Institute of Economic Research AGM Thursday 30 August 2007
A few weeks ago when I arrived home from a holiday in France I faced a stack of mail. There was an invitation from Brent Layton to speak tonight. My instant reaction was to think: me? I'm an historian, albeit one of the remaining handful who thinks the economy, not trendy social agendas, determines the quality of people's lives. I turned on the television and realized immediately that frauds could get away with a lot in this country. A guy claimed to have seen a UFO. The breathless reporter produced what she called his "evidence". After the fellow had had his vision, he painted what it looked like. Welcome home Michael, I thought. A little later that evening my old Labour contemporary Bryan Gould was on the screen. We were told he was a professor, true. And that he had been a Rhodes Scholar. Indeed he was. The fact that it was in law wasn't mentioned. For television purposes he'd become an expert on the exchange rate, about which he gave us a selection of possible fixes straight out of the 1960s. By the end of the news I thought it was safe to accept Brent's invitation. Sometimes anyone is an expert in this dear little country of ours.
My topic tonight: "Does Anyone Care about New Zealand's Economic Future?" ranges beyond economic fundamentals. Most of you are much better qualified to speak about them. In any event, mine was the generation of political activists that was better at dreaming up expensive social policies than working out how to pay for them. Judges and social workers weren't any more disciplined as can be seen from the mega bucks attached to the recommendations of the 1972 McCarthy Royal Commission on Social Security. Labour's policy that year when I first entered Parliament was conservatively estimated to have a $700 million price tag, probably $7 billion in today's dollars. Many extravagant programmes were introduced, including the DPB in 1973; expensive additions to ACC the following year. Then the grand daddy of them all in 1976, Robert Muldoon's National Superannuation, payable initially to couples at 80% of the average ordinary wage at 60. Historian Sir Keith Sinclair would call it "the biggest election bribe" in our history1.
By the late 1970s social spending on this scale was no longer an option, given that we were several years into what turned out to be a twenty-year economic roller coaster, mostly downhill. Moreover, some, but by no means all of my colleagues in the Labour Party, had started questioning whether the big ticket items like the DPB and easy accident compensation were actually making worse the social problems they were meant to be fixing. Their cost on top of fifty years of traditional welfare helped concentrate ministerial minds in the government I served in. Fortunately, within Treasury and the Reserve Bank some fundamental re-thinking had been taking place on economic policy, aided by some of you here tonight. By the time Labour came to power in 1984 enough work had been done to identify key problems and, more importantly, a sequence for the changes needed to fix them. That government was fortunate to have a critical mass of economists and civil servants who had worked their way through the hugely complex economic consequences of fifty years of regulation, isolationism and the welfare state. Credit for the economic changes from 1984-93 belongs to all of those who were willing to rescue us from our steady decline into Third World status.
I hasten to say to you, don't take early retirement. Your services will, I trust, be required again soon. Bureaucracy is accelerating at more than 4.1% per year, and ever-increasing regulations and a form of nationalization by stealth without compensation of key businesses, are leading us back towards the eighties. I hope that work is being done that will enable the next government to sequence changes to assist people towards greater choice, lift growth, improve productivity and with it, workers' wages within a low-inflation environment. A lifetime of watching social experiments has convinced me that growth invariably does more for people than social engineering. Sadly, our current government has given up caring about the economy and, like old tax and spend ministries before 1984, only chases votes. David Lange called it "scratching the public's erogenous zones", something at which this ministry excels.
My real concern tonight is with an area that has been the subject of less sustained research, but where the failure is having a huge and growing impact on the economy, holding back improvements to our quality of life. I'm referring to the wider area of social policy, the consequences, if you like, of my generation's urge to spend big in the 1970s. In a speech to the Stout Centre Seminar three years ago on David Lange's government, Professor Gary Hawke quoted the former Treasury Secretary Henry Lang saying in the mid 1980s that sufficient research on social policies hadn't yet been done when the reforming Labour Government got underway2. During our six years in office what was done, was spotty. Lange's Royal Commission on Social Policy turned out to be a waste of time and (big) money we couldn't afford. Looking back on that government, I think its overall achievements were largely confined to the economic sphere.
In health education and welfare the Fourth Labour Government's rethinking was modest. Roger Douglas' proposed Flat Tax/GMFI package in December 1987 dealt with those in work, and provided an incentive of $80 per week for those prepared to rejoin the work force. But it didn't go ahead. Substantial change to welfare entitlements didn't occur either. I began to realize that my own achievements as Minister of Health must have been negligible when Pat Kelly of the CTU became my biggest booster before Lange shifted me out of Health in 1987. The Gibbs Report on hospital funding that Douglas and I set up was left to the National Government to implement, and then only in part. The dumbing down of national exams in the educational area wasn't compensated for by the Picot administrative changes that themselves had downsides. Extending the power of the Waitangi Tribunal to investigate historical Maori grievances without providing a strict framework to prevent the development of a self-serving grievance industry has ended up giving many Maori completely unreal expectations of what to expect from the settlement process. And in Labour's second term 1987-90, ministers failed to deal severely and abruptly with several emerging signs of the gang/drug culture, despite the urging of Police minister Peter Tapsell and several other prominent Maori. The then incipient cancer in our midst was allowed to grow to the size it is today.
By themselves, good economic policies won't produce a well-performing economy unless accompanied by social policies that take account of problems whenever they show up. Policies should develop over time, using carrots and sticks to keep encouraging people to give of their best. In other words, it should provide incentives that point people in a rewarding direction. The Labour Party's social stewardship was (and still is) weak, and the National Government of the 1990s did not really confront the obvious collapse that was gathering pace, leading to an out-of-control underclass. I see few signs that the current National Party has yet worked out what to do with this mess. Labour won't even acknowledge that a major problem exists, preferring instead to investigate John Key's various homes. Jenny Shipley looked for a split second in 1998 as though her government might really tackle declining standards of parental responsibility that accompanied easy welfare. But she quickly backed off.
In July 1984 102,000 people were on unemployment benefits or make-work schemes, twenty seven times more than in 19753. By 1990 after unprecedented restructuring, years of low international commodity prices, and an end to make-work subsidies, the total on benefits was 158,0004. When the DPB was enacted in 1973 sole parents numbered fewer than 4,000. Today there are as many teenage women on DPBs as all the sole parents added together when the benefit was first introduced5. Last week we were reminded that New Zealand has the second worst rate of teen-age pregnancies in the OECD6. In the decade 1974-84, the number on DPBs multiplied more than ten fold to stand at 53,0007, yet, as I say, the Fourth Labour Government scarcely altered the rules and the incentives they provide for partnerships to fall apart. Along with that trend went increasing poverty as was so graphically explained in 2001 by David Green in his book Poverty and Benefit Dependency8. Given a set of wrong incentives, too many young women opted for breeding as a career, many with multiple partners. In the twenty years to 2005, DPB numbers doubled again to 106,000. Sole parent households rose rapidly in number, placing pressure on housing. Even during the decade 1994-2004 when the economy performed well, generating jobs galore, there was only the slightest dip in DPB figures9. Stories of people with their doctors' assistance ripping off ACC despite its sterling efforts to stamp out malingerers, still reach the press on a regular basis. Last year ACC fraud cost at least $11 million, almost certainly more10. Those being chased are complaining, and ACC, like the Police whenever criticized, shows signs of backing off.
Today's unemployment statistics in their widest sense are a national disgrace that no journalist seems capable of comprehending. For years ministers pressured Work and Income to reduce the number on Unemployment Benefits by shuffling people on to Sickness and Invalid Benefits11. Ever tried finding exact statistics for each category on Work and Income's web site? It seems designed to obfuscate. One thing is clear, however: today a considerably larger proportion of working age people is on Unemployment, Sickness and Invalids' Benefits than was the case half a century ago. Only a few hardy souls like the indefatigable reformer Lindsay Mitchell ask why.
Of course society has a responsibility to provide for those who are unable to look after themselves. But only starry-eyed simpletons can deny that my generation of politicians enabled a significant portion of the population to opt out of personal responsibility for their lives. Many have chosen lifestyles that guarantee them continuing relative poverty, and all the hugely expensive consequences for the children many of them breed fecklessly. It's the economy that has to pick up the pieces from this catastrophe. Bad parenting, street cultures, gangs, armed violence, attacks on teachers, domestic violence, road accidents and every imaginable kind of crime can usually be traced back to the world of poverty that accompanies benefit dependency everywhere in the world. People march in the streets protesting about symptoms of a problem that they can't face: too many people are on welfare.
Encouraging a significant portion of society to opt out of the basic human requirement to provide themselves with food and shelter is one of the cruelest hoaxes that can be inflicted on people. It guarantees poverty and mayhem. Everywhere in the world teenage pregnancies rise; unattached, alienated males prey on welfare mums; more children result. Fifty percent of all Maori children are now born to women outside of a stable partnership; many grow up not knowing who their fathers are; the new man on the scene often has little respect for the woman's earlier progeny, and a disproportionate amount of sexual abuse comes from mum's defacto. In effect, a benefit that was meant to assist mothers and children, helps instead to unravel the nurturing environment necessary for a child's upbringing. Within this underclass too few mothers read to, or talk to, or care much for their children. Shouting, four letter words and graffiti become their lingua franca; alcohol and drugs proliferate; in several remote, welfare-dependent parts of the country, few get out of bed before 10am. The recipients perceive their income as inadequate, and they supplement it with the proceeds of crime that is frequently committed by unsupervised children. Today, all the obvious consequences of ill-targeted, careless welfare are there to be seen. Tie them up with our under-performing educational, police and justice systems, and mayhem has slowly developed in several parts of New Zealand. In a segment of society children grow up without any idea of what constitutes personal responsibility let alone an honest day's work.
This state of affairs didn't just happen by accident. Politicians facilitated it. They now avert their gaze. Amongst the underclass the incidence of the horror stories that we daily see on TV and in the papers has become commonplace. Maori are twice as likely to be in the underclass as Pacific Islanders, with other ethnic groups mostly bit players. The underclass owns a disproportionate share of the educational, health and justice problems, the child abuse statistics and the road accident horrors. Knives are their constant companions, and P and alcohol abuse their recreation. A prodigious amount of benefit money paid on account of the children, goes on parental substance abuse. The Police were recently surprised to find that despite their more visible anti-drink-driving campaign, the incidence of drunk drivers hadn't declined. Of course not. The underclass doesn't care about anything much except payday. And they won't be paying any fines. A whole substratum has stepped outside civilized society. Shame that once might have deterred miscreants no longer works; there are whole families out there with no reputation to lose.
Sadly, research identifying the precise nature of the breakdown of society, what links directly with what, and who preys on whom is either self-serving or confined only to parts of the complex inter-linked mosaic called the underclass. Why aren't we producing similar studies to those overseas? Since 1993 there has been a growing body of research in the United States showing how altering welfare rules can assist the underclass and reduce poverty12. Influential New Zealanders, it seems, don't want to know. Why? The answer is as complex as the problem itself. There are many factors preventing welfare reform in New Zealand. First and foremost is the disappearance of any sort of national leadership within Maori society. Sir Apirana Ngata and Sir Peter Buck warned in the 1930s that Maori would be destroyed by easy welfare. Their views had faded by the time the two wise men had gone to their graves. Pan-tribal Maori leadership had long ago collapsed by the time Koro Wetere insisted in 1988 on an iwi-based approach to all things Maori. That killed any possibility of national leadership stone dead. These days Maori speak with a cacophony of voices on everything. The Maori Party is capable of slamming welfare one day and wanting more of it the next. When something catastrophic assails Maori society, Hone Harawira heads for the bush - or the Northern Territory - to divert attention from his party's unwillingness to tackle problems at home.
The catastrophe runs deeper. Whenever any well-meaning Pakeha ventures into social research involving Maori, a war cry goes up that it has to be conducted by Maori. Charges of "racism" and "colonialism" are levelled if the researcher persists. Pakeha usually back off. Since there are so few trained Maori researchers, vital work doesn't get done. If any is tried, it is usually of dubious worth because of conflicts of interest amongst Maori themselves. In the end, people like Tariana Turia diminish the respect others have for them by persisting with claims that whatever ails Maori must always be laid at Pakeha doors. Over recent headlines, only Dover Samuels amongst Maori politicians has made sense when he questioned the efficacy of most Maori social services13. Looking back from a comparative perspective, it's now beginning to look as if Maori society was more cohesive in the pre-1960 days when social integration, rather than Maori separate development, was officially encouraged. Inviting the wider public to believe that Maori have the capacity to fix their own problems when such a large number have turned feral is a cruel hoax on us all, and most particularly on Maori children. All of us have a stake in helping Maori and we should be involved, both with the research, and the consequent policy implementation. New Zealand is an interdependent society, not one living within separate racial capsules.
There's another factor that blocks needed change. The emerging women's movement of the 1970s played a major role in giving us the DPB. Today many women are inclined to regard any questioning of its obvious direct contribution to the underclass as an attack on decades of women's achievement. It certainly isn't intended as such. My liberal instincts have led me to support just about every move towards women's liberation. But several things must be faced. Women have very successfully ridden the urge to shift from private to state responsibility, each and every ailment society has produced over the last 30 years. A rapid increase in women MPs helped. A whole social work industry with women in the driving seat gradually emerged alongside my generation's misplaced social initiatives of the 1970s. Put crudely, many Pakeha, Maori and Pacific Island women farm the outcomes from social disintegration, teenage pregnancies, family violence and the child abuse that invariably accompany it. The growth of a permanent underclass provides a significant number of women with jobs. Degrees in social work, counselling, crisis intervention and victim support back those jobs. They have suitable hours around the edge of middle-class family commitments. Believe me, I'm not dismissing the work the multitude of agencies does. It has become absolutely necessary. Many social workers are poorly paid and extremely stressed by the awful problems, and many of the equally awful clients they deal with. But it is all ambulance-at-the-bottom-of-the-cliff stuff.
An enormously powerful modern pressure group has developed to support the welfare status quo. None of the current agencies gets to the basic causes of the problems. Indeed, the women's movement seems deliberately to discourage such analysis. It has given up on family planning which was a liberal article of faith in my political youth, and which could show young women how to avoid early pregnancy that invariably blights theirs, and their children's lives. And what happened to adoption as an option? Has common sense gone out the window because jobs are at stake? The choice between a mother with no interest in her children and a couple dying for an infant, seems an easy one for me to decide on. I'm not laying blame on women as a whole, just the confused ideologies that underpin so much of the modern caring industry.
In any restructuring, of course, the jobs of current providers have to be taken into consideration. There will need to be careful identification of the problems and a huge rearrangement in the tasks performed by the caring industry if we adopt the goal of fostering work participation, reducing dependency and poverty, and restoring personal responsibility. There is a substantial literature on the subject in other countries. Leading women should get to grips with it.
In 1984 the country faced interlocking privileges and subsidies that pointed many peoples' economic endeavours towards non-productive purposes. Today we seem to be locked into a system of social workers' interests that defend the indefensible. In 2004 when Don Brash ventured into social problems and asked hard questions about Maori, he was pelted with mud, labeled a racist, and abused by (mostly women) journalists. Plot theorist Nicky Hager wrote a book and gets royalty money from stolen emails. The press, especially the Dominion Post, praised this trade in stolen goods. Several women's groups chorused that Brash was heartless. It's certainly true that his first concern was not the poverty industry's providers. He was trying to work out where, precisely, the fence had broken at the top of the cliff. No matter his good intentions. Women put him ten points behind Helen Clark as their preferred leader. Many of them want New Zealanders to avert their gaze from the underclass. It's not as though we don't know the indicators of the collapsed families that form the core of the underclass. One of those indicators is a welfare woman who constantly changes her address and who is in effect a transient. Multiple teenage pregnancies are another indicator of trouble to come. Because of the smothering climate of political correctness, we are unable to focus on what needs to be done with families like Macsyna King's and Lisa Kuka's that are currently in the news, where babies were abandoned to thugs and de factos while their mums were drinking.
It's sad but true: as a system democracy can empower people to defend the indefensible. Quite what is the social equivalent to the 1984 run on the dollar that unlocked the floodgates to economic reform, I'm not quite sure. Suffice it to say, the mounting crisis in social policy and race relations from which this Labour government resolutely averts its gaze, is no less serious for New Zealand's future prospects than the 1984 economic crisis. First we need the statistics so that we can understand the precise nature of the problem. Secondly, the interests of children must be the paramount consideration throughout the changes. Thirdly, we should rename most benefits Temporary Assistance. Fourthly, the long-term interests of beneficiaries must be placed before those of providers. Fifthly, we must accept that there is reciprocity inasmuch as the recipient of a benefit has to accept a responsibility to work for it. I'm not au fait with all the relevant literature, but American studies show that poverty levels quickly decline once work becomes a requirement. Sixthly, we must make sure we have as few disincentives to self-help as possible. Above all, we need ministers capable of controlling the Frankenstein that muddled political agendas have created over the last 35 years.
The cost of not constructively tackling today's social problems will be an economy that continues to operate at less than optimum efficiency. Private investors who create 70% of our jobs need a stable environment. It's not just red tape that worries them. A reeling police force that won't or daren't enforce the law, plus a clogged court system, will never provide them with reassurance. Endless cases involving toe rags get court fixtures for cases paid for by legal aid, while privately funded commercial cases involving private money and real jobs can't get court time. Crime, and a culture within journalism that refuses to investigate workable answers from abroad, make for an economic performance that will continue to come in under strength. Does anyone care? Sadly, I see few signs yet in the current political environment.
1 Keith Sinclair, A History of New Zealand, fourth revised edition, Auckland, 1991, p.316.
2 Gary Hawke, in Margaret Clark(ed), For the Record: Lange and the Fourth Labour Government, Wellington 2005, p.85ff.
3 Auckland Star, 2 July 1984, B-1.
4 NZOYB, 1992, p.115.
5 "Teenage Birth Rate Rises Again", Lindsay Mitchell press statement, 18 August 2007.
6 New Zealand Herald, 24 August 2007, A3.
7 NZOYB, 1985, p.195.
8 David Green, Poverty and Benefit Dependency, Wellington, 2001.
9 NZOYB, 2006, p.128.
10 TV3 6pm news, 22 August 2007.
11 David Green, p.48.
12 A web check under "American Welfare Reform" produces a huge literature on the subject.
13 New Zealand Herald, 8 August 2007, A3.