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Does Anyone Care About New Zealand's Economic Future?

Speech delivered to the Institute of Economic Research AGM
Thursday 30 August 2007

Sir Joseph Ward

Text of the British Dictionary of National Biography entry prepared in 1995.

Joseph Gordon Coates

Text of the British Dictionary of National Biography entry prepared in 1997.

“How Ideal was the Savage Ideal”

M.J. Savage Memorial Lecture, La Trobe University, 4 September 1998.

Peter Fraser

"The Political Context of the Prime Ministerial Years", conference paper August 1997.

"Politics versus the Economy 1940-1975"

Speech given at the Stout Centre conference in April 1999 at Parliament Buildings.

"An Overview of the War History Branch",

Lecture to Department of Internal Affairs seminar, Wellington, 1997.

"Unofficial Channels"

Review published in International History Review, vol.22, 2000.

Jock Barnes

Obituary for Barnes published in the Dominion, Wellington, on 6 June 2000.

Sir Apirana Ngata

Review of He Tipua: The Life and Times of Sir Apirana Ngata.

Sir Keith Holyoake

Review of Sir Keith Holyoake: Towards a Political Biography, in the Dominion, 18 April 1997.

Norman Eric Kirk (1923-1974)

Dictionary of New Zealand Biography, vol. 5, Wellington, 2000.

"Martyn Finlay"

Obituary for Martyn Finlay published in the National Business Review, February 1999.

"His Way: A Biography of Robert Muldoon"

Review of His Way: A Biography of Robert Muldoon, in the Dominion, 21 August 2000.

"The Collapse of New Zealand’s Military Ties with the United States"

This Fulbright lecture was first delivered at Georgetown University on 2 December 2002.

"James Brendan Bolger: An Early Assessment"

Dominion, December 1997.

"The State Sector"

Paper given at the Legal Research Foundation's conference "Shaping the Future State Sector", Parliament Buildings, 21 September 2000.

The National Years 1949-1999

Published in the Dominion, December 1999

The Conflict of Visions about New Zealand.

Paper given at ACT's Northern Regional Conference, November 2001

"Jim Anderton"

Published in the Dominion, 23 February 2002 after Anderton, the Deputy Prime Minister, fell out with yet another band of supporters and began his third political party.

John Banks: A Biography

Review of Paul Goldsmith's book, Auckland, 1997.

“Sowing the Wind and Reaping the Whirlwind”

Welfare Reform Seminar: 14 August 2004

David Lange

Obituary for David Lange, August 2005

“Sowing the Wind and Reaping the Whirlwind”

WELFARE REFORM SEMINAR: 14 August 2004

by Michael Bassett

Recently my eye fell on an observation by the Peruvian economist Hernando de Soto. Talking about welfare, he spoke of “the Iron Triangle of beneficiaries, politicians, and bureaucrats, which protects the status quo and resists needed change”. He is absolutely correct. Each corner of that triangle has played a part in bringing New Zealand welfare to the state it is in. They club together to resist change. In most countries the problem gets worse, not better. Reforms that have shown success overseas are dismissed as either futile, the work of heartless people, or of crazy ideologues. Many politicians on the left like welfare because they believe (wrongly in my view) that beneficiaries are a sure source of votes. Bureaucrats, church groups, and private and publicly-funded social workers like welfare because farming beneficiaries gives purpose to their lives, and provides an income for many. And a growing number of citizens on the margin of most modern societies settle for a regular welfare cheque in preference to work.

How did we get to this state in New Zealand? It’s a complex story and I’ll summarize briefly. But first we must accept that there always has been, and always will be, some people who need support if they are to live reasonable lives. Even in 1945 during when “over-full employment” was peaking, about 6,000 people were registered as unemployed at some stage that year. The number claiming a benefit was only 1,250; few stayed on it for more than 13 weeks. The benefit aimed at tiding workers over seasonal fluctuations in the availability of work. A total of 30,000 people drew Sickness Benefits that year. Most of those benefits lasted less than four weeks. Only 755 men and women had Sickness Benefits for more than 52 weeks. Invalid Benefits were paid to blind people, those with “congenital defects”, or to people suffering from work or other accidents who today would receive ACC. In 1950 a total of 9,476 people were dependant on Invalids’ Benefits. There were 2,277 people receiving Emergency Benefits on 31 March 1950 as well. They, too, were almost always of very brief duration. Since these benefits had first been introduced, the political question wasn’t whether to support those meeting the criteria; it was how long to support them, and whether the criteria themselves were right.

From the time of the first benefit in 1898 right up until about 1970, benefit applications were always very carefully scrutinised. To qualify in the 1950s for an Invalid’s Benefit, for example, an applicant had to demonstrate that the incapacity to work “was not self-induced or in any way brought about with a view to qualifying for an invalidity benefit”. A recipient had to be of “good moral character and sober habits”. A Commission decided eligibility. There was a right of appeal to a board of three medical practitioners. The basic assumption underpinning welfare was that everyone should work, and that state assistance would be made only in carefully defined circumstances. The thought that a benefit could be paid to what was called in those days a “malingerer”, let alone become a life-style choice, had occurred only to a few hardened cynics. When Labour Prime Minister Peter Fraser was asked in Parliament in 1945 about his policy towards “loafers” he replied that such a person should be placed in a tank into which water was poured, and there should be a pump. If it was continuously operated the water would stay down. If the man did not pump he’d drown. Fraser’s Minister of Works, Bob Semple, put the same basic sentiment in biblical parlance: “he who shall not work, neither shall he eat”.

However, the welfare state which both National and Labour governments added to, changed public attitudes over time. The Social Security Royal Commission of 1972 and the introduction of no fault accident compensation two years later put stamps of approval on those changing attitudes. Expectations of what the State could provide rose rapidly. The feeling that welfare recipients owed work in return for money lessened, and the malingerers increased in numbers. But they weren’t always easy for the authorities to detect. Initially, politicians were uncertain how to handle those swinging the lead. Most turned a blind eye. Labour politicians had difficulty believing there could ever be many; they were always much less cynical about human nature, and judged others’ work ethics by their own. Modern Labour politicians still have difficulty accepting there are malingerers as we have seen recently with the controversy over sickness benefits. The left claims to represent the working class, but few are of it. Many romanticise workers. They patronise them too. Peter Fraser and his colleagues never did. Moreover, today some have high falutin ideas about what constitutes work. Sue Bradford fulminates against jobs she deems “unreal”. To be unemployed is better than to be in a job that fails the Bradford test!

Social changes brought new problems, too. Illegitimate births constituted 4.93% of total births in 1945. Another 12.8% of babies were born to mothers who had been married for less than seven months. The “shotgun” wedding was a feature of everyday life when I was young. It usually resulted in the creation of a sustainable family unit. By 1974 when the first Domestic Purposes Benefit became payable, the “ex-nuptial birth rate” as it was now called in politically correct parlance, was running at about 16%, and it climbed to 43% of all births by 2,000. The statistic for seven-month pregnancies wasn’t kept any more. Amongst Maori, 73% of all births were ex-nuptial in 2000. Everywhere the institution of marriage was falling over, as was the age-old commitment to the concept of paternal responsibility for progeny. The State now happily lets people shuck off their responsibilities. This really began in 1968, as Margaret McClure shows in her history of social welfare. Personal blame for misfortune went with the introduction of Emergency Benefits for sole parents that year. The DPB of 1973 institutionalised the “no-fault” benefit for women with dependants. No fault ACC came the following year.

While this collapse of earlier standards of personal responsibility relates in part to the declining role of religion in peoples’ lives, it also reflected the ready availability of welfare to take care of life’s “accidents”. After the introduction of the DPB the number of sole parents receiving a state benefit increased by 10% each year, reaching 110,000 in 2000. People no longer had to think about the personal consequences of the choices they made in life. A recent Auckland study into pregnant women’s smoking habits, reveals the amazing statistic that only two Maori women out of 60 interviewed had planned their pregnancies. Why they worry? If they couldn’t cope there’d be a state agency, a bureaucrat or an extra benefit - probably all three - to help with the accident. Sad to say, while various forms of contraception are now free, a stronger incentive is provided by the DPB to have more children, thus destroying the movement towards smaller families. That demographic trend did a huge amount to improve the lives of lower-income people and their children over the half century before 1973.

No major political party has been prepared accurately to describe the role welfare plays in the steady destruction of the two-parent family, or the rise in all other forms of welfare, or the climbing levels of anti-social behaviour, crime and road accidents that are now an inextricable concomitant of welfare. It’s as though the politicians don’t want to know. Some mutter irritably, but they keep on paying out. A few wacky social agendas support the status quo too. Militant feminists glorify the notion that the DPB has released women from dependence on men, conveniently overlooking the social and financial consequences of welfare on the women themselves, and on their children in whose future we all share an interest. Reform just keeps being relegated to the too-hard basket.

Political inaction has enabled bureaucratic agencies to farm welfare. The units of the old Department of Social Welfare form the biggest state agency. Forty years ago social welfare was part of one minister’s responsibility, held together with health. For churchmen and women who have lost their congregations, political inaction provides missionary possibilities. To an extent that our grandparents would find staggering, living on welfare is glorified today by intelligent people who once would have preached providence. Today, some 113,000 people live semi-permanently on Sickness and Invalids’ Benefits, 100,000 receive the DPB, and about 82,000 get an Unemployment Benefit, nearly 18,000 of them under the age of 25. The proportion of mothers on the DPB who refuse to name the fathers of their children keeps rising as they protect their partners from the Liable Parent Contribution, or because they just don’t know the name. This loads responsibility for the children’s upkeep on to the taxpayer. All this welfare at a time when the economy is growing at a rate that has exceeded the OECD average for a decade, and there are so many job openings that employers are forced to pay premium wages! The chairman of the Medical Association’s GP council recently pointed to the rising pressure being applied to doctors to re-categorise able-bodied people so that they could stay permanently on welfare and not be required to work. What happened? He was slapped down by ministers, bureaucrats and bleeding hearts who don’t want their clients upset, or their life’s work endangered.

What about the beneficiaries themselves, the third corner of de Soto’s Iron Triangle? They are usually only heard from when a missionary on their behalf – a churchman or a journalist – chooses to highlight their plight, and advances a plea for more of what has brought them to their sorry plight. Most beneficiaries drop out of view into a subculture beyond the public’s vision – except when a few of them find themselves at the centre of a murder inquiry or some egregious act of domestic violence. It is clear that the number of “malingerers”, as Peter Fraser would have called them, grows steadily. I have no precise evidence to support this, but my hunch is that there are as many as 100,000 able-bodied people who have been lured on to welfare and who, given the right opportunities, could improve themselves and the lives of their children. It is clear that the overwhelming number of beneficiaries have been lured into this life style by the almost instant availability of money. Sadly, it will always be a poverty trap from which it is incredibly hard to escape, as John Tamihere often reminds us. Beneficiaries hope that a benefit will improve their lives. Long term, it never can, because the standards of living of those in work will always rise faster than the benefit can increase. As economists have shown, rising welfare numbers since the 1970s rather than any intrinsic aspect of the reforms of the 1980s, are the main reason for the widening social inequity within New Zealand, just as they have been elsewhere in our welfare-ridden world.

What all this amounts to is that many peoples’ life choices blight their lives, and their children’s too. Welfare can also inflict incredible damage on communities if there are too many beneficiaries within them. It has helped turn parts of my city of Auckland into tiger country. Neighbours prey on one another, domestic violence is rife, school truancy and school suspensions keep rising, and a drug culture mushrooms, causing mayhem, road carnage and murder. Of course a great many beneficiaries wisely keep clear of this culture. But welfare is an expanding thread throughout today’s underworld, both here and overseas. The breakdown of New Zealand’s social cohesion has one constant companion – the benefit culture. It destroys the lives it set out to improve.

The high cost of welfare doesn’t stop here. The more people taking a free ride, the higher the costs to the government, and the less room there is for lowering taxes which is one of the key ways in which economic growth and employment opportunities can be stimulated. The lives of today’s working poor are held back by malingers in their midst. It is worth remembering that in the 1950s and 1960s when politicians were sanguine about the affordability of welfare, New Zealanders enjoyed a standard of living that was in the top half dozen in the world. Growing welfare rolls from then on went hand in hand with New Zealand’s gradual fall down the world’s wealth ladder. Of course there are other reasons as well for that economic subsidence. Bad economic management and misguided protection are two. But while many of the other factors impeding our progress have been solved since the 1980s, no government has yet been prepared to come to grips with the welfare cancer that eats at the heart of our society, and undermines so much of the vision that our greatest Labour leaders fought for.

de Soto is right. No corner of his “Iron Triangle” wants to challenge the status quo. The bureaucrats and their missionary mates have a vested interest in not doing so. The beneficiaries themselves are trapped. Many try, but few succeed in extricating themselves. All need more money. Only a handful of politicians wrestles with re-structuring. Without it, too many people are doomed to remain second-class citizens. In time, their rising desperation and the chaos welfare causes amongst children, will threaten us all. We all want to assist the poor. But, as David Green said a few years ago in his excellent little book Poverty and Benefit Dependency, “the choice is not between help and neglect, but between methods of help that entrench the problem and those that bring a lasting solution”. Let’s hope this seminar assists that second choice.

Footnotes:

1. Hernando de Soto, “Bringing Capitalism to the Masses”, Cato’s Letter, Summer 2004.

2. NZOYB, 1950, p.783.

3. The Growth and Development of Social Security in New Zealand, Wellington, 1950, (Department of Social Security),pp.86-88.

4. Ibid, p.85.

5. NZOYB, 1950, p.532.

6. NZOYB, 1950, p.528.

7. Michael Bassett and Michael King, Tomorrow Comes the Song: A Life of Peter Fraser, Auckland, 2001, p.299.

8. NZOYB, 1946, p.44, 1947-49, p.51.

9. NZOYB, 2002, p.104.

10. Margaret McClure, A Civilised Community: A History of Social Security in New Zealand 1898-1998, Auckland, 1998, pp.155-158.

11. NZOYB, 2000, p.157.

12. Amy Patterson, “Few Mothers Plan for Babies”, Central Leader, 30 July 2004, p.5.

13. New Zealand Herald, 28 June 2004, A7. NZH, 11 August 2004, p.1.

14. NZH, 3 June 2002, A10.

15. Stephen Cook, “Benefit Scam – Doctors accuse WINZ”, NZH, 26 July 2004, A1; NZH, 29 July 2004, A3; Cushla Managh, “Jobless get sick too Maharery tells GPs”, Dominion Post, 27 July 2004, A4.

16. NZH, 27 February 2002, A17, quotes Tamihere at some length. The Herald editorialised mostly in his support on the same day.

17. David Green, Poverty and Benefit Dependency, Wellington, 2001, p.82.



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