that on the waterfront the effects would improve export competitiveness.²¹¹ The Labour Relations Act stirred things up, shortening the life of that legislation itself.²¹² Seeing the possibilities for opening up labour relations, more and more employers wanted to remove all traces of the old system. That was coming.

concluding observations: from crafts to industries

The Labour Relations Act (1987) was short-lived. In September 1989, former Seamen’s Union president Bill (“Pincher”) Martin anticipated changes ahead. Evincing the masculine character of a sailor who enjoyed rum and cloves at Wellington’s Schooner Bar, he remarked to a reporter that “the union movement’s arguments with the present Government are like a two-round match with a featherweight. But if [N]ational wins the election, it’ll be like a 15 rounder with Cassius Clay.”²¹³ As the country prepared to go to the polls in October 1990, National announced its intention to refashion labour markets. It delivered on its platform. Whereas Fourth Labour had consulted and compromised, National’s Employment Contracts Act (1991) was driven by a Cabinet committee with officials’ assistance.²¹⁴ Although there were abundant submissions to the parliamentary select committee that reviewed the bill, it was a government measure through and through, terminating any union movement hope of tripartite agreements, sweeping away prescribed union coverage, and dismantling the national awards system. It abolished the state mediation service, arbitration commission, and labour court, establishing comparable institutions – an employment tribunal and employment court – that had fewer powers than the former institutions. All employees, whether union-represented or not, had access to a grievance process, a necessity since some employees would not be union members.²¹⁵ The new legislation did not try to balance statutory advantages for the unions with advantages to employers. It eliminated them.

In the judgment of some specialists, the legislation gave employers “considerable latitude actively to undermine union membership.”²¹⁶ Political commentator and cartoonist Tom Scott caricatured the minister of labour, Bill Birch, as explaining that “we intend to lower already low wages and we’re going to deny workers many of their traditional safeguards [Sham, Boo, Hiss, Go Home]. OK I’ll rephrase it. We’ll bring in flexible wage rates and labour market reform [Yay. Hurray. Attaboy Bill].”²¹⁷ Labour relations specialists Kevin Hince and Martin Vranken wrote in 1991 that the union movement expected only modifications from National, “not the complete abandonment of the notion of the award as a document.”²¹⁸

The union leadership had misjudged. National’s May 1990 platform statement on labour relations could not have been clearer. If elected, the party would “allow employees to choose their own bargaining agents,” and negotiated agreements would have the status of binding contracts, not registered awards.²¹⁹ However, Birch told audiences that putting “more flexibility into labour markets … would not be done at the expense of the national awards system. Despite lobbying from the Business Roundtable.”²²⁰ Employers were united on the matter of scrapping the Labour Relations Act. Hince and Vranken must have known that some union members wanted to see the end of the system in order to achieve more for themselves. They wrote their article on the legislation for the International Labour Organization in the wake of the work stoppages and protest demonstrations that the legislation had prompted. Accenting social division, they predicted that the legislation’s operation would have to be modified, or else the divisiveness that it stirred up would obstruct the government’s prime purpose of improving productivity.²²¹ They overestimated the durability of protest, underestimated union pragmatism, and neglected the capability of the Council of Trade Unions to educate officials about new realities through seminars and handbooks.²²² National completed a reformation of labour relations that had originated in the early 1980s.

Especially in first months of the Labour Relations Act’s operation, it deserved critical attention when unscrupulous employers intimidated employees into signing individual contracts.²²³ Pat Walsh editorialised how low-paid workers would surely fear dismissal if they did not sign an individual contract, adding that they could not survive a stand-down period before they could collect an unemployment benefit.²²⁴ An efficient labour market capable of improving productivity was going to require good workplace relationships, something that had to be built by employers and employees, for the legislation was permissive, leaving much to be thrashed out by the two sides, who together “owned” the negotiating process – which was just what Stan Rodger had wanted. By eliminating the registration of unions, by leaving unions to fashion their own identities and bargaining unit structures, National trusted the process to come up with the appropriate bargaining units. No one was sure how many contracts would have to be negotiated. In the years before the transition, there had been approximately 300 awards and 500 agreements registered each year, covering about 600,000 employees and 70,000 employers. Presuming that multi-employer contracts were not going to be easily concluded, unions were going to be busy organising and conveying information.²²⁵

Unions and employers had time to sort things out because all trade unions registered under the 1987 legislation were deemed to have become incorporated societies under the Incorporated Societies Act (1908).²²⁶ A seldom-used statute gave unions an opportunity to work out whom they would represent in the long run. As a central organisation, the Council of Trade Unions had some challenges organising a decentralised regime. With the time granted by a transition period, the affiliated unions contacted members, providing them with model language for letters to employers: “I strongly oppose individual employment contracts and wish to continue being employed under the present collective agreement.”²²⁷ The labour court, its current form and duties coming to an end, helped with the transition, ruling that “in deciding on the precise terms of any individual contract it will not be the norm to exclude terms of the expired contract.”²²⁸

Janet Scott, who had become the first woman appointed as a Labour government mediator in 1984, summarised a transformation that in 1991 she predicted would demand pragmatism from both union leaders and the employers’ human resources specialists. “Ultimately,” she wrote, “this approach will need to take responsibility for taking many of the concerns and issues affecting workplace relationships out of the hands of shadowy specialists, dancing about in a peculiar annual ritual, removed from the workplace and it will put it firmly into the laps of onsite management.”²²⁹ Her forecast of more attention to management skills in both the unions and enterprises meant that union officials would have to work very hard at reorganising, which would necessitate learning more about modern workplaces and participating with management in workplace reorganisation and health and safety concerns.²³⁰ Human resources were taking over. Spokespersons for the Council of Trade Unions maintained a rhetoric of protest, which was red meat for morale, but realism stirred inside. Unions and management had to reach settlements eventually and by negotiation.²³¹

In 1988, one year after the Labour Relations Act had come into effect, a Labour Department study of 190 contracts showed that 45 per cent had unions as the negotiating agent. These unions covered 78 per cent of the employees. It appeared that large employers remained more receptive to unions than smaller operators.²³² The opt-in rather than opt-out membership provision after 1991 challenged union officials.²³³ Some members saw advantages. The system? “Damn nice to organise under it, but it’s been easier to justify unions with voluntary membership.”²³⁴ Apparently, more than structural obstacles weakened union organisation. A survey of former union members suggested that they perceived unions as overly aggressive and offering insufficient benefit. The Labour Department’s study found that wages had increased for half the surveyed employees, fallen for 5 per cent, and remained the same for the rest. Importantly, “remuneration packages have frequently involved the introduction or enhancement of performance-related pay.”²³⁵ Generally, unions had changed their approach and become more interested in business-like relationships with employers without losing sight of the fact that their respective interests often were not the same. Strikes decreased, if unevenly, over the years.²³⁶ Only a few unions continued to be “driven by ideology.”²³⁷

Union membership and the percentage of individuals employed by collective agreements fell in the private sector and rose marginally in the public sector.²³⁸ The Labour Relations Act likely contributed to the drop in union membership in the private sector, although this downward spiral tracked the falling-off of blue-collar work. Other countries experienced similar trends.²³⁹ Michael Bassett feels that the decline confirmed a belief “that without coercion, workers preferred not to associate themselves with the average union leaders’ personal agendas.”²⁴⁰ Although not every point of friction had been resolved and despite the unlikelihood of a consensus interpretation of labour relations history, there was no desire to undo the enterprise-contracts approach. Fifth Labour, through the Employment Relations Act (2000) and the Employment Relations Amendment Act (No. 2) (2004),²⁴¹ accepted “the broad market reforms of National’s 1991 legislation” but added elements to promote “good faith negotiations.”²⁴²

12

Viability Shakedown: Producer Adjustment in an Agrarian Country

overview: a reformation of “godzone” paddock

New Zealand has long relied on sending a limited group of primary products to a few developed industrial countries whose economic cycles have been synchronised and whose options for suppliers have been extensive. A transition from sheep to dairy was progressing when the country experienced shocks of external and internal origins in the 1970s and 1980s. Reliance on farm exports and on manufactured imports meant that the balance of payments current account was an important matter. From time to time, the account was affected by adverse terms of trade. The country was “flotsam and jetsam on global volatility.”¹ Cyclical fluctuations challenged governments to smooth farm income. In good periods, the Reserve Bank of New Zealand contained liquidity arising from the account’s surpluses by reining in the trading banks. In downturns, the Reserve Bank, the Treasury, and independent producer boards intervened with price support mechanisms. After the United Kingdom joined the European Economic Community (eec), structural difficulties, not just cyclical ones, challenged rural producers. The eec’s subsidisation of domestic producers enabled cheap exports. Tariffs, embargos, quotas, import licensing, and outright prohibitions restricted New Zealand’s access to several overseas markets. In 1985, the executive board of the International Monetary Fund (imf) sympathised that “other countries’ trade barriers disadvantaged New Zealand more than in the case of virtually every other member of the fund.”² Twice during its first term, in September 1985 and April 1986, the Labour Party government hosted commissioners from the eec. On these occasions, Cabinet boasted of New Zealand’s trade liberalisation and asked, without results, when the eec would follow.³

As a traditional market for New Zealand sheep meat, wool, and a few other products, the United Kingdom had taken 55 per cent by value of New Zealand exports in 1960, but it took only14 per cent in 1982. During 1975, the economy experienced unsustainable imbalances, both externally with the balance of payments current account and internally with double-digit inflation and a fiscal deficit that was 9 per cent of gdp. The terms of trade had suffered due to the first oil shock (1973–74). Devaluations and export incentives, plus good weather, helped the balance of payments current account. However, the second oil shock (1979), the National Party government’s domestic expansion of liquidity, and its fiscal outlays increased import outlays. An international recession trimmed export returns.⁴

In the early 1980s, agricultural exports accounted for about 70 per cent of export earnings, with a dependency on sheep meat and wool exports; subsidies and concessions supported pastoral agriculture, but the established cyclical management practices were incapable of dealing with structural changes in the world economy and with new consumer tastes and standards. National’s response was to increase intervention, contributing to delays in adjustments, fiscal trouble, and land speculation as farmers and investors capitalised the farm production subsidies. Promoting the bulk production of meats and wool neither provided incentives for productivity gains in these areas nor assisted with the moves underway to expand horticultural produce. In a 1978 study of the country’s economic policies, Ian McLean, former chief economist for the Ministry of Agriculture and Fisheries, warned that interventionist practices had failed and would continue to “fossilise outdated patterns of economic activity.”⁵ Economic performance supported his pessimism. In the ten years to 1982, the World Bank ranked New Zealand 125th out of 150 countries for economic performance.⁶ Arguing that agriculture’s future depended on new policies for the economy as a whole, McLean concluded that a “‘more market’ strategy offers the best chance of success.”⁷ Low productivity, global trade unfairness, and local policy missteps set the country up for a rural crisis. McLean’s position that agriculture’s problems could not be solved within the sector itself foreshadowed Labour’s programme of reforms, which set out to reorganise the fiscal, monetary, and structural fundamentals of the entire economy.⁸

producer subsidies, 1975–84

Production subsidies plus concessionary interest rates on farm loans had diverse origins; however, their expansion in the late 1970s derived from the controlling personality of Prime Minister Robert Muldoon (1975–84). Many supports predated his government, but acting as his own finance minister, he alone was responsible in 1978 for the Supplementary Minimum Price (smp) scheme, which gave price assurance to producers by means of payments from the consolidated state revenues.⁹ Each year, Cabinet approved minimum prices for beef, sheep meat, wool, and dairy products. If international market prices did not meet these levels, publicly funded top-ups went to the farmers. As it happened, falling world prices ramped up payments.¹⁰ McLean advised against such supports, predicting that they would “produce too great quantities of those products for which world demand is relatively inelastic.”¹¹

The smp scheme functioned in tandem with older price-stabilisation schemes operated by the New Zealand Meat, Wool, and Dairy Boards. They, too, were intended to stabilise farm incomes but by means of a different mechanism. The Treasury and the Reserve Bank provided producer boards with overdraft coverage at subsidised interest rates. If the market price fell below a price set by the boards, they paid affiliated producers the set price. In years when the market price went above this set level, boards repaid the concessionary loans that had financed the top-ups in poor years. The repayment did not include the difference between what the state paid on bond yields (effectively market interest rates) and the interest rate that producer boards paid on loans from the Reserve Bank. When Trevor de Cleene asked dairy company representatives what the board would do if the stabilisation fund was maintained but funded at market rates, they replied that “they’d pay out under such a scheme but at reduced rates.” It was a frank, if inadvertent, admission of a publicly funded subsidy to one community.¹² By the early 1980s, sheep and beef farmers had gained most from the supplementary minimum prices and from price stabilisation, deriving nearly 40 per cent of their average gross income from the government.¹³ Some farmers received almost thirty payments from various forms of assistance.¹⁴

The producer boards, which were not government agencies, originated in the 1920s as a response to the fall in market prices for export produce following the First World War.¹⁵ Explaining Muldoon’s smp scheme is more controversial. Muldoon “rejected as socially and politically unacceptable a tight monetary and fiscal policy.”¹⁶ His introduction of supplementary minimum prices, as a social and political act, could be justified as providing farmers with predictable and stable incomes. A further justification was that it compensated farmers for the high cost of manufactures resulting from protection and a controlled currency.¹⁷ There is more to the story.

When reviewing the crisis in 1987, officials at Federated Farmers of New Zealand argued that pastoral farmers had been induced “to develop new land and increase production for the benefit of the nation,” more precisely, “to boost exports.”¹⁸ Treasury economist Howard Fancy offered this explanation during an imf consultation in 1988, noting that the current Labour government “did not consider the balance of payments in the way that it had been in the 1970s, with the resulting range of assistance to exports.” Labour wanted neutrality among sectors “rather than favouring one of them.”¹⁹ Deregulation, removal of subsidies, and a phasing-out of protection for manufacturers were intended to allow enterprises, rather than public servants, to allocate resources. Deregulation agreed with Federated Farmers’ Dominion Economics Committee, which insisted that “correct market forces” should drive farm policy and that policy should not be “fudged by Government intervention in an attempt to pick winners.”²⁰ Whether or not Muldoon thought of the smp scheme as a device to improve the balance of payments current account and to generate foreign currency, rural producers believed that they had forged a tacit compact with his government and that someday they would “once again be called on to increase production and performance to try and cover the shortfalls in overseas income.”²¹

When fiscal circumstances started to deteriorate badly in the early 1980s, Muldoon initially refused to abandon subsides and concessions, but the old and new mechanisms for price supports proved unsustainable. When export markets slumped, payouts correspondingly soared. Unlike the eec, New Zealand, along with other small open economies, had no rich manufacturing provinces to carry the burden of a sociocultural policy that privileged rural living and rewarded rent seekers.²² Government spending exceeded the country’s current means and jeopardised its reputation in financial markets.²³ The Treasury in 1982 argued that the supplementary minimum price ought to be held as close to market prices as possible, or else there would be a budget blowout.²⁴ Direct payments alone rose from $52 million in 1981–82 to $241 million in 1982–83 and then to $500 million in 1983–84. They fell slightly to $334 million in 1984–85.²⁵ Estimates on the total per annum cost of all forms of assistance in the early 1980s were in the order of $1 billion.²⁶ New Zealand had large annual expenditures: social welfare benefits, tax-based superannuation, education, and health. Relative to these areas, tax-funded farm supports were vulnerable. Federated Farmers protested that “the really big spenders which include Social Welfare, Education, and Health are outside any reform procedure to date.”²⁷ Social welfare was under review, and a unit in the Social Welfare Department pursued welfare abuse. Labour’s Cabinet did not play to its base, although a deep reform of labour relations, desired by famers, was a step too far.²⁸

In his account of economic policy making from 1945 to 1984, Jim McAloon considers price supports after 1981 to have been “extravagant,” a point also made by economist Brian Easton. Writing about the crisis in 1997, Easton navigated “a complicated tale,” accepting that subsidies inhibited diversification.²⁹ By inclination, however, he was interventionist. While director of the New Zealand Institute of Economic Research, Easton promoted state management, writing early in the crisis that “my gut feeling is that modern economic management requires government to change expeditiously a wide range of instruments of economic management, without prior approval of Parliament.”³⁰ Short-term economic tuning retained New Zealand adherents, as did another type of intervention, namely spreading state funds to accelerate new farm settlement and otherwise to increase the volume of production. Until David Lange selected Roger Douglas as the Opposition finance critic, Labour followed a postwar rural policy that included soft loans, subsidies, and regulated service charges; it flirted briefly with a factor tax to deter land speculation and to pressure farmers into producing more for the sake of earning foreign currency. It was assumed, without earnest consideration of nationwide economic inefficiencies and changing market tastes, that more New Zealand meat and wool would be absorbed by world markets.³¹ It was not happening. The new leadership of Labour ended all thought of travelling these worn grooves, and its market-oriented quest for competitiveness wrong-footed interventionist economists, several of whom picked up consulting work with primary-producer groups.

Efficiency, productivity gains, and diversification, objectives of liberalisation, were not Muldoon’s motives in reversing direction. If as minister of finance he was up to speed with developments in economics, he was not guided by them. Fiscal exigency forced his hand. In June 1982, public servants examining farm subsidy data warned that the fiscal burden was unsustainable and that attempts to place government bonds at lower than market interest rates in order to dampen inflation had encountered market resistance.³² The managed economy was costly, and now “sacrifice is necessary. It becomes a choice between painful options.”³³ Muldoon bowed to realities, announcing in June 1984 a phasing out of the smp scheme.³⁴ The estimated annual drop in farm income was delayed as supplementary minimum prices were reduced over several years. Farm incomes changed remarkably from year to year: 1984–85 (+ 15.8%), 1985–86 (− 33.4%), 1986–87 (− 7.4%), 1987–88 (+ 29.3%), and 1988–89 (+ 40%).³⁵ In early 1989, banks resumed lending selectively in the rural sector. The crisis had been short-lived.³⁶

Besides their fiscal burden, supplementary minimum prices attracted the enmity of trading partners, weakened the incentive to increase efficiency, obscured the cost structure of pastoral farming, and sent incorrect price signals to producers.³⁷ In reply to questioning from the imf in 1982, officials conceded that subsides “may be distorting investment patterns.”³⁸ I consider later whether the end of subsidies helped to redirect farm resources and to advance productivity gains.

unwavering discipline

Labour’s priorities were hard on famers. The government knew that this was the case and would not soften. It had important encouragement. After a site visit in April 1985, an imf team praised the government for “a courageous and enlightened course” but warned that the policies “will certainly bring short-term costs. Benefits will only become apparent later, so patience as well as firmness will be needed.”³⁹ Steely resolve held across the board. As David Caygill put it when he took over the finance portfolio, “this Government has no intention of supporting badly run firms, regardless of the sector of the economy.”⁴⁰ The government did not deviate and, for example, refused to provide financial support to the privatised Development Finance Corporation when it failed in 1989.⁴¹

Basically, four firm policies hit agriculture. First, except for one interlude in 1985–86, which Cabinet regretted, Labour tightened liquidity. It kept interest rates high and fully funded the deficit by means of bond sales rather than permitting inflationary injections from the Reserve Bank. Broadly speaking, primary producers were responsible for too much investment in land and not enough in innovation. Peter McKinlay, a Treasury official at the “Agriculture desk” during the crisis, reported that “asset values were out of kilter with the productive potential of the land and too much help would only exacerbate that.”⁴² Second, although the government aimed many policies at improving efficiency in finance, transport, and labour to help farmers compete in world markets, the results were not immediate, and farmers needed to see progress.⁴³ Labour’s third objective was debt reduction. Muldoon ended the smp scheme, but Labour eliminated numerous lesser subsidies, in part for fiscal reasons. When Labour embarked on selling state assets in 1987–88 to assist with debt reduction, the farmer-friendly Rural Banking and Finance Corporation appeared on the list. Fourth, the government was adamant, as the Federation of Labour discovered, that it would not play favourites. It rejected farm rescue packages and relied on welfare programmes that were available to all citizens. To qualify, farmers had to report their assets and leave the land.⁴⁴ Social welfare rules supplemented the government’s intention to let the crisis sort out overcapacity and inefficiency. Some farmers would have to leave production.

There were modest steps to help farmers without sacrificing principles. Exporters had problems handling the strength of the dollar after it had been floated in March 1985. A survey of producers revealed that “over half had taken no measures to manage the exchange risk in their business.” The government arranged for Treasury and Reserve Bank officials to hold regional seminars on managing the strong dollar by means of forward exchange contracts.⁴⁵ To assist with farm exports, it engaged five of Japan’s top import buyers to conduct seminars.⁴⁶ In keeping with liberalisation measures, Labour decentralised the management of ports, bringing “manning levels down to international levels.”⁴⁷

The transition from a Labour Party partnered with unions to a Labour government pledged to work for a wider national good was contentious on many levels, as witnessed in a small way by exports of live sheep. Douglas condoned a change in policy to help farmers. For years, well into 1983, Labour mps in Opposition condemned live exports as a road to ruin for freezing works and for the towns that depended on them. Reductions in the throughput at these works drove up unit costs, contributing to plant closures.⁴⁸ At the urging of farmers, Douglas promoted the export of live sheep to develop new markets in Islamic countries and to encourage “the drive toward cost efficiency in the processing industry.”⁴⁹ Abattoir workers felt betrayed when Labour “bow[ed] to pressure from Federated Farmers. They are not the Friends of a Labour Government; they never have been and never will be.”⁵⁰ Resolving to let markets determine the viability of freezing works, Douglas ended this slight protection for wrongly presented meat products. Under market pressure, the industry would have to improve its marketing skills and reduce exports of frozen carcases – which accounted for 80 per cent of meat exports in the early 1980s – in favour of lean chilled lamb in processed cuts.⁵¹ The emphasis on market-based improvements continued. Douglas encouraged producer boards to convert to shareholder corporations able to raise private capital and urged them to hire specialists in marketing and finance. “This is a specialist age,” he wrote. Not only did export producers need top-notch assistance, but producer boards also currently lacked the shareholder pressure required to raise performance.⁵²

By far the most substantial assistance attended the mortgage crisis. Warnings intimated the scope of trouble and showed how a fall in land prices jeopardised farmers’ working capital. A Treasury study, prepared for the imf’s site visit in 1985, mentioned that there was clear evidence of declining land prices prior to the July 1984 election and explained that, as agricultural assistance was reduced, “the price of capital assets in which the assistance is embodied will also decline.”⁵³ A report by the Ministry of Agriculture and Fisheries in December 1985 estimated that 5 to 10 per cent of the country’s approximately 82,000 farms faced trouble. Three months later, a study reckoned that 1,750 farmers were at “severe risk” and 6,590 “at risk.”⁵⁴ A farmer at severe risk had less than 20 per cent equity; at-risk farmers had 65 to 85 per cent equity. As property values fell, the principal owing remained; farmers’ equity carried the loss of falling property values.⁵⁵ Famers at severe risk could not realise enough from a forced sale to meet mortgage principal, and it followed that they lacked enough equity to stake as collateral for operating loans. When prudent lenders realised the risk, they stopped overdraft coverage, converted “hard-core overdrafts” to term loans, or denied seasonal operating loans.⁵⁶ As early as 1980, the South Island’s Stock and Station Agents Association, worried about mounting overdrafts, had unsuccessfully lobbied Muldoon for a new programme of concessionary finance to assist sheep meat producers.⁵⁷

One of Douglas’s guiding ideas was the cultivation of business investment, a goal that translated into a rapid deregulation of finance and a gradual removal of protection (import licensing and tariffs) for manufacturing. Douglas wanted a rapid reduction in tariffs – in fact, a rapid everything – but negotiations with manufacturers stalled before finally producing a so-called Swiss formula: larger reductions of high tariffs and major changes early. Tariffs were to be reduced in five steps over four years; import licences were to be abolished on 1 July 1988.⁵⁸ Manufacturers claimed that they needed time due to a slowness of liberalisation in Australia.⁵⁹ How profoundly disabling this retention of protection was for famers is uncertain because farm inputs had relatively low import content in New Zealand (20–25%).⁶⁰ Some in the farm sector suspected that “frontier protection” for manufacturers allowed favoured industrial employers to agree to high wage settlements that fed through the economy to the detriment of rural producers.⁶¹

In a 1991 study for the World Bank, Anthony C. Rayner and Ralph Lattimore praised the government’s drive for economic restructuring but criticised the swift removal of subsidies in the agricultural sector. In their assessment, the timing and depth of reforms were “significantly greater than need have been the case.”⁶² They would have preferred a gradual removal of subsidies and interest rate concessions. But these were factors contributing to the distortion in land prices. As well, they favoured a faster liberalisation of factor costs, such as easing import restrictions and tariffs on equipment and promoting flexibility in labour relations. These concerns were well known; however, the government determined not to alter policies for the sake of the farm sector if bending violated its restructuring principles.

feelings of desertion, habits of civility

At the annual consultations with the International Monetary Fund in 1988, a Treasury official remarked that a “relative bias against agriculture has decreased over 1987.”⁶³ This allusion to a relative bias had substance, not insofar as the bias represented a longing to harm the sector but insofar as it had a debilitating side effect. Douglas’s first budget, tabled in November 1984, had eliminated nearly thirty supports plus export incentives and tax concessions.⁶⁴ The government invoked a user-pay approach to state-run farm services, including meat inspection, animal health examination, and farm advisory services.⁶⁵ In March 1985, it ended concessionary interest rates on farm mortgages and floated the dollar. The exchange rate promptly overshot the equilibrium, a common but not enduring experience when central banks float.⁶⁶ Exporters and interventionist economists who favoured a controlled dollar considered it to be overvalued.⁶⁷ For a while, it was overvalued, and that, too, created difficulties for the export of rural produce.⁶⁸ Lobbying for relief was understandable and had a history of successful appeals. The current government was different. It had abandoned politics as usual and signalled this new stance repeatedly.

Complaints about the sequence were elaborated in letters to the government from rural families and figured, too, in briefs prepared on behalf of producer lobbies and in resolutions passed at farmers’ meetings.⁶⁹ As the architect of economic restructuring, Douglas received and answered complaints from rural families. A letter from Ann Jarman of rural South Canterbury indicates both rural respect and attention to policies. “Mr Douglas,” she wrote, “while your Government’s budget has hit farmers hard, we can see the reason and fairness in it provided you deliver the same medicine to manufacturers and other sectors of the economy.”⁷⁰ The executive of Federated Farmers accepted the end of subsidies but like Jarman complained about interest rates, import controls, tariffs, high exchange rates, and labour relations.⁷¹ They wanted to retain as many farmers as possible during what they perfectly understood was “this restructuring period for agriculture.”⁷² In a brief prepared for the Dairy Board, interventionist economist Bryan Philpott suggested that the government could intervene to drive down the dollar in order to assist exporters. Without some remedial steps, he insisted, there would be “irreparable damage to the primary producers.”⁷³

These criticisms emphasised that as the sequence of reforms unfolded, producers had to shoulder an unfair load during an economy-wide restructuring. Toward the tail end of the crisis, ministers and public servants privately acknowledged imbalances. Worried that he might have made it too easy for a later government to change social welfare benefits, Douglas remarked that such a government “could do to those people what we did to farming.”⁷⁴ Secretary of the Treasury Graham Scott mused at a meeting with IMF consultants that an economic slowdown in 1987–88 might have been aggravated by an “imbalance between adjustment pressures on the exposed and protected sectors.”⁷⁵ Concerns about the sequence were valid and quietly conceded but should not escape review in context. Fortunately, predictions of irreparable damage proved exaggerated; the crisis was brief, more farms came through than had been predicted, and ministers attributed unfairness to previous governments.⁷⁶

The crisis not only involved production costs and export woes. Land speculation expressed the capitalisation of subsidies and below-market interest rates. Inflation added to the demand for farmland, which was presumed to be a wealth-holding asset. Poor rates of return in current farm income had recently been offset by tax-free capital gains from land sales. Land prices had nearly doubled in the early 1980s. Curious about who was being affected by the crisis, Federated Farmers found a region east of Dannevirke where, indicative of speculation, thirty farms had been settled since 1979.⁷⁷ The country had a high capital to labour ratio, not because of technology but because of “the valuation placed on agricultural land, which forms by far the greatest capital stock of this sector.”⁷⁸ There were long-term and short-term consequences of misplaced investment. In the long term, the country’s low-trend growth rate suggested a diversion of investment away from productive efficiency. In the short term, from 1980 to 1988, there was a sharp fall in rural land prices by nearly 20 per cent; for both grazing and finishing farms, it was over 30 per cent.⁷⁹ Addressing this erosion of farm equity, Labour in 1986–87 realised that, although it was not going to retreat from its hard-line principles, it had to intervene in some fashion. It found a way.

The representations by protesting farmers were civil. There may have been threatening assemblies when foreclosures on specific properties were expected. However, the diversity of farmers in terms of their main commodity, amount of equity, access to additional family income, and intergenerational assets blunted formidable protest.⁸⁰ Moreover, Federated Farmers and government collaborated on remedies for the immediate farm debt crisis, and Federated Farmers talked down protest demonstrations.⁸¹ In 1989, after the worst of the crisis, consultants from the imf were astonished that so few farmers had exited and assumed that many had determined “to tough it out.”⁸² Labour was fortunate that producers were by and large civil and resilient. Ministers did their best to listen and reply, although they were never going to deviate from the restructuring agenda. For Douglas, who carried Cabinet with him on economy-wide restructuring, interventions were habits of the past that had to be shed, and backing off would give impressions that restructuring was being abandoned.⁸³ The oecd and the imf supported his determination to avoid fiscal expansion and loose credit, but imf consultants also recognised that the pace and processes of restructuring had varied widely and that “the first and most affected has been the export sector, especially agriculture.”⁸⁴

Labour could not deliver on the full set of labour reforms pushed by Federated Farmers and lobbyists.⁸⁵ The party’s roots, left elements in the party organisation, and labour union opposition prevented the government from taking wage fixing – which had long “centred on the notion of free collective bargaining”⁸⁶ – into the mainstream of the Western world. Cabinet could eliminate subsidies and user-pay measures by strokes of the pen through orders-in-council; however, ministers and public servants scrupulously consulted the public before tackling labour relations. Douglas was as impatient with the labour relations reform process as the farm lobbyists were. Discreet with his assessments, he complained only to close colleagues about the absence of even-handedness in his own policies and about foot-dragging in labour relations. He worried about a backlash from farmers.⁸⁷

For fiscal reasons, wholesale taxes on the import of farm equipment remained in place while the government prepared its Goods and Services Tax (gst). As for tariff protection, Labour was slow to negotiate with manufacturers and began reducing protective tariffs only in October 1987. The notion of currency play as a means to lower the dollar was fantasy. Prior currency management had been accomplished at a fiscal cost. The issue had been studied from all angles.⁸⁸ There would be no reversal or surreptitious intervention. Cabinet was not about to compromise the drive to earn New Zealand a reputation for transparency and reliability in world financial markets. This priority was little comfort for farmers, who felt that they deserved reductions in costs to balance the precipitate loss of subsidies and supports. As so often during the restructuring, the short-term and long-term outlooks were at odds. So the farmer had a point. Trade union officials’ resistance to changes in industrial relations and the government’s determination to stick to a tight monetary policy and to its national economic objectives placed rural representations at the back of a queue. State intervention, moreover, was suspect since there was an institutional example of its failings in the countryside, namely the Rural Banking and Finance Corporation.

the rural legacies of state support

The Rural Banking and Finance Corporation (rbfc) was a source of distortions that illustrate a downside to state financial institutions assigned a social mission. The attitude is traceable to the Government Advances to Settlers Act (1894), which established an office that lent public funds to settle landless farmers on properties of their own.⁸⁹ The agency went through reorganisations, becoming the State Advances Office in 1909, the State Advances Corporation in 1936, and finally the rbfc in 1974. In the 1960s, the agency took on the further task of increasing farm production, although into the early 1980s rbfc promotional material cited young farmers as prime candidates for loans.⁹⁰ rbfc employees were not bankers but farmers’ friends, lending to reach volume goals and not concerned about returns based on risk. A tacit guarantee of the bank’s bonds by the government meant that it escaped pressure to perform for depositors and bondholders. It functioned with a reserve of retained earnings and “a government guarantee on all its undertakings.”⁹¹

The rbfc’s long-standing duty was to lend public money at below-market rates in order to help more farm labourers, tenants, and farmers’ sons to purchase properties. Hard-nosed credit reviews were at odds with a national purpose of multiplying and nurturing farmer-owned properties. Another agency, the Marginal Lands Board in the Lands and Surveys Department, provided loans for improvements deemed too risky for the less than rigorous rbfc.⁹² Lands held by Maori were eligible for improvement funding at concessionary interest rates through another programme. The accumulated sums lent by the time of the crisis in 1985 were substantial: $2.451 billion by the rbfc, $231 million by the Lands and Surveys Department, and $62 million by the Maori Affairs Department.⁹³ A few subsidised farms in the Maori region of East Cape had never been viable during fifty years of support.⁹⁴

These concessionary loans had objectives that were social and political rather than economic. In lending relationships, there is a promise of reimbursement but an asymmetry of information since lenders must investigate to establish the quality of this promise. Furthermore, in periods when interest rates are high, as they were during most of the 1980s, “the pool of applicants becomes riskier,” and “borrowers have an incentive to use borrowed funds in ways that increase their return but are not in the interest of the bank.”⁹⁵ New Zealand’s rural land speculation, which was a rising market blessed with concessionary loans, exemplified the distortion. Determining land value for collateral purposes and appraising the risks associated with a borrower’s plans for a loan were well-known problems in commercial banking but disregarded at the rbfc. As a state-owned operation with social and political objectives, it lacked the conventional banking incentives to act prudently.

From 1974 to 1983, loans totalling $730 million helped to settle 10,000 farmers on their own farms. An additional $760 million was leant to assist 40,000 farmers through various farm development programmes administered by the rbfc, including the Livestock Incentive scheme, set up in 1977, which encouraged farmers to carry more stock, and Land Development Encouragement Loans, introduced in 1978, which advanced subsidised loans to develop unproductive land.⁹⁶ The rbfc dominated the farm-credit industry, holding a 40 per cent share of farm loans by 1984.⁹⁷ Numerous farmers had answered the government’s call to expand production by buying more land, investing to improve marginal land, and taking on more debt than they would have without below-market finance and subsidies.⁹⁸ Urban investors joined in. ⁹⁹ The props raised land prices until they started to tumble in mid-1984, reacting to the global fall in commodity prices and the demise of the smp scheme.

Concessionary lending rates contributed to another distortion. The rbfc’s generous lending activities crowded out the country’s four commercial banks, which shied away from this line of rural business. However, they were the institutions that offered overdraft coverage and seasonal operating loans. Due to the specialised nature of pastoral farming on the South Island, graziers there continued to be served by institutions that specialised in their line, namely the Australian Mutual and Provident Society, the state-owned Bank of New Zealand, and the stock and station agencies Wrightson nma (National Mortgage Agency) and Dalgety Crown.¹⁰⁰ The stock and station agents knew clients well; imperfect information was less of a problem.

By crowding out the banks, the rbfc had reduced the exposure of private-sector lenders to poor credit risks. Executives from these institutions believed that they had to urge only 5 to 10 per cent of farm clients to leave the business. The great remainder could adjust during the crisis because the ratio of their loan commitments to assets “overall has been lowly geared so that even with a significant write-down from peak values, most farm businesses will still have a favourable debt to equity ratio.”¹⁰¹ The core crisis was concentrated among the rbfc’s clients. Although some ministers had low opinions about the worth of the rbfc’s banking judgment, they had no choice but to enlist its personnel in the cause of ameliorating the rural mortgage crisis. The rbfc had the lion’s share of risky accounts and the regional offices to accommodate debt conferences.

financiers and farmers restructure the sector

In November 1985, the Treasury circulated a paper that described a debt-discounting scheme that enlisted the rbfc. Only debtors dealing with the rbfc were eligible for the discounting solution because the government could tell this institution what to do. Ministers hoped that news of the rbfc’s debt adjustments would spread, embarrassing private-sector institutions into announcing their own debt-relief schemes.¹⁰² The Treasury’s scheme advised that the principal on farmers’ debts should be discounted to increase their equity. In keeping with the government’s set of principles, debtors would receive no grants to reduce the principal owing on their mortgage; they had to agree to pay back the full amount. However, that could be achieved if they accepted the proposition that interest be increased to market rates from the low concessionary ones. During the current period of serious inflation, interest could advance from 11 per cent to the market rate of 20 per cent.¹⁰³ Interest payments increased, principal fell, and equity rose. Viable farmers walked away with larger payments but owned a larger stake in the farm asset. This shoring-up of asset value, even if it came at a cost, enabled farmers with operations judged viable to get operating loans for another season.

Here is where the overpricing of land re-enters the picture. Loose spending by the Third Labour Government (1972–75) and the Second National Government (1975–84) had contributed to inflation that fed higher input costs.¹⁰⁴ The inflation rate was one and a half times higher than rates experienced by other oecd countries, averaging 15 per cent during the early 1980s.¹⁰⁵ Prices responded to current demand, and supply responded to expectations for future increases. McKinlay, at the Treasury, was scathing in his evaluation of the rbfc and other soft lenders because they did not inspect farms but “lent simply on the basis of a valuation report and an expectation that farm land would probably continue to rise in price.”¹⁰⁶ The land bubble was more than a product of the normal state of imperfect information since it emerged from a deliberate policy-driven avoidance of risk information and from a corresponding recognition by speculators that soft lenders allowed them to seize upon golden opportunities. Nearly 20 per cent of all rural land purchases in 1981–82 were made by non-farmers attracted to rising prices, cheap credit, and tax-free capital gains. Many had succumbed to the temptation.¹⁰⁷

When commodity markets sagged, demand for land cooled. The phasing-out of the smp scheme added to land-price deflation. Private-sector lenders in 1985 had expected land prices to fall by as much as 50 per cent from peak values.¹⁰⁸ This eventuated in some cases.¹⁰⁹ It left some without the necessary equity or collateral to get operating loans from private-sector banks. The Treasury’s scheme patched this up. With increased equity, loans could be arranged. Furthermore, in working out the debt-discounting arrangement, the rbfc would have to judge whether particular farms were viable.¹¹⁰ For the government, there was a bonus. The scheme assisted with the commercialisation of the rbfc, forcing it to raise interest rates to market levels, write off bad debts, prepare a realistic balance sheet, and acquire experience with genuine banking conduct. To make the grade as a free-standing private-sector institution or as a subsidiary of one, the rbfc had to show that its personnel could tackle the imperfect information problem. To a willing buyer, the rbfc’s value resided in its capacity to profit from prudential lending to farmers. As with any financial institution, this prospect depended on the human capital.

Farm finance often involved multiple creditors. There were borrowers indebted solely to the rbfc, those indebted to the rbfc as well as to private-sector lenders, and those indebted solely to the private-sector lenders. The first group of debtors could be induced to attend a debt conference at a local rbfc office since the discount arrangement for viable farmers was going to leave many with equity. Private-sector lenders could force a sale if it suited their interests; however, if they ranked behind the rbfc in a creditor pecking order, they had good cause to forego drastic action. Farmers indebted only to private-sector lenders were at a disadvantage, for they had no access to a discount scheme to leverage all creditors toward adjustments. Ministers and officials thought that private-sector lenders would develop their own schemes once the public noticed the rbfc one. By distributing information, the government would make it awkward for private-sector lenders to foreclose on viable farmers.

In March 1986, Douglas announced the establishment of a mixed-membership working party on farm finance problems tasked with paying special attention to farm debts incurred with private-sector lenders. The team included officials from the Ministry of Agriculture and Fisheries, the rbfc, the Treasury, and Federated Farmers.¹¹¹ Officials at Federated Farmers navigated the awkward realities of a membership divided by wealth, region, type of activity, and extent of speculation. Looking back on the Muldoon era, Michael Bassett proposed in 1994 that “farmers were never united in support of … price subsidies. Self-reliance was always close to the surface.”¹¹² Contemporaries close to the ground saw a more complicated reality. When member of Parliament and pastoralist Jim Sutton attended meetings of Federated Farmers in early 1986, he encountered members who wanted outright grants.¹¹³ He met local leaders who would not chance discussing debt restructuring openly but who “would cooperate in closed seminar type meetings” with senior ministers.¹¹⁴

Treasury official McKinlay doubted that the rural mindset had changed. Many were clinging to the idea of a return to government support.¹¹⁵ He based his appraisal on conversations with officials at Federated Farmers, rbfc executives, other lenders, personnel at the Ministry of Agriculture and Fisheries, and mps. He had attended some meetings of Federated Farmers. He drew the conclusion that many farmers hoped that a change in government would restore their subsidies.¹¹⁶ He thought that cultural reorientation to true farm independence would be difficult and that, during the transition, Federated Farmers would struggle to keep any semblance of a unified front.¹¹⁷ He was dead on. In early 1987, it recommended a return to concessions in order to put new farmers on the land rather than allowing market activity to advance the “amalgamation of properties” and “foreign ownership.”¹¹⁸ In public, the support of its executives for an end to subsidies was conditional on other industries having their protection revoked, and there were a few who retreated to calls for concessions.¹¹⁹ In private, however, officers at Federated Farmers worked with the government throughout debt restructuring, even if some of them still wanted a return to the policy of concessionary loans for settling new farmers.

The mixed-membership working party on farm debt, which included representation of Federated Farmers, considered saving viable farms when a private lender held that the mortgage proposals were supposed to mesh with the government’s market-oriented strategy, be commercially sound, involve no subsidy, and reach agreements free from pressure. Potential solutions included equity-sharing partnerships between creditors and debtors, resumption of the property by the creditors (with the farmer staying on as the manager), and new mortgages with easier terms. No measure inspired enthusiasm, although the group came up with assorted restructuring arrangements that could be summarised and circulated among farmers to assist them when facing private-sector lenders.¹²⁰

There were details to be settled with the rbfc’s debt-discounting scheme. How would a farm’s viability be determined? Could the rbfc be counted upon to deny discounting to farmers with no prospect of making a go of it? Could it process applications promptly?¹²¹ Ministers rightly suspected hostility toward them in rbfc offices, a circumstance aggravated by statements from Jim Bolger, leader of the Opposition. Bolger, a farmer and a farm organisation stalwart, led farmers to believe that the rbfc should take over all farm debts on friendly terms.¹²² Sceptical Treasury officials and ministers questioned the “bank’s capacity to manage the sort of debt restructuring exercise which [was] likely to flow out of the current investigation of rural sector financial problems.”¹²³ There were reservations, but defenders believed that the rbfc would serve capably once employees realised that they had to adopt a commercial mentality. Managers were told to convene debt conferences, use their local knowledge, act like bankers, and call on outside help if they did not understand valuation practices.¹²⁴

A publicity campaign about the rbfc scheme was intended to make the private sector carry “its proper share of the burden of restructuring.”¹²⁵ To nudge creditors along, the government disseminated the working party’s remedies: equity sharing, leasebacks, principal or interest deferments, indexed mortgages, and restructured mortgages that could be on-sold to third parties. Minister of Agriculture Colin Moyle explained that the government wanted private-sector lenders to think long and hard about the choice of either losing money on forced sales or “reducing that loss by finding ways to keep most farmers on the land.”¹²⁶ To assist lenders with the problem of imperfect information relative to farm viability, “it is envisioned that a circular would be prepared by the Society of Accountants in consultation with maf [Ministry of Agriculture and Fisheries], the rbfc, and Federated Farmers.”¹²⁷ Brochures explaining solutions were printed right away because farmers had begun planning for the next season, which would start in June 1986, and they needed operating loans.¹²⁸ Realists who knew the rural scene worried that many farmers were not likely to react to written material; whereas some would do so, the rest would “get their information ‘through their ears.’”¹²⁹ A few debt conferences held by private-sector lenders failed because of a lack of faith in the farmers’ records and a shortage of neutral convenors who could ensure that no blame was apportioned face-to-face.¹³⁰ Despite imperfections, efforts to promote restructuring brought thousands to the conference tables. Five hundred experienced convenors were sought from the wider commercial sector.¹³¹ The outcomes affecting households hinged on whether creditors judged a farm viable enough for restructuring.

As a modest step to assist farmers while making private-sector lenders bear some of the costs, the government raised the value of tools, equipment, and cash that a producer could retain in a forced sale.¹³² Expectations that creditors would have to take losses and act constructively were predicated on legal and business realities. Financial institutions were reluctant to foreclose because of court costs, acquisition of a non-paying asset, and the expense of farm maintenance.¹³³ A sudden appearance of numerous mortgagee sales could depress land prices further. Private-sector creditors accepted that the costs of a forced sale were so great that it was worth granting families something – farm vehicles and personal belongings – to procure a voluntary sale.¹³⁴

There were protest demonstrations and acts of defiance, although direct action fell short of a call by National MP Doug Kidd in March 1986 for farmers to revolt and make the country ungovernable.¹³⁵ Douglas was burned in effigy in one community.¹³⁶ A demonstration in Wellington of perhaps 5,000 in late April 1986 was a tame affair.¹³⁷ In June 1986, a handful of demonstrators banged on Prime Minister David Lange’s limousine after he had opened an agricultural research station, an incident perhaps incited by his taunt that he “would come back when farmers elected a representative who belonged to the twentieth century.”¹³⁸ In mid-1986, mortgage sales started to be “resisted in many areas by social pressure.”¹³⁹ By late 1987, a Provincial Support Group, inspired by such pressure in the Manawatu District, campaigned to shame potential buyers. It arranged to obstruct traffic with farm equipment in Palmerston North.¹⁴⁰ However, banks had business motives for avoiding sales and worked for voluntary exits. Neal Wallace, who collected profiles of farmers’ survival and adaptation for his book When the Farm Gates Opened: The Impact of Rogernomics on Rural New Zealand (2014), entitled a chapter “It Could Have Been Ugly.”¹⁴¹ It was not. This outcome was remarkable since, in 1981, when Muldoon had allowed a tour by South Africa’s Springboks rugby team, there had been civil unrest. Not so in 1986–87.

Throughout 1986 and 1987, branches of Federated Farmers as well as individual farmers wrote Cabinet ministers. Some producers let emotions rise; they were “bewildered and angry.”¹⁴² Usually, the writers petitioned respectfully for action against the protection of manufacturers, the high dollar, and high interest rates and for changes to current labour relations.¹⁴³ A missive from a remote pastoral branch made a rare prickly remark when it urged the government “to back off the farming industry.”¹⁴⁴ The Bay of Plenty branch resented the implication that, in order to manage the “high dollar” and other market activities, producers “must also become expert financiers.”¹⁴⁵ But the acquisition of financial acumen, then at a low level, was a government goal. Newly introduced in 1985, the gst, which defined farms as businesses and required recordkeeping, contributed to an emphasis on farm management.¹⁴⁶

Social distinctions, disparities in wealth, and product-based divisions precluded farmer unity. On a trek around the country to meet members, the executive of Federated Farmers found “a range of viewpoints” among the roughly 12,000 farmers addressed over a four-week period.¹⁴⁷ One group, sheep station operators in hill country farthest from ports, were in the worst shape, whereas dairy farmers saw a glimmer of better times and vineyards were increasing.¹⁴⁸ Some producers were not unhappy to see subsidised marginal farms leave their sector, reducing supply. The fall in income was brief; the farm debt crisis was not as severe as forecast. The government, Federated Farmers, and financial institutions reacted creatively. From the outset of trouble, the president of Federated Farmers, Peter Elworthy, endorsed Labour’s restructuring.¹⁴⁹ As he told Douglas in early 1986, “Any scheme which detracts from the private sector motivation … would not be productive.” Douglas recognised the value of personal contact. “It would help,” he directed an aide, “if I could talk to Elworthy directly. Could we discuss?” ¹⁵⁰

Shortly afterward, at a council meeting of Federated Farmers attended by Deputy Prime Minister Geoffrey Palmer, Elworthy stated that “we are here to communicate not militantly, but responsibly and sincerely and with total credibility our view that the Government and public don’t realise how tough it is out there.” Elworthy’s mediation contributed to relative calm. Palmer expressed the government’s gratitude to farmers for continuing “this country’s civilised traditions” and for resisting “pressures to do otherwise.”¹⁵¹ Cabinet recognised that the more entrepreneurial members of Federated Farmers were allies in restructuring. Ministers also reached out to the wider rural community to explain government policy. Palmer, Douglas, and Moyle addressed farmers’ meetings in 1985–86.¹⁵² In November 1985, Douglas put his head in the lion’s den and answered questions from farmers in North Otago. He had done that earlier with labour unions.¹⁵³ The farmers respected him “for coming down here and fronting up.”¹⁵⁴ During their struggle to help neighbours keep their firms, activist farmers thought that Douglas lacked empathy. However, strands of respect – deference – were conceivably formed as a result of the small-country intimacy that was wound throughout meetings between farmers and ministers. Years later, a stalwart of the Provincial Support Group changed his mind after he had studied some economics. Douglas was now “a brilliant fellow,” “a phenomenal man,” “a genius.”¹⁵⁵

government rigour and private adjustment, 1987–92

In early 1987, the crisis was winding down, there was “continuing difficulty in all the groups [farmers, agents, and merchants] though the worst outcomes expected last year had not happened.”¹⁵⁶ Financial, emotional, and mental health distress remained, as did many farmers’ unfamiliarity with and shame over applying for social welfare, or seeking stress counselling, or negotiating with creditors. Fortunately, rural communities had a range of voluntary organisations – churches, citizens’ advice bureaus, service clubs, the Rural Communities Trust, and the Women’s Division of Federated Farmers – that supplemented the efforts of social workers at the Social Welfare Department.¹⁵⁷ A late initiative combined the resources of the government and Federated Farmers. To “facilitate the restructuring and rehabilitation of farmers and their families,” Lange and Elworthy announced the launch of the New Zealand Rural Support Trust in September 1988. An independent body financed in part with government grants, it hired coordinators who directed farmers to existing government programmes.¹⁵⁸ Coordinators developed relationships with creditors, banks, accountants, lawyers, Federated Farmers, and the Ministry of Agriculture and Fisheries.¹⁵⁹ When providing “solutions” that extended from assisting farmers with business plans to helping them “to exit with dignity,” coordinators combined knowledge with empathy.¹⁶⁰

The ministers in charge of restructuring stressed the limited prospects for improvements in the country’s balance of payments unless rural producers ceased being protected at the farm gate from the falling terms of trade. Despite firmness, they did not turn their backs on privation. As noted, farmers had access to the same social welfare benefits as other citizens. The government emphasised equality because its economic initiatives accented an end to preferential treatment, hence an end to public support for supposedly independent farmers. The government would render this settler myth honest. Families who left their farms and sought employment elsewhere could apply for a New Start Mobility Grant administered by the rbfc. The scheme facilitated the exit of farmers with little to no equity; they could start a new life with a cash grant if they agreed to leave their properties.¹⁶¹ They could take their car and personal possessions.¹⁶²

Following Labour’s re-election in August 1987, Lange shuffled his Cabinet and transferred the rbfc from the Ministry of Agriculture and Fisheries to the State-Owned Enterprises Department, explaining that he wanted the bank “to expeditiously precipitate the exiting of a number of farmers.” In this operation, the bank should be “seen to be more independent of traditional Government influences.”¹⁶³ That was political-speak for shielding real bankers from political interference. At this moment, the rbfc estimated that 2,000 to 3,000 clients would have to quit farming. It is unknown how many farmers left with encouragement from private creditors who wanted them off the property. Departures to start a new life with scant resources were hard on families and upset neighbours and communities. The government’s principles of restructuring meant that it did not want to be seen as practising rural partiality. It would not spend to keep individuals on the land. However, there was some limited assistance. The Ministry of Agriculture and Fisheries hired counsellors to help farmers to draft farm budgets for creditor conferences, ran pilot projects for social assistance, and distributed aid to drought-stricken farmers on the South Island under an Adverse Events Family Income Support scheme.¹⁶⁴

As for the farmers’ independent actions for survival, there was no conspicuous pattern. Terms like “farmer” and “agriculture” simplify a kaleidoscope of assets as well as economic and social choices. Some producers acquired the property of a distressed neighbour; some who had shunned production subsidies undertook investment in the late 1980s “to modernise existing facilities rather than expand capacity.”¹⁶⁵ Corporatisation and family trusts, arrangements that separated property ownership from managing operations, enabled some families to stay on the land.¹⁶⁶ In 1988–89, the profitability of the dairy sector was becoming notable.¹⁶⁷

Farm families with little equity or capital demonstrated resourcefulness and stamina to hang on: they reduced outings, employed fewer labourers, cut back on fertiliser and maintenance, and delayed capital expenditure.¹⁶⁸ Farmers and their spouses pursued off-farm employment and sold mobile assets.¹⁶⁹ In April 1987, the Thames Agricultural Advisory Committee surveyed nearly 400 farmers and discovered that a quarter worked off of the farm.¹⁷⁰ In early 1987, the crisis was wearing down assets: “Seasonal expenditure in all cases is screwed down to below desired maintenance levels.”¹⁷¹ Likely because of such retrenchment, “the real value added per employee increased by 40%” over the crisis period.¹⁷² Some families were under stress to save private enterprises revered as intrinsic to family, community, and country. Many children would not follow parents onto the land, although not all who left regretted this decision.¹⁷³ One quantifiable sign of extreme stress, the suicide rate, which had fallen for farmers since the Great Depression, did not rise during this crisis.¹⁷⁴ Community volunteers may well have made a difference.¹⁷⁵

The decrease in assistance to farmers had bipartisan standing. In 1991, to the dismay of some in National’s rural base, the new minister of agriculture and fisheries, John Falloon, declared that people should not “hold out hope for some of the poor managers and very low equity people who simply will find only hardship and misery unless they make the hard decision to leave agriculture.”¹⁷⁶ Using an oecd measure, the Effective Rate of Assistance, which included aid to industries that serviced farming, the Ministry of Agriculture and Fisheries calculated that from 1984 to 1991 the rate for pastoral agriculture had decreased from 52 to 2 per cent.¹⁷⁷ Labour managed the crisis to keep viable farms operating.

concluding observations: taking stock

An unresolved and unresolvable problem troubled the government. How can subsidy-free jurisdictions persuade subsidy-practising ones “to reduce their high levels of assistance which distort international trade?”¹⁷⁸ Despite barriers to markets and cyclical challenges, rural production flourished. Advocates of a managed economy, who predicted irreparable damage from liberalisation, were mistaken. When the rbfc’s discount scheme ended in 1989, there were 47,598 loan accounts, with 5,249 (11%) in arrears.¹⁷⁹ It is impossible to offer a sound calculation of the number of farmers who left, but the figure is perhaps somewhere at the low end of a range between the 1,750 at “severe risk” and the 6,590 “at risk” in 1985.¹⁸⁰ Rumours likely exaggerated the total. When a Wellington reporter set out in 1986 to “search for the destitute farmer,” he was given lists of names but found it extravagant. A few cases arose from “overspending and domestic problems.”¹⁸¹

By the mid-1990s, the farm sector was on a recovery path. Dairy farming’s capitalisation, intensification, and industrialising of processing promoted efficiency and brought an export surge that ran from roughly 2000 to 2010.¹⁸² The wine industry experienced amazing growth. It is impossible to claim with confidence that a turnaround in New Zealand’s rural fortunes was due to structural reforms since world economic conditions, improving in the 1990s and early 2000s, surely helped. Yet, by eradicating supports, New Zealand governments jolted farmers toward business-like responsibility and redirected resources away from a long-established reliance on meat and wool and toward dairy, wine, and experiments with other produce. There was also consolidation.¹⁸³ The country’s rural producers had not escaped cyclical hazards, but many were making a transition to entrepreneurship.

13

Rejigging the State Machinery

overview: introducing the state quintet

New Zealand’s state sector, with its many elements, received a lot of attention during restructuring. To render comprehensible the bewildering range of challenges involved in restructuring the state sector, it may help to think of a quintet that consisted of the newly created state-owned enterprises (soes), the core public service, a group of public-sector occupations, the health care system, and local government. Completing the restructuring of the first of the soes would have preoccupied a conventional government, but the reforming ministers and onside public servants embarked on more than a tidy-up. They longed to change the employment conditions in the core public service as well as in the public sector outside of the public service. The public service and public sector were separate entities (table 13.1). Outside of the core public service, there were service activities paid from state revenues and supported by special wage-fixing schemes that shared features with the public service and somewhat with the outgoing private-sector labour relations system. The leaders of restructuring had intended to standardise labour relations in all sectors throughout the country: the private sector, state employees in service areas, and the core public service that supported departments.

Each reform in the quintet was intended to tighten government spending, some through eliminating wage fixing by tribunals. Several restructuring initiatives were aimed at holding managers more accountable in order to contain expenses. Measures affecting state-sector employees and the core public service provoked union or association resistance. The core public service was the more militant of the two state-paid groups. Health care and local government reforms roused the medical establishment and galvanised localism against central intervention.¹ Although local government consolidation incited opposition, the organisers lacked well-established networks comparable to unions and medical associations. Swift legislative action and recourse to orders-incouncil accomplished radical changes in local government that the New Zealand Herald rightly called “revolutionary.”² Although the protests varied in scope, each one contributed to the discontent of 1988.

Roger Douglas’s fondness for combining ideas contributed to the quintet’s interconnections and connections to other initiatives. The relationships among the fields of restructuring are not difficult to show when the whole picture is considered. The studies and initiatives in health care, for example, resembled concurrent deliberations over welfare benefits. In these kindred fields of state-managed well-being, reformers proposed targeting expenditures and improving information systems to achieve savings. Disquiet about the funding of the health care system had been building for years, and the Fourth Labour Government’s attempts to fix it left inevitable tension between the state and regional health-delivery systems over the financial management of hospitals. The friction was similar to that between the centre and periphery in social welfare.³ There were more such associations and parallels. By means of the soon to be examined Public Finance Act (1989),⁴ senior Treasury officials advanced an arrangement of ministerial responsibility that enforced fiscal discipline, but the legislation also trimmed the operations of the Reserve Bank of New Zealand, enabled state departments to bank with commercial institutions, and empowered the minister of finance to borrow on behalf of the state and to undertake currency swaps. This loosening of state banking and altering of debt management had been planned during the reform of the Reserve Bank. Finally, local government might seem isolated from the grand sweep of reforms, except that in addition to municipal consolidations, it included the corporatisation of port authorities and public transit. Even though the Treasury’s apprehensions and ideas surfaced throughout restructuring, the onside ministers and their officials were ultimately responsible. More than that, their personalities and energy were invested. The scope and complexity of the quintet would alone have immobilised less ingenious and less motivated governments. Fiscal tightening and attention to government inefficiencies were already underway in the oecd when New Zealand was starting out. Foreign governments, international agencies, and management professionals shared experiences, lending support to notions of a transnational coherent drive. On the ground and up close, reforms proceeded according to legacies, current circumstances, and individuals.

golden conditions in state employment

The state sector’s boundaries and organisation were blurred by the unplanned expediency of their creation. A public servant preparing a list of Crown entities in 1990 complained that he laboured in “bugger’s muddle territory,” aided only by an incomplete official directory.⁵ Wherever the state had expanded after the Second World War, special labour relations followed. Unwinding the latter was a demanding undertaking, as it was in the private sector. In 1984, the state sector employed roughly 290,000 individuals, comprising 25 per cent of the workforce outside of agriculture (table 13.1). With a wage bill of 30 to 40 per cent of government expenditures, the sector could not escape trimming during fiscal restraint. A study by the International Monetary Fund proposed that the 25 per cent figure was large enough to influence other wages.⁶ Treasury analysts who reviewed expenditures and productivity in 1984 reported to Douglas that the state would be subsidising employment with current make-work projects to the tune of $381 million in 1984–85. They doubted that these outlays would raise the level of economic activity. Ireland, Italy, Denmark, the Netherlands, Belgium, and Sweden reported that very large expenditures, likely to be funded through fiscal deficits, were required to secure even a small stimulus because in inflationary periods people had to be fooled into believing that nominal prices and wages were real wages and prices.⁷ Since they were not hoodwinked, the massive pump-priming required to lift economic activity could actually exacerbate inflation and might not necessarily add lasting employment.

Table 13.1 | The state sector and its conditions of employment: state services and the core public service, 1985

Branches of state employment

Staff

Ultimate authority for conditions of employment

Core public service

88,507

Government service tribunal

State services: Education

60,700

Public-sector tribunal

Hospital

54,000

Single-service tribunal

Post Office

41,000

Single-service tribunal

Railways

16,900

Government railways tribunal

Defence (civilian employees)

12,704

Public-sector tribunal

Police (civilian employees)

5,150

Public-sector tribunal

University Grants Commission

4,400

Public-sector tribunal

Broadcasting Corporation

3,450

Public-sector tribunal

Fire

2,580

Public-sector tribunal

Accident Compensation Commission

720

Government service tribunal

Higher salaries across the state sector

Higher Salaries Commission

Total

290,111

Source: Rodger, Pay Fixing in the State Sector, 45.

Sceptical about Keynesian effectiveness during stagflation, Fourth Labour’s reform-minded ministers and economists at the Treasury believed it important to move as far and as fast as possible away from the idea that wage increases and subsidised employment could stimulate economic activity, let alone improve productivity to help with the balance of payments. The scale of the debt and uncontrollable outlays in the state’s non-discretionary expenditures meant that wage increases in the state sector constrained policy initiatives. Employees understandably wanted speedy top-ups. The top-ups were currently achieved by key features in New Zealand’s wage-fixing practices. The statutory terms of labour relations in the state sector made retrenchment and upsetting inflationary expectations more demanding than simply relying on employer tenacity during wage negotiations. It required a structural change by legislation.

By 1977–78, tribunals without budgetary responsibility could set wage determinations in both the public service and the state sector, a detachment from responsibility that rankled Treasury officials. Moreover, wages were insulated from labour market conditions and from a robust commitment to individual merit. Already, the principle of tying pay to jobs was receding in human resources circles across the oecd. By the early 1980s, as labour relations researcher Pat Walsh would later explain, the situation had developed into one where any government “bent on fiscal restraint, [faced] the ever-present possibility of being undone by an arbitrated settlement which is not only large in itself but has significant relativity implications.”⁸ To understand how the state got painted into this corner, we must look to local history. The wage-fixing practices of the Government Service Tribunal Act (1948) started the ball rolling in a direction that dismayed fiscal watchdogs a quarter of a century later. The legislation established a tribunal to determine standard rates of public service wages.⁹ State service operations outside of the public service were not covered by a similar arrangement until 1977.

For the core public service, employment conditions improved tremendously due to a report by a royal commission set up in 1961, which recommended that the state do its utmost to attract the country’s brightest citizens into the public service. Good wages were to entice the best and brightest men. The instrument was the State Services Act (1962), which specified wage adjustments based on “fair relativity” with comparable positions in the private sector. The fair relativity concept had been adopted first in the United Kingdom in 1910 and reaffirmed there in 1934 and 1955.¹⁰ Relativity in New Zealand was to be ascertained by consulting wage surveys, initially conducted every February and later on twice yearly to deal with inflation. The 1962 legislation established a three-person body, the State Services Commission (ssc), and empowered it to supervise the machinery of government and to act “as the central personnel authority for the Public Service.”¹¹ A pay research unit in the Labour Department prepared wage data.¹² When arbitration wage orders in the private sector produced a notable improvement in wages, a retroactive increase could be granted by a state-sector tribunal, assuring that these employees were never left behind by their private-sector counterparts.¹³

This system’s replacement with American ideas about human resources in the late 1980s accorded with the government’s consistent drive for the assessment of individual cases rather than determinations by categories, whether it was in wage fixing or in social welfare benefits. The Treasury took a deep interest in state-sector labour relations due to its fiscal oversight responsibilities. In the early 1980s, Treasury officials sought a greater role in the state sector’s conditions of employment, squeezing through an opening chiselled by Robert Muldoon’s government via the State Services Conditions of Employment Act (1977), which established a State Services Coordinating Committee comprised of the officials who headed the ssc, the Treasury, and the Post Office, Railways, Defence, Health, and Education Departments.¹⁴ The legislation deposited a cuckoo nemesis in the bureaucratic nest because the Treasury could now offer guidance on labour policy for state services, challenging the ssc, which had been created in 1962 as the state sector’s employer. With the arrival of reform-minded ministers, Treasury officials upgraded a 1983 position paper into policy recommendations for Douglas.

The 1977 legislation extended the relativity idea and tribunal determinations to managers in education and hospital services as well as to other branches of the state excluded from the 1962 legislation. Muldoon’s National government intended for its unusually detailed 1977 legislation to curb unjustified industrial action by state employees. At the time, the prime minister reacted to inflation and labour militancy on a short-term, event-by-event basis, without attention to long-run effects. Biographer Barry Gustafson claims that after an interlude of wage controls in 1976–77, Muldoon returned in August 1977 “to freer wage bargaining for the first time since 1971.”¹⁵ Owing to the 1977 legislation, free bargaining was not quite the case for the state sector. If an employee group contested a pay offer, a tribunal could invoke fair relativities to make wage determinations in that particular state sector. The legislation stirred militancy rather than stilling it. The golden arrangement for employees would be defended tooth and nail by unions representing state service employees and by the unions’ federation, the Combined State Unions (csu). Maintaining professional independence, public servants belonged to their own organisation, the Public Service Association (psa). It was not registered as a union and remained outside the Federation of Labour.¹⁶ Although the csu and psa were distinct agencies, there was solidarity. There was an added layer to public service wage fixing. Senior public service officials had wages set by a High Salaries Commission. State-sector labour relations gave appearances of rational workings meshed with similar wage-fixing machinery in the private sector.¹⁷ Standing back from the torrent of reports and bills, it is possible to see that in both sectors individual merit and local market circumstances were shelved, with wages being adjusted by “an almost automatic indexing” through relativities.¹⁸

A munificent arrangement was enhanced by the tribunal’s composition. The chief judge of the Arbitration Court, which determined private-sector wages, appointed another judge of this court to chair the tribunal, which handled applications for wage increases in state services. These judges were a blessing to the csu and the psa, whose leaders clung onto the tribunal idea.¹⁹ So generous were tribunals thought to be, that in 1987 some reform-minded officials hoped that there would be one more round of tribunal determinations prior to any new legislation because the judges’ usual largesse would help the cause of restructuring by demonstrating the system’s “capacity to produce settlements well out of line with market conditions.”²⁰ Government polling showed that restructuring the state sector was popular.²¹ The Wellington branches of the Labour Party were among the more determined opponents of change (tables 13.2 and 13.3).

To many in the general public, state-sector employees appeared to occupy cushy berths with high wages and perks, impressions that contributed to private-sector union demands. Thanks to the relativity concept, the wage-fixing systems in the private and state sectors interacted in a back-and-forth of selective comparisons, the gearing that drove up wages. In tortuous detail, the State Services Conditions of Employment Act (1977) specified how an annual review of remuneration should consider private-sector wage increases to arrive at an Annual General Adjustment. Some relativities were stretched to make a connection. Firefighters in the state service were linked to the private sector’s metal-trades award; air-traffic controllers in the state service were linked to the private sector’s pilots. Teachers, hospital paramedical staff, and police had no private-sector counterparts. For these groups, there was no prospect of managing wage adjustments by research on an occupation in the private sector.²² The purpose of the alignment of blocks of jobs with other blocks was predicated on the belief that individual assessment led to unfair favouritism. Critics of relativity insisted that block adjustments dampened individual ambition and dulled performance.

In theory, relativity meant that the private sector led the relativities parade and that state services followed, but this was not so. Certain state service unions and sections within individual unions were, if not militant, fervent and active when it came to lodging applications at the tribunal for additions to their Annual General Adjustment. For the most part, state service wages exceeded those in the private sector. Treasury officials calculated that between 1977 and 1982, state-sector pay rates increased 3.6 per cent per annum faster than private-sector wages. On a pay bill of $5 billion, this increase represented $180 million per annum.²³ Due to the public announcements of the Annual General Adjustment, plus the occasional inclusion of a catch-up factor for the state sector and the separate determinations of the Higher Salaries Commission, private-sector unions followed state-sector increases rather than leading them, inciting private-sector unions to try to better the state sector during the next wage-fixing round. Circularity, detached from productivity and working counter to the campaign against inflation, doomed wage relativity.

winding up the golden conditions

The Treasury’s urge to alter fundamentally the state sector’s conditions of employment predated Fourth Labour. In 1982–83, Treasury briefs started to complain that department heads were failing to stand firm against wage demands, suggesting that perhaps an attitudinal problem with management could be rectified by a structural revolution. Analysts questioned whether department heads understood the difference between a social welfare benefit and employment in the state sector.²⁴ Another scathing report from late 1983 faulted officials at the Post Office, Health, and Education Departments and at the State Services Commission for caving in to wage demands and for failing to assemble countervailing data and arguments. “The incentives for those involved,” the report’s authors claimed, “tend to be not to initiate reviews because of the industrial relations problems that are likely to be involved.”²⁵ As well, during wage discussions, the csu unions could unilaterally invoke compulsory arbitration by a tribunal. Tribunals studied relativity data from areas of high demand. In these circumstances and having no skin in the game, permanent department heads wondered, “Why make a fuss?” Treasury officials’ impatience with this attitude and with departmental self-importance leapt from the page of this report. The Treasury proposed that “given the present system, [reformation would] require active participation by Treasury in creating Ministerial commitment to these initiatives and in putting pressure on the Employing Authorities to undertake necessary reviews.”²⁶ From the Treasury’s standpoint, the puzzle was how to instil managerial toughness. The ssc’s statutory position as state-sector employer, key to “the present system,” was becoming very insecure.

A year into its administration, Fourth Labour had its first encounter with the problem of overly generous department heads. A director general of the Post Office entered into a wage agreement with the Post Office Union at the half-year point. Minister of Labour Stan Rodger rejected it as illegal. “The Post Office arrangements,” he wrote, “could throw moves to improve state sector pay rates into disarray and would have flow over effects into the private sector.”²⁷ For Treasury officials and ministers with the economic and labour relations briefs, either attitudes had to change or, more attainably, the selection of department heads had to be opened up to outsiders. Unintentionally confirming the Treasury’s critique, SSC commissioner Mervyn Probine told Rodger that the Post Office did not want to risk “industrial action” from a union intent on flexing its muscles to show credibility. Probine opposed any new system with department-based negotiations, pointing out that a department on its own could also bend to a union and permit a “lift in pay rates.”²⁸

Probine’s concern about pay increases, coming from even a decentralised arrangement, troubled senior Treasury officials. Decentralised wage fixing alone could not guarantee fiscal responsibility. Treasury officials intensified their search for a control mechanism to restrict executive discretion in a department-centred setup. No matter what solution they cooked up, it was going to eliminate the public service employment role of the SSC. As for the wayward Post Office, the Cabinet Policy Committee backed Rodger since “advancing the public sector settlement date would inevitably carry over into private sector settlements.” By avoiding a hard line in its “dealings with its employees,” the government “would signal to private sector management the way in which the Government might wish them to deal with their employees.”²⁹

From 1983 onward, Treasury officials recommended cancellation of the 1977 legislation’s centralisation of labour management in the hands of the SSC and likewise ending the legislation’s principle of rewarding individuals by jobs rather than for skills or performance. Treasury’s policy papers spanning many fields aimed to change what officials maintained was a national culture of complacency and uniformity, leading to poor targeting of public expenditures, wage sameness, and scant attention to merit.³⁰ In so far as this culture adversely affected the fiscal picture and economic efficiency, it was the Treasury’s obligation to warn of fiscal hazards. From the Economic Summit of 1984 until early 1987, Treasury officials could do little more than protest about state-sector outlays and condemn the economising practice adopted in 1975 of merely reducing the size of the public service without taking merit into account.³¹ Merit meant targeting, a common restructuring concept also seen in proposed revisions to the distribution of social welfare benefits. Through state programmes, Fourth Labour endeavoured to shift management away from block or collective measures and toward individual cases. This preference for talented individuals and cost containment in the state sector had to be set aside throughout 1985 and into 1986. Douglas and his key officials were occupied with his ambitious budgets and with the valuation and establishment of the soes. But in June 1986, the secretary of the Treasury, Bernard Galvin, reminded Douglas that the issue of state-sector conditions of employment was too important to leave aside. Something had to be done.³²

which conditions of employment for whom?

Besides Galvin’s reminder, the government’s ongoing corporatisation efforts transformed the state sector’s conditions of employment from a budget issue into operations to reduce anxiety over employment security and to arrange transfers of benefits from the state employer to a profit-committed soe. Aware of the government’s urge in early 1985 to commercialise trading departments, Forest Service officials assumed that they were safe because their department had not yet appeared on the list of soes. Rosy hopes were dashed when “the Cabinet Policy Committee recommendation [on environment and conservation] to the Cabinet was highjacked by the Minister of Finance and the Treasury.”³³ Forestry’s commercial side was to be corporatised and required to make a profit, a transition bound to bring assessments of overstaffing, leading to redundancies in regions where state-sector employment provided a social benefit to people, mainly Maori, living in isolated plantation villages.³⁴ To calm the department’s employees, a government delegation visited twenty-two communities in July and August 1985, listening to apprehensive employees. Several officials put their foot into it by saying that workers’ jobs would be preserved.³⁵ The ssc had to withdraw the unauthorised promises, a reversal that fired up the csu and the psa.³⁶ The brouhaha ignited protests, reviving the broader matter of state-sector labour relations. If jobs in the forestry sector were not safe, what about thousands in the projected soes?

On a wider labour relations front that involved soes, a defence of the golden conditions intensified in May and June 1986. Union leaders, who at one time expected only minor changes spread over three to five years, now recognised the impossibility of dissuading this government in a hurry. To defend the status quo, they lobbied mps and appealed to the public as well as to their members. The campaign avoided mention of wages and benefits, preferring to highlight principles and the “reduction of services to isolated communities if efficiency rather than social need is stressed.”³⁷ The csu and psa leadership depicted state-sector employment as a social good in the country’s poorer regions.³⁸ The government struck back, reminding the public that the state sector and the public service were among the most protected areas of the economy. Big and protected.³⁹

Unions had some short-term successes. On their guard, in part due to the forestry episode, state-sector unions insisted that members should retain the state-sector conditions of employment when they transferred into the soes. When Douglas was overseas in late May, the Labour Caucus rebelled after union lobbying. Members resolved that soe employees should remain as state-sector employees for the purposes of labour relations and that there should be no contracting out.⁴⁰ This revolt fed the scepticism of some soe board members, who wondered whether Fourth Labour could contain the party’s left.⁴¹

In principle, Treasury officials wanted private-sector labour relations to apply; the Establishment Boards setting up the soes were emphatically in favour, opposing any carryover of conditions and distrusting the involvement of the ssc, which they suspected of favouring unions. On the one hand, government saw the formation of the soes as a defining reform and could ill afford to antagonise the boards. On the other hand, an insistence on private-sector conditions of employment might push the unions to “adopt an openly adversarial stance.”⁴² They had shown some strength. The government needed a solution fast. A consultative committee of officials and ministers suggested that the conditions of employment could migrate with the employees, but it pointed out that they would then have to accept the ultimate abandonment of relativities by later legislation. Draft legislation to establish the soes included a provision for the carryover of state-sector conditions. The pressure stayed on the government. The caucus sympathised with a transfer of conditions and in November 1986 passed resolutions that supported workers, retaining both the benefit of pay fixing by relativities and recourse to tribunals. In December 1986, scattered units of the Forest Service went on wildcat strikes, not to stop the soes, as that was a done deal, but to put pressure on the government and the soe boards to entrench the terms and conditions of employment.⁴³

The government appeared to grant what the unions wanted. The State-Owned Enterprises Act (1986) specified that each soe “shall comply with those provisions of the State Services Conditions of Employment Act 1977 that apply to it.”⁴⁴ It seemed that employees would have their state-sector conditions of employment. Dated 18 December 1986, the legislation, complete with the labour relations clause, was to have effect on 1 April 1987. However, another measure, namely the State Services Conditions of Employment Amendment Act (1987), dated 25 March 1987, immediately amended the transfer of employment conditions when it, too, came into effect on 1 April 1987. The labour relations regime for soes retained tribunals but then accented wage negotiations rather than relativities; negotiations had to consider the costs of employment, current market conditions, and “individual performance, skill, and experience.” Contracting out for services was allowed.⁴⁵

This legislation changed the game, diluting the carryover of the prevailing employment conditions of government departments into their successor soes. The government permitted a transitional period when employees could have either csu or psa coverage, but after a year the 1987 amendment legislation enabled employees to vote on their preferred coverage.⁴⁶ In a concession to the caucus and the csu, the government specified that the soes would be “good employers.” Unions resented the legislation. The Labour Party executive complained, with reason, that the government’s sly move showed that it could not be trusted to protect the employment conditions in the remaining state sector and the public service.⁴⁷ The government certainly was not finished with labour relations in the soes. On 30 March 1988, the State-Owned Enterprises Amendment Act (No. 2) (1988) applied the recently passed private-sector Labour Relations Act (1987) to all soe employees.⁴⁸ That completed the labour relations transformation of government trading departments into soes. Many state services plus the public service continued to be covered by tribunals and relativities. Not for much longer.

In the background, ssc personnel were fully occupied with the soe conditions of employment in their practical applications, arranging the transfer of pension contributions, accumulated holidays, sick leaves, state-housing entitlements, and redundancy packages. Restructuring was like an iceberg; most of it was below the surface. The vast majority of employees retained something like their old jobs, but several contentious matters erupted during the transition. Commissioner Margaret Bazley, who played a major role in managing the massive change, said that the ssc “dealt with 200 situations and over 30,000 people.” “Most of what we did was by trial and error,” including the transfer of thousands of personnel files, redundancy calculations, and the “cashing up” of benefits for retirees.⁴⁹

ssc officials, true public service professionals, reviewed their own performance. It had been a mistake, they conceded, to send Coalcorp workers home on a particular day to await a “brown envelope,” thus cutting them off from their co-workers and support groups when the bad news arrived. Bazley felt that the ssc team should have involved families in all redundancy situations but noted that doing so required cultural sensitively. For instance, a booklet prepared on redundancy made marriage guidance prominent. These good intentions backfired since “workers at the meeting were offended at what they took to be an identification that their family would fall apart, and 90 per cent of the folders went in the rubbish.” If she had been able to do it all over, she would have had bad news explained at face-to-face meetings, trained and assigned staff to field questions, and placed more emphasis on retraining.⁵⁰ The government accepted that it had failed on the public relations front, prompting the Cabinet Coordinating Committee on State-Owned Enterprises to discuss ethical questions of relevance to all democracies. Could information prepared for public service purposes be cleanly distinguished from political material?⁵¹ How far could governments go in elucidating measures before crossing into partisan appeals?

Trouble swirled around the issue of union coverage in the soes, a matter aggravated when the Electricity Corporation of New Zealand increased its union-exempt managerial group from 500 to 1,400, reducing union membership.⁵² As well, the soes’ hiring teams were not taking everyone from soon to be defunct trading departments. A few employees would be left without new employment or an old departmental home. Stranded individuals could go on a public service waiting list or could take a severance package.

An estimated 5,000 opted for the package, averaging $18,000; 95 per cent were previously employed by the forestry service or state coalmines. Most were vulnerable wage workers.⁵³ A moratorium on new hiring assisted with soaking up limbo employees who were either not going into the soes or not choosing the package. The government could not bring itself to order compulsory redundancy at first. When a small number of public servants declined the options and stood pat, the inaction forced ultimatums and had an effect desired by the unions.⁵⁴ It embarrassed the government. The transfers into the soes disrupted lives. The Treasury got what it wanted; the ssc carried out the hard work, which, when completed, would jeopardise the security of its employees.

state-sector labour relations in the buff

The Treasury had the system of labour relations for the entire public sector under review. The soe experience, labour relations in the private sector, and schemes to change wage fixing across an extensive state sector were connected. Liberalisation in private-sector labour relations, although not coming fast enough to suit Federated Farmers and many other employers, was moving ahead. In January 1986, ssc commissioner Don Hunn alerted colleagues and staff to serious work ahead. The soe issues had not yet boiled up, but he pointed to the December 1985 publication of “the Green Paper on industrial relations [which] clearly signals the Government’s interest in applying competition policies to the labour market.”⁵⁵ The scale of change was going to be far greater than anyone had anticipated. Hunn now suspected that it would grip the state sector.

The alteration of labour relations in the state sector was going to go in a different direction from the soes in the sense that the soes were decentralised employers, separate entities no longer served and supervised by the ssc. The model of stand-alone employment units provided by the soes was exactly what Treasury officials now wanted for the rest of the state sector. Achieving this breakup into stand-alone units meant dramatically reducing the role of the ssc and creating unit heads as employers. As long as the ssc remained the overarching employer for the state sector, it had a duty to uphold the 1977 legislation and “the basic theories underpinning current and historical policies on State pay-fixing and relativity with the private sector.”⁵⁶ Thus it looked out for state-sector employees’ interests while incongruously having to assist the government with the implementation of policies that may not have been in the interest of all state employees. Sandwiched between incompatible responsibilities, ssc officials recognised, too, that their functions would disappear if the Treasury’s aspirations for decentralisation came to pass. Indeed, the Treasury planned to bring the ssc down.

Treasury officials were hard pressed to come up with plausible enterprise parallels to the soes that could take over the management of state-sector entities, some of which were unobtrusive and lodged in government departments. Contracting out for some services was one notion but a limited and politically risky way to bring in the market. Eliminating relativities, tribunals, and the ssc and introducing merit were achievable. Creating institutional arrangements in place of market pressure was a challenge. In their campaign to make the ssc redundant, the Treasury’s senior officials advised Douglas that the ssc’s supervision of the conditions of employment contributed to the “lack of progress in devolving authority to department heads.”⁵⁷ Here was a clue to the Treasury’s answer to soe-style management: department heads put under pressure to perform.

For several years, the Treasury had been urging adoption of some form of state service structure that required departments to prepare management plans, pay attention to outputs, and assess individual performance. The way forward was to provide senior managers with discretion, or at least discretion within Treasury-compliant boundaries.⁵⁸ Although decentralisation was integral to any scheme that accorded with the Treasury, it had to be a bounded independence in order to satisfy the Treasury’s watchdog function over the public purse. The Treasury did not have the details worked out in 1986. Essentially, officials were deliberating on how best to compel fiscal prudence among the decentralised managers who were to replace the ssc as employer.⁵⁹ As with the response to reforms at the Reserve Bank, Treasury personnel were ambivalent about managerial discretion. On the one hand, it was quite desirable; on the other, it was not to be trusted.

The specific issues debated with regard to the state sector’s conditions of employment embodied a cultural confrontation, surfacing during acrimonious meetings between the government and the csu and the psa in 1986–87. The government team let the other side see where it might head with state-sector labour reforms. Stan Rodger released a discussion paper, nicknamed the Buff Paper, that blasted the rigidities of wage fixing throughout the state services and the core public service, noting that current “legislation limits an employer’s ability to recognise individual performance and essentially dictates that national average rates be paid across the board.”⁶⁰ The strife over the transfer of conditions of employment to the soes and the November 1986 release of the Buff Paper overlapped, keeping the csu and the psa leadership busy lobbying left members of the caucus. Douglas countered, telling Prime Minister David Lange and an inner group of ministers that the government’s political success depended “on taking a tough line with the vested interest groups in order to be fair to the ordinary taxpayers and consumers who finish up paying for the special concessions.”⁶¹ Rodger pitched the government’s position directly to member unions rather than dealing with the csu and the psa leadership.⁶²

On the csu and the psa side of the merit and competencies debate, personalities influenced goals and strategies. The general secretary of the psa, Colin Clark, was disinclined to negotiate change, choosing instead to demand and threaten, to insist on a government back-down on restructuring the state sector, to charge the government with a failure to consult, and to accuse those with whom he disagreed of “ignorance.” Exasperated when told that policy was made by an elected government, not by unions, he erupted: “Arrogance must be brought to heal.”⁶³ Clark threated work stoppages unless the government withdrew proposed reforms for the state sector. Rodger said nothing. The threats fizzled.⁶⁴ In contrast, Colin Hicks, president of the psa (1983–88) and chair of the csu, cut a deal for state service employees in April 1987, stating some months later that the psa had accepted a new bargaining structure because “it’s better to have some influence on the direction of that change than a need to stop and try and hold on to past practices.”⁶⁵

The deal that Hicks negotiated originated in talks in early April 1987 with key ministers just prior to the annual round of wage fixing. Rodger, Douglas, and Richard Prebble wanted to get through this round and to prevent more of the same in the future.⁶⁶ When it looked like the ssc would hold the Annual General Adjustment to 2.5 per cent, Rodger and Douglas alone met with the csu executive and extended a 7 per cent across-the-board sweetener that achieved agreement with the csu and the psa. The csu negotiators promised to go along with the introduction of performance (merit) pay.⁶⁷ Due to the csu’s “fervent desire to hang onto the Tribunal structure,” it was agreed that new legislation on the state sector’s conditions of employment would retain it.⁶⁸ The csu had given up a lot since, with performance as a criterion in wage fixing, relativities would no longer dominate the process.

This agreement doomed relativities but at a cost. Roderick Deane, who had moved over from the Reserve Bank to chair the ssc, and ssc commissioner Margaret Bazley were opposed to across-the-board increases. They were working toward more diversified wage increments.⁶⁹ Without warning, key ministers had surreptitiously and abruptly undermined a separate plan to break the tribunal awards system. In addition, the deal came just as Treasury officials were striving to tighten private-sector wage settlements. A 7 per cent across-the-board increase for the public sector undermined wage restraint efforts and the associated disinflation campaign. However, it was an investment in politics that enabled the government to go ahead with restructuring the public sector. A note on the meeting stated, “Govt. want CSU support: CSU will not oppose.”⁷⁰ A related report worried that the deal might become public under the Official Information Act (1982).⁷¹ Newspapers were tipped off and reported on “Beehive backroom bargaining,” exposing that the CSU had agreed not to oppose a reform of the sector until the select committee stage on legislation.⁷² The wage sweetener toned down CSU opposition to eradicating relativities for the state service employees not transferring to the SOEs and tempered CSU protests in advance of an August election. The CSU leadership did not welcome the end of a relativities system that had been good for their membership but could not disregard the government’s steely resolve to end the system in any event, and they could not support the National Party. Rodger and Douglas offered reparations to Clark and Hicks. The CSU was smart to accept.

The way had been cleared for two bills that, taken together, abolished relativities for wage fixing in the state services, along with another bill that did the same for the public service, all coming into effect on 1 August 1987.⁷³ Wages were to be set in the state sector through negotiations between employee representatives and decentralised units that the bills called “employing authorities.” Negotiations were to consider employees’ responsibilities as well as fairness both to the tax-paying public and to employees. The bill affecting the public service also eliminated relativities and tribunals. Wages were to be set by the SSC in accordance with public service occupational grades that reflected levels of responsibility and skill. In the event that a group of employees in either the state service or the public service disputed a wage settlement, the arbitration commission recently established for the private sector by the Labour Relations Act (1987) could hear representations and determine wages. This right of unions to initiate arbitration had been eliminated in the private sector by Fourth Labour in December 1984.⁷⁴ It lingered in the state sector for a brief interlude.⁷⁵

In incremental steps, challenging to fathom, the government abolished the practice of awarding wages to blocks of jobs in the state sector and the public service in favour of wages that took account of individual skills and merit. As if this undertaking were not complex enough, more steps were coming, including the introduction of the employing authorities. For the moment, the SSC remained the employer for the public service, and heads of boards performed this function for the state sector. Next, a restructuring of the public service proceeded to decentralise hiring and conditions of employment, thereby ending the unified public service and completing this piecemeal restructuring of a large part of the state.

“the final rites of the public service”

After re-election on 15 August 1987, the Labour government moved ahead with restructuring the public service. At the end of August, Cabinet authorised an ad hoc committee on public service labour relations composed of Rodger, Prebble, Douglas, and Geoffrey Palmer. In late October 1987, they settled on principles that allowed managers greater autonomy, balanced by enhanced accountability. They decided on a bill that would establish an industrial relations system similar to the private sector and that would release managers from union coverage, giving them control of personnel matters such as merit criteria and sanctions for poor performance with an appeal procedure.⁷⁶ It was drafted in haste. The government required a speedy preparation in order to keep the bill a secret for as long as possible. Although busy with Maori land claims, the Office of the Parliamentary Counsel came through, not with its best statute drafting effort, but Rodger had his bill.⁷⁷ As planned, it caught the psa leadership by surprise.⁷⁸

Around 10:30 a.m. on 10 December 1987, Stan Rodger rose in the House of Representatives to introduce State Sector Bill (1987).⁷⁹ Loaded with important bills, the parliamentary session had been extended in part so that Rodger could surprise the state sector. Within minutes, National Party stalwart Bill Birch called Colin Hicks to say, “You’d better get over here, they’ve introduced the state sector legislation, and you might like to see the final rites of the public service.”⁸⁰ Since 1984, Rodger had committed his political career to restructuring labour relations in both the private and public sectors by ending arbitration awards (private sector) and tribunal determinations (state sector) and replacing them with direct employer-employee negotiations leading to enterprise agreements. The current bill unravelled practices woven into the country’s progressive achievements. There had been a history of legislation designed to protect the ideal of a non-political public service.⁸¹ Opponents of Rodger’s bill recommended retaining a unified service and denounced the government’s failure to consult.

Members of the public service had long been assured of a lifetime career with possibilities for movement vertically and horizontally within a unified service. For example, ssc commissioner Margaret Bazley had been in the mental health service and Don Hunn in external affairs. Public servants who liked the idea of combining career security with diversity claimed institutional benefits from mixing people, contrasting it with railways and posts offices, stand-alone parts of the state sector where employees remained in “single-service” organisations.⁸² As for the lack of consultation, the gulf between the psa and the government was unbridgeable. Geoffrey Palmer recalls that “Stan said we could consult, or we could have an Act, but we could not have both … In light of negotiating history, Stan was quite right.”⁸³

Table 13.2 | State-sector employees in urban centres, 1985

Urban centre

Employees

Wellington

16,092

Auckland

7,337

Christchurch

6,863

Hamilton

5,891

Dunedin

3,516

Rotorua

3,173

Palmerston North

2,817

Lower Hutt

2,598

Manukau

2,431

Takapuna

2,067

Invercargill

1,841

Whanganui

1,828

New Plymouth

1,604

Whangarei

1,597

Napier

1,502

Nelson

1,295

Timaru

901

Gisborne

786

Greymouth

774

Tauranga

745

Hastings

647

Masterton

646

Blenheim

513

Source: Archives New Zealand, aaek, W3130 25039, box 16, 1985–86, Michael Cox Papers, Public Servants as of 31 March 1985.

Rodger carried the burden of defending the reform, answering a grilling at a meeting of the party’s executive and preparing briefing notes for Labour mps who were going to encounter intense lobbying.⁸⁴ He explained that on three occasions the government had signalled to the psa that it needed to negotiate realistically, or else the government would act unilaterally: the Buff Paper in November 1986, a Heads of Agreement between the government and the csu in April 1987, and the Speech from the Throne in September 1987. An experienced union official, Rodger took on the Labour Department portfolio because he appreciated the work ethic and thought that wage fixing reliant on relativities, arbitration awards, and public-sector tribunals did not support this outlook. Palmer and Lange agreed with Rodger “about the featherbedding which permeated the state sector unions.” Minsters shared anecdotes on the worst practices.⁸⁵

Opposition members who agreed with the bill’s purpose felt obliged to say something negative but could do little more than warn of political favouritism and the bill’s hasty drafting. Some women’s organisations criticised the absence of any reference to equal employment opportunities; however, the final bill would provide for such opportunities. Moreover, Fourth Labour and the ssc had been attentive and progressive, guaranteeing job security for women who chose part-time work and ensuring support for child care centres attended by children of public servants. The ssc had included women on job-selection panels and in granting aid to public servants caring for dependants when away on official business.⁸⁶ The original bill did not stipulate greater involvement of Māori in the public service. But the final legislation did.⁸⁷ A few of the 200 public submissions and oral presentations to the select committee produced improvements. The bill, which devolved the management of the public service into thirty-four departments plus trading operations not yet converted to soes – the Rural Bank, the Public Trust, and State Insurance – proceeded.⁸⁸

The bill reduced the ssc’s labour relations role and decentralised the public service by shifting the functions, duties, and powers pertaining to “the efficient, effective, and economical management” of departments to the newly created chief executives, who could henceforth be recruited from outside of the public service.⁸⁹ The ssc would handle employment searches, although final appointment was made by the governor-general-in-council, for all practical purposes Cabinet. This shift was not unusual; other states had departed from internal advancement. Australia and Canada appointed senior public servants by methods similar to those spelled out in the 1987 bill.⁹⁰ To be sure of that, the ssc consulted a former member of the Canadian Public Service Commission. The change in recruitment methods was but one of a seemingly endless string of measures tucked within the resulting State Sector Act (1988) that were intended to restructure labour relations.⁹¹ It put public servants under the private-sector Labour Relations Act (1987). A few words struck down compulsory arbitration and included a final-offer option for employers and employees, provided that they jointly elected to go this route and agreed not to invoke lockouts or strikes.⁹²

wearing suits and working till five

The government braced for a paper storm of psa-prepared form letters and petitions as well as for work stoppages and protest demonstrations.⁹³ Ministers and supporting officials assembled answers to common objections in order to prepare, and they remained demonstrably unruffled, letting the parliamentary select committee handle objections and suggestions from individuals and groups. Officials on the front line at the ssc dealt professionally with demands and threats. They had long interacted with csu and psa officials. Now they explained to the regional secretaries of these organisations that industrial action was futile. The government was not going to withdraw the bill and would deduct wages from no-shows. The new order was hardly catastrophic, at least not in public opinion. Clerks were an impoverished class. Some, however, were likely to lose ground.⁹⁴

Some psa officials on 17 December 1987 warned that if the government did not withdraw the bill and consult, members would “walk off the job such is the level of anger.”⁹⁵ A few employees answered an initial call to protest, but by 24 December protest had petered out. At the outset of these protests, ministers declared that “the matter is not too serious” and decided that the best response was none. There was no sense in provoking the few who left work; soon they would see that they were in a no-win situation because the government had no intention of backing down.⁹⁶ The psa leadership resolved to try a wider and better organised stoppage on 9 March. In the proceeding days, the government walked a fine line between presenting public-interest information and a partisan overture at public expense. Cabinet decided to retain an advertising firm to organise a newspaper advertising campaign, and it authorised an increase in the ssc vote (parliamentary budget approval) of up to $250,000.⁹⁷ Acting as though the psa had the clout to stop the government, Clark wrote Lange that “tens of thousands of state employees have been meeting to protest at the bill and it is certain that the protests and other action will continue. All they ask for is proper negotiations.” Lange declined, pointing out that the bill was now before the select committee.⁹⁸ That was that. Margaret Bazley recalls that staff who accepted the future started to wear suits and stayed until 5:00 p.m. to work a full day.⁹⁹

The psa later claimed that “in 1987 the Government introduced the State Sector Bill which would have taken away most of the current conditions of employment. psa members held massive protest meetings and a national strike in 1988. This ensured all current conditions were saved.”¹⁰⁰ Not true. Improvements to the bill resulted from the orderly processes of a parliamentary select committee, and the conditions of employment were dramatically altered when brought under the Labour Relations Act (1987). A sufficient number of officials in csu unions recognised the realities and set to work building a new relationship with the ssc. The csu promptly merged with the Federation of Labour to form the New Zealand Council of Trade Unions, which briefly insisted that wage rounds be managed rather than negotiated. Vain hope. The government was never going to disturb bedrock measures in its restructuring of labour relations.¹⁰¹ Although the legislative process to get this far had been messy, it produced an essential component in improved fiscal control while countering inflationary expectations.

Table 13.3 | Militancy and protest in the public service, 1986–89

Source: Turnbull Library, Deane Papers, 2004-159-24/10, Government Expenditure, Graham Scott, “1986 Budget, Fiscal Strategy,” 27 June 1986; Archives New Zealand, aafh, W5510 6790, box 253, pu-7-1-2, part 1, Publications – Public Service – State Sector Act, Miscellaneous – State Sector Bill 1988, “Notes from Third Departmental Briefing on State Sector Bill,” 9 March 1988; and “Information about Industrial Action,” March 1988.

The orderly transitions surprised Don Hunn, who had to reduce ssc staff when delegating to chief executives the commission’s authority for negotiating collective contracts.¹⁰² Changes rippled on and on. In 1993, the psa amalgamated with local government unions, forming the country’s largest union and joining the Council of Trade Unions.¹⁰³ Labour relations in the state and private sectors were coming together, except that private counterparts retained their national awards for a few more months. As noted in chapter 11, National ended them in 1991, completing the merger of labour relations in the state and private sectors. The spate of state-sector legislation compelled a reorganisation of the country’s unions, validating memos in mid-1988 that forecast a “New World.”¹⁰⁴ In early July 1988, Hunn could report that “interim appointments of chief execs. have expired and replaced with a new offer; 30 of 37 signed; new agreements are being registered.”¹⁰⁵ In 1991, political scientist Jonathan Boston and colleagues would report that “by the early 1990s almost a quarter the new chief executive officers had a doctorate; some with economics; many more with experience outside the civil service,” a remarkable sign of a cultural change from the integrated public service of old.¹⁰⁶

granting while restraining managerial freedom

The State Sector Act (1988) was designed to create “little distinction between government departments and private sector businesses.”¹⁰⁷ Proponents promised that departments could hire talented people from outside. Newly created chief executives would have freedom to innovate.¹⁰⁸ Douglas wrote that senior public servants “can have much greater freedom to do their jobs as they think best, more scope for taking on new revenue work, and rewarding performance.”¹⁰⁹ Rewarding merit and allowing managerial flexibility were selling points, but the freedom to do the job was about to become a circumscribed freedom.

For senior Treasury officials, managerial independence presented the possibility of irresponsible politicians or public officials. Throughout the course of restructuring, they mooted ways to restrain the discretionary spending of public officials. It will be recalled that senior Treasury officials thought that central bank independence was an insufficient guarantee of hard money. When it came to the State Sector Bill (1988),¹¹⁰ therefore, Treasury approved of independence for chief executives but worried about their fiscal discipline. The chief executives of departments, unlike their counterparts at private firms, would not be exposed to market judgments on their conduct. Taxpayers, the nearest equivalent, were remote. To serve restraint and transparency, pessimists held that there had to be containment of the greater freedom. Senior Treasury officials looked for a scheme to contain expenditures that they would have deemed wasteful or careless.¹¹¹ The logic was that it would be best to prevent rather than repair! At a meeting of ministers and officials in March 1987, Treasury representatives had suggested a fiscal monitor’s office to keep a tally of Cabinet decisions and to enforce accrual accounting. If a department did not control the authorised spending, the monitor would send an enforcer to do so. This proposal may have been a bluff. In any event, remedies were far from settled. Secretary of the Treasury Graham Scott maintained that a monitor’s intervention would come too late; departments had to be alerted to overspending earlier so that they could find savings. Scott hinted at a managerial revolution coming to the state sector.¹¹²

The State Sector Act (1988) proposed five-year contracts and routine merit evaluations of chief executives. Although merit assessment accorded with a targeting impetus in restructuring, the bill alarmed some at the Treasury because it specified that “the conditions of employment … shall be the minimum conditions of employment of employees in the Public Service.” Circumspect officials considered “minimum” a treacherous word. “Unless appropriate financial accountabilities and constraints are in place the possibility for uncontrolled grading creep within departments will be very real.”¹¹³ One measure for containing pay fixing, originating in organisational theory, proposed that job evaluations should be based on grading activities and responsibilities, an absolute departure from relativities. Like counterparts in large organisations around the developed world, officials in human resources at the SSC had studied a leading system, the Hay Associates job-performance evaluation. The SSC experimented with it in the state-owned Shipping Corporation and adopted it for chief executives immediately in 1988.¹¹⁴ Landcorp’s directors recognised that it “provided for recognition of merit within each position.”¹¹⁵ New Zealand was abandoning an older British institutional practice, that of fair relativities, and moving toward an American practice. Even a merit-ranking system, although fine for wage fixing, did not deliver the means to secure the prudential conduct of chief executives. The Treasury trusted public service mortals less than markets and trusted politicians less than either.

By September 1988, the Treasury’s ideas on budget control were ready for review by other officials. The Cabinet Policy Committee directed the SSC to conduct an in-depth analysis on implications for the machinery of government. SSC officials agreed with the proposal’s thrust while advising that an emphasis on value measured by money downgraded attention to quality of service.¹¹⁶ All ministers were invited to a seminar in October where the SSC and the Treasury explained what the pending Public Finance Act (1989) would involve.¹¹⁷ There would be no public discussion of draft legislation prior to the select committee phase.¹¹⁸ David Caygill introduced the bill to Parliament. The Finance and Expenditures Committee held ten hours of hearings, receiving submissions from eighteen organisations between 26 April and 11 May 1989. The bill affirmed Parliament’s control over the executive by virtue of its authority first to determine and approve the amount of public resources allocated to departments and other state entities and then to check their use. This was standard Westminster constitutional practice.

The unorthodox feature was the rigorous prescription for assessing performance, which required explicit information on what departments and Crown entities planned to produce, what they produced, and the cost of producing it. Requests for appropriations had to apply to the costs incurred in pursuit of a definite objective or service. Many departments already had reporting requirements, which had to be cleared off in preparation for a uniform procedure, a complication that delayed Treasury’s drafting. Staff combed statutes from 1908 to 1988, compiling a schedule of 135 legislative acts with over 250 amendments and another schedule of fourteen repealed acts. A zealous reaction to decades of willy-nilly state-sector growth, the bill had champions and detractors. The auditor general described the legislation’s stipulations as “the most fundamental changes to financial management practices seen in New Zealand’s history. These reforms are enormous, ambitious, and in large part, unprecedented anywhere in the world.”¹¹⁹

Historic the requirements may have been, but the Public Finance Act had not been preceded by any discussion paper, and the legislation’s explanatory note failed to convey the significance of the proposed changes.¹²⁰ Over the next five years, the legislation was amended thirty times.¹²¹ No a good sign. A summary of the legislation explained that appropriation proposals from departments and Crown entities had to declare the minister’s objectives or outcomes and, in far greater detail, to explain the outputs that advanced these outcomes and to justify the costs for these outputs on an accrual basis if appropriate. The introduction of accrual accounting was a lasting achievement.¹²² The legislation wandered into other matters, tidying up the Treasury’s changed relationship with the Reserve Bank and empowering the minister of finance to borrow, issue securities, enter into swaps, and engage in other financial arrangements.¹²³

There was confusion over what constituted Crown entities and discussion about whether a list or a definition best sufficed. In short, which bodies would have to go through the submission and accountability process? A public servant assigned to sorting out the matter asked, what are “f@#%$# Crown agencies?”¹²⁴ Who was in and who was out? The legislation defined a Crown agency as any entity over which the Crown could exercise control, including significant financial interdependence.¹²⁵ Personnel at agencies with small budgets wondered whether it was worthwhile committing time to a burdensome process. By far the largest Crown entities were local health boards, with around 60,000 employees and around 7 per cent of annual state expenditures.¹²⁶ The Public Finance Act reinforced a message that the days of lobbying and delegations were ending; informality was to be replaced by planning and transparency. Some complained about an erosion of ministerial discretion. Several entities objected that they did not “produce”; their contributions to society could not be stated that way. Outputs and outcomes were derided as arcane, needlessly constricting, and adding nothing to “the sum of human endeavour.”¹²⁷ On the credit side of the ledger, these concepts reshaped how ministers and officials conceptualised and reviewed activities. Astute officials could begin, so went the reasoning, to think of opportunities instead of holding positions as functionaries.¹²⁸

Even friendly commentators – auditors were keen – expressed concern, wondering whether departments would bid against each other to get funds, thereby reducing cooperation, joint projects, and the sharing of services.¹²⁹ Intimations of a silo mentality endured as criticism.¹³⁰ There were other problems. The scale of reporting was one. When the Internal Affairs Department ran a dummy exercise of its own simple appropriation submission, it required twenty-seven pages. To set an example, the Treasury produced a model “Performance Agreement” of over a hundred pages.¹³¹ It was ironic that the Treasury economists, dedicated to efficiency, had designed a novel transaction cost. Several years later, the country’s Legislative Advisory Council remarked on the red tape and recommended the practices of the Treasury Board of Canada. The Canadian practice required departments contemplating regulatory programmes to consult with those affected, to ensure that the benefits of any new practices outweighed the costs, and to review with the purpose of improvement.¹³² The State Sector Act (1988) and the Public Finance Act (1989) were complementary and grew out of what were then up-to-date management theories.¹³³ They completed a decentralisation of the state sector.

health care: the ultimate tangled skein

Notwithstanding distinctive national health care systems among oecd states, international specialists in health care management were summoned by many governments in the 1970s and 1980s to assist in finding solutions to problems that transcended borders. Governments began to question the effectiveness of their country’s current methods of providing public funding in full or in part. They had awakened an inexorable trend in expenditures. Health care providers were adopting state-of-the-art diagnostic equipment and therapies, putting financial pressure on patients, insurers, charities, or the state. Minister of Health Michael Bassett, from his prior experience as shadow minister of health, identified that, foremost, health benefits were “a shambles.”¹³⁴ The cost structure of health care needed reappraisal. Facing up to this challenge paradoxically meant that people dedicated to caring for others started “hurling verbal and even physical abuse at one another.”¹³⁵

As elsewhere in the oecd, New Zealand governments by the 1970s had encountered financial problems with open-ended public funding. To contain costs, national systems silently engaged in rationing. With the arrival of advanced treatment, accompanied by a media appetite for miracle cures, this solution was impractical. Specialists in the emerging field of hospital management advised governments that health providers should be barred from membership on hospital or clinic management boards, although that did not happen. Additionally, since roughly half the costs accompanied end-of-life treatment and since good health often derived from individual conduct, standardised estimates on procedures were imperfect. Every patient was distinct, forward budgeting was inexact, and New Zealand’s system had several specific problems. Three special circumstances compounded its encounters with these universal parameters.

The first was the exceptional significance of local hospitals in the national system. The second was an arrangement initiated under the Social Security Act (1938) whereby fees charged after 1941 by primary care providers – general practitioners (GPs) – were only partly covered by the state, although hospital care was more fully covered.¹³⁶ Patient preference for the cheaper option meant that hospitals engaged in considerable primary care. The third was the hodgepodge of medical benefits. In common with the state of social welfare benefits, health coverage had expanded incrementally: hospital and maternity benefits in 1939 and pharmacy benefits, general medical service, and diagnostic radiology in 1941. District nursing, home help, dental benefits, and hearing aids emerged in the 1950s.¹³⁷ Hospitals were the system’s keystones.¹³⁸

Terrain isolated many small communities where hospitals had developed out of local governments’ initiatives and charities. Hospitals attained further stature because of farm, forest, and mining hazards. The local post office and hospital were emblematic of community, although transfer payments subsidised rural independence. By the 1950s, costs led to the first of many political wrangles between the central state and local elected boards over the latter’s place in the hospital system. In their appraisal of democracy and health care in New Zealand, Miriam J. Laugesen and Robin Gauld hold that the boards’ survival rested on community reverence for the hospitals. Unwilling to tangle with communities over the control of these boards, the state’s health bureaucracy in the 1960s withdrew to the safer fields of policy making and advocacy of healthy living.¹³⁹ This failure to rationalise the system in the 1950s and 1960s likely “set a precedent for opposition to future government reform proposals.”¹⁴⁰ At any rate, from 1975 to 1983, with deeper rural roots than Labour, National Party governments gingerly amended the system without disrupting it, cooperating with the New Zealand Medical Association, establishing advisory boards, updating formulas to allocate funds to hospital boards, giving incentives to private institutions, amalgamating local hospital boards (curative services) with the Health Department’s district health offices (preventive services), and permitting boards to amalgamate into Area Health Boards.¹⁴¹ Fourth Labour grasped the nettle in 1989 by combining a number of boards. In the 1990s, government after government fiddled with the boundaries and composition of the boards.

The second special circumstance shaping New Zealand’s health care dilemmas, the inadvertent curbing of primary care, grew from the fact that the Social Security Act (1938) established two streams of funding, one for hospital services and another for primary care by GPs.¹⁴² The state funded the hospital portion at a daily benefit rate, a practice that detached the costs to the state from the costs of treatment.¹⁴³ In this arrangement, elected board members and hospital personnel had no incentives for cost-conscious management.¹⁴⁴ To the extent that it existed in primary care, it came from the GPs’ goodwill, not from the system. A part charge to the patient thus created the perverse effect that individuals avoided GPs, sometimes missing early detection by going to hospitals later. Because hospital services run by elected boards evolved as free providers of open-ended services, 70 per cent of the Health Department’s appropriation by 1987 went to hospital boards.¹⁴⁵ As far back as 1981, Bassett in Opposition had wanted primary care to receive greater attention in order to improve health care.¹⁴⁶

Determined to find savings and to prepare for the Royal Commission on Social Policy, Douglas assigned Treasury official David Smyth to prepare a “think piece” on “equity and efficiency” in health care.¹⁴⁷ Finished in late December 1986, it was discursive, as befitted the scope of health care, but sharply critical too, mentioning that people needed to take an active role in their health, that the medical profession had inordinate political influence, that drugs were overprescribed, and that GPs were unaware of the costs of treatments. It recommended that health boards behave like corporate boards with accountability structures controlling the units below them. For the remainder of the century, nine ministers of health applied their own techniques for rolling the health care boulder up the mountain of vehement opposition.¹⁴⁸

Smyth suggested that his paper should be circulated to people in the sector known to be sympathetic. Based on reactions, revisions could be made that considered professional sensitivities. The aim was to polish the presentation of issues without swerving from the main objectives, namely ending the boards’ influence and installing budget processes that included a recognition of real costs. Douglas and Bassett followed up on Smyth’s paper in early 1987, appointing an initial task force on health benefits and then a later one on hospitals and related services. The first task force summarised the leading international models for controlling the state’s involvement in health care: competitive private-sector managed care, with the state providing a safety net; retaining local hospital boards at the centre but requiring minor changes; keeping the state at the centre of a British-style capitation system; keeping the state at the centre and working with restructured hospital boards.¹⁴⁹

This task force did not analyse the failings of the system and avoided making recommendations. It favoured retaining something close to what existed. This preference made its work acceptable to the medical establishment but unacceptable to Cabinet reformers and Treasury officials, who wanted an action-oriented statement. Consequently, the government authorised a joint task force of the Health Department and the Treasury on hospital and related services. As was happening throughout restructuring, reforming ministers repeated the study of an issue until the right report emerged. Task forces were one of Fourth Labour’s signatures. As it had done right from the moment when it invited participants to the Economic Summit of 1984, the government “consciously avoided appointing direct interest group representatives.”¹⁵⁰

Alan Gibbs, an Auckland businessman and chair of the Establishment Board for the forestry SOE, was appointed to chair this task force. Fully confident in himself and free enterprise, Gibbs’s prsence unnerved the health care sector, as did some leaked deliberations and the fact that Gibbs commissioned Arthur Anderson and Company to examine hospital efficiency. The Anderson report claimed that $600 million a year could be saved by reducing hospital stay times and closing forty-three small hospitals.¹⁵¹ Gibbs’s presence and the leaked details fed rumours that a private insurance scheme was in the works. In truth, task force members consulted widely, undertook site visits, listened, and maintained individual and contrary positions.¹⁵² There was no ideological consensus. The manager of Social Policy and Government Services at the Treasury, Kevin Sampson, objected to a colleague’s assertion the market would work in health care. By leading with such an uncompromising position in order to promote a multiple-insurer scheme, the task force “would frighten the hell out of important people.” As Sampson pointed out, “that is not necessarily something Treasury is usually worried about,” but he was certain that an insurance scheme would be rejected and that such a defeat could destroy all the credibility of other more market-oriented changes for the sector’s supply side.¹⁵³ He advised that health reform required a soft gradualism alien to colleagues at the Treasury.

Although it was desirable to ensure that hospitals were responsive to the needs of their patients and were focused on quality of care, the task force could not agree on ways to accomplish this objective. Additional complications stemmed from sensitivities around culture; patients complained of being denied full information or not having services delivered in a manner sensitive to their culture. By and large, however, members thought that some method of separating funding from health care provision might reduce institutional capture by managers.¹⁵⁴ Distilling this idea into a simple choice – either modify administrative practices or enable the market – they considered introducing private medical insurance, with boards providing services to the needy, or turning boards into health-management organisations. Ultimately, Sampson’s caution carried the day. The task force toned down its report to recommend a blend of administrative and market options. Local hospital boards and Area Health Boards were to be combined into six elected Regional Health Authorities that would “buy” services for their region from a national health commission that would review their performance. Interest groups suspected that these proposals merely paved the way for privatisation.¹⁵⁵

Dismayed by the medical profession’s suspicions and fierce opposition to the task force’s report, Douglas blasted the Nurses Association and Hospital Boards Association for “throwing dust in the eyes” of consumer groups.¹⁵⁶ Caygill, who had replaced Bassett as minister of health, departed from an adversarial approach and distanced himself from the report’s recommendations, preferring to refine the existing arrangement of central government funding for boards.¹⁵⁷ The election of a National government in November 1990 began an interlude for the most radical of the health care reforms, an experiment advanced by Minister of Health Simon Upton, a supporter of free enterprise, who revisited the Gibbs task force recommendation that health care buyers (the state agency and private insurers) be separated from health care providers (hospitals). The declared purpose of Upton’s legislation, effective in June 1993, was to achieve the best health care with the allotted funding; the tool for squaring the circle was the profit motive. Labour’s attempt to strengthen the lines of financial accountability between the state and hospitals had faltered because of weak sanctions for going over budget.¹⁵⁸

To enforce rigour, the Health and Disabilities Services Act (1993) reassigned hospitals to twenty-two Crown Health Enterprises (ches), whose operating structure paralleled that of soes. The Gibbs task force had shelved this model as privatisation by stealth.¹⁵⁹ There was truth in this assessment because, like soes, ches operated under the supervision of boards appointed by two ministerial shareholders, who were in this instance the minister of health and the minister of Crown Health Enterprises. Like soes, ches carried a debt (pro-rated portions of the $700 million debt run up by Area Health Boards) and were expected both to discharge the debt and eventually to turn a profit.¹⁶⁰ The ches certainly looked like forerunners of privatisation.¹⁶¹

Since the system, at least for a period, was to remain publicly funded, the parallel with soes broke down on the revenue side. The legislation established a state-funded Public Health Commission that contracted for services with the ches. Ostensibly, the ches could compete among themselves and hire managers with private-sector outlooks. The scheme could not guarantee great savings. The ches could not be allowed to go bankrupt. Additionally, attitudes proved more difficult to change than institutional design. At a conference under the auspices of the consultants Coopers & Lybrand, most che chief executives indicated they were “concerned about improving the health of their populations rather than just running a successful business.”¹⁶² So much for managers buying into a pseudo-market scheme. In any event, the underlying notion that patients were effectively consumers and could wisely select the superior che was deeply flawed. No country had developed objective sources of advice on good doctors and good hospitals comparable to reports on consumer durables. There was no medical edition of Consumers’ Report.

The 1996 election, held under the country’s mixed member proportional (mmp) voting system, produced a complicated outcome. As a condition for supporting National, the New Zealand First Party required the removal of the ches’ fantasy for-profit requirement. Upton’s shortlived reforms were the high-water mark of attempts to synthesise a market-like environment for health care. Another coalition product of mmp voting, the government formed by the Labour and Alliance Parties in 1999, terminated the ches, returning the system to something like the 1989–90 setup of elected regional boards, called District Health Boards, which acquired state funding based on the demographic formulas that National had pioneered in the early 1980s.¹⁶³ Each government during the final two decades of the century introduced distinct solutions for allocating funding and balancing central control. The switching confused the public and irritated the sector’s professionals.¹⁶⁴ The dilemmas of funding, management, and access to the latest treatments persisted.

A WILY TRANSFORMATION OF LOCAL GOVERNMENT

Fourth Labour’s restructuring affected every corner of the country. It certainly disrupted the countryside, where post offices were closed, the SOEs’ productivity gains included rural redundancies, changes to labour relations checked wages in weak labour markets, and producers’ subsidies were removed ahead of the reforms that could have assisted the rural sector. More directly, Douglas’s December 1987 package promised a comprehensive reform of local and regional government. Douglas and those promoting the reforms believed that efficiencies could be found in a sector that employed 50,000 and had an annual turnover of $5 billion.¹⁶⁵ The higgledy-piggledy development of local government began in 1876 when the colonial state assigned local government to sixty-three counties. Parliament added more and, following English practice, created a profusion of “statutory authorities for special purposes.” In New Zealand, single-purpose authorities proliferated to oversee drainage, control of noxious plants and rabbits, ports, regional development planning, the distribution of electricity, and more (table 13.4). In 1987, 1,500 legislative acts had a connection with local government. There were 249 multipurpose municipalities and more than 450 single-purpose bodies, down from the all-time peak of around 540 in 1950. Critics assessed them as parasitical bodies that spread political patronage. Ministers of agriculture had scads of remunerated local board appointments to distribute.¹⁶⁶ The Third Labour Government had tip-toed toward rationalisation in 1974, establishing the Local Government Commission, which could initiate amalgamation plans that facilitated voluntary consolidations.¹⁶⁷

In Fourth Labour, the Internal Affairs Department had responsibility for local government. In the Cabinet shuffle that followed the 1987 election, David Lange removed Michael Bassett from the Health Department, where he had been a knowledgeable and motivated minister, assigning him to the Internal Affairs Department.¹⁶⁸ Bassett, who had a long connection with the health brief, told Lange “through very tight lips” that it was a mistake. What he had seen of the sector’s leverage made him determined to tackle health reform.¹⁶⁹ However, he accepted responsibility for local government reform and accomplished it on a tight timetable.¹⁷⁰ Even his critics conceded that it was a masterpiece.¹⁷¹ Consolidations had to be finished in mid-1989, allowing time to prepare electoral rolls for municipal elections in October 1989. The target date for revamping was mid-1989.¹⁷²

The Internal Affairs Department churned out background papers for an officials’ committee.¹⁷³ In a rush to meet deadlines, its members focused public discussion by drafting and circulating questions.¹⁷⁴ Local government, committee members agreed, should endure only if the net benefits exceeded what could be achieved by some other means. Operational efficiency did not mean that bigger units were necessarily better since accountability could be lost. On this occasion, the Treasury’s refrain about accountability translated into a demand that local governments should at least issue annual financial statements. Committee members favoured letting private enterprise handle some municipal services and agreed that local government had an obligation to recognise and adhere to the Treaty of Waitangi (1840). The appeal to efficiency gains was thus supplemented by a distinctive legal obligation.

Table 13.4 | Examples of single-purpose local government bodies, 1987

Type

Number

Catchment boards

20

Community-owned monopolies on alcohol sales

28

District roads councils

22

Electric power boards

58

Harbour boards

15

Pest destruction boards

89

Regional development councils

15

River and drainage boards

22

Sources: Archives New Zealand, aafd, W4646 7581, box 52, 11/7/43, part 7, Cabinet Committees Policy 1987–88, Cabinet Policy Committee, “Minutes of Meeting,” 16 December 1987; and aafd, W5224 6015, box 76, 58/75, “Local and Regional Government Reform,” 15 December 1987, appendix 4.

The committee compiled questions. How appropriate was it to place planning with local government? How should Maori be consulted? Could local governments do more to charge for services? Should local governments be running trading operations, or should they follow the restructuring trail blazed by corporatisation? Could the commercial operations of harbour boards be separated out from recreational ones?¹⁷⁵ The Internal Affairs Department distributed 4,000 copies of a discussion document, accompanied by a survey with 109 questions. Almost 500 surveys were returned, of which 80 per cent were from local government bodies. Bassett’s municipal steamroller was chugging at full throttle when a flaw was revealed in the government’s practice of letting ministers tend to their schemes. In March 1988, Palmer realised that local government reforms might encroach on his slower-going resource-management review. Bassett had a way to circumvent obstructions. Unique among reform areas, the changes to local government could be achieved by an executive process. Legislation sponsored by the Internal Affairs Department transformed the Local Government Commission into a powerful agency that could do more than recommend amalgamations. Following a research and consultation procedure, it could prepare orders-in-council that imposed new boundaries.¹⁷⁶

Public service exertion was prodigious, as it had so often been for Fourth Labour. Committees from the commission met with over 500 affected authorities to apprise them of changes in boundaries and functions.¹⁷⁷ The Survey and Land Information Department reassigned staff to complete boundary descriptions with hundreds of diagrams.¹⁷⁸ To get legal authority prior to the municipal elections, Bassett secured Lange’s approval to convene a special meeting of the Executive Council so that members could sign the Local Government Commission’s bundle of orders-in-council presented to him on 8 June 1989. In a matter of ten minutes, at around 9:00 a.m. on the next day, 817 local bodies were compressed into 87.¹⁷⁹ To avoid injunctions – twenty had been anticipated – the order to print the required official announcements in the Gazette was delivered soon after the signing; all was orchestrated in strictest confidence.¹⁸⁰

There were other restructuring initiatives affecting local government, notably the requirement for them to convert civic-owned enterprises into local equivalents of SOEs. By powers conferred on the government in the Port Companies Act (1988), harbour boards were required to establish port companies for the operation of their commercial functions. The legislation followed the SOE model.¹⁸¹ The Local Government Amendment Act (No. 2) (1989) required municipal governments to reduce their holdings in enterprises to under 50 per cent, setting the conditions for privatised transit operators.¹⁸² Later, as happened with many newly privatised assets, investors also bought and sold some port and transit companies’ equity.¹⁸³ The precise movements of the equity were less important than the initial transition from government bodies to profit-oriented operations that pursued productivity gains. At the Port of Auckland between 1988 and 1993, staff numbers fell from 1,393 to 504, yet the average turnaround times for vessels fell from 38.4 to 15.7 hours.¹⁸⁴ During the rural crisis, Douglas had insisted that harbour corporatisation would bring efficiencies, helping the producer sector and balance of payments.

The Labour Council had earlier criticised Bassett over limited consultation and the reduction of public ownership.¹⁸⁵ Knowing that interest groups would stall, he and Stan Rodger had decided that they would achieve little if they consulted. There was no middle ground, and their intelligence on the opposition was solid. Besides, they could point, as ministers often did, to the difference between an elected government and an interest group.¹⁸⁶ Further, there was context for the amalgamations. Bassett argued that consultation over local government amalgamation had been going on for decades and had been part of the Labour Party’s policies since the 1930s. Although some in the National Party figured in a campaign to stop amalgamations, others quietly gave encouragement. Cabinet remained confident that protests would not last. In the end, many municipal politicians accepted realities.

CONCLUDING OBSERVATIONS: A NEW MANAGEMENT ZEITGEIST

Officials working on the state machinery referenced management theories that were attracting international interest. In New Zealand, they were modified for local circumstances. Rather than following a single theory, officials, principally at the Treasury, discussed ideas drawn from theories to address fiscal accountability problems. Agency theory, advancing the view that contracts and incentives should keep senior public servants dedicated to achieving their ministers’ goals, appeared in provisions of the State Sector Act (1988), which established chief executives for government departments. New public management theory proposed little difference between management in the private and state sectors. It implied, therefore, that the senior public service ought to include personnel from the private sector, who should have the freedom to manage.

Freedom to manage clashed with another attitude toward state-sector management, namely public choice theory, with its abiding suspicion that senior public servants might bamboozle politicians with schemes that inflated budgets.¹⁸⁷ This scepticism blended with the agency problem of delegating authority since vested interests could achieve institutional capture and obstruct transparency. Although these terms never appeared in discussion papers, the concepts did, as Fourth Labour decisively abandoned the existing corporatist practices that had become customary for the National Party under Muldoon.¹⁸⁸ The replacement was a mixture of theories, awareness of immediate conditions, and wariness based on past experience.

Getting politicians to consider longer-term strategic objectives was and remains difficult. Greater forethought and longer commitments underlay many of Fourth Labour’s policy revolutions, for they disrupted the history of doing politics as usual and attempted to make many elements of restructuring long-lasting. On a separate reform track, however, Labour and National had been studying how to make the voting system more representative of public preferences, moving in some fashion away from the traditional system of first past the post. Labour favoured a change because in 1978 and 1981 the party had had won the popular vote but had held fewer seats than National. Once in power in 1984, Labour established a Royal Commission on the Electoral System, which recommended the mixed member proportional system, in which each elector would get two votes: one for an electorate member of Parliament and one for a party. Subsequently, two referendums conducted by National, one in 1992 and the other in 1993, led to the adoption of the mmp system, the most profound change to a country’s electoral system since the introduction of women’s suffrage in 1893. Politics had been restructured.

Critics feared that mmp voting would subvert long-view policy making because vote bidding by small parties would lead to concessions by major parties in order to snag a coalition partner. Treasury officials expected that the mmp system would foster short-term thinking. Prevention required measures to restrain the likely spending temptations arising from mmp instability.¹⁸⁹ In late 1993, Treasury officials and National’s finance minister, Ruth Richardson, had started to work on fiscal responsibility legislation to increase transparency over government spending. The method chosen required the minister of finance to report regularly to the House of Representatives on the state’s current fiscal condition and on the government’s fiscal policy and fiscal management. More stringent measures were rejected. Although no nation had a balanced budget requirement, many American states did have deficit-containment laws, but governments became adept at reclassifying expenditures to yield an illusory balance.¹⁹⁰ Interested parties from across New Zealand’s political spectrum rejected mandatory fiscal targets, preferring transparency. The Fiscal Responsibility Act (1994) provided this transparency by requiring frequent reports on immediate and planned expenditures.¹⁹¹

The Council of Trade Unions and other critics on the left suspected that reports on fiscal conditions would cramp government decisions and undervalue expenditures for public benefit.¹⁹² The legislation did not reduce a government’s flexibility to make decisions but did require it to spell out the impact of decisions on the fiscal position. When read with Fourth Labour’s Public Finance Act (1989), this measure established an annual cycle for reporting and reviewing accrual-based financial statements, fiscal updates, and budget preparations. Reforms moved along a global two-way street. The machinery of government ideas flowed out of New Zealand and into the international circuit of reforms. What has been called “hard-edged contractualism,” New Zealand’s device for putting senior public servants under pressure to perform, was studied by many countries, adopted by several, and criticised as unworkable in countries where the indispensable human capital was lacking.¹⁹³ New Zealand governments could do things that many states could not. The education, integrity, and constitutional scruples of public servants were essentials.

Ministers who reformed the machinery faced protests, which were in part a spillover of hostility toward restructuring in general. The letters, petitions, and demonstrations were responses to a cultural transformation greater in scope than any other democracy had experienced. Defenders of the status quo appealed to glossed depictions of a fiercely held national identity supported by historic initiatives, drawing on the legacy of the neutral public service, the tradition of a caring health-conscious state, claims of low unemployment, the democratic good of local government, and the stability of working with, not against, established lobbies. There was truth in each appeal and idealism behind some. As well, however, appeals included selective recall, flawed supporting data, and avoidance of New Zealand’s immediate predicaments.

Believing that they were confronting a culture of sameness, amateurism, and complacency that held the country back in the emergent global economy, reforming ministers and supporting officials sought efficiencies through merit, professionalism, avoidance of special interests, and recourse to markets, or at least surrogates for markets. The absence of markets for many state-sector services challenged Treasury officials, who would otherwise have preferred market solutions. For them, “hard-edged contractualism” and other containment devices were second best. In the case of heath care, no scheme could satisfy the politics of personal anxieties about end-of-life realities. In New Zealand, the list of objectives achieved and the list of things nigh impossible to implement roughly paralleled happenings in other oecd countries. New Zealand, however, had its own starting points and pathways to restructuring.

Conclusion

restructuring: divergence and endurance

National economic restructuring is immediately associated with the Conservative government of Margaret Thatcher in the United Kingdom and traceable to 1979. As an international development, it appeared in other jurisdictions throughout the 1980s and then peaked in the early 1990s following the collapse of the Warsaw Pact economies. Undoubtedly, restructuring marked a phase in the history of capitalism. As one close observer wrote in 1992, “However inelegantly and clumsy the process, each country is advancing – at its own pace – toward a market economy. This has never been done before.”¹ The Fourth Labour Government proceeded at a blistering pace. In former communist countries, privatisation involved numerous small enterprises – retail shops and service establishments – as well as state monopolies. Corporatisation and privatisation in New Zealand focused on the latter category of operations. The transformation of state business was attention-grabbing, but reformation extended to fiscal and monetary alterations. The bundle embedded new linkages and priorities that were difficult to unwind.² As a hyper-activist government rather than one of the more usual performative or election-spending administrations, Fourth Labour reconstructed the country, encouraging and enabling enterprise, opening up to international banking, withdrawing the direct and indirect subsidies that distorted the economy, setting wheels in motion for enterprise labour relations, and advancing productivity gains in utilities and other sectors that supported primary producers. During restructuring, the Labour left and a number of academics provided spirited opposition, often championing nationalist and protectionist visions and invariably recommending reactive interventions in a managed economy, a possibility fast evaporating.

Reformers with a long-term view prevailed over their critics’ short-term orientation. They did so by installing hard-to-reverse monetary, fiscal, and wage-fixing measures. National Party prime minister Jim Bolger, whose administrations followed Fourth Labour, admitted that “we, the New Zealand people, accept that our nation had to change. The process was painful, but the benefits are now apparent and must be retained. However, we believe the time has come to recognize the big moves are behind us.”³ Vigilant hard-liners, of course, disagreed then and do now about the completeness of the victory, claiming an unfinished revolution and pointing to later instances of backsliding toward intervention. In a concluding overview, it should be added that one set of follow-up actions by National Party Governments (1990–99, 2008–17) diverged significantly from Fourth Labour’s initiatives in an important detail. On the matter of how to sell state enterprises, Labour’s dedication to tendering – admittedly modified on occasions with politically driven pacifiers known as Kiwi shares – was pitched at gaining the value premium that accompanied the buyer’s control of the business. This objective of reaping the greatest return on sales favoured either international ownership or international financing to swing the acquisition. Floating the currency also enlarged internationalism; the Kiwi traded freely on international exchanges. Fourth Labour’s outlook was international. There were British, American, and Australian personnel and capital involved, and there were approaches to Asian banks and investors. By contrast, National was national, prioritising share offerings to New Zealanders and possibly losing revenue by forfeiting the control premium.⁴

Nothing is forever. Yet New Zealand’s restructuring suggests a strong turning point in history, prevailing too in other states, at least where systemic crony corruption has been overpowered or, as in New Zealand, has been absent for a very long time. New Zealand’s fiscal and monetary reforms of the 1980s still operate, and blocks of the equity created by privatisation trade on a nationwide New Zealand Stock Exchange, founded in 1983. A Pandora’s box of ill-conceived subsidies and concessions left by previous governments is but a memory. Craft union fragmentation, wage fixing by relativities, and routine arbitration awards have not returned to the organised labour scene. Local government restructuring and greater attention to public finances have continued. Heath care restructuring and refinements to income maintenance remain tucked away in the very difficult box that governments open at their peril in New Zealand as well as in other prosperous social welfare states.

The records of state-owned enterprises (SOEs) and private enterprises – by now, long records – have not been flawless, but both types of enterprise have been robust, and the asset sales have mostly been one-way doors. The sale of the Electricity Corporation of New Zealand and its devolution into competitive power companies and the tendered sale of Telecom preclude renationalisation. If most asset sales were a one-way door, affording only an exit from direct government operation, the New Zealand Railways Corporation was an exception, a veritable revolving door. Under a series of corporate names, the revenue strapped railway system changed hands among private operators, returning at great cost to full state ownership in 2008. However, for a ten-year period of unprofitable privatisation from 1993 to 2003, the state “did not have to fund the rail freight system,” a rare episode in a century of state rail.⁵ Due to initial weaknesses and an ill-fated product, another progeny of restructuring, Coalcorp – formed in 1987 and restructured as Solid Energy in 1997 – could not attract a private buyer and as an SOE required state rescues. The end came with liquidation in 2018. In contrast to these assets troubled from the start, a crisis at Air New Zealand was partly self-inflicted. Betrayed by Australia’s cancellation of an open-skies arrangement, Air New Zealand determined to compete with Qantas in Australia by acquiring the cash-strapped Australian carrier Ansett, but the venture went sour, forcing a state bailout in 2001 and thus an accompanying equity stake held by the state. In 2013, the sale of a portion of this state equity figured in a sharply contested new round of asset sales conducted by the National Party Government of Prime Minister John Key.⁶

The early steps to corporatise state-run forest plantations led to an unplanned but a momentous and ingenious initiative that was really a compromise advancing state compliance with the Treaty of Waitangi (1840). As reported in chapter 9, a coalition of Maori organisations won court actions to protect their interests in the lands used by the state forestry industry, thus blocking any potential sale of these lands. Formed in 1989, the solution was the Crown Forestry Rental Trust, which collects lease payments, holds funds for future settlements, and employs the investment returns to assist eligible land claimants in preparing and presenting their cases.⁷ Although corporatisation precipitated this arrangement and launched enterprises, full or partial privatisation did something else. It put equity on the market, drawing New Zealand more fully into local and international finance capitalism. There has been a recent rare reversal. The offshore acquisition of all state-operated financial institutions, leading to a situation where almost all of the banking market share was held by Australian banks, touched a raw nerve. In 2001, the SOE-structured Post Office once again became the owner-operator of a state-owned savings bank. As the leader of his own party, former Labour Party rebel Jim Anderton convinced a Labour-led coalition government to establish Kiwibank. To expand while retaining New Zealand ownership, Kiwibank integrated with local capital markets, or at least state-based funds. Two funds invested in 2016. One stakeholder, the New Zealand Superannuation Fund, had been established in 2001 to diversify the sources of retirement income maintenance and to relieve pressure on this substantial benefit, which was funded with tax revenue. The second fund, the Accident Compensation Commission, held premiums collected for a state insurance scheme. Both funds had active investment departments that spread their holdings. In 2022, the Sixth Labour Government, led by Prime Minister Jacinda Ardern, purchased Kiwibank’s 9 per cent of the national banking market share from the two funds and the Post Office at a cost of $2.1 billion.⁸ Notwithstanding this exception, the sales of equity between 1989 and 2014, whether to local shareholders or to international consortia, enlarged the country’s engagement with finance capitalism.

LONG-TERM STABILITY DIVIDENDS

What was achieved in terms of the reformers’ goals of prosperity and stability? A transnational rebalancing of production and commerce in favour of East and South Asia has been credited with global economic growth and with a reduction of extreme poverty in regions of the world.⁹ By turning out consumer goods, Asian industry helped for a while to contain Western inflation in the new millennium. A few countries rich in mineral resources were lifted by resource exports into protracted booms. Since there was little chance of easily recovering the healthy balance of payments of 1950–75, New Zealand governments experimented. Some politicians, let’s label them populists, attended to the public’s expectations and fed on the good times, with largesse funded by debt. Others, let’s refer to them as prudentialists, looked to the future, trying measures to facilitate the enterprise-led growth needed to maintain social welfare benefits.

Prudentialists did not promise short-term fixes but the opposite. Their position was that medium-term and long-term objectives should not be sacrificed for expediency. Their slow-acting prescriptions included opening up to imports and outside finance as they worked toward a more outwardly oriented and entrepreneurial economy. They endeavoured to increase state revenues and to improve stewardship. Looking ahead, they intended to build an international reputation for policy stability that would appeal to capital markets and investors; they would sweep away the subsidy clutter that interfered with the true market information that businessfolk needed when deploying capital and labour to compete abroad. There was also a desire to instil the ideas of merit and responsibility. An evaluation of a government’s stewardship slides into questions about a government’s spending goals. In this respect, both Labour and National improved the transparency of public service outlays and social welfare expenditures.

The composition and management of social welfare expenditures were fiercely contested during restructuring, as evidenced by the 1988 policy dispute between David Lange and Roger Douglas and by the proceedings of subsequent task forces. The resulting reports divulged that administrative adjustments could have considerable fiscal and distributional outcomes. Restructuring did not dismantle social welfare, although it initiated reviews of client need and eligibility. Domestic purposes benefits and unemployment benefits continued to lead all other social benefit expenditures for working-age individuals. Moreover, governments of every political stripe since Fourth Labour imposed sanctions on thousands of individuals annually for their failure to comply with the obligations required for domestic purposes and unemployment benefits. In keeping with reformers’ enthusiasm for fiscal transparency, pertinent data was published.¹⁰ Stewardship was consistent with eliminating subsidies, cross-subsidies, interest rate concessions, and the privileged allocations of foreign currency. The tendered sales of soes was another instance of fiscal care.

On the revenue side of stewardship, total tax revenue expressed as a percentage of gdp rose under Fourth Labour and was above the oecd average. As a percentage of gdp, the tax on personal income remained far above the oecd average; the Goods and Services Tax (gst) as a percentage of gdp was also above the oecd average. Taxes on corporate profits as a percentage of gdp increased slightly and were above the oecd average.¹¹ The fringe benefit tax was both a commitment to fairness and a way to end the concealed payments to privileged groups of employees by shifting these payments into taxable income. Despite all of this effort toward savings and generating revenue, Fourth Labour did not reap the political reward of bringing down the central state debt. Indeed, social welfare expenditures as a percentage of gdp increased to about the oecd national average.¹² In the short term, redundancy payments and unemployment benefits, associated with job losses from corporatisation and from the general economic downturn, increased state expenditures.

In 1994, a more robust economy delivered one of the lower unemployment rates in the oecd. The data on unemployment – now reliable data, not the fictions from a fundamentally flawed way of keeping tabs – registered a drop from 10.3 per cent in 1993 to 6.3 per cent in 1995.¹³ The interest due on the state debt also affected state expenditures. Long-term interest rates in New Zealand led the oecd at 17.7 per cent in 1986 and 15.7 per cent in 1987 but had fallen to less than half that by 1993.¹⁴ In 1986, debt as a percentage of gdp reached a thirty-year high at 68 per cent, before dropping year after year to reach 16 per cent in 2007.¹⁵ Tidy confident explanations for fortunate changes in aggregate indicators like those just mentioned are ill-advised. Something as complicated as a country’s associations with the world economy makes the attribution of good developments to fresh policies plausible, not certain. Exogenous conditions for fiscal surpluses had improved. The terms of trade bottomed out in the 70 to 75 per cent range for most of the 1980s but rose into the 80 to 85 per cent range for the entire 1990s. Caution is advised. Yet the role of policy cannot be dismissed.

Fourth Labour’s restructuring held fast. Beginning with Fourth Labour and lasting into the new millennium, several ministers of finance took stewardship seriously. Fifth Labour’s Michael Cullen as finance minister (1999–2008) was a self-declared fiscal conservative.¹⁶ The prudentialists’ quest for stability succeeded in other directions. Days lost through strikes plummeted from an all-time high in 1986 to one-quarter of that the next year and continued on a downward path for years. The inflation rate, which had been among the highest in the oecd and from 1977 to 1987 well above rates in Australia and Canada, was halved from 1987 (15.7%) to 1988 (6.3%). Unlike the artificial drop occasioned by National prime minster Robert Muldoon’s wage and price freeze from 1982 to 1984, the rate did not rebound but continued to decline. It had taken longer to lower inflation in New Zealand than elsewhere, partly because the Muldoon freeze delayed effective measures, and when the country’s deflation campaign finally got rolling, it encountered a worldwide economic recovery. As a sign of confidence in New Zealand, the market-based yield on ten-year government bonds reached rates close to American bonds in 1993 (6.9%), well below the average for world rates.

As well as stability, reformers aspired to improve productivity. The main measure of productivity and thus of productivity gains over time is the gdp per hour worked, a metric suggesting the efficiently of the labour input when combined with other factors. Labour input is commonly defined as total hours worked of all persons engaged in production. Sometimes it is broken down usefully into sectors. Labour productivity only partially captures the productivity of the personal capacities of workers or the intensity of their effort. Moreover, an index-number approach to comparing productivity over the years demands a complex calculation that draws upon job counts and labour income by industry, a series of data on capital, the types of capital, the cost of capital, the capital to labour ratio, and much more.¹⁷ Challenging but now commonplace calculations allow international comparisons and national assessments of efficient use of labour and capital.

I used Statistics New Zealand data that provided an annual percentage change in an index number representing productivity. From these data, I prepared waterfall charts that showed the cumulative effect over time of positive and negative index values. For agriculture, there appears to have been a productivity rise of about 10 per cent from 1979 to 1984 and then a rise of around 40 per cent from 1985 to 1990. The entire primary sector – including agriculture, forestry, horticulture, and seafood – experienced a rise of roughly 7 per cent in the period from 1979 to 1984. From 1985 to 1990, it rose about 25 per cent. For transportation, the rise was about 20 per cent from 1979 to 1984 and about 40 per cent from 1985 to 1990. These sectors, which experienced major gains during the reform period, were also those that underwent the greatest retreat from control and intervention as well as those that trimmed wage costs by eliminating redundancies. The gains in transportation originated with the National government of Robert Muldoon, which freed trucking from controls that limited its competition with the state railway.

Productivity in some sectors improved modestly or not at all, possibly because these areas no longer benefited from the Muldoon Think Big stimulus and from loose monetary policy. For construction, the productivity index rose by about 15 per cent from 1979 to 1984 but only by about 5 per cent from 1985 to 1990. The retail sector was in poor shape, registering a fall of about 5 per cent from 1979 to 1984 and a drop of nearly 20 per cent from 1985 to 1990. Finance saw a rise in the productivity index of about 20 per cent from 1979 to 1984. It fell by about 7 per cent from 1985 to 1990. Little wonder that bankers complained about the tight money of the disinflation campaign. Overall, the sectoral figures suggest that restructuring was advancing productivity among the export items from rural New Zealand, which had natural competitive advantages. Rather than picking winners and subsidising their production, Fourth Labour established distortion-reducing conditions whereby enterprises could respond to opportunities. The economy functioned in an international system, and a sustained boom in major export markets for produce helped to lift the gdp out of the doldrums from 1993 to 1994. It continued to rise between 2008 and 2011.¹⁸

An activist government attended to the wealth of the nation; an incomparable restructuring laid the foundation for its continuation.

Notes

Introduction

1 Political scientist Mark Blyth analyses twentieth-century economic policy changes, but he marginalises crises, portraying them as matters of value judgments. Adam Smith’s Islands places crises in the foreground. Blyth’s accounts of the United States and Sweden occasionally concede the reality of a crisis. Blyth, Great Transformations.

2 Ibid., 5.

3 Findlay and O’Rourke, Power and Plenty, 512–15, quote at 513.

4 The export to import price ratio was trending in the low 70s from 1975 to 1985. See OECD, “Terms of Trade.”

5 See Clio Infra, “Labourers Real Wage.”

6 McKinnon, Treasury, 250–1.

7 Ibid., 271–2.

8 Alexander Turnbull Library (hereafter Turnbull Library), Sir Roderick Deane Papers (hereafter Deane Papers), 2004-159-09/08, Fiscal Policy, “The 1982 Budget: Appendix”; and Graham Scott to Robert Muldoon, “Financing the Government’s Deficit: 1982/83 and 1983/84,” 21 June 1982.

9 On the state of the economy leading up to troubles, see Hall, Emerging from an Entrenched Colonial Economy. See also Easton and Thompson, Introduction to the New Zealand Economy, 322–3; and Easton, Profitability and Performance.

10 For a comparison of inflation rates, see World Bank, “Inflation, Consumer Prices (Annual %) – New Zealand.”

11 Archives New Zealand, AALR, W5427 873, box 988, 61/10/5/2, part 1, Alternative Exchange Rate Regimes (Background Papers Exchange Rate Policy) 1984–85, Sue Begg to Roger Kerr, 28 March 1984.

12 Wikipedia, “Homosexual Law”; Cullen, Labour Saving, 75; New Zealand Legal Information Institute, Homosexual Reform Act 1986.

13 New Zealand Legal Information Institute, Treaty of Waitangi Amendment Act 1985; Cullen, Labour Saving, 78–9.

14 New Zealand Legal Information Institute, Employment Equity Bill 1989; New Zealand Legal Information Institute, New Zealand Bill of Rights Act 1990. On other measures, see Cullen, Labour Saving, 118.

15 See the speculative assaults of Brown, Undoing the Demos, quotes at 18.

16 Slobodian, Globalists, 24.

17 Krippner, Capitalizing on Crisis, 14.

18 Burgin, Great Persuasion, 223.

19 Prasad, Politics of Free Markets; Blyth, Great Transformations; Stedman Jones, Masters of the Universe.

20 Both Jane Kelsey and Brian Easton present reformers as single-minded fanatics or, in Easton’s case, as totalitarians. The reformers definitely marshalled parliamentary politics to advantage in order to open the economy and society to the complexity of initiatives and exchanges. Kelsey, New Zealand Experiment, 352–71; Easton, Commercialisation of New Zealand, 228, 247.

21 Franklin, Cul de Sac, 177.

22 Historians of the Labour Party downplay the extent of the party’s parlous state and reliance on business contributions as it modernised. Franks and McAloon, Labour.

23 Economist, 5 March 1988, 74.

24 Economist, 11 July 1987, 77.

25 For studies on Margaret Thatcher’s government and its place in history, see Jackson and Saunders, eds, Making Thatcher’s Britain.

26 On labour disputes, see Clio Infra, “Number of Days Lost.” On inflation, see World Bank, “Inflation, Consumer Prices (Annual %) – New Zealand.”

27 McKinnon, Treasury, 16–17.

28 Blyth notes that agents must argue and debate over ideas. The possibilities that crises are not “constructions” and that the friction among parties produces complex outcomes are surely limitations. Blyth, Great Transformations, 9–11.

29 McKinnon, Treasury, 286–303.

30 New Zealand, Economic Management, 3.

31 In most OECD countries, the Great Inflation extended from 1965 to 1982. New Zealand’s inflation persisted longer. Bryan, “Great Inflation.” See also Ha, Kose, and Ohnsorge, One-Stop Source, 8–10, 29–31. For an editorial-style denial of the inflation crisis, unsupported by data, see Tooze, “1970s Weren’t What You Think.”

32 Buchanan, “Limits of Taxation,” 50–3.

33 For a summary of Buchanan, see Biebricher, Political Theory of Neoliberalism, 92–8. For Buchanan’s statements, see Buchanan, Liberty, Market and State, 8–12.

34 Bassett, State in New Zealand, 12–22.

35 Economist, 11 July 1987, 123–4.

36 “Creating the Invisible Hand,” Economist, 11 May 1991, 87–8.

37 Saunier, Transnational History, 117.

38 Minister of Labour Stan Rodger, responsible for the State Services Commission, shipped his files by rail to the Hocken Library at the University of Otago. In 2017, I was the first researcher to access this material.

39 Jane Kelsey’s coverage is commendable, and she recognises the importance of consultants. Kelsey, New Zealand Experiment, 78–80.

40 For the international scene, see Abdelal, Capital Rules, 35–42.

41 Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, Clippings on Party Conference, 5 September 1988.

42 The Labour Party was delisted from the Socialist International in 2014 after several years of non-payment of dues. Canada’s New Democratic Party was delisted in 2018. See Wikipedia, “Socialist International.”

43 Krippner, Capitalizing on Crisis, 138–50, quote at 142.

44 Ibid., 139, 149.

45 New Zealand, Economic Management, 6.

46 Burgin remarks that although he concentrated on the Mont Pelerin Society and on Milton Friedman, the tale is complicated. There were divisions among neoliberals, although they narrowed over time. Burgin, Great Persuasion, 225.

47 Hackett-Fischer, Fairness and Freedom, 19–28, 460–78.

48 Pomeranz, “Recalling What We Do.”

49 Boston and Holland, eds, Fourth Labour Government; Easton, ed., Making of Rogernomics.

50 Scott, Bushnell, and Sallee, “Reform of the Core.”

51 Bassett, Working with David, 91.

52 Franklin, Cul de Sac. In 1985, Harvey Franklin made the insightful forecast that “from now on change will be the rule and adaptation the constant requirement” (177). This slim volume is packed with wisdom. For an astute account of the Fourth Labour Government’s intention to end controls and subsidies, one that avoids explaining policy choices, see Easton, ed., Making of Rogernomics. Despite lacking citations, an account that is smoothly written and conveys information is Jesson, Behind the Glass Mirror, notable for its chapter on the demise of rural New Zealand and the accompanying discussion of the meat industry. See also Kelsey, New Zealand Experiment; and for a sequel critique, Kelsey, Fire Economy, 251–65, which notes that restructuring proved robust. As in the earlier work, Kelsey’s account of the rhetorical remedy – to mobilise, organise, and fight – does not reckon with wider public sentiment.

53 Kelsey, New Zealand Experiment, 281.

54 Ibid., 129.

55 Ibid., 109–36.

56 Hackett-Fischer, Fairness and Freedom, 489.

57 Easton, Commercialisation of New Zealand, 85.

58 Ibid., 197–8.

59 On networks and social capital, see Hidalgo, Why Information Grows, 167.

60 Easton, Commercialisation of New Zealand, 131.

61 I have heard that Treasury officials sometimes went too far with a proposal so that they could come back to what they really wanted. Their disappointment and flashes of anger argue otherwise. A few pressed hard for greater transformations than what the government adopted.

62 See the bibliography for the accounts by these seven government figures.

63 McKinnon, “Review of Working with David,” 88.

64 Bassett and Bassett, Roderick Deane.

Chapter One

1 Richard Prebble, communication with author, 18 May 2017.

2 Turnbull Library, New Zealand Labour Party, Head Office Records, 2007-115-7/02, Wellington MPs Meetings, “Memo: Regional Activities,” 18 June 1986, includes a report on technology and the Post Office.

3 Founded in 1974, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a network that enables financial institutions worldwide to send and receive information about financial transactions.

4 Turnbull Library, Rt Hon. Sir Roger Douglas Papers (hereafter Douglas Papers), 86-003-142, Labour Party, Electorate Secretary, “General Secretary’s Report,” 15 July 1985; Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/09, Executive Minutes and Correspondence, Alan Botica, “Report on the List Management Services,” [1987], 5. There were 13,823 financial supporters and 48,531 who provided non-financial support.

5 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-21/02, Campaign Systems Group, “Newsletter,” October 1987; Andrew Breyer to Campaign Systems Mailing Group, 30 October 1987; and Tony Timms to Campaign Systems Limited, 7 March 1989.

6 Turnbull Library, Rt Hon. Dr Michael Bassett Papers (hereafter Bassett Papers), Papers Relating to Fourth Labour Government, Geoff Swier to Bernard Galvin and Graham Scott, [late 1985].

7 Archives New Zealand, ABFR, W3597, box 7, New Technology, “Report Back of the Inter-union Working Party on New Technology” [1979]; and “Submission to the Arbitration Court by the New Zealand Federation of Labour Regarding Consultation on Technological Change” [1979].

8 Macmillan Brown Library, Rt Hon. Sir Geoffrey Palmer Papers (hereafter Palmer Papers), acc. 142, ref. 87364, Economy and Discussion of Labour Party, David Caygill, Convenor of Labour Economic Committee, “Press Statement,” 24 April 1980.

9 Thomas Morland Hocken Library (hereafter Hocken Library), Rt Hon. Stan Rodger Papers (hereafter Rodger Papers), ms 1236, 28/85, 3/1, NZ LP, Campaign Committee 1983–84, “Christchurch Central By-election Report,” 3 August 1979.

10 Moore, Hard Labour, 20.

11 Hawke, Reflections on the New Zealand Economy, 9.

12 Turnbull Library, Bassett Papers, 94-067-22, Labour Party Correspondence and Policy Council Material, Bill Rowling to Jim Anderton, 15 September 1978.

13 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Party Government, “Notes on Caygill to Canterbury MBA Students,” 1 April 1985. The statement is consistent with his pre-government thinking.

14 Macmillan Brown Library, Rt Hon. David Caygill Papers (hereafter Caygill Papers), acc. 77, ref. 108211, General, Agriculture, J.G. Pryde and Glen Greer, “Government Financial Involvement with New Zealand Agriculture,” March 1983, Caygill’s marginal notes.

15 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87364, Economy and Discussion of Labour Party, David Butcher, “Labour and Private Industry,” 23 July 1979; and David Caygill, “Is New Zealand Over Regulated?” 6 August 1980; Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Media Coverage on Devaluation, “Summary of Main Issues as Reported in the Media,” 28 September 1984, item 3, taxation.

16 Moore, Added Value Economy, 3, 26, 28.

17 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clipping, New Zealand Herald, 7 March 1983; Archives New Zealand, AAWW, W4640 7112, box 31, New Zealand Labour Party – Caucus 1983, “Minutes of Caucus Meeting,” 17 February 1983.

18 Moore, Hard Labour, 20–2; Moore, “On Balance”; Hocken Library, Rodger Papers, ms 1236, 3/1, NZ LP, Campaign Committee 1983–84, clipping, New Zealand Herald, 13 December 1980.

19 On intervention, see Archives New Zealand, AAFD, W4646 7581, box 45, 9/19, part 4, Cabinet Oral Items 1983–85, Mike Moore, “Memo to Caucus: Wage and Price Freeze,” 15 February 1983. On the dinosaurs, see Moore, Beyond Today, 30.

20 Moore had a running controversy with the Labour Party over the funding and distribution of at least one of his self-published books. Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-33/05, Correspondence, Mike Moore File, Moore to John Wybrow, 2 July 1980; Wybrow to Moore, 23 July 1980; and Moore to Wybrow, 29 July 1980.

21 McKinnon, Treasury, 322.

22 Hocken Library, Rodger Papers, ms 1236, 28/85, 3/3, Caucus Economic Committee Papers, Roger Douglas, “Economic Policy Package,” 24 November 1983.

23 Turnbull Library, New Zealand Council of Trade Unions Papers, 98-327-32/4, Further Papers, Labour Party, pol/1/1, vol. 1, Roger Douglas, “The Politics of Successful Structural Reform,” 28 November 1989, 14.

24 Ibid., 21.

25 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87409, Economy – General, John Kenneth Galbraith, “The Economic Policy of the Social Left,” Annual Conference of the Labour Party, Auckland, 2 September 1983.

26 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clippings, Dominion, 30 June 1983; and New Zealand Herald, 16 May 1983.

27 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clippings, Dominion, 30 June 1983; and New Zealand Herald, 16 May 1983.

28 Hocken Library, Rodger Papers, ms 1236, 28/85, 3/3, Caucus Economic Committee Papers, “Minutes of Caucus Economic Affairs Committee,” 14 May 1982; Roger Douglas, “Proposals for Taxation Reform,” [November 1982]; Trevor de Cleene, “In Reply to Paper by Roger Douglas,” 25 November 1982; Roger Douglas, “Economic Policy Package,” 24 November 1983; National Research Office, “Labour Party Proposals for Its Economic Strategy, Election, 1984,” 31 January 1984; Stan Rodger, “Draft Economic Policy,” 14 February 1984; and David Butcher, “Economic Policy,” 16 February 1984. See also Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108211, General, Agriculture, Caygill to Sir James Stewart, 13 April 1983. Caygill could not attend a public lecture but requested a copy of the paper. He read and highlighted academic papers and newspaper articles.

29 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier, Bevan Burgess, and Murdo Beattie,” 23 October 1986. The meeting was recorded, and Douglas commented about Caygill. David Grant alleges that unionists and leftists were frozen out of the government. To be frozen out implies high-handed unfairness. In fact, Fourth Labour’s Cabinet members were elected by the members of Parliament, and there were unionists in important posts in Cabinet, namely Moore and Rodger. Grant, Man for All Seasons, 239.

30 Author’s conversation with David Caygill, 6 August 2018.

31 Ibid. On ministers’ powers, see Palmer, Reform, 238, 280–1; Lange, My Life, 122; and McLeay, Cabinet and Political Power, 39.

32 Bassett, Working with David, 521.

33 McLeay, Cabinet and Political Power, 205–9.

34 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87364, Economy and Discussion of Labour Party, Michael Cullen to Palmer, 13 June 1980.

35 Lange, My Life, 121–2, 145–6, quote at 122. Also Richard Prebble, communication with author, 18 May 2017.

36 Turnbull Library, Douglas Papers, 84-137-122, Parliamentary Papers, Correspondence, Robert Logan to Douglas, 10 July 1983.

37 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87447, Labour Party – Publicity Committee, “Minutes of the Meeting of the Publicity Committee,” 25 January 1984, 22 February 1984.

38 Lange, My Life, 241–2, quote at 241.

39 New Zealand History, “Dancing Cossacks.”

40 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87756, State Sector Bill 1988, “Memorandum for Cabinet: State Sector Bill: Publicity,” 4 March 1988.

41 Orenstein, Privatizing Pensions, 36–54.

42 Roaf et al., 25 Years of Transition, 1–60.

43 Prasad, Politics of Free Markets, 280.

44 McLeay, Cabinet and Political Power, 132–47; Palmer, Reform, 285.

45 Mulgan, Politics in New Zealand, 139.

46 David Caygill, interview with author, 6 August 2018.

47 McLeay, Cabinet and Political Power, 102.

48 Ibid., 142–4.

49 Ibid., 88–9, quote at 88.

50 The extensive correspondence files of Roger Douglas and Stan Rodger contain the expected letters from constituents seeking assistance but also offering suggestions, encouragement, and criticism. Douglas’s views attracted a lot of responses in 1983–84.

51 Franks and McAloon, Labour, 174.

52 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-32/08, Joint Council of Labour Papers, Ken Douglas to Bill Jeffries, Secretary of Caucus Committee, 27 February 1985.

53 Moore, Hard Labour, 181.

54 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87364, Economy and Discussion of Labour Party, clipping, New Zealand News uk, 10 February 1982.

55 Lange, My Life, 131. On party tensions, see Franks and McAloon, Labour, 166–7, 172–3.

56 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/84, part 1, IMF New Zealand, Article 4 – Annual Consultations 1985, “Notes of Meeting between OECD Mission and Employers’ Federation,” 20 March 1984.

57 Hocken Library, Rodger Papers, ms 1236, 28/85, 3/2, NZ LP, Strategy Committee 1981–82, J.P. [Jack] Ridley to Jim Anderton, 7 January 1980.

58 Hocken Library, Rodger Papers, ms 1236, 3/1, NZ LP, Campaign Committee, 1983–84, clipping, New Zealand Herald, 2 January 1980.

59 Hocken Library, Rodger Papers, ms 1236, 28/85, 3/2, NZ LP, Campaign Committee 1983–84, “Objectives and Strategy for the 1980s’ Review.”

60 Turnbull Library, Douglas Papers, 86-003-142, Labour Party, Electorate Secretary, “Notes on 1985 Conference Remit Papers,” remit 31; Wellington Regional Council, Proposals for Constitutional Reform.

61 Wellington Regional Council, Proposals for Constitutional Reform, 172.

62 James, Quiet Revolution, 17.

63 Palmer, Reform, 235–6.

64 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-36/14, Policy Formation Committee, “What Is Policy?” February 1986.

65 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/09, Executive Minutes and Correspondence, “Minutes,” 29 January 1988; New Zealand Labour Party, Head Office Records, 97-114-36/14, Policy Formation Committee, Joanna Tapper, Chairperson, “Policy Formation Committee to All Regional Conference Organising Committees,” [February 1986].

66 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier, Bevan Burgess, and Murdo Beattie,” 23 October 1986.

67 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-36/12, General Policy, Simon Walker, “Note for Strategic Committee,” 5 Match 1981.

68 Archives New Zealand, AAWW, W4640 7112, box 31, New Zealand Labour Party – Caucus 1983, Peter Neilson, Convenor of Caucus Economic Committee, to Lange, 7 March 1983.

69 Archives New Zealand, AAWW, W4640 7112, box 31, New Zealand Labour Party – Caucus 1983, Michael Moore, “Report on the Aims of the Road Show Programme,” n.d.

70 Lange, My Life, 134–5; Palmer, Reform, 282–4; Bassett, Working with David, 63–4.

71 Lange, My Life, 148.

72 Ibid., 135.

73 Bassett, Working with David, 67. See also Lange, My Life, 148.

74 Lange, My Life, 114.

75 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, Dominion, 17 February 1982.

76 Richard Prebble, communication with author, 18 May 2017. Prebble maintains that it was possibly Moore’s greatest contribution to reform. Moore, Hard Labour, 86–7.

77 Bassett, Working with David, 67. See also Hocken Library, Rodger Papers, ms 1236, 28/85, 3/2, NZ LP, Strategy Committee 1981–82, Stan Rodger, “Closer Economic Relations with Australia,” 31 July 1982; and Federation of Labour, circular, 19 July 1982.

78 I am indebted to David Caygill for this point. David Caygill, interview with author, 6 August 2018.

79 Turnbull Library, Douglas Papers, 90-326-17, Further Papers, David Lange, “Statement on CER,” 22 June 1988.

80 Archives New Zealand, AAYK, W3603, box 3, record H, Income Maintenance 1984, Michael Connelly to Bill Rowling, 2 July 1982. The file seems mislabelled since it contains a wide selection of Labour Party policy correspondence.

81 Archives New Zealand, AAYK, W3603, box 3, record H, Income Maintenance 1984, clippings, New Zealand Times, 12 September 1982; and Auckland Star, 18 October 1982. On Russell Marshall, see Franks and McAloon, Labour, 187.

82 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clipping, Auckland Metro, [1983].

83 Hocken Library, Rodger Papers, ms 1236, 28/85, 3/1, NZ LP, Campaign Committee 1983–84, “Minutes of New Zealand Labour Party Policy Council,” 4 February 1980.

84 Douglas, Alternative Budget, 37.

85 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, Evening Post, 11 January 1982.

86 Douglas, There’s Got to Be, 12–65. The idea that government trading departments should be corporatised or privatised to achieve greater efficiency was gaining credibility. Johnston and von Tunzelmann, State in Business, 61–9; Archives New Zealand, ABCX, W4023 24113, box 27, clippings, Dominion, 5 October 1982; New Zealand Herald, 2 October 1982; and National Business Review, 11 October 1982. Reviews of Douglas’s book show that the ideas were in circulation.

87 Hocken Library, Rodger Papers, ms 1236, 28/85, 3/1, NZ LP, Campaign Committee 1983–84, “Minutes: New Zealand Labour Party Policy Council,” 27 June 1980.

88 Hocken Library, Rodger Papers, ms 1236, 28/85, 3/1, NZ LP, Campaign Committee 1983–84, R.O. [Roger] Douglas, circular letter, 27 June 1980.

89 Wikipedia, “Bob Tizard”; Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87364, Economy and Discussion of Labour Party, “Minutes of Economics Committee,” 9 July 1980. The minutes report Tizard’s spending plans.

90 Archives New Zealand, AALR, W5427 873, box 1740, 70/5/76, part 1, IMF Annual Consultations 1976, Rolf Evensen, Norwegian Diplomat and Senior Economic Adviser to the IMF, “Concluding Remarks,” 5 March 1976.

91 Bassett, Third Labour Government, 243–8; Bassett, State in New Zealand, 324–38; Franks and McAloon, Labour, 180–2.

92 Macmillan Brown, Palmer Papers, acc. 142, ref. 87364, Economy and Discussion of Labour Party, Michael Cullen to Geoffrey Palmer, 13 June 1980; and “Minutes of Economics Committee,” 9 July 1980.

93 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Caucus Correspondence, unidentified clipping, Colin James’s interview with Bob Tizard, 21 August 1981.

94 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Correspondence, Roger Douglas File, clipping, Warwick Roger, “Roger Douglas,” Auckland Metro, [1983]. This article provides a good account of the Douglas-Tizard confrontations.

95 I am indebted to Stan Rodger for showing me examples of the postwar wage-relativity diagrams.

96 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, Roger Douglas, “State of the Economy and Reforms Needed,” circular letter, 22 August 1982.

97 Hocken Library, Rodger Papers, ms 1236, 28/85, 3/1, NZ LP, Campaign Committee 1983–84, “Onehunga By-election Report,” June 1980.

98 Hocken Library, Rodger Papers, ms 1236, 28/85, 3/1, NZ LP, Campaign Committee 1983–84, “Minutes of New Zealand Labour Party Publicity Committee,” 8 February 1980.

99 Hocken Library, Rodger Papers, ms 1236, 28/85, 3/1, NZ LP, Campaign Committee 1983–84, “Promotion of Leadership and the Shadow Cabinet,” [February 1980].

100 See Douglas, There’s Got to Be; and Douglas, Alternative Budget.

101 James, Quiet Revolution, 136–43.

102 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, Evening Post, 12 May 1982.

103 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, Evening Post, 8 May 1982; Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clipping, Auckland Metro, [1983]. Douglas made this statement several times. It seems an essential idea.

104 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, Evening Post, 8 May 1982.

105 Hamer, New Zealand Liberals, 60. The myth originated with the Liberals, and Labour inherited it during the First Labour Government.

106 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, Auckland Star, 10 February 1982.

107 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84 bundle for 1982, clipping, Evening Post, 8 May 1982. Commenting on Tizzard, Prebble says, “His hatred of Douglas was total.” Richard Prebble, communication with author, 18 May 2017.

108 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, Auckland Sunday News, 30 May 1982.

109 Franks and McAloon, Labour, 195. The authors allege that Rowling was more concerned with party discipline than with economic policy in 1982. The two were fused, not separate.

110 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, New Zealand Herald, 28 May 1982.

111 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, Rt Hon. W.E. Rowling, “An Economic Overview,” 3 August 1982.

112 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, New Zealand Times, 22 August 1982; and Dominion, 25 August 1982.

113 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, Rt Hon. W.E. Rowling, “An Economic Overview,” 3 August 1982; and clippings, Evening Post, 19 November 1982; and Auckland Star, 22 November 1982.

114 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, Roger Douglas, “State of the Economy,” circular letter, 22 August 1982; and clipping, Christchurch Press, 23 August 1982.

115 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, Dominion, 26 August 1982.

116 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, Dominion, 25 and 26 August 1982.

117 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, “Press Statement: Labour Economic Roadshow Ready to Go,” 27 September 1982.

118 Bassett, Working with David, 76.

119 Franks and McAloon, Labour, 206.

120 Bassett, Working with David, 286; Richard Prebble, communication with author, 18 May 2017.

121 Richard Prebble, communication with author, 30 December 2017.

122 Moore, “Trader,” 70–1.

123 Lange, My Life, 144.

124 Ibid., 49–50, 129–36, 149, 173; Palmer, Reform, 518.

125 Franks and McAloon, Labour, 195.

126 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 198–84, bundle for 1982, clipping, Otago Daily Times, 22 November 1982.

127 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clipping, New Zealand Herald, 5 February 1983. The practice of appointing a Treasury officer to the leader of the Opposition began in 1972. Archives New Zealand, AAWW, W4640 7112, box 21, part 1, Roger Douglas, “Birch Attacks Despicable,” 25 June 1987.

128 Bassett, Working with David, 91. Michael Cullen insists that Douglas was not a leader but a follower influenced by Andrews. I saw strong evidence to the contrary. Throughout his memoir, he downgrades Douglas’s truly serious work ethic. As minister of social welfare, Cullen had run-ins with Douglas and felt underappreciated. Cullen, Labour Saving, 44, 61, 93–4.

129 On the tour, see Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-33/05, Correspondence, Mike Moore File, Moore to Labour MPs, 15 December 1983. For Neilson’s comments, see Archives New Zealand, AAWW, W46407112, box 31, New Zealand Labour Party – Caucus 1983, Peter Neilson, “An Assessment of the Road Show to Date,” 7 March 1983.

130 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clippings, New Zealand Herald, 3 September 1983; and Auckland Star, 6 September 1983.

131 Archives New Zealand, AAWW, W4640 7112, box 23, Newztel Transcripts 1984–85, interview with David Lange, Newztel Log: Ex-TV One, “Sunday,” 29 July 1984.

132 Bassett, Working with David, 81–2.

133 Ibid., 85–6.

134 Ibid., 80.

135 Ibid., 76.

136 Ibid., 84.

137 Scott, Drawn Out, 238.

138 Bassett, Working with David, 72; James, Quiet Revolution, 160.

139 Lange, My Life, 142.

140 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1983, clipping, Auckland Star, 5 March 1983.

141 Ibid.

142 Richard Prebble, communication with author, 18 May 2017.

143 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clippings, New Zealand Herald, 4 February and 19 March 1983; Auckland Star, 5 and 19 March 1983; and “The Real David Lange,” National Business Review, 7 February 1983, 27–31, quote at 29.

144 Based on Douglas’s correspondence during this time. A few letters were surprisingly supportive. Turnbull Library, Douglas Papers, 84-137-122, Parliamentary Papers, Correspondence, D.J. Duggan, New Zealand Workers’ Union, to Douglas, 4 May 1983.

145 Turnbull Library, Douglas Papers, 84-137-122, Parliamentary Papers, Correspondence, Files of Press Statements, 1983.

146 James, Quiet Revolution, 173. When eighteen union economists met to critique a government background paper prepared for the Economic Summit, they produced a compromise document that did not suit them all. Archives New Zealand, 1A1,W29462, 103/761/8, part 1, Economic Summit 1984 – News Clippings, Taranaki Herald, 29 August 1984.

147 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108211, General, Agriculture, “Summary of Federated Farmers Budget Proposals, 1982/83.”

148 Richard Prebble, communication with author, 18 May 2017.

149 Lange, My Life, 154; Prebble, Out of the Red, 49.

150 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87364, Economy and Discussion of Labour Party, ref. 87409, Economy – General, clipping, New Zealand Herald, 21 May 1983.

151 James, Quiet Revolution, 143.

152 Quoted in ibid., 142.

153 Ibid., 143.

154 Lange, My Life, 140.

155 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1983, Newztel Log, Ex-TV Two, “Eyewitness News,” 26 July 1983.

156 Douglas thought that these papers were important. Roger Douglas, interview with author, 18 May 2014.

157 Lange, My Life, 161; Prebble, Out of the Red, 37.

158 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1983, David Lange and Roger Douglas, “Labour’s Approach to Economic Management,” 26 July 1983.

159 Archives New Zealand, abot, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clipping, Dominion, 15 November 1983.

160 Prebble, Out of the Red, 37.

161 Ibid., 27–30.

162 Lange, My Life, 161.

163 Bassett, Working with David, 514. On Moore’s passion for politics, see Moore, Hard Labour, 18–31.

164 M. Moore, Hard Labour, 68.

165 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-33/05, Correspondence, Mike Moore File, John Wybrow to Moore, “Data Research,” 14 December 1982.

166 Moore, Hard Labour, 90; Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clipping, Auckland Star, 10 December 1983.

167 Archives New Zealand, AAFD, W4646 7581, box 45, 9/19, part 4, Cabinet Oral Items 1983–85, Mike Moore, Convenor, to all MPs, Council Members, and Rae Julian (Labour Party Research Unit), “Committee of Transition: Interim Report,” [late 1983].

168 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Caucus Correspondence, Michael Cullen, “Memo to Caucus,” 24 July 1985.

169 Archives New Zealand, AAMN, W3727 7522, box 38, folder 5, part 1, William Birch Papers, Privatisation Committee 1985, untitled address to the Wednesday Club, 16 October 1985. The National Party secured a copy because it had a privatisation committee studying the subject.

170 Moore, Hard Labour, 91.

171 Richard Prebble, communication with author, 18 May 2017.

172 Archives New Zealand, AAWW, W4640 7112, box 41, Labour Policy 1984, Simon Walker to David Lange, [April 1984] (quote); and Ross Vintiner to Lange and Palmer, 14 March 1984.

173 Their ages in 1984 were as follows: Lange (42), Palmer (42), Douglas (47), Prebble (36), Caygill (37), Rodger (44), and Bassett (46).

174 Richard Prebble, communication with author, 18 May 2017.

175 Ibid.

176 Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conferences 1982–84, “The Economy and Taxation,” remit paper, New Zealand Labour Party Conference, 1983. Douglas was promoting greater professionalism in publicity too. Turnbull Library, Douglas Papers, 84-137-122, Parliamentary Papers, Correspondence, Robert Logan, Island Bay Branch of Labour Party, to Douglas, 15 October 1983; and Roger Douglas, “Further Submissions to the NZ Council Re: Publicity Campaign,” n.d.

177 Lange, My Life, 159.

178 Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conferences 1982–84, Newztel Log, Ex-RNZ, “Focus on Politics,” 9 September 1984.

179 Moore, Hard Labour, 26. When Moore was the minister of external relations and trade, he had the ministry publish a monthly newsletter called The Moore Report. Macmillan Brown Library, serial holdings. He was sensitive about not being given the benefit of the doubt.

180 For correspondence on relations with the press and correspondence that continued to emphasise visits to constituencies, see Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Caucus Correspondence.

181 The line is attributed to Trevor de Cleene, quoted in Moore, Hard Labour, 114.

182 On the New Zealand Labour Party’s knowledge of the cautiousness of Hawke and Keating, see Jonathan Hunt, MP, “Report to Caucus on the Australian Elections,” 10 March 1983.

183 McLeay, Cabinet and Political Power, 54–8.

184 Archives New Zealand, AAFD, W4646 7581, box 45, 9/19, part 4, Cabinet Oral Items 1983–85, Mike Moore, Convenor, to all MPs, Council Members, and Rae Julian (Labour Party Research Unit), “Committee of Transition: Interim Report,” [late 1983].

185 Lange, My Life, 149. See also Turnbull Library, Douglas Papers, 84-137-122, Parliamentary Papers, Correspondence, Michael Smythe to Douglas, 7 October 1983.

186 Lange, My Life, 162. See same in Cullen, Labour Saving, 71.

187 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1983, clipping, New Zealand Herald, 10 December 1983.

188 James, Quiet Revolution, 148–50; Franks and McAloon, Labour, 195; Turnbull Library, Douglas Papers, 84-137-122, Parliamentary Papers, Correspondence, Garfield Johnson to Roger Douglas, 19 January 1983.

189 Archives New Zealand, AAYK, W3603, box 3, record Ca, Economic Management Policy Material 1984, “Minutes of the Meeting of Policy Council,” February 1984.

190 Ibid.

191 Ibid.

192 Lange, My Life, 163–4.

193 Archives New Zealand, AAYK, W3603, box 3, record Ca, Economic Management Policy Material 1984, “Economic Policy: Approved Draft,” 26 May 1984.

194 Palmer, Reform, 236.

195 Locke, Workers in the Margins, 112–14; Franks and McAloon, Labour, 201–2.

196 Archives New Zealand, IA1, W2946 2, 103/761/8, part 2, Economic Summit 1984 – News Clippings, Newztel Log, Ex-TV Two, “Eyewitness News,” 11 September 1984, Rod Alley quoted.

197 James, Quiet Revolution, 172.

198 Lange, “Foreword,” 3.

199 Richard Prebble, communication with author, 18 May 2017.

200 Easton, “Labour’s Economic Strategy,” 135.

201 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier, Bevan Burgess, and Murdo Beattie,” 23 October 1986.

202 Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conferences 1982–84, Newztel Log, Ex-RNZ, “Focus on Politics,” 9 September 1984.

203 Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conferences 1985–87, Christchurch Press, 9 November 1987; Bassett, Working with David, 372–5, 417–18; Richard Prebble, communication with author, 18 May 2017.

204 Turnbull Library, Douglas Papers, 86-003-142, Labour Party Electorate Secretariat, Margaret Wilson, “Address to the Party,” [September 1985].

205 The win was aided by third parties that drew votes from National. Franks and McAloon, Labour, 203–4.

206 Archives New Zealand, AAWW, W4640 7112, box 31, New Zealand Labour Party – Caucus 1983, “Caucus Economic Committee Seminar,” 8–9 February 1983, 1–3.

207 Lange tried to initiate a confusing watered-down accord. Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales, Lange to Moore, draft, n.d.

208 For approximately thirty reports on the Australian economy and the Hawke-Keating reforms in 1988, see Turnbull Library, Douglas Papers, 90-326-20.

209 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF, Article 4 Consultations with New Zealand 1987–88, “Australia: Staff Report for the 1988 Article IV Consultation,” 18 May 1988, 2–16; Turnbull Library, Douglas Papers, 90-342-6, Further Papers, clipping, David Clark, “Subject: The Renovated Accord,” Australian Financial Review, 25 October 1988.

210 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF, Article 4 Consultations with New Zealand 1987–88, “Minutes of Informal Meeting with Graham Scott, Secretary of the Treasury,” 18 March 1988, 4.

211 Archives New Zealand, AANK, W3580 947, box 457, 46/3/117, part 1, Industrial Relations Act – General – National Economic Summit Conference 1984, “Report on Australian Summit,” n.d.; Campbell and Kirk, After the Freeze, 40–1. For a summary of the Hawke-Keating economic reforms, see “Advance Australia Fair,” Economist, 25 May 2019, 86.

212 Archives New Zealand, AALR, W4446 873, box 286, 61/1/22/11, part 1, Balance of Payments NZ 1984, Economic Conference Summit, March 1983 to August 1984, “Notes from Trotter’s Trip to Australia,” n.d.; and C.J. McKenzie, Deputy Secretary of the Treasury, to Associate Minister of Finance, 31 July 1984. On Hawke’s prior struggles with the left, see Hurst, Hawke pm, 247–76; and Kelly, Hawke Ascendancy, 398–454.

213 Archives New Zealand, AANK, W3580 947, box 457, 46/3/117, part 1, Industrial Relations Act – General – National Economic Summit Conference 1984, New Zealand High Commissioner to Secretary of Foreign Affairs, 16 July 1984.

214 Archives New Zealand, AANK, W3580 947, box 457, 46/3/117, part 1, Industrial Relations Act – General – National Economic Summit Conference 1984, Bernard Galvin to Lange, 20 July 1984.

215 Ibid.

216 Franks and McAloon, Labour, 207. The authors are unaware of the planning and purposes of the Economic Summit but identify the tension between a pursuit of consensus and “an elitist approach to policy making.”

217 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87813, Economic Summit, Probine to Palmer, 18 July 1984, Palmer’s marginal notes.

218 Franks and McAloon, Labour, 199.

219 Archives New Zealand, AANK, W3580 947, box 457, 46/3/117, part 1, Industrial Relations Act – General – National Economic Summit Conference 1984, Bernard Galvin to Lange, 20 July 1984.

220 Archives New Zealand, AANK, W3580 947, box 457, 46/3/117, part 1, Industrial Relations Act – General – National Economic Summit Conference 1984, Ron Trotter to Lange, 23 July 1984.

221 Archives New Zealand, IA1, W2946 2, 103/761/8, part 2, Economic Summit 1984 – News Clippings, Newztel Log, Ex-RNZ, “Morning Report,” 11 September 1984.

222 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87813, Economic Summit, Conference Director, “Weekly Report,” 8 September 1984; and Tony Farrington, “Economic Summit Conference: Communications Strategy,” 15 August 1984.

223 Archives New Zealand, AAWW, W3712 7112, box 61, Prime Minister’s Office Series – Economic Summit Conference 1984, Letters.

224 Ibid. Note the letters from Douglas Myers (Lyon Breweries), Don Brash (Kiwifruit), H.M. Tittler (Feltex), and Alan Scott (Citibank).

225 Roger Douglas, interview with author, 18 May 2014.

226 Archives New Zealand, AANK, W3580 947, box 457, 46/3/117, part 1, Industrial Relations Act – General – National Economic Summit Conference 1984, clipping, Dominion, 14 September 1984; Archives New Zealand, AALR, W5796 873, box 41, T61/1/22/10, part 6, Income Policy – Long-Term Wage Reform – Reports and Papers, Long-Term Committee, “Description of Wage-Fixing and Industrial Relations in the Private Sector,” 8 September 1983.

227 Archives New Zealand, AANK, W3580 947, box 457, 46/3/117, part 1, Industrial Relations Act – General – National Economic Summit Conference 1984, Ron Trotter to Lange, 22 August 1984.

228 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87814, Economy, Douglas to Lange, 3 August 1984.

229 New Zealand, Opening the Books, 1. Lange’s photograph accompanying his introduction in this publication was a masterful study in severity.

CHAPTER TWO

1 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier Bevan Burgess, and Murdo Beattie,” 23 October 1986.

2 Douglas, Budget 1984.

3 Stan Rodger, interview with author, 29 August 2017.

4 Richard Prebble, communication with author, 18 May 2017.

5 Prebble, I’ve Been Thinking, 59.

6 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier, Bevan Burgess, and Murdo Beattie,” 23 October 1986.

7 Douglas and Callan, Toward Prosperity, 107–8.

8 New Zealand Herald, 30 April 2004; Bassett, “Reflecting on the Fourth Labour Government.”

9 Personal notes taken at the Fabian Society Seminar on the State Services Amendment Act (1987) with Geoffrey Palmer and Stan Rodger, Wellington, 4 June 2013; New Zealand Legal Information Institute, State Services Amendment Act 1987.

10 Palmer, Reform, 498.

11 Quoted in Bassett, Working with David, 327–8.

12 Douglas and Callan, Toward Prosperity, 112.

13 Hocken Library, Rodger Papers, 87/134, box 32, Richard Prebble, “Government Supports Railways Engineering Re-organisation,” press statement, [May or June 1986]; and Rodger to Kevin Fleming, 1 July 1986.

14 Franks and McAloon, Labour, 208.

15 The Rt Hon. Stan Rodger Papers at the Hocken Library are filled with these memos.

16 Richard Prebble, communication with author 15 January 2018.

17 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Treasury Communications, Communicor, “Treasury Communications Audit,” [1986], 47. For a sympathetic biography that nevertheless explains how Jim Anderton’s personality alienated colleagues, see Grant, Anderton, 113–17, 142–3, 169.

18 David Caygill, interview with author, 6 August 2018.

19 Mulgan, Politics in New Zealand, 104; Bassett, Working with David, 328, 405, 461.

20 Scott, Drawn Out, 197.

21 Hocken Library, Rodger Papers, 87/41, box 3, Prime Minister’s Office, “Post Caucus Press Conference,” 20 June 1985. See also Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Treasury Communications, Bevan Burgess, “Anderton,” [July 1986].

22 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87409, Economy – General, [signature illegible], Tripe Matthews & Feist, to Palmer, 17 July 1984.

23 Richards, Palmer, 172.

24 Turnbull Library, Douglas Papers, 90-342-5, Further Papers, Anderton to Douglas, 30 January 1989; Jim Anderton, “Reference to NZ Council of the Labour Party,” [January 1989]; and “Opinion of Rt. Hon. Geoffrey Palmer,” 15 December 1988.

25 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Caucus Correspondence, “Prime Minister’s Statement to Caucus,” 6 April 1989.

26 Turnbull Library, Douglas Papers, 90-326-11, Further Papers, Douglas, quoted in Robert Mannion, “Roger Douglas: Rewriting Socialism,” New Outlook, [April 1985].

27 Turnbull Library, Douglas Papers, 90-326-12, Further Papers, Labour Party, Newztel Log, Ex-RNZ, “Morning Report,” 9 November 1987.

28 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, N.D. Paterson, Secretary, New Zealand Engineers Union, to Richard Prebble, 18 March 1986.

29 For the dedicated organisational efforts of Jo Fitzpatrick, see Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-12/3, Women’s Coordinator.

30 Turnbull Library, New Zealand Labour Party, Head Office Records, Correspondence with Michael Bassett, Tony Timms to Bassett, 23 June 1986.

31 Turnbull Library, Bassett Papers, 200-199-021, Papers Relating to Fourth Labour Government, Michael Bassett, “Handwritten Note to File,” n.d.

32 Turnbull Library, Douglas Papers, 90-326-12, Further Papers, Labour Party, Newztel Log, Ex-RNZ, “Morning Report,” 9 November 1987.

33 Turnbull Library, Douglas Papers, 90-342-5, Further Papers, Labour Party, Douglas to Palmer, 6 March 1990.

34 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, Hinton [?] to Palmer, memo, 10 May 1985; Turnbull Library, New Zealand Labour Party, Head Office Records, Correspondence with Michael Bassett, Bassett to Tony Timms, 3 February 1986; Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Caucus Correspondence, H.M. Goodmanson to Tony Timms, 4 June 1987.

35 I examined scores of boxes of ministers’ papers, and the number of requests dealt with is notable. For examples, see Turnbull Library, Douglas Papers, 90-342-4, Further Papers.

36 Turnbull Library, Douglas Papers, 90-342-5, Further Papers, interview with Pat Kelly, Newztel Log, Ex-RNZ, “Morning Report,” 21 April 1989.

37 Turnbull Library, Douglas Papers, 90-342-2, Further Papers, Labour Party, Roger Douglas, “Union Affiliation to the New Zealand Labour Party,” brochure, [1988]; Brian Nicolle, “Statement on the Options Relating to Reform of the Affiliate Union Structure within the NZ Labour Party,” May 1988; Nicolle to Burgess, 16 August 1988; “Operation One Class of Membership,” March 1989; and Richard Prebble, “Address to the Backbone Club,” 29 July 1988. Prebble mentions “storemen and packers” crashing his local electorate meeting. On reforming the constitution, see also Turnbull Library, Douglas Papers, 90-342-2, Further Papers, Labour Party, unidentified clippings on the lack of democracy in the Labour Party in 1988–89.

38 Turnbull Library, Douglas Papers, 90-342-2, Further Papers, Labour Party, Roger Douglas, “The Operation of the Statement of Intent Policy,” [mid-1989].

39 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Caucus Correspondence, Jim Sutton to Tony Timms, 9 February 1989.

40 Turnbull Library, New Zealand Labour Party, Head Office Records, Backbone Club, Correspondence between Ron Bailey and Tony Timms, n.d.

41 Turnbull Library, New Zealand Council of Trade Unions Papers, 98-327-32/4, Further Papers, Labour Party, POL/1/1, vol. 1, Roger Douglas, Constitutional Review Working Party, “Report of the Committee,” 23 October 1990, 1–7; and Labour Aims and Values 1991, Constitution (1991), 9–10, 25–7.

42 Archives New Zealand, AAFD, W4646 7581, box 45, 9/19, part 4, Cabinet Oral Items 1983–85, P.G. [Patrick] Millen to Prime Minister, 27 July 1984.

43 New Zealand, Legislative Change, 9–58.

44 Palmer, Reform, 497; Geoffrey Palmer, interview with author, 13 September 2017.

45 New Zealand, Economic Management, 9.

46 Roberts, “Minister, the Cabinet and Public Servants,” 96.

47 Richard Prebble, communication with author, 18 May 2017.

48 Ibid.; Bassett, Working with David, 402.

49 Bassett, Working with David, 415; Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, New Zealand Times, 2 September 1984.

50 Richard Prebble, communication with author, 29 July 2017; Stan Rodger, interview with author, 29 August 2017; Palmer, Reform, 517.

51 Moore, Hard Labour, 116.

52 Palmer mentions “an inner group” of Lange, Palmer, Douglas, Caygill, and Prebble. Palmer, Reform, 496. He excludes Moore, who superseded him as prime minister. Moore was there and active. Bassett, Working with David, 75–6.

53 Ibid., 497.

54 Ibid., 146.

55 Douglas and Callan, Toward Prosperity, 70.

56 New Zealand Herald, 30 April 2004; Bassett, “Reflecting on the Fourth Labour Government.”

57 Goldfinch, “Remarking New Zealand’s Economic Policy.”

58 Archives New Zealand, AALR, W5427 873, box 1746, 70/11/4, part 1, IMF Visit of Managing Director 1988, C.N. Pinfield to Mr Simpson, 26 May 1988.

59 Turnbull Library, Douglas Papers, 90-326-20, Further Papers, “Address by the Hon. J.B. Bolger to the National Party Conference,” 25 September 1987.

60 New Zealand Legal Information Institute, Public Finance Act 1989.

61 Archives New Zealand, AALR, W5796 873, box 82, T70/5, IMF Consultations 1969, “Statement by the IMF Mission,” March 1969, 7. The statement refers to previous reports that had recommended liberalisation.

62 Don Hunn, interview with author, 21 August

63 Turnbull Library, Douglas Papers, 90-326-20, Further Papers, J.A. Anderson, Petrocorp, J.F. Boshier, Assistant Secretary of Ministry of Energy, I.E. Sliper, Treasury, and T.W. Taylor, Petrocorp, “Privatisation in the United Kingdom: Report of a Visit,” 26 August 1986, 1–108.

64 Archives New Zealand, AEPU, W5606 7765, box 455, part 1, ECNZ General Asset Sale 1987, “Internal Memo,” 10 August 1987; Archives New Zealand, AEPU, W5606 7765, box 456, part 1, ECNZ General Asset Sale 1988, Jim Ryniker, ECNZ Finance Manager, to Jock Birney, S.G. Warburg & Co., 11 April 1988.

65 Turnbull Library, Deane Papers, 2004-159-2/10, Government Expenditures, Deane to Acting Ministers of State Services, “Vote: Inland Revenue,” 17 June 1986.

66 Don Hunn, communication with author, 10 April 2019.

67 Prebble, Out of the Red, 81.

68 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-36/13, Policy Council, Railways, Booz, Allen, and Hamilton, Labour Party, “Memo: Booz, Allen, and Hamilton: Management Consultants”; McKenna, World’s Newest Profession, 174.

69 Prebble, Out of the Red, 73–8.

70 Bassett, Working with David, 298.

71 Archives New Zealand, ABDI, W4300, box 31, TP 3/4/14/19, part 2 Commerce Bill, Legislative Proposals, Select Committee Papers and Materials 1985–86, “Commerce Bill: Major Differences between the 1975 Act and the Commerce Bill 1985,” n.d.; New Zealand Legal Information Institute, Commerce Act 1986.

72 Archives New Zealand, AALR, W5427 873, box 1140, 62/15/22, part 4, Health Task Force, Meetings of the Task Force, September and October 1987; Archives New Zealand, AALR, W5427 873, box 1139, 62/15/22, part 1, Health Task Force 1986–87, Harold Luft, “Alternative Delivery Systems,” March 1987; and Tavs Anderson, “Variations in Common Medical Practices: Some Economic Challenges,” March 1987.

73 Archives New Zealand, AALR, W5427 873, box 1746, 70/11/4, part 1, IMF Visit of Managing Director 1988, “Biographies for Visit,” [1988]; Douglas and Callan, Toward Prosperity, 130.

74 Archives New Zealand, AALR, W5427 873, box 307, 39/1/12, part 2B, Monitoring SOEs Management Consultants 1988, Arthur Young, “Proposal to Treasury: Assistance in the Process of Monitoring State Owned Enterprises,” 5 May 1988; O’Connor Grieve to J.M. [John] Chetwin, 12 May 1988; and Paul Baines to Chetwin, 6 May 1988.

75 Archives New Zealand, ABTW, W6030, box 93, no. 14000-1484, Don Brash Annotated Files and Emails 1992, Bernard Galvin, Secretary of the Treasury, “Memorandum for the Minister of Finance: New Banks,” 1 July 1985, appendix 5.

76 Archives New Zealand, ABTW, W6030, box 93, no. 14000-1484, Don Brash Annotated Files and Emails 1992, Gilmour, Prudential Section, Reserve Bank, “New Banks, Prudential Supervision, and Capital Adequacy Questions,” 18 November 1985.

77 Archives New Zealand, ABTW, W6030, box 93, no. 14000-14865, Don Brash Papers Written for Financial System Review 1992, Brash to Geof Mortlock, 28 June 1993.

78 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/84, part 1, IMF New Zealand Article 4 – Annual Consultations 1985, “Some Recollections on Coordinating and IMF Missions,” 12 September 1984.

79 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/84, part 1, IMF New Zealand Article 4 – Annual Consultations 1985, “Notes of Meeting between Minister of Finance and IMF Mission,” 3 April 1985.

80 Turnbull Library, Deane Papers, 2004-159-03/06, Personal, Gordon Jones to Deane, 21 September 1984. See the collection of business cards in this file.

81 Archives New Zealand, AALR, W5427 873, box 1743, 70/5/83, part 1, IMF New Zealand Article 4 – Annual Consultations 1983, “New Zealand – 1983 Article IV Consultation: Final Statement,” 13 December 1983.

82 Archives New Zealand, AALR, W5427 873, box 1746, 70/5/89, IMF Consultations 1989, IMF, “Minutes of Meeting on General Economic Strategy and Structural Reforms,” 4 April 1989.

83 McKenna, World’s Newest Profession, 170–91.

84 In 1994, Ruth Richardson would invite Bryan Philpott as one of five “leading economists” to appear before a committee deliberating on the Fiscal Responsibility Bill (1994). See his reply in Archives New Zealand, ABGX, W5189 16127, box 54, FE 2/16/1, Finance and Expenditure Committee – Fiscal Responsibility Bill – Correspondence, Philpott to Richardson, 23 February 1994. See also New Zealand Legal Information Institute, Fiscal Responsibility Bill 1994.

85 Archives New Zealand, AALR, W5427 873, box 307, 39/1/12, part 2B, Monitoring SOEs Management Consultants 1988, Paul Bevin to J.M. [John] Chetwin, 12 May 1988; Paul Baines to Chetwin, 6 May 1988.

86 Hocken Library, Rodger Papers, 134/87, box 7, Energy, Peter Read to Ministers and Officials, 27 March 1986.

87 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87410, Economy – Speech Notes, Brian Easton to Palmer, 22 August 1983. On Palmer’s and Easton’s concerns about poverty in New Zealand, see Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87466, Poverty, clippings.

88 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87409, Economy – General, Brian Easton, New Zealand Institute of Economic Research, to Palmer, [July 1984].

89 For Palmer’s backing of the economic policies, see Turnbull Library, Douglas Papers, 90-326-12, Further Papers, Labour Party, Geoffrey Palmer, “New Year’s Resolutions: Address to Nelson Labour Party Ladies Afternoon Get-Together,” 6 January 1988.

90 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/86, part 1, IMF New Zealand Article 4 – Annual Consultations, 1986, IMF, “Statement by Mr Rye on New Zealand Executive Board Meeting,” 27 June 1986, 3. See also Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Treasury Communications, Communicor, “Treasury Communications Audit,” [1986], 60–1; Turnbull Library, Deane Papers, 2004-159-03/06, Personal, Graham Scott to Deane, [1987?].

91 Turnbull Library, Deane Papers, 2004-159-20/6, Reserve Bank Issues, P.D. Jonson and M.G. Porter, “A.S. Holmes,” n.d., 1–2.

92 Turnbull Library, Deane Papers, 2004-159-20/6, Reserve Bank Issues, Deane to P.D. Jonson, 9 December 1986.

93 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Treasury Communications, Graham Scott to Douglas, 11 November 1986.

94 McLeay, Cabinet and Political Power, 135.

95 Archives New Zealand, ABTW, W6030, box 96, alt. no. 17000, Peter Nicholl Papers on Reserve Bank Autonomy SOE Framework, “Minutes of the Meeting of the Reserve Bank Policy Autonomy Group,” 24 October 1986.

96 Archives New Zealand, AALR, W5427 873, box 368, Reserve Bank of New Zealand – Amendment Bill 1989 1986–89, Pat [Patrick] Duignan to Ian McLean, Michael J. Moriarty, Howard Fancy, Whitehead, Wilson, Gorringe, and Houston, “Amendment of Reserve Bank Amendment Act: Prudential Supervision,” 29 May 1986.

97 Archives New Zealand, AALR, W5427 873, box 1462, 62/60/5, part 32A, Expenditure – Electricity Division of Ministry of Energy 1982–88, Robert Anderson to Chet, Sid, and Irene, 2 December 1988.

98 Turnbull Library, Douglas Papers, 2003-062-2/3, Papers Relating to Privatisation, Roger Douglas, “Notes on Brazil Mission,” [January 1991].

99 Hocken Library, Rodger Papers, 87/41, box 14, SSC, EEO, 1985, M.C. [Mervyn] Probine to Minister of State Services, 11 February 1985; New Zealand, Creating an Equal Employment.

100 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986–87, Geoffrey Wood to Howard Fancy, 8 May 1987.

101 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 2, Reserve Bank of New Zealand – Role, Structure and Autonomy 1988, Howard Fancy to Geoffrey Wood, 3 March 1988.

102 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/86, part 1, IMF New Zealand Article 4 – Annual Consultations 1986, “Memo from Embassy,” [February 1989].

103 Archives New Zealand, AALR, W5427 873, box 307, 39/1/12, part 2B. Monitoring SOEs Management Consultants 1988, Arthur Young, “Proposal to Treasury: Assistance in the Process of Monitoring State Owned Enterprises,” 5 May 1988, 25.

104 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Touche Ross, “Competition in Telecommunications Networks,” [1989].

105 Archives New Zealand, AALR, W5427 873, box 307, 39/1/12, part 2B, Monitoring SOEs Management Consultants 1988, P.R. [Paul] Frater to J.M. [John] Chetwin, 12 May1988.

106 Hocken Library, Rodger Papers, 89/007, box 37, Cabinet and Cabinet Committees, “Cabinet Minutes,” 19 March 1987.

107 Archives New Zealand, AALR, W5427 873, box 307, 39/1/12, part 2B, Monitoring SOEs Management Consultants 1988, Bids.

108 Archives New Zealand, ABOT, W4375 6787, box 46, Overseas Privatisation – UK and Australia 1985, [New Zealand Treasury], International Privatisation: Learning from the British Experience (n.d.), 51–3.

109 McKinnon, Treasury, 374.

110 Archives New Zealand, AALR, W5427 873, box 568, 40/1/3, part 1, Legal – Projects – Telecom Sale 1987–90, “Deed of Indemnity,” 20 February 1990.

111 Ibid.; Archives New Zealand, AALR, W5427 873, box 572, 40/1/3, part 22 Legal – Projects – Telecom Sale 1990, R.F. [Richard] Shallcrass to Minister of Finance, 11 July 1990.

112 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 109922, Trade and Industry, Development Finance Corporation, Douglas to Cabinet State-Owned Enterprises Committee, 4 November 1987.

113 Archives New Zealand, AALR, W5427 873, box 59, 3/15/21/2, Debt Management Office – Treasury Business Plan 1989–91, “Treasury Draft Performance Agreement, 1990–91,” n.d.

114 Turnbull Library, Douglas Papers, 90-287-28, Further Papers, Correspondence with Department of Social Welfare, Cullen to Douglas, 19 April 1988.

115 Archives New Zealand, AANU, W5079 7765, box 30, Privatising – Making It Happen, Anthony Browne, Making It Happen (1990).

116 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/86, part 1, IMF New Zealand Article 4 – Annual Consultations 1986, IMF, “New Zealand – 1986 Article IV Consultation: Preliminary Conclusions,” n.d.

117 Archives New Zealand, AAWW, W4640 7112, box 21, part 1, Douglas 1987, Roger Douglas, “Press Statement [on Jim Bolger],” 27 July 1987.

118 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986–87, Paul Atkinson, “Notes to File,” n.d.

119 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, T.M. Berthold to Douglas, “Asset Management in Government Departments and Agencies,” 4 July 1986.

120 New Zealand Legal Information Institute, Local Government Amendment Act (No. 2) 1989, sec. 6(1).

121 Archives New Zealand, AATJ, W5152 7495, box 323, BP/6/2/1, part 1, Port Reform 1988–89, Bernard Woodham, Ministry of Commerce, to David Harper, Ministry of Transportation, “Ports Consultancy,” 4 August 1989.

122 Archives New Zealand, AEPU, W5582 7765, box 818, 1, ECNZ Review Consultants Reports Media, clipping, New Zealand Herald, 7 July 1997.

123 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, Bernard Galvin to Douglas, “Treasury’s Operating Capability,” 7 July 1986.

124 Roderick Deane, interview with author, 29 July 2017.

125 I am indebted to Judge Carrie Wainwright for this insight. Carrie Wainwright, interview with author, 22 September 2017.

126 Archives New Zealand, AALR, W5427 873, box 571, 40/1/2, part 19, Legal – Projects – Telecom Sale 1989–90, Correspondence between Chapman Tripp and Ivan Kwok.

127 Turnbull Library, Deane Papers, 2004-159-21-08, State Owned Enterprises, D.K. [Don] Hunn to Mrs Schroff, 16 April 1986.

128 Archives New Zealand, AAFH, W5510 6790, box 509, SS-7-1-2-1, part 2, Structures and Systems – Public Finance Act 1991, “Interoffice Memorandum: Public Finance Act,” 19 June 1990.

129 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Treasury Communications, Communicor, “Treasury Communications Audit,” [1986], 7.

130 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/86, part 1, IMF New Zealand Article 4 – Annual Consultations, 1986, IMF, “Statement by Mr Rye on New Zealand Executive Board Meeting,” 27 June 1986, 3. Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Treasury Communications, Communicor, “Treasury Communications Audit,” [1986], 24.

131 Ibid., 65.

132 Turnbull Library, Douglas Papers, 90-287-28, Further Papers, Correspondence with Department of Social Welfare, Cullen to Douglas, 19 April 1988.

133 Turnbull Library, Douglas Papers, 90-287-28, Further Papers, Correspondence with Department of Social Welfare, draft of letter written by Scott for Douglas’s signature, 21 April 1988.

134 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Treasury Communications, Communicor, “Treasury Communications Audit,” [1986], 4.

135 McKinnon, Treasury, 261.

136 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, Treasury, unidentified clipping, column by Ian Templeton, 24 August 1989.

137 McKinnon, Treasury, 318–20.

138 Ibid., 322.

139 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, Treasury, unidentified clipping, column by Ian Templeton, 24 August 1989.

140 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier, Bevan Burgess, and Murdo Beattie,” 23 October 1986.

141 Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, G.C. [Graham] Scott, Secretary of the Treasury, to Minister of Finance, 3 March 1987.

142 Schumpeter, Theory of Economic Development, 93–4.

143 Richard Prebble, communication with author, 18 May 2017.

144 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clipping, New Zealand Herald, 17 March 1983.

145 Prebble, Out of the Red, 51.

146 Bassett, “Reflecting on the Fourth Labour Government” (quote); New Zealand Herald, 30 April 2004.

147 Anonymous informant A, interview with author, 1 August 2016.

148 Margaret Bazley, interview with author, 15 August 2017.

149 Rayner and Lattimore, “New Zealand,” 96.

150 Anonymous informant B, interview with author, 15 July 2015.

151 Archives New Zealand, ABQC, W5204 7958, box 9, PRO – ACC 17/1, part 2, Projects ACC – History of Draft Legislation Proposals 1988, Alison Quentin-Baxter to Sir Owen Woodhouse, 19 September 1988.

152 Turnbull Library, Deane Papers, 2004-159-2/10, Government Expenditures, Roderick Deane to Minister of State Services, “Government Expenditure Reform Statement: Staffing Implications,” [June 1986], entries on Forest Service and Trade and Industry Department.

153 Turnbull Library, Deane Papers, 2004-159-24/01, Wage Round 1987, “Heads of Agreement,” 10 April 1987.

154 Turnbull Library, Deane Papers, 2004-159-2/10, Government Expenditures, Deane to Acting Minister of State Services, 17 June 1986, entry on Ministry of Agriculture and Fisheries.

155 Anonymous informant A, interview with author, 1 August 2016.

156 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Treasury Communications, Scott to Douglas, 11 November 1986.

157 Archives New Zealand, ABJZ, W4644 869, box 12, 8/3/1, part 1, Policy and Planning – Miscellaneous – Special Projects – Local Government Reform 1987–88, J.L. O’Sullivan, Officials Coordinating Committee on Local Government, to All Permanent Heads, “Reform of Local and Regional Government,” 9 January1988.

158 Hocken Library, Rodger Papers, 89/007, box 2, Rodger to All Government Members of Parliament, “Attendance of Public Servants before Caucus Committees,” 29 August 1987.

159 Turnbull Library, Deane Papers, 2004-159-24/01, Wage Round 1987, “Heads of Agreement,” 10 Aril 1987; Mark Byers to Hunn and Deane, 6 April 1987. The Rural Bank was required to tighten lending practices.

160 New Zealand Legal Information Institute, State Sector Act 1988; New Zealand Legal Information Institute, Public Finance Act 1990.

161 Archives New Zealand, AAFD, W4646 7581, box 79, 55/98, part 1, Government Departments – SOEs, Stan Rodger to Bob Tizard, 22 May 1985.

162 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/85, part 2, IMF Article 4 Consultations with New Zealand 1985, Executive Director of IMF to Treasury, 25 November 1985.

163 Archives New Zealand, AALR, W5427 873, box 1743, 70/5/83, part 2, IMF Article 4 Consultations with New Zealand 1983–84, “IMF New Zealand Consultation, 1983–84: Answers to Written Questions,” 14 February

164 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, Part 1, IMF Article 4 Consultations with New Zealand 1987–88, IMF, “New Zealand: 1988 Article IV Consultation, Concluding Remarks,” 29 March 1988, 6.

165 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF Article 4 Consultations with New Zealand 1987–88, “Minutes of Meeting: Balance of Payments and Competitiveness,” 24 March 1988, 2–14. Note comments by Secretary of the Treasury Howard Fancy.

166 Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, Richard Prebble File, clipping, Evening Post, 7 November 1988.

167 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, Bassett’s notes on a Lange speech, [1983].

168 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clipping, New Zealand Listener, 2 October 1982.

169 Richard Prebble, communication author, 18 May 2017. See also Cullen, Labour Saving, 39.

170 Roderick Deane, interview with author, 29 July 2017.

171 See Lange’s rambling answers in Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, “Prime Minister: Press Conference,” 28 January 1988.

172 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clipping, New Zealand Listener, 2 October 1982.

173 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1983, Newztel Log, Ex-TV Two “Eyewitness News,” 26 July 1983.

174 Archives New Zealand, AALR, W5427 873, box 1742, 70/5/82, part 1, IMF New Zealand Article 4 – Annual Consultations 1982, “Minutes of Meeting No. 1,” 22 November 1982.

175 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/85, part 2, IMF Article 4 Consultations with New Zealand 1985, “Notes of a Meeting between Minister of Finance and IMF Mission,” 3 April 1985, 4.

176 Don Hunn, interview with author, 25 June 2016.

177 Personal notes taken at the Fabian Society Seminar on the State Services Amendment Act (1987) with Geoffrey Palmer and Stan Rodger, Wellington, 4 June 2013; New Zealand Legal Information Institute, State Services Amendment Act 1987.

178 Turnbull Library, Douglas Papers, 90-326-12, Further Papers, Monetary Matters, Douglas’s handwritten notes on meeting with analysts about deficit, 6 November 1986.

179 Archives New Zealand, AAFH, W5510 6790, box 253, PU-7-1-2, part 1, Publications – Public Service – State Sector Act, Miscellaneous – State Sector Bill 1988, “Notes from Third Departmental Briefing on State Sector Bill,” 9 March 1988; and “Information about Industrial Action,” March 1988; Cook, 100 Years Strong, 37–8; Bassett, Working with David, 321.

180 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier, Bevan Burgess, and Murdo Beattie,” 23 October 1986.

181 Margaret Bazley and Don Hunn, both of the State Services Commission, interview with author, 2 August 2017.

182 Spicer et al., Power to Manage, 142.

183 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, N.D. Paterson, Secretary of New Zealand Engineers Union, to Douglas, 18 March 1986.

184 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF Article 4 Consultations with New Zealand 1987–88, “Minutes of Labour Market Session,” 22 March 1988, 2.

185 Richard Prebble, communication with author, 18 May 2017.

186 Bassett, Working with David, 413.

187 Ibid., 435.

CHAPTER THREE

1 Turnbull Library, Douglas Papers, 90-326-20, Further Papers, unidentified clipping, n.d.

2 Bassett, New Zealand’s Prime Ministers, 440–1, 471, 488–9.

3 Turnbull Library, Douglas Papers, 90-326-02, Further Papers, Newsmonitor, Paul Holmes, Breakfast Show, Radio IZB, 23 November 1988.

4 Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, David Lange to MPs, 23 December 1988.

5 Archives New Zealand, AANK, W3580 947, box 700, 57/3/9, part 1, Employment Policy 1983–85, G.L. Jackson, “The Structure of Income Support and Labour Market Adjustment,” 30 July 1984.

6 Archives New Zealand, ABQU, W4452 632, box 1474, 337-18-7, Ministerial Task Force on Social Welfare System – Income Maintenance 1986, Department of Social Welfare, “Benefits, Taxes and the 1985 Budget: A Review and Summary,” February 1986, 1–63, quote at 9.

7 Lange, My Life, 229–30

8 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, summary of Roger Douglas to Lange, 15 April 1987.

9 Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, Lange to MPs, 23 December 1988 (quote); and David Lange, “The Douglas Dossier,” 20 December 1988, 2.

10 Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, Lange to MPs, 23 December 1988; and David Lange, “The Douglas Dossier,” 20 December 1988, 4.

11 Henderson, “Advising a Prime Minister,” 13.

12 Lange, My Life, 235.

13 Richard Prebble, communication with author 18 May 2017.

14 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier, Bevan Burgess, and Murdo Beattie,” 23 October 1986.

15 Stan Rodger, interview with author, 29 August 2017. I base this assessment on having gone through many boxes of Douglas’s papers. See, for example, Turnbull Library, Douglas Papers, 90-342-6, Further Papers, notes in file for 1989 election. I have also drawn on Archives New Zealand, AAWW, W4640 7112, box 23, interview with Trevor de Cleene, Newztel Logs 1987–88, Ex-TV One, “Eyewitness News,” 14 December 1988; and David Caygill, interview with author, 6 August 2018.

16 Turnbull Library, Douglas Papers, 90-287-26, Further Papers, Heylen, J.P. Heylen to Tony Timms, 18 June 1986; and Applied Research Consultants, “Emotional Response and ‘Images’: A Swinging Voter’s Perceptions of Three Political Leaders,” July 1986.

17 Archives New Zealand, AAWW, W4640 7112, box 48, Royal Commission on Social Policy – Revised Terms of Reference 1986, Bernard Galvin to Douglas, 7 May 1986; Douglas to Lange, 8 May 1986; Mark Prebble to Geoff Swier, 9 May 1986; David Smyth to Richard Prebble, 7 July 1986.

18 Archives New Zealand, AAWW, W4640 7112, box 48, Royal Commission on Social Policy – Answer to Prime Minister’s Letter, Kerry Burke (Employment), 20 May 1986; Geoffrey Palmer, 18 February 1986; Bob Tizard (Energy), 5 March 1986; and Margaret Shields (Customs), 28 February 1986. The latter two favoured targeting benefits.

19 Archives New Zealand, AAWW, W4640 7112, box 48, Royal Commission on Social Policy – Revised Terms of Reference 1986, Helen Sutch to Lange, 12 May 1986.

20 Turnbull Library, Douglas Papers, 90-287-25, Further Papers, “Budget Report, Top Secret,” 8 April 1987: and “Budget Report, Top Secret,” 15 November 1987. See New Zealand, Government Economic Statement, 7–16.

21 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, Roger Douglas, “Timetable of Events,” [February 1988].

22 He received positive attention for New Zealand due to the package. Economist, 26 December 1987, 54.

23 Turnbull Library, Douglas Papers, 90-326-20, Further Papers, Clippings on Bolger, Taranaki News, 18 November 1988; and Karori and Western Suburbs News, 22 November 1988 (quote).

24 For example, he was lost when trying to criticise the floating of the New Zealand dollar. Macmillan Brown Library, Caygill Papers, acc. 77, ref. 109922, Trade and Industry, 1987 2/7 Economics, Newztel Log, Ex-RNZ, “Checkpoint,” 31 March 1987; and “Summaries of Bolger’s Statements on Currency,” July 1984 to July 1986.

25 Stan Rodger, interview with author, 29 August 2017.

26 On Pope, see Bassett, Working with David, 433–4.

27 Richard Prebble, communication with author, 18 May 2017.

28 Turnbull Library, Douglas Papers, 90-326-12, Further Papers, Labour Party, MDA Mackay King, “Summary of Qualitative Research amongst Women,” October 1986, 3, original emphasis.

29 Lange, My Life, 242.

30 Turnbull Library, Douglas Papers, 90-326-10, Papers Relating to Elections, clipping, New Zealand Herald, 17 August 1989.

31 Turnbull Library, Douglas Papers, 2003-062-2/3, Papers Relating to Privatisation, Roger Douglas, “Notes on Brazil Mission,” [January 1991].

32 Turnbull Library, New Zealand Council of Trade Unions Papers, 98-327-32/4, Further Papers, Labour Party, POL/1/1, vol. 1, Roger Douglas, “The Politics of Successful Structural Reform,” 28 November 1989, 17, 24.

33 Lange, My Life, 230.

34 Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, Richard Prebble File, clipping, Financial Times, 14 January 1988.

35 Turnbull Library, Douglas Papers, 90-326-12, Further Papers, Labour Party, Newztel Log, Ex-RNZ “Eyewitness News,” 29 February 1988.

36 Turnbull Library, Douglas Papers, 90-287-20, Further Papers, Privatisation, Ruth Richardson, “Beyond Rogernomics,” 16 March 1988, 8.

37 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-32/10, Joint Council of Labour, Trade Union Liaison, “Report to the Joint Council of Labour,” 11 February 1986. Several meat workers’ and drivers’ unions left. At the same time, shop employees affiliated.

38 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/08, Executive Minutes and Correspondence, “Minutes,” 6 June 1987; and 97-114-29/09, Executive Minutes and Correspondence, “Minutes,” 29 January 1988.

39 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/08, Executive Minutes and Correspondence, Tony Timms to Simon Walker, 20 August 1986.

40 My Life, 242–3, quote at 243.

41 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Correspondence, Roger Douglas File, Tony Timms to Douglas, 17 May 1988. Timms wanted Douglas to supply the names of the individuals to contact at various major corporations for donations to the 1987 campaign.

42 Archives New Zealand, AAWW, W4640 7112, box 48, Royal Commission on Social Policy – Answer to Prime Minister’s Letter, Geoffrey Palmer, 18 February 1986.

43 Turnbull Library, Douglas Papers, 90-287-20, Further Papers, Privatisation, Ruth Richardson, “Address to the Annual General Meeting of the Wellington Central Electorate,” 10 March 1988, 7.

44 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, Roger Douglas, “Timetable of Events,” [February 1988].

45 Turnbull Library, Douglas Papers, 90-287-25, Further Papers, Policy Committee, Roger Douglas, “Polling Questions: Economic Strategy for 1987”; Lange, My Life, 235–40.

46 Bassett, Working with David, 416.

47 Douglas and Callan, Toward Prosperity, 114.

48 New Zealand Legal Information Institute, Labour Relations Act 1987.

49 Bassett, Working with David, 296, 310, 313, 418.

50 Ibid., 274, 306–7, 368.

51 Ibid., 297.

52 Richard Prebble, communication with author, 29 July 2017.

53 Lange, My Life, 236–7.

54 Ibid., 287, 370, 399.

55 There were roughly fifty Treasury papers covering parts of the package. Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, David Smyth to Douglas, “Tax Benefit Reform,” 20 October 1987; “Benefit and GMFI Structures,” 11 November 1987; “Revisions to GMFI and Benefit Structures,” 17 November 1987; Graham Scott to Douglas, 10 November 1987; R.G. Procter to Douglas, “The Company Tax Rate,” 13 November 1987; “Entitlement to Family Assistance,” 15 November 1987; and “GST Rate Change: Transitional Issues,” 15 November 1987.

56 On Cabinet approval, see Moore, “Trader,” 73.

57 Archives New Zealand, AAWW, W4640 7112, box 29, December Tax Package 1987–88, “Tax Benefit Reform,” n.d., 4–7.

58 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, Roger Douglas, “Speech to Launch the Economic Package,” 17 December 1987; and 90-287-47, Bevan Burgess’s Office 1990, “Notes on the Timing of Events Which Form Background to Letters,” [January 1988].

59 Archives New Zealand, AAWW, W4640 7112, box 29, December Tax Package 1987–88, Paul Carpinter to Lange, 12 January 1988.

60 Archives New Zealand, AAWW, W4640 7112, box 24, Economic Package 1988, clipping, National Business Review, 22 February 1988. However, targeting was not anathema to the consultant who picked apart the GMFI. St John, Impact of the 1982 Budget, 23–5.

61 Archives New Zealand, AAWW, W4640 7112, box 29, December Tax Package 1987–88, “Income Maintenance Task Force, Progress to Date: Notes on Winners and Losers,” n.d.

62 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Caucus Correspondence, Tony Timms to Caucus, 30 September 1987, 24 February 1988. Richardson had pointed out some virtues of the flat tax. Archives New Zealand, AAWW, W4640 7112, box 24, Economic Package 1988, clipping, Christchurch Star, 13 February 1988.

63 Turnbull Library, Douglas Papers, 90-287-26, Further Papers, Polling, Roger Douglas, “The Critical Issues Which Control the Fate of the Fourth Labour Government,” 6 November 1988.

64 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, “Prime Minister: Press Conference,” 28 January 1988.

65 Lange, My Life, 247.

66 Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, Richard Prebble File, “Study of Tax Incidence in New Zealand, June Quarter 1985,” n.d.

67 Douglas had been thinking about a flat tax since late 1985. Turnbull Library, Bassett Papers, Papers Relating to the Fourth Labour Government, Geoff Swier to Bernard Galvin and Graham Scott, [late 1985].

68 New Zealand, Government Economic Statement, 7–16.

69 Archives New Zealand, AAWW, W4640 7112, box 29, December Tax Package 1987–88, “Tax Benefit Reform,” [December 1988], 3.

70 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Budget, Graham Scott to Douglas, “Budget Package: Progress Report,” 10 November 1987.

71 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, T.M. Berthold to Douglas, 14 December 1988.

72 At an expenditure review meeting in June 1986, Douglas mentioned ideas on taxes, asset sales, central banking, contestability of government services, and shifting government inspection to the private sector. Turnbull Library, Deane Papers, 2004-159-2/10, Government Expenditures, Minister of Finance’s Office, “Expenditure Review,” 10 June 1986.

73 Richard Prebble, communication with author 18 May 2017.

74 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, W. Isles, Chairman of Officials Committee Working on the Tax-Related Items of the Economic Statement, to Chairman of Ad Hoc Cabinet Committee Working on the Economic Statement, 5 February 1988.

75 Archives New Zealand, AALR, W5427 873, box 1311, 62/43/1/3, part 1, Income Maintenance Reform 1987–88, Department of Social Welfare, “Report to the Social Equity Committee: The Royal Commission Working Proposals on Income Maintenance and Taxation: Basis for DSW Comment,” 6 April 1988, 7.

76 Archives New Zealand, AAWW, W4640 7112, box 29, December Package 1987–88, Alf Kirk to John Henderson, [mid-January 1988]; and Henderson to Susan St John, 20 January 1988. On Henderson’s views, see Archives New Zealand, AAWW, W4640 7112, box 65, outline for unpublished book by Henderson.

77 Archives New Zealand, AAWW, W4640 7112, box 47, Briefing Note, Office of the Prime Minister, “Memorandum for Cabinet: Implementation of the Economic Statement,” n.d.; and “Briefing Note: What Was Wrong with GMFI?” [late January 1988].

78 Margaret Bazley, interview with author, 15 August 2017.

79 Lange, My Life, 248–9; Stan Rodger, interview with author, 29 August 2017; Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, Richard Prebble File, clipping, Evening News, 7 November 1988.

80 Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, Lange to MPs, 23 December 1988.

81 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, Roger Douglas, “Memorandum for Cabinet,” 31 January 1988.

82 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, Roger Douglas, “Timetable of Events,” [February 1988].

83 Lange, My Life, 252.

84 Turnbull Library, Douglas Papers, 90-287-51 Further Papers, Flat Tax and Other Economic Files, Roger Douglas, “Press Statement,” 1 February 1988.

85 Archives New Zealand, AAWW, W4640 7112, box 24, Economic Package 1988, clippings, Christchurch Star, 11 February 1988; Dominion, 12 February 1988; and Auckland Star, 12 February 1988.

86 Archives New Zealand, AAWW, W4640 7112, box 29, December 1987 Package 1987–88, John Henderson to Lange, 25 January 1988. The phone report appears in seven pages of off-the-cuff longhand notes.

87 Archives New Zealand, AAWW, W4640 7112, box 47, Briefing Note, Office of the Prime Minister, “Memorandum for Cabinet: Implementation of the Economic Statement,” n.d.

88 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, Roger Douglas, “Timetable of Events,” [February 1988].

89 Archives New Zealand, AAWW, 4640 7112, box 65, Economic Package – Press Coverage, unidentified clipping with picture of Lange at the wheel of a racing car at Timaru, n.d.

90 Lange, My Life, 251.

91 Archives New Zealand, AAWW, W4640 7112, box 51, Prime Minister’s Motor Sport, Lange to Molly and Heather Chambers, 22 March 1988.

92 On the caucus, see Archives New Zealand, AAWW, 4640 7112, box 65, Economic Package – Press Coverage, clipping, Auckland Star, 1 February 1988.

93 Lange, My Life, 265.

94 Ibid., 259–62.

95 Bassett, Working with David, 433; Archives New Zealand, AAWW, W4640 7112, box 24, Economic Package 1988, clippings, Auckland Sun, 17 February 1988; Christchurch Star, 20 February 1988; and Christchurch Press, 22 February 1988.

96 Turnbull Library, Douglas Papers, 90-342-1, Further Papers, Gibbs Report, Office of the Minister of Finance, Roger Douglas, “Backgrounder for Labour MPs: Analysis of the Criticism of the Health Care Task Force,” 7 April 1988.

97 Bassett, Working with David, 378–9.

98 Ibid., 330, 337–8, 344, 346, 378, 388 (quote). On Treasury officials and others, see Turnbull Library, Douglas Papers, 90-326-12, Further Papers, Monetary Matters, Douglas’s handwritten notes on meeting with analysts about deficit, 6 November 1986.

99 Bassett, Working with David, 388.

100 Archives New Zealand, AALR, W5427 873, box 1311, 62/43/1/3, part 1, Income Maintenance Reform 1987–88, Department of Social Welfare, “Report to the Social Equity Committee: The Royal Commission Working Proposals on Income Maintenance and Taxation: Basis for DSW Comment,” 6 April 1988, 6.

101 Archives New Zealand, AALR, W5427 873, box 1311, 62/43/1/3, part 1, Income Maintenance Reform 1987–88, Department of Social Welfare, “Report to the Social Equity Committee: The Royal Commission Working Proposals on Income Maintenance and Taxation: Targeting/Universality,” 6 April 1988, 1.

102 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, Roger Douglas, “Strategic Plan for Social Policy Decisions,” [mid-1988]. He was writing to Palmer to reactivate a committee of six ministers to draw up principles for social policy reform.

103 Bassett, Working with David, 393–6.

104 Lange, My Life, 259.

105 Quoted in Bassett, Working with David, 396.

106 Ibid., 397.

107 Turnbull Library, Douglas Papers, 90-287-28, Further Papers, Budget 1988, Correspondence with Department of Social Welfare, Cullen to Douglas, 23 February 1988, 8 and 29 March 1988; and Cullen to Cabinet Policy Committee, “Department of Social Welfare 1988/89 Expenditure Review,” 11 April 1988.

108 Turnbull Library, Douglas Papers, 90-287-28, Further Papers, Budget 1988, Office of the Minister of Finance, “Memorandum to the Cabinet: Fiscal Strategy,” June 1988.

109 Bassett, Working with David, 392–9.

110 New Zealand Legal Information Institute, State Sector Act 1988.

111 Turnbull Library, Douglas Papers, 90-287-28, Further Papers, Budget 1988, Graham Scott to Douglas, “Medium Term Financial Strategy,” 21 July 1988; New Zealand Legal Information Institute, Public Finance Act 1989.

112 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/09, Executive Minutes and Correspondence, “Minutes,” 24 June 1988, report by Mike Williams.

113 Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, Lange to MPs, 23 December 1988.

114 Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, Clippings on Party Conference, 5 September 1988.

115 On the backbenchers and on loneliness, see respectively Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, Clippings on Party Conference, column by Simon Collins, New Zealand Herald, 8 September 1988; and unidentified clipping, column by Richard Long, (quote).

116 Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, Prime Minister’s Office, drafts of Cabinet shuffles and [premature] announcements of Douglas’s resignation from Cabinet, 29 August to 7 September 1988.

117 Turnbull Library, Douglas Papers, 90-342-2, Further Papers, Labour Unions, clipping, National Business Review, 2 September 1988; Hince and Vranken, “Controversial Reform,” 479.

118 Some unions and left factions in the party recognised that the government marginalised them to an interest group status yet concurrently accepted that craft unionism no longer suited the New Zealand economy. Locke, Comrade Bill Andersen, 231–3.

119 Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, Paul Carpinter to Lange, “Reserve Bank Economic Forecasts,” 5 September 1988; Carpinter to Lange, 7 September 1988; and Lange to Moore, draft, n.d. (quote).

120 Grant, Man for All Seasons, 286–7.

121 New Zealand Legal Information Institute, Productivity Council Bill 1989.

122 Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, untitled document beginning with “collective responsibility.”

123 Bassett, Working with David, 411–13; Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, Prime Minister’s Office, “Working of Compact,” 12 September 1988, 1.

124 Archives New Zealand, AALR, W5427 873, box 307, 39/1/12, part 2B, Monitoring SOEs Management Consultants 1988, Arthur Young, “Proposal to Treasury: Assistance in the Process of Monitoring State Owned Enterprises,” 5 May 1988.

125 Lange, My Life, 263–4.

126 Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, David Lange, “Press Conference,” 4 November 1988, 3–7.

127 Richard Prebble, communication with author, 10 December 2017.

128 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 7, Cabinet Committees – Policy 1987–88, Office of the Prime Minister and Office of the Deputy Prime Minister, “Memorandum for Cabinet: Asset Sales,” 28 October 1988 (quote); Bassett, Working with David, 373.

129 Richard Prebble, communication with author, 18 May 2017.

130 Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, Richard Prebble File, clipping, Christchurch Press, 5 November 1988.

131 Archives New Zealand, AAWW, W4640 7112, box 21, part 1, Douglas 1987, interview with David Lange, Newsmonitor, Paul Holmes, Breakfast Show, Radio 1ZB, 7 November 1988; Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, Lange to Prebble, 4 November 1988; and “Press Conference,” 4 November 1988, 3–8. I have read the transcript, and Lange was unimpressive. Archives New Zealand, AAWW, 4640 7112, box 65, Economic Package – Press Coverage, clipping, National Business Review, 1 February 1988 (quote).

132 Bassett, Working with David, 435–7; Richard Prebble, communication with author, 10 December 2017; Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, clipping, Dominion, 5 November 1988.

133 Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, Richard Prebble File, clipping, New Zealand Herald, 7 November 1988.

134 Richard Prebble, communication with author, 10 December 2017; Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, interview with Richard Prebble, Radio 2ZB, 10 November 1988, 1–2. The innuendo travelled far. Economist, 17 December 1988, 54.

135 Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, Richard Prebble File, clippings, New Zealand Herald, 5 November 1988.

136 Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, “Frontline Briefing Notes,” [7 November 1988].

137 Turnbull Library, Douglas Papers, 90-287-26, Further Papers, Polling, Roger Douglas, “The Critical Issues Which Control the Fate of the Fourth Labour Government,” 6 November 1988.

138 Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, Richard Prebble File, clippings, Evening Post, 11 November 1988 (quote); Christchurch Press, 12 November 1988; and Auckland Star, 13 and 14 November 1988.

139 Turnbull Library, Douglas Papers, 90-287-26, Further Papers, Polling, Emanuel Kalafatelis to Ian Brown, 18 November 1988.

140 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, Polling.

141 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Roger Douglas, “Notes [on intelligence],” 10 December 1988; Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, Lange to MPs, 23 December 1988; and David Lange, “Notes on Economy,” 12 December 1988.

142 Turnbull Library, Douglas Papers, 90-342-06, Further Papers, Caucus, Roger Douglas to Government Caucus, “Personal Statement,” 14 December 1988.

143 Bassett, Working with David, 455–63. For Douglas’s estimates of supporters for a leadership bid in July 1989, see Turnbull Library, Douglas Papers, 90-342-06, Further Papers, Caucus, Roger Douglas, “Notes of Caucus Support for Leadership,” [July 1989]. Douglas estimated that Moore versus Palmer was 29 against 29 and that Douglas versus Palmer was 15 against 34. He assumed that some would abstain.

144 Turnbull Library, Douglas Papers, 90-342-06, Further Papers, Caucus, Roger Douglas to Government Caucus, “Personal Statement,” 14 December 1988, 4.

145 On the assessment of the situation by Lange’s staff, see Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, “Strategic Options,” [mid-December 1988].

146 Scott, Drawn Out, 252. Scott knew both well. Nothing in the records contradicts this appraisal. When journalists put words in his mouth about Lange and the flat tax disagreement, Douglas was quick to point out that “there was no reference made or intended to Mr Lange.” Turnbull Library, Douglas Papers, 90-326-11, Papers, Douglas to Brendon Burns, 9 November 1988.

147 Bassett, Working with David, 445–7; Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, Lange to MPs, 23 December 1988; David Lange, “The Douglas Dossier,” 20 December 1988, 11–12; and Office of the Prime Minister, “Non-renewal of the Burgess Contract,” n.d.

148 Archives New Zealand, AAWW, W4640 7112, box 23, interview with Roger Douglas, Newztel Logs 1987–88, Ex-RNZ, “Morning Report,” 15 December 1988, 2.

149 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Roger Douglas “Briefing for Government Caucus Meeting,” 8 December 1988.

150 Party membership surged when Palmer replaced Lange. Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/09, Executive Minutes and Correspondence, “Minutes,” 15 September 1989.

151 Turnbull Library, Douglas Papers, 90-342-4, Further Papers, “Polling Summary,” 10 October 1988, 4.

152 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-12/3, Women’s Coordinator, Jo Fitzpatrick, “The Women’s Vote,” 27 November 1989. The Women’s Policy Council opposed the return of Douglas or Prebble to Cabinet, and some members were outraged when Douglas returned to Cabinet and Lange departed. See also, in the same archive, Remits 1989, Fitzpatrick to all women MPs, 23 August 1989; and Archives New Zealand, AAWW, W4640 7112, box 43, Prebble Affair, Jo Fitzpatrick to Lange, 4 November 1988.

153 Turnbull Library, Douglas Papers, 90-342-06, Further Papers, Caucus, Roger Douglas to Government Caucus, “Winning the 1990 Election,” 11 April 1989, 1–10, discussion of polls at 9–10.

154 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, Roger Douglas, “Change of Leader Could Give Labour Election Win Tomorrow,” 17 April 1989.

155 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, Caucus, Roger Douglas, “Memorandum for All Cabinet Ministers: Herald Features on Targets for 1993,” 17 July 1989.

156 Economist, 12 August 1989, 47.

157 Turnbull Library, Douglas Papers, 90-326-19, Further Papers, D. Andre to Douglas, 5 February 1989; Turnbull Library, Douglas Papers, 90-342-06, Further Papers, Caucus, Roger Douglas, “Why We Cannot Win with Palmer,” [August 1989]; and untitled note that begins “who can run a credible Government will win against Peters and Richardson,” [August 1989].

158 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, Douglas’s notes on caucus support for himself, Palmer, and Moore, [July 1989]. For Douglas’s speech notes for a run at leadership, see in the same archive, “Personal Statement,” 14 December 1988.

159 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-12/3, Women’s Coordinator Jo Fitzpatrick, “Report from the Labour Women’s Council,” 1989.

160 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, clipping, Dominion, 1 February 1990; and Douglas to Palmer, 23 January 1990.

161 Turnbull Library, Douglas Papers, 90-326-19, Further Papers, Douglas to Barry Robinson, 14 December 1989.

162 Bassett, Working with David, 522–3.

163 Bassett, New Zealand’s Prime Ministers, 416–27.

164 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-33/05, Correspondence, Mike Moore File, Tony Timms to Moore, 10 October 1990.

165 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/09, Executive Minutes and Correspondence, “Minutes,” 27 November 1987, 25 February 1988, 29 February 1989, 28 July 1989.

166 Turnbull Library, New Zealand Labour Party, Head Office Records, 200-150-19/10, Electoral Management Committee, “East Cape Audit,” 7 April 1987; “Tasman Audit,” 13 May 1987; “New Plymouth Audit,” 12 July 1988; and “Birkenhead Audit,” 20 September 1988; Moore, “Trader,” 59, 82.

167 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Correspondence, Roger Douglas File, Tony Timms, General Secretary, to Douglas, 28 September 1990. The appeal to Douglas to help raise money had begun in early 1988. See in the same file Timms to Douglas, 17 May 1988.

168 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-33/05, Correspondence, Mike Moore File, Tony Timms to Moore, 17 May 1990.

169 Gerald Hensley, “Reflecting on the Fourth Labour Government,” New Zealand Herald, 29 April 2004, https://www.nzherald.co.nz/nz/igerald-hensleyi-reflecting-on-the-fourth-labour-government/MMJ6G7EQB42P3GBl3PKAFZ62RY/.

170 Bassett, Working with David, 503, 529–31. Caygill, Securing Economic Recovery, 10–13, 136; Caygill, Building Economic Growth, 12.

171 Bassett, Working with David, 410.

172 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier, Bevan Burgess, and Murdo Beattie,” 23 October 1986.

173 David Caygill, interview with author, 6 August 2018.

174 Bassett, Working with David, 245, see also 278; Archives New Zealand, AALR, W5427 873, box 12, 3/3/2/45, Expenditure review Committee – Social Welfare 1989–90, David Caygill, Chairman of Expenditure Review Committee, to Michael Cullen, 27 November 1989; New Zealand Legal Information Institute, Public Finance Act 1990.

175 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, Roger Douglas, “Memorandum to All Cabinet Ministers: Herald Features on Targets for 1993,” 17 July 1989.

176 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/86, part 1, IMF New Zealand Article 4 – Annual Consultations 1986, “Memo from Embassy,” [February 1989].

177 Palmer, Reform, 528; Bassett, Working with David, 515; Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/09, Executive Minutes and Correspondence, “Minutes,” 30 March 1990.

178 Turnbull Library, New Zealand Council of Trade Unions Papers, 98-327-32/4, Further Papers, Labour Party, POL/1/1, vol 1, Roger Douglas, “The Politics of Successful Structural Reform,” 28 November 1989, 17, 24.

179 Archives New Zealand, AAWW, W4640 7112, box 21, part 1, Douglas 1987, interview with Richard Prebble, Newsmonitor, Paul Holmes, Breakfast Show, Radio 1ZB, 13 December 1988.

180 Turnbull Library, Bassett Papers, 2012-028-24, Health and Local Government, Michael Bassett to Crown Law Office, “History of the Development of the Child Paediatric Benefit,” [1985].

181 Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, Vogel House Retreat, “What Needs to Change?” [17 November 1988].

182 Rayner and Lattimore, “New Zealand,” 123; Bassett, Working with David, 281.

183 Turnbull Library, Deane Papers, 2004-159-24/01, Wage Round 1987, Michael J. Moriarty to Minister of Finance, 31 March 1987.

184 New Zealand Legal Information Institute, State Sector Act 1988.

185 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87756, State Sector Bill 1988, Mervyn Probine to Palmer, Rodger, Bolger, and Birch, 22 February 1988.

186 Margaret Bazley, interview with author, 15 August

187 David Caygill, interview with author, 6 August 2018.

188 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/86, part 1a, IMF New Zealand Article 4 – Annual Consultations 1986, IMF, “Statement by Mr Rye on New Zealand Executive Board Meeting,” 27 June 1986, 3.

189 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, R.J. Baker, Secretary of Federated Hotel, Hospital, Restaurant and Related Trades, to Lange, 14 July 1986.

190 Turnbull Library, Bassett Papers, 2008-199-021, Michael Bassett, “Handwritten Note to File,” n.d.

191 Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, Richard Prebble File, G.C. [Graham] Scott, Secretary of the Treasury, to Minister of Finance, 3 March 1987.

192 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Treasury Communications, Communicor, “Treasury Communications Audit,” [1986], 8–14.

193 Ibid., 26.

194 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, Douglas’s notes on Bernard Galvin to Douglas, “Treasury’s Operating Capability,” 7 July 1986.

195 Archives New Zealand, AALR, W5427 873, box 1930, 80/1/11, part 2, Restructuring of Local Authority Trading Activities 1988–89, Irene Taylor to Roger Falloon, 10 May 1989.

196 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, Bernard Galvin to Douglas, “Treasury’s Operating Capability,” 7 July 1986.

197 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, “Insight Poll,” June 1988.

198 Turnbull Library, Douglas Papers, 90-3267-20, Further Papers, Douglas to Prebble, copy to all ministers, 3 March 1988.

199 Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, “The Economy/Leadership Polling Summary,” [November 1988].

200 Turnbull Library, Douglas Papers, 90-326-12, Further Papers, Labour Party, “Labour Government Communication Strategy: Projected Spending Path,” n.d.

201 Archives New Zealand, ABJZ, W4644 869, box 12, 8/3/1, part 1, Policy and Planning – Miscellaneous – Special Projects – Local Government Reform 1987–88, “Minutes of Meeting, Officials Coordinating Committee,” 25 February 1988.

202 Archives New Zealand, ABJZ, W4644 869, box 12, 8/3/1, part 1, Policy and Planning – Miscellaneous – Special Projects – Local Government Reform 1987–88, “Minutes of Meeting, Officials Coordinating Committee,” 8 March 1988.

203 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-21/02, Electoral Management Committee, Marginal Seats Organiser, “Target Mail,” 4 November 1988.

204 Turnbull Library, Douglas Papers, 86-003-142, Further Papers, Labour Party Electorate Secretary, “Notes on 1985 Remit Paper for People in the Party Who Support the Present Leadership of the Party and Are Loyal to Government Policy,” n.d.

205 Turnbull Library, Douglas Papers, 90-326-17, Further Papers, Caucus, Roger Douglas, “Message to Government MPs,” [late 1985].

206 Archives New Zealand, AAWW, W4640 7112, box 21, part 1, Douglas 1987, interview with Richard Prebble, Newsmonitor, Paul Holmes, Breakfast Show, Radio 1ZB, 13 December 1988.

207 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-33/32, Correspondence, Ann Hercus, “Newsletter,” August 1986. She found personal attacks by National MP Winston Peters to be “grubby.”

208 Archives New Zealand, AAWW, W4640 7112, box 21, part 2, 1987, Douglas and Goff, Phil Goff News Releases.

209 Archives New Zealand, AAWW, W4640 7112, box 18, Polling 1984–89, “Polling Summary,” 10 October 1988, 11.

210 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/09, Executive Minutes and Correspondence, Tony Timms to Executive, 26 April 1988.

211 Archives New Zealand, AAWW, 4640 7112, box 18, Prebble Sacking, Asset Sales 1988, Prime Minister’s Office, “Working of Compact,” 12 September 1988, 2; and interview with Richard Prebble, Radio 2ZB, 10 November 1988, 3. Colin James of the National Business Review frequently wrote in support of Douglas and against Lange.

212 Archives New Zealand, AAWW, W4640 7112, box 47, Bank of New Zealand Sale – Rob Campbell, David Lange, “Note to File,” [March 1989].

213 Turnbull Library, New Zealand Labour Party, Head Office Records, 2007-115-7/02, Wellington MPs’ Meetings, Wayne Smith, Action Committee, to John Terris, MP, 5 November 1987.

214 Turnbull Library, Deane Papers, 2004-159-20/4, Industrial Relations at State-Owned Enterprises, “Transcript of Eyewitness News Interview with Roger Douglas,” 5 June 1986.

215 Spicer et al., Power to Manage, 143–6.

216 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, Rural Bank, J.M. [John] Chetwin to Prebble, 24 February 1988; Turnbull Library, Douglas Papers, 90-326-17, Further Papers, Rosemary Barrington to Douglas, 25 November 1987.

217 Turnbull Library, Douglas Papers, 90-326-10, Papers Relating to Election Campaigns, clipping, Auckland Sunday Star, 14 August 1987.

218 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87450, Liable Parent Scheme, Palmer to [friend] Bruce Robertson, 14 September 1983. He wished that he had remained in the United States.

219 Turnbull Library, New Zealand National Party, 89-075-140/09, Further Records, Poll on the Government Economic Package, Chris Vaughn to Max Bradford, 15 February 1988.

220 Turnbull Library, Douglas Papers, 90-326-12, Further Papers, Privatisation, Douglas to Prebble, 3 March 1988.

221 Lange, My Life, 298.

CHAPTER FOUR

1 On the Global Economic Crisis of 2007–08, see Krugman, Return of Depression Economics; Bernanke, Federal Reserve; Geithner, Stress Test; and Tooze, Crashed.

2 Sayers, Central Banking, 6.

3 On the collapse of Bretton Woods, see Eichengreen, Globalizing Capital, 134–57. Rawi Abdelal describes the role of international agencies in establishing guidelines and informal contacts that constructed global finance. Abdelal, Capital Rules, 23–161. Missing is an appreciation for how controls on capital movements broke down and were evaded and distorted. In New Zealand’s small economy and in circumstance of fiscal gaps, capital controls had adverse outcomes, and privileged interests could evade them. To balance the top-down accounts of global finance, more attention should be given to the operational dynamics of finance.

4 Deane, “Understanding New Zealand’s Monetary Policy,” 4.

5 Deane and White, Some Issues, 7.

6 Dorman, Macroeconomics, 345, original emphasis.

7 Sayers, Central Banking, 33–4.

8 Wood, English Theories, 45–6, 49.

9 Arnon, “Banking,” 268.

10 Wood, English Theories, 42–3; Arnon, “Banking,” 269–80.

11 Wood, English Theories, 114.

12 Fischer, “Rules versus Discretion,” 1158.

13 Rodger, Command of the Ocean, 291–311, 575–8.

14 Fischer, “Rules versus Discretion,” 9, 50.

15 Eichengreen, Globalizing Capital, 4; Redish, “Evolution of the Gold Standard.”

16 Eichengreen, Globalizing Capital, 34.

17 James, International Monetary Cooperation, 15.

18 Wood, English Theories, 160.

19 Mill, Principles of Political Economy, 302.

20 Cassis, Capitals of Capital, 41.

21 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, New Zealand Herald, 30 May and 4 July 1984.

22 Eichengreen, Globalizing Capital, 25–7; James, International Monetary Cooperation, 11–12.

23 Magee and Thompson, Empire and Globalisation, 185–214.

24 Singleton et al., Innovation and Independence, 148.

25 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 4, Monetary Policy Research (General Monetary) 1986–89, Spencer Russell to Roger Douglas, 6 October 1987; Paul Atkinson to Douglas, 15 October 1987; “Inflation Outlook and Strategy: Note of Meeting with Minister of Finance,” 15 April 1988; and “[Reserve Bank] Governor’s Response to Dominion Articles,” 29 August 1988.

26 Deane and White, Some Issues, 10.

27 New Zealand Legal Information Institute, Reserve Bank of New Zealand Act 1989.

28 Singleton et al., Innovation and Independence, 150.

29 Eichengreen, Globalizing Capital, 8–24.

30 Magee and Thompson, Empire and Globalisation, 176–204.

31 Cassis, Capitals of Capital, 67.

32 Dornbusch, “Monetary Policy,” 113.

33 James, International Monetary Cooperation, 14.

34 Cassis, Capitals of Capital, 65.

35 Hawke, Between Governments and Banks, 16–17.

36 Canadian Delegation, Imperial Economic Conference, Empire Currencies, 3–4.

37 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, New Zealand Herald, 19 July 1984; Archives New Zealand, AALR, W5427 873, box 988, 61/1/4/1, part 2, Reports on Exchange Rate Regime 1987–90, Reserve Bank of New Zealand, “Information Note: Foreign Exchange Arrangements,” 2 March 1985.

38 Davis and Huttenback, “Costs of Defending an Empire”; Davis and Huttenback, “British Subsidies to the Empire.”

39 Butlin, Investment in Australian Economic Development, 187–8.

40 Eichengreen, Globalizing Capital, 38–41; Archives New Zealand, AALR, W5427 873, box 959, 61/1/24, part 10, Changes in Exchange Rate of NZ Dollar 1984, Reserve Bank of New Zealand, “Briefing Papers,” July 1984, 48.

41 Willison, Were Banks Special? 4–13.

42 Cassis, Capitals of Capital, 100–1.

43 Capitals of Capital, 147–54.

44 League of Nations, Conclusions of the International Financial Conference, 1–10; Eichengreen, Hall of Mirrors, 43–4.

45 Bank for International Settlements, Eight European Central Banks, on Belgium, 14, 20, 45; on Germany, 56–67, 70, 72, 76, 79; on England, 97, 109; on France, 125–7, 147–52; on Italy, 183–7, 208–10, 218–19; on Netherlands, 232–4, 254–63; on Switzerland, 288–91; on Sweden, 308–14, 316–22; Meyer, Bankers’ Diplomacy, 7–8, 10–11, 16–19, 58–9, 100–3.

46 Kindleberger, “International Monetary Politics,” 120–3.

47 Bank of England, “Your Country Needs Funds.”

48 The term “bonds” is used, but the debt on sale was often called government stock.

49 De Kock, History, 43–4; Cagan, “Monetary Dynamics of Hyperinflation,” 77–9.

50 De Kock, History, 51.

51 Sargent, “Ends of Four Big Inflations,” 89–90.

52 Archives New Zealand, AALR, W5427 873, box 366, 39/4, no. 12, Reserve Bank of New Zealand – Policy and Legislation 1984–87, R.F. [Richard] Shallcrass for Secretary to Douglas, 9 December 1985; Singleton et al., Innovation and Independence, 114–15.

53 James, International Monetary Cooperation, 20–5.

54 Archives New Zealand, ABTW, W4656 7031, box 1, A.R. Low, “The Place of the Reserve Bank in the NZ Economy,” [1970], 1–5.

55 Turnbull Library, Deane Papers, Special Board Meeting on Reserve Bank Autonomy, Economic Department, “A Brief Review of the Constitutional History and Current Statutory Position of the Bank,” 6 March 1987.

56 Deane, Nicholl, and Smith, Monetary Policy, 15–27.

57 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 4, Monetary Policy Research (General Monetary) 1986–89, C.N. Pinfield, “The Reform of the Reserve Bank Funding and Accountability,” notes on discussion with Geoffrey Wood, October 1988.

58 Archives New Zealand, ABTW, W4656 7031, box 1, A.R. Low, “The Place of the Reserve Bank in the NZ Economy,” [1970].

59 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108211, General, Agriculture, Office of the Minister of Agriculture, “Dairy Industry Overdraft Facilities,” [mid-1983].

60 Hawke, Between Governments and Banks, 68–9; 82–100; Sinclair, Walter Nash, 130, 159. On state advances, see Archives New Zealand, ABPY, W4596, box 1, Rural Bank – Profile – Past and Present 1983, The Rural Bank: Profile Past and Present (1983), 2.

61 Archives New Zealand, AALR, W5796 873, box 40, T61/1/10/1, no. 8, Review of Monetary Policy 1967–83, Gilbert Wilson, Governor of Reserve Bank of New Zealand, “Memorandum for the Minister of Finance: Targets for Bank Advances and Credit Limits,” 28 April 1967; Turnbull Library, Deane Papers, 2004-159-02/3, Monetary Policy, A.R. Low, “Monetary Policy: A New Zealand Review,” January 1968; Roderick Deane to J. Oslizlok, Economist, Central Bank of Ireland, 23 May 1968; and Roderick Deane “Memorandum for the Minister of Finance: Review of Monetary Policy,” 6 August 1968.

62 Easton, In Stormy Seas, 99–106.

63 Sinclair, Walter Nash, 306–8.

64 Hawke, Between Governments and Banks, 117.

65 Sinclair, Walter Nash, 351.

66 James, International Monetary Cooperation, 205.

67 Ibid., 260.

68 Pauly, Who Elected the Bankers? 82–97.

69 O’Rourke and Williamson, “Introduction,” 19.

70 Deane, International Monetary Reform, 5–6.

71 International Monetary Fund, “IMF in History.”

72 Kindleberger, “International Monetary Politics,” 119.

73 Pauly, Who Elected the Bankers? 17.

74 Ibid., 41.

75 Michie, “Financial Capitalism,” 239.

76 Archives New Zealand, AALR, W5427 873, box 960, 61/1/24, part 9, Changes in Exchange Rate of the New Zealand Dollar 1982–84, “External Debt Adjustment,” 23 December 1982.

77 Singleton et al., Innovation and Independence, 256.

78 Archives New Zealand, AALR, W5427 873, box 959, 61/1/24, part 8, Changes in Exchange Rate of NZ Dollar 1983–84, Arthur Grimes, “Alternative Exchange Rate Strategies,” June 1984.

79 Tobin, World Finance, 22.

80 Boughton, Silent Revolution, 14.

81 Trading Economics, “New Zealand Current Account.” As a social democrat, historian Jim McAloon sees intervention as feasible and as preventing traumatic adjustments. McAloon, “Robert Muldoon,” 19.

82 Deane and White, Some Issues, 16.

83 Gustafson, His Way, 384. For senior officials’ critical assessment of the freeze, see comments by Bernard Galvin, Roderick Deane, and Graham Scott in Carlaw, dir. Revolution, part 1, Fortress New Zealand.

84 Deane, Financial Sector Policy Reform, 9.

85 Sullivan, “New Zealand History.”

86 Archives New Zealand, AALR, W5427 873, box 951, 61/1/10/8, part 2, Tendering of Government Securities 1983, Richard Wilks, Governor of Reserve Bank of New Zealand, and Bernard Galvin, Secretary of the Treasury, “Memorandum for the Minister of Finance: Government Stock Tender No. 4,” 7 and 15 December 1983; Wilkes and Galvin, “Memorandum for the Minister of Finance: Government Stock Tender No. 5,” 25 January 1984; Wilkes and Galvin, “Memorandum for the Minister of Finance: Government Stock Tender No. 6,” 14 March 1984; Wilkes and Galvin, “Memorandum for the Minister of Finance: Government Stock Tender No. 8,” 30 May 1984; and Wilkes and Galvin, “Government Stock Tender No. 8: Meeting with the Prime Minister,” 1 June 1984.

87 Archives New Zealand, AALR, W5427 873, box 951, 61/1/10/8, part 2, Tendering of Government Securities 1983, R.W.R. White, “Memorandum for the Assistant Chief Economist,” 13 February 1980; and B.N. Bryant, Executive Director of Life Offices Association of New Zealand, to P.J. [Peter] Ledingham, Assistant Chief Economist of Reserve Bank of New Zealand, 22 April 1983.

88 Hawke, Between Governments and Banks, 99.

89 Easton and Thompson, Introduction to the New Zealand Economy, 322–3.

90 Easton, Profitability and Performance, 7.

91 On terms of trade, see OECD, “Terms of Trade.”

92 Deane, Some Issues, 13.

93 On data, see OECD, “Balance of Payments”; OECD, “Saving Rate”; and OECD, “Business Confidence Index (BCI).”

94 On interest rates, see OECD, “Long-Term Interest Rates.”

95 On services, see OECD, “Trade in Services.”

96 Hawke, Between Governments and Banks, 99, quoting the Reserve Bank’s 1968 annual report.

97 Archives New Zealand, AALR, W5427 873, box 959, 61/1/24, part 8, Changes in Exchange Rate of NZ Dollar 1983–84, “Balance of Payments, External Debt and Capital Formation,” September 1982.

98 Archives New Zealand, AALR, W5427 873, box 600, 40/1/42/1, Legal – Think Big Memorandum 1984–87, “Draft of Study of Think Big for Treasury,” [early 1987].

99 Ibid.

100 Turnbull Library, Douglas Papers, 90-326-16, Further Papers, Douglas’s notes on the costs of these schemes. See also New Zealand, Electrical Supply Authorities, 7–24.

101 This was the case, for example, in the Canadian provinces in the 1970s. Richards and Pratt, Prairie Capitalism, 215–75; Fréchette et Vézina L’ économie du Québec, 144–6.

102 Dalziel, Julius Vogel, 9; Gustafson, His Way, 286.

103 For a contrary opinion from a union economist in 1984, see Rob Campbell, “Union’s View,” 10–11.

104 Archives New Zealand, AATJ, W5519 7495, box 490, BP 10/7/14, part 1, Business Policy – State-Owned Enterprises – Regulatory Environment – Privatisation of SOEs – State-Owned Enterprises 1986–91, Peter Ryan, “Memorandum for Cabinet: The Future of the Export Guarantee Office (EXGO),” 18 January 1990; Marilyn F. Goddard for Secretary of the Treasury and Alastair Bisley for Secretary of External Relations and Trade, “The Future of the Export Guarantee office (EXGO),” 6 March 1990.

105 Archives New Zealand, AATJ, W5032 7428, box 45, 29/2/3, Finance Policy – Development Finance Corporation, Papers Relating to Export Suspensory Loan Scheme, S.A. McLeod for Officials Economic Committee to Chairman of Cabinet Economic Committee, “Proposed Changes to the Export Suspensory Loan Scheme,” 8 March 1978; R.E. Alexander for Secretary of the Treasury to Minister of Finance, “Export Suspensory Loan Funding,” 20 October 1982; “Administrative Review of the Export Suspensory Loan Scheme,” [1982]; and J. Yeabsley, Assistant Secretary of Business Environment, and W.G. Chapman, Development Services Manager, Development Finance Corporation New Zealand Ltd, “Agreed Guidelines: Administration of Export Suspensory Loans,” 25 January 1988.

106 Archives New Zealand, ABHS, W4639 6980, box 26, General Managers Report EXIM [New Zealand Export/Import Corporation] Activities 1984–88, clipping, Evening Post, 16 and 20 August 1984; and “New Zealand Export-Import Corporation: Amended Mission Statement,” 18 August 1986; Archives New Zealand, AATJ, W5 519 7495, box 490, BP 10/7/14, part 1, Business Policy – State-Owned Enterprises – Regulatory Environment – Privatisation of SOEs – State-Owned Enterprises 1986–91, Hon. Ralph Maxwell, Associate Minister of External Relations and Trade, “Memorandum to the Chairman, State Agencies Committee: New Zealand Export-Import Corporation (EXIM): Proposal for Sale,” [June 1990].

107 New Zealand, “Income Tax Amendment Act 1979”; New Zealand Legal Information Institute, Income Tax Amendment Act 1979.

108 Archives New Zealand, AATJ, W5032 7428, box 45, 29/2/3, Finance Policy – Development Finance Corporation, Papers Relating to Export Suspensory Loan Scheme, “Expenditures Involved under ESL [Export Suspensory Loan] and EPTI [Export Performance Taxation Incentive] Schemes,” [1983].

109 Mundell, “Reconsideration of the Twentieth Century,” 335.

110 James, International Monetary Cooperation, 311.

111 Singleton et al., Innovation and Independence, 38–9.

112 I am indebted to Malcolm McKinnon for suggesting this way of expressing the values held by many public servants at the time of the reforms. See also Norman, You Can’t Win ‘Em All, 78–171; and Gustafson, My Way, 286–9.

113 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/14, Correspondence, David Caygill File, David Caygill, “Speech to Maui Gas Issues Seminar,” 28 May 1986, 3–19.

114 Archives New Zealand, ABOT, W4376 6787, box 35, Devaluation – Post Election 1984, Economics Department, Reserve Bank of New Zealand, “1981 Credit Expansion,” 8 April 1983.

115 Tom Scott coined the pun. Archives New Zealand, ABOT, W4375, box 75, Devaluation – Post Election 1984, series of articles in the Auckland Star by Tom Scott, including “The Final Daze,” 15 August 1984.

116 Archives New Zealand, AALR, W5427 873, box 951, 61/1/10/8, part 1, Tendering of Government Securities 1983, Reserve Bank of New Zealand, A Review of the Development of a Market in Government Securities and Open Market Operations by the Reserve Bank (1979); and part 2, Tendering of Government Securities 1983.

117 Turnbull Library, Douglas Papers, 75-301-37, Cabinet Circulars and Committee Papers, 1972–75, Treasury Report to Prime Minister, “Liquidity,” 19 November 1974; and A.R. Low to Minister of Finance, “Liquidity Situation,” 15 November 1974.

118 For a careful discussion of Muldoon’s handling of the problems of 1975–80 and especially for the context of his decisions, see McAloon, “Robert Muldoon.”

119 For a defence, see Gustafson, His Way, 262–89. For the official criticisms, see Archives New Zealand, AALR, W5427 873, box 993, 61/12/2/1, part 1, Regulatory Framework for Industrial Relations – General (Labour Market Regulation) 1980–84, Chairman of Employment Sub-committee, Officials Economic Committee (Labour and Treasury Departments), to Chairman of Cabinet Economic Committee, 22 September 1983, a covering letter for a paper entitled “Policy Responses to Unemployment.”

120 Singleton et al., Innovation and Independence, 49; Gustafson, His Way, 350.

121 Gustafson, His Way, 349.

122 Archives New Zealand, ABTW, W5894 25145, box 313, 71/29, part 2, Minister of Finance – Letters to and from 1981–83, Reserve Bank of New Zealand, “Memorandum for the Associate Minister of Finance: Commission on Kiwi Savings Stock,” 15 June 1983; Dirk Hudig, Reeves, Moses, Hudig, and Company Limited to Jim McLay, 13 May 1983; and John Falloon, Associate Minister of Finance, to Michael Cox, MP, [23 April 1983].

123 Mortlock, “New Zealand’s Financial Sector,” 44.

124 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 2, Monetary Policy 1980–86, Greg Houston, “Appendix: Re-intermediation and M3,” in “Current Monetary Conditions: A Summary,” 2 August 1985.

125 Turnbull Library, Deane Papers, 2004-159-09/08, Fiscal Policy, Graham Scott to Muldoon, with Deane’s comments, “Report,” copy, 18 June 1982.

126 Gustafson, His Way, 471.

127 Bassett and Bassett, Roderick Deane, 75.

128 Gustafson, His Way, 247–56.

129 Singleton et al., Innovation and Independence, 39; McAloon, “Robert Muldoon,” 11.

130 Deane, Financial Sector Policy Reform, 11–12.

131 Turnbull Library, Douglas Papers, 87-121-157, Parliamentary Papers, Economic Department, “Summary of the Reserve Bank’s Dealings with the Minister of Finance on Monetary Policy since December 1982,” 6 March 1984.

132 Singleton et al., Innovation and Independence, 58.

133 Thorp and Quandt, New Inflation, 170–3.

134 Gustafson, His Way, 247. See my account in chapter 10.

135 World Bank, “Inflation, Consumer Prices (Annual %) – New Zealand.”

136 Studies of labour organisations and inflation were notable in the 1960s and 1970s. A tentative conclusion was that although “unions mattered,” it was their power in particular circumstances, not militancy, that counted. Purdy and Zis, “Trade Unions”; Purdy and Zis, “On the Concept”; Johnston and Timbrell, “Empirical Tests.”

137 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108298, David Caygill to David Butcher, 13 July 1982.

138 Binder, “Anatomy of Double-Digit Inflation,” 267.

139 Gustafson, His Way, 326–7.

140 Deane, Some Issues, 13.

141 Allen, “Spread of Manufacturing,” 38–64; Morck and Yeung, “Enterprise Models,” 214–15, 222–4.

142 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Inflation 1982–84, bundle for 1982, clippings, New Zealand Times, 12 September 1982; and Auckland Star, 18 October 1982.

143 Archives New Zealand, ABOT, W4376 6787, box 35, Devaluation – Post Election 1984, clipping, New Zealand Herald, 18 June 1984.

144 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, “Supporters of the Right Hon. R.D. Muldoon’s Call for Another Bretton Woods–Type Conference”; Gustafson, His Way, 327–9.

145 Robert A. Mundell claimed in his Nobel Prize address in 1999 that tax cuts and tight money in the late 1970s inflicted a steep recession in the United States but soon “shifted the Phillips curve downward and to the left, allowing unemployment and inflation to decrease at the same time.” The expansion lasted from roughly 1982 to 2000. Mundell, “Reconsideration of the Twentieth Century,” 336. Spillover benefited New Zealand’s economy.

146 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Dominion, 16 October 1982.

147 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clippings, Evening Post, 9 May 1983; Dominion, 25 May 1983; and Christchurch Press, 9 June 1983. On France, see Kindleberger, “International Monetary Politics,” 124–5.

148 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, New Zealand Herald, 30 November 1983.

149 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, New Zealand Herald, 1 March 1984.

150 International Monetary Fund, “IMF in History.”

CHAPTER FIVE

1 Tobin, World Finance, 24.

2 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Auckland Star, 29 May 1984, citing John Wells, Chair of New Zealand Finance Houses Association.

3 Quoted in Brandimarte, “Capital Controls.”

4 Eichengreen, Globalizing Capital, 180.

5 Krugman, “Latin America’s Swan Song.”

6 Archives New Zealand, AALR, W5427 873, box 951, 61/1/10/8, part 1, Tendering of Government Securities 1983, Reserve Bank of New Zealand, A Review of the Development of a Market in Government Securities and Open Market Operations by the Reserve Bank (1979), 16. There were about twenty-five specialised dealers.

7 Sinclair, Walter Nash, 170–89, quotes at 177.

8 Gustafson, His Way, 389.

9 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, Newztel Log, Ex-RNZ, “Morning Report,” 2 July 1984.

10 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, New Zealand Herald, 18 June 1984.

11 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Telegram to Jim Knox, copy, 4 March 1985.

12 Archives New Zealand, AALR, W5427 873, box 960, 61/1/24, part 10, Changes in Exchange Rate of NZ Dollar 1984, “Minutes of Public Expenditures Committee (Hearing on Devaluation),” 13 September 1984, 143, citing Jim Anderton.

13 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Investigation into Currency Crisis in 1984, Government Research Unit, “The Devaluation Argument,” 26 June 1984; and Newztel Log, Ex-TV One, “Sunday,” 24 June 1984; Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Dominion, 27 June 1984; Gustafson, His Way, 387.

14 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, New Zealand Herald, 11 July 1984; Archives New Zealand, AAWW, W4640 7112, box 23, Newztel Transcripts 1984–85, interview with David Lange, Newztel Log, Ex-TV One, “Sunday,” 29 July 1984.

15 Gustafson, His Way, 385–6.

16 Waring, Political Years, 339–44.

17 Carlaw, dir. Revolution, part 1, Fortress New Zealand.

18 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Tom Scott, “The Devaluation Saga,” Auckland Star, 11 August 1984.

19 Carlaw, dir. Revolution, part 1, Fortress New Zealand.

20 Gustafson, His Way, 386.

21 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Evening Post, 19 July 1984.

22 Archives New Zealand, AALR, W5427 873, box 959, 61/1/24, part 10, Changes in Exchange Rate of NZ Dollar 1984, International Department to Reserve Bank Directors, “Recent Foreign Exchange Market Developments,” 1 August 1984.

23 Archives New Zealand, ABTW, W6030 26295, box 143, 1000-1010, Monetary Policy Post-Election Briefing 1984, Reserve Bank of New Zealand to Minister of Finance, 13 July 1984. It was likely prepared for Douglas.

24 Archives New Zealand, AAWW, W4640 7112, box 41, Briefing Papers Reserve Bank 1984, Spencer Russell to Lange (Secret), 15 July 1984.

25 The freeze coincided in 1983 with a drop in inflation worldwide, but this worldwide level was lower than New Zealand’s, a fact that argues against any claims that the freeze worked. World Bank, “Inflation, Consumer Prices (Annual %) –New Zealand.”

26 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clippings, Tom Scott, “The Devaluation Saga,” Auckland Star, 11 August 1984; and Tom Scott, “The Final Daze,” Auckland Star, 15 August 1984.

27 Gustafson, His Way, 390–3.

28 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Evening Post, 17 July 1984.

29 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, New Zealand Herald, 18 July 1984.

30 Archives New Zealand, AAWW, W4640 7112, box 41, Briefing Papers Reserve Bank 1984, Lange to Robert Muldoon, 17 July 1984.

31 Archives New Zealand, AALR, W5427 873, box 988, 61/10/5/2, part 1, Alternative Exchange Rate Regimes (Background Papers Exchange Rate Policy) 1984–85, M.A. Sherwin, “Memo of Floating Exchange Rate,” 27 March 1984.

32 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Christchurch Press, 19 July 1984. For a poorly researched polemic, see McQuaig, Shooting the Hippo, 22.

33 In the interest of disclosure, I regard Roderick and Gillian Deane as friends. Roderick and I have disagreed on many subjects, including labour relations, capital gains taxes, and aspects of regulation, but I have learned a great deal from him and greatly respect his services to his country. His lucid and carefully balanced contemporary publications on the New Zealand financial system were instructive and concurred with leading economists. The Deanes and the Hunns, Donald and Jannie, made me aware of topics and individuals that I would have missed if I had confined my searches to the archives.

34 Gustafson, His Way, 355.

35 Turnbull Library, Deane Papers, 2004-159-21/03, Special Board Meeting on Reserve Bank Autonomy, Roderick Deane, “Curriculum Vitae,” April 1979.

36 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Dominion, 16 October 1982.

37 Archives New Zealand, AALR, W5427 873, box 959, 61/1/24, part 10, Changes in Exchange Rate of NZ Dollar 1984, Jim Anderton to Roger Douglas, 7 August 1984.

38 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, New Zealand Herald, 18 August 1984.

39 Archives New Zealand, AALR, W5427 873, box 960, 61/1/24, part 9, Changes in Exchange Rate of NZ Dollar, 1982–84, Don Abel to Muldoon, 28 June, 2 July 1984.

40 Gustafson, His Way, 351.

41 Ibid., 350.

42 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Investigation into Currency Crisis in 1984, Public Expenditures Committee, “Minutes of Meeting of the Subcommittee on Devaluation,” 13 September 1984, 12–22, quote at 22.

43 Singleton et al., Innovation and Independence, 103.

44 Turnbull Library, Douglas Papers, 88-353-182, Subject Files E–F, Douglas quoting conversation with Keating and reporting it to Geoffrey Palmer, David Caygill, and Richard Prebble, 24 September 1984.

45 Turnbull Library, Douglas Papers, 88-353-182, Subject Files E–F, Solicitor General to Attorney General, 19 September 1984; on the violations of due process, see in the same file, Roderick Deane to Douglas, 3 October 1984; Archives New Zealand, ABOT, W4375 6787, box 35 Devaluation – Post Election 1984, clipping, Truth, 2 October 1984.

46 Deane and White, Some Issues, 10.

47 Archives New Zealand, AALR, W5427 873, box 988, 61/10/5/2, part 1, Alternative Exchange Rate Regimes (Background Papers Exchange Rate Policy) 1984–85, “Exchange Rate: Meeting between Reserve Bank and Treasury,” 18 January 1984.

48 Archives New Zealand, AALR, W5427 873, box 988, 61/10/5/2, part 1, Alternative Exchange Rate Regimes (Background Papers Exchange Rate Policy) 1984–85, Seminar with Peter Jonson, Wellington, 13 February 1984.

49 Archives New Zealand, AALR, W5427 873, box 988, 61/10/5/2, part 1, Alternative Exchange Rate Regimes (Background Papers Exchange Rate Policy) 1984–85, R.S. [Roderick] Deane, “The Case for Floating: Confidential Discussion Paper,” 19 Match 1984.

50 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Dominion, 27 June 1984.

51 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clippings, Dominion, 23 July 1984; and Christchurch Press, 25 July 1984.

52 Archives New Zealand, AALR, W5427 873, box 988, 61/10/5/2, part 1, Alternative Exchange Rate Regimes (Background Papers Exchange Rate Policy) 1984–85, Graham C. Scott, Assistant Secretary of the Treasury, to Douglas, 19 December 1984; and Russell to Douglas, 18 February 1985. On the budget, see Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier, Bevan Burgess, and Murdo Beattie,” 23 October 1986.

53 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Michael Bassett, Doug Andrew, and Bevan Burgess,” 23 October 1986, 6.

54 Archives New Zealand, AALR, W5427 873, box 952, 61/1/10/8, part 4, Tendering of Government Securities 1983–85, Spencer Russell, “Memorandum for the Minister of Finance: Government Stock Tender No. 14,” [October 1984], 4–5; D. Archer, “Note for the Governor: Public Debt Policy,” 30 November 1984, 2–3; Spencer Russell and Graham Scott, “Memorandum for the Minister of Finance: Government Stock Tender No. 15,” 4 December 1984; and Banking Section, Reserve Bank of New Zealand, “Memorandum for the Governors: Information Deficiencies: Tendering of Treasury Bills and Open Market Operations,” 6 December 1984.

55 Turnbull Library, Douglas Papers, 90-287-31, Further Papers, Bernard Galvin to Douglas, “The Exchange Rate and the Foreign Exchange Market,” 12 December 1984.

56 Singleton et al., Innovation and Independence, 109–10.

57 Turnbull Library, Douglas Papers, 90-287-31, Further Papers, Bernard Galvin to Douglas, “The Exchange Rate and the Foreign Exchange Market,” 12 December 1984. On other countries, see Eichengreen, Globalizing Capital, 183–4, 188.

58 Archives New Zealand, AALR, W5427 873, box 961, 61/1/24, part 12, Changes in the Exchange Rate of the NZ Dollar, Trevor de Cleene to Douglas, 13 November 1984.

59 Archives New Zealand, AALR, W5427 873, box 988, 61/10/5/2, part 1, Alternative Exchange Rate Regimes (Background Papers Exchange Rate Policy) 1984–85, Russell to Douglas, 18 December 1984.

60 Tobin, World Finance, 17.

61 Eichengreen, Globalizing Capital, 143. A 2013 retrospective study by New Zealand Treasury economists Enzo Cassino and David Oxley concludes that short-run exchange rate volatility usually has little impact on export flows for developed countries. Some evidence for New Zealand suggests that a few exporting firms might benefit from financial instruments to hedge exchange rate risk. See Cassino and Oxley, Exchange Rate Valuation, 32.

62 Archives New Zealand, AALR, W5427 873, box 988, 61/10/5/2, part 1, Alternative Exchange Rate Regimes (Background Papers Exchange Rate Policy) 1984–85, S.J. Begg, “Appraisal of the Exchange Rate Debate,” Australian Agricultural Economics Society Conference, July 1985, 10-11; Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 6, Monetary Policy General (General Monetary) [Deregulation and Policy], Grant Spencer, Chief Manager of Economic Department, Reserve Bank of New Zealand, “Monetary Policy: The New Zealand Experience, 1985–1990,” Conference on Short-Term Monetary Markets, Deregulation, and Monetary Policy, Sydney Convention Centre, 25 May 1990. On mopping up the injections, see Archives New Zealand, AALR, W5427 873, box 1012, 61/14/1/1, Monetary Policy Research (General Monetary) 1984–89, David Carey, International Department, Reserve Bank of New Zealand, “Note on the Public Debt Programme: Monetary Policy and the Real Exchange Rate,” 20 December 1984. Later assessments of floats credited them with improving the quality of signals that some countries used in their inflation targeting practices. Mishkin, Can Inflation Targeting? 23–6.

63 Among these non-bank dealers were Broadbank, Citicorp Forex, Indosuez, Lombank, Marac N.Z.1. Securities, and South Pacific Merchant Finance. New Zealand Legal Information Institute, Exchange Control Regulations 1978, Amendment No. 2. Academic critics long continued to assume that the shift of exchange risk from the public sector to the private sector was dangerous because the relevant markets were “thin on the ground.” Blyth, Great Transformations, 135. Even in a small economy, this view does not appear valid. Moreover, this criticism amounts to a defence of keeping the costs of speculative risk in the public sector.

64 David Lange, Oxford Union, 1 March 1985, clip of debate with Jerry Falwell, https://www.youtube.com/watch?v=OeHTziiFVxo.

65 Archives New Zealand, AAFD, W4646 7581, box 90, 107/1, part 4, Roger Douglas, “Draft Cabinet Minute,” 4 March 1985. An announcement had been made on Saturday, 2 March, and the float was effective when the market opened on Monday. Turnbull Library, Douglas Papers, 87-121-156, Parliamentary Papers, “Press Release,” 2 March 1985.

66 Roger Douglas, interview with author, 18 May 2014.

67 Archives New Zealand, AALR, W5427 873, box 988, 61/10/5/2, part 1, Alternative Exchange Rate Regimes (Background Papers Exchange Rate Policy) 1984–85, Post, 6 March 1985.

68 Pauly, Who Elected the Bankers? 25.

69 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-32/10, Joint Council of Labour, “Minutes,” 13 March 1985; and for a more general complaint about a lack of consultation, see Ken Douglas and W.E.B. Tucker to Roger Douglas, 4 March and 30 April 1985.

70 Archives New Zealand, AALR, W5796 873, box 40, T61/1/10/1, no. 8, Review of Monetary Policy 1967–83, Gilbert Wilson, Governor, Reserve Bank of New Zealand, “Memorandum for the Minister of Finance: Targets for Bank Advances and Credit Limits,” 28 April 1967.

71 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Otago Daily Times, 1 August 1984.

72 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108211, General, Agriculture, clipping, “Is There a Life after SMPs?” Straight Furrow, 11 May 1983. Lincoln College farm experts Sir James Stewart and Professor Barry Dent saw fighting inflation as a major government priority. Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108212, General, Agriculture, clipping, National Business Review, 7 March 1983. To claim that inflation is “clearly a value judgment” or a “mediated social fact” is to skip over what was happening to those affected by it. Blyth, Great Transformations, 150.

73 Turnbull Library, Douglas Papers, 87-121-156, Parliamentary Papers, Spencer Russell to Douglas, “Memorandum: Overseas Exchange Transactions: Private Capital Flows,” 2 December 1985.

74 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clippings, Evening Post, 19 July 1984 (quote); and Christchurch Press, 20 July 1984.

75 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, “Note to File: Comment from Finance Houses Association,” 23 August 1984.

76 Bassett and Bassett, Roderick Deane, 129–32.

77 Archives New Zealand, AALR, W5427 873, box 1010, 61/14/1, part 2, Monetary Policy Research 1980–86, Chief Manager, Economic Department, Reserve Bank, “Memo: Criticism of Monetary Policy,” 9 August 1985, in reply to C.J. Vandersyp, Senior Research Officer, Economics Department, Bank of New Zealand; Economics Department, Reserve Bank of New Zealand, to Governors, “Monetary Policy Stance,” 7 August 1985; Deputy Governor of Reserve Bank of New Zealand, “Discussion Note: Monetary Policy,” 8 August 1985; Spencer Russell to Douglas, “Monetary Conditions,” 14 August 1985; and Economics Department, Reserve Bank of New Zealand, “Discount Policy: Memorandum for Governor,” 22 August 1985.

78 Archives New Zealand, AATJ, W3 566 7428, box 1267, 79/2/4, part 1, Economics – Price Indices and Prices – Inflation, CPC Meeting, Treasury, “Policy Responses to Inflation: Outline,” 13 August 1985.

79 Singleton et al., Innovation and Independence, 99–132.

80 Turnbull Library, Deane Papers, 2004-159-09/08, Fiscal Policy, Peter Ledingham to Deane, 10 December 1981 (quote); and Deane to Ledingham, 14 January 1985.

81 Scammell, International Monetary Policy, 67.

82 New Zealand Legal Information Institute, Public Finance Act 1989.

83 Archives New Zealand, AAFD, W4646 7581, 103/2, part 1, Economic Policy – Public Debt, Graham Scott, “Memorandum for Policy Committee (Secret Draft),” 18 April 1988.

84 Sargent, “Stopping Moderate Inflations,” 58.

85 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 5, Monetary Policy 1989, Paul Atkinson, Institute of International Finance, Washington, DC, “Comments on the Reserve Bank’s ‘Review of Monetary Policy,’ and Related Treasury Notes and Reports,” 18 June 1989.

86 Turnbull Library, Douglas Papers, 90-287-09, Subject Files R–S, Lindsay Knight to Douglas, 29 June 1989.

87 Archives New Zealand, AALR, W5427 873, box 986, 61/9/5/7, part 1, Balance of Payments – Invisibles, Services, and Transfer Forecasts (Ex. Trade) 1984–90, Paul Atkinson to Douglas, “September Balance of Payment Figures,” 5 November 1986.

88 Deane, Nicholl, and Smith, Monetary Policy, 133–91.

89 Singleton et al., Innovation and Independence, 112.

90 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 2, Monetary Policy 1980–86, “International Experience of the Disinflation Process,” 18 October 1985, 3–6.

91 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 2, Monetary Policy 1980–86, Spencer Russell to Douglas, “Monetary Conditions,” 14 August 1985.

92 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 2, Monetary Policy 1980–86, Grant Spencer, Chief Manager of Economic Department, Reserve Bank of New Zealand, to Editor, National Business Review, 3 January 1986.

93 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Interest Rate, clipping, Evening Post, 14 April 1986.

94 Archives New Zealand, AALR, W5427 873, box 1010, 61/14/1, part 2, Monetary Policy Research, 1980–86, Russell to Max Bradford, New Zealand Bankers’ Association, 23 September 1985.

95 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Interest Rate, clipping, Dominion, 16 September 1985.

96 New Zealand Legal Information Institute, Reserve Bank of New Zealand Act 1964, sec. 8.

97 Economists who admired John Maynard Keynes but detected errors in his The General Theory of Employment, Interest, and Money (1936) narrowed their research and adopted econometric modelling. Critics judged Keynesian legacies to be too specific to the United Kingdom. Leijonhufvud, “Whatever Happened?” 64–73; Samuels, “Preface”; Darity Jr and Goldsmith, “Mr. Keynes.”

98 Backhouse and Bateman, Capitalist Revolutionary, 40.

99 Archives New Zealand, AALR, W5427 873, box 993, 61/12/2/1, part 1, Regulatory Framework for Industrial Relations – General (Labour Market Regulation) 1980–84, Graham Scott, Assistant Secretary of the Treasury, to Muldoon, “Public Works as a Policy Response to Unemployment,” 13 March 1984. The memo was shown to Roger Douglas on 13 December 1984.

100 McKinnon, Treasury, 284–94.

101 Roderick Deane, interview with author, 2 August 2016.

102 For a good contemporary exposition of the problem, see Blyth, “Economists’ Perspective,” 11–22.

103 Turnbull Library, Douglas Papers, 90-326-17, Further Papers, Len Bayliss to Douglas, 27 January 1986; Douglas to Bayliss, copy, n.d.; and C.J. Mackenzie to Douglas, 14 February 1986.

104 World Bank, “Inflation, Consumer Prices (Annual %).” It is amazing that historians in other countries have also dwelt on particular academics to explain fiscal and monetary actions without discussing the troubling inflation. See, for example, Kruse and Zelizer, Fault Lines, 106–12.

105 Turnbull Library, Douglas Papers, 90-326-17, Further Papers, Douglas to Len Bayliss, copy, n.d.; and C.J. Mackenzie to Douglas, 14 February 1986.

106 Buckle, “Sequencing and the Role,” 236–52; Buckle, Expectations and Credibility, 12.

107 Whitwell, “Monetary Policy,” 266–79.

108 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Interest Rate, clipping, Evening Post, 28 September 1985.

109 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 3, Monetary Policy Research (General Monetary) 1986–87, Bryan Philpott, “Management of the Floating Exchange Rate: Paper Prepared for the New Zealand Dairy Board,” 10 July 1986, 14.

110 On the persistent interventionism, see Archives New Zealand, AALN, W4748 7234, box 180, New Zealand Manufacturers’ Federation Submission to the Export Incentives Review 1983, “Discussion of the Principal Points.” On the later lobbying, see Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 6, Monetary Policy General (General Monetary) [Deregulation and Policy], Economic Department, “Critique of the Submission to the Finance and Expenditure Select Committee Made by the New Zealand Manufacturers’ Federation,” 26 July 1989, 1–13.

111 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 6, Monetary Policy General (General Monetary) [Deregulation and Policy], Economic Department, “Critique of the Submission to the Finance and Expenditure Select Committee Made by the New Zealand Manufacturers’ Federation,” 26 July 1989, 1–13.

112 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 5, Monetary Policy 1989, David K. Sheppard, Jan Whitehall, Allan Catt, Paul Frater, Kel Sanderson, Bryan Philpott, and Sue Bingham, “The Recent Conduct of Monetary Policy in New Zealand: The Theory and Evidence,” prepared for the New Zealand Manufacturers’ Federation, July 1989.

113 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Michael Bassett, Doug Andrew, and Bevan Burgess,” 23 October 1986, 2.

114 The quote refers to Bryan Philpott but applies to a handful of critics who worked with producers’ lobbies. Singleton et al., Innovation and Independence, 121–3, quote at 123.

115 There are many examples. See Snively, “Labour Markets”; and Rosenberg, Magic Square.

116 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Interest Rate, Newztel Log, Ex-RNZ, “Morning Report,” 23 October 1985.

117 Turnbull Library, Douglas Papers, 87-121-156, Parliamentary Papers, Spencer Russell to Douglas, “Memorandum: The Relationship between the Size of the Fiscal Deficit and the Size of the Stock Tender Programme,” 3 July 1985.

118 On claims that Fourth Labour was committing itself to monetarism, see the comments of Bryan Philpott and Brian Easton in Archives New Zealand, ABOT, W4375 6787, box 27, Newztel Log, Ex-TV One, “Sunday,” 2 September 1984. On the actual policy preferences, see Singleton et al., Innovation and Independence, 116.

119 Friedman, Money Mischief, 262.

120 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 2, Monetary Policy 1980–86, Deane to Douglas, 12 November 1985.

121 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 2, Monetary Policy 1980–86, clipping, Dominion, 12 November 1985.

122 Archives New Zealand, AALR, W5427 873, box 366, 39/4, no. 12, Reserve Bank of New Zealand – Policy and Legislation 1984–87, Lindsay Knight, “Memorandum for the Minister of Finance: Monetary Policy Response to the GST,” 25 September 1986.

123 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 3, Monetary Policy Research (General Monetary) 1986–87, Lindsay Knight to Douglas, “Monetary Conditions,” 9 February 1987.

124 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 109904, Trade and Industry, 1987 3/3, Development Finance Corporation, Peter McK. Rodger for Secretary of the Treasury to Caygill, 9 January 1987.

125 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 4, Monetary Policy Research 1986–89, Russell to Douglas, 2 September 1987.

126 Singleton et al., Innovation and Independence, 115.

127 Archives New Zealand, AATJ, W3566 7428, box 1267, 79/2/4, part 1, Economics – Price Indices and Prices – Inflation, E.A. Woodfield to Minister of Overseas Trade, “Effects of Inflation on New Zealand’s Exports,” 16 June 1982.

128 Wilkinson, New Zealand’s Fiscal Reforms, 20–1.

129 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 4, Monetary Policy 1986–89, Roderick Deane, “Reflections on the New Zealand Financial Sector,” Reserve Bank of New Zealand: Bulletin 48, no. 8 (1985): 443.

130 Economist, 7 June 1986, 107; 21 May 1988, 93; 15 April 1989, 147.

131 Archives New Zealand, ABOT, W4375 6787, box 13, Economic Summit – Clippings 1984, New Zealand Herald, 9 September 1984.

132 Archives New Zealand, AALR, W5427 873, box 986, 61/9/5/7, part 1, Balance of Payments – Invisibles, Services, and Transfer Forecasts (Ex. Trade) 1984–90, Ian Rennie to Graham Scott, “Current Monetary Conditions,” 11 December 1986; Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 4, Monetary Policy Research 1986–89, clipping, Ann Cunningham, “Inflation: Public Enemy No. 1,” Business Times, n.d.; Archives New Zealand, AAWW, W4640 7112, box 21, part 1, Douglas 1987, Roger Douglas, “Government Committed to Anti-inflationary Strategy,” 2 September 1987.

133 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 4, Monetary Policy Research 1986–89, Iain Rennie to Paul Atkinson, [August 1988].

134 OECD, “Inflation (CPi)”; Archives New Zealand, AAWW, W4640 7112, box 21, part 1, Douglas 1987, Roger Douglas, “Single Figure Inflation Great News,” 18 January 1988.

135 Archives New Zealand, AALR, W5427 873, box 366, 39/4, no. 12, Reserve Bank of New Zealand – Policy and Legislation 1984–87, Lindsay Knight, “Memorandum for the Minister of Finance: Monetary Conditions,” 29 August 1986.

136 Archives New Zealand, ABTW, W6030, box 96, 17526, Peter Nicholl (Assistant Governor) Papers on Reserve Bank Autonomy SOE 1985–86, [Paul Atkinson], “Monetary Reform: An SOE Framework for the Reserve Bank,” with marginal comments by Nicholl, [October 1986], 6.

137 Archives New Zealand, AAFD, W4646 7581, 103/2, part 1, Economic Policy – Public Debt, “CPC Minutes,” 4 June 1985.

138 Archives New Zealand, AALR, W5427 873, box 47, 3/15/1/137/14, Reserve Bank of New Zealand 1987–91, Graham Scott to Douglas and Caygill, “Reserve Bank Reform: Summary,” 26 April 1988.

139 Pauly, Who Elected the Bankers? 140.

140 Archives New Zealand, ABGX W3 536, box 12, part 2, Finance and Expenditure Committee – Bills – Reserve Bank of New Zealand Amendment – General, Spencer Russell, “Report to the Chairman, Finance and Expenditure Select Committee on the Reserve Bank Amendment Bill,” 17 October 1986; New Zealand Legal Information Institute, Reserve Bank of New Zealand Amendment Act 1986.

141 Singleton et al., Innovation and Independence, 134.

142 Archives New Zealand, AANK, W3580 947, box 700, 57/3/9, part 1, Employment Policy 1983–85, Chair of Officials Economic Committee, “Unemployment Benefit – Paper 2,” [May 1984], 1.

143 Archives New Zealand, AANK, W3580 947, box 700, 57/3/9, part 1, Employment Policy 1983–85, “Cabinet Minutes,” 11 July 1983.

144 OECD, “Leading Indicators OECD.”

145 Archives New Zealand, ABGX, W4731 16127, box 270, part 2, Session 1, 42nd Parliament (1987–90), Finance and Expenditure Committee Public Bills – Reserve Bank of New Zealand – Submissions 1989, National Council of Women, “Submission,” 19 May 1989.

146 Singleton et al., Innovation and Independence, 140.

147 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986–87, Spencer Russell to Douglas, “Reserve Bank Autonomy [with Appendix],” 4 July 1986.

148 Arnon, “Banking,” 268.

149 Ibid., 269–73.

150 Screpanti and Zamagni, Outline of the History, 125–6; United Kingdom, Bank Charter Act 1844.

151 Archives New Zealand, ABTW, W6030, box 96, 17526, Peter Nicholl (Assistant Governor) Papers on Reserve Bank Autonomy SOE 1985–86, [Paul Atkinson], “Monetary Reform: An SOE Framework for the Reserve Bank,” with marginal comments by Nicholl, [October 1986], 1–25.

152 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986–87, Scott to Russell, 9 March 1987. See also Singleton, Innovation and Independence, 142.

153 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986–87, Paul Atkinson, “Note to File: Discussions Re: Reserve Bank Accountability,” May 1987.

154 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986–87, Sir Frank Holmes, “Comments on Issues of Autonomy, Structure, and Operation of the Reserve Bank,” 8 April 1987.

155 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986–87, “Reserve Bank Autonomy: Summary of the Discussions Which Took Place at the Special Meeting of the Bank’s Directors, Held on Wednesday, 13 May 1987.”

156 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986–87, Spencer Russell, “Memorandum for the Minister of Finance: Reserve Bank Autonomy and Accountability, 22 May 1987.

157 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986-87, Charles Goodhart, “Framework for the Reserve Bank of New Zealand,” July 1987.

158 Archives New Zealand, AALR, W5427 873, box 1742, 70/5/82, part 1, IMF New Zealand Article 4 – Annual Consultations 1982, “Minutes of Meeting No. 4,” 25 November 1982, Deane citing Goodhart.

159 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986–87, Charles Goodhart, “Framework for the Reserve Bank of New Zealand,” July 1987.

160 Archives New Zealand, ABTW, W6030, box 96, 17526, Peter Nicholl (Assistant Governor) Papers on Reserve Bank Autonomy SOE 1985–86, [Paul Atkinson], “Monetary Reform: An SOE Framework for the Reserve Bank,” with marginal comments by Nicholl, [October 1986], 9.

161 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1986–87, Geoffrey Wood to Patrick Duignan, 2 April 1987; and Charles Goodhart, “Framework for the Reserve Bank of New Zealand,” July 1987.

162 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 2, Reserve Bank of New Zealand – Role, Structure and Autonomy 1988, Howard Fancy to Geoffrey Wood, 3 March 1988.

163 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 2, Reserve Bank of New Zealand – Role, Structure and Autonomy 1988, Wood to Fancy, 28 September 1987.

164 Archives New Zealand, AALR W5427 873 box 367, 39/4/0, part 2, Reserve Bank of New Zealand – Role, Structure and Autonomy 1988, Fancy to Wood, 9 October 1987.

165 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 2, Reserve Bank of New Zealand – Role, Structure and Autonomy 1988, Graham Scott to Minister of Finance, “Role and Structure of the Reserve Bank,” 6 November 1987; and Ian Rennie to Fancy, 30 May 1988.

166 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 2, Reserve Bank of New Zealand – Role, Structure and Autonomy 1988, Peter Rodger to Paul Atkinson, 11 March 1988.

167 Turnbull Library, Deane Papers, 2004-159-06, Personal, Graham Scott to Deane, [1987?].

168 Ibid.

169 Archives New Zealand, ABOT, W4375 6787, box 13, Economic Summit – Clippings 1984, Graham Scott and Spencer Russell to Douglas and Neilson, “Reserve Bank Reform,” report, 26 April 1988.

170 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy, 1986–87, Spencer Russell to Minster of Finance, “Memorandum for the Minister of Finance: Reserve Bank Autonomy,” [4 July 1986], 4.

171 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 1, Reserve Bank of New Zealand – Role, Structure, and Autonomy, 1986–87, “Reserve Bank Autonomy: Summary of the Discussions Which Took Place at the Special Meeting of the Bank’s Directors,” 13 May 1987.

172 Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 2, Reserve Bank of New Zealand – Role, Structure and Autonomy 1988, Iain Rennie to Fancy and others, “Reserve Bank Reform Work Programme,” 16 May 1988; and Peter Rodger to Douglas and Neilson, 1 July 1988.

173 Archives New Zealand, AALR, W5427 873, box 368, 39/4/0, part 3, Reserve Bank of New Zealand – Role, Structure, and Autonomy 1988–91, “Reserve Bank of New Zealand, Submissions, Summary,” n.d.; Archives New Zealand, ABGX, W4731 16127, box 270, part 3, Session 1, 42nd Parliament (1987–90), Finance and Expenditure Committee Public Bills – Reserve Bank of New Zealand – Reports 1989, Don Brash to Chair of Finance and Expenditure Committee, “Reserve Bank of New Zealand – Official’s Report,” 5 October 1989.

174 New Zealand Legal Information Institute, Goods and Services Tax Act 1985.

175 New Zealand Legal Information Institute, Reserve Bank of New Zealand Act 1989.

176 Archives New Zealand, ABGX, W5038 8008, box 19, 107, David Caygill, Minister of Finance, and Donald Brash, Governor of the Reserve Bank of New Zealand, “Reserve Bank Policy Targets Agreement under Section 9 of the Reserve Bank of New Zealand Act,” n.d.

177 Archives New Zealand, AALR, W5427 873, box 1012, 61/14/1/1, Monetary Policy Research (General Monetary) 1984–89, K. Tonkin, “Operating Techniques and Intermediate Targets of Monetary Policy,” February 1989.

178 Lloyd, “Changing Monetary Transmission”; Drew and Sethi, “Transmission Mechanism,” 5–17.

179 Archives New Zealand, ABGX, W4731 16127, box 270, part 2, Session 1, 42nd Parliament (1987–90), Finance and Expenditure Committee Public Bills – Reserve Bank of New Zealand – Submissions 1989, “Submission 15: New Zealand Financial Services Association and Mortgage Lenders Association,” 12 June 1989; and Law Society, “Oral Submission,” 6 October 1986.

180 For a frank discussion of bank policy, see Archives New Zealand, ABGX, W5189 16127, box 114, FE 7/2, “Review of the 1994/95 Performance and Current Operations of the Reserve Bank of New Zealand 1995,” citing interview with Governor Don Brash.

181 Archives New Zealand, AALR, W5427 873, box 58, 3/15/21, Debt Management Office 1987–90, Annual Report of New Zealand Debt Management Office, Fiscal 1988/89 (1989); Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas to Secretary of the Treasury and Governor of the Reserve Bank, 9 April 1986.

182 Singleton et al., Innovation and Independence, 11, See also Archives New Zealand, AALR, W5427 873, box 367, 39/4/0, part 2, Reserve Bank of New Zealand – Role, Structure and Autonomy 1988, Spencer Russell to Douglas, “Memorandum for the Minister of Finance: Proposed Introduction of a Reserve Bank Bill,” 21 April 1988.

183 Singleton et al., Innovation and Independence, 246.

184 Fischer and Orr, “Monetary Policy Credibility.”

185 “Monetary Policy in Africa: The Winding Road,” Economist, 26 January 2019, 61.

186 Svensson, Independent Review, 63.

187 Turnbull Library, New Zealand Council of Trade Unions Papers, 98-327-32/4, Further Papers, Labour Party, David Wedgewood, Secretary of ACT Branch, to Secretary of New Zealand Federation of Labour, 21 September 1984.

188 Archives New Zealand, ABOT, W4376 6787, box 27, Labour Economic – Opening the Books, Newztel Log, Ex-TV One, “Sunday,” 2 September 1984, remarks by Bryan Philpott and Brian Easton; Wilkinson, New Zealand’s Fiscal Reforms, 19.

189 Turnbull Library, Douglas Papers, 90-287-01, Further Papers, Subject Files A–E, Sven Robinson to Geoffrey Palmer, 24 October 1989.

190 Quoted in McQuaig, Shooting the Hippo, 21. This book criticises concerns about Canada’s debt. As it happened, a highly successful austerity-based plan for debt reduction, implemented between 1994 and 1997, stands out as a success, in part because it had widespread public support. Sancak, Quan Liu, and Nakata, “Canada.”

191 McQuaig, Shooting the Hippo, 25.

192 McKinnon, Treasury, 408.

193 Economist, 20 January 1985, 68; 11 July 1987, 77; 21 November 1987, 21; 27 February 1988, 62; 5 March 1988, 74.

CHAPTER SIX

The pun in the chapter’s title has been attributed to Robert Muldoon. Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2 Economics Topics – Taxation – General Tax Reform etc., clipping, Accountants’ Journal, [early 1981].

1 Tax experts from the Treasury and the Inland Revenue Department initially referred to a possible new tax as a final sales tax (or FST). Later, they called it a goods and services (or GAS) tax, then a value added tax (or VAT), and finally a goods and services tax, abbreviated to GST. A GAS tax could have been confusing or a source of witticisms: having gas, stepping on the gas, and facing a gas attack. The VAT was associated with the United Kingdom, where there had been strenuous opposition.

2 Brash, Incredible Luck, 48–9.

3 Barry Gustafson discusses political leadership in his biography of Robert Muldoon, distinguishing between “transitional leaders” (who operate as political managers and manipulate public opinion) and “moral leaders” (who have less selfish motives, including attention to peoples’ aspirations). In recent years, economic emergencies, similar to but more profound than those facing New Zealand by the early 1980s, have challenged political leaders in ways that require more than the populism inherent in either mode of leadership described by Gustafson. Elected officials have needed the will to introduce unpopular things into democracy’s chambers. Contingencies require more than two riffs on a populist style. The unfolding high dramas of leadership and pain in Greece, Italy, and Spain have ties with New Zealand history. Douglas had resolve. Gustafson, His Way, 4–5. On leadership in tough times, see Ringen, Nation of Devils.

4 Gustafson, His Way, 116.

5 Gustafson proposes that Muldoon’s rejection of advice from economists stemmed from his belief in instincts, not just in “one’s informed intellect.” Gustafson, His Way, 5; see also on “pig-headedness,” 336.

6 Jim McAloon provides a well-considered description of and explanation for Robert Muldoon’s shifting views on economic policy from 1979 to 1984. McAloon, Judgements of all Kinds, 196–7. The book is a stimulating account of economic policy and New Zealand’s position in world markets after the war. On the country’s recurrent balance of payments difficulties, see Sinclair, Walter Nash, 135–52, 170–89, 305–19. For an introduction to fast-moving economic and monetary actions, see Eichengreen, Globalizing Capital, 134–84.

7 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Dominion, 13 February 1984.

8 New Zealand, Taxation in New Zealand. On Muldoon’s opposition to indirect taxation, see Gustafson, His Way, 98.

9 On the European experiences, see Archives New Zealand, AATJ, W3 566 7428, box 457, 29/4/5, Financial Policy – Taxation – Goods and Services Tax – General Correspondence, Andrew Pitcher, Economics 1, “Memo: Goods and Services Tax,” [March 1985]. This memo surveys rates and exemptions for western European countries.

10 Archives New Zealand, AALR, W5796 873, box 56, T76/0/3, part 2, Task Force on Tax Reform – Treasury Submission to the Task Force, “Memo: Indirect Tax Options,” 2.

11 As early as 1978, the New Zealand Planning Council indicated that it “would probably be in favour” of expenditure taxes. On the Planning Council, see Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/4, ECON 2, Economics Topics – Fiscal Policy – Taxes, Borrowing, Subsidies, Expenditures Etc., Ken Piddington, Director of Planning Council, to Z.M. Journet, 7 February 1979; and Archives New Zealand, ABCX, W4023 24120, box 95, New Zealand Planning Council Publications – Agenda for Tax Reform – Various, An Agenda for Tax Reform (1981).

12 Archives New Zealand, ABCX, W4023 24117, box 50, ECON 4/2/1, ECON 4, Publications – Task Force on Taxation Reform, Taxation Reform: Report from the Private Sector Tax Consultation at Trillos in Auckland on February 24, 1981 (1981); Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2, Economics Topics – Taxation – General Tax Reform Etc., clipping, New Zealand Herald, 16 July 1982.

13 Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2, Economics Topics – Taxation – General Tax Reform Etc., Frank Holmes to Don Brash, 13 January 1978. Holmes recommended “an expenditure tax.”

14 Archives New Zealand, ABCX, W4023 24117, box 50, ECON 4/2/1, ECON 4, Publications – Task Force on Taxation Reform, Sir Frank Holmes, Chairman of New Zealand Planning Council, “Statement,” 6 July 1981.

15 Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2, Economics Topics – Taxation – General Tax Reform etc., unidentified clipping, Richard Long interview with Robert Muldoon, [early 1982]. On Muldoon and the Treasury, see Bassett and Bassett, Roderick Deane, 70–100.

16 Muldoon’s prickly attitude to intellectuals and those who disagreed with him is conceded by Gustafson, His Way, 470–1.

17 On Holmes’s opinion of the task force, see Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2, Economics Topics – Taxation – General Tax Reform Etc., Barbu Niculescu to Holmes, 15 September 1981. Niculescu wrote that he assumed Holmes had little to do with the membership. “Crikey,” Holmes wrote in the margin.

18 Archives New Zealand, AALR, W5427 873, box 1779, 76/0/1, part 1, Task Force on Tax Reform, I.G. Douglas, Director General of New Zealand Manufacturers’ Federation, to Prime Minister Malcolm McCaw, 30 September 1981.

19 I am indebted to Brian Easton for calling my attention to the Treasury’s practices of marking up reports with this symbol.

20 Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2, Economics Topics – Taxation – General Tax Reform Etc., clipping, Retail News, November 1981, 1.

21 Archives New Zealand, AALN, W4748 7234, box 163, 962/40/23A, IMF 1982 Mission, “Questions to NZ Government: IMF Article IV Consultations 1982,” n.d.; and 962/40/23B, IMF 1982 Mission, “Answers to Questions 13 and 14,” n.d.

22 Archives New Zealand, AALN, W4748 7234, box 163, 962/40/23A, IMF 1982 Mission, “New Zealand Staff Report for the Article IV Consultation,” n.d. This report was a précis of the findings.

23 Archives New Zealand, AALN, W4748 7234, box 163, 962/40/23B, IMF 1982 Mission, “Answer to Question 14 on Current Account,” n.d.

24 Archives New Zealand, AALN, W4748 7234, box 163, 962/40/23A, IMF 1982 Mission, “New Zealand Staff Report for the Article IV Consultation,” n.d.

25 Archives New Zealand, AALR, W5427 873, box 1779, 76/0/1, part 1, Task Force on Tax Reform, “Briefing Note for Mr Chetwin, Personal Income Tax Reform,” 24 February 1982; and J.M. [John] Chetwin to D.A. [David] Preston, Deputy Head of New Zealand Permanent Delegation to the OECD, 14 April 1982.

26 Archives New Zealand, AALR, W5796 873, box 56, 76/0/3, part 2, Task force on Tax Reform – Treasury Submission to the Task Force, “Memo: Tax Reform,” 30 March 1982. Treasury recognised that indirect taxes had equity implications but discussed the form of indirect taxes, not philosophical matters. On support among National Party members, see Archives New Zealand, ABCX, W4023 24117, box 50, ECON 4/2/1, ECON 4, Publications – Task Force on Taxation Reform, Michael Cox, “Value Added Tax (vat),” in Taxation Reform: Report from the Private Sector Tax Consultation at Trillos in Auckland on February 24, 1981 (1981); Gustafson, His Way, 272.

27 Archives New Zealand, AALN, W4748 7234, box 163, 962/40/23A, IMF 1982 Mission, “New Zealand Staff Report for the Article IV Consultation,” n.d.

28 Archives New Zealand, ABCX, W4023 24117, box 50, ECON 4/2/1, ECON 4, Publications – Task Force on Taxation Reform, B.H.C. Tyler, “Memo: VAT and Inflation,” n.d.; Goldsmith, We Won, You Lost, 270–2. Paul Goldsmith provides an account of the McCaw report and Muldoon’s thinking on taxation.

29 Many sources on this venture are filed in Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984. See, for example, “Memo: Supporters of the Right Hon. R.D. Muldoon’s Call for Another Bretton Woods-Type Conference,” n.d.; and clippings, Dominion, 24 September 1982, 16 October 1982, 25 May 1983, 13 February 1984; Evening Post, 26 August 1982, 6, 7, and 11 September 1982, 4 December 1982, 9 May 1983; New Zealand Herald, 2 and 9 September 1982, 2 June 1983, 1 March 1984; and Christchurch Press, 9 June 1983.

30 On economists in government, see McKinnon, Treasury, 261–300. For evidence of Muldoon’s pettiness and his distance from Treasury economists, see his denial of conference travel assistance for economist critical of wage-freeze measures. Archives New Zealand, AALR, W5427 873, box 1718, part 1, Treasury – Public Economic Information Programme, Paul Bevin to Mr [Bernard] Galvin, Mr [Graham] Scott, and Mr [Roger] Kerr, 13 April 1983.

31 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 2, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, “Memo: Chronology of Taxation Reform in New Zealand since July 1984,” n.d.; and Tax Policy Division, April 1986, “Briefing Papers: Inland Revenue Department,” 25 June 1984.

32 The drafts on economic policy and the minutes of policy meetings are contained in Archives New Zealand, AAYK, W3603, box 3, Labour Economic Policy Material. Geoffrey Palmer mentions his role in Palmer, Reform, 503.

33 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 2. See, for example, the media interviews with Roger Douglas and Michael Cox, Newztel Log, Ex-RNZ, “Morning Report,” 22 August 1985.

34 Turnbull Library, Douglas Papers, 90-167-277, Parliamentary Papers, Callum Reid to Douglas, 25 January 1985 (quote); and Douglas to Reid, 30 January 1985.

35 Archives New Zealand, ABCX, W4023 24120, box 95, New Zealand Planning Council Publications – Agenda for Tax Reform – Various, An Agenda for Tax Reform (1981), 6.

36 Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2, Economics Topics – Taxation – General Tax Reform Etc. On a proportional tax, see in this archive Graeme Thompson, “Note to File,” 23 April 1981. He had heard a talk by Milton Friedman at the Auckland Overseas Terminal on 22 April and a conversation with business leader Hugh Fletcher at the same event. See Archives New Zealand, ABCX, W4023 24117, box 50, ECON 4/2/1, ECON 4, Publications – Task Force on Taxation Reform, Donald T. Brash, “The Direct Expenditure Tax and Comments on the Paper by Mr. L.N. Ross,” in Taxation Reform: Report from the Private Sector Tax Consultation at Trillos in Auckland on February 24, 1981 (1981). On indexing, see Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2, Economics Topics – Taxation – General Tax Reform Etc., clipping New Zealand Herald, 14 September 1979.

37 Archives New Zealand, AALR, W5796 873, box 56, T76/0/3, part 2, Task Force on Tax Reform – Treasury Submission to the Task Force, “Memo: Tax Reform,” 30 March 1982.

38 Archives New Zealand, AATJ, W3566 7428, box 1351, 84/3/7/1, part 1, Consumer Affairs Unit – Consumer Issues – GST 1985–86, Margaret Shields to Geoffrey Palmer, 13 February 1986; Chairman of Officials Policy Committee to Chairman of Cabinet Policy Committee, “Memo: GST and Ticket Pricing,” 27 February 1986.

39 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings July 1985, Taranaki Herald, 1 July 1985, quoting Terry Shanahan, Asia and Pacific Director of Taxes, Touche, Ross and Co.

40 Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2, Economics Topics – Taxation – General Tax Reform Etc., Graeme Thompson, “Note for File,” 23 April 1981.

41 Archives New Zealand, AALR, W5427 873, box 1779, 76/0/1, part 1, Task Force on Tax Reform, P.J.H. Jenkins, Chairman of International Fiscal Association, to Robert Muldoon, 6 May 1982.

42 Archives New Zealand, AATJ, W3566, box 1266, 70/1/7, part 1, Economics – Administration – GST, clipping, Dominion, 9 April 1985.

43 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 2, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, “Introduction of Value Added Tax in New Zealand,” translated from Neue Zürcher Zeitung, 4 October 1986. On trusts and avoidance, see Goldsmith, We Won, You Lost, 279–84.

44 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, clipping, New Zealand Financial Review, April 1985.

45 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, clipping, National Business Review, 25 March 1985.

46 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 2, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, “Inland Revenue Department Current Performance and Possible Improvements,” Briefing Paper No. 5, 25 June 1984.

47 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 2, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, OECD, “Taxation on Fringe Benefits,” report, [April 1985].

48 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/9, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, T.G. Murray, General Manager of Taranaki Electric-Power Board, to Douglas, 4 April 1985. The practice was based on 1925 legislation. Archives New Zealand, AALR, W5427 873, box 1838, 76/2/9, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, Douglas to Murray, 30 April 1985; and clipping, New Zealand Herald, 2 May 1985, which explains the idea of a tax on concessionary interest rates.

49 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 2, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, “Task Force on Tax Reform, Interim Report,” 7 December 1981, 9.

50 Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2, Economics Topics – Taxation – General Tax Reform Etc., unidentified clipping, Richard Long interview with Robert Muldoon, [early 1982].

51 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, Unknown author to Minster of Finance, “Memo: Taxation of Fringe Benefit,” 4 October 1984.

52 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, Fringe Benefit Tax Guide for Employers (Wellington: V.R. Ward, Government Printer, 1985).

53 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, Telex from Treasury and Inland Revenue to High Commission in Canberra, 16 August 1985. Australia was considering a fringe benefits tax and wanted reports on developments. Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 2, Jan Andrews to Douglas, 26 February 1986. New Zealand Forest Products accelerated its exit from company housing at Tokoroa for this reason.

54 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, clipping, National Business Review, 25 March 1985.

55 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 2, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, “Memo: Question for Written Answer,” 17 April 1986. Three quarterly collections of the tax had produced $102 million; collections from government departments over nine months yielded $8.5 million. See also Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 2, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, “Fringe Benefit Statistics,” 31 July 1986.

56 On government critiques of public service privileges, see Walsh, “Has the Evil Been Remedied?” 118–19, 123.

57 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, clipping, National Business Review, 25 March 1985.

58 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings June 1985, Northland Age, 14 May 1985.

59 Archives New Zealand, AAXU, W3053, box 4, Submissions – GST Advisory Panel, “Minutes of Meeting,” 13 May 1985.

60 Archives New Zealand, AATJ, W3 566, box 1266, 70/1/7, part 1, Economics – Administration – GST, clipping, Dominion, 27 March 1985.

61 Archives New Zealand, AALR, W5427 873, box 1779, 76/0/1, part 1, Task Force on Tax Reform, I.G. Douglas, Director General of New Zealand Manufacturers’ Federation, to Prime Minister Malcolm McCaw, 30 September 1981.

62 Archives New Zealand, AATJ, W3566 7428, box 1266, 70/1/7, part 1, Economics – Administration – GST, Roger Douglas, “Address to Hamilton Combined Lions Clubs,” 23 January 1985; Roger Douglas, “Address to Canterbury Chamber of Commerce,” 27 March 1985; and “Interview with Alan Hardcastle of Peat Marwick and President of the Institute of Chartered Accountants in England and Wales,” Audio Monitor, Radio Special on 2YA, 21 March 1985, 20–1.

63 Archives New Zealand, AATJ, W3566 7428, box 1266, 70/1/7, part 1, Economics – Administration – GST, interview with Trevor de Cleene (Labour), Michael Cox (National), and Rob Campbell (trade unionist), Audio Monitor, Radio Special on 2YA, 31 March 1985, 6–7. An astute debater, Campbell kept the focus on imperfections with the GST but did not reply to criticisms of his conception of a higher marginal tax rate for high-income earners.

64 Archives New Zealand, AATJ, W3566 7428, box 1266, 70/1/7, part 1, Economics – Administration – GST, Roger Douglas, “Address to Hamilton Combined Lions Clubs,” 23 January 1985.

65 Archives New Zealand, AALR, W5427 873, box 1868, 76/5/6, part 4, Taxes on Goods and Services – Financial Services, “Memo: Financial Institutions and GST,” 28 July 1985. Due to training and recruitment of specialists, the GST may not have been ready to go at an earlier date. See also Archives New Zealand, AALN, W5627 7234, box 137, 966.124, part 1, GST Staff and Workload Implications, R.D. McGrath, Director of Administration, “Memo: IMF Report on GST: Staffing Implications for Customs Department,” 4 March 1985; “Memo: Sales Tax: Staffing for Extended Period of the Collection,” 25 June 1985; and “Memo: GST/IRD,” 10 May 1985.

66 Archives New Zealand, AATJ, W3566 7428, box 1266, 70/1/7, part 1 Economics – Administration – GST, interview with Dr Claudia Smith, Economics Department, Victoria University, Audio Monitor, Radio Special on Radio 2ZB, 28 March 1985, 9.

67 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings July 1985, Taranaki Herald, 27 June 1985.

68 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 3, Better Business, August 1985.

69 Goldsmith, We Won, You Lost, 267–8.

70 The WST was often mentioned as a sales tax, leading to confusion about what was different with a GST.

71 Archives New Zealand, AALN, W4748 7234, box 165, 962/40/78, part 1, Indirect Tax Reform – 1984, Treasury and Customs Department, “Directions for Indirect Tax Reform,” [early 1984].

72 Archives New Zealand, AALN, W4748 7234, box 165, 962/40/61, part 2, Overview of the Wholesale Sales Tax (WST), “Memo: New Zealand’s Wholesale Sales Tax – An Overview,” [May 1984]; “Memo: Problems with Boats,” [May 1984]; “Memo: Problem of Administration: Exemptions,” [May 1984]; and “Memo: Significant Changes to the Wholesale Sales Tax System,” [May 1984]. On Muldoon and the WST, see Gustafson, His Way, 271. The author mentions a sales tax, but to be accurate, it was a wholesale tax.

73 Archives New Zealand, AALN, W4748 7234, box 165, 962/40/61, part 2, Overview of the Wholesale Sales Tax (WST), “Memo: New Zealand’s Wholesale Sales Tax – An Overview,” [May 1984].

74 Archives New Zealand, AALN, W4748 7234, box 165, 962/40/61, part 2, Overview of the Wholesale Sales Tax (WST), “Memo: New Zealand’s Wholesale Sales Tax – An Overview,” [May 1984].

75 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, Mr Peter Neilson, Parliamentary Undersecretary of Minister of Trade and Industry, “Address to the National Partners Meeting of Deloitte, Haskins, and Sells,” 13 April 1985, 7.

76 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings November 1985, New Zealand Herald, 11 November 1985; Archives New Zealand, AATJ, W3566 7428, box 1351, 84/3/7/1, part 1, Consumer Affairs Unit – Consumer Issues – GST 1985–86, London to Wellington, confidential cable, 31 January 1986. United Kingdom experience indicated a 0.5 per cent rise in inflation for every 1 per cent rise in existing GST/VAT.

77 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings November 1985, “Submission from Alan Martin of L.V. Martin and Son Group of Companies,” n.d.; and Keith Fraser, “The Economics of Mr. Martin,” 31 January 1986.

78 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, Trevor de Cleene to Roger Douglas, David Caygill, Margaret Shields, and David Lange, 29 January 1986.

79 Archives New Zealand, AATJ, W3 566 7428, box 1266, 70/1/7, part 1, Economics – Administration – GST, interview with Alan Hardcastle of Peat Marwick and President of the Institute of Chartered Accountants in England and Wales, Audio Monitor, Radio Special on 2YA, 21 March 1985, 11–12; and interview with British tax adviser Cliff Dilloway, Audio Monitor, Ex-TV One, “6:30 News,” 20 May 1985.

80 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 2, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, “Notes of Discussion with UK Customs Officials on VAT Matters,” 2 April 1985.

81 Archives New Zealand, AAXU, W3053, box 4, Submissions – GST – Advisory Panel, “Report of the Advisory Panel on Goods and Services Tax: To the Minister of Finance,” [June 1985], 5–11, 27–30.

82 Archives New Zealand, AAXU, W3053, box 4, Submissions – GST – Advisory Panel, “Summary of Legislation by Mr Leloir,” meeting of 13 May 1985; and “Historical Analysis of the Goods and Services Tax Legislation,” n.d.

83 Archives New Zealand, AAXU, W3053, box 4, Submissions – GST – Advisory Panel, “Report of the Advisory Panel on Goods and Services Tax: To the Minister of Finance,” [June 1985], 2.

84 Douglas pressed for corporatisation, but Geoffrey Palmer supervised its complicated implementation. He championed an overhaul of industrial relations in the private and public sectors, and Minister of Labour Stan Rodger saw these measures through from study and consultation to implementation.

85 Brash, Incredible Luck, 48.

86 Archives New Zealand, AAXU, W3053, box 4, Submissions – GST – Advisory Panel, “Report of the Advisory Panel on Goods and Services Tax: To the Minister of Finance,” [June 1985], 1.

87 Archives New Zealand, AAXU, W3053, box 4, Submissions – GST – Advisory Panel, Owen S. Robinson, Executive Director of Council of Christian Social Services, to Dr D.T. [Don] Brash, 24 June 1985.

88 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings July 1985, Richie Guy, Chairman of North Auckland Rugby Union, cited in Northern Advocate, 27 June 1985.

89 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 2, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, Jim Sutton, Chairman of Caucus Fiscal Sub-committee, to Douglas, 30 October 1985.

90 Archives New Zealand, AAXU, W3053, box 4, Submissions – GST – Advisory Panel, “Report of the Advisory Panel on Goods and Services Tax: To the Minister of Finance,” [June 1985], 12.

91 Ibid., 4.

92 Not all economists understood the tax. Archives New Zealand, AATJ, W3566 7428, box 1266, 70/1/7, part 1, Economics – Administration – GST, Audio Monitor, Radio Special on 2YA, 30 March 1985.

93 Archives New Zealand, AAXU, W3053, box 4, Submissions – Summary of GST Submissions, no. 690.

94 On a desire to widen influence, see Archives New Zealand, AANK, W3580 947, box 726, 61/2/6, part 1, Industrial Relations – Institutions – Federation of Labour 1984–88, unidentified speaker, Federation of Labour, “Notes for Labour Issues Course, University of Canterbury,” July 1986. On disappointment, see R.E. Jones, National Secretary of New Zealand Engineering and Related Trades Industrial Union of Workers, to D. Martin, Director of Industrial Relations, Department of Labour, 25 July 1986.

95 Archives New Zealand, AAXU, W3053, box 4, Submissions – Summary of GST Submissions, no. 112.

96 Archives New Zealand, AAXU, W3053, box 4, Submissions – GST – Advisory Panel, “Report of the Advisory Panel on Goods and Services Tax: To the Minister of Finance,” [June 1985], 30.

97 Archives New Zealand, AALR, W4446, box 636, 76/5/6, part 2, Task Force on Tax Reform – Taxation Goods and Services Tax – Financial Services – November 1984 to December 1986, Alan Tait, Deputy Director of Fiscal Affairs Department, to Ross Tanner, Counsellor (Economic), New Zealand Embassy, 30 January 1986.

98 Archives New Zealand, AAXU, W3053, box 4, Submissions – Summary of GST Submissions, nos 17, 80, 94, 101, 108, 112, 117, 121, 122, 132, 133, 137, 138, 143, 167, 185, 186,198, 199, 225, 231, 256, 263, 277, 281, 284, 949.

99 Ibid., nos 375, 534, 542, 718.

100 Ibid., nos 272, 708; Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings November 1985, Christchurch Star, 27 November 1985.

101 Archives New Zealand, AAXU, W3053, box 4, Submissions – Summary of GST Submissions, nos 56, 83, 89, 96, 97, 102, 366, 530, 543, 557, 728, 893, 1030, 1054.

102 Archives New Zealand, AALR, W5427 873, box 1838, 76/2/98, part 1, Taxes on Income Profits and Capital Gains – Taxation on Fringe Benefits – Fringe Benefit Tax – General, Mr Peter Neilson, Parliamentary Undersecretary of Minister of Trade and Industry, Address to the National Partners Meeting of Deloitte, Haskins, and Sells, 13 April 1985.

103 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 3, Christchurch Press, 16 August 1985.

104 Archives New Zealand, AAXU, W3053, box 4, Submissions – Summary of GST Submissions, no. 194.

105 Ibid., nos 601, 606, 837, 869, 1049.

106 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings November 1985, Christchurch Star, 27 November 1985; New Zealand Herald, 15 November 1985; Otago Daily Times, 15 November 1985; and New Zealand Herald, 28 November 1985.

107 In a forthright speech at the party’s 1985 conference, Labour Party president Margaret Wilson told delegates that Labour had been elected without a clear economic policy being stated. Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conference 1985–87, clipping, Dominion, 31 August 1985. See also Archives New Zealand, AAYK, W3603, box 3, Labour Economic Policy Material.

108 Archives New Zealand, AATJ, W3566 7428, box 1266, 70/1/7, part 1, Economics – Administration – GST, “GST = The Wrong Way to Tax Reform,” psa Journal, May 1985, 14.

109 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 2, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, “Taxation Policy and Issues,” Briefing Paper No. 1, n.d., 15.

110 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 1, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, Roger Douglas, “Speech to the Auckland Labour Regional Conference, Pacific Island Church Hall, Ferguson Road, Otara,” 11 May 1985, 9.

111 Archives New Zealand, AATJ, W3566 7428, box 1266, 70/1/7, part 1, Economics – Administration – GST, interview with Trevor de Cleene (Labour), Michael Cox (National), and Rob Campbell (trade unionist), Audio Monitor, Radio Special on 2YA, 31 March 1985, 17.

112 Ibid., 4–5.

113 Archives New Zealand, AALN, W5627 7234, box 137, 966.124, part 1, GST Staff and Workload Implications, R.D. McGrath, Director of Administration, “Memo: IMF Report on GST: Staffing Implications for Customs Department,” 4 March 1985.

114 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 1, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, Roger Douglas, “Speech to the Auckland Labour Regional Conference, Pacific Island Church Hall, Ferguson Road, Otara,” 11 May 1985, 9.

115 The union’s card vote had been strengthened at a 1940 Labour conference to assist with the removal of John A. Lee for his intemperate attack on dying prime minister Joseph Savage. Sinclair, Walter Nash, 194.

116 Archives New Zealand, AATJ, W3566 7428, box 1266, 70/1/7, part 1, Economics – Administration – GST, clipping, Dominion, 19 March 1985.

117 Paul Goldsmith states that “conference remits flooded in against GST outright, or at least against its application to food and essential services.” There were critical remits; the majority were defeated. Goldsmith, We Won, You Lost, 295.

118 National Library of New Zealand, microfilm, Christchurch Press and Evening Post, 27 May 1985.

119 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings July 1985, Straight Furrow, 24 July 1985; Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, Timaru Herald, 17 August 1985. The farmers’ organisation wanted the debt cut by means of spending reductions, not tax increases.

120 On the Federation of Labour’s arguments against the GST, see Archives New Zealand, AAXU, W3053, box 4, Submissions – Summary of GST Submissions, no. 552.

121 Archives New Zealand, AANK, W3580 947, box 726, 61/2/6, part 1, Industrial Relations – Institutions – Federation of Labour 1984–88, unidentified speaker, Federation of Labour, “Notes for Labour Issues Course, University of Canterbury,” July 1986, 18.

122 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, ECON 2, Economics Topics – Labour Market Flexibility, Raymond Harbridge, “Labour Market Flexibility: A Trade Union Perspective,” n.d., 3.

123 Ibid., 14.

124 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 1, Auckland Star, 17 August 1985. As a union official put it in this clipping, referring to the Federation of Labour and the Combined State Unions, “Whatever comes in the Budget will not have been worked out with the FOL and CSU.”

125 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings July 1985, Taranaki Herald, 1 July 1985, quoting Terry Shanahan, Asia and Pacific Director of Taxes, Touche, Ross and Co.

126 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings July 1985, New Zealand Herald, 30 November 1985 [misfiled]; and GST Media Clippings August 1985, part 2, Timaru Herald, 31 August 1985. The Australian example was used in last-ditch appeals by the opponents to the GST.

127 Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conference 1985–87, clipping, Dominion, 31 August 1985.

128 Archives New Zealand, ABOT, 4375 6787, box 6, Employers Federation – Rob Campbell, clippings, New Zealand Herald, 26 April 1986, 3 January 1987; Archives New Zealand, AAWW, W4640 7112, box 47, Bank of New Zealand – Sale of – Rob Campbell, David Caygill, “Press Statement,” 14 March 1989. See also Henri Eliot, “Lunch in the Boardroom: Rob Campbell,” National Business Review, 6 July 2012, https://www.nbr.co.nz/lunch-in-the-boardroom-rob-campbell/.

129 Archives New Zealand, AALR, W4446 873, box 636, 76/5/1, part 1, Task Force on Tax Reform – Taxation on Goods and Services General and Ministerials – April 1986 to October 1986, Trevor de Cleene to G.H. Klippel, 22 August 1986.

130 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings July 1985, Taranaki Herald, 30 July 1985; and Christchurch Star, 30 July 1985; and GST Media Clippings August 1985, Otago Daily News, 3 August 1985.

131 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 1, Auckland Star, 21 August 1985, citing a Consumer magazine study; Dominion, 21 August 1985 (quote); New Zealand Herald, 22 August 1985; and Evening Post, 23 August 1985; and part 2, National Business Review, 26 August 1985.

132 Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conference 1985–87, clipping, New Zealand Herald, 30 August 1985.

133 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 3, Timaru Herald, 14 August 1985; New Zealand Legal Information Institute, Goods and Services Tax Act 1985.

134 Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conference 1985–87, clipping, Dominion, 3 September 1985 (quote). On the placidness of the conference, see in the same archive, clipping, New Zealand Herald, 3 September 1985.

135 Archives New Zealand, AATJ, W3566 7428, box 1266, 70/1/7, part 1, Economics – Administration – GST, Audio Monitor, Ex-TV One, “6:30 News,” 24 April 1985; and Audio Monitor, Ex-TV One, “6:30 News,” 27 April 1985; Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conference 1985–87, clippings, Dominion, 3 September 1985; Evening Post, 3 September 1985; and Newztel Log, Ex-TV One, “6:00 News,” 31 August 1985. On applause, see Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings September 1985, Nelson Evening Mail, 2 September 1985. Anderton’s election to the Labour Party Council was widely reported.

136 Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conference 1985–87, clipping, New Zealand Herald, 2 September 1986.

137 On Opening the Books, see Archives New Zealand, AAXO W4246, box 35, Opening the Books: Key Extracts from the Treasury and Reserve Bank Briefing Documents Delivered to the New Government (1984). Bob Hawke’s Labor government had pioneered the idea of an economic summit. David Lange consulted Bernard Galvin for ideas on a similar conference and sent Ron Trotter to study what had occurred in Australia. Archives New Zealand, AANK, W3580 947, box 457, 46/3/117, part 1, Industrial Relations Act – General – National Economic Summit Conference 1984, Galvin to Lange, 20 July 1984; “Minutes of Cabinet Meeting,” 30 July 1984; and Ron Trotter, “Memo on the Australian Economic Summit,” [mid-July 1984].

138 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings July 1985, Evening Post, 29 July 1985.

139 That was a perception at the time. Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings November 1985, Otago Daily Times, 22 November 1985.

140 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings November 1985, Dominion, 6 November 1986.

141 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 1, Auckland Star, 10 August 1985; and GST Media Clippings November 1985, Ashburton Guardian, 25 November 1985.

142 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings July 1985, Hawkes Bay Herald-Tribune, 2 July 1985.

143 Archives New Zealand, AALR, W4446, box 636, 76/5/6, part 2, Task Force on Tax Reform – Taxation Goods and Services Tax – Financial Services – November 1984 to December 1986, Donald T. [Don] Brash, Chairman of Advisory Panel (GST), to Douglas, 7 August 1985; and “Second Report of the Advisory Panel on Goods and Services Tax to the Minister of Finance,” n.d. Also, the Inland Revenue Department possibly wanted more time to prepare.

144 Archives New Zealand, AALR, W4446, box 636, 76/5/6, part 2, Task Force on Tax Reform – Taxation Goods and Services Tax – Financial Services – November 1984 to December 1986, “Options for the Treatment of Financial Services under the GST,” 14 May 1985; and Treasury, “Memo: GST and Financial Services,” 19 July 1985.

145 Archives New Zealand, AALR, W5427 873, box 1868, 76/5/6, part 4, Taxes on Goods and Services – Financial Services, C.J. Mackenzie to Minister of Finance, “Memo: Treasury Reply to Second Report of the Advisory Panel on Goods and Services Tax: Financial Services Section,” 5 August 1985; Cullen, Labour Saving, 62.

146 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, New Zealand Herald, 21 August 1985.

147 Archives New Zealand, AALR, W4446 873, box 636, 76/5/1, part 1, Task Force on Tax Reform – Taxation on Goods and Services General and Ministerials – April 1986 to October 1986, Douglas to Phil Goff, 5 August 1986.

148 Archives New Zealand, AALN, W5627 7234, box 165, 966.121, part 1, GST Policy – General and Legislation, John P. Goldingham to Chairman of Advisory Panel on Goods and Services Tax, 14 June 1985.

149 Archives New Zealand, AALR, W5427 873, box 1868, 76/5/6, part 4, Taxes on Goods and Services – Financial Services, C.J. Mackenzie to Minister of Finance, “Memo: Treasury Reply to Second Report of the Advisory Panel on Goods and Services Tax: Financial Services Section,” 5 August 1985; Archives New Zealand, AALR, W4446, box 636, 76/5/6, part 2, Task Force on Tax Reform – Taxation Goods and Services Tax – Financial Services – November 1984 to December 1986, New Zealand Finance Houses Association, “Submission on Application of GST to Financial Services,” 29 May 1985.

150 Archives New Zealand, AALR, W4446, box 636, 76/5/6, part 2, Task Force on Tax Reform – Taxation Goods and Services Tax – Financial Services – November 1984 to December 1986, “Treatment of Financial Services,” [early 1985]; and Telex from High Commission in Canada, 8 August 1985.

151 Archives New Zealand, AALR, W4446, box 636, 76/5/6, part 2, Task Force on Tax Reform – Taxation Goods and Services Tax – Financial Services – November 1984 to December 1986, clippings, New Zealand Herald, 5 June 1985; and Dominion, 23 August 1985.

152 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 3, Evening Post, 24 August 1985.

153 Archives New Zealand, ABCX, W4023 24120, box 95, New Zealand Planning Council Publications – Agenda for Tax Reform – Various, An Agenda for Tax Reform (1981), 13; Archives New Zealand, ABCX, W4023 24117, box 45, ECON 2/9, ECON 2, Economics Topics – Taxation – General Tax Reform Etc., Barbu Nicolescu, “Some International Implications of the New Zealand Tax System,” [September 1981], 4. Nicolescu noted the advantage without justifying export supports.

154 Archives New Zealand, AATJ, W3566 7428, box 457, 29/4/5, Financial Policy – Taxation – Goods and Services Tax – General Correspondence, Newztel Log, Ex-RNZ, “Morning Report,” 6 November 1985.

155 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings November 1985, Marlborough Express, 13 November 1985; and Christchurch Press, 26 November 1985.

156 Archives New Zealand, AAXU, W3053, box 4, Submissions – GST – Advisory Panel, “Report of the Advisory Panel on Goods and Services Tax: To the Minister of Finance,” [June 1985], 37.

157 Archives New Zealand, AATJ, W3566 7428, box 1351, 84/3/7/1, part 1, Consumer Affairs Unit – Consumer Issues – GST 1985–86, “Minutes of Meeting of Margaret Shields with Delegation from Retailers’ Federation: GST Pricing,” 3 December 1985; clippings, Retail News, December 1985, 1; and Dominion, 9 December 1985; New Zealand Legal Information Institute, Fair Trading Act 1986.

158 Archives New Zealand, AATJ, W3566 7428, box 1351, 84/3/7/1, part 1, Consumer Affairs Unit – Consumer Issues – GST 1985–86, Shields to Douglas, 10 December 1985; Shields to Palmer, 13 February 1986; and Chairman of Officials Policy Committee to Chairman of Cabinet Policy Committee, “Memo: GST and Ticket Pricing,” 27 February 1986; Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 3, Cabinet Committee on Policy, GST, and Price Indications, “Minutes of Cabinet Policy Committee,” 11 March 1986.

159 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 2, Newztel Log, Ex-RNZ, “Budget Special Interview [with Roger Douglas],” 21 August 1⁹⁸⁵.

160 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 2, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, Task Force on Tax Reform, “Interim Report,” 7 December 1981. The National Party had introduced a form of capital gains tax on a narrowly defined type of land sale. Gustafson, His Way, 334–5.

161 Archives New Zealand, AALR, W4446 873, box 631, 76/1/1, part 2, Task Force on Tax Reform – Taxation Tax Reform – General – October 1982 to December 1986, “Taxation Policy and Issues,” Briefing Paper No. 1, [late June 1984], 12.

162 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 3, Evening Post, 24 August 1985; and Dominion, 27 July 1985.

163 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings November 1985, Daily Telegraph, 6 November 1985; interview with Barry Crump, Newztel Log, Ex-RNZ, “Midday Report,” 5 November 1985.

164 Archives New Zealand, AAXU, W3053, box 1, GST Speakers’ Kit, box of Cue Cards.

165 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings November 1985, Auckland Star, 25 July 1985.

166 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings July 1985, Ashburton Guardian, 27 June 1985.

167 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 3, Heylen poll, cited in Christchurch Press, 10 August 1985.

168 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings August 1985, part 3, Heylen poll, cited in Bay of Plenty Times, 12 August 1985.

169 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings September 1985, Otago Daily Times, 24 September 1985.

170 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings September 1985, National Business Review, 31 September 1986 [misfiled].

171 Archives New Zealand, AATJ, W3566 7428, box 1351, 84/3/7/1, part 2, Consumer Affairs Unit – Consumer Issues – GST, Newztel Log, Ex-RNZ TV One, “6:30 News,” 29 September 1986.

172 Archives New Zealand, AAXU, W3053, box 11, GST Media Clippings September1985, Waikato Times, 3 November 1986 [misfiled].

173 Turnbull Library, Douglas Papers, 90-342-2, Further Papers, Taxation, Imputation: A Guide for New Zealand Companies (1989).

174 Archives New Zealand, AALR, W5427 873, box 1842, 76/2/103, part 5, Taxation on Capital Gains – General 1989, “Taxing Capital Gains? New Zealand Loses!” n.d. This publication was a brochure by an interest group opposed to a CGT.

175 Archives New Zealand, AALR, W5427 873, box 1842, 76/2/103, part 5, Taxation on Capital Gains – General 1989, “Draft Report of the Consultative Committee,” 10 November 1989.

176 Macmillan Brown Library, Caygill Papers, acc. 78, ref. 110144, Taxation Policy, Press Clippings re: Capital Gains, Evening Post, 12 December 1989; and Dominion, 12 December 1989.

177 Archives New Zealand, AALR, W5427 873, box 1842, 76/2/103, part 5, Taxation on Capital Gains – General 1989, interview with Geoffrey Palmer by Paul Holmes, Breakfast Show, Newstalk Radio 2ZB, 30 October 1989.

178 Macmillan Brown Library, Caygill Papers, acc. 78, ref. 110144, Taxation Policy, Press Clippings re: Capital Gains, Dominion, 27 December 1989.

179 For the recourse to the Australian comparison and reference to polarities, see Kelsey, Reclaiming the Future, 258, 268.

180 OECD, “Income Inequality.”

181 Deininger and Squire, “Measuring Income Inequality.”

182 OECD, Divided We Stand, 22.

183 See Tax Working Group, Future of Tax, vol. 1, ch. 8. The Tax Working Group stated that the benefits of fairness outweighed collection difficulties.

CHAPTER SEVEN

1 Archives New Zealand, AAXO, W3694 22138, box 315, Privatisation 1986, Robert Muldoon Papers, clipping, Wall Street Journal, 20 February 1986.

2 Musacchio and Lazzarini, Reinventing State Capitalism, 36–45.

3 Ibid., 45.

4 Archives New Zealand, ABVP, W6048, box 34, LAC-00071, Legislation Advisory Committee – Fiscal Responsibility and Amendments to the Public Finance Act 1989 and 1994, M.C. [Mervyn] Probine to B.V.J. [Bernard] Galvin, copy, 16 December 1981.

5 Archives New Zealand, AALR, W5427 873, box 1473, 62/60/5/1, Expenditures – Electricity Division of Energy – Financial Objectives 1978–81, A.H. Heir, Manager of Electrical Supply Authorities Association of New Zealand, to Chief Executive Officer, “N.Z.E. Finances and Bulk Supply Tariffs,” 11 December 1980.

6 Archives New Zealand, AALR, W5427 873, box 1473, 62/60/5/1, Expenditures – Electricity Division of Energy – Financial Objectives 1978–81, Chairman of Officials Economic Committee to Chairman of Cabinet Economic Committee, “Post Office Investment Plan: Planning Principles,” 20 September 1978; and Ministry of Energy, “Report on Review of Functions, Section 4, Investigation of Activities in Which Economies of Greater Efficiency Might Be Achieved, part 1, Electricity Division,” [early 1981].

7 Archives New Zealand, AALR, W5427 873, box 1473, 62/60/5/1, Expenditures – Electricity Division of Energy – Financial Objectives 1978–81, Chairman of Officials Economic Committee to Chairman of Cabinet Economic Committee, “Post Office Investment Plan: Planning Principles,” 20 September 1978.

8 Archives New Zealand, AALR, W5427 873, box 1473, 62/60/5/1, Expenditures – Electricity Division of Energy – Financial Objectives 1978–81, G.J. Addison to Howard Fancy, “New Zealand Electricity Division – Financial Objectives,” 6 May 1981.

9 Douglas, There’s Got to Be, 35.

10 Turnbull Library, Douglas Papers, 90-326-12, Further Papers, Monetary Matters, Douglas’s handwritten notes on meeting with analysts about deficit, 6 November 1986.

11 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 7, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, SSC staff, “Framework for a Review of State-Owned Enterprises,” 19 August 1985.

12 Archives New Zealand, ABKL, W5757 8154, box 505, 27/1/4/POL, part 1, Policy – New Zealand Rail – Sale 1991–94, “Scoping Report on Possible Privatisation of NZ Rail Limited,” July 1991, 6.

13 New Zealand Legal Information Institute, Companies Act 1955.

14 Archives New Zealand, AAMN, W3727 7522, box 59, folder 8, part 2, William Birch Papers, Privatisation Committee 1984, C.H. Terry for Secretary of Treasury to Minister of Finance, 2 March 1984; and Bill Birch, “Aide Memoire,” 5 April 1984; Archives New Zealand, AAMN, W3727 7522, box 38, folder 6, part 2, William Birch Papers, Privatisation Committee 1985, Bill Birch, “Note for File: Petrocorp, Oil Field Revenue, Funding, Private Shareholding,” notes of meeting in Birch’s office, 15 March 1984.

15 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 2, Policy and Planning Issues: Privatisation of State-Owned Enterprises, Ann Callaghan, “Memo on Privatisation,” May 1988.

16 Archives New Zealand, AAFH, W5510 6790, box 381, SOE-7-4, part 1, SOE –General – Privatisation, clipping, interview with Roger Douglas, National Business Review, 18 September 1988.

17 Bassett, State in New Zealand, 15.

18 Archives New Zealand, AATJ, W5519 7495, box 490, BP 10/7/14, part 1, Business Policy – State-Owned Enterprises – Regulatory Environment – Privatisation of SOEs – State-Owned Enterprises 1986–91, Peter Hamilton for High Commissioner to Canada to J.F. Boshier, Assistant Secretary of Minister of Energy, “Canada: Privatisation of Crown Corporations,” 28 August 1986.

19 Archives New Zealand, ABJZ, W7019, box 54, POL 7/2, record 1, Policy and Research – Government and Economy – Privatising/Restructuring 1989–91, Stan Rodger, “Keynote Address,” Brisbane, 25 May 1989, 13.

20 Archives New Zealand, AANU, W5079 7734, box 24, P3, Electricity Corporation of New Zealand’s Pricing, Organisational Structure, and Asset Valuation 1987–89, Roderick S. Deane, “Reflections on Privatisation,” background material for an address to the United Kingdom/New Zealand 1990 Committee Conference on Economic and Social Reform, Windsor, United Kingdom, 15–17 September 1989, 2.

21 Archives New Zealand, AANU, W5079 7765, box 30, Privatisation – Making It Happen 1990, Price Waterhouse, Department of Privatisation Services, Privatisation: Making It Happen (1990).

22 Archives New Zealand, AALR, W5427 873, box 64, 3/18/18, part 1, “Functional Review of the Ministry of Energy,” February 1980, 3.

23 Archives New Zealand, AAFH, W5510 6790, box 366, SOE-5-5, part 1, State-Owned Enterprises – Meetings – Board Chairman Meetings, “Meeting with John Young, Head of Electricity Division Establishment Unit,” 29 October 1986.

24 Archives New Zealand, AAFH, W5510 6790, box 366, SOE-5-5, part 1, State-Owned Enterprises – Meetings – Board Chairman Meetings, Bernard Galvin to Roger Douglas, Minister of Finance, “Review of Electricity Generation Costs,” 27 March 1985.

25 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 6, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, Bernard Galvin to Roger Douglas, Minister of Finance, “Review of Electricity Planning and Electricity Generation Costs,” 27 March 1984; Mervyn Probine to Stan Rodger, Minister of State Services, 15 April 1985; Mervyn Probine to Stan Rodger, Minister of State Services, for Discussion at Cabinet Committee on Policy, “Organizational Form of the Ministry of Energy,” 18 April 1985.

26 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 1, Cabinet Committees – Policy, “Meeting,” 20 November 1984.

27 Turnbull Library, Douglas Papers, 88-353-181, Parliamentary Papers, Ron Trotter to Douglas, 20 March 1985.

28 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 7, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, R.J. [Bob] Tizard, Minister of Energy, “Report to the Cabinet Policy Committee on the Organisational Form of the Ministry of Energy,” February 1985; and Cabinet Policy Committee, “Meeting,” 21 May 1985.

29 On Lange’s downgrading of Tizard’s position, see Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, clipping, New Zealand Herald, 17 March 1983.

30 Hocken Library, Rodger Papers, 87/41, box 3, Prime Minister’s Office, “Post Caucus Press Conferences,” 6 June 1985.

31 Archives New Zealand, AAFD, W4646 7581, box 79, 55/98, part 1, Government Departments – SOEs, R.A. Kelly, Director General of Housing Corporation of New Zealand, to Minister of Housing, 16 May 1985; Archives New Zealand, ABVF, W4925 975, box 3, 2/3/27, part 2, Housing Corporation of New Zealand – Corporate Planning – Policy 1987–88, R.A. Kelly, Director General of Housing Corporation of New Zealand, to Branch Managers and Head Office Directors, 3 February 1987.

32 Archives New Zealand, AAFH, box 25, 100/3/2, part 2, Social Impact SOEs – Special Ministerial Coordinating Committee, “Meeting,” 18 February 1987; Archives New Zealand, AAFD, W4646 7581, box 54, 11/7/46, part 1, Cabinet Committees – State-Owned Enterprises 1987–88, “Meeting,” 16 December 1987.

33 Bassett, Working with David, 199.

34 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 5, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, Director General of Post Office to Postmaster General, 10 December 1984; and part 7, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, Cabinet Policy Committee, “Meeting,” 21 May 1985.

35 Archives New Zealand, AAFH, W5485 785, box 83, 20/2/0/90/1, part 8, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1985–86, D.K. [Don] Hunn, Commissioner of State Services Commission, to Stan Rodger, Minister of State Services, 28 January 1986.

36 Archives New Zealand, ABAA, W5238 8030, box 17, New Zealand Forestry Corporation – Sale 1990, New Zealand Forestry Corporation Limited, Sale of State-Owned Forests in New Zealand: Prospectus (1989), 11–18.

37 Archives New Zealand, AAFH, W5510 6790, box 364, SOE-5-3, part 13, SOEs – Meetings – Ministerial Coordinating Committee, “Interim Report on Regional Social Impact Case Studies,” MCC/SOE Paper 239, 9 March 1987.

38 Archives New Zealand, AALR, W5427 873, box 1533, 62/68/1, part 1A, Forestry Corporation – Disposal of Surplus Forestry Houses. The file contains background reports for multiparty meetings held to reallocate these houses at Minginui, Kaingaroa, and Murupara.

39 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 5, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, Stan Rodger to Roger Douglas, [mid-March 1985]; and part 6, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, Douglas to Rodger, 10 April 1985.

40 New Zealand Legal Information Institute, State Services Conditions of Employment Act 1977; New Zealand Legal Information Institute, Industrial Relations Act 1973.

41 Turnbull Library, Deane Papers, 2004-159-23/05, State-Owned Enterprises, “Minutes of a Meeting with PSA [Public Service Association] and SSC Officials,” 9 May 1986; Turnbull Library, Deane Papers, 2004-159-23/06, State-Owned Enterprises, P. Bygate, “Notes of a Meeting between PSA and State Services Commission Staff,” 16 May 1986; Turnbull Library, Deane Papers, 2004-159-20/06, Industrial Relations at State-Owned Enterprises, Darryl Dunn, “Memo: Environmental Administrative Review Secretariat,” 16 May 1986.

42 New Zealand Legal Information Institute, State Services Conditions of Employment Act 1977.

43 Hocken Library, Rodger Papers, 87/41, box 2, Forestry, A.K. [Alan] Familton, Deputy Director General of New Zealand Forest Service, to Probine, SSC, 20 September 1985.

44 New Zealand Legal Information Institute, State-Owned Enterprises Act 1986.

45 Archives New Zealand, AAFD, W4646 7581, box 79, 55/98, part 1, Government Departments – SOEs, “Report for Cabinet on State Owned Trading Enterprises,” 24 April 1986; Archives New Zealand, ABOT, W4375 6787, box 45, Corporatisation – Douglas, Stan Rodger on Newztel Log, Ex-RNZ, “Morning Report,” 1 April 1987; Bassett and Bassett, Roderick Deane, 181.

46 Archives New Zealand, AAYK, W3603, box 3, record Ca, 1984, “Economic Policy,” approved at Cabinet meeting, 25 May 1984.

47 For an early overview, see Mascarenhas, “State-Owned Enterprises.”

48 Turnbull Library, Deane Papers, 2004-159-21/08, State-Owned Enterprises, DJ [David] Bradshaw, Office of the Solicitor, to Deane, 25 April 1986.

49 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 5, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, SSC staff, “Memo: State Trading Enterprises,” 15 February 1985.

50 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 7, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, Cabinet Policy Committee, “Meeting: Regarding State Owned Enterprises,” 12 November 1985.

51 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 5, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, “Divisional Management and the Meeting of Corporate Goals in the Private Sector,” [January 1985].

52 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 5, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, Telex from High Commission in London, 21 January 1985. Copies of telexes to embassies are included in the file.

53 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 5, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, SSC staff, “Memo: State Trading Enterprises,” 15 February 1985.

54 Archives New Zealand, AATJ, W4993 7452, box 125, POL 1/3/3, Policy – Energy Sector – 5 Years of Review of Energy Planning 1980–85, “Review of the Planning Process: A Report by the Energy Advisory Committee,” 35.

55 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/90/1, part 7, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, B.H.C. Tyler, Controller and Auditor General, to Probine, 17 May 1985.

56 Bassett and Bassett, Roderick Deane, 140.

57 Hocken Library, Rodger Papers, 87/41, box 14, SSC Electricity, M.C. [Mervyn] Probine to Minister of State Services, “Review of Electricity Planning and Electricity Costs (27 March 1984),” 15 April 1985.

58 Archives New Zealand, AAFH, W5485 785, box 82, 20/2/0/90/1, part 6, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1984–85, Mervyn Probine to Minister of State Services for Discussion at Cabinet Committee on Policy, “Organizational Form of the Ministry of Energy,” 18 April 1985.

59 Archives New Zealand, AAFH, W5510 6790, box 355, SOE-1-5, part 1, SOEs – Policy Issues – Labour Market, Donald Hunn to Margaret Bazley, “Memo: Industrial Management and State-Owned Enterprises,” 10 January 1986.

60 Archives New Zealand, AAFH, W5510 6790, box 368, SOE-5-11, part 1, State-Owned Enterprises – Meetings – Cabinet Committee Meetings, “Meeting of MCC,” 25 June 1986.

61 Palmer, Reform, 509.

62 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-32/08, Joint Council of Labour Papers, “Minutes,” 11 December 1984, 13 March 1985.

63 Turnbull Library, Deane Papers, 2004-159-23/05, State-Owned Enterprises, [Roderick] Deane, “Telephone Conversation with Alan Gibbs,” 8 May 1986.

64 Turnbull Library, Deane Papers, 2004-159-23/05, State-Owned Enterprises, Don Hunn to Deane, [April 1986].

65 Archives New Zealand, AAFH, W5485 785, box 83, 20/2/90/1, part 8, State Services Commission – Efficiency and Economy – Administration of Functions – General – Planning Council Public Service Study – General – State-Owned Enterprises 1985–86, “Report of the Cabinet Committee on State Owned Enterprises: Establishment Boards,” 30 May 1985.

66 Archives New Zealand, AAFH, W5510 6790, box 352, SOE 1-2, part 1, SOE – Policy Issues – Commercial/Financial, G.J. Buchanan, Assistant, Office of Solicitor of SSC, to Judith Aitken and David Bradshaw, 25 November 1986.

67 Bassett, Working with David, 188.

68 Archives New Zealand, AAFH, W4160, box 25, 100/3/3/2, part 1, Social Impact Unit – SOE – Special Ministerial Coordinating Committee, “Meeting of MCC,” 22 October 1986. Palmer states that the Shipping Corporation of New Zealand established by the Labour government of Norman Kirk (1972–74) was the model. Richards, Palmer, 249.

69 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 3, Cabinet Committee on Policy, “Meeting,” 5 February 1986.

70 Archives New Zealand, AAFD, W4646 7581, box 79, 55/98, part 1, Government Departments – SOEs, “Cabinet Meeting,” 16 June 1986.

71 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-32/10, Joint Council of Labour, “Minutes,” 17 June 1986.

72 Archives New Zealand, AAFD, W4646 7581, box 79, 55/98, part 1, Government Departments – SOEs, “Cabinet Meeting,” 16 June 1986.

73 See press coverage in Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conferences, 1982–84; and Labour Party Conferences, 1985–87.

74 Archives New Zealand, AALR, W5427 873, box 612, 40/15/8, part 1, Public Finance Bill 1989, R.S. Clarke, Chapman Tripp Sheffield Young, to Secretary of the Treasury, Attention Mr Kwok, 14 April 1988; Archives New Zealand, ABJZ, W4644 7019, box 54, POL 7/2, record 1, Policy and Research – Government and Economy – Privatising/Restructuring 1989–91, “State Production of Commercial Goods and Services,” n.d.; Palmer, Reform, 508.

75 Archives New Zealand, AAFH, W5510 6790, box 351, SOE-1-1, part 1, State-Owned Enterprises – Policy Issues – Asset Reassignment/Valuation, Geoffrey Palmer, Attorney General, to Chairman of the SSC and Secretary of the Treasury, 19 December 1986; New Zealand Legal Information Institute, State-Owned Enterprises Act 1986.

76 These estimates are based on the author’s reading of the CPC minutes.

77 Archives New Zealand, AAFH, W5510 6790, box 366, SOE-5-3-1, part 1, SOEs – Meetings – Ministerial Coordinating Committee – General Papers, D.J. Swallow, Commissioner of SSC, to Minister for State-Owned Enterprises, 18 September 1987.

78 Archives New Zealand, AAFH, W5510 6790, box 367, SOE-10-1, part 1, State-Owned Enterprises – Meetings – Treasury State-Owned Enterprise (SOE) Coordinating Meetings, “Treasury Staff Meeting,” 1 April 1987.

79 Archives New Zealand, AAFH, W5510 6790, box 351, SOE-1-1, part 1, State-Owned Enterprises, Policy Issues – Asset Reassignment/Valuation, C.J. Thompson to Deputy Chairman of SSC, “Meeting,” 13 February 1987.

80 Archives New Zealand, AAFH, W5510 6790, box 367, SOE-10-1, part 1, State-Owned Enterprises – Meetings – Treasury State-Owned Enterprise (SOE) Coordinating Meetings, “Treasury Staff Meeting,” 1 April 1987.

81 Turnbull Library, Deane Papers, 2005-087-056, Papers Relating to Asset Valuation, “Oral Submission of the Electricity Corporation on the Treaty of Waitangi (State Enterprises) Bill,” 22 January 1988. See also New Zealand Legal Information Institute, Treaty of Waitangi (State Enterprises) Act 1988.

82 Archives New Zealand, AAFH, W5510 6790, box 359, SOE 2-1, part 3, State-Owned Enterprises – Non-commercial Factors – Social Factors and Costs, Stan Rodger, Minister of State Services, to Graham Wilson, Public Questions Committee, New Zealand Workers’ Association, [March 1987].

83 Archives New Zealand, AAFH, W4160, box 26, part 1, Social Impact – State Services Commission Meetings with Establishment Boards and Units, “Meeting of Officials with Post Office Bank Corporation Establishment Unit,” 2 October 1986.

84 Archives New Zealand, AAFH, W5510 6790, box 359, SOE 2-1, part 3, State-Owned Enterprises – Non-commercial Factors – Social Factors and Costs, C.J. Fernyhough, Electricity Corporation of New Zealand Establishment Board, to J.F. Boshier, Assistant Secretary of Ministry of Energy, 20 January 1987.

85 Archives New Zealand, AAFH, W4160, box 25, 100/3/3/2, part 1, Social Impact Unit – SOE – Special Ministerial Coordinating Committee, “Network of Post Offices,” MCC/SOE Paper 97, 11 November 1986; Archives New Zealand, AAFH, W5510 6790, box 351, SOE 1-1, part 1, State-Owned Enterprises – Policy Issues – Asset Reassignment/Valuation, Asset Valuation and Transfers: SOEs, “Minute Sheets,” 10 December 1986.

86 Archives New Zealand, AAFH, W4160, box 26, part 1, Social Impact – State Services Commission Meetings with Establishment Boards and Units, “Telecom: Meeting with Establishment Unit,” 2 October 1986.

87 Archives New Zealand, AAFH, W5510 6790, box 351, SOE 1-1, part 1, State-Owned Enterprises – Policy Issues – Asset Reassignment/Valuation, “Backgrounder Prepared by Treasury and Handed Out at Off-Record Press Briefing on Asset Valuation and Allied Matters,” 5 February 1987.

88 Archives New Zealand, AAFH, W5510 6790, box 351, SOE 1-1, part 1, State-Owned Enterprises – Policy Issues – Asset Reassignment/Valuation, David M. Emanuel, “An Approach to Calculating the Discount Rates for Valuing Assets to be Transferred to the State-Owned Enterprises,” first draft, [12 February 1987], 14.

89 Archives New Zealand, AAFH, W5510 6790, box 351, SOE 1-1, part 1, State-Owned Enterprises – Policy Issues – Asset Reassignment/Valuation, J.W. [John] Chetwin to Roger Douglas, Minister of Finance, 11 February 1987.

90 Archives New Zealand, AAFH, W5510 6790, box 367, SOE-5-10, part 2, State-Owned Enterprises – Meetings – Treasury State-Owned Enterprise (SOE) Coordinating Meetings, Minutes from SOE Coordinating Committee, “MCC Meetings,” 13 May, 17 June, 19 August, 2 December 1987.

91 Archives New Zealand, AAFH, W5510 6790, box 381, SOE-7-4, part 1, SOE –General – Privatisation, C.M. [Colin] Clark, General Secretary of Public Service Association, to Rodger, 25 August 1986.

92 Archives New Zealand, AAFH, W5510 6790, box 367, SOE-5-10, part 1, State-Owned Enterprises – Meetings – Treasury State-Owned Enterprise (SOE) Coordinating Meetings, Minutes from SOE Coordinating Committee, “MCC Meeting,” 29 April 1987.

93 Archives New Zealand, AAFH, W5510 6790, box 367, SOE-5-10, part 1, State-Owned Enterprises – Meetings – Treasury State-Owned Enterprise (SOE) Coordinating Meetings, Minutes from SOE Coordinating Committee, “MCC Meeting,” 11 March 1987.

94 Archives New Zealand, AAFH, W5510 6790, box 368, SOE-5-11, part 4, “Coal Corporation Bid: Commercial Assessment,” MCC/SOE Paper 262, 24 March 1987; and “Minister’s Control Coal Licenses,” MCC/SOE Paper 270, 29 March 1987.

95 Archives New Zealand, AAFH, W5510 6790, box 367, SOE-5-10, part 1, State-Owned Enterprises – Meetings – Treasury State-Owned Enterprise (SOE) Coordinating Meetings, Treasury Coordinating Meetings, “MCC Meeting,” 1 April 1987.

96 Archives New Zealand, AAFH, W4160, box 25, 100/3/3, part 1, Social Impact SOEs Special Ministerial Coordinating Committee, “Coal Corporation: Level of Unmined Coal Reserves to be Transferred,” MCC/SOE Paper 150, 16 December 1986.

97 Archives New Zealand, AAFH, W4160, box 25, 100/3/3, part 1, Social Impact SOEs Special Ministerial Coordinating Committee, “State Sector Reorganization: West Coast Forest Service Employees,” MCC/SOE Paper 118, 25 November 1986.

98 Archives New Zealand, AAFH, W5510 6790, box 351, part 1, State-Owned Enterprises – Policy Issues – Asset Reassignment/Valuation, “Memo: Meeting between Ministerial Coordinating Committee and Establishment Boards,” 9–10 December 1986.

99 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 0. Policy and Planning Issues: Privatisation of State-Owned Enterprises 1987–88, John Valentine, “Views of the Forestry Corporation on Privatisation of State Forests,” 7 August 1988.

100 Archives New Zealand, AEPU, W5606 7765, box 455, part 1, ECNZ General Asset Sale 1987, “Minutes of ECNZ Board Meeting,” copy, 18 June 1987; Doug Andrew to Deane, 30 June 1987; Deane to Graham Scott, 13 July 1987; and J.B. Shewan, Coopers & Lybrand, to J. [Jim] Rykner, Financial Officer, ECNZ, 31 August 1987.

101 New Zealand Legal Information Institute, Commerce Act 1986.

102 Archives New Zealand, AAFH, W5510 6790, box 351, SOE 1-1, part 1, State-Owned Enterprises – Policy Issues – Asset Reassignment/Valuation, D.R. [Doug] Andrew, “Memo: Appointment of a Consultant to Advise the New Zealand Treasury on Regulatory Issues in the Electricity Generation and Transmission Markets,” [early January 1987].

103 Archives New Zealand, AEPU, W5606 7765, box 455, part 1, ECNZ General Asset Sale 1987, Andrew to Deane, 18 August 1987.

104 Archives New Zealand, AEPU, W5606 7765, box 455, part 1, ECNZ General Asset Sale 1987, J.B. Shewan, Coopers & Lybrand, to J. [Jim] Rykner, Financial Officer, ECNZ, 31 August 1987.

105 Turnbull Library, Deane Papers, 2005-087-056, Papers Relating to Asset Valuation, C.J. Fernyhough to Douglas, 29 February 1988; Archives New Zealand, AEPU, W5606 7765, box 456, part 1, ECNZ General Asset Sale 1988, Ralph Pyatt, Business Planning Manager, ECNZ, to Deane, 2 March 1988.

106 Archives New Zealand, AEPU, W5606 7765, box 455, part 1, ECNZ General Asset Sale 1987, Deane to Andrew, 24 August 1987.

107 Bassett, Roderick Deane, 188–9.

108 Bassett and Bassett, Roderick Deane, 187–9; Archives New Zealand, AEPU, W5606 7765, box 456, part 1, ECNZ General Asset Sale 1988, Jim Rykner, ECNZ, Finance Manager, to Jock Birney, S.G. Warburg & Co., 11 April 1988.

109 Anonymous informant, interview with author, 4 August 2019. This informant was an adviser on several of the SOE and privatisation initiatives.

110 Archives New Zealand, AAFH, W5510 6790, box 366, SOE-5-5, part 1, State-Owned Enterprises – Meetings – Board Chairman Meetings, Meeting with Mr T. Sanger, Head of Airways Corporation Establishment Unit, 29 October 1986.

111 Archives New Zealand, AAFH, W5510 6790, box 351, SOE 1-1, part 1, State-Owned Enterprises – Policy Issues – Asset Reassignment/Valuation, Memo, Telecoms Business – Use of Advisers by Treasury for Asset Valuation, J.M. Chetwin for the Secretary of the Treasury, signed by Roger Douglas, Minister of Finance, to Chairman of Ministerial Coordinating Committee and Postmaster General, 13 February 1987.

112 Archives New Zealand, ABOT, W4375 6787, box 45, Corporatisation – Douglas, clipping, Dominion, 31 March 1987.

113 Archives New Zealand, AAFH, W5510 6790, box 351, SOE 1-1, part 1, State-Owned Enterprises – Policy Issues – Asset Reassignment/Valuation, Graham Scott, “Business Valuation and Why It Is Important,” draft of speech, [late January or early February 1987].

114 Turnbull Library, Deane Papers, 2004-159-23/05, State-Owned Enterprises, Sir Ronald Trotter, “Confidential Memorandum: Members of the New Zealand Business Roundtable,” 28 April 1986.

115 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, Douglas’s notes on “New Zealand Electricity Board of Directors,” n.d.

116 McKenna, World’s Newest Profession, 69.

117 Archives New Zealand, AALR, W5427 873, box 1473, 62/60/5/1, Record 2 Expenditures – Electricity Division of Ministry of Energy – Financial Objectives 1981–91, R.S. [Roderick] Deane, Chief Executive, “Business Plan, 1989/90: Corporate Overview,” 29 March 1989; Turnbull Library, Deane Papers, 2005-087-056, Papers Relating to Asset Valuation, R.D. Stein, Property Sales, to Deane, 16 February 1988.

118 Parliamentary Library, class. 354.93100874, loc. T 267, Telecom Corporation of New Zealand Limited, “1988 Annual Report,” 7.

119 Ibid.

120 Archives New Zealand, AALR, W5427 873, box 568, 40/1/3, part 1, Legal – Projects – Telecom Sale 1987–90, Minister of Finance, “Prospectus for Telecom Sale,” February 1990.

121 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, National Business Review, 15 May 1990.

122 Archives New Zealand, AAFH, W4160, box 26, 100/3/4, part 1, Social Impact – State Services Commission Meetings with Establishment Boards and Units, “Telecom: Meeting with Establishment Unit,” 2 October 1986.

123 Parliamentary Library, no. 513583, class. 354.931008252, loc. P 857, Post Office Bank Limited, “1988 Annual Report,” 2.

124 Archives New Zealand, AAFH, W4160, box 26, 100/3/4, part 1, Social Impact – State Services Commission Meetings with Establishment Boards and Units, “Telecom: Meeting with Establishment Unit,” 2 October 1986.

125 Quoted in Kestenbaum and Goldstein, “Spreadsheets!”

126 Turnbull Library, Douglas Papers, 84-137-122, Parliamentary Papers, Correspondence, A.R. Tait, Director of External Affairs, IBM New Zealand, to Douglas, 23 June 1983.

127 Parliamentary Library, no. 549787, class. 354.93100873, loc. N 532, New Zealand Post Limited, “1989 Annual Report,” 9; no. 522327, class. 354.93100874, loc. T 267, Telecom Corporation of New Zealand Limited, “1989 Annual Report,” 1, 7; and no. 531438, class. 354.931008233, loc. C 253, Land Corporation Limited, “1990 Annual Report,” 8.

128 Parliamentary Library, no. 535806, class. 354.93100873, loc. N 532, New Zealand Post Limited, “1991 Annual Report,” 8.

129 Parliamentary Library, class. 354.93100874, loc. T 267, Telecom Corporation of New Zealand Limited, “1988 Annual Report,” 3.

130 Archives New Zealand, ABKL, W5757 8154, box 505, 27/1/4/POL, part 1, Policy – New Zealand Rail – Sale 1991–94, Credit Suisse First Boston, On the Options for Privatisation of New Zealand Rail Limited (1991), 45–8; and “Scoping Report on Possible Privatisation of NZ Rail Limited,” July 1991, 6. Licensing regulations for trucking had protected the railway, and there was a limit of 150 kilometres on road haulage if there was a rail route available. These controls were phased out from 1983 to 1985.

131 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF Article 4 Consultations with New Zealand 1987–88, IMF, “New Zealand: Staff Report for the 1988 Article IV Consultation,” 25 May 1988, 15.

132 Summarised from the following annual reports of the Coal Corporation Limited: Parliamentary Library, no. 514011, class. 354.9310082382, loc. C 652, “1987–88 Annual Report”; “1988–89 Annual Report”; “1989–90 Annual Report”; “1990–91 Annual Report”; “1991–92 Annual Report”; and “1992–93 Annual Report.”

133 Archives New Zealand, ABKL, W5757 8154, box 505, 27/1/4/POL, part 1, Policy – New Zealand Rail – Sale 1991–94, “Scoping Report on Possible Privatisation of NZ Rail Limited,” July 1991, 10.

134 New Zealand Legal Information Institute, New Zealand Rail Limited Vesting Order 1990; Archives New Zealand, ABKL, W5757 8154, box 505, 27/1/4/POL, part 1, Policy – New Zealand Rail – Sale 1991–94, Credit Suisse First Boston, On the Options for Privatisation of New Zealand Rail Limited (1991), 53–63. Value to a private owner was calculated at $40 million to $200 million; it sold for $328.3 million.

135 Archives New Zealand, AANK, W4397, box 35, Permanent Staff Deployment Package: A Handbook for Staff 1986, State Services Commission, Permanent Staff Deployment Package: A Handbook for Staff (Wellington: Government Printer, 1986). I am indebted to Stan Rodger for mentioning this item.

136 Turnbull Library, Coal Corporation of New Zealand, Determination No. 1: Specific Terms and Conditions of Work (1987), 25.

137 Archives New Zealand, abkl, W5757 8154, box 505, 27/1/4/POL, part 1, Policy – New Zealand Rail – Sale 1991–94, Credit Suisse First Boston, On the Options for Privatisation of New Zealand Rail Limited (1991), 59.

138 Archives New Zealand, AAFD, W4646 7581, box 54, 11/7/46, part 1, Cabinet Committees – State-Owned Enterprises 1987–88, “Meeting,” 25 February 1988.

139 Summarised from the following annual reports by Government Property Services: Parliamentary Library, no. 514420, class. 354.931007123, loc. C 721, “1988 Annual Report”; “1989 Annual Report”; “1990 Annual Report”; “1991 Annual Report”; and “1992 Annual Report.”

140 Parliamentary Library, no. 513583, class. 354.931008252, loc. P 857, Post Office Bank Limited, “1988 Annual Report,” 3.

141 Ibid., 15.

142 Ibid., 2.

143 Parliamentary Library, no. 514023, class 354.930479, loc A 298, Airways Corporation of New Zealand 1988 Annual Report (1988), 1–4.

144 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-37/17, Policies – State Sector, “Final Report of the Land Development and Management Corporation Establishment Boards,” 30 June 1986, 1–2.

145 Summarised from the following annual reports by the Land Corporation Limited: Parliamentary Library, no. 516263, class. 354.931008233, loc. C 253, “1988 Annual Report”; “1989 Annual Report”; “1990 Annual Report”; and “1991 Annual Report.”

146 Turnbull Library, Douglas Papers, 90-287-9, Further Papers, Subject Files R–S, Works and Development Services Corporation, “Half Yearly Report,” 1989.

147 Summarised from the following annual reports by New Zealand Post Limited: Parliamentary Library, no. 514643, class. 354.93100873, loc. N 532, “1988 Annual Report”; “1989 Annual Report”; “1990 Annual Report”; “1991 Annual Report”; “1992 Annual Report”; and “1993 Annual Report.”

148 Spicer et al., Power to Manage, 6, 142; Turnbull Library, Deane Papers, 2005-196-038, State-Controlled Trading Organisations, I. Duncan, B. Donovan, and A.E. Bollard, State Controlled Trading Organisations (Wellington: New Zealand Institute of Economic Research, 1990), 16–19.

149 Summarised from the following annual reports by the Electricity Corporation of New Zealand Limited: Parliamentary Library, no. 515597, class. 354.931008722, loc. E 38, “1988 Annual Report”; “1989 Annual Report”; “1990 Annual Report”; “1991 Annual Report”; and “1992 Annual Report.”

150 Archives New Zealand, AALR, W5427 873, box 1473, 62/60/5/1, Record 2 Expenditures – Electricity Division of Ministry of Energy – Financial Objectives 1981–91, R.S. [Roderick] Deane, Chief Executive, “Business Plan, 1989/90: Corporate Overview,” 29 March 1989.

151 Archives New Zealand, AALR, W5427 873, box 1462, 62/60/5, Expenditures – Electricity Division of Ministry of Energy 1984–85, W.F. [Bill] Birch, Minister of Energy, “Opening the Electrical Supply Authorities Association Conference,” 21 September 1983.

152 Bassett, State in New Zealand, 10.

153 Ibid., 14.

154 Ibid., 9–15.

155 Turnbull Library, Douglas Papers, 84-137-122, Parliamentary Papers, Correspondence, Douglas to G.L. Wolland, 5 May 1983.

156 Archives New Zealand, AANU, W5079 7734, box 24, P2, part 1, Ownership and Regulation – Electronic Framework for Analysing the Structure of the Electricity Industry 1988, Robert E. Anderson, “Privatisation and Market Dominance: Issues and Options,” paper presented at seminar, Wellington, 14 September 1988, 2.

157 Turnbull Library, Deane Papers, 2204-159-21/08, State-Owned Enterprises, Roger Douglas to Chairman of Cabinet Policy Committee, “State-Owned Enterprises,” 14 April 1986. The projection for 1987–88 and 1988–89 was for $6,725,000,000, and the actual amount for the period was $1,023,552,000.

CHAPTER EIGHT

1 They were attacked before launched. Archives New Zealand, AAFH, W5510, box 359, SOE 2-1, part 3, State-Owned Enterprises – Non-commercial Factors, clipping, Max Bradford, “Problems with the Corporate Concept,” New Zealand Times, 13 April 1986. Bradford had worked for the Treasury. Wikipedia, “Max Bradford.” For opposition to sales, see Turnbull Library, Douglas Papers, 90-326-20, Further Papers Privatisation, Jim Anderton, “An Alternative Economic Statement,” 27 July 1988; Public Service Association, “Privatisation and the Budget: A PSA [Public Service Association] Discussion Paper,” 11 August 1988; and clipping, Auckland Star, 18 November 1987.

2 See the valuation of the National Film Unit in AAAC, Archives New Zealand, W5158 7922, box 7, 105/7/1, part 2, Asset Sales – National Film Unit 1990, Douglas Eckhoff, Manager of New Zealand National Film Unit, to John Young, New Zealand Tourist and Publicity Office, 13 February 1990, 4.

3 Archives New Zealand, AAFD, W4646 7581, box 53, 11/7/43, part 10, Cabinet Committees – Policy 1989, “Meeting,” 6 December 1989.

4 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, Post, 24 March 1990; Archives New Zealand, AALR, W5427 873, box 573, 40/1/3, part 26, Telecom Sale [wrongly inserted material on Government Printing Office], “GPO: Chronology of Events,” [late 1990], 1–23; and Rob Campbell to Select Committee Inquiry into the Sale of Government Printing Office, [June 1991].

5 Douglas and Callan, Toward Prosperity, 167–76.

6 New Zealand Legal Information Institute, Companies Act 1955.

7 “Equiticorp Industries Group Ltd (in Statutory Management) v the Crown (No. 3),” New Zealand Law Review 2, no. 481 (1996): 586–617.

8 Archives New Zealand, AATJ, W5152 7495, box 324, BP/14/1, part 1, State Asset Sales 1989, Office of Minister in Charge of the State Insurance Office, “Ownership and Future of the State Insurance Office,” June 1989; Hunter Donaldson, Ministry of Commerce, Competition Policy, to Peter Ryan, Treasury, “Regulatory Role of State Insurance,” 15 May 1989. See New Zealand Legal Information Institute, State Insurance Act 1990.

9 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 52653, Trade and Industry, R.F. [Richard] Shallcrass to David Caygill, 21 November 1988.

10 Archives New Zealand, AALR, W5427 873, box 573, 40/1/3, part 26, Telecom Sale 1990–91, “Telecom Working Group Contact List: Business and Home,” 23 May 1990.

11 New Zealand Legal Information Institute, State-Owned Enterprises Act 1986.

12 Turnbull Library, Deane Papers, 2005-087-056, Papers Relating to Asset Valuation, interview with Prebble, Newztel Log, Ex-RNZ, “Good Morning New Zealand,” 25 February 1988.

13 Turnbull Library, Douglas Papers, 90-326-20, Further Papers, clipping, National Business Review, 20 May 1988.

14 Turnbull Library, Douglas Papers, 90-326-20, Further Papers, Roger Douglas, “Privatisation of National Corporations,” n.d., margin note in appendix A.

15 Turnbull Library, New Zealand Council of Trade Unions Papers, 98-327-32/4, Further Papers, Labour Party, POL/1/1, vol. 1, Ken Douglas to the Labour Party Policy Council, “The Battle for the Soul of the Labour Party,” 28 July 1988, 3.

16 Turnbull Library, Douglas Papers, 90-326-20, Further Papers, Privatisation, Roger Douglas, “National and the Petrocorp Sale,” [March 1988]; Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, Post, 7 March 1990.

17 Turnbull Library, New Zealand Labour Party, Head office Records, 97-114-32/05, Caucus Correspondence, Island Bay LEC to David Lange, 30 June 1986. See other letters of May to July 1986.

18 Turnbull Library, New Zealand Labour Party, Head Office Records, 2007-115-7/02, Wellington MPs’ Meetings, “Minutes,” 2 July 1986. Large delegations from the Combined State Unions and the Wellington Trades Council appeared and condemned a sale as another action against state planning.

19 Archives New Zealand, AALR, W5427 873, box 577, 40/1/4/1/3, part 2, Legal – Projects – Bank of New Zealand Sale 1990, “Opinion for the Solicitor General re: Capital Markets and Bank of New Zealand,” 5 September 1990; and John Chetwin to David Caygill, 19 September 1990.

20 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 109904, Development Finance Corporation, R.L. [Roger] Kerr for Secretary of the Treasury to Minister of Finance, 16 August 1984. See also Macmillan Brown Library, Caygill Papers, acc. 77, ref. 110095, Development Finance Corporation, David Caygill to J.M. Marcus, 13 September 1990; and “Notes from Oral Evidence from Hon. David Caygill, Finance and Expenditure Committee, Estimates, 1988/89,” n.d., 1–9.

21 Archives New Zealand, AAEK, W3130 25039, box 16, 1985–86 Michael Cox Papers, “Minutes of Meeting of Privatisation Committee,” 15 August 1985; Archives New Zealand, ABHF, W3776 6846, box 3, 1984, Sir Donald McKinnon Papers, Don McKinnon, “Information Request: General Assembly Library,” 10 October 1984; Archives New Zealand, ABHF, W3776 6846, box 3, record 2, 1985, Sir Donald McKinnon Papers, Don McKinnon, “Why Privatisation Will Be Good for New Zealand,” speech to Orewa Rotary Club, 26 November 1985; and McKinnon to Paul Rowe, Information Officer of New Zealand National Party, 10 December 1985.

22 Turnbull Library, Douglas Papers, 90-287-20, Further Papers, Privatisation, clipping, Dominion, 31 May 1988; Douglas and Callan, Toward Prosperity, 122.

23 Turnbull Library, Douglas Papers, 90-326-20, Further Papers, clippings on Bolger, examples in Christchurch Press, 6 October 1988; and Karori and Western Suburbs News, 22 November 1988.

24 Douglas and Callan, Toward Prosperity, 121–6, 184.

25 Turnbull Library, Douglas Papers, 90-326-11, Further Papers, Newztel Log, Ex-RNZ, “Focus on Politics,” 1 May 1988.

26 Turnbull Library, Douglas Papers, 90326-15, Further Papers, Roger Douglas, “Sale of the Rural Banking and Finance Corporation of New Zealand,” 3 August 1989.

27 Turnbull Library, Douglas Papers, 90-287-35, Further Papers, Budget Secret, R.F. [Richard] Shallcrass for Secretary of the Treasury to Douglas, “Business Sales Programme – Principles and Sales Process,” 24 June 1988, annexes 1 and 2.

28 New Zealand Legal Information Institute, Commerce Act 1986.

29 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87409, Economy – General, clipping, Evening Post, 12 January 1984.

30 On the dismissal of allegations against Telecom, see Archives New Zealand, ABDI, W6033 7542, box 129, ENF/SOE-TC24, part 1, Enforcement State-Owned Enterprises – Telecom 1990, John Preston to Tony Ilott, “Consumer Complaints about Telecom,” 14 May 1990.

31 Archives New Zealand, AATJ, W5519 7495, box 415, BL/7/1/4, part 1, Business Law – Competition – General Policy – Commerce Act Enforcement 1987–92, Peter Cole to Private Secretary of Minister of Commerce, 25 June 1992.

32 Archives New Zealand, AATJ, W4993 7452, box 45, EIG 50/4, part 1, Gas Industry – Commerce Act Review 1988, David Butcher, Minister of Commerce, “Memorandum for Cabinet Policy Committee: Commerce Act Review,” 4 August 1988, 17–18; and “Commerce Act Review: Summary of Submissions,” no. 19, Perry Castle and Hesketh Henry, Barristers and Solicitors; no. 27, Russell McVeagh and Co.; and no. 30, Electricity Corporation of New Zealand.

33 Archives New Zealand, AATJ, W4993 7452, box 45, EIG 50/4, part 1, Gas Industry – Commerce Act Review 1988, “Commerce Act Review: Summary of Submissions,” no. 33, New Zealand Manufacturers’ Federation.

34 Archives New Zealand, AATJ, W4993 7452, box 45, EIG 50/4, part 1, Gas Industry – Commerce Act Review 1988, “Commerce Act Review: Summary of Submissions,” no. 9, AMP, and no. 20, New Zealand Business Roundtable; and David Williams, Barrister, “Mergers and Takeovers under the Commerce Act 1986,” 22 May 1988, 16–17. Archives New Zealand, AATJ, W5152 7495, box 323, BP/6/2/1, part 1, Port Reform 1988–89, “Note to File [on Efficiencies],” [July 1989].

35 Ibid.

36 Archives New Zealand, AATJ, W5152 7495, box 323, BP/6/2/1, part 1, Port Reform 1988–89, B.A. Martin, Marine Transport, to Ministry of Commerce, 18 April 1989.

37 Archives New Zealand, AATJ, W5567 21753, box 714, COM T 12/07, part 1, Comm/Tele Series – Regulatory Functions – Commerce Commission 1991–92, clipping, Christchurch Press, 15 November 1991; Archives New Zealand, ABKL, W5757 8154, box 103, 22/22/0POL, Policy Review – Commerce Act 1991–92, Minister of Commerce, “Memorandum for Cabinet: Review of the Commerce Act, 1986,” [late June 1991].

38 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 6, Cabinet Policy Committee, “Minutes,” 25 May 1987.

39 Turnbull Library, Douglas Papers, 90-326-11, Further Papers, clipping, Financial Times, 19 June 1987.

40 The records suggest that this was the case. I confirmed it with Geoffrey Palmer, communication with author, 13 September 2017.

41 Officials and ministers with economic portfolios recognised that debt contributed to the problem. Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 4, Monetary Policy Research (General Monetary) 1986–89, Paul Atkinson for Secretary of the Treasury to Roger Douglas, Minister of Finance, 19 December 1986; Archives New Zealand, AAFD, W4646 7581, box 90, 103/1, part 5, Economic Policy – General 1985–88, Office of the Minister of Finance, “The Economy – A Forecast for the Year Ahead,” 26 January 1987, 3; and Graham Scott, Secretary of the Treasury, to the Minister of Finance, “Economic Effects of Fiscal Deficits,” 20 March 1987, 2; Archives New Zealand, AAFD, W4646 7581, box 90, 103/2, part 1, Economic Policy – Public Debt, Graham Scott, Secretary of the Treasury, “Memorandum for Cabinet Policy Committee,” draft, 18 April 1988, 2; Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 4, Monetary Policy Research (General Monetary) 1986–89, Don Brash, Governor of the Reserve Bank, to David Caygill, Minister of Finance, “Memorandum for the Minister of Finance: Macroeconomic Policy and the 21 March Statement, 7 March 1989, 5–6.

42 Turnbull Library, Douglas Papers, 90-326-20, Further Papers, Privatisation, clipping, “Selling the Idea of Selling the Assets,” National Business Review, 20 May 1988, quoting Richard Prebble.

43 Archives New Zealand, AALR, W5427 873, box 572, 40/1/3, part 22, Legal – Projects – Telecom Sale 1990, Barry Brown to Ivan Kwok, 6 July 1990.

44 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 5, Benefits General 1987–88, Ann Hercus, Minister of Social Welfare, to Cabinet, “Recovery of Social Security Debts,” 17 July 1987; Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 7, Benefits General 1989, Task Force on Income Maintenance Reform, Report to the Minister of Social Welfare on a Proposed Income Maintenance System: Based on the July Cabinet Decisions (1989), 1–68.

45 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 0, Policy and Planning Issues – Privatisation of State-Owned Enterprises 1987–88, Dennis Lee, Policy Division, Ministry of Forestry, “Forest Corporation and Privatisation: Discussion Paper,” November 1987, 2–3; Archives New Zealand, AAFH, W5510 6790, box 354, State-Owned Enterprises – Policy Issues – Framework, Marilyn F. Goddard for Secretary of the Treasury to Minister of State for State-Owned Enterprises, 1 March 1989.

46 Archives New Zealand, AALR, W5427 873, box 1746, 70/5/89, IMF Consultations 1989, IMF, “Minutes of Meeting on General Economic Strategy and Structural Reforms,” 4 April 1989, 4.

47 Ibid.

48 Turnbull Library, Douglas Papers, 90-287-47, Further Papers, Bevan Burgess’s Office 1990, Roger Douglas, “National Policy Makers’ Experience – New Zealand,” paper presented at the International Privatization Congress, Saskatoon, Saskatchewan, 14 May 1990.

49 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 52639, Documents, J.M. [John] Chetwin, “State-Owned Enterprises and Commercial Asset Sales Policies,” 26 October 1990. Prepared for the incoming government, this report mentioned in its third part, “Drawbacks of SOE Framework,” political intervention in the conduct of business as a motive for sales.

50 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-36/13, Policy Council, Railways, Booz, Allen, and Hamilton, “New Zealand Railways Corporation: Comprehensive Review of Operations and Strategic Options Evaluations,” 1997, 1.

51 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, J.M. [John] Chetwin to Douglas, “Sale of Crown Commercial Assets,” 24 November 1987.

52 Turnbull Library, Deane Papers, 2005-087-056, Papers Relating to Asset Valuation, Douglas and Prebble to Roderick Deane and C.J. Fernyhough, 17 February 1988.

53 Archives New Zealand, AAFD, W4646 7581, box 54, 11/7/46, part 1, Cabinet Committees – State-Owned Enterprises 1987–88, “Meeting.” 10 February 1988.

54 Archives New Zealand, AAFD, W4646 7581, box 90, 103/2, part 1, Economic Policy – Public Debt, Richard Prebble, “Memorandum for Cabinet Policy Committee: Asset Sales Programme,” 21 March 1988, 2.

55 Archives New Zealand, AAFD, W4646 7581, box 90, 103/2, part 1, Economic Policy – Public Debt, Geoffrey Palmer, Deputy Prime Minister, to Prebble and Douglas, “Thoughts on Asset Sales,” 25 March 1988.

56 Ibid.

57 Archives New Zealand, AAFD, W4646 7581, box 90, 103/2, part 1, Economic Policy – Public Debt, Roger Douglas and Richard Prebble, “Memorandum for Cabinet Policy Committee: Asset Sales Programme,” 29 March 1988.

58 Archives New Zealand, AAFD, W4646 7581, box 90, 103/2, part 1, Economic Policy – Public Debt, Tim Di Mattina, Prime Minister’s Office, to John Henderson, 25 March 1988; Roger Douglas and Richard Prebble, “Memorandum for Cabinet Policy Committee: Asset Sales Programme,” 29 March 1988; “Debt Retirement Programme,” [April 1988]; Douglas and Prebble, covering letter for a special meeting of the Cabinet Policy Committee on 11 April 1988; Richard Prebble, “Memorandum for Cabinet: Business Sales: Restrictions on Sales,” 22 July 1988.

59 Archives New Zealand, AAWW, W4640 7112, box 18, Prebble Sacking, Asset Sales 1988, Paul Baines to Ron Trotter, 26 October 1988.

60 Bilotkach, Economics of Airlines, 80–2. See also Archives New Zealand, AATJ, W5152 7495, box 324, BP/14/1, part 1, State Asset Sales 1989, “Sale Options: Public Float, Negotiated 100 Percent Sale,” [August 1989].

61 Bassett, Working with David, 422, 430.

62 Turnbull Library, Douglas Papers, 90-287-26, Further Papers, Polling, Roger Douglas, “Report to Prime Minster,” 19 September 1988.

63 Turnbull Library, Douglas Papers, 90-326-11, Further Papers, clipping, Dominion, 7 December 1987.

64 Bassett, Working with David, 432.

65 Ibid., 430.

66 Ibid., 433.

67 Ibid, 432–8. Bassett supported Prebble and Douglas in Cabinet and the Labour Caucus. His description of the ANZ affair conforms to events recounted in documents.

68 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, Asset Sale, Roger Douglas, “Longhand Summary,” n.d., 16 pages; Roger Douglas, “Memorandum to Cabinet: Air New Zealand Sale,” 14 October 1988.

69 Archives New Zealand, ABJZ, W4644 7019, box 54, POL 7/2, record 1, Policy and Research – Government and Economy – Privatising/Restructuring 1989–91, Stan Rodger, “Keynote Address,” Brisbane, 25 May 1989, 62–4.

70 Rescue was deferred, becoming the first major challenge for the National government in 1990. Bolger, View from the Top, 37.

71 Archives New Zealand, AAWW, W4640 7112, box 47, Air New Zealand, R.J. Scott, Chief Executive of Air New Zealand, to W.P. [Bill] Jeffries, 27 April 1989.

72 Archives New Zealand, AALR, W5796 873, box 70, T62/40/18, part 4, Railways – Restructuring – General 1988–90, New Zealand Railway Corporation, Report on Restructuring of the Corporation (1989), 8.

73 Wikipedia, “Rail Transport in New Zealand.”

74 Peter Reidy, Chief Executive of KiwiRail, quoted in Price, “KiwiRail ‘Dream.’”

75 Turnbull Library, Douglas Papers, 90-287-01, Further Papers, Subject Files A–E, David Butcher, Minister of Regional Development, “Memorandum for Caucus: Regional Development Programme,” [October 1989].

76 Archives New Zealand, AAFH, W4181 785, box 53, Trade and Industry – Response to Change 1985, Study Team, Trade and Industry: Response to Change: Domestic Review: Life after Licensing (1985), 3–24, quote at 24; and J.W.H. Clark, Secretary of Trade and Industry, J. Yeabsley, A.C. Davies, F.N.G. McLean, and D.L. Gamble, “Trade and Industry: Response to Change,” 10 May 1985.

77 Hocken Library, Rodger Papers, 89/007, box 4, “Second Reading of State Enterprises Restructuring Bill,” 1987; Archives New Zealand, ABGX, W4536, box 11, part 2, Commerce and Marketing Committee – Bill – State Enterprises Restructuring – Administration – Submissions 1–22, 1986–87, various submissions; New Zealand Legal Information Institute, State Enterprises Restructuring Bill 1987.

78 Archives New Zealand, AATJ, W5152 7495, box 320, BL/7/4, part 3, Business Law – Competition Law – Commerce Act 1988 Review, David Butcher to Susan Howan, [29 May 1989].

79 Archives New Zealand, AATJ, W5152 7495, box 320, BL/7/4, part 3, Business Law – Competition Law – Commerce Act 1988 Review, Hunter Donaldson, Competition Policy and Business Law, Ministry of Commerce, “Commerce Act Review,” draft, 25 May 1989, 3.

80 Archives New Zealand, AATJ, W4993 7452, box 45, EIG 50/4, part 1, Gas Industry – Commerce Act Review 1998, David Butcher, Minister of Commerce, “Memorandum for Cabinet Policy Committee: Commerce Act Review,” 4 August 1988, 4–5. On the Chicago School approach to competition and efficiency at the time, see Fox and Sullivan, “Antitrust,” 971–4.

81 New Zealand Legal Information Institute, Commerce Act 1975.

82 Archives New Zealand, AATJ, W5519 7495, box 415, BL/7/1/4, part 1, Business Law – Competition – General Policy – Commerce Act Enforcement 1987–92, Philip Burdon, Minister of Commerce, “Memorandum: Commerce Commission: Additional Funding,” [September 1991].

83 Archives New Zealand, AATJ, W5509 18918, box 249, part 1, Commerce Act Review 1988, “Ministry of Energy Submission in Response to the Department of Trade and Industry’s Discussion Paper,” September 1988, 28–30, quote at 30.

84 Archives New Zealand, AATJ, W5509 18918, box 249, part 1, Commerce Act Review 1988, Commerce Commission, “Review of the Commerce Act,” September 1988, 28–30.

85 Turnbull Library, Deane Papers, 2005-196-038, State-Controlled Trading Organisations, I. Duncan, B. Donovan, and A.E. Bollard, State Controlled Trading Organisations (Wellington: New Zealand Institute of Economic Research, 1990), 15–16. Promotional schemes and discounted rates in the 1930s and 1940s built up demand.

86 Moore, Hard Labour, 67.

87 Turnbull Library, Deane Papers, 2005-087-056, Papers Relating to Asset Valuation, unidentified clipping, [February 1988].

88 Archives New Zealand, AALR, W5427 873, box 1462, 62/60/5, part 32A, Expenditure – Electricity Division of Ministry of Energy 1982–88, Roderick Deane to John Chetwin, 12 December 1988 (quote). For Deane’s views on electricity as key to national economic efficiency, see Turnbull Library, Deane Papers, 2005-087-056, Papers Relating to Asset Valuation, Deane to Ronald Trotter, 11 March 1988; and Deane to Prebble, 10 March 1988.

89 Turnbull Library, Deane Papers, 2005-087-056, Papers Relating to Asset Valuation, clipping, National Business Review, 1 February 1988.

90 Turnbull Library, Deane Papers, 2005-087-056, Papers Relating to Asset Valuation, K.S. Turner to Deane, “Major Strategic Decisions,” 17 February 1988.

91 Archives New Zealand, AEPU, W5582 7765, box 819, 1, ECNZ Review Consultants Reports 1997, McKinlay Douglas, “Retail Competition: Report Prepared for ECNZ,” August 1997, 1.

92 Archives New Zealand, AEPU W5582 7765 box 819, 1, ECNZ Review Consultants Reports 1997, McKinlay Douglas, “Retail Competition: Report Prepared for ECNZ,” August 1997, 1–18.

93 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 3, Cabinet Committee on Policy, “Minutes,” 9 December 1987.

94 New Zealand Legal Information Institute, Electric-Power Boards Act 1918; New Zealand Legal Information Institute, Electric-Power Boards Act 1925.

95 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Media Coverage on Devaluation, “Summary of Main Issues as Reported in the Media,” 28 September 1984, item 6 (electricity).

96 On boards, see Turnbull Library, Deane Papers, 2005-087-056, Papers Relating to Asset Valuation, clipping, Waikato Times, 23 July 1987, quoting John Collinge, Chair of Auckland Electricity Board.

97 Turnbull Library, Douglas Papers, 90-287-01, Further Papers, J.M. [John] Chetwin to Chair of Ministerial Coordinating Committee on Electricity Industry Restructuring, “Progress Report,” 26 January 1990.

98 Turnbull Library, Deane Papers, 2005-196-056, Electricity Reforms, Towards Competition and Efficiency, End-Use Energy Efficiency: A Way Forward for New Zealand, pamphlet (1992), 1–10.

99 The removal of Prebble and later a preoccupation with the sale of Telecom contributed to the deferral. Bassett and Bassett, Roderick Deane, 193. Government records suggest that there was also uncertainty over how generators could coordinate expansion among themselves without a middle agent.

100 Gale and Bollard, Theoretical Approach, 4.

101 Turnbull Library, Deane Papers, 2005-087-149, Papers Relating to Shareholding Ministers, letters between the chair of the board and ministers, 1991.

102 Archives New Zealand, AANU, W5079 7734, box 24, record 7, Competition, Marginal Cost Tariff, and Spot Pricing in the Chilean Power Sector, Sebastian Bernstein, “Competition, Marginal Cost Tariff, and Spot Pricing in the Chilean Power Sector,” [1988].

103 For the proposal that where “the need to coordinate … is high,” state ownership can be helpful, see Musacchio and Lazzarini, Reinventing State Capitalism, 284–5.

104 Labour in 1990 wanted industry participants to work out the rules and mechanics of a wholesale market; the relevant work would be done by the National government. Turnbull Library, Douglas Papers, 90-287-01, Further Papers, J.M. [John] Chetwin to Chair of Ministerial Coordinating Committee on Electricity Industry Restructuring, “Progress Report,” 26 January 1990; Archives New Zealand, AATJ, W5519 7495, box 469, BP/4/2/8, part 2, Wholesale Electricity Market 1994, clipping, “Electricity Faces Wholesale Onslaught,” National Business Review, 13 May 1994; Wholesale Electricity Marketing Group, “Benchmark,” June 1994; and Cabinet Strategic Committee, “Wholesale Electricity Market Reform: Progress Report,” 29 August 1995; Archives New Zealand, AEPU, W5606 7734, box 65, C 543, ECNZ Wholesale Electricity Market Rules, “Application for Authorisation of Restrictive Trade Practices,” 21 June 1996.

105 Turnbull Library, Deane Papers, 2006-129-593, Telecom Correspondence with Cabinet Ministers and Members of Parliament, Deane to Warren Kyd, 28 January 1992; Turnbull Library, Deane Papers, 2005-196-006, Statements of Corporate Intent, Electricity Corporation of New Zealand, “Year Ending 31 March 1993.”

106 Archives New Zealand, AEPU, W5582 7765, box 819, record 1, ECNZ Review Consultants Reports 1997, McKinlay Douglas, “Retail Competition: Report Prepared for ECNZ,” August 1997; and Ernst & Young, “Analysis of Impact of Separation of Line and Energy Businesses,” 23 September 1997.

107 Archives New Zealand, AATJ, W5519 7495, box 469, BP/4/2/8, part 2, Wholesale Electricity Market 1994, Cabinet Strategy Committee, “Wholesale Electricity Reforms: Options to Reduce ECNZ’s Dominance,” n.d., 3–19.

108 On asset valuation, see Archives New Zealand, AEPU, W5606 7734, box 306, SDG 03/02/01, part 1, ECNZ Corporate Relations Competitors Contact 1997, “Contact Annual Report,” January 1997.

109 Archives New Zealand, AEPU, W5582 7765, box 818, 1, ECNZ Review Consultants Reports Media, clippings, “Electricity Industry Braced for Further Changes,” New Zealand Engineering, November 1997; New Zealand Herald, 23 April 1997; Northern Advocate, 12 May 1997; and New Zealand Herald, 13 May 1997.

110 Archives New Zealand, AEPU, W5582 7765, box 818, 1, ECNZ Review Consultants Reports Media, Max Bradford, “Speech to Energy Sector Conference,” 20 August 1997.

111 Wikipedia, “Mercury Energy.”

112 Archives New Zealand, AATJ, W5509 18918, box 249, part 1, Commerce Act Review 1988, P. Cebalo to Hunter Donaldson, 10 November 1988.

113 Archives New Zealand, AAPU, W5606 7765, box 441, part 2, Trans Power Commerce Commission Application 1993. The proper way to calculate the capital costs for a utility was a bone of contention when setting a value on the ECNZ. The selection of marginal costs or sunk costs has implications for arguing whether current profits are warranted or not. Researchers should explain the options. For a bias, see Bertram and Twaddle, “Price-Cost Margins.”

114 Archives New Zealand, AATJ, W5519 7495, box 415, BL/7/1/4, part 1, Business Law – Competition Law – Commerce Commission, Officials Committee on Expenditure Control, “Commerce Commission: Additional Funding,” [January 1992].

115 Cohn, Grid, 216.

116 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, New Zealand Herald, 19 May 1990, quoting Professor Jack Woodward.

117 Wellenhuis and Stern, “Background, Overview, and Lessons.”

118 Archives New Zealand, AAFH, W5510 6790, box 402, SOE-TELE-1, State-Owned Enterprises – Targeted Organisations – Telecom – General 1986–88, D.C. Rose, Assistant Chief Executive of Telecom, to Ms Lyn Connor, State Enterprises Branch, State Services Commission, 14 August 1987.

119 Gable, Telecommunications Department Management, 10–12.

120 Archives New Zealand, AALR, W542 7873, box 573, 40/1/3, part 26, Legal – Projects – Telecom Sale 1990–91, Officials Committee, “Summary of Regulatory Issues and Structural Options,” 12 July 1989; Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, unidentified clipping, John Crook, Director for Strategy and Development, Telecom, “Preparing an SOE for Privatisation,” 1993, 11.

121 Turnbull Library, Douglas Papers, 90326-15, Further Papers, Telecom, Officials Committee, “Telecom: Summary of Regulatory Issues and Structural Options,” 12 July 1989.

122 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, New Zealand Herald, 5 May 1990.

123 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clippings, Post, 15 January 1990; and Dominion, 2 April 1990.

124 Wikipedia, “MCI Communications.”

125 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, New Zealand Herald, 5 May 1990; Archives New Zealand, AALR, W5427 873, box 587, 40/1/20, part 1, Railway Restructuring, Bell Gully Buddle Weir, Barristers and Solicitors, to Neil Muth, Treasury, 5 July 1990; and “Precis of Problems with the FOC Agreement,” 12 July 1990.

126 Mueller, “On the Frontier of Deregulation,” 134.

127 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, Dominion, 2 April 1990.

128 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, Dominion, 8 May 1990.

129 Archives New Zealand, ABDI, W6045 7542, box 43, AUT/MT-T39/2, part 1, Authorisations – Merger and Takeover Proposal Applications – Telecom 1990, Nigel Hubbard and David Parry, “Memo: Telecom,” 21 June 1990.

130 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping Dominion, 2 April 1990; Archives New Zealand, ABDI, W6045 7542, box 43, AUT/MT-T39/2, part 1, Authorisations – Mergers – Telecom 1990, notes on discussions with various telecommunications officials, June 1990.

131 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, Post 12 February 1990.

132 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, National Business Review, 2 June 1990.

133 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clippings, Post, 15 and 17 January, 12 February, 7, 8, 13, 15, 16, 19, and 20 March 1990.

134 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, Christchurch Press, 19 May 1990.

135 Archives New Zealand, AALR, W542 7873, box 573, 40/1/3, part 1, Telecom Sale 1987–90, Treasury to Prebble, “Report,” 16 February 1990; Archives New Zealand, AALR W542 7873, box 573, 40/1/3, part 26, Telecom Sale 1990–91, J.M. [John] Chetwin to Cabinet, “Memorandum: Telecom Public Share Float,” 8 May 1991; and clipping, Tom Hyde, “How They Sold Telecom, Why They Sold Telecom,” Auckland Metro, [early 1991], 58–69; Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, unidentified clipping, John Crook, Director for Strategy and Development, Telecom, “Preparing an SOE for Privatisation,” 1993, 12.

136 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, National Business Review, 30 April 1990.

137 Turnbull Library, Deane Papers, 2006-129-120, Telecom, Regulation of Access to Vertically Integrated Natural Monopolies: Telecom Response (1996), 1.

138 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, New Zealand Herald, 16 June 1990.

139 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, unidentified clipping, John Crook, Director for Strategy and Development, Telecom, “Preparing an SOE for Privatisation,” 1993, 14.

140 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clippings, Christchurch Press, 7 June 1990; and Post, 12 and 13 June 1990.

141 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clippings, National Business Review, 2 June 1990; and New Zealand Herald, 13 June 1990.

142 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, New Zealand Herald, 16 June 1990.

143 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, Link Hoewing, Government and Corporate Relations Manager, Telecom, to Andy Gregory, 24 May 1990; and Hoewing to Jim Anderton, 21 April 1993.

144 Anonymous informant F, interview with author, 18 July 2018.

145 Donaldson, “Telecommunications Liberalization and Privatization,” 260.

146 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clippings, Dominion, 17 August 1990; and Trans-Tasman, 12 March 1992.

147 Archives New Zealand, AALR, W5427 873, box 571, 40/1/3, part 15, Legal – Telecom Sale 1990, Skadden, Arps, Slate, Meager & Flom to Treasury, 1 June 1990.

148 Archives New Zealand, ABOT, W4375 6787, box 42, 1990 Telecom, clipping, Christchurch Press, 20 March 1990.

149 CEIC Data, “New Zealand Market Capitalization.”

150 Wikipedia, “List of Stock Exchanges”; Wikipedia, “List of European Stock Exchanges.”

CHAPTER NINE

1 Archives New Zealand, ABAA, W5238 8040, box 16, New Zealand Forestry Corporation, “Minutes of Meeting,” 27 April, 31 May, 22 June, 4 August, and 27 September 1988. For a one-sided account of the impasse, see Grant and Birchfield, Out of the Woods, 110–23.

2 Sales returned to the state approximately $1.4 billion. That did not include the massive Timberlands (Bay of Plenty) sale. New Zealand, “Income from State Asset Sales.”

3 For many years, The New Zealand Official Yearbook included a chapter section titled “History of Forestry in New Zealand.” For an online archive of the yearbooks, see Stats NZ, “Yearbook Collection.”

4 Auckland Star, 27 January and 6 August 1926, 13 July 1929, 15 July 1931.

5 Auckland Star, 10 March 1930; Poole, Forestry in New Zealand, 37–41.

6 Auckland Star, 26 August 1926.

7 Auckland Star, 9 April 1930.

8 Auckland Star, 15 July 1931.

9 Healey, Hundred Million Trees, 18–23.

10 Ibid., 34.

11 Auckland Star, 24 November 1936.

12 Poole, Forestry in New Zealand, 25. See also Auckland Star, 13 and 27 August 1938, 28 January 1939.

13 Roche, “State as Conservationist,” 188.

14 “Canadian Consultants Bring Skills and Wide Experience to New Kinleith Projects,” Forest Products News 8, no. 2 (1971): 9. The company research library at Kinleith had held an archive consisting mainly of the company’s housing records for Tokoroa. There was an unpublished company history, Company History: Copy No. 2 (Kinleith: Public Relations, 1971). The author last saw these records in 2010.

15 Firms that purchased forests have required hunters to secure permits; access roads usually have padlocked gates.

16 Archives New Zealand, ABAA, W5238 8030, box 58, New Zealand Forestry Corporation – Asset Sales Group 1989–90, “Minutes of the Sixth Meeting of the Asset Sales Group,” 28 April 1989.

17 Archives New Zealand, ABAA, W5238 8030, box 17, New Zealand Forestry Corporation Board of Directors, “Minutes of Meetings,” 9 February 1989 to 27 November 1990.

18 Berg, “A.P. Thomson.”

19 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 1, J.S. Holloway, NZ Institute of Foresters Inc., to Dr Ballard, Secretary of Forestry, “Issues Generated by Prospect of Privatisation of Forestry Corporation by Government,” 15 March 1988.

20 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 1, R.J. Hawkins, President of New Zealand Timber Industry Federation Inc., to Richard Prebble, 25 May 1988.

21 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 1, T.R. Cutler, Acting Secretary of Forestry, to Minister of Forestry, 5 October 1988.

22 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 5, R.B. Muollo, Company Secretary of Waimea Sawmillers Ltd, to Peter Tapsell, 10 October 1989.

23 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 2, Cabinet Committees Policy, “Minutes: Restructuring of the New Zealand Forestry Service – Establishment of a Forestry Corporation,” 19 November 1984.

24 Healey, Hundred Million Trees, 100.

25 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 5, 6, and 26 September 1986; Newztel Log, Ex-RNZ, “Morning Report,” 5 September 1986; Christchurch Press, 6 September 1986; and Evening Post, 6 and 11 September 1986.

26 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 1, President of New Zealand Timber Industry Federation Incorporated to Richard Prebble, 25 May 1988.

27 Archives New Zealand, AALR, W5427 873, box 600, 40/2/1, part 1, K.M. Ford to prospective forest rights buyers, draft, 17 April 1990.

28 Archives New Zealand, AAFD, W4646 7581, box 110, 237/1, part 6, David McDowell for Director General of Department of Conservation to Minister of Conservation, “Sale of Crown’s Commercial Forestry Assets,” 8 November 1988, 1–3.

29 Archives New Zealand, AAFH, W5510 6790, box 366, SOE-5-5, part 1, State-Owned Enterprises – Meetings – Board Chairman Meetings, SSC Commissioner Meetings – Auckland and Christchurch, “Meeting,” [18 July 1986].

30 Archives New Zealand, AAFH, W5510 6790, box 367, SOE-5-10, part 2, “SOEs Coordinating Meeting,” 17 February 1988.

31 Archives New Zealand, AAFH, W4160, box 25, 100/3/3, part 1, Social Impact SOEs, Palmer to MCC, 16 June 1987; Archives New Zealand, AAFH, W5510 6790, box 364, SOE-5-3, part 17, MCC/SOE, Prime Minister David Lange to Graham Latimer, “Court of Appeal Judgment on Maori Claims,” Paper No. 338, draft, n.d.

32 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 0, Office of the Minister of Forestry, “Memorandum to Cabinet State-Owned Enterprises Committee: Forestry Privatisation: Maori Lease Negotiations,” 7 November 1988, 2.

33 Archives New Zealand, AAFD W4646, 7581, box 52, 11/7/43, part 5, “Minutes of Cabinet Policy Committee,” 29 October 1986.

34 Archives New Zealand, AAFD, W4646 7581, box 76, 55/76, part 2, SOE Coordinating Committee, “Meeting,” 13 and 28 October 1986; Archives New Zealand, AAFH, W4160, box 25, 100/3/3, part 1, Social Impact SOEs, “Meeting,” 21 January 1987.

35 Archives New Zealand, AAFD, W4646 7581, box 76, 55/76, part 2, SOE Coordinating Committee, “Meeting: Labour Market Adjustment Assistance to Disadvantaged People in Depressed Regions,” 4 November 1986.

36 Archives New Zealand, ABAA, W5238 8040, box 16, New Zealand Forestry Corporation, “Meeting,” 19 February 1987, 9 March 1988; Archives New Zealand, AAFH, W4160, box 28, 100/3/11, part 1, Social Impact Unit – SOE –Correspondence with Regional Coordinators, “Meeting: Debate on Use of the Adjustment Contingency Fund,” 21 January 1987. On strikes, see Archives New Zealand, AAFH, W4160, box 25, 100/3/3, part 1, Social Impact SOEs, “Meeting,” 10 December 1986.

37 New Zealand Legal Information Institute, Treaty of Waitangi (State Enterprises) Act 1988.

38 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 0, Ann Callaghan, Office Solicitor, “Sale of Crown’s Commercial Forestry Assets,” 14 October 1988.

39 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 1, Policy – Cabinet State-Owned Enterprises Committee, “Meeting,” 2 November 1988.

40 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 1, Policy – Cabinet State-Owned Enterprises Committee, John Valentine, Assistant Secretary, Ministry of Forestry, to Russ Ballard and Don Wijewardana, 29 June 1988.

41 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 4, Policy – Privatisation of State-Owned Enterprises 1989, R.H.A. Carter to Managing Director of New Zealand Forestry Corporation, 30 June 1989.

42 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 6, Policy, clipping, National Business Review, 2 November 1989.

43 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 0, A. Kirkland, Managing Director of NZFC [Forestcorp], to Chairman of Cabinet Committee on State-Owned Enterprises, 31 October 1988, margin note.

44 New Zealand Legal Information Institute, Industrial Relations Act 1987.

45 Archives New Zealand, ABAA, W5238 8030, box 17, New Zealand Forestry Corporation – Sale 1990, New Zealand Forestry Corporation Limited, Sale of State-Owned Forests in New Zealand: Prospectus (1989), 38.

46 Bilek and Mead. “New Zealand’s State Forest Assets,” 5; Archives New Zealand, ABAA, W5238 8030, box 58, New Zealand Forestry Corporation – Asset Sales Group 1989–90, “Minutes of the Ninth Meeting of the Asset Sales Group,” 6 September 1989.

47 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 6, Policy, clipping, National Business Review, 2 November 1989.

48 Archives New Zealand, AALR, 5427 873, box 600, 40/2/1, part 1, K.M. Ford to prospective forest rights buyers, draft, 8 March 1990.

49 Archives New Zealand, ABAA, W5238 8040, box 17, New Zealand Forestry Corporation, “Report of the Forestry Working Group to the Minister of Finance and the Minister of State-Owned Enterprises,” October 1988, 8.

50 Archives New Zealand, AAFD, W4646 7581, box 110, 237/1, part 6, David McDowell for Director General of Department of Conservation to Minister of Conservation, 8 November 1988.

51 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 4, Policy, John Valentine to Peter Tapsell, [August 1989].

52 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 7, Policy, Jim Sutton, Minister of Forestry, to Mark Collet, 5 July 1990; and Don Wijewardana to Acting Secretary of Ministry of Forestry, February 1991, 3.

53 New Zealand, “Income from State Asset Sales.”

54 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 4, Policy, letters from groups to Peter Tapsell, 1989; box 240, POL/20/PRIV, part 5, Policy, letters from groups to Tapsell, 1989; and box 240, POL/20/PRIV, part 7, letters from groups to Tapsell, 1991.

55 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 2, Students of Waikari School to Peter Tapsell, 19 April 1989.

56 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 6, Policy – Privatisation of State-Owned Enterprises 1989–90, clipping, National Business Review, [January 1990].

57 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 4, Policy, John Mitchell, Secretary of Combined Beneficiaries Union Incorporated, to Peter Tapsell, Minister of Forestry, 7 August 1989.

58 On the use of prisoners, see the chapter on forestry in the various editions of The New Zealand Official Yearbook at Stats NZ, “Yearbook Collection.” On the end of prison labour, see Christchurch Press, 10 June 1920; and Dominion, 20 October 1920. On returned soldiers and forestry, see Marlborough Express, 25 September 1919; Poverty Bay Herald, 17 March 1920; and Northern Advocate, 5 May 1921.

59 Archives New Zealand, AAFD, W4646 7581, box 110, 237/1, part 6, [first name illegible] Gresham for the Secretary of the Environment to Chairperson of Cabinet State Agencies Committee, [early December 1988]; and Cabinet State Agencies Committee, “Meeting,” 14 December 1988.

60 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 7, Jim Sutton, Minister of Forestry, to Mark Collet, 5 June 1990.

61 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 4, Policy – Privatisation of State-Owned Enterprises 1989, Minister for State-Owned Enterprises, “Press Release,” 1 September 1989.

62 Roche, “Privatizing the Exotic Forest Estate,” 148.

63 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 7, Don Wijewardana to Acting Secretary of Ministry of Forestry, 1 February 1991.

64 Clarke, “Devolving Forest Ownership.”

65 Archives New Zealand, AACQ, W5616 21680, box 240, POL/20/PRIV, part 1, Robin Cutler, Secretary of Forestry, to Peter Allen, 31 January 1989.

66 Archives New Zealand, ABAA, W5238 8030, box 58, New Zealand Forestry Corporation – Asset Sales Group 1989–90, “Notes for Meeting with Treasury: Critical Path Schedule,” [August 1990].

67 Roche, “Privatizing the Exotic Forest Estate,” 148–9.

68 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 6, Policy, J.R. McLanachan, NZFC [Forestcorp], to H. Levack, Ministry of Forestry, 8 January 1990.

69 Quoted in Wright, Working Together, 9.

70 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 7, Policy, Jim Sutton, Minister of Forestry, to Mark Collet, 5 July 1990; and part 4, Policy, Industrial Union of Workers, New Zealand Timber Industry Employees, to Trevor Mallard, MP, 23 August 1989.

71 Gilbert, Trade Policy, 22.

72 Ibid., 199.

73 Archives New Zealand, ACCQ, W5616 21680, box 240, POL/20/PRIV, part 1, Policy, J.S. Holloway for Director General of New Zealand Institute of Foresters Inc. to Secretary of Forestry, Ministry of Forestry, 15 March 1988.

74 Archives New Zealand, ACCQ, W5616 21680, box 241, POL/20/PRIV, part 4, Policy, John Valentine to Tim Saunders and Jerry Lynch, Treasury, 23 August 1989; Archives New Zealand, AAFD, W4646 7581, box 110, 237/1, part 6, Peter Tapsell, Minister of Forestry, “Memorandum to Cabinet: Policy Implications of Future Developments in the Forestry Sector,” [late November 1988], 3–4.

75 Star and Lochhead, “Children of the Burnt Bush,” 131–4; McKinnon, ed., New Zealand Historical Atlas, plate 62.

76 Archives New Zealand, AANK, W3580, box 807, part 2, Industrial Relations: A Framework for Review 1985, Industrial Relations: A Framework for Review, vol. 2 (Wellington: Government Printer, 1985); Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Submissions – Nos 1–57W, New Zealand Pulp and Paper Employers Association, “Submission 47,” n.d. On forestry employers’ frustration with illegal strikes, see Wright, Working Together, 52.

77 Wright, Working Together, 57–60; Archives New Zealand, AALR, W5427 873, box 600, 40/2/1, part 1, K.M. Ford to prospective forest rights buyers, draft, 8 March 1990.

78 Wright, Working Together, 127–8.

79 On the presence of Japanese insurance funds in New Zealand and other markets, see Economist, 16 December 1989, 96.

80 Wilson, Short History, 23. The sales are contentious. Michael Roche concluded in 1992 that Fourth Labour’s objectives were not achieved. Roche, “Privatizing the Exotic Forest Estate,” 150. This claim was made before the Timberlands (Bay of Plenty) sale and before the pertinent government records were opened. Fourth Labour did not benefit, but the state under other governments did.

81 Archives New Zealand, AAFD, W4646 7581, box 110, 237/1, part 6, Forests and Forestry – General 1988–89, Peter Tapsell, Minister of Forestry, “Memorandum to Cabinet: Policy Implications of Future Developments in the Forestry Sector,” [late November 1988].

82 On volatility and New Zealand’s restructuring companies, see Wheeler and Nash, Examination of the Sharemarket Crash, 1–9.

83 Barnett and Maclean, Tramping, 262–6.

CHAPTER TEN

1 Descriptions appeared in various editions of The New Zealand Official Yearbook. See Stats NZ, “Yearbook Collection.” For a survey history, see McClure, Civilised Community. Controversies surface in Archives New Zealand, ADNX, W5890 24734, box 45, S/5, part 1, History Group – New Zealand Written History – Social Security in New Zealand, reports on McClure’s manuscript, n.d.

2 Archives New Zealand, ABKH, W4105, box 38, 30/0/4, Advisory Committee on Women’s Affairs 1978–83, Committee on Women, “Income Maintenance and Taxation,” 7 November 1978, 7–14; Brookes, History of New Zealand Women, 358.

3 McTaggart, Monitoring the Impact, 52.

4 Archives New Zealand, AATJ, W5152 7495, box 324, BP/14/1, part 1, State Asset Sales 1989, “Provision of Cheap Premiums,” [August 1989].

5 Archives New Zealand, abqu, W4452. 632, box 1301, 206-35-2-7, Social Security – Interim Targeting Regime – Social Welfare Issues 1992, “Chart on Processing Welfare Medical Cases,” n.d.

6 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-32/08, Joint Council of Labour Papers, Ken Douglas and W.E.B. Tucker to Roger Douglas, 10 April 1985.

7 The Labour Party Policy Council discussed adopting this switch in 1978. Turnbull Library, Bassett Papers, 94-067-22, Labour Party Correspondence and Policy Council Material, “Social Welfare Policy – Income Maintenance Proposals,” June 1978.

8 Archives New Zealand, ABIJ, W3969, box 5, 189, Department of Social Welfare – Circulars 1987, R.B. [Rob] Laking, “Submission to the Royal Commission on Social Policy,” 6 May 1987, 7.

9 Archives New Zealand, ABIJ, W3969, box 12, Department of Social Welfare Structure and Staff Review 1988, W.D. Scott, Deloitte Ltd, “Department of Social Welfare: Structure and Staff Review,” 18 October 1988, 11–14.

10 McClure, Civilised Community, 153–5, 158–62.

11 Archives New Zealand, ABKH, W4105, box 38, 30/0/4, Advisory Committee on Women’s Affairs 1978–83, Committee on Women, “Income Maintenance and Taxation,” 7 November 1978, 1–7, quote at 7.

12 OECD, “Level of GDP.”

13 Archives New Zealand, AAYE, W5048 7433, box 129, B&P 6-9-1, part 5, Benefits and Pensions – Unemployment Benefits – Policy Decisions 1982–85, Departmental Review Group, Unemployment Benefit Systems Review, report (1983), 16–17.

14 Archives New Zealand, AAYE, W5048 7433, box 136, B&P 6-9-15, part 1, Benefits and Pensions – Unemployment Benefits – Fraud 1983, unidentified clipping, [1983].

15 Thomson, Selfish Generation? 34.

16 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 7, Benefits General 1989, D.K. [Don] Hunn, Chair of State Services Commission, to Minister of State Services, “Task Force on Income Maintenance,” 21 August 1989.

17 Archives New Zealand, ABOT, W4375 6787, box 39, Resource Material – Clippings and Press Statements 1990, Newztel Log, Ex-RNZ, “Morning Report,” 1 March 1990, quoting Roger Douglas.

18 Archives New Zealand, AALR, W5427 873, box 882, 52/479/15, part 6, National Superannuation Scheme 1983–86, Geoffrey Palmer, form letter, November 1984.

19 McTaggart, Monitoring the Impact, 27–31.

20 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 5, Benefits General 1987–88, Geoffrey Palmer, Chairman of Cabinet Social Equity Committee, to Cabinet Social Equity Committee, “Social Policy Reform Programme: Income Maintenance Rationalisation,” [early December 1987]; and part 7, Benefits General 1989, Geoff Bascand for Secretary of the Treasury, “acc Insurance Option,” 16 October 1989, 1.

21 Archives New Zealand, AAFD, W4646 7581, box 53, 11/7/43, part 9, Cabinet Committees – Policy 1988–89, “Meeting,” 19 April 1989.

22 Archives New Zealand, ABQU, W4452, box 1474, 337-18-7, Miscellaneous – Ministerial Task Force on Social Welfare System – Income Maintenance 1986, “Memo to Consultants: Options for Further Reform: One Basic Benefit,” March 1986.

23 Archives New Zealand, ACCW, W5950 16364, box 3, Cabinet Papers Prior to mid-1995 – Acts and Legislation – Social Welfare Bill 1990–94, Cabinet Legislative Committee, “Outline of Policy to Be Introduced by Bill,” 1; and reference to Cabinet approval in Archives New Zealand, CAB (90), series M16/15.

24 Lipsey, “Social Care”; Hollis, “Fair Pensions”; Clarke, ed., Too Difficult Box.

25 On the Liberal Party, see Coleman, Progressivism, 29–41; Hamer, New Zealand Liberals, 354–60; and McTaggart, Monitoring the Impact, 40.

26 New Zealand Legal Information Institute, Old-Age Pensions Act 1898.

27 New Zealand Legal Information Institute, Social Security Act 1938.

28 Sinclair, Walter Nash, 153–69.

29 McClure, Civilised Community, 83.

30 The National Party government in 1963 allowed tax exemptions for superannuation deductions from income. McClure, Civilised Community, 159.

31 Ibid., 84–5.

32 Ibid., 83.

33 Archives New Zealand, AAFD, W4646 7581, box 130, 391/1, part 6, Benefits General 1988–89, Working Group on Benefit Reform, “Benefit Reform: Reform of Supplementary Assistance: Appendix 3,” 7 July 1989, 1.

34 McClure, Civilised Community, 186–7.

35 Ibid., 182.

36 Ibid., 157.

37 Ibid., 133–45, 162; Archives New Zealand, ABQU, W4452 632, box 1301, 206-35-2-7, Social Security – Interim Targeting Regime – Social Welfare Issues 1992, Jacky Renouf, Acting Assistant Director General of Department of Social Welfare, to Ian Mills, Director General of Department of Health, 8 October 1991.

38 McClure, Civilised Community, 179–80.

39 Bassett, Third Labour Government, 78.

40 McClure, Civilised Community, 188.

41 Turnbull Library, Douglas Papers, 90-287-28, Further Papers, [name illegible], resident of Weymouth, to Douglas, 27 December 1989; and Mrs Sheehan to Michael Cullen, 2 April 1990.

42 Brookes, History of New Zealand Women, 359–61.

43 National MP Marylin Waring recalls working to help a constituent in 1983 who had no de facto relationship but was denied the benefit by the Social Welfare Department’s office since a former partner came to visit their child. Waring realised that there were administrative difficulties with such cases but denounced stigmatisation and perverse decisions. Waring, Political Years, 297.

44 New Zealand Legal Information Institute, Domestic Proceedings Act 1968.

45 New Zealand, Report of the Domestic Purposes Benefit, 4.

46 Ibid., 5.

47 Ibid., 51–2.

48 Ibid., 26.

49 Ibid., 18. See also Goodger, “Maintaining Sole Parent Families.”

50 New Zealand, Report of the Domestic Purposes Benefit, 30.

51 Ibid., 48–50.

52 Ibid., 187.

53 Ibid., 14.

54 Ibid., 17.

55 Ibid., 28–9, 36, 44.

56 Ibid., 45–6.

57 Beaglehole, Benefiting Women, ix.

58 Archives New Zealand, AAFD, W4646 7581, box 131, 391/9, part 2, Benefits – Family Benefits 1983–88, Office of the Minister of Social Welfare, “Memorandum for Cabinet: Liable Parent Contribution – High Court Ruling Relating to Prescribed Notices,” 23 June 1983.

59 McClure, Civilised Community, 185–7.

60 Ibid., 290n68. Senior public servant Mark Prebble described the phrase “to belong and participate” as “an invention of the highly prosperous early seventies.” Quoted in ibid.

61 Ibid., 172.

62 New Zealand, Social Security in New Zealand, 32.

63 Archives New Zealand, AAYE, W5048 7433, box 128, B&P 6-9-1, part 1, Benefits and Pensions – Unemployment Benefits – Policy Decisions 1967–72, Director General of Social Welfare, “Memo,” 11 September 1972.

64 Jim Bolger as minister of labour had his officials study the idea of a single office for employment registration and the distribution of the unemployment benefit. Officials found excuses to preserve the division, including the time needed to set up such an office and the fact that the departments were skilled at what they did separately. Archives New Zealand, AANK, W3580 947, box 700, 57/3/9, part 1, Employment Policy 1983–85, G.L. Jackson to Jim Bolger, 19 August 1983.

65 Archives New Zealand, AANK, W3580 947, box 589, 52/18/C, part 3, Unemployed Returns – Ministerial Correspondence 1984–86, I.N. Jarvis to Ms Vickerman, 16 August 1984.

66 Archives New Zealand, AANK, W3580 947, box 589, 52/18/C, part 3 Unemployed Returns – Ministerial Correspondence 1984–86, T.J. Kenny, Canterbury Sheepskin Accessories, to Stan Rodger, 13 June 1986. Files in this series indicate that employers who had difficulty finding workers were not shy about complaining to the minister about specific cases and general conditions.

67 Archives New Zealand, AAYE, W5048 7433, box 128, B&P 6-9-1, part 1, Benefits and Pensions – Unemployment Benefits – Policy Decisions 1967–72, Divisional Officer, Benefits Division, “Unemployment Benefits,” 9 March 1972; L.R. Adams-Schneider, Minister of Social Welfare, “Memorandum for Cabinet: Recommendations of the Royal Commission on Social Security: Unemployment Benefit for 15 Year Olds and Payment of Full Adult Rate from Age 18,” [August 1972].

68 Archives New Zealand, AANK, W3580 947, box 700, 57/3/9, part 1, Employment Policy 1983–85, Cabinet Economic Committee, “Minutes: Unemployment Benefits,” 22 May 1984. The quote appears in Archives New Zealand, AALR, W5427 873, box 1316, 62/43/1/3, part 7A, Treasury, “Review of Government Expenditure: Savings from Stand-Down Periods Related to Previous Income and Redundancy Payments,” 19 November 1990, 1.

69 Archives New Zealand, AAYE, W5048 7433, box 128, B&P 6-9-1, part 1, Benefits and Pensions – Unemployment Benefits – Policy Decisions 1967–72, Divisional Officer, Benefits Division, “Unemployment Benefits,” 9 March 1972.

70 McClure, Civilised Community, 183.

71 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 7, Benefits General 1989, Task Force on Income Maintenance Reform, Appendices to the Report to the Minister of Social Welfare on a Proposed Income Maintenance System (1989), 116.

72 Archives New Zealand, AAYE, W5048 7433, box 136, B&P 6-9-15, part 1, Benefits and Pensions – Unemployment Benefits – Fraud 1983, K.I. Jeffries, Director of Benefits, Department of Social Welfare, “Fraud Squad: Unemployment Benefits,” [March 1983], 2, original emphasis.

73 Ibid., 2.

74 Ibid., 3.

75 Archives New Zealand, AAFD, W4646 7581, box 131, 391/9, part 2, Benefits – Family Benefits 1983–88, “Cabinet Meeting,” 9 May 1984, proposal by Minister of Social Welfare.

76 Archives New Zealand, AAYE, W5048 7433, box 136, B&P 6-9-15, part 1, Benefits and Pensions – Unemployment Benefits – Fraud 1983, Jane Stevens, “Submissions to Caucus from Wellington Unemployed Workers Union,” [late 1982].

77 Archives New Zealand, AAYE, W5048 7433, box 136, B&P 6-9-15, part 1, Benefits and Pensions – Unemployment Benefits – Fraud 1983, J.W. Grant, Director General of Social Welfare Department, “Report to the Minister of Social Welfare: Initiatives to Reduce Fraud and Abuse on Unemployment Benefit,” 29 October 1982.

78 Archives New Zealand, AAFD, W4646 7581, box 53, 11/7/43, part 9, Cabinet Committees – Policy 1988–89, “Meeting,” 6 December 1988; Archives New Zealand, AALN, W5627 7234, box 59, 810.013, Liaison with Social Welfare Benefit Fraud and Common Identifier 1989, Cabinet Policy Committee, “Meeting,” 6 December 1988; and Michael Cullen, Minister of Social Welfare, “Memorandum to the Cabinet Policy Committee: More Effective Policing of the Benefit System Initiatives,” [March 1989].

79 Archives New Zealand, AAFD, W4646 7581, box 53, 11/7/43, part 8, Cabinet Committees – Policy 1988, “Meeting,” 4 October 1988.

80 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 6, Benefits General 1988–89, Michael Cullen to Cabinet Policy Committee, “More Effective Policing and Administration of the Benefits System,” [early December 1988], 1–8.

81 Archives New Zealand, AAYE, W5048 7433, box 136, B&P 6-9-15, part 1, Benefits and Pensions – Unemployment Benefits – Fraud 1983, “Report to File,” n.d. (this study was not made public); and J.W. Grant, Director General of Social Welfare Department, “Unemployment Benefit: Review of Entitlement,” 27 October 1982.

82 Archives New Zealand, AAYE, W5048 7433, box 136, B&P 6-9-15, part 1, Benefits and Pensions – Unemployment Benefits – Fraud 1983, L.J. Fowke, “Report of Interviews with Beneficiaries,” [late 1982]; see also J. Fearon, “Report on Interviews with Beneficiaries,” [late 1982].

83 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 4, Benefits General 1985–86, Chair of Officials Committee, “Memorandum for Cabinet Committee: Long-Term Beneficiaries: Encouragement to Return to the Work Force,” [mid-October 1986], 3.

84 Archives New Zealand, AAYE, W5048 7433, box 136, B&P 6-9-15, part 1, Benefits and Pensions – Unemployment Benefits – Fraud 1983, J.W. Grant, Director General of Social Welfare Department, “Report to the Minister of Social Welfare: Benefit Fraud,” 31 March 1983.

85 Archives New Zealand, ABJZ, W4644 7019, box 18, POL 9W/1/1/1, part 1, Policy and Research Welfare – Guaranteed Minimum Family Income 1989–91, John Angus, “Child Maintenance and Liable Parent Contribution,” 14 November 1989, 8.

86 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 4, Benefits General 1985–86, Ann Hercus, “Memorandum to Cabinet Social Equity Committee: Ministerial Review into Benefit Fraud and Abuse,” [December 1986], 5.

87 Ibid., 4.

88 Boston and Chapple, Child Poverty in New Zealand, 28–46.

89 Archives New Zealand, ABJZ, W4644 7019, box 18, POL 9W/1/1/1, part 1, Policy and Research Welfare – Guaranteed Minimum Family Income 1989–91, David Preston, “Report to the Cabinet Social Equity Committee,” 8 December 1989, 4.

90 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, David Preston to Douglas, 16 March 1987.

91 Archives New Zealand, AAFH, W5485 785, box 75, 20/2/0/38/92, part 1A, Efficiency and Economy – Administration of Functions – [General] – Machinery of Government – Ministry of Women’s Affairs, Ann Hercus, “Address to the 1984 Women’s Studies Association N.Z. Association,” 26 August 1984, 25. On disagreements over the ministry’s role and resources, see Archives New Zealand, ABKH, W4105, box 50, Advisory Committee Women’s Affairs – Brief for Hon. M.A. Hercus – Incoming Minister of Women’s Affairs 1984, ACWA Secretariat, “Brief for Hon. M.A. Hercus – Incoming Minister of Women’s Affairs 1984,” August 1984, 12; Archives New Zealand, ABKH, W4105, box 54, Women’s Affairs Press Release 1984, “News: Ministry of Women’s Affairs,” 19 September 1984; Archives New Zealand, AAFH, W5485 785, box 75, 20/2/0/38/92, part 1A, Efficiency and Economy – Administration of Functions – [General] –Machinery of Government – Ministry of Women’s Affairs, Ann Hercus, Minister of Women’s Affairs, to Stan Rodger, Minister of State Services, 2 August 1984; and Bassett, Working with David, 136. “Seized with zeal, especially in her own interests” is how Lange describes her. Lange, My Life, 148. On the ministry, forums, and Hercus, see Brookes, History of New Zealand Women, 405–8, 439.

92 On the efforts of the Ministry of Women’s Affairs to establish mailing lists, see Archives New Zealand, ABKH, W4105, box 55, 1984 Women’s Forums – Mail List, Valma [?] to Jill [Abigail], memo, n.d.

93 Archives New Zealand, AAFH, W5485 785, box 75, 20/2/0/38/92, part 1A, Efficiency and Economy – Administration of Functions – [General] –Machinery of Government – Ministry of Women’s Affairs, Ann Hercus, “Address to the 1984 Women’s Studies Association N.Z. Association,” 26 August 1984, 20.

94 The general citation is Archives New Zealand, ABKH, W4105, box 56, Women’s Forums – What Women Want of the Ministry – Originals 1984.

95 Archives New Zealand, ABKH, W4105, box 55, 1984 Women’s Forums – Report Prepared by Jill Abigail for the Minister of Women’s Affairs 1985, “The 1984 Women’s Forums,” [March 1985].

96 Bassett, Working with David, 136.

97 Ibid., 102.

98 On Lange’s attitude, see Bassett, Working with David, 136. See also Archives New Zealand, AAAC, W4313, box 6, folder 106, NZ Working Women’s Council 1975–80, Sonja Davies and Mary Sinclair, “The New Zealand Working Women’s Council,” 31 July 1992, insert on the charter.

99 Archives New Zealand, AATD, W3494 6138, boxes 1 and 2, Royal Commission on Social Policy – Women’s Free Phone Submissions (hereafter Commission Phone Submissions), file 1584; see also 1774.

100 File 1651.

101 File 1151; see also file 1495.

102 File 1606.

103 File 1048; see also files 1649, 1703, and 1754.

104 File 1067.

105 File 1052; see also file 1686.

106 Brookes, History of New Zealand Women, 401.

107 Commission Phone Submissions, file 1062; see also files 1095, 1104, 1109, 1121, 1140, 1166, 1173, 1177, 1213, 1219, 1220, 1232, 1251, 1255, 1344, 1360, 1370, 1425, 1426, 1447, 1452, 1469, 1471, 1510, 1523, 1648, 1657, 1722, 1729, 1769, 1771, 1772, 1778, and 1791.

108 File 1070.

109 File 1102.

110 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 6, Benefits General 1988–89, Michael Cullen to Cabinet Social Equity Committee, “Memorandum to Cabinet Social Equity Committee: Benefit and Family Assistance Reform,” [early March 1989], 4.

111 Commission Phone Submissions, files 1072, 1775, and 1782.

112 File 1460.

113 File 1201.

114 File 1201.

115 File 1221; see also files 1238 and 1451.

116 File 1065.

117 File 1524.

118 File 1493.

119 File 1735.

120 File 125.

121 File 1306. This caller from Te Kauwhata reported cases of false names and false marital status to the Social Welfare Department.

122 Files 1114, 1186, 1430, and 1439.

123 File 1256.

124 File 1125.

125 File 1726; see also file 1740.

126 File 1391; see also files 1515, 1749, and 1750.

127 File 1464.

128 File 1499.

129 File 1043.

130 File 1140.

131 File 1766.

132 File 1141.

133 File 1154; see also files 1157.

134 File 1367.

135 File 1172.

136 File 1356.

137 File 1089; see also files 1117, 1127, 1130, 1144, 1145, 1162, 1167, 1193, 1198, 1212, 1244, 1263, 1266, 1432, 1436, and 1679.

138 File 1062, see also files 1312 and 1331.

139 File 1289; see also file 1396.

140 File 1289.

141 File 1034.

142 File 1039; see also files 1177, 1180, 1219, 1232, 1250, 1273, 1288, 1336, 1386, and 1390.

143 File 1071.

144 File 1142; see also file 1087.

145 File 1092.

146 File 1521; see also files 1685, 1697, 1716, and 1794.

147 File 1073.

148 File 1710.

149 File 1033.

150 Files 1122, 1189, 1440, and 1539.

151 Nolan and Ryan, “Transforming Unionism by Organising?” 104, 105.

152 McClure, Civilised Community, 86.

153 Ibid.

154 Ibid., 192.

155 Grant, Mighty Totara, 390–4.

156 Archives New Zealand, AALR, W5427 873, box 1309, 62/43/1/2, part 1, Expenditure – Superannuation 1988–89, Social Welfare Department, “Income Security for the Elderly,” 9 December 1989, 12.

157 Lindert, “Private Welfare,” 493.

158 Archives New Zealand, AAYE, W5048 7433, box 136, B&P 6-9-15, part 1, Benefits and Pensions – Unemployment Benefits – Fraud 1983, Jane Stevens, “Submissions to Caucus from Wellington Unemployed Workers Union,” [late 1982].

159 Archives New Zealand, AALR, W5427 873, box 1309, 62/43/1/2, part 1, Expenditure – Superannuation 1988–89, “RBNZ [Reserve Bank of New Zealand] Submission on Income Security for the Elderly: Discussion Paper,” 5 April 1989.

160 McClure, Civilised Community, 241.

161 New Zealand, Pre-funding New Zealand Superannuation, 24.

162 Thomson, Selfish Generation? 195.

163 McClure, Civilised Community, 86.

164 Turnbull Library, Deane Papers, 2004-159-09/08, Fiscal Policy, Bernard Galvin to Robert Muldoon, “Fiscal Policy,” 22 December 1982, 3; see also “Deficit Forecast,” 16 December 1982.

165 On this 1988 report, see Archives New Zealand, AALR, W5427 873, box 1309, 62/43/1/2, part 1, Expenditure – Superannuation 1988–89, Adrienne van Tunzlemann for Secretary of the Treasury to Minister of Finance, “Long-Term Reform of National Superannuation,” 27 January 1989; McClure, Civilised Community, 259.

166 McClure, Civilised Community, 193.

167 Ibid., 193–4.

168 New Zealand, Description, 7; Preston, Retirement Income, 12–18; Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, Rosemary Barrington to Social Services Superannuation Committee, “Superannuation,” 2 July 1986.

169 Archives New Zealand, AALR, W5427 873, box 1309, 62/43/1/2, part 1, Expenditure – Superannuation 1988–89, Council of Trade Unions, “Income for the Elderly,” 31 March 1989, 5.

170 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 3, Benefits General 1984–85, Ann Hercus, Minister of Social Welfare, “Paper for Economic Summit: Income Redistribution,” 31 August 1984, 2.

171 Archives New Zealand, ABOT, W4375 6787, box 35, Devaluation – Post Election 1984, clipping, Evening Post, 18 September 1984.

172 See the dozens of letters in Archives New Zealand, AALR, W5427 873, box 882, 52/479/15, part 6, National Superannuation Scheme 1983–86.

173 Lange, My Life, 197; Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, “Heylen Survey on National Superannuation,” 13 March 1987. By means of “weasel-wording,” it was not a tax on superannuation. Cullen, Labour Saving, 63.

174 Preston, Retirement Income, 17, 39.

175 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 3, Benefits General 1984–85, Ann Hercus, Minister of Social Welfare, “Paper for Economic Summit: Income Redistribution,” 31 August 1984, 2.

176 Archives New Zealand, AAFD, W4646 7581, box 131, 391/9, part 2, Benefits – Family Benefits 1983–84, Secretary of Cabinet, “Meeting: Low Income Recipient Assistance Package,” 9 October 1984.

177 Archives New Zealand, AAFD, W4646 7581, box 131, 391/9, part 2, Benefits – Family Benefits 1983–88, Ann Hercus, Minister of Social Welfare, “Memorandum for Cabinet: Family Care – Progress Report,” [late May 1985]; Archives New Zealand, AAFD, W4646 7581, box 75, 55/73, part 5, Government Departments – Social Welfare 1987–88, Hercus to Cabinet Management and State Employment Committee, [early May 1987].

178 McTaggart, Monitoring the Impact, 24–30.

179 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, “Family Care Telephone Survey: A Summary of Findings,” [1986].

180 For a critical audit, see Archives New Zealand, ABOT, W4375 6787, box 5, 1989, clipping, Dominion, 8 March 1988; Archives New Zealand, AALR, W5427 873, box 12, 3/3/2/45, Expenditure review Committee – Social Welfare 1989–90, David Caygill to Cullen, “Budget Secret,” 11 May 1989.

181 Archives New Zealand, AANK, W3580 947, box 700, 57/3/9, part 1, Employment Policy 1983–85, “Department of Labour Submission to Budget ’85 Task Force,” 31 May 1985, 3; and Max Kerr, Labour Department, to P.G. Walker, Inland Revenue Department, 17 October 1983. The margin between training allowances and other benefits had been eroded due to an absence of policy coordination.

182 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-32/10, Joint Council of Labour, “Minutes,” 16 June 1987.

183 Turnbull Library, Douglas Papers, 90-167-277, Parliamentary Papers, Steve Boviard, Labour Electorate Committee Chairperson, Mount Albert Campaign Committee, to Douglas, 23 November 1984.

184 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 4, Benefits General 1985–86, Adrienne van Tunzlemann for Secretary of the Treasury to Minister of Finance, “Proposed Task Force on Social Policy,” 18 October 1985.

185 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 4, Benefits General 1985–86, Ann Hercus, “Memorandum to Cabinet: Ministerial Task Force on Social Welfare System,” 12 December 1985; Archives New Zealand, ABQU, W4452, box 1474, 337-18-7, Miscellaneous – Ministerial Task Force on Social Welfare System – Income Maintenance 1986, Kevin Smith, “Rough Notes on Meeting to Establish Task Forces,” 27 February 1986.

186 Archives New Zealand, ABOT, W4375 6787, box 32, Labour Party Conference 1982–84, clipping, New Zealand Herald, 26 August 1986.

187 Archives New Zealand, AAFD, W4646 7581, box 75, 55/73, part 5, Government Departments – Social Welfare 1987–88, R.A. Featherstone to Douglas, “Recovery of Social Security Debts,” 17 September 1987.

188 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, unidentified clipping, 30 January 1990.

189 Archives New Zealand, AAFD, W5331 7581, box 205, 109/3, part 2, Government Finance – Estimate of Revenue and Expenditure – Benefit Payment Control 1988, Michael Cullen, “Memo: Benefit Fraud and Abuse,” 10 September 1988, 3; McClure, Civilised Community, 209.

190 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 4, Benefits General 1985–86, Ann Hercus, “Memorandum to Cabinet Social Equity Committee: Ministerial Review into Benefit Fraud and Abuse,” [December 1986], 4. The Labour Party Council objected to such language and to identity cards. Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Caucus Correspondence, General Secretary of Caucus, 30 September 1987.

191 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 4, Benefits General 1985–86, Cabinet Social Equity Committee, “Meeting,” 16 December 1986.

192 Archives New Zealand, ABOT, W4375 6787, box 5, 1989, Newstel Log: Ex-RNZ, “7:30 AM News,” 8 October 1987.

193 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-33/32, Correspondence, Ann Hercus, “Newsletter,” August 1986.

194 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, Ann Hercus to Douglas, [July 1985], requesting to be on the advertising committee as a matter of right given her social welfare portfolio. Her newsletters show adherence to Cabinet solidarity and recognition of the importance of business confidence. Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-33/32, Correspondence, Ann Hercus, “Newsletter,” July and December 1985, May, July, and August 1986.

195 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Caucus Correspondence, Michael Cullen File, “Overhaul of Social Welfare Legislation Announced,” 13 September 1988.

196 Turnbull Library, Douglas Papers, 90-287-35, Further Papers, Budget Secret, Adrienne van Tunzelmann, “Vote: Social Welfare – 1988–89 Expenditure Review,” 19 February 1988; Turnbull Library, Douglas Papers, 90-342-1, Further Papers, Social Welfare, Cabinet Policy Committee, “Minutes,” 22 June 1988; and Cullen to all Labour MPs, 7 February 1989.

197 McClure, Civilised Community, 223; for specifics, see 230–58.

198 Archives New Zealand, AAFD, W4646 7581, box 53, 11/7/43, part 8, Cabinet Committees – Policy 1988, “Meeting,” 4 October 1988, 1 November 1989, 13 December 1989; Archives New Zealand, AAFD, W4646 7581, box 53, 11/7/43, part 12, Cabinet Committees – Policy 1990, “Meeting,” 10 October 1990; Turnbull Library, New Zealand Labour Party, Head office Records, 97-114-32/05, Caucus Correspondence, Michael Cullen File, “Benefits Payment Control Programme Achieves $13.45 Million in Savings,” 10 August 1988.

199 Archives New Zealand, AAFH, W5510 6790, box 432, SS-1-2-10, part 1, Structures and Systems – Social Policy 1991–92, Michael Moriarty to Minister of State Services, 6 May 1992. On favouring targeting, see Cullen, Labour Saving, 81–2, 131.

200 Archives New Zealand, AALR, W5427 873, box 1318, 62/43/4, part 3, Expenditure – Social Welfare Department 1983–89, Michael Cullen, “More Effective Policing of the Benefit System Initiatives: Risk Profiling and Selective Client Interviewing,” 5 April 1989, 4–5.

201 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 5, Benefits General 1987–88, Ann Hercus, Minister of Social Welfare, to Cabinet, “Recovery of Social Security Debts,” 17 July 1987; Turnbull Library, Douglas Papers, 90-326-15, Further Papers, clipping, Evening Post, 14 November 1989; Turnbull Library, New Zealand Labour Party, Head office Records, 97-114-32/05, Caucus Correspondence, Michael Cullen File, Ruth Dyson to Cullen, 9 April 1990.

202 Archives New Zealand, ABOT, W4375 6787, box 39, Resource Material – Clippings and Press Statements 1990, Dominion, 3 April 1990.

203 Turnbull Library, Douglas Papers, 90-342-1, Further Papers, Social Welfare, Michael Cullen, “Address to a Conference of the Australian Agricultural Economics Society,” 7 February 1989, 12.

204 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, clipping, Dominion, 30 January 1990.

205 Turnbull Library, Douglas Papers, 90-287-28, Further Papers, Correspondence with Social Welfare Department, Cullen to Douglas, 19 April 1988.

206 Archives New Zealand, AALR, W5427 873, box 1318, 62/43/4, part 3, Expenditure – Social Welfare Department 1983–89, Minutes, Cabinet Economic Development and Employment Committee, “Unemployment Benefit Registration Procedure,” 10 April 1989 (quote); Archives New Zealand, AALR, W5427 873, box 1318, 62/43/4, part 4, Expenditure – Social Welfare Department 1989–91, Phil Goff, Minister of Employment, in answer to Winston Peters, “Question for Written Answer,” 26 July 1989.

207 Archives New Zealand, AALR, W5427 873, box 1316, 62/43/1/3, part 7A, Jenny Shipley, Minister of Social Welfare, “Memorandum for Cabinet Expenditure Control Committee,” [20 November 1990], 5. Cullen’s memoir makes no mention of his concern about fraud. Cullen, Labour Saving, 95–130.

208 Archives New Zealand, ABQU, W4452, box 1474, 337-18-7, Miscellaneous – Ministerial Task Force on Social Welfare System – Income Maintenance 1987–88, Ministerial Task Force on Income Maintenance, Benefit Reform: The Next Steps (1987), 108–18.

209 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 5, Benefits General [Social Welfare] Superannuation 1988–89, D.A. Smyth, Assistant Secretary of the Treasury, to Minister of Finance, “Income Maintenance Reform and Retirement Income: Meeting of Officials with the Minister of Social Welfare,” 12 September 1988.

210 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 5, Benefits General 1987–88, Cabinet Social Equity Committee, “Meeting,” 1 December 1987 (quote); Geoffrey Palmer, Chair of Cabinet Social Equity Committee, to Cabinet Social Equity Committee, “Social Policy Reform Programme: Income Maintenance,” [early December 1987].

211 Archives New Zealand, AALR, W5427 873, box 1311, 62/43/1/3, Income Maintenance Reform 1987–88, D.A. [David] Preston, “Income Maintenance Reform: Benefit Rationalisation,” 30 August 1988, 1–2.

212 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 6, Benefits General 1988–89, Cabinet Social Equity Committee, “Meeting,” 13 September 1988; and Cullen to Palmer, 6 September 1988.

213 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 6, Benefits General 1988–89, “Notes on Benefits Adequacy,” 2.

214 Archives New Zealand, AALR, W5427 873, box 1309, 62/43/1/2, part 1, Expenditure – Superannuation 1988–89, “Super Reform: Basic Options and Related Transitional Problems,” [late 1988], 2–4; Franks and McAloon, New Zealand Labour Party, 181.

215 Archives New Zealand, AALR, W5427 873, box 1318, 62/43/1/3, part 1, Benefits Task Force 1988–89, Donald Woolford, Statistics Unit, “Number of Beneficiaries,” March 1989.

216 Huber, “Options for Social Policy,” 181.

217 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 6, Benefits General 1988–89, Cullen to Cabinet Committee on Social Equity, 5 September 1988; Turnbull Library, Douglas Papers, 90-326-20, Further Papers, clipping, Counties Courier, 9 November 1988.

218 McClure, Civilised Community, 231.

219 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 6, Benefits General 1988–89, D.A. [David] Preston, Assistant Director General, Department of Social Welfare, Convenor of Officials Committee, to Chairman of Cabinet Social Equity Committee, 28 July 1989; Archives New Zealand, ABJZ, W4644 7019, box 19, POL 9W/1/1/4, part 4, Policy and Research Welfare – Accident Compensation Commission 1990–91, Cabinet Social Equity Committee, “Minutes,” copies, 11 July and 22 August 1989 (quote).

220 Archives New Zealand, AALR, W5427 873, box 1140, 62/15/22, part 4, Health Task Force, “Proposals for a Restructured Health Service,” [October 1987].

221 Archives New Zealand, ABJZ, W4644 7019, box 18, POL 9W/1/1/1, part 1, Policy and Research Welfare – Guaranteed Minimum Family Income 1989–91, John Clarke, “Income Maintenance Reform,” 20 December 1989, 2.

222 Archives New Zealand, ABQU, W4452 632, box 1302, 206-35-2-13, Social Security – Interim Targeting Regime – Targeting Change Team 1991–92, Mark Prebble, “Targeting of Social Assistance: Assessment of Individuals, Families or Other Groups,” 8 March 1991.

223 New Zealand Legal Information Institute, Social Welfare Bill (No. 2) 1990.

224 Archives New Zealand, ABJZ, W4644 7019, box 19, POL 9W/1/1/4, part 3, Policy and Research Welfare – Accident Compensation Commission 1989–90, “The Impact of the Proposed Income Maintenance Reforms on Maori and Pacific Island People,” October 1990.

225 Archives New Zealand, AALR, W5427 873, box 616, 40/15/9/13, part 1, Social Welfare Omnibus Bill 1989, Bridget Hornibrook and R.A. Brown, Omnibus Team, “Report,” [mid-1989].

226 New Zealand, Report of the Domestic Purposes Benefit, 35.

227 Brookes, History of New Zealand Women, 464.

228 McTaggart, Monitoring the Impact, 31; Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 7, Benefits General 1989, M. Petrie for Secretary of the Treasury, “Assistance to Low Income Earners,” 10 August 1989, 4.

229 McTaggart, Monitoring the Impact, 30.

230 Archives New Zealand, AALR, W5427 873, box 1318, 62/4, part 4, Expenditure – Social Welfare Department – Benefits, Pensions, and National Superannuation 1989–91, Cabinet Minutes, “Philosophy for a New Benefit System,” 25 March 1991; Cabinet Minutes, “Working Paper: Benefit Levels: Interface with Wages,” 26 March 1991; and Cabinet Ministerial Committee on Reform of Social Assistance, “Appendices for the Paper on the Comparison of Tax and Targeting,” 30 April 1991.

231 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, clipping, Evening Post, 14 November 1989.

232 Archives New Zealand, ABVP, W5232 7411, box 19, LRD 30/3/2, part 5, Privacy – Information Exchanges between Agencies 1993–95, “Govis Meeting: Information Matching,” October 1993.

233 Archives New Zealand, ABJZ, W4644 7019, box 18, POL 9W/1/1/1, part 1, Policy and Research Welfare – Guaranteed Minimum Family Income 1989–91, John Angus, “Child Maintenance and Liable Parent Contribution,” 14 November 1989, 8; Turnbull Library, Douglas Papers, Parliamentary Papers, Inland Revenue Department, “Penalties for Income Tax Offences,” 30 July 1⁹⁸⁵.

234 Turnbull Library, New Zealand Council of Trade Unions Papers, 98-327-32/4, Further Papers, Labour Party, POL/1/1, vol. 1, “PM: No Work, No Dole,” 14 October 1990. Helen Clark appealed to centrist values too.

235 Archives New Zealand, ABOT, W4375 678, box 39, Resource Materials – Clippings and Press Statements, clipping, Dominion, 19 January 1990.

236 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 3, Benefits General 1984–85, “Cabinet Meeting: Low Income Assistance Package,” 9 October 1984; and Secretary of the Treasury to Minister of Finance, “Memo: Increases in Social Security Benefits and National Superannuation,” 25 January 1985, 4; Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 5, Benefits General 1987–88, Cabinet Social Equity Committee, “Meeting,” 11 November 1987; and Michael Cullen, “Report to the Social Equity Committee: Report of the Ministerial Task Force on Income Maintenance,” [November 1987].

237 Archives New Zealand, ABQU, W4452 632, box 1301, 206-35-6, Social Security – Interim Targeting 1992, Jenny Shipley, Minister of Social Welfare, “Memorandum on the Implementation of Social Assistance Reforms,” 6 December 1991.

238 Archives New Zealand, ABQU, W4452 632, box 1301, 206-35-2-7, Social Security – Interim Targeting Regime – Social Welfare Issues 1992, John Smart [?], handwritten comments on issues arising from targeting, 28 November 1991.

239 Archives New Zealand, AAFH, W5510 6790, box 415, SS-1-2-2, part 1, Task Force for Targeting of Social Assistance 1991, Mark Prebble to Minister of Revenue, copy to Don Hunn, 8 February 1991.

240 Archives New Zealand, AALR, W5427 873, box 1316, 62/43/1/3, part 7A, Peter Rodger, Department of Prime Minister and Cabinet, to Jim Bolger, 11 December 1990.

241 Archives New Zealand, AALR, W5427 873, box 1318, 62/4, part 4, Expenditure – Social Welfare Department – Benefits, Pensions, and National Superannuation 1989–91, Cabinet Minutes, “Philosophy for a New Benefit System,” 25 March 1991.

242 Archives New Zealand, ABJZ, W4644 7019, box 53, POL 30/2, part 1, Policy and Research – Prime Ministerial Committee on Reform of Social Assistance 1991, Officials in Maori Affairs Department to Mark Prebble, 18 April 1991.

243 Archives New Zealand, AALR, W5427 873, box 1316, 62/43/1/3, part 7A, Treasury to Jim Bolger, “Budget: Secret,” December 1990, 1–28.

244 OECD, “Social Benefits to Households.”

245 McClure, Civilised Community, 227.

246 Archives New Zealand, AALR, W5427 873, box 1316, 62/43/1/3, part 8, Benefit Reform Working Party, “Principles for Philosophy Paper,” 7 March 1991.

247 Starke, Radical Welfare State Retrenchment, 150. Peter Starke concludes that New Zealand’s changes were not truly radical and were unlikely to be reversed. For a recent provocative discussion of many issues, accusations, and presuppositions regarding welfare in New Zealand, see Duff, Conversation with My Country, 148–69.

CHAPTER ELEVEN

1 Quoted in Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Graeme Clarke, Motor Body Workers’ Industrial Union of Workers, to Douglas, 8 October 1986. For an accusation that Douglas simply wanted a low-wage policy, see Grant, Man for All Seasons, 239.

2 Turnbull Library, Douglas Papers, 90-326-17, Further Papers, Bayliss Controversy, Graham Scott to Douglas, 21 February 1986.

3 It was alleged that several highly placed union leaders were communists not originally from New Zealand. Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, F.E. Barlow to Peter Neilson, 23 April 1987.

4 O’Neill, Labour Market Deregulation, 3–7.

5 Archives New Zealand, AAYK, W3603, box 3, record H, Industrial Relations Policy 1984, Peter Brosnahan, “Industrial Relations under a National Government,” 8 August 1983, 2.

6 New Zealand Legal Information Institute, Industrial Conciliation and Arbitration Act 1894.

7 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Peter Cullen to Secretaries of all Labour Party Labour Electorate Committees and Branches, “Economic Policy Debates,” 10 October 1986. Union secretary Cullen was organising Labour Party opposition to the reforms of the parliamentary party. For a discussion of the theory, see Stedman Jones, Karl Marx, 396–401.

8 Archives New Zealand, ABGX, W4731 16127, box 317, part 3, Session 1 – 42nd Parliament – Labour Relations Amendment Bill – Oral Submissions 1989–90, New Zealand Council of Trade Unions to Labour Relations Select Committee, “Submission: Labour Relations Amendment Bill,” 26 June 1990, 3. The Council of Trade Unions, founded in 1987, replaced the FOL in 1988.

9 Ibid.

10 Turnbull Library, Bassett Papers, 2012-028-24, Health and Local Government, clipping, Evening Post, 3 July 1989.

11 Archives New Zealand, ABGX, W4731 16127, box 317, part 4, Session 1 – 42nd Parliament – Labour Relations Amendment Bill – Oral Submissions 1989–90, T.M. Farmer to Labour Relations Select Committee, 20 June 1990.

12 See Chapple and Savage, Economic Effects.

13 Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 1, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, New Zealand Manufacturers’ Association, “Submission 124,” n.d.

14 Archives New Zealand, ABVP, W6048, box 33, LAC-00064, Legislation Advisory Committee – Employment Contracts Bill 1990–91, George Laking to Secretary of Labour Select Committee, 15 March 1991. Laking summarises the arguments supporting these specialist institutions.

15 Quoted in Bassett, Working with David, 122.

16 Grant, Man for All Seasons, 179–80, 242–3.

17 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, New Zealand Pulp and Paper Employers Association, “Submission 47,” n.d.; Archives New Zealand, AAYE, W5048 7433, box 133, B&P 6-9-5-14, part 2, Benefits and Pensions – Industrial Disputes – Confidential Reports on Industrial Disputes 1984–88, assorted reports.

18 Archives New Zealand, AANK, W3580 947, box 735, 61/4/22, part 2, Industrial Relations – Policy – Private Sector – Wage Fixing – General 1985–87, “Terms of Agreement between the Government and Federation of Labour in Respect of the Pulp and Paper Industry,” 1 April 1980; and T.A. Currie, Secretary of New Zealand Pulp and Paper Employers’ Association, to Stan Rodger, 29 August 1984. Labour relations expert Gordon Anderson notes its importance. Anderson, Reconstructing New Zealand’s Labour Law, 58–9.

19 New Zealand Legal Information Institute, Industrial Relations Amendment Act 1983.

20 Archives New Zealand, AALR, W5796 873, box 41, T61/1/22/10, part 6, Income Policy – Long-Term Wage Reform – Reports and Papers, “Wage Policy Talks: Minutes,” 23 and 30 August, 6 September 1984; New Zealand Legal Information Institute, Industrial Relations Amendment Act 1984.

21 Douglas and Callan, Toward Prosperity, 97.

22 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, A.J. [Tony] Neary, Secretary of New Zealand Electrical, Electronics, and Related Trades, to Douglas, 11 April 1985.

23 Michael Cullen took the concession of tripartite discussions at its face value. This was not the case. Stan Rodger intended it to go nowhere. Cullen also misunderstood the importance of voluntary arbitration. Cullen, Labour Saving, 64–5.

24 Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 1, Industrial Relations – Bill – Correspondence 1986–87, Stan Rodger to Reg Boorman, 5 February 1987.

25 Hince and Vranken, “Controversial Reform,” 491.

26 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, “Submission of Waterfront Industry Commission to Select Committee on Labour,” 2 March 1987; Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, “Labour Market Reform: Issues,” [late 1986].

27 Archives New Zealand, AANK, W3580, box 807, part 2, Industrial Relations: A Framework for Review 1985, Industrial Relations: A Framework for Review, vol. 2 (Wellington: Government Printer, 1985), 11; Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, S.D. Harvey, Managing Director of Alex Harvey Industries, to Douglas, 28 August 1985.

28 Archives New Zealand, AANK, W3580 947, box 735, 61/4/20/2, part 1, Industrial Relations – Policy – Review of Industrial Relations (Green Paper) Newspaper Clippings 1985–89, Evening Post, 5 March 1986; and Financial Review, 11 March 1986.

29 Walsh, “From Compulsory Unionism,” 159–60, 162.

30 Archives New Zealand, ABVP, W5682 7410, box 137, LEG 1-1-40, part 1, Legal – Employment Contracts Bill 1990–91, Colin Hicks, “Flexible Freedoms: The Employment Contracts Bill, Union Recognition, and Bargaining Agents,” February 1991, 6.

31 Archives New Zealand, ABVP, W5682 7410, box 137, LEG 1-1-40, part 1 Legal – Employment Contracts Bill 1990–91, R.A. Stockdill to W.F. [Bill] Birch, Minister of Labour, “Industrial Relations: Institutional Issues,” 29 January 1991.

32 New Zealand, Industrial Relations, 6.

33 For a fine description of the system on the eve of its termination, see New Zealand, New Zealand Official Yearbook, 1987–88, 349–58.

34 Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 1, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, Combined State Unions, “Submission 95,” n.d.

35 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Stan Rodger to David Lange, Roger Douglas, David Caygill, and Richard Prebble, 30 July 1985.

36 Archives New Zealand, AANK, W3580 947, box 457, 46/3/117, part 1, Industrial Relations Act – General – National Economic Summit Conference 1984, clipping, Evening Post, 12 September 1984; Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Ken Douglas, Secretary of Federation of Labour, to Douglas, 10 April 1985.

37 Quoted in Archives New Zealand, AAEK, W3130 25039, box 16, 1985–86, Michael Cox Papers, “Analysis of Statement on Government Expenditure Reform,” 27 May 1986, citing Newztel Log, Ex-RNZ, “Morning Report,” 12 May 1986.

38 Turnbull Library, New Zealand Council of Trade Unions Papers, 98-327-32/4, Further Papers, Labour Party, POL/1/1, vol. 1, Ken Douglas, “The Relationship between the NZCTU [Council of Trade Unions] and the Labour Party: Address to Annual Conference of NZ Labour Party,” 4 September 1988, 4.

39 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Douglas to Jim Knox, 7 September 1984.

40 Turnbull Library, New Zealand Council of Trade Unions Papers, 98-327-32/4, Further Papers, Labour Party, POL/1/1, vol. 1, Ken Douglas, “The Relationship between the NZCTU [Council of Trade Unions] and the Labour Party,” 4 September 1988, 4.

41 Turnbull Library, Douglas Papers, 90-342-2, Further Papers, “The Future of Trade Unions: Notes from Alf Kirk,” n.d.

42 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, ECON 2, Economics Topics – Labour Market Flexibility, Raymond Harbridge, “Labour Market Flexibility: A Trade Union Perspective,” n.d., 20.

43 Harris, “1990s,” 32.

44 Archives New Zealand, ABCX, W4023 24117, box 48, ECON 2/25, ECON 2, Economics Topics – Industrial Relations 1977–81, Peter Palmer, Secretariat of Planning Council, to Don Brash, 8 November 1979. Palmer and Brash debated the impact of the national awards system. For a defence of the national award, see Archives New Zealand, AANK, W3 580 947, box 726, 61/2/6, part 1, Industrial Relations – Institutions – Federation of Labour 1984–88, unidentified speaker, Federation of Labour, “Notes for Labour Issues Course, University of Canterbury,” July 1986.

45 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, New Zealand Herald, 11 November 1987.

46 Douglas and Callan, Toward Prosperity, 94. See also Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, “Labour Market Reforms: Issues,” [late 1986].

47 Archives New Zealand, AAYK, W3603, box 3, record H, Income Maintenance 1984, Peter Brosnahan, “Industrial Relations,” [1983], 23–4. Circulated among members of the Labour Party Policy Council in August 1983, the paper detailed recent industrial relations. In the same file, see the appeal for union democracy and for the negotiation of industry-based settlements in G.V. Gerdelan, National Secretary of New Zealand Harbour Boards Employees’ Industrial Union of Workers, to Phillip Woolaston, 4 November 1983.

48 Turnbull Library, Douglas Papers, Parliamentary Papers, Subject Files T–U, “Meeting of Tripartite Wage Conference,” 25 August 1986.

49 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, “Douglas Reminiscences: Joint Meeting of Roger Douglas, Michael Bassett, Doug Andrew, and Bevan Burgess,” 23 October 1986, cited in Douglas and Callan, Toward Prosperity, 79.

50 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 109904, Development Finance Corporation, David Caygill to Martin Devlin, Centre for Entrepreneurship and Small Business, Massey University, 25 May 1987.

51 Turnbull Library, Bassett Papers, 2008-199-021, Papers Relating to Fourth Labour Government, Douglas Reminiscences, “Joint Meeting of Roger Douglas, Doug Andrew, Geoff Swier, Bevan Burgess, and Murdo Beattie,” 23 October 1986.

52 Quoted in Douglas and Callan, Toward Prosperity, 97.

53 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, Paul Jackman, special article on industrial relations, Dominion, 23 September 1985.

54 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, Stan Rodger to G. Davidson, Secretary of Wellington Regional Labour Council, 21 May 1987.

55 New Zealand Legal Information Institute, Labour Relations Act 1987.

56 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, Stan Rodger to forty printing shops in response to their letter-writing campaign opposing the bill, 29 May 1987.

57 Archives New Zealand, AANK, W3580 947, box 728, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill 1985, “Memo to Minister of Labour: Industrial Relations Reform,” 13 August 1986; Lange, My Life, 229.

58 New Zealand Legal Information Institute, Employment Contracts Act 1991.

59 In a biography of union leader Ken Douglas, David Grant states that Roger Douglas freed everything except wages. Grant, Man for All Seasons, 218.

60 Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Submissions – Nos 1–57W, Bradbury, Wilkinson and Co. (Whangārei Engravers), “Submission 22,” n.d. (quote); O’Neill, Labour Market Deregulation, 3–7.

61 Simon Chapple and John Savage indicate that this lack of knowledge contributes to the central authorities allowing an upward drift in wages. They see this problem as similar “to that of identifying the free-rider.” Chapple and Savage, Economic Effects, 25.

62 Archives New Zealand, AANK, W3580, box 807, part 2, Industrial Relations: A Framework for Review 1985, Industrial Relations: A Framework for Review, vol. 2 (Wellington: Government Printer, 1985), 196–202. On the pulp and paper industry, see Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Submissions – Nos 1–57W, New Zealand Pulp and Paper Employers Association, “Submission 47,” n.d.

63 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Newztel Log, Ex-RNZ, “6:00 News,” 25 August 1986.

64 Archives New Zealand, ABGX, W4731 16127, box 317, part 3, Session 1 – 42nd Parliament – Labour Relations Amendment Bill – Oral Submissions 1989–90, New Zealand Meat Industry Association to Labour Relations Select Committee, 25 June 1990.

65 Archives New Zealand, AANK, W3580 947, box 735, 61/4/20/2, part 1, Industrial Relations – Policy – Review of Industrial Relations (Green Paper) Newspaper Clippings 1985–89, Dominion, 3 March 1986.

66 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, “Submission of the Waterfront Industry Commission to the Select Committee on Labour,” n.d.

67 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, “Submission of Wellington/Taranaki Shop Employees Union,” n.d.

68 Chapple and Savage, Economic Effects. The authors suggest that a centralised system such as New Zealand had until 1987 or 1991 coped “badly in response to a shock requiring a major change in relative wages” (46).

69 Archives New Zealand, AANK, W3580 947, box 733, 61/4/20, part 1, Industrial Relations – Policy – Review of Industrial Relations Legislation (Green Paper), J.R.P [Jack] Horn, Chief Judge of Arbitration Court, to G.L. Jackson, Secretary of Labour, 27 August 1985.

70 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Colin Chiles, National Secretary of Printing and Related Trades, to Douglas, 28 March 1985.

71 Turnbull Library, Douglas Papers, 90-342-2, Further Papers, “The Future of Trade Unions: Notes from Alf Kirk,” n.d.

72 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, D.J. Duggan, Secretary of New Zealand Workers’ Union, to Douglas, 16 August 1985.

73 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, J.P. Liddell, Secretary of Northern Industrial District Combined Apparel and Related Trades Employees’ Industrial Union of Workers, to Douglas, 8 July 1985.

74 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, N.D. Paterson, Secretary of New Zealand Engineers Union, to Prebble, 18 March 1986 (quote); and William McKay, Secretary of Otago-Southland Footwear Union, to Douglas, 23 May 1985. There were similar letters in the file.

75 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Leslie Wright, Section Secretary, Post Office Union, to Douglas, 3 June 1986.

76 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, I.M. Shore to Stan Rodger, 1 May 1987.

77 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, Rodger to R.E. Jones, National Secretary of New Zealand Amalgamated Engineering and Related Trades Industrial Union of Workers, 31 July 1987.

78 On the uneven participation in the singing of “The Red Flag” at Labour Party conferences, see Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Auckland Star, 10 September 1984.

79 Douglas and Callan, Toward Prosperity, 102.

80 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Newztel Log, Ex-TV One, “6:30 News,” 28 August 1984.

81 Harris, “1990s,” 32.

82 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87842, Industrial Relations, Mike Jackson and Rob Campbell, “Report on Breakdown of Stores Award Negotiations,” January 1985.

83 Archives New Zealand, AANK, W3580, box 807, part 2, Industrial Relations: A Framework for Review 1985, Industrial Relations: A Framework for Review, vol. 2 (Wellington: Government Printer, 1985), 108–9.

84 Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Submissions – Nos 1–57W, Feltex, “Submission 115W,” n.d.; and New Zealand Manufacturers’ Federation, “Submission 124,” n.d.; Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Submissions – Nos 92–129W, New Zealand Association of Waterfront Employers, “Submission 93,” n.d.

85 Archives New Zealand, AALR, W5427 873, box 993, 61/12/2/1, part 1, Regulatory Framework for Industrial Relations – General (Labour Market Regulation) 1980–84, Michael J. Moriarty to Minister of Finance, 11 October 1985.

86 New Zealand Legal Information Institute, Industrial Relations Amendment Act 1984.

87 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Auckland Star, 27 October 1984; Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Elizabeth Tennet, Secretary of Clerical Workers Union, to Douglas, 10 December 1986.

88 Franks, “Employment Contracts Act,” 195.

89 Archives New Zealand, ABCX, W4023 24117, box 49, ECON 2/44, ECON 2, Economics Topics – Labour Market Flexibility 1986, G.R. [Gary] Hawke, Chairperson of New Zealand Planning Council, “Some Labour Market Issues: A Paper for a Seminar in the Opposition Caucus Room,” 19 July 1986, 6.

90 See Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, Margaret Wilson, Labour Party President, “Address to the Public Service Association Annual Conference,” n.d.; and clipping, Dominion, 9 August 1985.

91 Archives New Zealand, AANK, W3580 947, box 726, 61/2/6, part 1, Industrial Relations – Institutions – Federation of Labour 1984–88, unidentified speaker, Federation of Labour, “Notes for Labour Issues Course, University of Canterbury,” July 1986.

92 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 25 August 1984.

93 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 13 June 1985, citing unidentified government sources.

94 Archives New Zealand, AANK, W3580 947, box 728, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill 1985, Newztel Log, Ex-RNZ, “Morning Report,” 30 September 1986.

95 Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Submissions – Nos 1–57W, New Zealand Federated Hotel, Hospital, Restaurant and Related Trades Employees’ Industrial Union, “Submission 125,” n.d.

96 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Evening Post, 20 September 1984.

97 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Christchurch Press, 4 October 1984; New Zealand Herald, 23 March 1985; and Dominion, 7 December 1985.

98 Archives New Zealand, AANK, W3580 947, box 728, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill 1985, clipping, Evening Post, 18 October 1985.

99 The Federation of Labour highlighted the profits of major employers. Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Federation of Labour and Combined State Unions, Opening the Private Books: Key Information on the Different Groups in New Zealand (1985).

100 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, New Zealand Herald, 18 October 1985.

101 Harris, Centre of Change, 32.

102 Archives New Zealand, ABCX, W4023 24117, box 49, ECON 2/44, ECON 2, Economics Topics – Labour Market Flexibility 1986, Douglas Myers, Vice Chairman of New Zealand Business Roundtable, “Industrial Relations: A Better Way,” paper presented at a luncheon seminar, Auckland Chamber of Commerce, 10 July 1986, citing an unidentified New Zealand financier.

103 Quoted in Archives New Zealand, ABCX, W4023 24117, box 49, ECON 2/44, ECON 2, Economics Topics – Labour Market Flexibility 1986, clipping, New Zealand Herald, 12 November 1987.

104 Archives New Zealand, abcx, W4023 24117, box 48, econ 2/25, Economics Topics – Industrial Relations 1977–81, Peter Palmer to Don Brash, 8 November 1979.

105 Chapple and Savage, Economic Effects, 31.

106 Archives New Zealand, ABCX, W4023 24117, box 48, ECON 2/25, Economics Topics – Industrial Relations 1977–81, Don Brash to Peter Palmer, 28 November 1979.

107 Archives New Zealand, ABCX, W4023 24117, box 48, ECON 2/25, Economics Topics – Industrial Relations 1977–81, Peter Palmer to Don Brash, 8 November 1979.

108 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, “Minute Sheet: NZFS [New Zealand Forest Service] Submission: State New Planting and Restocking Programme,” 26 August 1985.

109 Harris, “1990s,” 34.

110 New Zealand Legal Information Institute, Economic Stabilization Act 1948.

111 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87842, Industrial Relations, David Lange to Ken Douglas, 18 July 1985.

112 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 25 August 1984; Bassett, Working with David, 122.

113 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Auckland Star, 10 September 1984; Christchurch Press, 11 September 1984; and Evening Post, 20 September 1984.

114 Archives New Zealand, AANK, W3580 947, box 733, 61/4/20, part 1, Industrial Relations – Policy – Review of Industrial Relations Legislation (Green Paper), Richard Prebble to Roger Douglas, 18 October 1985.

115 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Christchurch Press, 1 September 1984.

116 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 25 August 1984; and Dominion, 29 August 1984.

117 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Evening Post, 28 August 1984.

118 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Pat Kelly, “Memo: Voluntary Unionism,” n.d.

119 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Christchurch Press, 11 September 1984.

120 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 31 July and 25 August 1984; Otago Daily Times, 24 August 1984; Newztel Log, Ex-TV One, “6:30 News,” 28 August 1984; and Christchurch Press, 1 September 1984; Archives New Zealand, AANK, W3580, box 807, part 2, Industrial Relations: A Framework for Review 1985, Industrial Relations: A Framework for Review, vol. 2 (Wellington: Government Printer, 1985), 33.

121 Archives New Zealand, ABGX, W4536, box 28, part 4, Labour Committee – Bills – Labour Relations 1987, R.A. Stockdill to Chair of Labour Select Committee, 20 March 1987.

122 Archives New Zealand, AAWW, W4640 7112, box 23, interview with David Lange, Newztel Log, Ex-TV One, “Sunday,” 29 July 1984.

123 Archives New Zealand, ABOT, W4375, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 31 July 1984.

124 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-32/10, Joint Council of Labour, “Minutes,” 19 November 1985.

125 Archives New Zealand, AANK, W3580 947, box 733, 61/4/20, part 1, Industrial Relations – Policy – Review of Industrial Relations Legislation (Green Paper), R.A. Stockdill for Secretary of Labour to Minister of Labour, 12 July 1985; C.N. Pinfield for Secretary of the Treasury to Secretary of Labour, 12 September 1985; and Michael J. Moriarty, Assistant Secretary of the Treasury, to Acting Minister of Finance, 9 October 1985.

126 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88 [with material going back to 1985], Newztel Log, Ex-RNZ, “Morning Report,” 5 March 1986.

127 Archives New Zealand, AANK, W3580 947, box 733, 61/4/20, part 1, Industrial Relations – Policy – Review of Industrial Relations Legislation (Green Paper), Michael J. Moriarty, Assistant Secretary of the Treasury, to Acting Minister of Finance, 9 October 1985.

128 Archives New Zealand, AAFH, W5510 6790, box 577, SSB-1-2, part 8, State Sector Bill – General – Submissions, New Zealand Council of Trade Unions, “Submission 195,” n.d.

129 Harbridge and Walsh, Evolution of Enterprise Bargaining, 15. On Harbridge’s background, see Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, ECON 2, Economics Topics – Labour Market Flexibility, Raymond Harbridge, “Labour Market Flexibility: A Trade Union Perspective,” 1–20.

130 Harbridge and Walsh, Evolution of Enterprise Bargaining, 6–7.

131 Archives New Zealand, AANK, W3580 947, box 726, 61/2/6, part 1, Industrial Relations – Institutions – Federation of Labour 1984–88, unidentified speaker, Federation of Labour, “Notes for Labour Issues Course, University of Canterbury,” July 1986.

132 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations Bill – Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, New Zealand Union of Engineers, “Speaking Notes: Labour Relations Bill,” March 1987.

133 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, Christchurch Press, 19 September 1985.

134 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-32/10, Joint Council of Labour, “Minutes,” 3 March and 19 August 1987; and Ken Douglas to Fran Wilde, 20 October 1986.

135 Archives New Zealand, aafd, w4646 7581, box 52, 11/7/43, part 2, Cabinet Policy Committee, “Minutes,” 20 August 1985.

136 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 2, Cabinet Policy Committee, Newztel Log, Ex-TV Two, “Eyewitness News,” 3 October 1985, quoting electrical employers’ advocate Mike Hansen.

137 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 2, Cabinet Policy Committee, Newztel Log, Ex-RNZ, “Morning Report,” 30 September 1985.

138 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, A.J. [Tony] Neary, Secretary of New Zealand Electrical, Electronics, and Related Trades, to Douglas, 11 April 1985; Douglas and Callan, Toward Prosperity, 100.

139 Archives New Zealand, ABCX, W4023 24117, box 49, ECON 2/44, ECON 2, Economics Topics – Labour Market Flexibility 1986, Douglas Myers, Vice Chairman of New Zealand Business Roundtable, “Industrial Relations: A Better Way,” luncheon seminar for Auckland Chamber of Commerce, 10 July 1986. Myer claimed that the organisation had 60,000 members.

140 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, “Economic Strategy: Discussion Paper,” [June 1985].

141 For a different claim, see Grant, Man for All Seasons, 252.

142 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, “Labour Market Reform: Issues,” [late 1986].

143 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, Evening Post, 18 October 1985, quoting Prebble speaking to the Textile Institute in Auckland.

144 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, Newztel Log, Ex-RNZ, “Morning Report,” 1 October 1985.

145 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, Newztel Log, Ex-RNZ, “Morning Report,” 4 October 1985.

146 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, Evening Post, 2 October 1985.

147 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88. Many clippings in this collection were read to determine the pattern of settlements.

148 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, Dominion, 13 February 1986; Bassett, Working with David, 176–9.

149 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, Evening Post, 14 October 1985

150 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, Newztel Log, Ex-RNZ, “Checkpoint,” 30 September 1985.

151 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, New Zealand Herald, 23 October 1985. Cabinet received the commission’s report on 9 September and had an opportunity to overrule increases; however, this would have had the government “reverting to the very centralised system we wanted everyone to move away from.” Bassett, Working with David, 176.

152 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, Stan Rodger to G. Davidson, Secretary of Wellington Regional Labour Council, 21 May 1987.

153 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, clipping, Christchurch Press, 9 September 1986.

154 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 26 September 1986.

155 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Newztel Log, Ex-RNZ, “Morning Report,” 5 September 1986.

156 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 6 September 1986.

157 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 5 September 1986.

158 On Knox’s prominence in the Kinleith strike, see Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-36/01, Policies Health; and Andersen, Kinleith Strike.

159 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Christchurch Press, 6 September 1986; and Evening Post, 11 September 1986.

160 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Evening Post, 6 September 1986.

161 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, New Zealand Herald, 6 September 1986.

162 On criticism see Bassett, Working with David, 182.

163 Archives New Zealand, AANK, W3580 947, box 735, 61/4/20/2, part 1, Industrial Relations – Policy – Review of Industrial Relations (Green Paper) Newspaper Clippings 1985–89, Evening Post, 4 March 1986, quoting Stan Rodger’s speech to an employers’ conference.

164 Grant, Man for All Seasons, 250. There were allegations of union intimidation during several major strikes. Archives New Zealand, AAWW, W4640 7112, box 31, New Zealand Labour Party – Caucus 1983, clipping, Evening Post, 15 February 1983.

165 Archives New Zealand, AANK, W3580 947, box 726, 61/2/6, part 1, Industrial Relations – Institutions – Federation of Labour 1984–88, David Lange, “Address to Federation of Labour Conference,” 7 May 1986.

166 Archives New Zealand, AANK, W3580 947, box 726, 61/2/6, part 1, Industrial Relations – Institutions – Federation of Labour 1984–88, Newztel Log, Ex-RNZ, “Morning Report,” 5 September 1986. Both Michael Bassett and David Lange thought that Knox had become senile. Lange, My Life, 131; Bassett, Working with David, 130, 175.

167 Archives New Zealand, AANK, W3580 947, box 733, 61/4/20, part 1, Industrial Relations – Policy – Review of Industrial Relations Legislation (Green Paper), Michael J. Moriarty to Roger Douglas, Minister of Finance, 11 October 1985.

168 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clippings, New Zealand Herald, 9 October 1985, quoting Stan Rodger; Evening Post, 14 October 1985, quoting Roger Douglas; Dominion, 18 October 1985, quoting Geoffrey Palmer; and Dominion, 18 November 1987, quoting Stan Rodger.

169 Archives New Zealand, AANK, W3580 947, box 726, 61/2/6, part 1, Industrial Relations – Institutions – Federation of Labour 1984–88, David Lange, “Address to Federation of Labour Conference,” 7 May 1986.

170 Archives New Zealand, AANK, W3580 947, box 726, 61/2/6, part 1, Industrial Relations – Institutions – Federation of Labour 1984–88, Newztel Log, Ex-RNZ, “Morning Report,” 20 November 1985.

171 Bolger, View from the Top, 51.

172 As described in Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Evening Post, 20 September 1986.

173 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, Christchurch Press, 9 September 1986.

174 Archives New Zealand, ABOT, W4375 6787, box 21, Clippings – Voluntary Unionism, The Main Report: Business and Executive Letter, 12 September 1986. This report cited an inside source who reported that the government had antagonised Knox to provoke him into rash statements that would help new leaders to emerge.

175 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Submissions, Combined State Unions, “Submission 95,” n.d.

176 On linkages between wage fixing in the private and state sectors, see Walsh, Buff Paper Revisited, 25.

177 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/2, part 1, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Newspaper Clippings 1986–88, New Zealand News uk, 8 October 1986.

178 Archives New Zealand, AANK, W3580, box 807, part 2, Industrial Relations: A Framework for Review 1985, Industrial Relations: A Framework for Review, vol. 2 (Wellington: Government Printer, 1985), 22.

179 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, “Memo: Reform of the Labour Market,” 18 July 1986.

180 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/2, part 1, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Newspaper Clippings 1986–88, New Zealand News uk, 8 October 1986.

181 Hince and Vranken, “Controversial Reform,” 491.

182 Archives New Zealand, AALR, W4446 873, box 297, 12/2/2, part 1, Balance of Payments, NZ – Regulatory Issues – Voluntary/Compulsory Unionism – January 1985, clipping, National Business Review, 3 June 1985.

183 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/2, part 1, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Newspaper Clippings 1986–88, New Zealand News uk, 8 October 1986.

184 On union secretaries, see Bassett, Working with David, 418.

185 My notes from a seminar on the twenty-fifth anniversary of the State Sector Act (1988) held at Victoria University, 4 June 2013. New Zealand Legal Information Institute, State Sector Act 1988. Geoffrey Palmer and Stan Rodger spoke. In his memoir, Palmer mistakenly claims that the legislation “harmonised the public and private sector regimes.” Instead, it moved the public sector ahead of the private sector by advancing enterprise negotiations. Palmer, Reform, 714. Lange’s memoir conveys a more accurate recollection. Lange, My Life, 243.

186 Archives New Zealand, AANK, W3580 947, box 728, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill 1985, Newztel Log, Ex-RNZ, “1:00 p.m. News,” 1 October 1986.

187 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Submissions, Barry Purdy, Executive Director of Retailers’ Federation, to Chairman of Human Rights Commission, 19 March 1987; and Human Rights Commission, “Report to the Prime Minister on the Labour Relations Bill,” March 1987.

188 Turnbull Library, New Zealand Labour Party, Head Office Records, 2000-150-32/08, Joint Council of Labour, “Minutes of Meeting,” 13 March 1985.

189 Archives New Zealand, AANK, W3580, box 807, part 1, Industrial Relations: A Framework for Review 1985, Industrial Relations: A Framework for Review, vol. 1 (Wellington: Government Printer, 1985), 12.

190 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, Stan Rodger to J. Beaumont, Wellington Regional Employers, 21 May 1987.

191 Archives New Zealand, AANK, W3580 947, box 728, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill 1986, Newztel Log, Ex-rnz, “Morning Report,” 30 September 1986; Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, New Zealand Union of Engineers, “Speaking Notes: Labour Relations Bill,” March 1987.

192 New Zealand Legal Information Institute, Labour Relations Act 1987, secs 6–10 and 98–103.

193 Archives New Zealand, AALR, W4446 873, box 297, 61/12/2/3, part 1, Balance of Payments, NZ – Regulatory Issues – Union Structure – January 1985 – February 1989, Nigel McDougall, Chairman of Coalition of Non-Aligned Associations and Unions, to Roger Douglas, 21 October 1986.

194 Archives New Zealand, ABGX, W4536, box 28, part 4, Labour Committee – Bills – Labour Relations 1987, “Labour Relations Bill: Report of the Department of Labour to the Labour Select Committee,” 27 April 1987, 22; Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, Nigel McDougall, Chair of Coalition of Non-Aligned Associations and Unions, to Roger Douglas, 21 October 1986. Some employers’ criticisms are included in the correspondence file.

195 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, Douglas to Lange, 9 December 1986.

196 Turnbull Library, Douglas Papers, 90-326-02, Taxation and Prebble, P.J. Duignan to Douglas, “Report on Meeting on the Labour Relations Bill,” 30 April 1987.

197 Archives New Zealand, ABGX, W4536, box 28, part 4, Labour Committee – Bills – Labour Relations 1987, “Labour Relations Bill: Report of the Department of Labour to the Labour Select Committee,” 27 April 1987, 28–30.

198 Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Submissions – Nos 1–57W, Hawkes Bay Federated Farmers, “Submission 8,” n.d.; New Zealand Meat Industry Association, “Submission 12,” n.d.; Pacific Aerospace Corporation, “Submission 14,” n.d.; Federation of Milk Stations, “Submission 29,” n.d.; New Zealand Dairy Factories Industrial Union of Employers, “Submission 30,” n.d.; Morrisville-Thames Valley Co-operative Dairy, “Submission 32,” n.d.; New Zealand Pulp and Paper Employers Association, “Submission 47,” n.d.; Watties, “Submission 48,” n.d.; and Foodstuffs, “Submission 53,” n.d.

199 Archives New Zealand, ABGX, W4536, box 28, part 1, Labour Committee - Bills - Labour Relations, List of Submissions, unidentified clipping, Evening Post, 2 May 1987.

200 Archives New Zealand, ABFR, W4128, box 136, 1/6A, part 1, Issues – Industrial Relations – Employment Contracts Act 1991, clipping, Pat Walsh, “Workplace ‘Cure’ Will Worsen the Disease,” Dominion, 3 December 1991.

201 Archives New Zealand, ABFR, W4128, box 136, 1/6A, part 1, Issues – Industrial Relations – Employment Contracts Act 1991, clippings, New Zealand Herald, 17 December 1987, 18 February 1988; and Dominion, 20 November 1987, 2 January 1988.

202 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/2, part 1, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Newspaper Clippings 1986–88, Dominion, 18 November 1987, quoting Stan Rodger.

203 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, New Zealand Herald, 1 December 1987.

204 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, clipping, New Zealand Herald, 11 September 1987.

205 Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 1, Industrial Relations – Bill – Correspondence 1986–87, Stan Rodger to Sir Ronald Trotter, 11 November 1986.

206 Archives New Zealand, AANK, W3580 947, box 729, 61/3/14/1, part 1, Industrial Relations – Bill – Correspondence 1986–87, clipping, New Zealand Herald, 12 November 1987.

207 Ibid.

208 Archives New Zealand, ABFR, W4128, box 135, 1/4, Issues – Industrial Relations – Restructuring of Unions 1988–91, New Zealand Council of Trade Unions, The Need for Change: Challenges for the Trade Union Movement of Today (1988), 2–18.

209 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, Will Baker, David Churches, and David Nonu to Reg Boorman, 24 November 1986.

210 Archives New Zealand, AANK, W3580 947, box 730, 61/3/14/1, part 4, Industrial Relations – Bill Files and Legislation with Industrial Relations Implications – Labour Relations Bill – Correspondence, “Resolution of the 1986 Conference of Department of Labour Senior Industrial Officers,” n.d.

211 Archives New Zealand, AATJ, W5152 7495, box 323, BP/6/2/1, part 1, Port Reform 1988–89, “Note to File [on Efficiencies],” [July 1989].

212 As minister of labour under Prime Minister Geoffrey Palmer, Helen Clark oversaw the Labour Relations Amendment Act (1990), which allowed arbitration if employers were not negotiating in good faith. New Zealand Legal Information Institute, Labour Relations Amendment Act 1990.

213 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, Transportation, clipping, Dominion, 6 September 1989.

214 Archives New Zealand, ABVP, W5682 7410, box 137, LEG 1-1-40, part 1, Legal – Employment Contracts Bill 1990–91, D.R. [Doug] Andrew for Secretary of the Treasury to Minister of Finance, 15 February 1991.

215 New Zealand Legal Information Institute, Employment Contracts Act 1991.

216 Anderson, Reconstructing New Zealand’s Labour Law, 71.

217 Archives New Zealand, ABVP, W6048, box 138, LEG 1-1-40, part 4, Legal – Employment Contracts Bill 1991, clipping, Evening Post, n.d., brackets in original.

218 Hince and Vranken, “Controversial Reform,” 492.

219 Archives New Zealand, ABVP, W5232 8071, box 20, PER 18/1, part 1, Employment Contracts Act 1990–92, Spokesperson Hon. W.F. [Bill] Birch, “National Party Policy: New Choices in Industrial Relations,” 8 May 1990.

220 Archives New Zealand, ABFR, W4128, box 136, 1/6, Issues – Industrial Relations – Labour Relations Act 1987, clipping, Napier Daily Telegraph, 4 July 1990.

221 Hince and Vranken, “Controversial Reform,” 492–3.

222 Archives New Zealand, ABQB, W4473, box 3, Handling Personal Grievances 1991, Mike Dawson, Handling Personal Grievances under the Employment Contracts Act: A Guide for Advocates (Wellington: Working Life Communications, 1992); Archives New Zealand, ABFR, W4128, box 135, 1/4, Issues – Industrial Relations – Restructuring of Unions 1988–91, various reports.

223 Archives New Zealand, ABFR, W4128, box 136, 1/6A, part 2, Issues – Industrial Relations – Employment Contracts Act 1991, clipping, Linda Bercusson, “Back at the Workhouse,” Auckland Express, 15–19.

224 Archives New Zealand, ABFR, W4128, box 135, 1/4, Issues – Industrial Relations – Restructuring of Unions 1988–91, clipping, Pat Walsh, “Workplace ‘Cure’ Will Worsen the Disease,” Dominion, 3 December 1991.

225 Archives New Zealand, ABFR, W4128, box 136, 1/6, Issues – Industrial Relations – Labour Relations Act 1987, Stuart McCaw to Director of Trade Union Educational Authority, 5 July 1990; and 1/6A, part 1, Issues – Industrial Relations – Employment Contracts Act 1991, Raymond Harbridge and Kevin Hince to Ken Douglas, 29 August 1991.

226 New Zealand Legal Information Institute, Incorporated Societies Act 1908.

227 Archives New Zealand, ABVP, W5232 8071, box 20, PER 18/1, Employment Policy – Employment Contracts Act 1990–92, multiple letters.

228 Archives New Zealand, ABFR, W4128, box 136, 1/6A, part 1, Issues – Industrial Relations – Employment Contracts Act 1991, United Food and Chemical Workers Union vs Talley and Talley Fisheries, WLC 73/91.

229 Archives New Zealand, ABFR, W4128, box 136, 1/6A, part 1, Issues – Industrial Relations – Employment Contracts Act 1991, clipping, Janet Scott, “Employment Contracts Act – An Overview,” Public Sector 14, no. 2 (1991): 5.

230 Nolan and Ryan, “Transforming Unionism by Organising?” 99.

231 Archives New Zealand, ABFR, W4128, box 135, 1/4, Issues – Industrial Relations – Restructuring of Unions 1988–91, New Zealand Council of Trade Unions, “Effective Negotiation and Dispute Resolution: A Summary,” 4 July 1991.

232 Archives New Zealand, ABVP, W5232 8071, box 20, PER 18/1, Employment Policy – Employment Contracts Act 1990–92, Department of Labour, Contact: The Report of Current Industrial Relations in New Zealand (1992), 1–2.

233 New Zealand, Effect of the Employment Relations Act, 5.

234 Nolan and Shaun Ryan, “Transforming Unionism by Organising?” 98.

235 New Zealand, Effect of the Employment Relations Act, 2.

236 Ibid., 57.

237 Ibid., 40.

238 Ibid., 11, 19.

239 Ibid., 56.

240 Bassett, Working with David, 228.

241 New Zealand Legal Information Institute, Employment Relations Act 2000; New Zealand Legal Information Institute, Employment Relations Amendment Act (No. 2) 2004.

242 Anderson, Reconstructing New Zealand’s Labour Law, 134, 147–8, quote at 148; Bolger, “Negotiator,” 104.

CHAPTER TWELVE

1 Turnbull Library, Douglas Papers, 90-287-20, Further Papers, Privatisation, Newztel Log, Ex-RNZ, “Good Morning NZ,” 31 May 1988, quoting Opposition finance spokesperson Ruth Richardson.

2 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/85, part 2, IMF, Article 4 Consultations with New Zealand 1985, Executive Director to Treasury, “Executive Board Discussion of New Zealand,” 11 June 1985.

3 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 2, Cabinet Policy Committee, “Minutes,” 4 September 1985; and part 3, Cabinet Policy Committee, “Minutes,” 4 April 1986.

4 There are a number of accounts. The one cited here warned in 1982 that currency and other controls were unstainable. Muldoon rejected the advice. Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, D.L. Wilks, Governor of Reserve Bank, to Muldoon, “External Adjustment,” copy, [December 1982].

5 McLean, Future for New Zealand Agriculture, 13, 57 (quote).

6 Turnbull Library, Douglas Papers, 86-003-142, Labour Party, Electorate Secretariat, Roger Douglas, “Minister Comments on Key Features of Tax and Benefit Reform,” [September 1985].

7 McLean, Future for New Zealand Agriculture, 57.

8 Rayner and Lattimore, “New Zealand,” 22. Paul Dalziel and Ralph Lattimore present similar information. They reject the idea that reforms resulted from a neoliberal project and assert that reforms arose from the country’s poor economic performance. Dalziel and Lattimore, New Zealand Macroeconomy, 106. For a detailed account of shifts in economic strategies, primarily as expressed in government budgets, see McAloon, Judgements of All Kinds.

9 For a survey history of New Zealand’s price supports and subsidies, see Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108211, General, Agriculture, clippings, John Pryde, two articles, Christchurch Press, 19 and 22 March 1982.

10 Archives New Zealand, AAFD, W4646 7851, box 110, 241/1, part 1, Agriculture General 1979–86, “Budget Report 5040,” 11 May 1979. See also General Agreement on Tariffs and Trade, “Report by the GATT Secretariat,” 200–1, 205–14.

11 McLean, Future for New Zealand Agriculture, 40.

12 Turnbull Library, New Zealand Labour Party, Head Office Records, 2007-115-7/02, Wellington MPs Meetings, “Minutes,” 22 November 1985. Local dairy company representatives met with Wellington MPs.

13 Wallace, When the Farm Gates Opened, 33.

14 Ibid., 24.

15 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, Roger Douglas to Cabinet, “Review of Statutory Producer Boards: Summary Report,” 13 July 1988.

16 Gustafson, His Way, 274.

17 Ibid., 247–8; Archives New Zealand, AALR, W5427 873, box 1743, 70/5/83, part 2, IMF, Article 4 Consultations with New Zealand 1983–84, “IMF New Zealand Consultation, 1983: Answers to Written Questions,” 135; Archives New Zealand, AALR, W5796 873, box 1, T83/2/5, Farming Finance Needs – Rural Debt, Current Issues, and Proposals 1986–88, Peter McKinlay to Ron Hamilton, 19 June 1987.

18 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Alastair Bruce, Secretary of Dominion Economics Committee, Federated Farmers, to David Caygill, Minister of Trade and Industry, 27 August 1987.

19 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF, Article 4 Consultations with New Zealand 1987–88, “Minutes of Meeting No. 2,” 22 March 1988, 5–6.

20 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Alastair Bruce to Douglas, 10 March 1987.

21 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, H.D. Nelson, Federated Farmers of New Zealand, Auckland Province, to Douglas, 24 February 1986. Muldoon’s predecessor, the fiscal conservative Keith Holyoake, favoured exchange controls to build up foreign reserves. Muldoon did not have the wind at his back blowing in from favourable terms of trade. Gustafson, Kiwi Keith, 312–20.

22 For the minutes of New Zealand ministers’ meetings with EEC delegations, see Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 2, “Minutes of Cabinet Policy Committee Meeting,” 4 September 1985; and part 3, Cabinet Committee on Policy, “Minutes,” 4 April 1986. See also McLean, Future for New Zealand Agriculture, 22.

23 A Bank of England scoring system would have given New Zealand a score of 14 in 1985. A score of 10 and above was cause for a debt-provisioning alert. Archives New Zealand, AALR, W5427 873, box 366, 39/4, part 14, Reserve Bank of New Zealand – Policy and Legislation 1989, “Memorandum for the Monetary Policy Committee: New Zealand Economic Credit Worthiness Indicators,” [December 1989].

24 Archives New Zealand, AAFD, W4646 7851, box 110, 241/1, part 1, Agriculture General 1979–86, “Cabinet Meeting Minutes,” 14 June 1982.

25 Wallace, When the Farm Gates Opened, 24.

26 Easton, In Stormy Seas, 152.

27 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Douglas to R.J. Philip, Secretary of Palmerston Federated Farmers, 24 November 1986.

28 Archives New Zealand, AAFD, W4646 7581, box 131, 391/1, part 4, Benefits General 1985–86, Ann Hercus, “Memorandum to Cabinet: Ministerial Task Force on Social Welfare System,” 12 December 1985.

29 McAloon, Judgements of All Kind, 196; Easton, In Stormy Seas, 152–4.

30 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87410, Economy, Brian Easton to Palmer, “Speech Notes,” 22 August 1983.

31 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108209, General, Agriculture, “Report to Policy Committee,” [1980 or 1981]; “Labour Plans to Increase Agricultural Productivity for Everyone’s Sake,” brochure, 1981; Basil Arthur, Shadow Minister for Primary Industries, “Speech: Labour Party Conference,” [1982].

32 See correspondence and minutes in Archives New Zealand, AALR, W5427 873, box 951, 61/1/10/8, part 3, Tendering of Government Securities 1983–84.

33 Archives New Zealand, AATJ, W3566 7428, box 1267, 79/2/4, part 1, Economics – Price Indices and Prices – Inflation, E.A. Woodfield to Minister of Overseas Trade, “Effect of Inflation on New Zealand’s Exports,” 16 June 1982, appendix, 1–2.

34 Archives New Zealand, ABJZ, W4644 869, box 184, 47/1/0, part 2, “Government Statement of Rural Policy,” 2 July 1986; Archives New Zealand, AAFD, W4646 7851, box 110, 241/1, part 1, Agriculture General 1979–86, “Cabinet Meeting Minutes,” 14 June 1982.

35 Archives New Zealand, AALR, W5427 873, box 1746, 70/5/89, part 1, IMF, Article 4 Consultations with New Zealand 1989, IMF, European Department, in Consultation with other Departments, Approved by P. de Fontenay and Thomas Leddy, 1989 Staff Report on Interim Article IV Consultation Discussions (1989), 28.

36 Turnbull Library, Douglas Papers, 90-342-2, Further Papers, Interest Rates, Jim Macaulay, Chairman of New Zealand Bankers’ Association, “Interest Rates: An Address to the Waikato Division of the Federated Farmers,” 4 May 1989.

37 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, Ibis Group, New Zealand Agricultural Industry into the 1990s and Beyond (1988), 2–5, 15–18.

38 Archives New Zealand, AALR, W5427 873, box 1742, 70/5/82, part 1, IMF, Article 4 Consultations with New Zealand 1982, IMF, “New Zealand Consultation, 1982: Answers to IMF Questions,” 49.

39 Archives New Zealand, AALR, W542.7 873, box 1744, 70/5/85, part 2, imf, Article 4 Consultations with New Zealand 1985, Executive Director of IMF to Treasury, 25 November 1985.

40 Archives New Zealand, AALR, W5427 873, box 988, 61/10/4/1, part 2, Reports on Exchange Rate Regime 1985–90, David Caygill to Professor David K. Sheppard, 9 April 1989.

41 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108210, General, Development Finance Corporation, letters on the government’s refusal to assist despite alienating Japanese investors, November 1989 to March 1990.

42 Turnbull Library, Douglas Papers, 87-121-144, Farm Package, “Notes on a Meeting with McKinlay,” [July 1986].

43 Turnbull Library, Douglas Papers, 86-003-142, Labour Party, Electorate Secretariat, Philip Woollaston, Secretary of Policy Council, “Agriculture and Horticulture,” in Notes to the Remits 1985 (1985), 29–30.

44 Hocken Library, Rodger Papers, 87/137, Ann Hercus, Minister of Social Welfare, to All Labour MPs, 19 June 1986.

45 Hocken Library, Rodger Papers, 87/41, box 3, Overseas Trade, Mike Moore, Minister of Overseas Trade, to All Labour MPs, 16 September 1985.

46 Hocken Library, Rodger Papers, 87/41, box 3, Overseas Trade, “Japanese Experts to Advise New Zealand Companies,” [late 1985].

47 Archives New Zealand, AALR, W5427 873, box 1746, 70/5/89, part 1, IMF, Article 4 Consultations with New Zealand 1989, “Minutes of Meeting on General Economic Strategy and Structural Reforms,” 4 April 1989, 2 (quote); Wallace, When the Farm Gates Opened, 144.

48 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108210, General, Agriculture, Basil Arthur, “Live Sheep Exports,” press statement, 27 May 1982; and ref. 108211, Caygill to John Dean, 8 June 1983.

49 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Douglas to R.J. Philip, Secretary of Palmerston Federated Farmers, 24 November 1986; Wallace, When the Farm Gates Opened, 99.

50 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Frank Bernard, Freezing Works and Abattoir Union of Workers, to All Labour MPs, 26 November 1985.

51 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108211, General, Agriculture, clipping, Sir James Stewart, “Is There Life after SMPs?” Straight Furrow, 11 May 1983; see also, on the number of carcases, Norrey Simons to Caygill, 2 March 1983.

52 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, Roger Douglas to Cabinet, “Review of Statutory Producer Boards: Summary Report,” 13 July 1988.

53 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/85, part 2, IMF, Article 4 Consultations with New Zealand 1985, “Agriculture Sector Response to Devaluation and Other Policy Changes,” 4 April 2.

54 Archives New Zealand, AAFH, W4160, box 27, 100/3/9, part 1, Social Impact Unit – SOE Rural Package, Minister of Agriculture, “Memorandum to Prime Minister and Minister of Finance,” 23 May 1986.

55 Ibid.

56 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, New Zealand Bankers’ Association to Colin Moyle, 6 November 1984.

57 Turnbull Library, Deane Papers, 2004-159-03/2, Monetary Policy, Roderick Deane, “File Note: Farm Finance,” 27 May 1980.

58 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF, Article 4 Consultations with New Zealand 1987–88, IMF, “New Zealand: Staff Report for the 1988 Article IV Consultation,” 25 May 1988.

59 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF Article 4 Consultations with New Zealand 1987–88, “Minutes of Meeting,” 25 March 1988.

60 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF Article 4 Consultations with New Zealand 1987–88, IMF, “New Zealand: Staff Report for the 1988 Article IV Consultation,” 25 May 1988, 13.

61 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Peter Elworthy, President of Federated Farmers, to Douglas, 23 October 1986.

62 Rayner and Lattimore, “New Zealand,” 99.

63 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF Article 4 Consultations with New Zealand 1987–88, “Minutes of Meeting: Balance of Payments and Competitiveness,” 24 March 1988, 3.

64 Federated Farmers of New Zealand, Life after Subsidies.

65 Archives New Zealand, AALR, W5796 873, box 1, T83/2/5, Farming Finance Needs – Rural Debt Current Issues and Proposals 1986–88, Peter McKinlay to Ron Hamilton, 19 June 1987.

66 Archives New Zealand, AALR, W5427 873, box 986, 61/9/5/7, part 1, Balance of Payments – Invisibles, Services, and Transfer Forecasts (Ex. Trade) 1984–90, Roger Greville to Treasury Staff, “The Government and the Current Account,” 5 July 1991, 1–27.

67 Buckle, “Sequencing.”

68 On the benefits of the float to the fiscal conditions, see Walsh, “Financial Deregulation.”

69 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 5, Monetary Policy General (General Monetary) 1989, David K. Sheppard, Jan Whitehall, Allan Catt, Paul Frater, Kel Sanderson, Bryan Philpott, and Sue Bingham, “The Recent Conduct of Monetary Policy in New Zealand: The Theory and Evidence,” prepared at request of New Zealand Manufacturers’ Federation, July 1989.

70 Archives New Zealand, AALR, W5427 873, box 1462, 62/60/5, part 38, Expenditure – Electricity Division of Ministry of Energy 1984–85, Ann Jarman to Roger Douglas, 27 November 1984.

71 Hocken Library, Rodger Papers, 87/41, box 1, Agriculture, Peter Elworthy, President of Federated Farmers, to Stan Rodger, 5 December 1985; and Stuart Green to Rodger, “Public Meeting at Stratford,” 13 November 1985; Archives New Zealand, AALR, W5796 873, box 1, T83/2/5, Farming Finance Needs – Rural Debt, Current Issues, and Proposals 1986–88, Peter McKinlay, “McKinlay File Note: Meeting with Brian Chamberlain, Rob McLagan, and Owen Symmens,” 5 August 1987; Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Brian Chamberlain, President of Federated Farmers, to David Caygill, Minister of Trade and Industry, 24 November 1987; and Federated Farmers, The Case for Tariff Reform (1987).

72 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Tim Dodd, Federated Farmers, to Colin Moyle, Minister of Agriculture, 1 May 1987.

73 Archives New Zealand, AALR, W5427 873, box 1011, 61/14/1, part 3, Monetary Policy Research (General Monetary) 1986–87, Bryan Philpott, “Management of the Floating Exchange Rate: Paper Prepared for the New Zealand Dairy Board,” 10 July 1986, 14–23. With regard to Philpott as an interventionist, see Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87364, Economy and Discussion of Labour Party, Bryan Philpott, “Appropriate Economic Policy for New Zealand,” March 1980.

74 Turnbull Library, Douglas Papers, 90-287-51, Further Papers, Flat Tax and Other Economic Files, Roger Douglas, “Timetable of Events,” [February 1988].

75 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF Article 4 Consultations with New Zealand 1987–88, “Minutes of Informal Meeting with Graham Scott, Secretary of the Treasury,” 18 March 1988.

76 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 109972, Trade and Industry, 1987 5/6 Labour Party, Phil Goff to Jack Rutherford, Secretary of Maniototo Branch, Labour Party, 16 November 1987.

77 Hocken Library, Rodger Papers, 87/41, box 1, Agriculture, Federated Farmers, “Open Letter to All Members of Parliament,” 24 September 1985.

78 Rayner and Lattimore, “New Zealand,” 26.

79 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, Ibis Group, “Agricultural Land Prices,” in New Zealand Agricultural Industry into the 1990s and Beyond (1988), 32–4; and Meat and Wool Boards’ Economic Service, “Land Values,” in Annual Review of the New Zealand Sheep and Beef Industry (1989), 41.

80 Wallace, When the Farm Gates Opened, 60–1. For a contemporary depiction of class divisions among lamb and wool producers, see Macmillan Brown Library, Caygill Papers, acc. 77, ref. 108210, General, Agriculture, Basil Arthur, Shadow Minister for Primary Industries, to Norman Gough, 13 August 1982. Dairy and wool boards were single buyers and marketers; meat producers sold to companies.

81 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, Bevan Burgess, “Mr. de Cleene: Background Briefing for Christchurch Farmers’ Meeting,” [late 1985].

82 Archives New Zealand, AALR, W5427 873, box 1746, 70/5/89, part 1, IMF Article 4 Consultations with New Zealand 1989, “Minutes of Meeting on General Economic Strategy and Structural Reforms,” 4 April 1989, 2.

83 Archives New Zealand, AALR, W5427 873, box 1746, 70/5/89, IMF Consultations 1989, IMF, “Minutes of Meeting on General Economic Strategy and Structural Reforms,” 4 April 1989.

84 Archives New Zealand, AALR, W5427 873, box 1745, 70/5/88, part 1, IMF Article 4 Consultations with New Zealand 1987–88, IMF, “New Zealand: Staff Report for the 1988 Article IV Consultation,” 25 May 1988, 13.

85 Archives New Zealand, AANK, W3580 947, box 733, 61/4/20, part 1, Industrial Relations – Policy – Review of Industrial Legislation (Green Paper), “Memorandum for Cabinet Policy Committee: Viability of Farming,” 30 October 1985; Hocken Library, Rodger Papers, 87/41, Agriculture, Peter Elworthy, President of Federated Farmers, to Stan Rodger, 5 December 1985; Stuart Green to Rodger, 13 November 1985, reporting on public meeting at Stratford.

86 Campbell and Kirk, After the Freeze, 49.

87 Turnbull Library, Douglas Papers, 90-287-31, Further Papers, handwritten note by Douglas, [December 1986].

88 Turnbull Library, Douglas Papers, 90-287-31, Further Papers, Bernard Galvin, Secretary of the Treasury, to Douglas, “The Exchange Rate and the Foreign Exchange Market,” 12 December 1984; Spencer Russell, Governor of Reserve Bank of New Zealand, to Douglas, “Exchange Rate Regime,” 7 December 1984.

89 New Zealand Legal Information Institute, Government Advances to Settlers Act

90 Archives New Zealand, ABPY, W4596, box 1, Rural Bank – Profile – Past and Present 1983, The Rural Bank: Profile Past and Present (1983), 2–6; Archives New Zealand, ABJZ, W4644 869, box 184, 47/1/0, part 2, “Government Statement of Rural Policy,” 2 July 1986.

91 Archives New Zealand, AALR, W5427 873, box 972, 61/1/40/10, part 1, Rural Bank – Preparation for Sales Process 1987–88, Angus Bradshaw to Steven Diver, 11 November 1988.

92 Archives New Zealand, AAFD, W4646 7581, box 75, 55/65, part 2, Government Departments – Rural Banking and Finance 1983–89, David Thomson, Minister of State Services, to Chairman of Cabinet Committee on Expenditures, [June 1983].

93 Archives New Zealand, ABJZ, W4644 869, box 184, 47/1/0, part 1, Rural Lending under Section 331/54 – Policy and General – Rural Debt Restructuring Package 1986–87, Graham Scott for Secretary of the Treasury to Minister of Finance, “Government Lending to the Farming Sector: Restructuring Proposals,” 23 May 1986.

94 Archives New Zealand, ABJZ, W4644 869, box 184, 47/1/0, part 1, Rural Lending under Section 331/54 – Policy and General – Rural Debt Restructuring Package 1986–87, A.R. Mudford, Regional Manager of Rural Bank, to Miss M.G. Young, Department of Maori Affairs, 19 May 1987; and Mrs Tinkler for Director of Hamilton Region, Rural Bank, to Head Office, “Rural Debt Restructuring: Discounting,” 21 August 1987.

95 Phlips, Economics of Imperfect Information, 143.

96 Ibid.

97 Wallace, When the Farm Gates Opened, 20.

98 Bassett, State in New Zealand, 353.

99 Archives New Zealand, AALR, W5496 873, box 1, T83/2/1/5, part 1, Farming Finance Needs – Rural Debt, Current Issues and Proposals 1986–88, Peter McKinlay, “File Note: Rural Debt Restructuring,” 27 November 1987.

100 Archives New Zealand, AAFD, W4646 7581, box 110, 241/1, part 1, Agriculture – General 1979–86, Secretary of the Treasury to Minister of Finance and Minister of Agriculture, “Memo: Supplementary Minimum Price,” 11 May 1979; and box 90, 103/1, part 5, Economic Policy – General 1985–88, Roger Douglas, Minister of Finance, and Colin Moyle, Minister of Agriculture, “Farm Debt: Institutional Approach to Debt Management,” 9 December 1985.

101 Archives New Zealand, AAFD, W4646 7581, box 90, 103/1, part 5, Economic Policy – General 1985–88, Roger Douglas, Minister of Finance, and Colin Moyle, Minister of Agriculture, “Farm Debt: Institutional Approach to Debt Management,” 9 December 1985.

102 Archives New Zealand, AALR, W5427 87, part 3, box 970, 61/1/40/5, part 1, Rural Bank Discounting Scheme 1986–87, Treasury Memorandum to Minister of Finance, “Rural Debt: Farm Assistance Package: SOE Framework,” 5 November 1985.

103 Archives New Zealand, ABJZ, W4644 869, box 184, 47/1/0, part 1, Rural Lending under Section 331/54 – Policy and General – Rural Debt Restructuring Package 1986–87, Graham Scott for Secretary of the Treasury to Minister of Finance, “Government Lending to the Farming Sector: Restructuring Proposals,” 23 May 1986.

104 Bassett, State in New Zealand, 324–36, 352–75.

105 General Agreement on Tariffs and Trade, “Report by the Government of New Zealand,” appendix table B/25, “Key Macro Economic Indicators,” 128.

106 Archives New Zealand, AALR, W5496 873, box 1, T83/2/1/2, part 1, Farming Finance Needs – Equity Instruments Warehouse 1986–90, Peter McKinlay to T.M. Berthold, 12 May 1986.

107 Archives New Zealand, AALR, W5796 873, box 71, T83/13, part 1, Agriculture – Land Prices 1978–90, Valuation Department, “Number and Classification of Freehold Open Market Sales of Rural Land,” 6 August 1982; see also, on tax advantages, Ian R. Silver, “Effect of Taxation on Property Values,” [1982], 19.

108 Archives New Zealand, AAFD, W4646 7581, box 90, 103/1, part 5, Economic Policy – General 1985–88, “Memorandum for Cabinet Policy Committee from Minister of Agriculture and Minster of Finance Farm Debt: Institutional Approach to Farm Debt,” 9 December 1985.

109 Ibid.; Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Media Coverage on Devaluation, Newztel Log, Ex-RNZ, “Rural Report,” 27 September 1984.

110 Archives New Zealand, AAFD, W4646 7581, box 110, 241/1, part 1, Agriculture – General 1979–86, “Minutes of the Cabinet Policy Committee,” 10 December 1985.

111 Archives New Zealand, AALR, W5427 873, 61/1/40/5, part 1, Rural Bank Discounting Scheme 1986–87, “Joint Press Statement of Minister of Agriculture and Minister of Finance,” 24 March 1986.

112 Bassett, State in New Zealand, 353.

113 During the Great Depression, the Rural Mortgagors Final Adjustment Act (1935) had a provision for writing off the principal. New Zealand Legal Information Institute, Rural Mortgagors Final Adjustment Act 1935. When farm values rose in later years, there was no provision to “write back” the written-down debt. This circumstance led to considerable resentment by lenders, including private individuals. In 1986, 20 per cent of total farm debt was held by individuals. Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-36/16, Policies Agriculture, Colin Moyle, “Rural Package: Questions and Answers,” [July 1986], 4.

114 Archives New Zealand, AALR, W5796 873, box 1, T83/2/1/3, part 1, Farming Finance Needs – Case Study Material 1986–90, Peter McKinlay, “More News from the Rural Sector,” [January or early February 1987]. On Sutton’s support for the reforms, see Wallace, When the Farm Gates Opened, 56–7.

115 Archives New Zealand, AALR, W5796 873, box 1, T83/2/1/3, part 1, Farming Finance Needs – Case Study Material 1986–90, Peter McKinlay to Ron Hamilton, 19 June 1987.

116 Ibid.

117 Archives New Zealand, AALR, W5427 873, box 972, 61/1/40/7, part 3, Rural Banking and Finance Corporation Valuation of Assets and Liabilities 1988, McKinlay and Associates to Secretary of the Treasury, “Rural Debt Monitoring Report,” June 1988.

118 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Tim Dodd, Federated Farmers, to Douglas, 4 May 1987.

119 Archives New Zealand, AALR, W5796 873, box 2, T83/4, part 8, Government Assistance to Agriculture – Questions and Correspondence 1986–88, Alastair J. Bruce, Executive Officer, Dominion Meat and Wool Section, Federated Farmers, to Douglas, 18 August 1987.

120 Archives New Zealand, AALR, W5427 873, box 970, 61/1/40/5, part 1, Rural Bank – Discounting Scheme 1986–87, Peter McKinlay to T.M. Berthold, 23 June 1987.

121 Turnbull Library, Douglas Papers, 87-121-144, Rural Package, Peter McKinlay, “Rural Package: Briefing Note for Meeting in the Office of the Deputy Prime Minister,” 26 August 1986.

122 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, Bevan Burgess to Douglas, [mid-March 1986].

123 Archives New Zealand, AAFD, W4646 7581, box 75, 55/65, part 2, Government Departments – Rural Banking and Finance 1983–89, R.S. [Roderick] Deane, Chairman of State Services Commission, to Acting Minister of State Services, 12 June 1986.

124 Ibid.

125 Archives New Zealand, AAFD, W4646 7581, box 75, 55/65, part 2, Government Departments – Rural Banking and Finance 1983–89, Geoffrey Palmer to Cabinet Policy Committee, “Memorandum: Rural Policy Measures: Summary Paper,” 12 June 1986.

126 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-36/16, Policies Agriculture, Colin Moyle, “Press Statement,” 3 July 1986, 1; see also “Summary of Rural Policy Measures,” 2 July 1986.

127 Archives New Zealand, AALR, W5796 873, box 1, T83/2/1/5, Farming Finance Needs – Rural Debt, Current Issues, and Proposals 1986–88, Peter McKinlay, “Memo to File: Rural Sector: Discussion with Keith Taylor and Alastair Young, Bank of New Zealand,” 23 June 1987, 2.

128 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, A Guide to the 1986 Rural Policy Measures (1986).

129 Archives New Zealand, AALR, W5427 873, box 970, 61/1/40/5, part 1, Rural Bank Discounting Scheme 1986–87, Peter McKinlay, “File Note: Rural Bank Discount Scheme,” 20 August 1986.

130 Archives New Zealand, AALR, W5796 873, box 2, T83/4, part 8, Government Assistance to Agriculture – Questions and Correspondence 1986–88, Brian Chamberlain, President of Federated Farmers, to Colin Moyle, Minister of Agriculture, 16 December 1987.

131 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-36/16, Policies Agriculture, “Rural Package: Questions and Answers,” [July 1986], 2.

132 Archives New Zealand, AAFD, W4646 7581, box 110, 241/1, part 1, G.C. [Graham] Scott, Chair of Officials Coordinating Committee, to Minister of Finance, “Rural Package: Decision Paper,” 18 June 1986.

133 Archives New Zealand, AALR, W5796 873, box 1, T83/2/1/5, Farming Finance Needs – Rural Debt, Current Issues, and Proposals 1986–88, Peter McKinlay, “More News from the Rural Sector,” [January or early February 1987].

134 Turnbull Library, Douglas Papers, 87-121-144, Agriculture, clipping, Southland Times, 8 November 1985.

135 Turnbull Library, Douglas Papers, 87-121-144, Agriculture, clipping, Christchurch Press, 12 March 1986.

136 Turnbull Library, Douglas Papers, 87-121-154, Parliamentary Papers, Bevan Burgess to Douglas, [mid-March 1986].

137 Turnbull Library, Douglas Papers, 87-121-144, Farm Package, clipping, Evening Post, 29 April 1986.

138 Wallace, When the Farm Gates Opened, 97–9, Lange quoted at 99.

139 Archives New Zealand, AAFD, W4646 7581, box 75, 55/65, part 2, Government Departments – Rural Banking and Finance 1983–89, Geoffrey Palmer to Cabinet Policy Committee, “Memorandum: Rural Policy Measures: Summary Paper,” 12 June 1986.

140 Archives New Zealand, AALR, W5796 873, box 1, T83/2/1/5, Farming Finance Needs – Rural Debt, Current Issues, and Proposals 1986–88, Peter McKinlay to John Chetwin, “Discussion with Rob McLagan,” 19 October 1987; Wallace, When the Farm Gates Opened, 106–7.

141 Wallace, When the Farm Gates Opened, 89.

142 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, A.G. Harvie, Chairman of Te Karaka Branch, Federated Farmers, to Douglas, 13 March 1986.

143 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, D. Wright, Secretary of Women’s Division, Federated Farmers, to Douglas, 11 February 1986; I.A. Noble, Provincial Secretary of Federated Farmers, Bay of Plenty Province, to Colin Moyle, Minister of Agriculture, 21 February 1986.

144 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, A.G. Harvie to Douglas, 13 March 1986.

145 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, R.A. Anderson, Provincial Secretary of Federated Farmers, Bay of Plenty Province, to Colin Moyle, Minister of Agriculture, 5 March 1986.

146 Turnbull Library, Douglas Papers, 86-003-142, Labour Party, Electorate Secretary, “How Will GST Affect Me: Farmers,” in gst: The Key to Lower Income Tax (1985), 19; and J.C. Lockhart, “Results of a Survey of Planning and Financial Management on Three Farm Types in New Zealand,” in Papers Presented at the Fourteenth Annual Conference, New Zealand Branch, Australian Agricultural Economics Society, vol. 2, 185–93 (1989).

147 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Peter Elworthy to Prime Minister David Lange, 2 December 1985.

148 Archives New Zealand, AALR, W5427 873, box 1744, 70/5/85, part 2, IMF Article 4 Consultations with New Zealand 1985, “Agriculture Sector Response to Devaluation and Other Policy Changes,” 2; and box 1746, 70/5/89, part 1, IMF Article 4 Consultations with New Zealand 1989, “Minutes of Meeting on General Economic Strategy and Structural Reforms,” 4 April 1989, 2; Turnbull Library, Douglas Papers, 87-121-144, Farm Package, clipping, Evening Post, 29 April 1986.

149 Wallace, When the Farm Gates Opened, 32.

150 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Peter Elworthy to Douglas, 27 January 1986, Douglas’s marginal note.

151 Turnbull Library, Douglas Papers, 87-121-144, Farm Package, “Farmers’ Meeting with Deputy Prime Minister,” 8 March 1986.

152 Turnbull Library, Douglas Papers, 88-353-182, Parliamentary Papers, Subject Files E–F, Federated Farmers, items on Douglas’s visits to rural meetings to discuss policy affecting agriculture. See also Douglas Papers, 87-121-144, Agriculture, “Address to 550 Farmers and Local Citizens, Lumsden,” 13 November 1985; and Jim Cameron, Executive Secretary of Federated Farmers, Palmerston North, to Douglas, 10 March 1986.

153 Turnbull Library, Douglas Papers, 90-167-276, Parliamentary Papers, Colin Chiles, National Secretary of Printing and Related Trades, to Douglas, 28 March 1985.

154 Hocken Library, Rodger Papers, 87/41, Finance, “Finance Minister Douglas Answers North Otago Farmers,” 15 November 1985.

155 Quoted in Wallace, When the Farm Gates Opened, 108.

156 Archives New Zealand, AALR, W5796 873, box 1, T83/2/1/5, Farming Finance Needs – Rural Debt, Current Issues, and Proposals 1986–88, Helen Sutch, “Note for File: Balclutha Visit 19 and 20 February,” 24 February 1987.

157 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, A Guide to the 1986 Rural Policy Measures (1986), 14.

158 Archives New Zealand, ACCQ, W5415 515, box 51, 51/3/5/1, part 1, Rural Debt Management Package 1988, Ministry of Agriculture and Fisheries, “Tech Memorandum: Announcement,” 22 September 1988. See also Archives New Zealand, AAXA, W4750, box 60, Policy and Assistance/Assistance Rural Trust 1994–95, Papers of Hon. John Falloon, Minister of Agriculture, Falloon to Wyatt Creech, MP, 14 July 1994.

159 Wallace, When the Farm Gates Opened, 59.

160 Ibid., 60–2.

161 Archives New Zealand, AALR, W5796 873, box 71, T83/12/1, part 4, Agriculture – Evaluation of South Island Drought Package, Brown Copeland & Co Ltd, “The 1988/89 South Island Drought and the Assistance Package Provided by Government,” report prepared for the Ministry of Agriculture and Fisheries [1990].

162 Ibid.

163 Turnbull Library, Douglas Papers, 90-287-9, Further Papers, Subject Files R–S, RBFC, Colin Moyle to Lange, 20 August 1987; and Lange to Moyle, 28 August 1987 (quote).

164 Archives New Zealand, AAFH, W4160, box 27, 100/3/9, part 1, Social Impact Unit – SOE – Rural Package, I.J. Ritchie for Director General of Ministry of Agriculture, “Report to Public Service Commission,” 23 May 1986, setting out the criteria for aid.

165 Archives New Zealand, AALR, W5427 873, box 1746, 70/5/89, part 1, IMF Article 4 Consultations with New Zealand 1989, “Minutes of Meeting No. 1,” 3 April 1989, 8.

166 Turnbull Library, Douglas Papers, 90-342-6, Further Papers, Ibis Group, New Zealand Agricultural Industry into the 1990s and Beyond (1988), 36–7; and Land Corporation, Equity Investment Opportunities in New Zealand Agriculture (1989).

167 Archives New Zealand, AALR, W5427 873, box 1746, 70/5/89, part 1, IMF Article 4 Consultations with New Zealand 1989, IMF, European Department, in Consultation with other Departments, Approved by P. de Fontenay and Thomas Leddy, 1989 Staff Report on Interim Article IV Consultation Discussions (1989), 11.

168 Archives New Zealand, AALR, W5427 873, box 972, 61/1/40/7, part 3, Rural Banking and Finance Corporation Valuation of Assets and Liabilities 1988, McKinlay and Associates to Secretary of the Treasury, “Rural Debt Monitoring Report,” June 1988.

169 Ibid.; Archives New Zealand, AALR, W5427 873, box 1746, 70/5/89, part 1, IMF Article 4 Consultations with New Zealand 1989, “Minutes of Meeting on General Economic Strategy and Structural Reforms,” 4 April 1989, 2.

170 Archives New Zealand, AALR, W5796 873, box 2, T83/4, part 8, Government Assistance to Agriculture – Questions and Correspondence 1986–88, Thames District Agricultural Advisory Committee, “Rural Lifestyle Questionnaire,” 2–34.

171 Archives New Zealand, ABJZ, W4644 869, box 184, 47/1/0, part 1, Rural Lending under Section 331/54 – Policy and General – Rural Debt Restructuring Package 1986–87, P.S. Little to Peter McKinlay, 5 March 1987.

172 Archives New Zealand, AALR, W5427 873, box 1746, 70/5/89, part 1, IMF Article 4 Consultations with New Zealand 1989, IMF, European Department, in Consultation with other Departments, Approved by P. de Fontenay and Thomas Leddy, 1989 Staff Report on Interim Article IV Consultation Discussions (1989), 11.

173 Wallace, When the Farm Gates Opened, 77–80, 109–14, 115–17.

174 Weaver, Sorrows of the Century, 38–9, 108–9, 112, 119, 264, 282.

175 Wallace, When the Farm Gates Opened, 64–5.

176 Archives New Zealand, AAXA, W4750, box 60, Policy and Assistance/Assistance Rural Trust 1994–95, Papers of Hon. John Falloon, Minister of Agriculture, Falloon to R.A. Upton, 21 January 1992 (quote); see also Falloon to Alec Neill, MP, 17 June 1992; and Neztel Log, Ex-RNZ “Rural Report,” 13 December 1991; Archives New Zealand, ACCQ, W5415 515, box 51, 51/3/5/1, part 1, Rural Debt Management Package 1988, Ministry of Agriculture and Fisheries, “Tech Memorandum: Announcement,” 22 September 1988.

177 Archives New Zealand, AAXA, W4750, box 60, Policy and Assistance/Assistance Rural Trust 1994–95, Papers of Hon. John Falloon, Minister of Agriculture, Falloon to Merv Rusk, Hobson Electorate, New Zealand National Party, 14 July 1992.

178 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 3, Cabinet Committee on Policy, “Minutes,” 4 April 1986.

179 Turnbull Library, Douglas Papers, 90-287-9, Further Papers, Subject Files R–S, RBFC, “Terms of Reference for a Study of Options for the Future Ownership of the Rural Banking and Finance Corporation,” November 1987; and 87-121-144, Agriculture, Peter McKinlay, “More News from the Rural Sector,” [February 1987].

180 Farm statistics were considered unreliable. Mulet-Marquis and Fairweather, New Zealand Farm, 3–5.

181 Turnbull Library, Douglas Papers, 87-121-144, Agriculture, clipping, Dominion, 13 November 1986.

182 Mulet-Marquis and Fairweather, New Zealand Farm, 9–12.

183 Stats NZ, “Welcome to the NZ.Stat Table Viewer,” tables on agriculture; Mulet-Marquis and Fairweather, New Zealand Farm, 9–12.

CHAPTER THIRTEEN

1 Gauld, Revolving Doors, 34.

2 “Sir Brian Elwood Struck the Right Note with Big Reforms of 1989,” New Zealand Herald, 15 August 2007. With regard to legislative changes in local government, Geoffrey Palmer later praised Michael Bassett’s performance in Parliament as minister of internal affairs. Palmer, Reform, 683.

3 Archives New Zealand, AALR, W5427 873, box 1139, 62/15/22, part 1, Health Task Force 1986–87, “Points Raised at the Second Meeting of the Health Sector Task Force,” [April 1987]. Task Force chair Alan Gibbs held this view, but members’ outlooks were quite varied.

4 New Zealand Legal Information Institute, Public Finance Act 1989.

5 Archives New Zealand, AALR, W5510 6790, box 509, SS-7-1-2-1, part 2, Structures and Systems – Finance, Revenue, and Expenditure – Public Finance Act 1991, Alf Kirk to Selected State Services Commission Personnel, 14 August 1990.

6 Archives New Zealand, AALR, W5427 873, box 993, 61/12/2/1, part 1, Regulatory Framework for Industrial Relations – General (Labour Market Regulation) 1980–84, Peter Neilson, “Public Sector Wage-Fixing,” [September 1983].

7 Archives New Zealand, AALR, W5427 873, box 993, 61/12/2/1, part 1, Regulatory Framework for Industrial Relations – General (Labour Market Regulation) 1980–84, H. Eastgate to Roger Douglas, 6 December 1984.

8 Walsh, “Has the Evil Been Remedied?” 104.

9 New Zealand Legal Information Institute, Government Service Tribunal Act 1948.

10 Archives New Zealand, AANK, W4397, box 360, Stan Rodger, Pay Fixing in the State Sector: A Review of Principles and Procedures in the Fixing of Pay and Associated Conditions in the New Zealand State Sector, October 1986 (Wellington: State Services Department, Government of New Zealand, 1986). Originally, a task force of senior public servants and union officials was to have prepared guidelines for changing the conditions of employment across the extensive state sector. The task force withdrew, and Stan Rodger determined that even if consensus was impossible, the analysis and recommendations of the task force were essential to the reformation of labour relations. The resulting document, Pay Fixing in the State Sector, became known as the Buff Paper.

11 New Zealand Legal Information Institute, State Services Act 1962, sec. 12(1)(e).

12 See Rodger, Pay Fixing in the State Sector, 3–10.

13 Robertson, “Royal Commission on State Services,” 7–9.

14 New Zealand Legal Information Institute, State Services Conditions of Employment Act 1977.

15 Gustafson, His Way, 252.

16 Cook, 100 Years Strong, 7–37.

17 Palmer, Reform, 714.

18 Archives New Zealand, AAFH, W5510 6790, box 355, SOE-1-5, part 1, SOEs – Policy Issues – Labour Market, “Wage-Fixing in the Public Sector,” [January 1985], 11.

19 Turnbull Library, Deane Papers, 2004-159-24/1, D.J. Swallow to Stan Rodger, “Negotiations with the CSU: Wage Round and Legislation,” 9 April 1987.

20 Turnbull Library, Deane Papers, 2004-159-24/1, P.J. Duignan to Douglas, “Negotiations with the CSU: Wage Round and Legislation,” 8 April 1987.

21 Hocken Library, Rodger Papers, 87/134, box 6, State-Owned Enterprises Bill 1986, Roger Douglas, “Strong Support for Public Sector Re-organisation,” 28 August 1986; Archives New Zealand, AAWW, W4640 7112, box 63, New Zealand Labour 1989 Annual Conference Wellington – Remit Book 1989, New Zealand Labour Party 1989 Annual Conference, “Conference Report,” 41.

22 Rodger, Pay Fixing in the State Sector, 28–9.

23 Archives New Zealand, AANK, W3580 947, box 737, 61/4/25, part 1, Industrial Relations – Policy – State Sector – Wage Fixing – General 1984–87, “Meeting of Cabinet Committee on the State Services: State General Adjustment,” 24 February 1982.

24 Archives New Zealand, AALR, W5427, box 993, 61/12/2/1, part 1, Regulatory Framework for Industrial Relations 1980–84, C. Wilkinson and R. Cameron to H. Eastgate, 7 September 1983.

25 Archives New Zealand, AALR, W5427 873, box 993, 61/12/2/1, part 1, Regulatory Framework for Industrial Relations – General (Labour Market Regulation) 1980–84, Pete Neilson and Pauline [?] [names on margin], “Memo: Public Sector Wage-Fixing,” [September 1983].

26 Ibid.

27 Archives New Zealand, AANK, W3580 947, box 737, 61/4/25, part 1, Industrial Relations – Policy – State Sector – Wage Fixing – General 1984–87, “Press Statement,” 24 July 1985.

28 Archives New Zealand, AANK, W3580 947, box 737, 61/4/25, part 1, Industrial Relations – Policy – State Sector – Wage Fixing – General 1984–87, Mervyn Probine to Rodger, 19 July 1985; see also Stan Rodger, “Press Statement,” 24 July 1985.

29 Archives New Zealand, AANK, W3580 947, box 737, 61/4/25, part 1, Industrial Relations – Policy – State Sector – Wage Fixing – General 1984–87, Cabinet Policy Committee, “Minutes of Meeting,” 6 August 1985.

30 Archives New Zealand, AAWW, W4640 7112, box 41, part 2, Economic Management – Policy and Organisational Issues 1984, Briefing Papers, New Zealand, Economic Management, 122–4.

31 Archives New Zealand, AANK, W3580 947, box 737, 61/4/25, part 1, Industrial Relations – Policy – State Sector – Wage Fixing – General 1984–87, Stan Rodger, “Speech Notes: Address to the New Zealand Post Office Union Conference, Challenge Hall, the Academy, Willis Street, Wellington,” 29 July 1985.

32 Turnbull Library, Deane Papers, 2004-159-20/4, Industrial Relations at State-Owned Enterprises, Bernard Galvin to Douglas, 5 June 1986.

33 Turnbull Library, Deane Papers, 2004-159-23/06, State-Owned Enterprises, Peter Boag, Deputy Chair of SSC, to Roderick Deane and Don Hunn, 16 May 1986.

34 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 2, Cabinet Committees – Policy 1985, “Meeting: Restructuring of the New Zealand Forestry Service – Establishment of a Forestry Corporation,” 19 November 1985; Turnbull Library, Deane Papers, 2004-159-23/05, State-Owned Enterprises, Mervyn Probine, “Press Release: Reorganisation of Environmental Management,” 16 September 1985; P. Bygate, “Notes of a Meeting between PSA and State Services Commission Staff,” 16 May 1986; and Peter Boag, Deputy Chairman, to R.S. [Roderick] Deane and D.K. [Don] Hunn, 16 May 1986; Hocken Library, Rodger Papers, 87/134, box 7, SOE Meetings with PSA 1986, “Meeting,” 23 May 1986; Archives New Zealand, AAFH, W4160, box 25, 100/3/2, part 2, Social Impact SOEs Special Ministerial Coordinating Committee, “Environmental Reorganization: Surplus Staff,” MCC/SOE Paper 129, 2 December 1986.

35 Turnbull Library, Deane Papers, 2004-159-23/05, State-Owned Enterprises, “Regional Consultations on Environmental Administration,” July–August 1985.

36 Turnbull Library, Deane Papers, 2004-159-23/05, State-Owned Enterprises, Mervyn Probine, “Press Release: Reorganisation of Environmental Management,” 16 September 1985; and 2004-159-23/06, State-Owned Enterprises, Darryl Dunn, Environmental Administrative Review Secretariat, to Deane, 16 May 1986.

37 Archives New Zealand, AAFH, W5485 785, box 83, 20/2/90/1, part 8, CSU, “Bulletin to MPs: The Reorganisation of the Public Sector,” May 1986; and CSU, “Review of the SSCE Act 1977,” May 1986 (quote).

38 Turnbull Library, Deane Papers, 2004-159-20/4, Industrial Relations at State-Owned Enterprises, Colin Hicks, “CSU Objectives Clarified,” 27 May 1986; C.M. [Colin] Clark, General Secretary of Public Service Association, to Stan Rodger, 27 June 1986.

39 Archives New Zealand, AAFH, W4160, box 27, 100/3/7, part 1, Social Impact Unit – SOE – Press Releases, Roger Douglas, “Address at Lawson Field Theatre, Gisborne,” 21 October 1986.

40 Turnbull Library, Deane Papers, 2004-159-20/14, Industrial Relations at SOEs, “Caucus Resolution,” 29 May 1986; and “Transcript of Eye-Witness News Interview with Roger Douglas,” 5 June 1986.

41 Hocken Library, Rodger Papers, 87/134, box 6, State-Owned Enterprises Bill 1986, Deane to Palmer, 26 September 1986; Hocken Library, Rodger Papers, 87/134, box 7, SOE Meetings with PSA 1986, “Meeting,” 23 May 1986.

42 Turnbull Library, Deane Papers, 2004-159-20/4, Industrial Relations at State-Owned Enterprises, “Industrial Relations Reform in State Services and State-Owned Enterprises,” [5 June 1986], 7 (quote); State Services Commission, “CSU Objectives Clarified,” report, 19 May 1986; and Stan Rodger, “Industrial Relations Reform: State Owned Enterprises” briefing note, 15 July 1986.

43 Archives New Zealand, AAFH, W4160, box 25, 100/3/3, part 1, Social Impact SOEs Special Ministerial Coordinating Committee, “Meeting,” 10 December 1986.

44 New Zealand Legal Information Institute, State-Owned Enterprises Act 1986, sec. 8.

45 New Zealand Legal Information Institute, State Services Conditions of Employment Amendment Act 1987, sec. 7(3)(c).

46 Archives New Zealand, AAFH, W5510, 6790, box 253, PU-7-1-2, part 1, Publications – Public Service – State Sector Act, Miscellaneous – State Sector Bill 1988, Steve Newby, “Note to File: State Sector Bill: Meeting with Don Hunn,” 26 January [1988].

47 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87756, State Sector Bill, New Zealand Labour Party, Executive, “New Zealand Labour Party Submission on the State Sector Bill to the Government Administration Select Committee,” February 1988, sec. 2.4.3.

48 New Zealand Legal Information Institute, State-Owned Enterprises Amendment Act (No. 2) 1988; New Zealand Legal Information Institute, Labour Relations Act 1987.

49 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, Rural Bank, Social Welfare, State Services Commission, Management of Change, booklet (1988), quotes in preface; and clipping, Evening Post, 1 August 1988.

50 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, Rural Bank, Social Welfare, clipping, Evening Post, 1 August 1988; and State Services Commission, Management of Change, booklet (1988), 3 (quote). See also Archives New Zealand, AAFH, W5510 6790, box 355, SOE-1-4-2, part 1, “Transfer of Staff from Public Service to New Corporations,” 28 January 1987.

51 Archives New Zealand, AAFH, W5510 6790, box 355, SOE-1-4-2, part 1, “Lessons Learned,” 29 September 1987.

52 Archives New Zealand, AAFD, W4646 7581, box 79, 55/98, part 1, Government Departments – SOEs, Cabinet Policy Committee, “Meeting,” 4 March 1986; Archives New Zealand, AAFH, W4160, box 25, 100/3/3/2, part 2, Social Impact Unit – SOE – Special Ministerial Coordinating Committee, “Meeting: SOE Superannuation Financing,” MCC/SOE Paper 229, 3 March 1987; and “Meeting: SOE Superannuation Financing,” MCC/SOE Paper 267, 1 April 1987.

53 Archives New Zealand, AAFD, W4646 7581, box 75, 55/73, part 5, Government Departments – Social Welfare 1987–88, D.A. [David] Preston to Douglas, “Public Sector Restructuring,” 24 April 1987; Archives New Zealand, AAFH, W4160, box 27, 100/3/7, part 1, Social Impact Unit – SOE – Press Releases, unidentified clipping, interview with Roderick Deane, n.d.

54 Archives New Zealand, AAFH, W4160, box 25, 100/3/3, part 3, Social Impact SOEs Special Ministerial Coordinating Committee, Stan Rodger to Secretary of Combined State Unions, 12 March 1987.

55 Archives New Zealand, AAFH, W5510 6790, box 355, SOE-1-5, part 1, SOEs – Policy Issues – Labour Market, Don Hunn to Margaret Bazley, “Industrial Management and State-Owned Enterprises,” 10 January 1986.

56 Ibid.

57 Archives New Zealand, AALR, W5192 873, box 13, 79/3, part 1, State Sector Act 1963–91, Graham Scott to Douglas, 25 September 1987.

58 Archives New Zealand, AALR, W5192 873, box 13, 79/3, part 1, State Sector Act 1963–91, Michael Moriarty for Secretary of the Treasury to Douglas, “Priority Issues in State Pay Reform,” 25 August 1987.

59 Archives New Zealand, AAFH, W5510 6790, box 355, SOE-1-5, part 2, C.J. McKenzie, “Reform of Labour Market Regulation,” 28 February 1986.

60 Turnbull Library, Deane Papers, 2005-087-046, Papers Relating to State Sector Wage Fixing, The Public Sector Official Circular, 15 October 1986.

61 Hocken Library, Rodger Papers, 87/134, box 6, Douglas to Lange, 6 November 1986, copies to David Caygill, Richard Prebble, and Stan Rodger.

62 Archives New Zealand, AAFH, W5485 785, box 83, 20/2/90/1, part 8, Don Hunn, [with marginal notes by Stan Rodger], “Consultation with PSA,” 10 February 1986; Stan Rodger, interview with author, 29 August 2017.

63 Hocken Library, Rodger Papers, 87/134, box 7, SOE Meetings with PSA 1986, “Meeting,” 4 and 18 February, 5 March (quote), 22 April, and 23 May 1986.

64 Turnbull Library, Deane Papers, 2004-159-20/4, Industrial Relations at State-Owned Enterprises, Colin Clark to Rodger, 27 June 1986.

65 Archives New Zealand, ABOT, W4375 6787, box 22, Labour Government Wage Round 1987–88, Newztel Log, Ex-RNZ, “Morning Report,” 10 December 1987.

66 Turnbull Library, Deane Papers, 2005-087-046, Papers Relating to State-Sector Wage Fixing, “Minutes of a Meeting of the Ad Hoc Committee on State Pay Fixing,” 31 March 1987.

67 Turnbull Library, Deane Papers, 2005-087-046, Papers Relating to State-Sector Wage Fixing, D.J. Swallow to Rodger, 8 April 1987; Archives New Zealand, AANK, W3580 947, box 737, 61/4/25, part 1, Industrial Relations – Policy – State Sector – Wage Fixing – General 1984–87, Michael J. Moriarty to Douglas,18 October 1985; Archives New Zealand, AALR, W5192 873, box 13, 79/3, part 1, State Sector Act 1963–91, Don Hunn, “Review of Legislation Covering Pay-Fixing Industrial Relations and Personnel Arrangements for State Employees,” 22 September 1987.

68 Turnbull Library, Deane Papers, 2004-159-24/1, Wage Round 1987, “Elements of Draft Agreement,” 8 April 1987, 2.

69 Turnbull Library, Deane Papers, 2005-087-046, Papers Relating to State-Sector Wage Fixing, Deane to Rodger, 8 April 1987.

70 Turnbull Library, Deane Papers, 2004-159-24/1, Wage Round 1987, D.J. Swallow to Douglas, “Negotiations with the CSU: Wage Round and Legislation,” 7 and 8 April 1987.

71 Turnbull Library, Deane Papers, 2004-159-24/1, Wage Round 1987, P.J. Duignan to Douglas, “Negotiations with the CSU: Wage Round and Reform,” 9 April 1987; New Zealand Legal Information Institute, Official Information Act 1982.

72 Archives New Zealand, ABFR, W4128, box 137, 1/7, part 1, Issues – Industrial Relations – State Sectors Issues, clipping, Nelson Evening Mail, 21 April 1987.

73 New Zealand Legal Information Institute, State Services Conditions of Employment Amendment Act (No. 2) 1987; New Zealand Legal Information Institute, State Services Conditions of Employment Amendment Act (No. 3) 1987; New Zealand Legal Information Institute, State Services Amendment Act 1987.

74 New Zealand Legal Information Institute, State Services Conditions of Employment Amendment Act (No. 2) 1987, sec. 7; New Zealand Legal Information Institute, Industrial Relations Amendment Act 1984.

75 New Zealand Legal Information Institute, State Services Conditions of Employment Amendment Act (No. 2) 1987; New Zealand Legal Information Institute, State Services Conditions of Employment Amendment Act (No. 3) 1987; New Zealand Legal Information Institute, State Services Amendment Act 1987.

76 Archives New Zealand, AALR, W5192 873, box 13, 79/3, part 1, State Sector Act 1963–91, Stan Rodger, “Public Sector Pay Fixing and Industrial Relations: Legislative Reform,” [November 1987].

77 Archives New Zealand, AAFH, W5485 785, box 1, 3/5/0, part 1, Acts and Regulations – Various Acts and Regulations – State Sector – State Sector Bill 1987–88, D.K. [Don] Hunn to W. Isles, Chief of Parliamentary Counsel, 16 December 1987; and Rodger, letter in reply to PSA groups protesting State Sector Bill, draft, [February 1988].

78 Archives New Zealand, AAFH, W5510 6790, box 576, SSB-1, State Sector Bill – General, Rodger to Douglas, copy, n.d. The note mentions an ad hoc committee meeting on 23 October 1987, “at which time we worked through the principles associated with possible reform of the Public Sector.”

79 New Zealand Legal Information Institute, State Sector Bill 1987.

80 Quoted in O’Connor, State and the Union.

81 New Zealand Legal Information Institute, Public Service Act 1912.

82 Macmillan Brown Library, Palmer Papers, acc. 142, ref. 87756, State Sector Bill, Mervyn Probine to Geoffrey Palmer, Stan Rodger, J. [Jim] Bolger, and Bill Birch, 22 February 1988.

83 Palmer, Reform, 714.

84 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/09, Executive Minutes and Correspondence, “Minutes,” 29 January 1988.

85 Palmer, Reform, 714 (quote); Lange, My Life, 243; Prebble, I’ve Been Thinking, 29-32.

86 Archives New Zealand, AAFH, W4960 7159, box 66, HE/4/8, Acts and Regulations – State Sector Bill 1987–88, Margaret Shields, “State Sector Bill – A Women’s Perspective,” Clyde Carr Memorial Hall, North Street, Timaru, 19 February 1988.

87 For changes from the original bill, see New Zealand Legal Information Institute, State Sector Bill 1987; and New Zealand Legal Information Institute, State Sector Bill 1988. Note remarks in Archives New Zealand, AAFH, W5485 785, box 1, 3/5/0, part 1, Acts and Regulations – Various Acts and Regulations – State Sector – State Sector Bill 1987–88, Hunn to Mr M. Cribb and Mrs T.U. Hubbard, 19 April 1988.

88 New Zealand Legal Information Institute, State Sector Act 1988.

89 New Zealand Legal Information Institute, State Sector Bill 1988, sec. 21(2).

90 Archives New Zealand, AAFH, W4960 7159, box 66, HE/4/8/1, Acts and Regulations – State Sector Bill – Correspondence 1988, Michael J. Moriarty to Douglas, 23 December 1987.

91 New Zealand Legal Information Institute, State Sector Act 1988.

92 Archives New Zealand, ABFR, W4128, box 137, 1/7, part 1, Issues – Industrial Relations – State Sectors Issues, Stan Rodger, “Final Offer Arbitration,” 21 March 1988.

93 Archives New Zealand, AAWW, 4640 7112, box 23, interview with Colin Hicks, Newztel Logs 1987–88, Ex-RNZ, “Checkpoint,” 1 February 1988.

94 Archives New Zealand, AAFH, W5485 785, box 1, N3/5/0, part 1, Acts and Regulations – Various Acts and Regulations – State Sector – State Sector Bill 1987–88, Hunn to D.R. Wilson, Rural Banking and Finance Corporation, 6 January 1988; Hunn to Permanent Heads, 25 February 1988; Hunn to Stephen Oxenham, 9 March 1988; and Hunn to Diana Hickman, 9 March 1988.

95 Archives New Zealand, AAFH, W5485 785, box 1, 3/5/0, part 1, Acts and Regulations – Various Acts and Regulations – State Sector – State Sector Bill 1987–88, Ros Goldsborough for General Secretary of PSA to Secretary of State Services Commission, 17 December 1987.

96 Archives New Zealand, AAFH, W5485 785, box 1, 3/5/0, part 1, Acts and Regulations – Various Acts and Regulations – State Sector – State Sector Bill 1987–88, Ros Goldsborough for General Secretary of PSA to Secretary of State Services Commission, 17 December 1987; Irving Gair to Regional Secretary of PSA, 18 December 1987; J.W.H. Clark, Secretary of Trade and Industry, to Hunn, 18 December 1987.

97 Archives New Zealand, AALR, W5192 873, box 13, 79/3, part 1, State Sector Act 1963–91, “Cabinet Minutes,” copy, 7 March 1988.

98 Archives New Zealand, AAFH, W5510 6790, box 576, SSB-1 State Sector Bill – General, C.M. [Colin] Clark, General Secretary of Public Service Association, to Lange, 18 February 1988.

99 Margaret Bazley, interview with author, 15 August 2017.

100 Wikipedia, “New Zealand Public Service Association.”

101 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-29/09, Executive Minutes and Correspondence, “Minutes,” 30 September 1988.

102 Don Hunn, interview with author, 25 June 2016; Archives New Zealand, ABVP, W5232 8071, box 20, 29/11, part 1, Personnel Services – Executive Delegations 1990–91, Hunn to David Oughton, 18 November 1989.

103 Wikipedia, “New Zealand Council of Trade Unions.”

104 Archives New Zealand, AAFH, W5510 6790, box 576, SSB-1, State Sector Bill – General, P.R. McRae to Director of Administration and Director of Personnel, “State Sector Bill: First Departmental Briefing Meeting,” 5 February 1988.

105 Archives New Zealand, AAFH, W5485 785, box 1, 3/5/0, part 1, Acts and Regulations – Various Acts and Regulations – State Sector – State Sector Bill 1987–88, Hunn to Rodger, 1 July 1988.

106 Boston, “Chief Executives,” 92.

107 Archives New Zealand, AAFH, W5510 6790, box 576, SSB-1, State Sector Bill – General, Steve Newby and Roger Anderson to All Members of SSC, “State Sector Bill: Communication Possibilities,” 28 January 1988.

108 Archives New Zealand, AAFH, W5510 6790, box 576, SSB-1, State Sector Bill – General, Steve Newby and Roger Anderson to All Members of SSC, “State Sector Bill: Communication Possibilities,” 28 January 1988; Scott, Bushnell, and Sallee, “Reform of the Core Public Sector,” 154.

109 Hocken Library, Rodger Papers, 87/134, box 6, Douglas to Lange, 6 November 1986, copies to Caygill, Prebble, and Rodger.

110 New Zealand Legal Information Institute, State Sector Bill 1988.

111 Archives New Zealand, AALR, W5192 873, box 13, 79/3, part 1, State Sector Act 1963–90, Graham Scott, Secretary of the Treasury, to Douglas, “State Pay and Public Sector Reform,” 23 September 1987; Michael J. Moriarty for Secretary of the Treasury to Douglas, “Priority Issues in State Pay Reform,” 25 August 1987.

112 Turnbull Library, Bassett Papers, 2008-199-068, Papers Relating to Fourth Labour Government, Michael Bassett, “Meeting with Minister of Finance to Discuss Expenditure Reviews,” 3 March 1987; Archives New Zealand, AALR, W5192 873, box 13, 79/3, part 1, State Sector Act 1963–91, Graham Scott to Douglas, 25 September 1987.

113 Archives New Zealand, AAFH, W5510 6790, box 576, SSB-1, State Sector Bill – General, “Minutes of Meeting of Treasury/SSC: Public Finance Act,” 22 January 1988.

114 Archives New Zealand, AALR, W5427 873, box 993, 61/12/2/1, part 1, Regulatory Framework for Industrial Relations – General (Labour Market Regulation) 1980–84, “Appendix 2: Pay Fixing System for Various State-Owned Enterprises,” September 1983; Archives New Zealand, AAFH, W3654 785, box 402, 24/2/48/23, part 5, Department Establishments Treasury, D.J. Swallow, “Position of Superintendent of GSF,” 31 August 1987; Archives New Zealand, AAFH, W5510 6790, box 576, SSB-1, State Sector Bill – General, Andrew Annakin, “Job Evaluation Systems in the Public Service,” 5 February 1988.

115 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-37/17, Policies – State Sector, “General Terms and Conditions for New Employees of LDMC,” n.d., 2.

116 Archives New Zealand, AAFH, W5510 6790, box 509, SS-7-1-2-1, part 2, Structures and Systems – Public Finance Act 1991, Paul Carpinter to Mr [D.J.] Swallow, 29 June 1990.

117 Archives New Zealand, AALR, W5427 873, box 612, 40/15/8, part 1, Public Finance Bill 1989, “Informed Decision Making: Strategic Public Sector Resource Considerations,” n.d.; and “Resource Management Reform: Machinery of Government and State Sector Reform,” n.d.; New Zealand Legal Information Institute, Public Finance Act 1989.

118 Archives New Zealand, AALR, W5427 873, box 614, 40/15/8/2, part 1, Public Finance Bill 1989, Finance and Expenditures Committee 1989–91, Report of the Finance and Expenditures Committee 1989: Report on the Public Finance Bill (1989).

119 Archives New Zealand, AALR, W5427 873, box 614, 40/15/8/3, part 1, Public Finance Bill 1989, Finance and Expenditures Committee 1989–91, B.H.C. Tyler, Controller and Auditor General, to Chair of Finance and Expenditures Committee, 17 April 1989.

120 Archives New Zealand, AALR, W5427 873, box 614, 40/15/8/3, part 1, Public Finance Bill 1989, Finance and Expenditures Committee 1989–91, Legislation Advisory Committee to Finance and Expenditures Committee, April 1989.

121 Archives New Zealand, ABVP, W6048, box 34, LAC-00071, Fiscal Responsibility and Amendments to the Public Finance Act 1989, Mervyn Probine, “Notes on Fiscal Responsibility Bill,” 8 February 1994.

122 As a finance minister in the Fifth Labour Government, Michael Cullen had experience with the bill and would recall the difficulties of explaining it, but he applauded accrual accounting. Cullen, Labour Saving, 121.

123 Archives New Zealand, AALR, W5427 873, box 614, 40/15/8/3, part 1, Public Finance Bill 1989, Finance and Expenditures Committee 1989–91, “Public Finance Bill: Analysis of Submissions,” [May 1990]; C.N. Pinfield to Peter Lorimer, 3 May 1989.

124 Archives New Zealand, AALR, W5427 873, box 614, 40/15/8/3, part 1, Public Finance Bill 1989, Finance and Expenditures Committee 1989–91, Alf Kirk to Selected SSC Personnel, 22 August 1990.

125 Legal Information Institute, Public Finance Act 1989.

126 Archives New Zealand, AAFH, W4960 7159, box 66, HE/4/8, Acts and Regulations – State Sector Bill 1987–88, clipping, New Zealand Herald, 24 December 1987.

127 Archives New Zealand, AALR, W5427 873, box 614, 40/15/8/3, part 1, Public Finance Bill 1989, Finance and Expenditures Committee 1989–91, P.W. [Peter] Boag, Secretary of Internal Affairs, to Chair of Finance and Expenditures Committee, 22 May 1990.

128 Ibid.; Gauld, Revolving Door, 50.

129 Archives New Zealand, AALR, W5427 873, box 614, 40/15/8/3, part 1, Public Finance Bill 1989, Finance and Expenditures Committee 1989–91, M.D. Jack, Deloitte Haskins & Sells to J.R. Sutton, Chair of Finance and Expenditures Committee, 2 May 1990.

130 Archives New Zealand, AALR, W5427 873, box 614, 40/15/8/2, part 1, Public Finance Bill 1989 – Finance and Expenditure Committee Papers, Finance and Expenditure Committee, “Summary of Oral Evidence Given on the Public Finance Bill,” 1 May 1989.

131 Archives New Zealand, AALR, W5427 873, box 59, 3/15/21/2, Debt Management Office – Treasury Business Plan 1989–91, “Treasury Draft Performance Agreement, 1990–91,” n.d.

132 Archives New Zealand, ABVP, W6048, box 34, LAC-00071, Fiscal Responsibility and Amendments to the Public Finance Act 1989, Legislation Advisory Committee, “Submission to the Finance and Expenditure Committee on the Fiscal Responsibility Bill and Amendments to the Public Finance Act 1989,” 17 March 1989.

133 Scott, Bushnell, and Sallee, “Reform of the Core Public Sector,” 138.

134 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/10, Correspondence with Michael Bassett, Bassett to Tony Timms, 3 February 1986.

135 Turnbull Library, Bassett Papers, 2012-028-24, Health and Local Government, David Caygill, “The Government’s Health Policy,” 26 October 1988, 3.

136 New Zealand Legal Information Institute, Social Security Act 1938.

137 Turnbull Library, Bassett Papers, 2012-028-24, Health and Local Government, Michael Bassett, extensive handwritten note, 1–7.

138 I have benefited from comments by Michael Bassett. I take responsibility for the points of view.

139 Laugesen and Gauld, Democratic Governance and Health, 59–61.

140 Ibid., 61.

141 Ibid., 76–7; New Zealand Legal Information Institute, Area Health Boards Act 1983.

142 Laugesen and Gauld, Democratic Governance and Health, 45–6.

143 Ibid., 55.

144 Archives New Zealand, AALR, W5427 873, box 1140, 62/15/22, part 4, Health Task Force, Clive Smee, “The Supply Side Fix Draft,” 18 February 1988.

145 Archives New Zealand, AALR, W5427 873, box 1139, 63/15/22, part 3, 1987, Peter Tapsell, Minister of Internal Affairs, “Speech to the Urological Society of Australasia,” 8 March 1987, 6.

146 Turnbull Library, Bassett Papers, 2012-028-55, Labour Party Conferences, Michael Bassett, “Conference Speech: Health,” 13 May 1981.

147 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 4, Cabinet Policy Committee Minutes, “Budget Fiscal Strategy,” 1 July 1986; Archives New Zealand, AALR, W5427 873, box 1139, 62/15/22, part 1, Health Task Force 1986–87, David Smyth to Douglas, 23 December 1986; and “Motivations, Incentives, and Interventions in the Health Sector – Equity and Efficiency Issues,” 23 December 1986; Bassett, Working with David, 184.

148 Gauld, Revolving Doors, 6.

149 Laugesen and Gauld, Democratic Governance and Health, 85.

150 Ibid., 84.

151 Turnbull Library, Douglas Papers, 90-287-9, Further Papers, Subject Files R–S, Health Reform, Linda Bremford, Government Research Unit, “National and Health,” April 1990.

152 Archives New Zealand, AALR, W5427 873, box 1139, 62/15/22, part 4, Health Task Force 1986–87, “Brief Notes on Submissions and Visits,” August 1987.

153 Archives New Zealand, AALR, W5427 873, box 1140, 62/15/22, part 4, Health Task Force, Kevin Sampson to David Smyth, [October 1987]. Sampson endeavoured to refine task force discussions. Archives New Zealand, AALR, W5427 873, box 1139, 62/15/22, part 1, Health Task Force 1986–87, Kevin Sampson, “Future Direction of the Task Force,” [July 1987].

154 Laugesen and Gauld, Democratic Governance and Health, 92.

155 Ibid., 97–100.

156 Turnbull Library, Douglas Papers, 90-326-15, Further Papers, Roger Douglas, “Analysis of Criticisms of Health Task Force Report: Backgrounder for Government MPs,” 7 April 1988.

157 Archives New Zealand, AALR, W5427 873, box 1139, 62/15/22, part 2, Health Task Force 1987, David Caygill, “The Case for a Public Health System,” n.d.

158 Turnbull Library, Bassett Papers, 2012-028-24, Health and Local Government, Melody Guy, Cost Containment and Area Health Boards, 1989–1993: A Draft Report (2000), 28–30.

159 Archives New Zealand, AALR, W5427 873, box 1140, 62/15/22, part 4, Health Task Force, “The Ownership and Structure of Provider Organisations,” [late November 1987], 3; New Zealand Legal Information Institute, Health and Disabilities Services Act 1993.

160 Archives New Zealand, AATJ, W5519 7495, box 747, BP/5/4/2, part 1, Business Policy – Crown Health Enterprises 1991–92, Cabinet Committee on Implementation of Social Assistance Reforms, “Crown Health Organisational Form,” 16 March 1992, 8–11, 24.

161 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 52644, Health, AIC Health Sector Summit, “Privatisation and Individual Choice in Health Care,” 28 June 1993, 13; and unidentified clipping, 25 September 1992.

162 Macmillan Brown Library, Caygill Papers, acc. 77, ref. 52644, Health, Laurence Malcolm to Helen Clark, 25 August 1993; Malcolm, “Significant Achievements.”

163 Laugesen and Gauld, Democratic Governance and Health, 123–75.

164 Gauld, “Dissolving Health Funding Authority.”

165 Archives New Zealand, AAFH, W5510 6790, box ACD-14-1, Administrative and Commercial Division – Local Government Reform 1987–88, Officials Coordinating Committee on Local Government, Reform of Local and Regional Government: Discussion Document (1988), i.

166 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-36/16, Policies Agriculture, Minister of Agriculture, “List of Appointed Positions,” n.d.

167 New Zealand Legal Information Institute, Local Government Act 1974.

168 Cullen’s animosity toward Douglas extended to Douglas’s allies, like Bassett, but he admired Bassett’s grasp of the health care brief and of local government reform. Cullen, Labour Saving, 93–4, 118–20.

169 Lange, My Life, 245.

170 Archives New Zealand, AAFH, W5510 6790, box ACD-14-1, Administrative and Commercial Division – Local Government Reform 1987–88, Wayne Goodall, “Reform of Local and Regional Government: Progress to Date,” 16 May 1988. Retrospective accounts by Bassett and the chair of the Local Government Commission, Brian Elwood, suggest that it was their initiative to act within a tight deadline. Wallis and Dollery, Local Government Reform, 4–5.

171 Cullen, Labour Saving, 118.

172 Archives New Zealand, AAFD, W4646 7581, box 52, 11/7/43, part 7, Cabinet Committees Policy 1987–88, Cabinet Policy Committee, “Minutes of Meeting,” 15 December 1987.

173 Archives New Zealand, AAFH, W5510 6790, box ACD-14-1, Administrative and Commercial Division – Local Government Reform 1987–88, Officials Coordinating Committee on Local Government, Reform of Local and Regional Government: Discussion Document (1988), v.

174 Archives New Zealand, ABJZ, W4644, box 12, 8/3/1, part 4, Policy and Planning – Special Projects – Local Government Reforms, “Statement on Reform of Local and Regional Government,” July 1988.

175 Archives New Zealand, AAFH, W5510 6790, box ACD-14-1, Administrative and Commercial Division – Local Government Reform 1987–88, Officials Coordinating Committee on Local Government, Reform of Local and Regional Government: Discussion Document (1988), 2–54.

176 New Zealand Legal Information Institute, Local Government Amendment Act (No. 3) 1988; New Zealand Legal Information Institute, Local Government Amendment Act (No. 2) 1989.

177 Archives New Zealand, AAAC, W5224 6015, box 254, 103/585/10/2, part 2, Reorganisation Orders, Brian Elwood to Gary Judd, 19 January 1988.

178 Archives New Zealand, ABWN, W5021 6095, box 628, 22/49/13, Local Government Commission 1987–88, B. Holt to Surveyor General, 19 April 1989.

179 Bassett, Working with David, 490–1, gives a figure of “more than 700 local bodies.” His more recent counting cites the number in this chapter. I appreciate Michael Bassett’s sharing of information.

180 On the possibility of legal challenges, see Turnbull Library, Bassett Papers, 2012-028-24, Health and Local Government, “Legal Challenges to Decisions of the Local Government Commission,” 16 October 1987; and clipping on pending injunctions, Auckland Star, 14 June 1989; and on the number of likely court actions, see Bassett to Brian Elwood, 12 March 1989. See also Archives New Zealand, AAAC, W5224 6015, box 254, 103/585/10/2, part 2, Reorganisation Orders, “New Revised Programme for Supplementary Gazette for Implementation of Local Government Reorganisation Schemes,” 7 June 1989.

181 New Zealand Legal Information Institute, Port Companies Act 1988. Many sections refer to the State-Owned Enterprises Act (1986). See also Commonwealth Local Government Forum, “Local Government System in New Zealand.”

182 See New Zealand Legal Information Institute, Local Government Amendment Act (No. 2) 1989, especially “Part XXXIVa,” 859–74.

183 Archives New Zealand, AAFH, W5510 6790, box ACD-14-1 Administrative and Commercial Division – Local Government Reform 1987–88, Bridgeport Group, “Synopsis of Submissions on Discussion Document on Reform of Local and Regional Government,” May 1988, 1–71.

184 Wilson, Short History, 4.

185 Turnbull Library, New Zealand Labour Party, Head Office Records, 97-114-32/05, Caucus Correspondence, General Secretary to Caucus, 30 September 1987; and 97-114-29/09, Executive Minutes and Correspondence, “Minutes,” 27 January 1989.

186 The expression used to explain receiving documents from the other side was “fell off the back of a truck.” Turnbull Library, Bassett Papers, 2012-028-24, Health and Local Government, Michael Bassett to All Members of Labour Caucus, “Local Government Reform,” 15 June 1988.

187 Gauld, Revolving Door, 42–8.

188 Ibid., 34–5.

189 Archives New Zealand, ABGX, W5189 16127, box 54, FE 2/16/2, Fiscal Responsibility Bill – Submissions 1993–94, Graham Scott, “Submission to the Finance and Expenditure Committee of the House of Representatives on the Fiscal Responsibility Bill,” 15 March 1994, 7–9; Peter Harris to Ruth Richardson, 25 February 1994; and Bryan Philpott to Ruth Richardson, 14 March 1994.

190 Archives New Zealand, ABGX, W5189 16127, box 54, FE 2/16/2, Fiscal Responsibility Bill – Submissions 1993–94, New Zealand Business Roundtable, “Submission to the Finance and Expenditure Committee of the House of Representatives on the Fiscal Responsibility Bill,” 28 February 1994, 61–4.

191 New Zealand Legal Information Institute, Fiscal Responsibility Act 1994.

192 Archives New Zealand, ABGX, W5189 16127, box 54, FE 2/16/2, Fiscal Responsibility Bill – Submissions 1993–94, Peter Harris to Ruth Richardson, 25 February 1994; and Bryan Philpott to Ruth Richardson, 14 March 1994. Critics believed that the Treasury would exclude assets to cook the books; the government believed that critics ignored exposure to liabilities and concealed the debts of so-called assets. Archives New Zealand, ABGX, W5189 16127, box 54, FE 2/16/1, Fiscal Responsibility Bill – Correspondence, Bill Birch to Ruth Richardson, 21 April 1994; Archives New Zealand, AAAC, W5224 6015, box 76, 58/785, Review of Harbour Boards, Coin Knox, Auckland Regional Council, to W.J. Hudson, Local Government Commission, 1 November 1989.

193 Wallis and Dollery, Local Government Reform, 26.

CONCLUSION

1 Savas, “Privatization in Post-socialist Countries,” 581.

2 Grant, Anderton, 145.

3 The statement was made in justification of removing the fiscally conservative finance minister, Ruth Richardson. Wikipedia, “Ruthanasia.”

4 Wilson, Short History, 3.

5 Ibid., 18.

6 Ibid., 9–12; Cullen, Labour Saving, 272–7. On the 2013 Crown sale of shares, see Anderson, “Crown’s Investment”; and Wikipedia, “History of Air New Zealand.”

7 Crown Forestry Rental Trust, “About the Trust.”

8 Wikipedia, “Kiwibank”; Wikipedia, “List of banks in New Zealand.”

9 Hasell and Max, “How Do We Know?”

10 New Zealand, “Benefit Fact Sheets.”

11 OECD, “Tax Revenue”; OECD, “Tax on Personal Income.”

12 OECD, “Social Expenditure – Aggregated Data”; OECD, “Social Expenditure – Detailed Data.”

13 International Monetary Fund, “IMF Concludes Article IV Consultation.”

14 OECD, “Long-Term Interest Rates.”

15 OECD, “General Government Deficit.”

16 Cullen, Labour Saving, 169.

17 New Zealand, Productivity Statistics.

18 OECD, “Gross Domestic Product (GDP).”

Bibliography

ARCHIVES

Archives New Zealand, Wellington Repository

Government files at Archives New Zealand were removed undisturbed from file cabinets. Thus the top letter, minute, or policy paper in a file or bundle of paper is the most recent, and the bottom item is the oldest. Marginal comments, sticky notes, memos to file, faxes, and other material suggest that files were rarely tidied up. In the endnotes, rather than lengthening an already long citation format with the inclusion of an agency’s name, I have retained the Archives New Zealand form, which uses lettered department codes. These codes establish which state entities or individuals held the documents that I cite.

AAAC, Department of Internal Affairs

AACQ, Valuation New Zealand

AAEK, Michael Cox, MP

AAFD, Cabinet Office

AAFH, State Services Commission

AALN, Customs Department

AALR, Treasury

AAMN, Rt Hon. Bill Birch

AANK, Department of Labour

AANU, Electricity Corporation of New Zealand, Head Office

AAPU, Valuation New Zealand

AATD, Royal Commission on Social Policy

AATJ, Ministry of Economic Development, Head Office

AAWW, Rt Hon. David Lange

AAXA, Rt Hon. John Falloon, MP

AAXO, Rt Hon. Sir Robert Muldoon

AAXU, GST Coordinating Office

AAYE, Ministry of Social Policy

AAYK, Labour Party Research Unit

ABAA, Crown Forestry Management Limited

ABCX, New Zealand Planning Council

ABDI, Commerce Commission

ABFR, Trade Union Educational Authority

ABGX, Office of the Clerk of the House of Representatives

ABHF, Rt Hon. Sir Donald McKinnon

ABHS, Ministry of Foreign Affairs and Trade, Head Office

ABIJ, Foundation for Research, Science and Technology

ABJZ, Te Puni Kokiri (Ministry of Maori Development)

ABKH, Ministry of Women’s Affairs

ABKL, Ministry of Transport

ABOT, National Parliamentary Research Unit

ABPY, National Bank of New Zealand

ABQB, Working Life Communications, Ltd

ABQC, Law Commission

ABQU, Ministry of Health, Head Office

ABTW, Reserve Bank of New Zealand

ABVF, Housing Corporation of New Zealand

ABVP, Ministry of Justice, Head Office

ABWN, Land Information New Zealand

ACCQ, Ministry for Primary Industries

ACCW, Ministry of Social Development

ADNX, Ministry for Culture and Heritage

AEPU, Electricity Corporation of New Zealand

CAB (90), Cabinet Minutes, 1990

IAI Economic Summit Conference

Thomas Morland Hocken Library, University of Otago

Rt Hon. Stan Rodger Papers

Macmillan Brown Library, University of Canterbury

Rt Hon. David Caygill Papers

Rt Hon. Sir Geoffrey Palmer Papers

Alexander Turnbull Library, National Library of New Zealand

Rt Hon. Dr Michael Bassett Papers

Rt Hon. Sir Roger Douglas Papers

Sir Roderick Deane Papers

New Zealand Council of Trade Unions Papers

New Zealand Labour Party

NEWSPAPERS: CLIPPINGS CITED

Ashburton Guardian

Auckland Express

Auckland Metro

Auckland Star

Auckland Sun

Auckland Sunday News

Auckland Sunday Star

Australian Financial Review

Bay of Plenty Times (Region including Tauranga)

Better Business

Business Times

Christchurch Press

Christchurch Star

Counties Courier (Papakura)

Daily Telegraph (Napier)

Dominion (Wellington)

Economist (London)

Evening News (Dannevirke)

Evening Post (Wellington)

Financial Review

Financial Times

Hawkes Bay Herald-Tribune (Hastings)

Karori and Western Suburbs News (Karori/Wellington)

Marlborough Express (Blenheim)

Napier Daily Telegraph

National Business Review

Nelson Evening Mail

Neue Zürcher Zeitung (Zurich)

New Zealand Financial Review

New Zealand Herald (Auckland)

New Zealand Listener

New Zealand News uk

New Zealand Times

Northern Advocate (Whangarei)

Northland Age (Kaitaia)

Otago Daily News (Dunedin)

Otago Daily Times (Dunedin)

Post (Wellington)

Poverty Bay Herald (Gisborne)

Retail News

Southland Times (Invercargill)

Straight Furrow (National/Wellington)

Taranaki Daily News (New Plymouth)

Taranaki Herald (New Plymouth)

Taranaki News (New Plymouth)

Timaru Herald Trans-Tasman (Auckland)

Truth (Auckland) Waikato Times (Hamilton)

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Index

Page references in italics indicate a table.

A

Abdelal, Rawi, 477n3

Abigail, Jill, 316

Accident Compensation Commission, 329, 331, 332, 431–2

Advanced Meats, 235

Adverse Events Family Income Support scheme, 389

agency theory, 425

agricultural sector: economic restructuring and, 379; export, 371–2, 376–7; IMF consultations, 373, 375, 378, 379, 380; price-stabilisation schemes, 372–3; subsidies to, 373–4, 378, 379, 388. See also farms/farmers

Air New Zealand (anz): competitors of, 431; equity of, 257, 260; government control of, 243, 261; restructuring of, 261, 431; sale of, 111, 242, 244, 249, 250, 254, 258–9, 260–1, 277

airports: privatisation of, 247, 248, 261

Airways Corporation: board at, 235; consultants of, 77; corporatisation of, 223; dominance of, 263–4; profit, 238; severance package at, 238

Alliance Party, 323

Alternative Telephone Company, 276

American Airlines, 260

American Planning Association, 69

American Technologies (Ameritech), 245, 255, 279

Andersen, Arthur, 108

Andersen, Bill, 347

Anderson, Tavs, 69

Anderton, Bill, 37, 42

Anderton, Jim: criticism of government actions, 49–50, 59–60; currency crisis and, 158; economic views, 42, 43, 349; on establishment of Kiwibank, 431; insurgency of 1984, 51; Labour Party’s president, 47; opposition to GST, 206; political prospects, 34; vote on state asset sales, 60

Andrew, Doug, 191, 233

Andrews, Doug, 42

Ansett Airlines, 261, 431

anti-trust laws, 85

Arbitration Court, 397

Ardern, Jacinda, 432

Arthritis and Rheumatism Foundation, 202

Arthur Andersen llp, 69, 77, 78, 419

Asian financial crisis of 1988, 296–7

asset sale: appointment of merchant bank for, 75; benefits of, 218–19; consultation fees, 75; debates on, 111; launch of, 215; vote on, 60

Associated Container Transportation (p&o), 244

Asthma Foundation, 202

AT&T, 274, 275–6, 279

Atkinson, Paul: education of, 181; idea of autonomous central bank, 181–2, 183; overseas travel, 182

Auckland Electric Power Board, 272

Auckland International Airport, 248

Aucoin, Peter, 68

Australia: contacts with New Zealand government, 53, 54, 70, 315; economic problems, 52–3; Hawke-Keating Labor government, 48; inequality, 214; Labor Party, 186; monetary system, 134, 162; senior public servants, 409; taxation, 212

Australia and New Zealand Banking Group Ltd, 244, 246, 247

Australian Congress of Trade Unions, 52, 53, 54

Australian Economic Summit, 42–3, 52

Australian Mutual and Provident Society, 382

Ayers, Tony, 315

B

Backbone Club, 63

Backhouse, Roger E., 170

Baigents/Shell (nz) Ltd, 245

Bain & Co., 79

Baker, James A., 152

Bank for International Settlements, 136, 141

banking school, 181–2

banking system reform, 69–71, 73

Bank of Canada, 138

Bank of England, 70, 129–30, 131, 133, 135

Bank of New Zealand, 205, 242, 247, 251, 261, 382

Bassett, Judith, 21

Bassett, Michael: on Air New Zealand affair, 530n67; biography of Deane, 21; criticism of, 424; on discrepancies between impressions and reality of New Zealand, 240; economic agenda, 27; on farmers, 384–5; on governments, 101; health care reform, 417, 418, 422, 597n168; on Lange, 43, 90; local government reform, 423, 424–5; memoirs of, 20; modernization of the party and, 61; on Muldoon’s actions, 148; performance in Parliament, 586n2; reduction of public ownership, 424; removal of Rowling, 27; responsibilities, 118; on social aid, 307; speechwriter of, 98; support of Douglas, 20, 30, 530n67; on union membership, 370; Working with David: Inside the Lange Cabinet (2008), 20

Bateman, Bradley W., 170

Bayliss, Len, 171

Bay of Plenty Pig Hunting Club, 293

Bazley, Margaret, 227, 402, 405, 407, 410

Beaglehole, Ann, 309

Beattie, Murdo, 357

Beehive (Parliament, executive wing), 94, 101, 109, 113, 114, 261, 406

Beenstock, Michael, 73

Begg, Sue, 4

Bell Atlantic, 245, 255, 279

Bell Canada, 236, 276

benefits. See social welfare benefits

Benhar Holding Ltd, 245

Berkshire Partners, 247, 262

Bernstein, Sebastien, 77

Birch, Bill, 145, 367, 368, 407

Blandy, Richard, 72

Bligh Carpentaria, 247

Blyth, Mark, 6, 437n1, 438n28

Bolger, Jim: 1987 elections, 67; 1990 elections, 62; Change Team of, 332–3; criticism of the Labour Party, 98; on elected dictatorship, 93; on farm debts, 385–6; labour relations policy, 55, 338, 359; as leader of National Party, 251, 254, 361; memoirs of, 20; minister of labour portfolio, 544n64; promotion of enterprise agreements, 339; public opinion polls, 98; on restructuring program, 430

Booz Allen, 68–9, 77, 78, 261–2

Boston, Jonathan, 413

Boughton, James: Silent Revolution: The International Monetary Fund, 1979–1989 (2001), 142

bracket creep, 192, 193

Bradford, Max, 169

Brash, Don: banking system reform and, 70; debate on national awards system, 559n44; Incredible Luck (2014), 187; on inflation target, 184; introduction of GST and, 187–8, 199–200, 202, 207–8, 209; labour relations policy and, 351

Bretton Woods system: collapse of, 3, 84, 127, 140–1, 172; establishment of, 139, 140

Brierley Investments, 244, 248, 260, 278, 296

British Telecom, 280

Broadcast Communications, 276

Brookes, Barbara, 317

Brown, Tim, 173

Buchanan, James M., 9

Buff Paper, 404–5, 409

Burgess, Bevan, 114

Burgin, Angus, 439n46; The Great Persuasion: Reinventing Free Markets since the Great Depression (2012), 6

Business and Economic Research Ltd, 75, 79

Butcher, David, 28, 205, 264

Buttle Wilson, nz, 75, 78

C

Cabinet Coordinating Committee on State-Owned Enterprises, 402–3

Cabinet Family and Social Affairs Committee, 314

Cabinet of New Zealand: collective responsibility, 33, 57, 58–9, 156; committees, 58, 66, 260, 314, 326, 328, 402–3; election of members of, 59; interactions with the media, 122; power of, 31

Cabinet Policy Committee (cpc): Asset Sales Committee, 260; commercialisation of government operations, 221; deregulation campaign and, 264; guidelines for Establishment Boards, 227; investigation of welfare abuses and, 327; meetings of, 65–6; members of, 65; public-sector settlement and, 399; recommendations to Cabinet, 184, 400; responsibilities of, 64–5; restructuring and, 83, 88; review of public officials, 415; SOE sales and, 254, 268, 269

Cabinet Social Equity Committee, 66, 326, 328

Cable and Wireless, 278

California gold rush, 130

Cameron, Malcolm, 88

Campbell, Rob, 203, 205, 360

Canada: adoption of dollar, 134; contacts with New Zealand government, 68, 69, 70; debt reduction, 497n190; forestry sector, 296; labour relations, 362; senior public servants, 409; tax policies, 208–9, 212

Canadian Investments Ltd, 245

Canadian mill, 360

Canadian Public Service Commission, 409

capital flows, 132, 134, 135

capital gains tax (cgt), 210, 211–13, 511n160

Capitalist Revolutionary: John Maynard Keynes (Backhouse and Bateman, 2010), 170

Capitalizing on Crisis: The Political Origins of the Rise of Finance (Krippner, 2011), 6

Capital Properties New Zealand Ltd, 248

Carter Holt Harvey, 245, 287, 290, 296

Cassino, Enzo, 488n61

Cassis, Youssef, 131

Caygill, David: attendance of cpc meetings, 65; on commercialisation of coal and electricity, 220; currency crisis and, 157; on decentralisation of decision making, 27; deficit reduction, 117; deregulation campaign and, 264; Douglas and, 20, 30–1; economic agenda, 86; on inflation target, 184; introduction of Public Finance Act (1989), 415; ministerial portfolios, 31, 66, 108, 110, 117–18, 376, 420; on principles of government actions, 61; reputation, 118; restructuring and, 89; on sale of state assets, 117, 250, 251, 256; taxation policy, 72, 126, 210, 212

cell phone services, 276

Central Avion Holdings Ltd, 248

central banks: in China and New Zealand, 141; establishment of, 128, 130, 138; funding of state deficit, 136; idea of autonomous, 181–2, 183; mission of, 142

Chamber of Commerce, 160, 189, 202

Chapple, Simon, 560n61

charities, 199, 200, 202

Chetwin, John, 289

childcare, 319

Chorus, 280

Christchurch conference (Labour Party), 205, 206, 210

churches: fundraising practices, 200; taxation, 199, 202

Citifor consortium, 248, 296

City of London: financial services in, 131, 135

City University Centre for Banking and International Finance, 73

civil society, 294

Clark, Colin, 405, 406, 410

Clark, Helen, 20, 42, 109, 116, 279, 333

Clay, Cassius, 367

Clear Communications, 276, 279

Clerical Workers Union, 348

Closer Economic Relations Agreement, 36

Coal Corporation of New Zealand (Coalcorp): consultants of, 77; control over staff and records, 234; corporatisation of, 223, 230, 231–2, 234; layoffs, 402; productivity gains, 237; redundancy payments, 237; restructuring of, 431; sale process, 261; subsidies, 273

coal industry: commercialisation of, 220

Coalition of Non-Aligned Associations and Unions, 357, 364

Cohn, Julie: The Grid: Biography of an American Technology (2017), 272

coin debasement, 128

Combined State Unions (csus): debate on conditions of employment, 400, 405; debate over GST, 205; delegates in Labour Policy Committee from, 50; Federation of Labour and, 366, 413; fight for basic rights, 341; members’ wages, 362; opposition to state-sector reform, 405; position on taxation, 302; restructuring and, 87; sale of financial institutions and, 526n18; staff reduction, 413; state-sector labour relations and, 397, 398; wage settlement, 87, 357

Commerce Act (1975), 264

Commerce Act (1986), 69, 80, 233, 252–3, 263, 264, 267

Commerce Commission, 254, 262–3, 264, 265, 266, 272, 273, 278

commercialisation, 220, 221, 286–7, 384

The Commercialisation of New Zealand (Easton, 1997), 19

Commonwealth Public Service Commission, 68

Communicate nz, 245

communications network, 262

communitarianism, 19

Companies Act (1955), 217, 243

composite agreements, 348, 365

compulsory unionism, 348, 350, 353–4

computer spreadsheets, 236

concessionary loans to rural producers, 164

Conciliation and Arbitration Act (1894), 336

Connelly, Michael, 36

Conservation Department, 287, 288, 291, 292–3, 296, 297

conservator of forests, 283

consortium of New Zealand investors, 245

consultants’ fees, 75–6

consumption tax, 187, 188, 189

Contact Energy, 248, 268, 270, 281

contestability, 252, 254, 261–2, 265, 266

Cooper, Richard, 72

Coopers & Lybrand, 68, 77, 79, 82, 421

Corden, Max, 72

corporate tax, 104, 203

corporations: agency costs, 255–6

corporatisation: benefits of, 218–19; Cabinet directive on, 228; consultations about, 75, 77–9; goals of, 256–7; government employees affected by, 223; implementation of, 215, 505n84; opposition to, 218, 222, 230; principles of, 87; productivity gains and, 216, 217; of state monopolies, 429

Council of Christian Social Services, 200

Council of Trade Unions, 184, 323, 336, 366, 369, 413, 426

Countrywide Bank, 246, 247

Court, Robin, 160

craft unionism, 430, 470n118

Credit Suisse First Boston, nz, 75, 78, 258

Crown corporations, 223, 224, 231, 269, 270

Crown entities, 415, 416

Crown Forestry Rental Trust, 291, 431

Crown Health Enterprises (ches), 421

Crump, Barry, 210

Cullen, Michael: Bassett and, 27, 597n168; Douglas and, 20, 447n128, 597n168; draft of generic benefit bill, 329–30, 331; finance minister portfolio, 434, 594n122; fiscal policy, 327–8, 329; memoirs of, 20; on rationality of subsiding industry, 27; responsibilities, 118; on spending on consultations, 76; study of social insurance numbers, 314; support of Lange, 109; tripartite discussions, 557n23; use of technological innovations, 332; on welfare expenditures, 84

Cullen, Peter, 349

Culliwack, David, 69

currency: conversion to precious metals, 129, 130–1; cost of management, 381; crisis of, 140, 156, 157, 158, 159–60, 162; devaluation of, 134, 165; exchange rates, 141, 142, 143, 488n61; international policies, 3; introduction of floating, 160–1, 162–3; reform of, 430; regulations, 153–4; reserves of, 130–1; trade, 142–3, 163, 165

currency school, 129, 181–2

Customs Department, 189, 204, 332

D

dac Group Ltd, 245

dairy industry: Dairy Board, 379; intensification of, 391; price-stabilisation schemes, 372–3; profitability of, 297; taxation, 200

Dalgety Crown, 382

Dalziel, Paul, 573n8

David Wright Associates, 82

Dawes, Rufus, 164

Deane, Gillian, 486n33

Deane, Roderick: Austin Holmes and, 72; on Cameron, 88; career of, 21, 73, 159, 225, 233; on consultants, 80; currency crisis and, 140, 156, 158, 159–61, 162; on disinflation campaign, 170; ECNz’s sale and, 266; education of, 158; investigation of the SOE structure, 180; Ledingham’s criticism of, 166; monetary policy, 70, 127, 155, 168, 169; replacement of Probine as SSC chair, 226; on wage increase in state sector, 405

debt levels: crosscountry variations, 136

de Cleene, Trevor, 27, 30, 161, 197, 198, 203, 210, 373

deferrals, 153

Deloitte, 79, 235

Dent, Barry, 489n72

dental benefits, 417

Deutsche Post, Germany, 79

devaluations, 153

Development Finance Corporation: anz sale and, 260; consultants for, 77; losses of, 251; management of Export Suspensory Loan Scheme, 146; sale of, 76, 242, 244, 249, 254, 376; suspension of operations of, 251

Devitt, Con, 347

Dewald, William, 72

discounted cash flow (dcf), 230–1, 232

disinflation campaign: critics of, 179, 180, 435; duration of, 166, 170; goals of, 352; liberalisation and, 174, 175; medium-term measures, 169; outcome of, 185; policy commitments over, 167–8

Distribution Workers’ Federation, 351

Distribution Workers’ Union, 205

District Health Boards, 421

district nursing, 417

dockworkers’ strike, 346

Domestic Proceedings Act (1968), 307

Domestic Purposes Benefit (dpb): abuse of, 309; cost of, 326; criticism of, 310, 312, 319; eligibility for, 310, 318; gender and, 315–16; Horn report on, 308–9, 331; initiation of, 302, 307; solo parent applicants, 315, 328, 331; special assistance under hardship policy, 315; Wylie report on, 310

Domestic Purposes Review Committee, 308

domestic violence, 320

Dominion, 188

Dorman, Peter, 128

Douglas, Ken, 337, 341, 345, 347, 350, 361

Douglas, Norm, 37

Douglas, Roger: adoption of computerised system, 26; adviser on social policy, 97; Alternative Budget: A Personal View (1980), 37; background of, 37; budgets, 57, 121, 252; business community and, 99; Cabinet Policy Committee and, 65, 66; Caygill and, 117; on consultants, 73; on corporatisation of harbours, 424; correspondence of, 443n50; critics of, 36, 49, 58, 61, 186; Cullen and, 597n168; currency crisis and, 157; debates on labour relations, 365, 407; deregulation campaign and, 264; ecnz’s sale and, 266; elections, 62, 85, 86, 98–9, 115; on establishment of soes, 400; family business of, 241; farm policy, 376–7, 379, 380, 384, 387, 388; as finance spokesperson, 42, 44; Government Economic Statement (1987), 100; on government subsidy, 126; health care policy, 418–19; at Labour Party’s conference, 29; Lange and, 55, 71, 94, 96, 99, 100, 101–2, 106, 109, 112–18, 124, 432, 472n146; leadership race, 61, 115–16, 471n143; leadership style, 66, 447n128; manufacturing policy, 377–8; meeting with Trotter, 220; memoirs of, 20; memo to government MPs, 115; minister of finance portfolio, 30, 113–14; monetary policy, 147, 163, 164–5, 171, 178, 250; on monopoly of the national grid, 266; on most important Cabinet minister, 23; as Opposition finance critic, 375; opposition inside Cabinet to, 20; Geoffrey Palmer and, 35, 62; paper for the Mont Pelerin Society, 118; personality of, 27, 28, 29; policy papers, 45–6; political career of, 37; position on state-run economies, 28–9; at presentation of ibm personal computer, 236–7; promotion of export of live sheep, 377; public opinion polls, 96, 113, 115, 120; push for corporatisation, 505n84; relations with Treasury, 83, 85; reputation of, 109, 186; on Reserve Bank’s autonomy, 177; restructuring program, 29, 35, 37–8, 39–40, 43–4, 45, 50, 58, 89, 90, 92, 121, 467n72; on sale of state forests, 282; on senior public servants, 413; in shadow Cabinet, 40–1; on short-term interventions, 172; social welfare policy, 95, 205–6, 302, 304–5, 469n102; SOE sales and, 242, 249–52, 257, 259; state-sector reform and, 91–2, 401, 405; supporters of, 30; tax policy, 95–6, 100, 104, 120, 187–8, 191, 194–5, 199, 204, 205–6, 208–12, 467n67; team of, 33, 357; “The Minister of Quantum Leaps,” 100; There’s Got to Be a Better Way: A Practical abc to Solving New Zealand’s Major Problems (1980), 37; Timms’s correspondence with, 466n41; union supporters of, 63; vision for New Zealand, 115; weekend announcements, 32; Women’s Policy Council’s opposition to, 472n152; at World Economic Forum at Davos, 106

Douglas’s “package”: assessments of fairness of, 105; attempts to restrain, 109–10, 111; Cabinet approval of, 102, 104; critics of, 50, 99, 100–1; debates over 30, 45; fiscal tradeoffs, 104–5, 106; Guaranteed Minimum Family Income provision, 100; Hecus on, 45; Lange on, 50, 90, 98, 103, 106, 108; modification of, 106–7; objectives of, 97–8; on reform of local and regional government, 422; task force to study, 102–3; on tax system, 100, 103–4

Downer and Co. Ltd, 248

Duke University, 69

Dunedin conference (1988), 35

Dyson, Ruth, 277

E

East Asian businesses, 278

Easton, Brian, 20, 71–2, 144, 374, 438n20; The Commercialisation of New Zealand (1997), 19

econometric modelling, 490n97

Economic Analysis Corp., 77

Economic Committee of 1983–84, 65

economic inefficiency, 18

economic inequality, 196, 205, 208, 213–14

Economic Management: Policy and Organisational Issues (Treasury report, 1984), 15

economic nationalism, 251, 253, 254, 258, 277, 278

economics discipline, 44

Economic Stabilisation Act (1948), 352

Economic Summit of 1984: debate on superannuation, 323; Federation of Labour at, xxi; feminist counterpart to, 316; health care discussion, 419; Labour government performance at, 57, 124, 206, 452n216; media coverage of, 55, 56, 57; organisation of, 51, 54, 56; public relations, 54–5; steering committee, 54; trade unions and, 341

Economist, 8

Edison Mission Energy, 271

Edison Mission Taupo Ltd, 248

eds Holdings (nz) Ltd, 247

Education Department, 398

Eichengreen, Barry, 153

elections: of 1984, 52, 76, 85, 156, 157; of 1987, 67, 116–17; of 1990, 62, 116, 293; of 1996, 421

Electrical Supply Authorities (esas), 268, 269, 271

Electrical Workers’ Union, 356–7, 358

Electricity Corporation of New Zealand (ecnz): asset value, 223, 232; breakup of, 271; business-like leadership, 239; calculation of capital costs, 534n113; CEO of, 21, 233; consultancy fees, 80; consultants at, 73, 77, 241; consumers and, 270; contract for natural gas, 237; control over staff and records, 234; criticism of, 240; dominance of, 265, 269; excess capacity, 265, 266; gains in market share for energy, 239; generating stations of, 270, 271; inefficiency of, 240, 266; licencing, 233; management of, 254, 403; position on subsidies, 230; privatisation of, 242, 266, 269–70; productivity gains, 240; property rights issue, 229; rates, 231, 232, 265, 266; reduced workforce, 240; sale of, 430

Electricity Market Company, 270

Electricity-Power Boards Acts (1918 and 1925), 268

Electricity Task Force, 257, 268

electric power industry: commercialisation of, 220; consumer demand and, 267; economies of scale, 267, 269; evolution of, 272–3; privatisation of, 271–2; rate increase, 268, 271, 272; restructuring of, 265–8, 272, 273, 280; transportation grid, 269; unique nature of, 267–8

Elworthy, Peter, 388, 389

emergency budget of 1984, 57

Employers’ Federation: demand for composite agreements, 365; lobbying efforts, 363–4; negotiation of wage adjustments, 342, 348, 354, 357, 358; tax reform and, 189

Employment Contracts Act (1991), 344, 367

Employment Relations Act (2000), 370

Employment Relations Amendment Act (No. 2) (2004), 370

Energy Department: breakup of, 268; consumer price control, 219; corporatisation of, 219, 222; electricity rates, 230, 232–3; interventionist supporters in, 73; management of network utilities, 254, 265, 266; market approach, 220, 225; overseeing of electricity network, 271

Environment Department, 266

Equal Employment Opportunities Unit, 74

equality benefit, 320

Equiticorp, 243, 244

Ernslaw One Ltd, 245

Ernst & Young llp, 78

Establishment Boards: appointment of, 234; guidelines for, 227, 234; Mcc negotiations with, 229; members of, 235; ministers’ meeting with, 230; on private-sector labour relations, 226; representation of the Federation of Labour on, 226

European Economic Community (eec): tax policies, 80, 188–9, 208; United Kingdom joined, 371

European Trade Unions, 342

exporters: aid to, 146; strength of the dollar and, 376, 378; taxation of, 199, 202, 209

Export Guarantee Office Ltd, 146, 246

Export-Import Corporation, 146

Export Performance Incentive programme, 146

Export Suspensory Loan Scheme, 146

F

Fairness and Freedom: A History of Two Open Societies: New Zealand and the United States (Hackett-Fischer, 2012), 15, 19

fair relativity concept, 396

Fair Trading Act (1986), 209

Falloon, John, 390

Falwell, Jerry, 162

Familton, Alan, 223

family allowances, 305

Family Care

Programme, 324–5

Fancy, Howard, 178, 183, 373

Farmer, Trevor, 337

farms/farmers: assistance to, 390; debt crisis, 88, 377, 379, 380, 384–5, 388, 389, 581n113; deregulation of, 374; exports, 376; foreclosures, 380; impact of restructuring on, 109, 391; income, 375; independent actions for survival, 390; mixed-membership working party on, 384, 385; mortgage crisis, 377, 378; private-sector lenders for, 386–7, 389; protest demonstrations, 380, 387–8; rbfc schemes for, 382, 385–6, 389; recovery of, 391; rescue packages, 376; resourcefulness of, 390; rise of values, 581n113; sale of, 389–90; seminars for, 376; on the South Island, 382; subsidies to, 36, 373–4, 376, 378, 379, 385; work off the farm, 390

Fay Richwhite, 78, 79, 247, 262, 278–9

Federal Reserve System in the United States, 138

Federated Farmers of New Zealand: attitude to restructuring, 388; on consequences of land speculation, 379; Dominion Economics Committee, 374; farm debt crisis and, 380, 384–5, 386, 387, 388–9; Labour government and, 377; position on free market, 13, 44; position on state ownership, 293; private-sector labour relations and, 160, 403; on subsidies to farmers, 373, 379; taxation system and, 189, 204–5

Federation of Labour (fol): advocacy for mergers and consolidations, 337; Combined State Unions and, 366, 413; comparison to Australian Congress of Trade Unions, 54; currency crisis and, 163; debates on GST, 201, 205, 302, 360; disagreement within, 361; labour disputes, 340, 346–7; negotiation of wage adjustments, 55, 205, 346–7, 348–9, 354, 356; New Zealand Summit and, 54; protectionism of, 150; relations with Labour government, 34, 341, 346, 347, 352; tax reform and, 201, 302

ferry services, 262

Fifth Labour Government, 262, 279–80, 333, 370, 594n122

Fifth National Government, 430

final transfer tax (ftt), 192–3, 497n1

Finance and Expenditures Committee, 415

financial services: deregulation of, 165, 185–6; taxation of, 207–8

First Labour Government: conception of social security, 309; erection of sawmills, 284; monetary policy, 139; reorganisation of Reserve Bank, 138; social welfare policy, 305–6, 320; tax policy, 197

First World War: funding of, 135; impact on monetary policy, 135, 136

fiscal deficits: containment of, 15, 85, 127, 180; elimination of, 72, 132; funding of stimulus programs and, 395; loss of monetary control and, 173; rise of, 142

fiscal drag, 104, 164, 192, 211

Fiscal Responsibility Act (1994), 426, 457n84

fiscal scarcity, 18

flat tax, 67, 103–4, 105, 107, 120, 467n62, 467n67

Fletcher, Hugh, 47, 193, 350, 501n36

Fletcher Challenge: cars registered to, 193; executives, 235; Kawerau strike and, 359, 360, 361; plantations of, 287; purchaser of state assets, 245, 248, 296–7; sale price of, 247

Food and Chemical Workers’ Union, 355

Foodstuffs Limited, 202

forest plantations: boundary adjustments, 291; conservation covenants, 291; preservation protests, 284, 285; Scandinavian approach to management of, 295–6; speculation of, 283; state and private, 283, 284

Forestry Corporation of New Zealand (Forestcorp): creation of, 282, 286, 291; executives, 235, 278; position on subsidies, 230; regulation of forest sale, 290, 292, 295; sale price of, 248; small private mills and, 286; staff, 288; temporarily employment at, 289; valuation of, 223, 231, 282, 291

forestry cutting rights, 245–6, 294, 296

Forestry Establishment Board, 92, 419

forestry sector: conference at Rotorua, 290; corporatisation of, 431; job security in, 87; privatisation of, 254, 541n80; restructuring of, 16

forestry towns housing, 288

Forestry Working Group, 289

Forests Department, 285, 286, 287

Fourth Labour Government: abandonment of corporatist practices, 425; background paper for the Economic Summit, 448n146; Cabinet meetings, 63–4; caucus and, 59–60; consultants of, 68–74, 77–9, 81; corporatisation policy, 16, 215; criticism of, 58–61, 63, 294; cut of expenditures, 83–4; decision-driving practices, 64; dedication to tendering, 430; deficit management, 137; deregulation policy, 263–5; disinflation campaign, 352; duopoly of, 29, 94–5; election of Cabinet members, 442n29; Electricity Task Force, 269; emergency budget of 1984,57; farm policy, 375–7, 389–91; fiscal policy, 206, 393; goals of, 33; health care policy, 418; impact on Labour Party, 123; internal tension, 20; key ministers, 58–9, 86–7, 89–90; labour relations policy, 7, 336, 338, 340, 345; leading reformers in, 61–2, 67–8, 92; leftists in, 470n118; local government reform, 422–5; monetary policy, 93–4, 376, 381; negotiation with manufacturers, 380–1; parliamentary democracy and, 60–1, 63; policy papers and discussions, 14, 58, 425; priorities of, 57; privatisation initiatives, 242, 249–52; public’s confidence in, 115; public service and state-sector policy, 91, 395, 398, 399–400, 401; records of, 11; regulation of industries, 252; relations between ecnz and, 270; restructuring of the economy, 13, 18, 20, 429–30; revenue from sales of soes, 242; senior public servants and, 86–8; social welfare policy, 95, 302, 304, 349; special interest groups in, 13; soes adopted by, 217; studies of, 541n80; task forces of, 72, 95; tax policy, 57, 95, 189–90, 194, 203, 205, 210–11, 255, 324; unions’ relations with, 341–2, 346, 352–3, 361, 442n29, 448n146, 470n118; voting system reform, 425–6

Fourth National Government: economic policy, 19, 430; equity philosophy, 331; formation of, 270; GST discussions, 191; health care reforms, 420; labour relations policy, 340, 413; regulation of electricity rates, 270; regulatory environment, 279

France: inequality, 214; tax policy, 189

Francis, Allison, Symes & Co., 77, 79

Franks, Peter, 59

Fraser, Garth, 355

Fraser, Malcolm, 151, 159

free-market economics, 5–6, 72

Freightways, 278, 279

Friedman, Milton: as consultant, 72, 76, 81; on inflation, 9, 173; influence of, 6; overseas travel, 182; taxation reform and, 501n36

fringe benefits tax (fbt), 57, 191, 193–4, 195, 210, 211, 213, 346, 433, 502n53

G

Galbraith, John Kenneth, 24, 29

Galvin, Bernard: on Australia vs New Zealand, 53, 54; on control of government expenditures, 322; currency crisis and, 157, 158; idea of economic summit and, 54, 509n137; liquidation of long-term bonds, 155; meeting with Muldoon, 157; office crisis, 120; on state-sector conditions of employment, 400; on tripartite meetings, 343

Gauld, Robin, 418

Gcs Ltd, 247

gender revolution, 320

General Agreement on Tariffs and Trade (gatt), 140, 144, 209

general practitioners (gps): role in primary care, 417, 418; treatment fees, 417, 419

The General Theory of Employment, Interest, and Money (Keynes, 1936), 490n97

Generate Development Ltd, 245

generic benefit bill, 329–31

Genesis Energy, 249, 271, 281

Germany: inequality, 214; reparation payments, 136; tax policy, 189

Gibbs, Alan, 92, 278, 279, 419, 420, 421

Gini coefficients, 214

Glilmour Keenan & Co., 82

Global Economic Crisis of 2007–08, 5

Goff, Phil, 122, 205, 207, 208

Golden Bay Forest, 245

Goldfinch, Shaun, 67

Goldman Sachs, 75, 77, 78

Goldsmith, Paul, 507n117

gold standard, 130, 132, 133, 137

Goodhart, Charles, 72, 81, 182, 183

Goodhart’s Law, 183

Goodman, John, 69

goods and services tax (gst): advocates of, 190; business and, 199; compared to oecd average, 433; consultations on, 72, 76, 80, 196, 197, 198; criticism of, 61, 190–1, 196–7, 202–4, 206, 507n117; European practice, 188–9, 190, 192, 210; exemptions from, 200–1, 207–9; farms and, 387; vs fbt, 194, 195; implementation of, 40, 57, 88, 96, 187, 211, 497n1, 503n63; inclusion in prices, 209; inflationary impact of, 174; legislation on, 184; merits of, 192–3, 195–6, 210; parliamentary debate over, 206; promotion of, 255; public consultations on, 189, 197, 199–203; purpose of, 197; regional debates over, 204–5; regressivity of, 196–7, 198, 205; retailers’ position on, 201–2; revenue collection and, 174, 195; white paper on, 197, 199, 202; vs wst, 197–8, 380

Goods and Services Tax Act (1985), 184

Gourley, Michael, 46

Government Advances to Settlers Act (1894), 381

government consultations: on banking system, 73, 76; from eminent economists, 76; fees for, 75–6; on GST, 72, 76, 80, 196, 197, 198; with international agencies, 69–71, 74, 89; with local specialists, 74, 81, 85; on monetary policy, 69–72; with overseas specialists, 26, 68, 71–5, 77–9, 80, 81, 81; on soes, 72, 74; on taxation policy, 72

Government Land Office, 78

Government Life Insurance Corporation, 261

Government Printing Office, 243, 244

Government Property Services, 78, 223, 238, 254

Government Service Tribunal Act (1948), 395

Government Supply Brokerage Corporation, 246

Grant, David, 442n29

Grant, J.W., 313, 315

Great Depression, 164

Great Inflation, 438n31, 485n25

The Great Persuasion: Reinventing Free Markets since the Great Depression (Burgin, 2012), 6

Green, David, 69

The Grid: Biography of an American Technology (Cohn, 2017), 272

Grocery Manufacturers’ Association, 202

gross domestic product (gdp): export portion of, 175; fiscal debt and, 180

Group of Seven (G7), 141

G.S. Warburg & Co., 68, 77

Guaranteed Minimum Family Income (gmfi): benefits of, 105; criticisms of, 107; death of, 304; debates over impact of, 107; eligibility for, 103, 106, 237, 330; proposal of, 67, 100, 206; purpose of, 114; tax rebates through, 102; technical difficulties, 105

Gustafson, Barry, 148, 155, 396, 497n3, 498n5

H

Hackett-Fischer, David: Fairness and Freedom: A History of Two Open Societies: New Zealand and the United States (2012), 15, 19

Hallensteins, 202

Hamilton City Council, 247

Hanmer Forest, 293

Harbour Board, 339

Harbridge, Raymond, 355

Harris, Peter, 342, 346, 350–1

Harvard University, 69, 297

Haslemore, J.W., 78

Hawke, Bob, 43, 52, 53, 160, 193, 205, 509n137

Hay Associates, 414

Hayek, Friedrich, 6

Health and Disabilities Services Act (1993), 421

Health and Treasury Task Force to Examine Hospital and Related Services, 69

health benefits, 417, 419, 420

health care system: effectiveness of, 417; expenditures, 418; government task force on, 419–21; international consultations on, 69; management of, 418–19; primary care, 418; report on, 108; restructuring of, 393, 419, 422, 430; significance of local hospitals in, 417–18; tension between state and regional, 393

Health Computing Service, 244

Health Department, 398, 419

Heffernan, Shelagh, 73

Helco, Hugo, 9

Helliwell, John, 72

Helm, Dieter, 73, 77

Henderson, John, 105, 107

Hensley, Gerald, 117, 157

Hercus, Ann: on Douglas’s “package,” 45; idea of single benefit, 304–5; minister of women’s affairs portfolio, 227, 316; recommendations for consultants, 74; responsibilities, 118; social welfare policy, 95, 324, 326, 551n194; wage settlement debate and, 30

Heylen, J.P., 96

Hicks, Colin, 87, 405, 406, 407

High Salaries Commission, 358, 397, 398, 567n151

Hince, Kevin, 368

Hitchcock Corp., 82

Hokitika Airport, 248

Holland, Harry, 38

Holland, Sidney, 139

Holmes, Austin, 72

Holmes, Frank, 53, 74, 182, 189, 323, 499n17

Holyoake, Keith, 139, 574n21

Homosexual Reform Act (1986), 5

Hong Kong: contacts with New Zealand government, 69, 70

Hong Kong Telecom, 280

Horn, Jack Raymond Poppleton, 308–9, 310

Hospital Boards Association, 420

hospitals: boards, 418, 420; consultants on reform of, 78; Crown Health Enterprises and, 421; efficiency of, 419; market approach to, 420, 421; place in health care system, 417–18; restructuring of, 418, 419

Hotel and Hospital Workers Union, 63

Hotel Workers’ Union, 205

Household Labour Force Survey, 179

Housing Corporation mortgages, 246–7

Housing Department, 221

Hunn, Don, 68, 82, 91, 227, 403, 407, 413, 486n33

Hunn, Jannie, 486n33

hunting permits, 537n15

hyperinflation, 136–7

ibm personal computer, 236–7

Ichthus, 246

ihc, 247

immigration policy, 329

income maintenance, 13, 14

income tax, 18, 192, 193–4, 433

Incorporated Societies Act (1908), 369

Incredible Luck (Brash 2014), 187

Indecent Publications Tribunal, 62

indigenous forests, 284, 291

indirect tax, 187, 188, 191, 192, 199, 500n26

Industrial Conciliation and Arbitration Act (1894), 336

Industrial Relations Act (1973), 222

Industrial Relations Act (1987), 290

Industrial Union of Workers, 295

inflation: cross-country variations, 136, 434; decline of, 168, 176, 485n25; domestic expectations of, 167; fiscal boosts and, 170; government measures against, 165, 170, 176, 177; impact on nominal income, 192; impact on producers, 164; as monetary phenomenon, 173; rise of, 383, 438n31; scholarship on, 489n72; social impact of, 150, 164; sources of chronic, 165; targets, 184, 185

Infratil nz Ltd consortium, 248

Inland Revenue Department: cgt and, 212; control over unemployment benefits, 332; inspectors from overseas, 68; responsibilities of, 194, 200, 202; staff, 194; tax reform and, 189, 191, 204, 208

Institute of Economic Affairs, 69

institutional capture, 425

Internal Affairs Department, 416, 422, 423, 424

Internal Economics II unit, 84

international agencies, 477n3

International Labour Organization, 368

International Monetary Fund (imf): consultations with, 67, 69, 89, 91, 140, 141, 373, 375, 377, 378, 379, 380; establishment of, 140; information exchange, 70; as liquidity agency, 151; loans provided by, 151, 156, 191; review of New Zealand’s economy, 10, 70, 117, 119, 155, 190; SOE sale and, 256; study of state sector, 394; tax reform and, 204; on trade barriers, 371

international monetary system, 136

International Privatization Congress, 250, 256

International Service Systems, 82

interventionist practices, 10, 15, 71–2, 73, 171

Iti, Tama, 360

ITT Rayonier, 246

J

James, Colin, 38, 44, 45, 98

James, Harold, 146

Japan: contacts with New Zealand government, 70; finance system, 19

Japan Airlines, 260

Jarden Hancock, 75, 77, 78

Jarden Morgan Ltd, 77, 79

Jarman, Ann, 379

Jeffries, Bill, 111, 205, 259

Jeffries, K.I., 312

J.G. Groome and Associates, 77

jnl Searle, 82

Johnson, Harry, 72

Jones, Bob, 116

Jones, Daniel Stedman, 6

Jones, Gordon, 70

Jorden Sand Smythe, 79

Juken Nissho Ltd, 245, 246

K

Kaingaroa forest, 288, 295, 296, 297

Kawerau strike, 344, 359–61, 363

Keating, Paul, 160

Kelly, Pat, 347, 353

Kelsey, Jane, 438n20, 439n39; The New Zealand Experiment: A World Model for Structural Adjustment? (1995), 16, 18–19

Kene, Peter, 72

Kerr, Roger, 85, 172, 342

Key, John, 431

Keynes, John Maynard: The General Theory of Employment, Interest, and Money (1936), 490n97

Keynesianism, 6, 170

Kidd, Doug, 387

Kindleberger, Charles, 141, 158

King, Mervyn, 70

Kinleith Mill strike, 359, 360

Kinta Kellas plc, 248

Kirk, Alf, 52, 105, 337, 345

Kirk, Norman, 321, 518n68

Kiwibank, 431–2

Kiwifruit Authority, 193

KiwiRail, 262

Klein, Lawrence, 72

Kleinwort Benson, uk, 68, 77

Knight, Lindsay, 168, 174

Knox, Jim, 341, 359–60, 361, 568n174

Kokusaku, Oji, 296

Krippner, Greta R., 14; Capitalizing on Crisis: The Political Origins of the Rise of Finance (2011), 6

Kruger, Anne, 72

Krugman, Paul, 154

L

Labelle, Huguette, 68

Labour and the Alliance Party coalition, 323

Labour Department, 311, 313, 340, 353, 362

Labour Electorate Committees, 61

Labour Party: 1984 elections, 34, 47, 49, 52, 57; 1987

elections, 98; appeal to voters, 123–4; caricatures of, 32; communication strategy, 121; computer services budget, 26; conferences, 8, 29, 61, 110, 341, 364; constitution of, 63; criticism of reforms of, 186; donations to, 116, 438n22; economic policies, 49, 53; electoral base of, 14, 62–3; grassroots politics and, 34; inner conflicts, 26, 28, 36, 51, 61–2, 90; left elements, 34; membership system, 26, 120–1; outreach campaigns, 31; political task, 46; professional assistants, 32; regional factions, 35; Research Unit, 42; secret ballot on leadership of, xxvi; shadow Cabinet, 36; social welfare policy, 333; support of Closer Economic Relations Agreement, 36; television campaigns, 32; transformation of, 25–6; unions and, 8, 61, 62–3

Labour Party caucus: critics of restructuring in, 4–5; Economic Committee, 44, 49; lack of discipline, 37; membership, 27, 60; polarisation of, 36, 101; support of reform, 59; Wednesday Club, 47

Labour Party Council, 28, 34, 59, 62, 155, 251

Labour Policy Committee, 50

labour relations: appeals to equality and unity, 348–51; arbitrations, 338, 340, 343, 344, 346, 347; arrangements for specific groups, 366; award system, 347; comparative perspective, 340, 348; craft-based, 360; disputes on, 337, 344, 351; employer federations and, 342; evolution of, 337–8; inflexibility of, 344–8; labour market operations and, 338–40; legislation on, 338; liberalisation of, 403; local conditions, 344; public consultations on, 362; reform of, 55, 352–3; roots of New Zealand system of, 335–6; second-tier agreements, 339, 347, 348, 355–6; in the state and private sectors, merger of, 413; tripartite meetings, 338, 340, 341, 343, 348, 361, 367; unions and, 336–7, 338, 341–2, 343; white paper on, 364

Labour Relations Act (1987): application to public sector, 402, 406, 410, 413; debates over, 362, 364–7; draft of, 364; employers and, 365, 367, 368; negotiation of, 343–4; provision on labour relations arrangements, 366–7; unions and, 341, 343, 370

Labour Women’s Council, 116

Labour Youth Council, 50, 192

Laffer, Arthur, 103

Laidler, David, 72, 81, 182

Laking, Rob, 302

land: demand for, 384; prices, 379, 380; speculation, 379; taxation of sales, 207

Land Corporation (Landcorp), 223, 235, 237, 238, 244, 261, 414

Land Development Encouragement Loans, 382

Lands and Surveys Department, 381

Lange, David: briefings of, 96, 170; Cabinet of, 28, 58–9, 65–6, 114; Cabinet shuffles, 422; caricature of, 85; currency crisis and, 157, 158; on division in Labour Party, 36; on Douglas’s “package,” 50, 90, 98, 103, 106, 108; economic policy, 10, 27, 53–4, 90, 103, 108, 110, 174, 300; elections, 52, 99; farmers revolt and, 387, 389; at gathering of agricultural exporters, 113; GST debate and, 204; idea of economic summit, 509n137; interactions with media, 122, 124; at Labour conference in Dunedin, 110; Labour Party leadership, 14, 41, 42, 58, 60–1; labour relations policy and, 344; local government reform and, 424; memoirs of, 20; on Moore’s pamphlet, 50–1; New Zealand Rural Support Trust and, 389; personality of, 20–1, 41, 43, 44, 90; photograph of, xxvii; Prebble and, 59, 90, 112; at presentation of ibm personal computer, 236–7; public opinion polls, 96, 113, 115; relationships between Douglas and, 40, 43, 45, 50, 55, 71, 94, 96, 99, 100, 101–2, 106, 109, 124, 206, 242, 375, 432, 472n146; relations with caucus, 101, 106, 115; resignation of, xxvi, 115; restructuring and, 90, 92; selection of Opposition spokespersons, 86; social welfare policy, 99, 100; soe sales and, 257, 260; speeches of, 123; State Sector Bill (1987) debate, 409; state-sector policy, 405; support among the ministers, 112; tax system reform, 95–6, 108–9, 210; televised address, 31, 55; tenure as prime minister, 29; Tizard and, 220; unions and, 325, 361; wage settlement negotiations and, 358

Lange, Naomi, 41

Lange Government. See Fourth Labour Government

Latin Monetary Union, 134

Lattimore, Ralph, 378, 573n8

Laugesen, Miriam J., 418

Law Commission, 100

Lazard Brothers, 68

League of Nations, 136

Ledingham, Peter, 166, 180–1

Lee, Jack, 275

Legislative Advisory Council, 416

Liable Parent Contribution scheme, 310

Lion Breweries, 357

Little, Arthur B., 79

Livestock Incentive scheme, 382

local government: accountability of, 423; holdings in enterprises, 424; legislation on, 422, 424; reform of, 422, 423–4; single-purpose authorities, 422, 423

Local Government Amendment Act (No. 2) (1989), 424

Local Government Commission, 422, 424

logging, 286–7, 290, 296

Logica, Australia, 82

Lojkine, Susan, 265

Long-Term Wage Reform Committee, 338, 359

Lord, Sharon, 74

Luft, Harold, 69

M

Magneton Holdings Ltd, 244

Maiotapu, nz, 288

make-work projects, 325–6

Mamaku, nz, 288

management theories, 425

Manufacturers’ Federation: interventionist position of, 171–2, 175; number of employers represented by, 337; position on GST, 196; protectionism of, 150, 253; reform of labour relations and, 160; tax reform and, 189–90

manufacturing sector: deregulation of, 377–8

Māori: assemblies of, 316; lack of consultation with, 288; land claims, 33, 238, 283, 289, 407; life expectancy, 321; major employer of, 222; ministerial posts, 285; recognition of rights of, 5, 15–16; restructuring measures and, 16; sale of state forest and, 287–8; subsidised farms of, 381–2; Treaty of Waitangi and, 64

Māori Affairs Department (Manatu Māori), 330, 333

Māori Council, 288, 289, 291

Māori Development Corporation, 248

Marginal Lands Board, 381

Marshall, Russell, 20, 36–7, 65, 109

Martin, Bill, 367

maternity benefits, 417

Maui Gas, 245

McAloon, Jim, 59, 374, 498n6

McCaw, Malcolm, 189

McCaw task force report, 190, 194, 196, 210

McClure, Margaret, 306, 322, 333

McDowell, David, 292

McInerney, Frederick, 221

McKenna, Christopher D., 235; The World’s Newest Profession: Management Consulting in the Twentieth Century (2006), 71

McKinlay, Peter, 376, 383, 385

McKinnon, Don, 251

McKinnon, Malcolm, 9, 20, 75, 84

McLay, Jim, 251

McLean, Ian, 251, 372, 373

McLeay, Elizabeth, 31

McMullan, Bob, 47

McNerney, Walter, 69

McQuaig, Linda, 186

meat industry: challenges of, 3; exports of, 144, 371–2; plant improvements, 345; price-stabilisation schemes, 372–3; promotion of bulk production, 372; subsidies for, 6, 209

Meat Retailers’ Federation, 202

Meltzer, Alan, 73

members of Parliament (mps): responsibilities of, 31; voting obligations, 60

Mercury Energy, 281

Meridian Energy, 248, 271, 281

Michie, Ranald, 141

Microwave Communications Incorporated (mci), 275–6

Mighty River Power, 248, 271, 272

military expenditures, 131

Mill, John Stuart, 132; Principles of Political Economy with Some Application to Social Philosophy (1865), 131

Millen, Patrick, 63–4

Minginui, nz, 288

Ministerial Committee on Land Allocation, 291

Ministry of Agriculture and Fisheries (maf), 372, 377, 384, 385, 386, 389, 390

Ministry of Commerce, 80, 263, 279

Ministry of Forestry, 286, 287

Ministry of Māori Affairs, 285

Ministry of Women’s Affairs, 316, 317

mixed member proportional (mmp) voting system, 421, 426

monetary policy: attacks on, 186; balance of payments, 144; emergence of, 128–9; goal of in oecd countries 185; Holmes’s advice for, 72; inflation and, 173; interventionist positions on, 171; loss of state control over, 173; patterns of, 175; reforms of, 70–1, 128, 430; study of, 127; taxation and, 168; Think Big slogan, 145; time-inconsistency problem of, 132, 133

Mont Pelerin Society, 29, 439n46

Moore, Mike: on abuse of unemployment benefits, 332; Cabinet Policy Committee and, 64, 65; on Cabinet solidarity, 48–9; on Closer Economic Relations Agreement, 36; Douglas and, 20; economic agenda, 27; electoral success, 47; experience of, 46; Heylen and, 96; idea of compact with the unions, 110–11; on Labour Party, 42; leadership bid, 89, 471n143; memorandum on political realism, 51; ministerial portfolios, 450n179; overseas trips, 47; pamphlet by, 50; on patronage politics, 48; on power bills, 265; as prime minister, 116, 455n52; self-promotion of, 47; self-published books, 441n20; support of Lange, 28; support of Muldoon’s campaign, 36

The Moore Report (newsletter), 450n179

Moriarty, Michael J., 118

Mortgage Corporation, 246

mortgage rates, 207

mortgagors, 244

Motor Trade Association Investments Ltd, 248

Moyle, Colin, 28, 65, 155, 386, 388

Muldoon, Robert: 1983 budget, 45; biography of, 497n3; Cabinet meeting, 156; call for election, 49, 155–6; clashes with Treasury and Reserve Bank, 149; consultations with finance companies, 159; corporatist practices, 425; currency crisis and, 157–8; disagreements with imf, 151; dismissal of, 59; economic policy, 15, 91, 158, 377, 435; labour relation policy, 339, 352; leadership style, 31, 33, 44, 59; monetary and fiscal policy, 142, 143, 145, 147–9, 150, 151–2, 153, 154, 155, 159, 373; New Zealand Steel and, 243; personality of, 372; Prebble and, 58; pressure on the National Party, 158; reform initiatives, 46; refusal to abandon subsides, 374; rejection of advice from economists, 498n5; relations with senior officials, 86; repeal of Third Labour’s contributory plan, 321; on smp scheme, 374; state-sector policy, 396; study of public-sector redundancies, 216; supporters of, 36; tax policy, 188, 189, 190–1, 194, 197; trade policy, 175, 574n21; travels of, 151–2; trucking industry deregulation, 262; wage freeze, 150, 164, 352, 434

Mulroney, Brian, 219

Mundell, Robert A., 483n145

Murupara, nz, 288

Myers, Douglas, 351

N

Nash, Walter, 139, 321

National and New Zealand First Party coalition, 323, 331

National Australia Bank, 247

National Center for Policy Analysis, 69

National Council of Women, 180, 184

National Economic Research Associates, 77

National Film Unit, 244

National Kidney Foundation, 202

National Party: 1987 elections, 67; 1990 elections, 293; coalition government, 271–2; economic policy, 27, 39, 372, 430; labour relations policy, 55, 336–7, 338, 352, 367–8, 396, 434; modernisation of, 32; monetary policy, 148, 150, 270; Muldoon’s pressure on, 158; network industry regulations, 254; New Zealand First and, 253, 254; opposition to Cullen’s bill, 332; privatisation and, 251, 257; reform program, 69–70; relations between the ecnz and, 270, 271–2; social welfare policy, 302, 332, 333; taxation policy, 511n160; trade policy, 36; voluntary unionism and, 339

National Provident Fund, 244

national superannuation: advocates of, 323; benefits of, 321–2; criticism of, 323; idea of levy on, 254, 329; introduction of, 206; public approval of, 324; spending on, 324, 329; suspension of, 324; women recipients, 329

National Westminster Bank, 70

Neary, Tony, 197, 350, 357

Neilson, Peter, 30, 42, 178, 184, 205, 342

neoliberal ideas, 5–6

Netway Service, 278

network industries, 252–4, 265, 280–1

new public management theory, 425

New Start Mobility Grant, 389

New Zealand: anti-Americanism, 345; vs Australia, 53, 54; Cabinet power in, 31; civil society, 34; comparison to other OECD countries, 8, 94; credit rating, 154; GDP, 433, 434, 435; happiness index, 8; inequality, 214; international ties, 11–12; as member of liberal club, 334; national pride, 40; parliamentary system, 31, 61, 93; political opportunism, 10; Security Treaty with the United States, 36, 117

New Zealand Business Roundtable, 13, 113, 171, 172, 253, 342, 351, 368

New Zealand Catchment Authorities’ Association, 293

New Zealand Committee on Women, 302

New Zealand Council of Trade Unions, 342

New Zealand Dairy Board, 171

New Zealand dollar. See currency

New Zealand economy: adoption of dollar, 134; budget deficits, 310; capital to labour ratio, 379; central bank, 138; debt to GDP ratio, 255; export and import, 12, 335, 371–2; financial system, 486n33; fiscal debt, 132, 190, 250; global crises and, 3–4, 14–15; historical legacy of, 173; imbalances in, 372; imf’s review of, 190; inflation, 8, 13, 137, 149, 150, 438n31, 485n25; integration into world economy, 240–1, 297; interest rate, 132; log supplies, 295; misplaced investment, 379–80; monetary system, 3, 4, 9, 40, 134, 145–6, 154, 185; overdraft restriction, 137; productivity, 250, 372, 434–5; ranking of, 372, 374; reforms of, 8; sale of reserves, 162; slowdown of, 14, 171; state control of, 10, 12, 173, 477n3

The New Zealand Experiment: A World Model for Structural Adjustment? (Kelsey, 1995), 16, 18–19

New Zealand First Party, 253, 254, 272, 323, 421

New Zealand Forest Products, 284, 287, 502n53

New Zealand Forest Service: consultations for, 72, 77–8; corporatisation of, 222–3; employment conditions, 400; noncommercial assets, 232; removal of commercial branch from, 282; strike, 401; subsidies to, 351

New Zealand Herald, 115, 155, 206, 393

New Zealand Institute of Economic Research, 71, 78, 374

New Zealand Institute of Foresters, 286, 295

New Zealand Institute of Policy Studies, 255

New Zealand Liquid Fuel Investment Ltd, 245

New Zealand Meat, Wool, and Dairy Boards, 373

New Zealand Medical Association, 418

New Zealand Motor Caravan Association, 293

New Zealand Planning Council, 9, 53, 189, 211, 342

New Zealand Radio Network Ltd, 248

New Zealand Rail Limited (nzrl): book value of, 242; establishment of, 237; incorporation of, 262; profit of, 262; sale of, 242, 247, 250, 262; severance cost at, 238

New Zealand railway conference, 68–9

New Zealand Railway Corporation (nzrc), 59, 78, 217, 223, 237, 261–2, 430–1

New Zealand Rural Support Trust, 389

New Zealand share brokers, 249

New Zealand Shipping Company, 111

New Zealand Steel, 78, 243, 244, 250

New Zealand Stock Exchange, 280, 430

New Zealand Superannuation Fund, 297, 431

New Zealand Union of Engineers, 355–6, 365–6

New Zealand Working Women’s Charter, 316–17

Nicholl, Peter, 168, 181

Niculescu, Barbu, 499n17

Nippon New Zealand Trading Limited, 294, 295

Nissho Iwai Corporation, 296

Nixon, Richard, 3, 141

Nomeco, 247

non-profit organisations, 199–200

Northern Federation of Pulp and Paper Workers, 359

Northern Ireland Electric, 270

Northwestern University, 69

Norwich Union, 245

Nurses Association, 420

O

Oamaru Airport, 247

O’Brien, Larry: No Final Victories (1975), 117

O’Connor Grieve, nz, 78

Official Information Act (1982), 406

oil industry price shocks, 3

Old-Age Pensions Act (1898), 305

Opening the Books: Key Extracts from the Treasury and Reserve Bank Briefing Documents Delivered to the New Government (New Zealand, 1984), 206

Organisation for Economic Co-operation and Development (oecd) countries: abandonment of Bretton Woods system in, 3; economic restructuring, 32; fiscal policies, 393; health care systems, 417; income maintenance, 14; inequality, 213–14; inflation, 8, 164, 434, 438n31; information exchange, 70; labour relations, 336, 337, 338, 340, 348; public service and state-sector expenditures, 395; regulation of network industries, 252; scrutiny of policies of, 141; support of New Zealand reforms, 380; taxation, 189, 190, 192, 212, 433; unemployment rates, 433; welfare system, 302

Organization of the Petroleum Exporting Countries (opec), 146

Overseas Telecommunications Commission, 278

Oxford Associates, 77

Oxley, David, 488n61

P

Pacific Partnership, 78

Pacific Rim, 295

Pākehā (white New Zealanders): life expectancy, 321

Palmer, Geoffrey: Cabinet Policy Committee and, 65, 66; centrist views of, 30; Douglas and, 20, 35, 62, 186; draft party manifesto negotiated by, 223; Easton and, 71; education of, 69; farmers revolt and, 388; floating currency debates, 162; on impact of national awards system, 559n44; on implementation of corporatisation, 505n84; interest in economic reforms, 27; on Labour Party politics, 35; labour relations policy, 342, 407; leadership bid, 115–16, 471n143; legislative work, 60, 64, 226, 229; local government reform and, 423; loss of caucus support, 116; memoirs of, 20; on merging tax and benefit systems, 100; personality of, 30; political career, 27, 35; praise of Bassett, 586n2; on public service, 91; reputation of, 123; on Shipping Corporation of New Zealand, 518n68; soe sales and, 255, 257, 260; state forest sale and, 288; statement on economic policies discussion, 50; State Sector Bill (1987) debates, 408, 409, 569n185; tax policy, 111, 191, 213; Telecom sale and, 276–7

Palmer, Peter, 351

Palmerston North Airport Ltd, 248

Parliament of New Zealand, 59, 93. See also Beehive (Parliament, executive wing); members of Parliament (mps)

Parliament’s Public Expenditures Committee, 158, 160

partisan politics, 26

pastoral agriculture, 372, 373, 375, 382, 385, 390

Pauly, Louis, 141

Paxus Information Services, 244

“pay as you earn” (paye), 188

Peat Marwick, 78, 235

Peddie, R.A., 77

Penn State University, 69

Permanent Forests, 293

Perpetual Forests, 283, 284

Peters, Winston, 253

Petric, Murray, 73

Petrocorp, 68, 217, 244, 247, 250, 254, 259

pharmacy benefits, 417

Philpott, Bryan, 75, 171, 379, 457n84

Pinochet, Augusto, 7

Planning Council, 212, 351

Policies and Priorities Committee, 64

political leadership: types of, 497n3

politics: digital revolution and, 26

Pomeranz, Kenneth, 16

Pope, Margaret, 20, 98

Port Companies Act (1988), 424

ports, 78, 253

Ports of Auckland Limited, 253, 424

Post Office: closure of offices, 122; corporatisation of, 221, 222, 293; employees, 239; expansion of services, 239; monopoly in telecommunication network, 254, 273, 274; SOE structure, 431; tax of telephone rates, 230; urban clients, 239; wage settlements, 398, 399

Post Office Department, 39

Post Office Saving Bank: computerised records, 237; consultants of, 78; corporatisation of, 223; organisational culture, 238; sale of, 244, 261; uneconomical outlets, 238; voluntary redundancy payments, 238

pound sterling club, 134

poverty-trap villages, 92

Poyry, Jaakko, 78

Prasad, Monica, 6, 32

Prebble, Richard: Booz Allen and, 68–9; on Cabinet committees, 58; Cabinet Policy Committee meetings and, 65; on Closer Economic Relations Agreement, 36; on commercialisation of coal and electricity, 220; debating and explanatory skills of, 58, 123; dismissal from Cabinet, 59, 121; Douglas and, 30, 40, 110, 111–12; economic agenda, 27, 86, 89, 90; on Gourley, 46; on government interventions, 45; labour relations policy and, 353, 407; on Lange, 41, 90, 101, 112; local electorate meeting, 455n37; memoirs of, 20; minister of soe portfolio, 116, 236; on Moore, 47; personality of, 27, 113; political career of, 90, 112; public-sector policy, 405; soe sales and, 250, 251, 255, 259, 260, 266, 277–8, 282; supporters of, 63; talk-radio interview, 118; Women’s Policy Council’s opposition to, 472n152; on work of ministers, 86

price-stabilisation schemes, 373

Price Waterhouse, 76, 77, 78, 79, 82, 219

Prime Minister’s Office, 81–3

Princeton University, 191

Printing Office, 78

private forestry corporations, 287

privatisation of state assets: in Canada and the United States, 219; consultations for, 75, 77–9; corporate conduct and, 253, 256; cpc approval of, 254; criticism of, 242, 250–1, 252, 255–6; Douglas-Lange feud and, 242, 257–8, 259; economic nationalism and, 251–2; impact on market capitalisation, 280–1; international practice of, 250, 256; launch of process of, 215; objectives of, 250, 251–2; on-selling practice, 259, 260, 278; politics and, 251, 254; scale of, 429; of state monopolies, 429; tendering process, 259–60; transition from corporatisation to, 234

Privatisation Services Department, 76

Probine, Mervyn, 53, 215, 225, 226, 399

production subsidies, 373–5, 376, 378, 379, 388

Productivity Council Bill (1989), 111

Professional Services Ltd, 246

Project Employment Programme, 325

proportional income tax, 192

prudentialists, 424, 432

public choice theory, 425

Public Finance Act (1989), 67, 167, 393, 415–16, 426

Public Finance Act (1990), 88, 117

Public Health Commission, 421

publicly funded pension, 305

public opinion polls, 96, 98, 113, 115, 120

public service: career opportunities, 407; employment in, 403; international contacts, 12; militancy and protest in, 411–12; productivity, 216; reform of, 17–18, 19–20; restructuring of, 68, 392–3, 407; severance package in, 403; vs state sector, 392; taxation reform and, 187–8; Treasury guidance for, 396; wage adjustments, 395–6, 397–8, 405–6

Public Service Administration, 194–5

Public Service Association (psa): amalgamation with local government unions, 413; labour relations reform and, 91, 231, 362, 400, 405; protest against State Sector Bill (1987), 410, 413; registration of, 397; tax reform and, 202–3

public share float, 248, 249

Public Trust, 409

Public Works Department, 223, 238–9

pulp and paper plants, 359

Putnam, Hayes and Bartlett, 77

Q

Qantas Airways, 244, 259, 260, 431

Quiring, Don, 68

R

radiata pine (Pinus radiata), 283, 291, 294

Radio Company, 248

Railway Department, 217, 227

Rank Group, 244

Rayner, Anthony C., 378

Read, Peter, 71

Reagan, Ronald, 7

Reaganism, 215, 241

Reform Party government, 305

Regional Health Authorities, 420

Registrar of Unions, 338

regressive taxes, 196

Reid, Callum, 192

Reserve Bank of Australia, 72

Reserve Bank of New Zealand: commitment to accountability, 185; consultants of, 69, 74, 76, 78, 81; contacts with Reserve Bank of Australia, 72; control over credit expansion, 147; creation of, 138; criticism of government interventions, 139, 163; democratic supervision, 185; disinflation campaign, 9; emergency meeting, 157; increase of autonomy, 178, 179, 180; independent review of, 185; influence over liquidity of commercial banks, 168, 173, 176, 371; information exchange, 70; international reputation, 180; legislation on, 73, 138; lending practices, 69, 156, 168; mandate of, 180; monetary and fiscal policy, 9, 131, 135, 141, 153–4, 156, 161, 169, 173, 175–7, 183, 184, 393; overdraughts, 138; price-stabilisation schemes, 373; public accounts of, 138; purchase of government securities, 149, 165; reform of, 67, 393, 404; relations between Treasury and, 169, 174, 183–4, 416; responsibilities of, 138, 139, 184–5; on role of market in economic activity, 127–8; social policy requirement, 143; tax reform and, 191; transfer of state’s retail-banking activities from, 185; wage settlements and, 176

Reserve Bank of New Zealand Act (1964), 170, 172

Reserve Bank of New Zealand Act (1989), 133, 184

Reserve Bank of New Zealand Amendment Act (1986), 178

restructuring of New Zealand economy: critics of, 4, 5, 7, 10, 91–2, 426–7; cross-country comparison, 7, 11, 32–3, 427, 429; departmental compliance with, 87–9; goals of, 89; historical significance of, 429–30; impact on productivity, 434, 435; key ministers involved in, 88–90; origin of, 4, 573n8; outcomes of, 5, 91–2, 432–5; public servants role in, 86–8; scholarship on, 6, 16–17, 18–19, 71; Treasury’s role in, 83–5, 89; unions and, 87, 91

“Restructuring the New Zealand Economy” (paper), 37

retailers’ debate on gst, 201–2, 209

Retailers’ Federation, 160, 189

retirement benefits, 320–1, 322–3

Rich, Georg, 74, 81, 182, 183

Richardson, Ivor, 103

Richardson, Ruth, 62, 99, 107, 251, 317–18, 426, 457n84, 467n62

Richwhite, David, 279

Ridley, Jack, 34

Rimbunan Hijau, 296

Roberts, John, 65

Robinson, Joan, 72

Robinson, Sven, 186

Roche, Michael, 541n80

Rodger, Stan: Buff Paper of, 404–5, 409; Cabinet Policy Committee meetings and, 65; on Closer Economic Relations Agreement, 36; consultations over local government, 424; correspondence of, 443n50; criticism of, 424; debates over Douglas’s “package,” 30, 45, 52, 98, 110; delay as a tactic of, 118; implementation of corporatisation and, 505n84; introduction of State Sector Bill (1987), 119, 407–8, 409; Labour Relations Bill (1985) negotiations, 364, 365–6; labour-relations policy, 55, 119, 343, 345, 346, 354, 362, 363–4, 368, 407, 557n23, 587n10; minister of labour portfolio, 10, 409; minister of soe portfolio, 219; restructuring and, 10, 88–9; State Services Commission and, 91, 439n38; on unions, 338, 351, 360; wage settlement negotiations and, 358, 399

Rogernomics, 241

Rosenberg, Wolfgang, 42

Rossport Investments, 244

Rothschild and Sons, 68, 75

Rotoehu, nz, 288

Rotorua Orienteering Club, 293

Rotorua Regional Airport Ltd, 248

Rowe, Jim, 364

Rowling, Wallace (Bill): 1981 election campaign, 35, 39; concern with party discipline, 446n109; Douglas’s reform programme and, 38, 40; economic policy, 36; foreign policy, 39; removal from leadership, 27, 41

Royal Commission of Inquiry into Social Security, 305, 310–11

Royal Commission on Social Policy, 33, 97, 103, 106, 108, 212, 302, 317, 328, 418

Royal Commission on the Electoral System, 426

Royal Forest and Bird Protection Society, 293

Royal New Zealand Federation for the Blind, 202

Rural Banking and Finance Corporation (rbfc): commercialisation of, 384; consultants of, 78–9; debt-discounting scheme, 383, 385–6, 391; domination in farm-credit industry, 382; formation of, 381; lending activities, 376, 381, 382–4, 391; management of, 88; publicity campaign, 386; sale of, 75, 244, 261, 376; state intervention in, 381, 389; Treasury evaluation of, 383–4

Rural Communities Trust, 388

rural land speculators, 174

rural producers, 88, 164

Russell, Spencer, 156, 157, 158, 169, 182

S

St John, Susan, 105–6, 107

Sale of State-Owned Forests in New Zealand: Prospectus (New Zealand Forestry Corporation 1989), 290

Salomon Brothers, 244, 245, 249, 260

Sampson, Kevin, 419–20

Sargent, Thomas J., 136–7, 167

Saunier, Pierre-Yves, 11

Savage, John, 560n61

Save the Children Fund, 202

sawmills operations, 284, 286, 290, 294

Schiltknecht, Kurt, 81, 182

Schroders, Australia, 78

Schumpeter, Joseph, 86, 90

Schwartz, Anna, 81, 182

Scott, Graham: American academic connections, 69; on Australian incomes policy, 52; on economic reforms, 17, 72, 379; on fiscal policy, 104, 148, 414; Fourth Labour Government and, 113; meeting with Russell, 182; monetary policy and, 158, 167, 177–8, 182, 183; on tax reform, 91, 120; on welfare expenditures, 84

Scott, Janet, 369

Scott, Tom, 90, 367

Seamen’s Union, 367

Second Labour Government, 139

Second National Government, 146, 188, 307, 383

second-tier agreements, 339, 347, 348, 355–6

Second World War: economy of, 149–50

Security Pacific, nz, 77

Selwyn Cushing, 80

Shearson Lehman Brothers, 77

Shields, Margaret, 109, 209, 317

Shipley, Jenny, 332

Shipping Corporation of New Zealand, 244, 261, 414, 518n68

short-term interventions, 170, 172, 175, 180

Sinclair, Keith, 139, 154

single benefit: idea of, 304

Singleton, John, 141, 172

Sixth Labour Government, 432

Slaughter & May, 68

Smith, Adam, 23, 125, 299

Smith, Jackson, 351

Smith, Richard G., 168

Smyth, David, 418, 419

socialist feminists, 61, 62

Socialist Unity Party, 34

social security, 305–6, 310–11, 321

Social Security Act (1938), 305, 306, 327, 417, 418

social welfare benefits: abuses of, 87, 311, 312, 313–15, 326–7, 374, 548n121; calculation of, 331–2; collected overseas, 332; consultants on, 72; criticism of, 302, 303–4, 351; dependants on, 351; eligibility for, 543n43; emergency, 307; expansion of, 417; expenditures on, 108, 303, 333, 374, 433; gender and, 306–7, 309–10, 315, 319; government policies on, 13, 95, 349, 550n181; idea of single benefit, 304–5; implementation of, 205–6; investigation of older files, 327–8; numbers of applicants for, 4; progressivism of, 301; public attitudes to, 302, 304; reform of, 87, 301, 302, 304, 311, 331; screening of applicants, 328; for single parents, 307; universal benefit, 305; wage award system and, 348–9. See also Domestic Purposes Benefit (dpb)

Social Welfare Department: budget of, 323; casework, 87, 305, 318; criticism of other departments, 332; debate on gmfi, 105; farm crisis and, 389; fiscal tightening of, 324; institutional inertia in, 312; record management, 332; resource constraint, 84, 313; responsibility with regard to Māori, 330; reward for budget cuts, 109; staff of, 312; study of solo parents, 310; support of interventionism in, 73; targeting schemes, 325; task forces, 103, 107, 108

Society for Worldwide Interbank Financial Telecommunication (swift), 440n3

Society of Accountants, 386

Society of Physiotherapists, 202

Solid Energy, 273, 431

Southdown Freezing Works, 144

Southern Pacific Hotel Corp. nz Ltd, 245

South Island’s Stock and Station Agents Association, 377

South Pacific Merchant Finance, Australia, 78

Southpac Merchant Bank, 82, 173

Spark (Telecom), 281

Special Ministerial Coordinating Committee (mgg), 228, 229

Springboks rugby team, 387

Standard & Poor, 154

Starke, Peter, 556n247

State Advances Corporation, 381

State Advances Office, 381

state debt, 190, 433

State Enterprises Restructuring Bill (1987), 263

state forest plantations: as artefacts of selective memories, 294; Asian visitors to, 295; assessments of, 283; debates on commercialisation of, 286–7; expansion of, 283–4; job opportunities at, 288; political tensions over, 284–5; second maturation stage, 285; timber production from, 283

state forest sale: advocates of, 293; announcement of, 287, 290; debate on, 282–3, 289–90; fiscal benefits from, 296; foreign companies and, 296; lawsuits, 296; management of, 290–1, 292; opposition to, 293, 294, 295; tendering, 294

State Forest Service, 283, 284, 285, 286, 287, 288, 290, 296

State Insurance Office, 242, 243, 245, 246, 249, 409

state-owned enterprises (soes): access-to-information requirements, 228; accountability of, 225; autonomy of, 217, 223, 224; ban on borrowing foreign exchange, 156; Cabinet meeting on, 228; capital structure, 231; consultations on, 72, 74, 78, 79, 80, 258; corporatisation of, 431; cost cutting at, 237; creation of, 30, 180–1, 218, 236, 255; employment at, 92, 311, 401, 403; Establishment Boards of, 75, 234–5, 250, 401; fiscal benefits from, 216, 241; government oversight of, 122–3, 252–4, 263; labour relations regime for, 401; legislation on, 217, 223, 227, 229, 250, 401–2; licensing agreements, 218; Māori issues, 288, 289; models of, 219, 224; monitoring of, 111; negotiations on, 229–32; opposition to, 218; paying off “loans” to the state, 174; preparation for privatisation, 80, 233; productivity gains, 236, 241; regulation of ownership, 243, 249; reporting practices of, 218; responsibilities of, 236, 238; return of dividends, 217; robust nature of, 430–1; sale of, 226, 228, 242–3, 244–9, 258; ssc’s supervision of, 403–4; statutory obligations for new, 218; tax reform and, 18, 255; Treasury push for, 85; unions and, 403

State-Owned Enterprises Act (1986), 223, 250, 401

State-Owned Enterprises Amendment Act (No. 2) (1988), 402

State-Owned Enterprises Department, 266, 387

state sector: conditions of employment, 393–8, 394, 395, 398, 400–2, 404; decentralisation of, 416; expenditures and productivity, 394–5; job-performance evaluation, 414–15; management of, 409, 413–16; Māori in, 409; number of employees, 394, 408; organisation of, 393; vs public service, 392; recruitment methods, 409–10; reform of, 392–3; Treasury recommendation for, 404; unions, 397, 398, 401, 402, 406; in urban centres, 408; wages, 91–2, 394, 398, 406; women in, 409

State Sector Act (1988): on conditions of employment, 414; enactment of, 409–10; goals of, 413, 416; newspaper advertising campaign, 410; outcome of, 569n185; parliamentary debates over, 407–9; passage of, 119; protests against, 92, 410; provision on chief executives, 414, 425; Treasury reviews of, 109

State Services Act (1962), 395

State Services Commission (ssc): chairmen of, 21, 53, 73, 80, 88, 91, 181, 215, 225, 226, 227, 403; consultations for public service restructuring, 68, 73, 76, 80; Equal Employment Opportunities Unit of, 74; establishment of, 396; management of soes and, 91, 220, 221, 222, 227–8; public-sector labour relations and, 66, 194, 225, 363, 396, 398, 399, 402, 403–4, 406; responsibilities of, 82, 88, 91, 224, 225, 316, 415; review of public officials, 237, 402–3, 414–15; State Sector Bill (1987) and, 409

State Services Conditions of Employment Act (1977), 222, 396, 397, 401

State Services Conditions of Employment Amendment Act (1987), 401

State Services Coordinating Committee, 396

Stationary Engine Drivers’ Union, 357

steel industry, 243

Stevens, Jane, 54, 313

stewardship, 432, 433, 434

Stewart, James, 489n72

Stiglitz, Joseph, 322

Straight Furrow, 27

stress management, 79, 82

strikes, 337–8, 343, 434

superannuation. See national superannuation

supplementary minimum prices (smps): introduction of, 372, 373; vs market prices, 374; negative impact of, 375, 384; phasing out of, 375, 376

Survey and Land Information Department, 287, 424

Sutch, Bill, 42

Sutch, Helen, 92, 97

Sutton, Jim, 300, 385

Svensson, Lars E.O., 185

Swedish Riksbank, 130

Swedpower, Sweden, 73, 77

Swier, Geoff, 42

Swiss formula, 378

Swiss National Bank, 74

Sykes and Robinson LLP, 77

Symmans and Associates, 78

Synfuels stocks and current assets, 245

T

tagged land, 289

Tanner, Ross, 73

Tapsell, Peter, 285, 292–3, 294

Taranaki Petroleum, 247

Task Force on Tax Reform, 166

Tasman Pulp and Paper Mill, 344, 359

Tauranga Airport, 248

Tauranga District Council, 248

taxation: capital gain, 212; consultative committee on, 72; cross-country comparison, 4; filing of, 26; idea of flattering rate of, 27–8; inequality and, 106–7, 196, 205, 208, 213–14, 255; inflation and, 104; loopholes, 192; progressive vs flat, 104; rationalization of, 195, 211; revenue collection, 195, 197, 199, 200, 203, 433, 503n55; state debt and, 190; turnover, 188; unwanted effects, 188–9. See also goods and services tax (gst)

Taxation Review Committee, 188

tax avoidance, 68, 95, 103–4, 105, 120, 192–4, 203–4, 211, 212

tax evasion, 193

tax exemptions, 189, 198, 201, 207

tax fraction method, 200

tax neutrality, 196, 200, 202, 207

tax-on-tax effect (tax cascade), 188

tax reform: ad hoc committee on, 205; consultations on, 189–92, 199–202; critics of, 197, 198, 203; government commitment to, 95–6, 189–90, 194, 203, 205, 210–11; indirect tax and, 187, 188; unions and, 201, 203, 205

Tejima, S., 295

Te Kuiti Airport, 247

Telecom Corporation of New Zealand: access to loops of, 276; CEO of, 21; computerised records, 237; consultants at, 79, 81, 241; deregulation of, 273–4; employees, 236; estimated worth of, 223; fees and rates, 275; investigation of, 265; management of, 254; privatisation of, 273, 276–80; retail centres, 235, 275; sale of, 75, 81, 242, 243, 245, 249, 255, 278–9, 532n99; services provided by, 274–5; technical innovations and, 273, 275; valuation of, 231, 234, 279

telecommunications networks: comparison to electricity network, 267; competition in, 274–5; consultations 74–5, 273–4; deregulation of, 274, 280; divestiture in, 274, 275–6; East Asian businesses and, 278; Kiwi share in, 277–8; liberalisation of, 74; Post Office monopoly in, 273, 274

Telecom Retail, 280

Telecom Wholesale, 280

Telefonica, 278, 280

telephone system, 75

television, 31–2

Television New Zealand (tvnz), 244, 276

Telpac, 276

Templeton, Ian, 85

Thames Agricultural Advisory Committee, 390

Thatcher, Margaret, 7, 10, 258, 429

Thatcherism, 215, 241

Third Labour Government: macro-economic policies of, 144; ministers, 37; monetary policy, 146–7; Moore’s reflections on, 47; obstruction of public services, 33; rationalisation of local government, 422; social welfare policy, 305, 307, 320, 321; spending of, 3, 383

Third National Government, 4, 31, 68, 91, 144

Thomson, Allan Priestley, 286

Timaru Airport, 247

Timaru District Council, 247

Timber Industry Federation, 286

Timberlands (Bay of Plenty), 246, 296, 541n80

timber production, 283

Timber Workers’ Industrial Union of Workers, 359

Timms, Tony, 61, 96, 116, 466n41

Tizard, Bob: background of, 38; on commercialisation of coal and electricity, 220; criticism of the Douglas programme, 38, 40–1, 58; economic policy, 38; election to Cabinet, 49; as finance spokesperson, 39; inflexibility of, 39; meeting with Trotter, 220; ministerial portfolios, 38, 58, 109; on Opposition spokespersons, 86; Rowling and, 39; on spending, 49

Tobin, James, 72, 142, 153, 161

Todd Corporation, 260, 275, 276

Totalisator Agency Board (tab), 208

Total Logistics Company, 239

Touche Ross & Co., 74, 79

tourism: promotion of, 297

Tourism Publicity, 261

Tourist Hotel Corporation, 79, 245, 261

Tourist Industry Federation, 202

Tower Corp., 246

Trade and Industry Department, 73, 87, 263, 264–5

training allowances, 550n181

transportation networks, 261, 262

Trans Power, 239, 269, 270

Tranz Rail, 262

Travel Agents’ Association, 202

Treasury: The New Zealand Treasury, 1840–2000 (McKinnon, 2003), 20

Treasury Board of Canada, 416

Treasury Department: budget control, 137, 415; consultants at, 72, 73, 80–1; critics of, 599n192; currency crisis and, 161; debate on State Sector Act, 414; Debt Management Office, 185; on decline of land prices, 377; disinflation campaign, 9, 165, 166, 176; Economic Management: Policy and Organisational Issues (1984), 15; electric power industry and, 266, 268; emergency meeting, 157; expenditures reviews, 82, 83–4, 109; farm crisis and, 376, 383, 386; fiscal and monetary policy, 3, 4, 9, 155, 165–6, 175, 176, 177, 393; human capital at, 33; influence over liquidity, 168; liquidation of Japanese bonds, 169; on national debt, 220; office crisis, 120; practice of appointment of officer of, 447n127; price-stabilisation schemes, 373, 374; on private-sector wage settlements, 406; privatisation and, 252; promotion of contestability over competition, 265; promotion of corporatisation, 225; public relations, 83; reduction of welfare dependency, 304; reform of public service, 17–18, 19–20, 330, 404; relationship with the Reserve Bank and, 169, 173, 174, 183–4, 416; responsibilities of, 83–5, 88, 89, 264, 399; soes and, 224, 229, 254, 258, 260–1; state-sector labour relations, 81–2, 396, 398, 399, 403–4; study of the Post Office, 221; task force on hospital and related services, 419–20; taxation policy and, 189, 190, 191, 198, 208, 500n26

Treaty of Waitangi (State Enterprises) Act (1988), 229, 289

Treaty of Waitangi Amendment Act (1985), 5

Trotskyites in the Wellington Trades Council, 34

Trotter, Ron: on commercialisation of electricity, 220; as consultant for government policies, 53, 54, 55, 509n137; Economic Summit of 1984 and, 55, 113, 234; Fletcher Challenge and, 235, 360; Ken Douglas’s criticism of, 350; on labour relations, 360; Manufacturers’ Federation and, 343

trucking industry, 262, 523n130

tsb Bank Ltd, 246

T. Watkins and Associates, 82

Tyler, B.H.C., 224, 225

U

unemployment, 87, 98, 170, 179, 433, 587n10

unemployment benefits: abuses of, 311–12, 313–14, 326–7, 332, 544n64; applications for, 179, 315; California scheme, 179; eligibility for, 237; expenditures on, 326, 333; National government’s reform of, 333; non-compliance with obligations for, 314, 433; rule enforcement, 315; youth population and, 333

unions: assets of, 350–1; award system and, 339, 340, 343, 355–7, 363; class-struggle rhetoric of, 336, 347; communists in, 556n3; criticism of, 320; decline of number of, 363; divisions within, 351, 356–7; employers and, 370; evolution of labour relations and, 336–7, 338, 339–40, 343–5, 346, 365–6; as incorporated societies, 369; influence of, 13; Labour government and, 8, 62–3, 87, 91, 110–11, 341–2, 346, 352–3, 359, 361, 364, 442n29, 448n146, 470n118; leadership of, 347; membership, 338–9, 348, 350, 352, 353–4, 370; mergers, 363; modernisation of, 336, 345, 352, 366; nationalistic rhetoric of, 345–6; number of employees covered by, 369; in private sector, 370; registration of, 338, 339, 362–3, 368, 369; reliance on state support, 20, 360–1; resistance to changes, 347, 381; size of, 363; in soes, 403; soe sales and, 251, studies of, 483n136; tax reform and, 201, 203, 205

United Kingdom: Bank Charter Act (1844), 182, 183; fair relativity concept in, 396; financing of First World War, 136; investments abroad, 134–5; joining the eec, 371; labour relations in, 362; as market for New Zealand products, 3, 135, 371–2; as model for New Zealand restructuring, 7, 68, 69, 70; taxation in, 199, 212; welfare system in, 315

United Nations Convention on the Rights of Women, 316

United States: contacts with New Zealand government, 68–9, 144; finance capital, 6; labour relations, 362; restructuring in, 7

University of Auckland, 191

University of California, 69

University of Canterbury, 348

University of Chicago, 69

University of Copenhagen, 69

Upton, Simon, 420, 421

V

Valentine, John, 289, 292

valuation of business, 230–1, 233

value added tax (vat), 189, 190, 497n1

Vehicle Testing New Zealand Ltd, 248

Victoria University, 69, 189

Vietnam War, 140, 146–7

Vogel, Julius, 146

voluntary unionism, 338, 339, 350, 352, 353, 361, 363, 364

voting system: reform of, 425–6

Vranken, Martin, 368

W

wage awards system, 348–9, 351, 355–7, 358

wage fixing: criticism of, 404–5; elimination of, 380; fol’s position on, 55; government and, 30, 176; merit-ranking system for, 405, 414; in public sector, 255, 341–2, 397, 404; supporters of, 63, 205; through relativities, 353, 406, 430; top-ups, 395; tribunals, 38

wages: Annual General Adjustment, 397–8, 405; differentiation in, 357; fair relativity concept, 396; freezes, 352; High Salaries Commission’s report on, 358; indexation, 335, 352, 365; merit based, 399; negotiations of settlements, 354–9, 365, 396–7; in private sector, 397–8; in public sector, 255, 341–2; 395–6, 397, 399, 404–7; surveys, 396; upward drift in, 560n61

Waikato Regional Airport, 247

Waimea Sawmills, 246

Wairapukao, nz, 288

Waitaki District Council, 247

Waitangi, Treaty of (1840), 5, 64, 423, 431

Waitomo District Council, 247

Walker, Simon, 47

Wallace, Neal: When the Farm Gates Opened: The Impact of Rogernomics on Rural New Zealand (2014), 387

Walsh, Pat, 355, 365, 368, 395

Walters, Alan, 73

Waring, Marilyn, 155, 543n43

Warsaw Pact, 17, 429

Waterside Workers, 339

Watson, Mary, 69

Wellington, nz, 16

Wellington International Airport, 248

Wellington’s Schooner Bar, 367

Wellington Trades Council, 526n18

Wellington Unemployed

Workers Union, 313

West Coast Branch of the Engineers Union, 61

West Coast Forestry Enterprise Investing Company, 294

Westland District Council, 248

Westpac, 79, 247

Wetere, Koro Tainui, 285

Weyerhaeuser, 290, 291

Whakarewarewa Forest, 293

When the Farm Gates Opened: The Impact of Rogernomics on Rural New Zealand (Wallace, 2014), 387

Whitlam, Gough, 46

Wholesale Grocery Distributors’ Association, 209

wholesale sales tax (wst), 197–8, 201, 204, 206, 210, 504n70

Wilkinson, Bryce, 69, 175

Wilson, Margaret, 51, 60

wine industry, 391

Winkle, Rip van, 43

Winstones, 246

Wisconsin Central Transportation Corporation, 247, 262

women: benefit recipients, 319, 329; discrimination against, 317; social status of, 317–18; state-sector employees, 409; working conditions, 320

Women’s Division of Federated Farmers, 293, 388

Women’s Policy Council, 472n152

Wood, Geoffrey, 73, 74, 81, 182

wool products, 371–3

Work and Development Services Corp. (nz) Ltd, 248

Working with David: Inside the Lange Cabinet (Bassett, 2008), 20

Works and Development Department, 73, 87

Works and Development Services Corporation, 239

Works Department, 261

World Bank, 69, 372, 378

World Economic Security Council, 151

The World’s Newest Profession: Management Consulting in the Twentieth Century (McKenna, 2006), 71

Wrightson nma (National Mortgage Agency), 247, 382

Y

Young, Arthur, 74, 75, 77, 78, 79

youth unemployment, 238, 333

Z

zero-rating with credit, 189