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New publication: ‘The Power of Ideas’ collects ‘theoretical foundations’ posts

Wednesday, December 22nd, 2010


It’s finally arrived! The most anticipated (by me at least) Policy Progress publication of 2010, The Power of Ideas: Decline and renewal in the theoretical foundations of progressive thinking, is now online.

From my foreword:

This report collects together all of my writings on the ‘Theoretical Foundations’ topic, one of the main themes for the Policy Progress website in 2010. This topic goes right to the heart of what Policy Progress has been trying to do as a policy ‘think-site’ devoted to developing and supporting progressive initiatives and ideas. Over the course of this year, I’ve tried to grapple with the history and prospects of progressive thinking and renewal. And, perhaps miraculously, I feel that the 35 or so posts that formed the basis for this report really do add up to something that hangs together.

As I said yesterday, I won’t be able to write for Policy Progress anymore next year, so I’m pleased to have managed to complete this giant compilation as a record of (much of) the year’s work.

You can download a copy here.

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We value what we measure

Tuesday, December 14th, 2010

This is the third and final part of a series of posts about contemporary progressive thinkers who challenge the ‘conventional wisdom’ about economic growth. Part one looked at Richard Wilkinson and Kate Pickett’s The Spirit Level and part two looked at Tim Jackson’s Prosperity without Growth.

Wilkinson, Pickett and Jackson suggest that economic growth should no longer be — even cannot be — central to the progressive project. But what about those within the economics profession itself?

Joseph Stiglitz is a U.S. Nobel prize-winner, former chief economist of the World Bank, and author of Globalisation and Its Discontents and Freefall: America, Free Markets, and the Sinking of the World Economy. Amartya Sen, born in India, is also a Nobel prize-winner, and the author of Development as Freedom and The Idea of Justice. Both are highly-regarded progressive economists.

In 2008 and 2009, together with Jean Paul Fitoussi (a distinguished French economist), they headed a Commission on the Measurement of Economic Performance and Social Progress set up by President Nicolas Sarkozy of France, who felt that existing measures like Gross Domestic Product (GDP) didn’t tell a full and proper picture of the economy or society.

The Stiglitz-Sen-Fitoussi Commission produced a lengthy, thoughtful and thorough report. They argued that GDP was indeed a partial and often misleading measure, and proposed reform across three dimensions. First, classical GDP statistics needed to be refined to better take account of things like income distribution and the actual value of public services. Secondly, there was a need to complement GDP with measures of ‘quality of life’, including both purely subjective aspects such as happiness, and more objective factors drawn from Sen’s ‘capability framework’. Thirdly, we need to measure and track the sustainability of our economy, defined quite precisely as whether “at least the current level of well-being can be maintained for future generations” — for this the Commission argued that an approach based on changes in resource stocks (which Tim Jackson would recognise) would be needed.

Across all three dimensions, the Commission’s arguments are well-developed and compelling, although they were clear that their report was very much a starting point for what would be a complex exercise of statistical reform.

And, while predominantly an expert technical process, their work is likely to have important policy consequences and implications for progressive thinking. This is because the way we account for things helps determine the way we see the world. What we measure, we value; and, too often, if it isn’t measured, it slips out of view. This was a central theme of New Zealand politician and academic Marilyn Waring’s feminist critique of economic statistics, Counting for Nothing, back in 1988, and this work is very much in that vein.

In a ‘Reflections’ paper accompanying the main report, Stiglitz, Sen and Fitoussi are more explicit about this aspect of their project:

It is our belief that an open discussion of the issues – and problems – involved in measuring economic performance and social progress provides an important context within which societies can engage in critical debates about societal values. (p. 27)

Otherwise, the “risk is that as countries strive to increase measured GDP, they take actions which now, or in the future, may actually lower societal well-being” (p. 10). This can be seen with the environment:

Countries that enjoy high living standards today by depleting their inheritance of natural resources – without investing the proceeds – are “robbing” future generations. It is possible that doing this does not even increase their welfare, as people usually care about the well-being of their children, but they may unintentionally act this way, at least partially because they are not informed, absent the right metric. (p. 10)

And even with the recent Global Financial Crisis:

Many concluded, for instance, that financial deregulation was good, because it led to rapid expansion of the financial industry and an increase in measured GDP. We now know that that growth was not sustainable; that much of the profits earned in 2004-2007 might more appropriately be looked at as winnings in gambling by some, which were more than offset by the losses in 2008, and the following years, by others. (p. 11)

What, therefore, are the likely implications of measuring things in a broader and more accurate way? How would this approach, if implemented, be likely to inform the further development and renewal of progressive ‘theoretical foundations’?

In some respects, it would likely be compatible with the arguments of The Spirit Level and Prosperity without Growth. We would become more aware of which types of societal and economic development were having the most positive (or negative) impact on quality of life, and whether we were on a sustainable path. The Commission’s work can’t at this stage point to whether a strict path of de-growth is necessary, as Jackson argues, but would nevertheless encourage us to see the quantum of economic activity as just one set of factors in achieving progressive goals of equitable wellbeing. Metrics on things like leisure, happiness and political voice would help to provide a broader picture.

A secondary but still important consequence might be to counter negative images of the effectiveness of public services. The modern image of the public sector languishes under the constant suspicion of inefficiency and dysfunction, a far cry from the chilling efficiency of ‘bureaucratic authority’ depicted by Weber and which (I have argued) helped underpin the Keynesian-era confidence in the state. Cautiously, without wishing to prejudge, the Stiglitiz-Sen-Fitoussi Commission suggests that if we could better measure the value and not simply the input costs of non-market public activity, we may see a more positive picture of improved value over time (often in form of better quality and more effective services in areas like health and education, rather than larger volumes).

That may be one more way in which the seemingly mundane process of statistical reform could transform the way we see things, and deconstruct some of the statistical ’story’ that neoliberalism has constructed about the primacy of growth and markets.

Links:

  • The main Stiglitz-Sen-Fitoussi Commission report.
  • The accompanying ‘Reflections and Overview’ paper from Stiglitz, Sen and Fitoussi.
  • My earlier post on Weber.

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Macroeconomics without growth

Tuesday, December 7th, 2010

This post follows from last week’s, which discussed how Richard Wilkinson and Kate Pickett’s The Spirit Level argued against the continued value of further economic growth. This week’s post looks at the work of Tim Jackson, who, as discussed previously, also argues that it is both possible and desirable for modern economies to operate without growth.

Economic growth is not good for our society or our environment, argues Tim Jackson, the author of Prosperity without Growth: Economics for a Finite Planet.

That’s not a new position for someone coming from an ecological perspective. What is a bit more unusual that he also faces up to the economic problems that a “steady-state economy” would face, and goes some way towards demonstrating that they can be overcome.

The new ecological macroeconomics that he is developing has the potential to become an important contribution to the ‘theoretical foundations’ of progressive thought in the 21st century.

But, before addressing this, it is worth touching on another important aspect of Jackson’s book, which is his refutation of what he calls the ‘myth of decoupling’. A standard feature of more mainstream economists’ efforts to take climate change seriously is an effort to show that it is, while not easy, manageable for us to make the transition from our current carbonised economy to a much less carbon-intensive one, which could otherwise carry on much as before. The work, for instance, of Nicholas Stern falls into this category.

Jackson, by contrast, makes a convincing case that this is arithmetically impossible. In 2007 a global population of 6.6 billion had an average income level of $5,900, with a carbon intensity of 760 grams of CO2 per dollar. This produced 30 billion tonnes of CO2 emissions.

The IPCC’s targets for 2050 is 4 billion tonnes of CO2per annum. In order to reach that, assuming a population of 9 billion (the UN’s mid-range estimate) and per capita income growth of 1.4 per cent a year (the same as between 1990 and 2007), we get the following equation: 4 billion tonnes of of CO2 = 9 billion X around $10,700 income X a carbon intensity of round 36 grams per dollar! That’s a 21-fold improvement on 2007 levels of intensity.

If we were to assume a higher-end population projection projection of 11 billion and allow for the developing world’s incomes to converge with those of the EU, the target gets harder again. Moreover, there would then be a need to continue to reduce carbon intensity beyond 2050. By 2100, writes Jackson, “to all intents and purposes, nothing less than a complete decarbonisation of every single dollar will do to achieve carbon targets.” Looked at this way, ongoing growth begins to look rather problematic.

But non-growth (decroissance, to use the French term) has its arithmetical problems too. Jackson points out that our modern capitalist economy has, as its basic driver, investment. And investment produces returns for the investor by increasing the productivity of labour and other resources. Therefore, over time, the amount of labour needed to produce the same bundle of goods and services declines. And so, if growth were to cease, but investment and productivity gains continued, then the economy would shed labour each year.

That would create an unstable spiral, as increased unemployment led to reduced consumption and thus a drop in investment.

Jackson calls this the dilemma of growth: growth is unsustainable but de-growth is unstable. But he believes it is possible to get around this. Drawing on earlier work by Herman Daly, Avner Offer and Peter Victor, he sets out both an idea about the kind of non-growing economy that might be stable and some thoughts about how we might develop a macro-economics to analyse the dynamics of such an economy.

Very broadly, a non-growing and environmentally-friendly would have three characteristics:

  • Firstly, the logic of pursuing productivity growth would be turned on its head by deliberately seeking to focus growth in the lowest-productivity (i.e. most labour-intensive) sectors of the economy, such as ‘personal and social services’.
  • Secondly, there would need to be a deliberate process of sharing out the work, via reductions in working time, rather than allowing the reduced labour hours to be borne by a minority of unemployed people.
  • Thirdly, the drivers and expectations around investment would need to change significantly, with the growth of ecological investment. In many cases, this would have much longer return -horizons than currently, or no returns at all. This would imply a much greater role for the public sector in leading this sort of investment.

Jackson sets out a complex typology of different investment ‘dimension’, each with slightly different  targets and conditions:

He sees a more detailed and complex understanding of the differing dynamics of these different types of investment as a distinctive feature of a new ecological macroeconomics.

Jackson’s model is a work-in-progress, but even in its current form it stands as a powerful rebuke to the notion that ‘zero-growth’ proponents must always be utopian, a bit fluffy and unwilling to really work through the hard analytical issues.

The question of whether progressives should abandon growth, as The Spirit Level counsels, or continue a champion it remains unresolved. But attempts to short-circuit that debate by dismissing de-growth as ‘pie-in-the-sky’ now face the demanding task of refuting this impressive work. I look forward to Im Jackson’s further elaboration of it.

Next week, I’ll look at the claim against GDP as a measure of progress, and particularly the work of the Sarkozy Commission.

Links:

  • An electronic copy of a slightly older version of Prosperity without Growth than the one in the bookstores can be accessed via the Sustainable Development Commission website, here.

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The Spirit Level versus the ‘investment state’

Tuesday, November 30th, 2010


Written by two epidemiology researchers, Richard Wilkinson and Kate Pickett, The Spirit Level has become the progressive publishing sensation of the last couple of years. Based on a broad range of cross-country comparisons, it takes the progressive championship of inequality to a new level.

According to Wilkinson and Pickett, greater equality doesn’t just produce better outcomes (life expectancy, educational performance, mental health etc) for the poor. They claim that (as their subtitle asserts) “equality is better for everyone”. In other words, even relatively well-off citizens are likely to achieve better outcomes in more equal societies than in less equal ones.

Why? Because, they say, more unequal societies suffer from higher levels of insecurity and status-related anxiety. This is associated with a focus on self-promotion and a weaker sense of community. These characteristics permeate the whole society, and afflict rich and poor alike. So even those who in a material sense may have ‘done better’ out of inequality may be sicker, less happy and generally less well-off as a result.

Such a theory strikes at the heart of anti-progressive political outlooks, in both their traditional-conservative and free-market manifestations. It is no wonder then, that while avowedly non-political (and occasionally cited approvingly by UK Conservative leader David Cameron), The Spirit Level has come under heavy barrage from the political ‘Right’. Policy Exchange and the Democracy Institute have each published counter-publications, by Peter Saunders and Christopher Snowden respectively, aiming to discredit it.

My main interest, however, is not the threat that The Spirit Level poses to the ‘Right’, but the challenges it presents to the theoretical foundations of much of modern progressive thinking.

Because another central plank of the Spirit Level platform is that the beneficial effects of economic growth in the advanced capitalist countries have now largely been exhausted.

The graph above illustrates that as countries develop economically, there is a reasonably close relationship with life expectancy — as the country grows and develops, its population lives longer. But the graph also suggests that, beyond a certain point, that relationship breaks down: among the rich countries life expectancy is not related to national differences in average income. The same pattern, say Wilkinson and Pickett, applies with happiness and other measures of wellbeing as well:

Sooner or later in the long history of economic growth, countries inevitably reach a level of affluence where ‘diminishing returns’ set in and additional income buys less and less additional health, happiness or wellbeing. A number of developed countries have now had almost continuous rises in average incomes for over 150 years and additional wealth is not as beneficial as it once was . . .

At the same time as the rich countries reach the end of the real benefits of economic growth, we have also had to recognise the problems of global warming and the environmental limits to growth . . .

We are the first generation to have to find new answers to the question of how we can make further improvements to the real quality of human life. What should we turn to if not to economic growth? (pp. 10-11)

Moreover, they go on to argue that the cultural logic of economic growth is intrinsically bound up with the unhealthy ’status anxiety’ that permeates unequal societies.

This, I would argue, is a major challenge to mainstream progressive thinking. Similar propositions have been put solely in ecological terms, but this takes the argument right into the heart of progressive territory: concerns about poverty and inequality.

It is hard to exaggerate how much of a departure this implies from standard Marxian, Keynesian and ‘third way’ prescriptions. (Although Marx, Keynes and Giddens themselves do each, in their own ways, conceptualise a post-materialist end-point).

This is particularly true of the ‘third way’. The success of Keynesian social democracy came from its perceived ability to keep the ‘motor’ of the economy going by acting as the ‘consumer of last resort’. As Przeworski writes, ”it was a theory that suddenly granted an universalistic status to the interest of workers” as a way of stimulating aggregate demand.

But the ‘third way’ went further, framing the idea of an ‘investment state’ whose job it was to work hand-in-glove with capital to achieve the most innovative, competitive, productive, successful national economy possible. Areas like education and science were seen more strongly than ever before as mechanisms to be used to attain national competitive advantage.

And social goals were largely seen as being achieved through the tax dividend from all this growth. Rather than worrying about an economy that was driving increasingly unequal conditions in the marketplace, the state would focus on ameliorating those effects through redistribution (via tax credits like Working for Families in New Zealand, other targeted assistance, and social spending designed to combat inequalities).

The theory and prescription of Wilkinson and Pickett stands starkly opposed to the logic of this approach, which can be seen as essentially Rawlsian.

John Rawls was perhaps the most important liberal political philosopher of the late 20th century. His “difference principle” held that inequality could be justified insofar as it contributed to general prosperity in a way that made even the poorest members of society better-off than they would be in a more equal society.

To be fair to Rawls, this could be interpreted as permitting only a very small amount of inequality. But, in practice, the Rawlsian approach was primarily taken up by those who accepted that there was a capitalist equality-prosperity trade-off, but that some of the fruits of that prosperity should be invested in making the poorest better off. They were, in other words, what John Kay has called ‘redistributive market liberals’.

And to a large extent ‘redistributive market liberalism’, and a Rawlsian view of economic growth, were at the heart of the ‘third way’.

The Spirit Level, on the other hand, seeks to turn the ‘difference principle’ on its head. Rather than inequality-generating growth being good even for the poorest, it is to be seen as detrimental even for the very richest.

Rather than the state trying to run ever faster to ameliorate inequality after the fact, Wilkinson and Pickett counsel us to abandon the culture of consumerism and reorientate towards a steady-state economy in which everyone has much more equal shares.

To this it might be objected that, even if such an approach were desirable, it is not feasible. The basic logic of a modern capitalist economy, it can be argued, is not compatible with a steady-state — without growth, it would become unstable and generate increasing levels of unemployment. This is the dilemma that Tim Jackson in his book Prosperity without Growth has sought to address with a new ecological macro-economics. And it is to this work I will turn in next week’s post.

Links:

  • Wilkinson and Pickett’s Equality Trust website.
  • Perhaps the best example of the debate over The Spirit Level — a session at the Royal Society for the Arts (RSA) where Wilkinson and Pickett squared off against Saunders and Snowden [audio and presentation slides].
  • A recent policy forum at the Institute of Policy Studies in Wellington entitled Does Inequality Matter? started with a video-linked presentation from Wilkinson, and spurred me to write this post. [presentation slides plus audio/slides for Wilkinson] The presentation by Tony Blakely (University of Otago Wellington) is one of the best critiques of The Spirit Level I’ve come across (and comes from a broadly progressive perspective).
  • My earlier post discussing Przeworski’s view of Keynes.
  • Four posts I’ve written on the ‘third way’: (1) (2) (3) (4)
  • Wikipedia on John Rawls’ A Theory of Justice.
  • An earlier post I did on Tim Jackson.
  • Two posts I did on James Purnell’s arguments about the limits of the redistributive strategy are also relevant: (1) (2).

Further Reading:

  • Richard Wilkinson and Kate Pickett, The Spirit Level: Why Equality is Better for Everyone (revised edition, 2010).
  • John Rawls, A Theory of Justice (1971).

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Postscript on ‘The New Politics’

Wednesday, November 24th, 2010

One must of course be careful about reading too much into titles and labels. I shared an advance copy of yesterday’s post with Peter Harris and Chris Eichbaum and they advised me that the ‘Third Way’ subtitle to their book was included largely at the urging of their publishers, who wanted to connect the book more explicitly to the global ‘third way’ debate. The original title had been something like “The New Politics: the search for a post-Washington consensus in NZ”.

Nonetheless, they went along with the idea, reasoning that (as they say in the book) NZ had had its first and second ways with Muldoonist statism, and the neo-liberalism of Douglas, Richardson & co. So a ‘third way’ was relevant here too, even though NZ Labour needed distance from its past for rather different reasons to UK Labour.

They did insist on the subtitle being “a third way” rather than “the third way” though! (Which is consistent with the specifically NZ ‘third way’ character that I’ve tried to outline.)

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Did the ‘third way’ give New Zealand ‘a new politics’?

Tuesday, November 23rd, 2010

This is the last in a series of three posts about the ‘third way’ strand of progressive thinking in New Zealand. Part one looked at Helen Clark’s perspective, while part two looked at Steve Maharey’s identification with the ‘third way’. An earlier post introduced the ‘third way’, looking at its leading UK theorist, Anthony Giddens.

Although Steve Maharey was the Cabinet minister most identified with the ‘third way’, the most indepth account of what a New Zealand ‘third way’ approach might mean can be found in a book that was published immediately before the 1999 election that brought Helen Clark and the Fifth Labour Government to power.

Entitled The New Politics: a Third Way for New Zealand, it was written by a group of eight academics and trade unionists and produced with the assistance of a progressive thinktank, the Gamma Foundation, that was active at the time (the Public Service Association and FinSec also provided support).

Although the book doesn’t have any identified editors, both the preface and concluding chapters were co-written by Peter Harris and Chris Eichbaum. Harris had been the economist for Council of Trade Unions (and prior to that for the PSA), while Eichbaum was a Massey University academic (who also had credentials with the union movement and as a former Labour staffer). Both would go on to become highly-placed ministerial advisors during the first term of the Fifth Labour Government, Harris for the second-ranked Labour minister Michael Cullen and Eichbaum for the third-ranked Labour minister Steve Maharey. Eichbaum then did a stint in the Prime Minister’s office before returning to academia. Harris later chaired the Ministerial Savings Product Working Group, which formed the basis for the establishment of the KiwiSaver scheme.

Therefore, The New Politics can be seen as reflecting a perspective that was very compatible with that of the Fifth Labour Government itself. In addition to Harris and Eichbaum, its authors included Peter Conway, who replaced Harris as CTU economist and is now their general secretary; Paul Dalziel, Canterbury university (later Lincoln) economist and brother of Cabinet minister Lianne Dalziel (he is currently a member of the Alternative Welfare Working Group); and academics Srikanta Chatterjee (Massey), Bryan Philpott (Victoria, now deceased) and Richard Shaw (Massey).

As it happens, I have worked with both Harris and Eichbaum and know them fairly well now, but I hadn’t met them at all when I read their book in 1999. (And I wouldn’t automatically ascribe exactly the same views to them today.) Going back and re-reading The New Politics, a few themes stood out for me with the benefit of hindsight.

In his chapter, Peter Harris writes:

There is a core idea that marks out the Third Way: people need jobs. It is a core part of their social persona, it contributes to more stable family life and so on. Dependency can never be a satisfactory long-term status and creates intergenerational cycles of dependency and despondence.

. . . A new consensus has to be built around some form of social concordat. In reducing previous protections via deregulation, privatisation and a free flow of finance and trade, the government assumes an obligation to make it easier for the displaced to get other jobs . . . The other side of the deal is that those who are dislocated must be active participants in job readiness and job search programmes.

Harris also sets out ’subsidiarity’ as a defining characteristic of the ‘third way’:

The principle of subsidiarity means that a decision should not be taken at a higher level if it can be more appropriately be taken at a lower level. For example, the state should not make a decison on what a school community can more appropriately make.

. . . There are two dimensions to this. One is that the state should not intrude in some areas. it should not absorb and stifle when there is no need to do so. The other is that the state should not be expected to do everything. There are structural levels of responsibility – individual, family, community, etc. that need to be both respected and expected. Subsidiarity involves the state ‘helping out’ by contributing indirectly to the ability of the social networks to contribute to that notion of public good.

Similarly, Eichbaum in his chapter writes:

The renewal of civil society, through the refurbishments of democratic institutions and the kind of institutional ‘in-building’ suggested by the stakeholder model [advanced by Will Hutton], is central to the new economics as well as to the new politics.

. . . The neo-liberal project is one that denies the legitimacy of interests within the policymaking apparatus on the grounds that credible policy must be manifestly independent of any ‘vested’ interests . . . In seeking a renewal of civil society, the Third Way holds out the prospect of a political economy that provides the kinds of structures capable of sustaining fexibility and commitment.

And on macroeconomic policy he takes issues with Giddens, arguing that it must go beyond simply “macro stability” to address “the institutional environment with which policy is developed and implemented” and recognise the importance of the “institutions of macroeconomic management”.

If we add to these prescriptions Maharey’s focus on the ‘knowledge society’, then it is possible to see ‘third way’ ideas as permeating much of the Fifth Labour Government’s activity, even though it was not framed as such at the time.

The focus on employment as the “best social policy”, which was reinforced and validated by historically rates of employment growth, became a lead feature of social development policy, and informed the design of Working for Families, which was at least partly founded on the conception of making work pay.

It also fed into Jim Anderton’s idea of the economic development portfolio as a ‘jobs machine’. But this area also reflected an attempt to answer the question about how to operate the “institutions of macroeconomic management”.

And increasingly it also reflected an effort to conceptualise and achieve a New Zealand ‘knowledge society’. This also inflenced the new institutional framework for tertiary and science policy.

The way the government went about things also reflected the emphasis on stakeholders and the rejection of the neo-liberal delegitimation of ‘vested interested’. Consultation and partnership became watchwords for the public service, and periodic efforts were made to improve the footing of community sector. (It’s worth noting that Harris and Eichbaum’s final chapter includes an admirably clear-eyed and prescient account of the likely challenges that increased reliance on the community and voluntary sector would bring.)

On the other hand, the principle of subsidiarity made only an intermittent appearance. More often, it seems to have been eclipsed by the centralising tendencies of the state in general and Labour instincts in particular.

What is also intriguing is how many specific proposals made in The New Politics seem to only be making it onto the policy agenda now, ten years later, in the post-defeat post-’global financial crisis’ Labour Party:

  • Chatterjee, Dalziel and Eichbaum all called for reform of monetary policy;
  • Dalziel argued for workers at a particular worksite to be allowed to vote by a suitable majority for compulsory union membership at their site (a ‘closed shop’);
  • Philpott argued for tighter controls on the overseas purchase of existing assets including land;
  • Dalziel advocated for a greater involvement of the government in capital production; and
  • Harris, Eichbaum, Chatterjee and Dalziel all talked about the urgent need to “restore some order to finance markets”.

Perhaps, in fact, the real ‘third way’ is not an historical relic. The name may have been discarded, but it may be that it is only now really beginning to take root.

Another way of looking at it is to identify three different components to ‘third way’ thinking.

Firstly, there is the partial accommodation to the Right’s critique of the capacity and effectiveness of the state. This is where the UK ‘third way’ has drawn most criticism from other progressives. As we have seen, however, ‘third way’ thinking in New Zealand included some rather more extensive revisiting of neo-liberal ‘nostrums’, though much of this wasn’t taken up in government at the time. In this sense, post-Crisis progressive rethinking may involve more continuity with its ‘third way’ tradition in New Zealand than was the case elsewhere.

A second component relates a particular style of government (subsidiarity, partnership, reverence for ‘civil society’). Some aspects of this got more traction than others, and some of it has gone out of fashion, but the appropriation of this approach by the Right in the UK (David Cameron’s ‘Big Society’) suggests that it still has quite a bit of mileage left.

Thirdly, the idea of an ‘investment state’ informed thinking about a ‘knowledge society’, the primacy of employment and the ‘institutions of macroeconomic management’. Some of the language and the framing of ’strategies’ has faded a little, and economic conditions no longer as propitious for a focus on employment growth as a driver. Nevertheless, this was a central and generally still well-regarded aspect of the Fifth Labour Government’s tenure.

In my next series of posts, however, I want to explore some emerging trends in progressive thinking that may amount to a significant move away from the ‘investment state’ approach.

Further Reading:

Srikanta Chatterjee, Peter Conway, Paul Dalziel, Chris Eichbaum, Peter Harris, Bryan Philpott and Richard Shaw, The New Politics: a Third Way for New Zealand (1999) — available online from Wheelers Books.

Brian Easton, The Model Economist: Bryan Philpott (1921-2000) (2000)

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Steve Maharey and New Zealand’s third way

Tuesday, November 16th, 2010

This post is the second of three posts on New Zealand’s relationship to the ‘third way’ strand of progressive thought, as theorised by sociologist Anthony Giddens and made famous by Tony Blair. In part one, we looked at Helen Clark’s statements about the third way.

Disclosure: the author worked for six years as a ministerial advisor to Steve Maharey.

By the end of its tenure, there were two differing perceptions about the Fifth Labour Government. The general public saw it as a one-person show dominated by Helen Clark. People who considered themselves more informed saw it as a two-person outfit, co-steered by Michael Cullen (with the real insiders adding in Helen’s chief of staff Heather Simpson for good measure).

All perspectives are partial and subjective, including my own, but I tended to see the Fifth Labour Government as more pluralist than that. There were a handful of senior ministers who seemed to have a fair bit of autonomy over their own portfolios and some ability to influence the wider agenda (the influence of the Alliance in the first term is not to be disregarded either). The most visible of these to me were Trevor Mallard (who Helen early on had mooted as her possible successor) and Steve Maharey.

Steve Maharey is of particular interest in this context, as he is the New Zealand politician most associated with the ‘third way’. As Colin James said in 2001,

Steve Maharey earnestly read the new social democratic texts, the “third way” tracts, but few of his colleagues have.

To my mind, the most direct and personal statement that Maharey made while in government about the ‘third way’ approach was a lecture he gave to a group of Massey University students in June 2003, entitled “The Third Way and how I got on to it”.

In this lecture, he traces his intellectual pathway back to the 1980s, where he distinguishes his perspective from that of other, more traditionalist critics of Rogernomics:

I found myself in a curious position. The left opposed Rogernomics and as someone who regarded himself as part of the left I felt sympathetic. Yet it seemed to me that the defensive posture adopted by the left would lead nowhere. While I accepted that the traditional left values of solidarity, collectivity and social justice remained valid, new ways of delivering them were needed.

I took up a rather isolated position in the debate that raged during the 1980s criticizing both the right and the left. I wanted to see social democrats acknowledge the need for change and offer a new political agenda based on social democratic values. The British politician and academic David Marquand called this – old values, new politics.

This stance, he says, led him to the New Times thesis (associated with Martin Jacques and Stuart Hall). He also cites as influences Giddens, Geoff Mulgan (who co-founded the Demos thinktank with Jacques), Charlie (Living on Thin Air) Leadbeater, Swedish sociologist Goran Therborn, ‘communitarian’ writers Amitai Etzioni and Robert Putnam, Clinton’s dissident Secretary of Labor Robert Reich, and Australian Labor politician Mark Latham.

Maharey seeks to correct what he sees as two misconceptions about the ‘third way’. Similarly to Giddens and many others seen as associated with the ‘third way’, he states:

It is often said that the Third Way is just a compromise between the concerns of the market and social justice. I do not agree. Or at least I would argue that the Third Way does not need to be reduced to a political agenda that appears to be just a clever mixture of ideas from across the political spectrum. What has antagonized its critics is that so often it has in practice turned out this way.

Also, the ‘third way’ was not monolithic; there was not one single version. Rather, what united its proponents was:

an understanding that new times demand new answers from social democratic politicians. They could see that right wing neo-liberal politics had dominated the 80s and 90s by appearing to respond to social change and they wanted to “modernize” their own parties.

He lists a range of challenges that make up these ‘new times’ (renewing democracy, international engagement, inequality, etc.) but the prevailing theme is around the implications of technological change. While ‘third way’ social democracy’s ‘egalitarian project’ is unchanged, he says,

the means by which we intend to further the project have altered. The focus now is on the creation of a knowledge society and investment in policies that make this goal a reality.

Citing Latham, he describes the ‘third way’ as:

an attempt to answer the core challenge of Information Age politics: is it still possible to practice the shared bonds and responsibilities of a good society? Is collectivism still viable? The Third Way thinks that it is.

And he quotes Leadbeater to emphasise that this has significant, and progressive, consequences:

The goal of becoming a knowledge-driven society, however, is radical and emancipatory. It has far-reaching implications for how companies are owned, organized and managed; for the ways in which rewards are distributed to match talent, creativity and contribution; for how learning and research are organized; and for the constitution of the welfare state and the political system.

In terms of Maharey’s own portfolios, this had ramifications for tertiary education, where he sought to institute a more strategic approach. And, with regard to social welfare, or ’social development’ (as he reframed the porfolio), he says:

if everyone is to be included in the kind of knowledge based future at the heart of Third Way thinking the focus of traditional models of welfare on the transfer of income is not enough . . . Achieving social justice requires the extension of economic opportunity as much as the redistribution of wealth.

The new social democracy places the welfare state, or the new welfare state, at the confluence of economic and social justice.

How far beyond Maharey’s own areas did this thinking go, though? He is frank that, notwithstanding Helen Clark’s willingness to identify herself with it, “During its period of renewal, New Zealand Labour did not consciously decide to become a Third Way party.”

Nevertheless, if we take this ‘knowledge society’ project as central to a ‘third way’ approach (perhaps even moreso here than elsewhere) then we can see it as a recurring thread through the Fifth Labour Government: from the Knowledge Wave conference, through the Growth and Innovation Framework, and on to the Economic Transformation Agenda.

For Maharey, there was a particular imperative for New Zealand in seizing the knowledge society agenda. On other occasions (in May 2003 for instance), he said that a “‘developmental’ approach, seeing New Zealand as essentially a ‘developing nation’ whose circumstances can and must be transformed, is a distinguishing characteristic of this Government”.

That particular metaphor wasn’t one that other Cabinet colleagues used. But, even so, something of the approach that it implied can be seen as a distinctive (though perhaps somewhat tentative) New Zealand dimension to the ‘third way’ project of achieving a knowledge society.

In part three: we look at the 1999 New Zealand ‘third way’ manifesto, The New Politics.

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Was Helen Clark a ‘third way’ Prime Minister?

Tuesday, November 9th, 2010

This post follows on from an earlier one entitled Looking back on the Third Way, which examined the ‘third way’ strand of progressive thinking through the writings of its leading theorist Anthony Giddens.

The Fifth Labour Government in New Zealand led by Helen Clark came to power a few years after Tony Blair’s ‘New Labour’ in the United Kingdom. Can it also be seen as a ‘third way’ administration?

And if so, what did this mean in the New Zealand context, particularly with regard to the role of the state and ideas about the desirability and efficacy of state action?

The two leading figures of the Fifth Labour Government were Helen Clark and her deputy Michael Cullen. But only limited guidance can be gleaned from their public statements and writings.

This reflects the rather pragmatic and practical style that their government adopted. Veteran political commentator Colin James has written extensively over the years about the intellectual influences of successive governments including this one. His columns over the 2000s repeatedly trace its leaders reaching tentatively towards an overarching project or distinctive philosophy, only to pull back again.

“They are not a theoretical lot, even the boss herself with her political scientist’s training.” (May 2001)

“Clark and Deputy Prime Minister Michael Cullen have shied away from visions and proclamations of philosophy. Attempts to engage them in that sort of conversation don’t often get far.” (February 2003)

Perhaps most strikingly of all, he quotes “one Labour grandee” as saying on the topic of ‘vision’, “Hitler had one of those and look where it got the world”. (May 2005)

Even so, Helen Clark did from time to time describe her government in ‘third way’ terms, at least at first. (Michael Cullen never did, so far as I could find.)

In 2000 she said to the Auckland Chamber of Commerce that hers was “a classic Third Way government – committed to a market economy, but not to a market society”, and told that year’s Labour Party conference that their’s was “a third way approach” to dealing with the issues of how to adapt to globalisation and new technologies. In a 2002 address at the London School of Economics, she explicitly linked her government to the  writings of Anthony Giddens.

Two of her most specific explanations however came in speeches to the Local Government Conference in 2000 and the annual conference of the Meat Industry Association in 2001, respectively:

our third way government is seeking a new role, built around that concept of partnership, acknowledging the limitations of government, but also accepting the responsibility of leading, facilitating, enabling, brokering, and funding where appropriate to get results. (July 2000)

Labour takes the view that neither the excesses of hands-on nor of hands-off have served New Zealand well. That’s why we have articulated a third way for the state in the economy. That third way sees government as a leader, a facilitator, a co-ordinator, a broker, and a partner. It is a strategic role which also sees us apply funding where there is a public interest and/or market failure. (September 2001)

These statements are certainly consistent with Giddens’ conception of the ‘third way’. But to get further elaboration, including a sense of any specific New Zealand dimension to the ‘third way’, we will need to look elsewhere.

In part two of this discussion I will turn to the articulation of New Zealand’s ‘third way’ put forward by Steve Maharey, who Colin James at the time described as “Cabinet’s thinker” and Labour’s “most theoretical minister” (February 2005). Then, in part three I’ll look at the 1999 publication The New Politics: a Third Way for New Zealand.

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What made New Zealand Labour different? (part two)

Wednesday, November 3rd, 2010

Harry Holland, 1922 (Turnbull Library)

In part one, I asked how the New Zealand Labour Party (NZLP) in the 1930s had avoided the mistakes of their British counterpart under Ramsay MacDonald, and rejected the orthodox ‘austerity’ prescription for the Depression. I started by looking at the roles of Savage, Fraser and Nash. In part two, I also consider generational and culture factors.

I’ve argued previously that Ramsay MacDonald and his contemporaries’ fatal lack of engagement with how to manage a capitalist economy stemmed from a belief that their role was simply to usher in socialism when the conditions were right. As it turns out, NZLP leader Harry Holland suffered from the same mindset, according his biographer Patrick O’Farrell:

It was as if Holland was afflicted with that malaise which, according to [Rex] Mason [writing to Nash], had overtaken ‘most of our men’ in 1929: the idea that ‘victory will come from a concurrence of favourable external circumstances rather than from our own efforts’. Holland did believe capitalism was collapsing. He also thought that the economic consequences of that collapse were beyond the power of even a Labour government to rectify immediately. To discharge its true mission Labour must await the final disintegration of capitalism and build anew from the ruins. To take office during the process of collapse was to risk a disastrous involvement in the wreck. But what of immediate problems, the human suffering occasioned by the collapse, the good will of the people? Could Labour neglect these? For Holland, here was an enervating, crippling dilemma. (O’Farrell, p. 177)

The histories of the period recount both tensions between Holland and his three colleagues over policy directions and also a certain degree of disengagement from the weary Holland. In any case, however, he died suddenly in 1933 and it was Savage who lead the NZLP to victory in 1935.

Holland was only two year younger than Ramsay MacDonald, whereas Savage was six years younger, and Nash and Fraser were sixteen and eighteen years younger, respectively. They brought different experiences and perspectives to bear in the development of the NZLP’s policy.

There is also some possibility that New Zealand’s specific history and political culture may have had an affect. Bassett and King note (p. 121) Fraser’s “faith in the capacity of governments to fix social problems”. As early as 1927-8 they describe him (p. 114) as “honing his skills as a social engineer” and making speeches that “displayed a faith in the government’s ability to legislate and regulate for the public good”. More generally, they say the NZLP leadership of the time “became more extravagant with promises of state assistance to all sectors of the community” (ibid.).

Rather than being unique to the NZLP, though, such tendencies reflects what, according to Gary Hawke, is a general New Zealand trait:

New Zealand governments carried the principle [that governments legitimately intervened on behalf of the weak and powerless] so far as to leave doubt over whether there was any area in which the government did not have a genuine interest.

. . . Central government was always accessible and the colonial instinct was to use its powers and institutions wherever they were likely to be useful, irrespective of European ideas of propriety. European observers thought that New Zealanders practised socialism without doctrines, but they thought in European terms. New Zealanders simply found new roles for government in a pioneering society. (Hawke, quoted in James, p. 13)

Perhaps it was this Kiwi pragmatism that impelled the 1930s generation of Labour leaders to turn their considerable intellects to how the state could be used to fix the economic problems of the day, in a realistic and achievable way.

But the simplest answer to the question of what made New Zealand Labour different is: Savage, Fraser and Nash.

That this success lay so much with individuals and not institutions may in some way explain why the next major crisis, in the 1980s, was not handled so well.

Further Reading:

  • Michael Bassett and Michael King, Tomorrow Comes The Song: A Life of Peter Fraser (2000).
  • P. J. O’Farrell, Harry Holland: militant socialist (1964).
  • Colin James, The Quiet Revolution: Turbulence and Transition in Contemporary New Zealand (1986).

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What made New Zealand Labour different? (part one)

Tuesday, November 2nd, 2010

Fraser, Savage and Nash (1935) (Nash papers)

This two-part column is a sequel to Know your economics before you get into power, which described how in 1929 the British Labour government led by Ramsay MacDonald rejected Keynes’ economic prescription of fiscal stimulus to fight the Depression in favour of ‘the Treasury view’, as it became known.

The First Labour Government in New Zealand did not repeat British Labour’s mistake. They rejected the ‘balanced-budget’ dogma in favour of public works, spending on social services and a major extension of the welfare state with the passage of the Social Security Act in 1938.

Why was New Zealand Labour different? To some extent it was probably a case of learning from MacDonald’s mistakes, especially since Labour did not come to power here until in 1935. Even so, the New Zealand Labour Party (NZLP) seems to have come to a rejection of the ‘Treasury view’ far earlier than the British Labour Party.

I would argue that this reflected primarily a willingness and ability on behalf of the leadership of the NZLP to understand and engage with economic theory and debates.

The NZLP had been very lucky with the calibre of men (they were all men) in those top roles. The historian Keith Sinclair has written that Walter Nash, Peter Fraser and (Savage’s predecessor as Labour leader) Harry Holland all “read very widely in political and general economic literature”, adding, “There were few people in New Zealand as well read as these unschooled men.” (Sinclair, p. 71). Sinclair also described how Nash, the financial spokesperson, was close friends with and sought advice from a handful of top New Zealand economists including A.G. B. (Allan) Fisher of Otago University (Nash was best man at his wedding; pp. 79-80).

Michael Joseph Savage too was well-read on economic issues. His biographer Barry Gustafson notes that he was citing Keynes as early as 1925 and 1927, and his speeches continually emphasised the idea of ‘underconsumption’ as an economic ill (“He insisted that the root cause of the economic crisis was a lack of purchasing power in the domestic economy”) (Gustafson, pp. 144-5). The ‘underconsumption’ diagnosis is now most associated with Keynes but it had also been advanced by others Savage had read such as John A Hobson, an English economist who went on to become a strong critic of MacDonald’s 1929 government. (Hobson also influenced Edward Bellamy, whose Looking Backward: 2000-1887 was very popular with the New Zealand Left.)

As a result of this, the NZLP’s economic policy was carefully developed. Bassett and King write in their biography of Fraser (p. 123):

As he travelled about the country Nash’s speeches revealed a fine mind wrestling with the conundrums generated by steady deflation. By 1931, with the help of Fraser and Savage, he had drafted the essentials of a financial position. This was further refined over the next two years. The policy called for government planning to ensure there was enough purchasing power in everyone’s hands so people could buy the abundance of goods and services available in New Zealand.

The strength and coherence of their thinking was honed not only by arguing against the financial orthodoxy of the day, but also from defending their prescription against alternative strategies being put forward on the Left. Chief amongst these were the Social Credit theories of C. H. Douglas, which had a number of adherents in the Labour caucus, most notably John A Lee:

They believed that once the Reserve Bank had been nationalised in April 1936, all that had been needed to fund social reforms was a Minister of Finance with enough strength to turn the handle of the printing press . . . Since 1929, when [Fraser] fought to bring Nash into the Labour caucus, the two of them had opposed social-credit tendencies. (Bassett and King, p. 148)

The ‘credit men’ claimed that Fraser and Nash had (like MacDonald) been too orthodox. Similiarly, though from a very different perspective, the economic historian (and architect of the Fourth Labour Government’s tertiary reforms) Gary Hawke argues that, “In the economy, 1935-8 were years mostly of continuation of earlier policies in more favourable conditions.” (Prominent leftwing economist Bill Sutch, who served under the previous Finance Minister, Gordon Coates, also gives him credit as a precursor to the NZLP’s reforms.) Hawke adds, “It was the response of the Labour government to an exchange crisis in 1938, rather than its election in 1935, which marks a significant change in economic management in New Zealand.” (Hawke, p. 161; Sutch, pp. 37-50.)

Whether any or all of these judgments about Labour’s first term were correct is less important, for our purposes here, than the fact that when the pressure went on in 1938, its leadership responded by becoming more rather than less willing to intervene. In part this would have been because they had developed an economically-literate rationale for their actions.

It is, however, worth canvassing two other possible factors. One is generational, the other cultural. We look at each in turn in part two, tomorrow.

Further Reading:

  • Michael Bassett and Michael King, Tomorrow Comes The Song: A Life of Peter Fraser (2000).
  • Barry Gustafson, From the Cradle to the Grave: a biography of Michael Joesph Savage (1986).
  • G. R. Hawke, The Making of New Zealand: An Economic History (1985).
  • Keith Sinclair, Walter Nash (1976).
  • W. B. Sutch, Colony or Nation? Economic Crises in New Zealand from the 1860s to the 1960s (1966).

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