Reference: Rankin, Keith (1998) "Riders on the Storm", New Zealand Political Review 7(4):38-39.

In Stormy Seas;
The Post-War New Zealand Economy

by Brian Easton (1997)

published by
Otago University Press
PO Box 56
New Zealand

review for the NZ Political Review (November 1998) by Keith Rankin


Brian Easton's study of the history of New Zealand's economy is more a lesson in macroeconomics from a "market Keynesian" perspective than an eclectic economic history. Its central question is to ask just what was (and is) wrong with New Zealand's economic performance since the 1940s.

One weakness in the market Keynesian perspective is its macho emphasis on "performance", which means continuously high rates of GDP (gross domestic product) growth. There is still a market out there for an alternative progressive analysis that focuses on the success or otherwise of New Zealand's economy in creating free time, congenial working environments, and the kind of growth that does not depend on increased inputs of land, labour and capital.

As an economic history text, In Stormy Seas is conservative, following in the footsteps of J.B. Condliffe (New Zealand in the Making), Colin Simkin (The Instability of a Dependent Economy) and John Gould (The Rakes Progress?). The shared theme is one of dependency, which is ironic given that, for most of the century, in requiring imported food it was menopausal Britain that depended on her fledgling daughters, rather than the dominions depending on the mother country.

The main purpose of the book, however, is not to reinterpret New Zealand's economic past. Rather, it is to remind the reader that there is an orthodox alternative analysis and prescription to that of "radical monetarism". Easton uses this label for neoliberalism so as to emphasise the macroeconomic issues of growth, full employment, price stability, and the balance of payments. He notes, with echoes of Karl Polanyi's thesis (see ...), that the dispute between market Keynesians and radical monetarists is "between markets as means, and markets as ends". The other source of tension Easton identifies is between traditionalists and modernisers.

The historical content of In Stormy Seas serves to redress the tendency on the part of the New Right to present New Zealand's history in such a way as to facilitate their policy agenda. Nevertheless, the lack of new insights into our past frustrated me, having read James Belich's Making Peoples and concurred with most of that compelling story. I am confidently expecting that Belich's sequel will contain a very different emphasis to Easton's insistence that our story is determined by outside forces. That sequel will, I believe, start from the premise that New Zealand's twentieth century history has been one of success, not failure.

So far, New Zealand has nothing like the essay "Mastering Risk", by Australian economic historian Colin White, in the 1992 book Shutdown; the Failure of Economic Rationalism. Or White's subsequent book Mastering Risk; Environment, Markets and Politics in Australian Economic History. White's approach was to attack the neoliberals head-on by showing that Australia's story has been one of success, and that the alleged problems of chronic non-performance were little more than politically-motivated rhetoric and carefully filtered statistics.

White's key insight is the creative resilience of the Australian economy. Australians are presented as innovative, well-educated and pragmatic. I suggest that New Zealanders are not dissimilar. Thus the real story of New Zealand is not its poor performance, but its success in overcoming the stormy seas of international markets, politics and vogue philosophies. To some extent this is the story Easton does tell, even if he did not set out to tell it.

New Zealand remains prosperous, despite food prices not rising to the extent predicted in the 1940s. The boom from 1955 to 1965 "was a period of great intervention, by current standards". New Zealand did not fall apart in the 1970s (as, I might note, Argentina and Uruguay did). When the seas were really stormy in the early 1980s, the New Zealand economy forged ahead. Even the failures after 1984 were not as great as they might have been. The New Zealand economy did not regress because the seas had become "calm" so New Zealand merely "floundered rather than foundered".

For Brian Easton, New Zealand's economy successfully transformed itself in the years from 1966 to 1984. This was the challenge to diversify from a commodity producer for the British market to a modern industrial economy. While he sees this success as more being despite rather than because of Robert Muldoon, the Minister of Finance for 14 of those 18 years and Prime Minister for half, Easton goes out of his way to emphasise the extent to which liberalising legislation was introduced during the Muldoon years. Easton also gives an open verdict on "Think Big".

It was "the Establishment" that couldn't cope with change. "In the 1970s and 1980s the New Zealand Establishment faced adaption to new economic, social, and political circumstances which were opening up. The speed of change was such that they did not. Instead there was the catharsis of 'Rogernomics'." Easton sees the post-1984 "earthquake" as a counter-revolution.

His market Keynesian perspective leads Easton to emphasise the role of the tradeable sector, and in particular the role of exports. The denial of the central importance to New Zealand of exports is one of the things that most frustrated him about economic management after the Muldoon years. The single biggest mistake was to float the New Zealand dollar in the middle of an attempt to deal to inflation through high interest rates. The exchange rate is seen as a critical variable for the national economy, and Easton traces real exchange rates from the 1920s as a means of making his point. Furthermore, inflation is seen as being a much more complex beast than the radical monetarists would allow. He uses an alternative "cost-based theory of inflation" to explain changes in the post-war price level.

Easton argues that getting the balance of payments right - which means raising foreign exchange earnings (not foreign exchange credit which was raised in superabundant quantities) - is and always has been the central economic task of New Zealand's policymakers. He notes the irony that, in trying to adopt a tight monetary and loose spending policy with the exchange rate as an insulating device, Roger Douglas and Treasury in 1985-87 actually gave us what might be called a loose liquid environment, and still succeeded in creating a damaging recession in at least half of the country. Inevitably, all of the money sloshing around the system went into the non-tradeable sectors; in particular the finance, insurance, real estate and business services sector, which grew four times faster than the economy as a whole.

Easton laments that, while market Keynesianism was orthodoxy to about half of the economics profession in New Zealand, the policy debates were dominated by the radical monetarists and the traditionalists, making it seem as though the New Right offered the only progressive economic strategy; a strategy that came to be known as TINA ("there is no alternative").

Some small points. The layout of Easton's many graphs and tables is uninspiring, with one (figure 6.6 on share prices) being labelled with the wrong years, and with tables of female incomes in Appendix 1 appearing to be of male incomes. Easton falls for the common misquote of Adam Smith's "invisible hand" statement (p.248; see my "What Adam Smith really said about the "Invisible Hand" on the Internet at, but at least realises that the popular perception of Smith's economic liberalism is misplaced. Finally Appendix 3 is a useful summary of a variety of long-run performance indicators for New Zealand and the OECD for the 30 years to 1990.

A careful analysis of the historical record is a necessary prerequisite to the understanding of contemporary problems. Brian Easton does us a great service by providing such an analysis. He notes that "New Zealanders have an obsession with the government in the economy, in that they tend to overlook the other factors which influence economic performance". History shows that most change occurs despite rather than because of government policies. Easton's analysis also suggests that global storms may have been less important than we might otherwise have expected in retarding New Zealand's economic growth. Rather, international circumstances and fashions have helped to stimulate a variety of private and public sector initiatives, varying from unheralded success to conspicuous failure.


© 1998 New Zealand Political Review

NZPR | Rankin File