First, I must mention the Canadian contribution to recent New Zealand politics. In the early 1990s, Sir Roger Douglas, New Zealand’s former finance minister, came back from Canada inspired by the work of the Manitoba Taxpayers Association. He declared to me that he was going to form an Association of Consumers and Taxpayers. He did, and within 12 months it became a political party and won eight seats in Parliament in October, 1996, in the first election that used proportional representation.
I think the contribution made by taxpayer and public policy organizations like the Frontier Centre is an important one. Ideas matter and have consequences.
To put the topic in perspective, I originally joined the New Zealand Labour Party for two reasons. I was interested in politics and I wanted to meet other people who were, too. I joined Labour because it was the party that stood against the abuse of power and against privilege. That’s how I viewed it at the time.
I wasn’t a conservative and I am still not.
The Prime Minister of the time, Sir Robert Muldoon, was a very intelligent man, larger than life, and he ran the country all by himself. He intervened, taxed and bullied his way, and after five years in office many in his own party were very unhappy with his excesses.
Sir Robert had a huge influence on my thinking. I figured out that big government was not necessarily the friend of working people. High inflation and taxes were all consequences of his policies. I eventually learned to understand the dynamic power of the market.
More importantly, a group of key MPs and others in the Labour Party actively debated economic policy. This led to Labour’s renouncing protectionism, and in 1982 Labour MPs supported the National government by introducing legislation for “Closer Economic Relations” with Australia. This was a major free trade agreement. At the time, the Labour left predicted it would cause unemployment for 200,000 people. Now, 20 years after the reforms, New Zealand has the lowest unemployment in the OECD.
Roger Douglas became finance minister in the Labour government elected in 1984 and the rest, as they say, is history.
I regard the evidence that small government is better government as overwhelming, but the proposition remains a hard sell at the polls. Floating voters like to hear about action, and that requires a government program, and that requires taxation. It is only the voters’ distaste of taxation that saves us from ever-bigger government, as aspiring politicians have to learn how to promise more government action on less taxation.
This is particularly true of New Zealand, where politicians are held in low regard but where there is a great desire for government intervention in virtually everything. As the joke goes, "New Zealanders hate politicians but love government." It is a ridiculous situation, when one thinks about it, but most of the population does not see the joke. For most of the twentieth century, we had governments which interfered more and more in economic life. In the early 1970s, our economy was the most heavily regulated among Western Nations, and that was under a supposedly right-wing government. The Opposition constantly demanded more action to correct perceived injustice.
The degree of government control was laughable. To protect the dairy industry, at one point margarine was available only by prescription. Imports were tightly controlled to protect local industry. At one stage, to protect the local assembling industry, Japanese televisions were partially disassembled in Japan. Having an import licence for scarce products was like having a licence to print money.
We got away with it because we were primarily an agricultural country. The farming sector was dominated by efficient owner-operators, our bureaucrats were amongst the most honest in the world, and our products sold for good prices internationally. But in the 1970s, our terms of trade moved against us. Governments borrowed to sustain living standards and to defend an artificially high exchange rate. It was all bound to end in tears, and it all came to an end in 1984 when New Zealand ran out of hard currency and our Reserve Bank stopped trading because there was nothing left in the kitty.
This catastrophe happened to coincide with the election of a Labour government, and in high drama the new government sought to avoid default. An International Monetary Fund group prepared to come in and take over the New Zealand economy, but it was never deployed because our incoming Labour government contained considerable talent and the greatest of them all was the Finance Minister, Roger Douglas.
The immediate haemorrhage of capital was stemmed by a sharp devaluation in the New Zealand dollar, and the economy was reformed at breakneck speed to become one of the most free-enterprise economies in the world. All of this was achieved between 1984 and 1988, after which the Prime Minister lost his nerve. It was an achievement that earned Roger Douglas the Hayek Medal for services to freedom and bequeathed New Zealand a flexible economy.
At the time, the incoming Labour government was trying to keep its head above water. But with the benefit of hindsight I can now see that it had a unique opportunity. The old system was clearly broken and Roger Douglas clearly had a vision and a plan. In the face of disastrous failure by the old regime, most people gave him the benefit of the doubt when reform was criticised. Therein lays a paradox: free market reforms are easiest to introduce in times of plenty, but the political initiative for reform exists in times of crisis.
But in politics the phenomenon of unexpected consequences often comes into play. Our flexible economy generated large budget surpluses, which offered the opportunity to have low taxes and a welfare state. But those surpluses created a huge temptation to incoming governments, and some of it has been squandered. Sometimes I think we will go full circle as governments buy votes with interventionist policies until it becomes unsupportable, which creates an opportunity for free-market reform, and the cycle starts again.
And there is the risk of government’s creating unfunded liabilities for future generations. In New Zealand, we currently have a situation where there is some hefty competition for the votes of the elderly, all at the expense of the taxpayer. The problem is that the schemes are generally not sustainable in the long term, and the cost of sorting out the mess will be borne by people who are currently children. Children can’t vote. The creation of liabilities to be carried by future generations raises constitutional questions, as it represents the ultimate in taxation without representation.
Roger Douglas is the father of enlightened socialism. He and his fellow-travellers in the 4th Labour government dismantled privilege wherever they found it. You name it, they deregulated it, and then they privatized huge parts of the government apparatus.
What is the agenda for the modern socialist? First, we are all socialists. It’s a matter of degree. Most of us agree with public education, public health and adequate retirement income for our retired. These areas, however, are dominated by government policies that are failing. In addition, the increases in government revenue as a result of higher growth are providing a treasure trove of revenue for governments that use the money to get re-elected.
The modern socialist agenda must comprise:
- Putting a break on the government’s size with a constitutional mechanism that invokes a tax and expenditure limit. This would mean that politicians have to get permission from the people to spend more money. The default position would always be, “It’s the people’s money before it’s the politician’s to use to bribe.”
- Reforming public services—health, education, welfare and retirement income. Remember, one size doesn’t fit all. Making services “free” at the point of use distorts price signals, promotes waste, leads to rationing and crowds out private funding. Meanwhile, tax-and-spend damages incentives and downgrades economic performance.
The problem goes beyond bureaucratic failure. Cuts are handicapped by fundamental problems of information and incentives. We have ended up with services which, while free at the point of use, are often neither available (health) nor excellent (education).
The starting point for reform
The primary concern is not with the public service per se, but with patient service and pupil service.
Competition, choice and control of the purse strings are the key to empowering consumers. There are other important matters, too, like the rule of law, property rights and the environment, where the market mechanism can be used to achieve a result that makes for a successful civil society.
New Zealand has a great reputation for public policy innovation and these measures would build on the capital built on the past successes.
A word on the electoral system
New Zealand got to where it is by keeping an election promise on proportional representation while breaking many others. It was a matter of politics that the Opposition of the day would promise anything to become the government. They didn’t have to do anything to win. People had had enough of reform and division and wanted change.
So in 1993, New Zealand voted by 54 to 46 percent for mixed member proportion or MMP, a German-based electoral system. Many New Zealanders voted for it on the belief they would have another referendum to review it. This was never the case, although many people believe that to be so. So my advice to Canadians: if you try proportional representation, make sure that you have a constitutionally locked-in referendum for review.
MMP has brought people into Parliament who would never have stood or made it under “first past the post” (FPP). MMP indeed has advantages but disadvantages, too, like the recent general election where a Labour Prime Minister, Helen Clark, cobbled together a coalition that might last only a short time. It includes a guy named Winston Peters who campaigns at times in a most xenophobic fashion. He is now the foreign minister and holds the balance of power! He sits outside the formal cabinet and he’s against free trade with China! Most of the large Asian community in New Zealand detests him.
Communicating a political message
Don’t ever think a government is indestructible. When a government that has been as long in power as Canadian Liberals, its time for them to go, and I suspect some of their supporters think so as well. The recent election in New Zealand showed that even the most popular Prime Minister can almost lose an election.
I have involved myself at the sharp end of politics over the last decade. I have been on both the winning and losing side. I don’t like losing, but some time you have to lose to win. I have a dictum about politics, and it is this: “Politics is a marathon, not a sprint.” I mentioned before that you have to stand for something, because if you stand for anything or everything the voters will never respect you, let alone vote for you.
- You have to have a message to differentiate.
- Declare victory after you have worked out your strategy and go for it.
- Look bold at least and, even, better be bold.
- Demonstrate flair, not silliness in events.
- Look as though you are enjoying yourself, especially when the going is tough.
In the recent New Zealand election, I was involved in a campaign where we were usually never above one or two percent. Throw in a shonky, low-quality state television poll that sought to show that our party had no support in a key riding, and you had a difficult campaign. But we looked cheerful, especially the leader. To his credit and that of the party, he took a seat off the conservative National Party with a good majority.
The battle for ideas is never completely won. It’s a stage where we play a bigger or smaller part. When the battle gets tough, there is often nothing left to lose. Stand tall on your principles. Sometimes you do have to win to lose.
Winston Churchill said famously that you can only be killed once in a military battle. In politics you can die many times and live to fight another day. That’s why it’s so challenging and even important.
A 15-year veteran manager of political campaigns, New Zealand’s Brian Nicolle has worked for famous New Zealand reformers like Sir Roger Douglas and Richard Prebble. From a Labour Party background like them, he believes that privilege and the corporate state are the enemies of working people. In 1993, he ran the controversial campaign against proportional representation, and in 1994 helped establish the ACT New Zealand party, which promotes freedom, choice and personal responsibility. This speech was originally delivered at a Breakfast on the Frontier, October 21, 2005.