Time for a full employment strategy linked to large-scale housing development – let’s follow Joe Biden’s lead

New Zealand’s housing shortages reflect regulatory barriers to making land available, and lack of supporting infrastructure for new housing.  Despite high housing demand, supply is inelastic.  As a result, high demand inflates fixed housing stock prices without inducing more supply. 

During 2020 the median New Zealand house price grew by 19.3%, up from growth of 12.3% in 2019.  Lower mortgage interest rates have increased bidding competition and raised house prices even further.  As prices surge buyers need to borrow more.  This amplifies household indebtedness, much of it mediated through foreign-owned banks. As at June 2020 housing mortgage debt was $284B compared to 2020 GDP of $194B.  This debt is of macroeconomic significance.

Covid-19 recovery has seen booming engagement in trades training in areas such as construction.  This coincides with housing shortages that are devastating for many low income and younger people, and which are accelerating child poverty.  These shortages inflate rents as well as housing prices.  $1.7B was allocated to the Accommodation Supplement in 2019 and almost $2.4B in 2020.  A further $2B was allocated to Vote: Housing in 2020 for housing programmes and services. 

New Zealand’s housing crisis creates an opportunity to anchor a full employment strategy on housing and associated infrastructure development, as well as on other job-rich initiatives. To pursue such a strategy we need to understand how macroeconomic policies bear on employment, and how past policy settings are maladaptive to today’s realities.

The economic reforms from 1984 to the early 1990s aimed at macroeconomic stability and microeconomic flexibility.  Reserve Bank inflation targeting and fiscal prudence gave stability, while a floating exchange rate and industry and labour market deregulation delivered flexibility. 

Employment is a “good” in society, that is it determines per capita incomes, living standards and wider wellbeing.  However, macroeconomics has treated employment as a “good” conditional on a balance between employment and inflation. 

The Phillips curve is an inverse relationship between unemployment and inflation.  The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is “the natural rate of unemployment”.  “The NAIRU” and “natural rate” language implies that low inflation is more important than full employment.  Unemployment is used instrumentally for inflation control, and this masks its devastating social impacts.

The international evidence now is that the Phillips curve and NAIRU are no longer meaningful.  High employment and low inflation co-exist in advanced developed economies.

 “Full employment” means everyone who wants a job has one, minus frictional unemployment as people move between jobs, study, homemaker roles and so forth. 

The official unemployment rate measures those ready to work and actively seeking it. However, it excludes many young people not in education, employment or training, and people facing such barriers to employment as disabilities, lack of childcare or of transport.  Furthermore, many unemployed become discouraged in their job search and give up trying, meaning they are not recorded as unemployed.  Welfare to work settings may need to change to allow such people to join the workforce. 

Full employment without excessive inflation is achievable when output can expand, that is the output gap can be closed without increased inflation.  The output gap is a measure of an economy’s actual output compared to what it could produce.

Inflation occurs when the monetary base expands but output does not.  This can be due to skill shortages, restrictive workplace practices, lack of enabling infrastructure, resources diverted into war (as with the stagflation during the Vietnam War), and regulatory barriers to supply, for example restrictions on land available for housing.

There is overwhelming evidence that the poorest, most marginalised people benefit most from a high employment economy.  High unemployment leads to rising inequality, high employment is linked to equitable wage growth, and low paid workers benefit most from full employment.  For these reasons, in America full employment policies and Federal job guarantees have over the years been supported by such leaders as Martin Luther King, Bernie Sanders and Alexandria Ocasio-Cortez, and by black American economists such as Sadie Alexander, Darrick Hamilton and Sandy Darity. 

A sea change has occurred in American economic thinking favouring more government intervention.  It has been spurred by Bernie Sanders, Elizabeth Warren and other Democrat politicians, by hard reality, and by leading economic thinkers such as Paul Krugman. 

Cecilia Rouse chairs Joe Biden’s Council of Economic Advisers and Jared Bernstein is a member.  Rouse’s work has focused on removing “supply side” barriers to full employment such as regulation and poor education.  Bernstein takes a “demand side” approach, and advocates full employment as a macroeconomic goal.

The argument is that full employment drives higher wages and this spurs productivity growth.  The Economic Policy Institute (EPI) reports evidence of wage-led productivity growth in American macroeconomic data.  Specifically, at the aggregate level a rise in the wage share of corporate-sector income is associated with a rise in average productivity growth in subsequent years.

A full employment productivity multiplier seems to exist.  In a slack labour market with surplus labour, productivity stagnates.  However, in a tight labour market businesses need to pay more for labour.  As its price rises they have incentives to train and to adopt more labour-augmenting technology that lifts workplace productivity.

Full employment is a key Biden administration policy goal.  It will be delivered through a suite of initiatives such as a $2 trillion infrastructure package.  This includes massive upgrading of electrical, digital, social as well as transport infrastructure.  The initiatives also address climate change, sustainable energy, electric vehicles, R&D, manufacturing technology, and advanced skills for the future.

These bold initiatives will in the short run be funded through government debt which in 2020 reached 100% of GDP – well over twice New Zealand’s. American taxes will rise, however in the long run Biden’s initiatives will pay for themselves.

A full employment strategy for New Zealand could combine monetary policy that favours job growth, and fiscal policy that invests in job-rich areas with high social returns.  Social returns include such psychosocial benefits from full employment as reduced stress, family stability, and giving people more and better choices in life.  Making housing development integral to a full employment strategy would see housing stocks increase, and this would lead to reduced expenditure on accommodation supplements and on emergency housing. 

Government must deliver an enhanced regulatory environment facilitative of new housing developments.  It also needs to be an active investor in housing and infrastructure development. Government-facilitated housing development must be of sufficient scale to make a difference in people’s lives.  This means some property values will fall, potentially triggering homeowner opposition to government’s actions. 

However, rising property values come with a downside for existing owners as well as for those aspiring to home ownership.  Many New Zealanders spend their working lives paying off their home, and then they sell out and buy a cheaper house, with the cash difference funding a comfortable retirement.  However, booming property prices even for modest properties in hitherto low-cost regions erode this option.

Furthermore, many homeowners feel obliged to assist their children or grandchildren into home ownership.  As such they feel the indirect downside of inflated housing prices.

New Zealanders may be overly besotted with home ownership as a wealth store rather than for the functionality it provides.  Some wealthy countries such as Germany have modest home ownership rates but high quality and secure rental accommodation. 

New government-funded housing developments do not have to focus specifically on social housing or entry-level housing for first homeowners. So long as the total housing stock grows in the right locations, the benefits cascade down through socio-economic levels.  That is, those buying new houses free up lower quality housing for those lower on the housing rung. 

Housing developments alone will not deliver full employment, however there are many other job-rich opportunities.  Climate change response requires heavy investment in sustainable, green energy systems, and much of this will be in rural and provincial areas. 

Markets undersupply some socio-economic goods that deliver benefits wider than what can be captured in market transactions.  These benefits may not be privately appropriable, or they may endure longer than private investment horizons.  Examples include amenity assets, ecological restoration, and “human infrastructure” projects such as playgrounds and urban gardens.

Making full employment New Zealand’s paramount economic goal could lift productivity and real incomes without excessive inflation, and help rebalance the economy in growth-enhancing ways.  In addition to regulatory change it would likely require higher debt-funded government expenditure in the short to medium term. 

New Zealand is well-placed to deliver this public expenditure.  Its net core Crown debt is forecast to be 46.9% of GDP by the end of the 2024-25 forecast period.  This compares with the average net debt of prosperous OECD economies sitting at around 80% of GDP.  Rising public debt in New Zealand would be offset by declining private mortgage debt and by dramatically reduced social welfare expenditure.

An invocatory call for a full employment policy at the core of a much more ambitious green climate change transition and socio-economic development strategy might sound naïve or even tipsy euphoric for a small island group with just five million people.  However, it looks eerily like a miniature version of what President Biden is embarking on with gusto, and history tells us to never bet against the United States.

References

Bernstein, J; Baker, D. 2003: The Benefits of Full Employment.  April 2003 EPI Book.

Bivens, J. 2019: Looking for evidence of wage-led productivity growth. EPI Macroeconomics Newsletter.

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Some thoughts about vaccinations, leadership, universal science and mana motuhake

Māori MPs are giving good leadership to their communities through the coronavirus challenges, however it is reported that some are reluctant to tell Māori they should get vaccinated.  This supposedly reflects longstanding distrust of the Crown.

Pushback against mask wearing and vaccinations in America reflects distrust of government, science and collective action, and has had tragic consequences.  No such large-scale opposition has occurred in New Zealand.  Māori during the 2020 lockdown period stepped up to assist with road checkpoints to stop coronavirus spreading to Northland.

Māori MPs are not “blood and soil” nativists privileging birth-ascribed race and traditional belief over proven science. In 1907 it was Māori MPs and medical and other leaders such as James Carroll, Apirana Ngata, Maui Pomare and Peter Buck who promoted the Tohunga Suppression Act. This banned tohunga from claiming supernatural healing powers or promoting “quackery”, and it cleared the way for widespread adoption of modern medicine.

There is no such thing as “indigenous science” or “western science”. There is closed society cultural or religious belief, and then there is open society science that transcends cultures and is based on critical reasoning, the search for understanding and for truth.

The stunning mRNA vaccine and other advances means that science’s mana continues to gain unstoppable traction in Māori thinking.  The university “Mirror on Society” and related initiatives that deliver special pathways for Māori into medicine have had a big impact.  Part of its intellectual roots lie in Kenneth Arrow’s classic 1963 paper that created the foundation for health economics.  Arrow’s paper tacitly valorised the importance of cultural flows of health-related understanding, flows that growing numbers of Māori doctors and other clinicians have facilitated. 

The concept of mana motuhake has framed the thinking of some key Māori leaders as they grapple with guiding their communities towards vaccination while acknowledging that it is legally an individual’s choice.

Mana motuhake upholds an individual’s autonomy, self-determination and freedom to choose rather than be subject to government edict.  It implies the subsidiarity principle, which is that decisions should be devolved to the most decentralised level competent to make the decision and where the effects lie.  This is typically at the individual level.

Universal science vaccinates mana motuhake from the risk it becomes closed, parochial or tribal, and it turns it into informed and socially responsible libertarianism. 

However, it does not imply individuals should be allowed to neglect or do harm to others.  Vaccination decisions have effects far beyond the individual – coronavirus is communicable, as are the viruses of the mind that lead to conspiracy theories.

The Māori MPs from Labour and the Māori Party, Shane Reti’s fine mind, and Māori doctors and clinicians are part of the open society which trusts in universal science.  In contrast, Hannah Tamaki represents a closed society mentality.  She is legally entitled to refuse the vaccine.  However, as both a political and a religious leader she is not entitled to behave in such a way as to undermine science and guide her sheep-like followers away from vaccination and into darker places.

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Rawiri Waititi has got it right again

Rawiri Waititi is right to support commercial trout farming, and he has economic and cultural history behind him.

In pre-European times freshwater fisheries were important Maori food sources.  A staple species was the upokororo (Prototroctes oxyrhynchus), which early settlers called grayling. They were abundant until around 1870, after which they rapidly declined, becoming extinct by the late 1940s.  Their decline was likely caused by a range of factors, including introduced trout impacting on their habitat.

European settlers escaped a British class system where recreational fishing and hunting were upper class privileges.  Settlers wanted these recreations available to “the common man”.  They used government law and regulation to support their aims.

A series of Animal Protection Acts from 1867 protected game animals and formally recognised acclimatisation societies established to introduce new species as long as they were “innoxious”.  The Salmon and Trout Act was passed in 1867 to “make provision for the preservation and propagation of salmon and trout in this colony”. 

In effect, the colonial administration legislatively mandated trout fisheries that inadvertently degraded Maori freshwater fisheries resources.  Over time the mandate for acclimatisation societies was carried over into the legislative powers granted to the Fish and Game Council under the Conservation Act.

There have been long-standing debates over fish farming, and in 1973 salmon but not trout farming was authorised.  While trout hatcheries to support the recreational trout industry have been in operation for over 130 years, New Zealand is now the only country in the world that specifically bans commercial trout farming. 

There is no scientific or commercial reason to continue banning trout farming.  There is much common interest between the recreational lobby and advocates for trout farming. The Fish and Game Council has been a tireless advocate for water quality and for protecting recreational fisheries for all New Zealanders. Maori have long been a strong voice for water quality and for the sustainability of our productive systems. 

Trout farming is widely practiced in many countries, including the US, Chile, Norway and Denmark.  Denmark has far less river systems and marine area than New Zealand and yet it has an industry worth around NZ$200M a year and employing about 800 people directly. It has been farming trout for over a hundred years.  Sea cage-based farms were developed in the 1950s, with land-based farms developed from the 1970s.

Due to environmental constraints, Denmark has recently capped the numbers of its sea cage-based trout farms and encouraged further development being limited to on-land farms.  These may well use closed land-based recirculation aquaculture systems (RAS).  The RAS system effectively removes pollution and disease risks.

Trout farming produces a higher quality and more consistent product than the recreational catch, and so farming and recreational fisheries are complementary.  In Tasmania world class recreational fisheries co-exist with trout farming.  Farming is largely in sea cages. 

The stance Waititi takes is refreshing because it sees the Maori voice advocating economic initiatives that create new wealth for New Zealanders rather than litigating over existing assets in a zero sum game.  Trout farming could be a demonstrative expression of kaitiatanga which contributes to sustainability of New Zealand’s productive systems. 

Advocating trout farming as something that can benefit New Zealand’s wider economy is a small but meaningful demonstration that, as stated in its constitution, “the Maori Party is for all citizens of Aotearoa New Zealand”.  So all power to Rawiri Waititi on this issue, and all the best for a Maori Party as it focuses on the hard economic issues Maori and other New Zealanders face rather than being distracted by in-group versus out-group identity politics.

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The draft New Zealand history curriculum – a major rewrite is needed please….

It’s great that we will soon have a history curriculum.  It needs to offer rich knowledge to all New Zealand school students, regardless of their socio-economic status, ethnicity or religion.  As Elizabeth Rata and Briar Lipson would argue, rich disciplinary knowledge that all students possess is needed for equity, civil society and democracy.

The curriculum should also foster both the spirit and method of critical inquiry.  It should challenge students to ask what motivated people in different historical contexts, what were they thinking, what did they need to take account of, and how did they expect others to behave.

The curriculum should make students aware of what the rest of the world has gifted us, and what we ourselves have created.  It should encourage students to treasure their whakapapa of the mind, regardless of where their bloodline whakapapa came from.  It should be centripetal in drawing people together, and not centrifugal in tearing them apart.

The curriculum as proposed tells us that “Māori history is the foundational and continuous history of Aotearoa New Zealand”.  That colonisation has been central for 200 years and our history has been shaped by “the exercise and effects of power.”  It tells us that ideologies and beliefs “underpin expressions of power and resistance and insisting on rights and identity.” 

What is striking is what the curriculum misses out, such as the iwi versus iwi Musket Wars.  These began from 1807, escalated in 1818 and finally fizzled out around 1837.  They killed around 40,000 people, ten times the number who died in the New Zealand wars, and many more than we lost in the two world wars combined. 

The devastation the Musket Wars caused, and tensions with immigrants in the 1830s highlighted the need for a strong government to keep the peace and create the rule of law.  This realisation pathed the way for the Waitangi Treaty signed on 6 February 1840.  As if in a parallel universe, two days later Samuel Parnell, a London carpenter, arrived in Wellington and immediately declared that he would only work eight hours a day.  Given labour shortages at the time this was quickly accepted.  The Waitangi Treaty was the beginning point for our constitutional development, while Parnell’s eight hour day began the struggle for workers’ rights.

The curriculum as drafted implies New Zealand has two cultures, one foundational and enduring, and the other colonial and ephemeral.  However, New Zealand has been a multi-cultural society since the late 19th century.  Auckland is now home to about 100 nationalities with around 150 languages spoken.

The curriculum does not cover New Zealand’s economic and institutional development, the impacts of science and technology, and the development of global trading relationships.  It implies that ethnic group identities drive history, and that individuals’ vision, imagination, entrepreneurship and courage scarcely matter.

Our history and our students deserve better. 

A way forward is to start by placing New Zealand in the wider international context.  This includes how the environment shapes destinies, how human learning developed over millennia, global economic and technological drivers, and how these all shaped New Zealand.

Jared Diamond’s Guns, Germs and Steel argues that Eurasian peoples developed technologically faster than those in Africa, the Americas and in Oceania not because they had any special abilities but because of the biophysical resources and geographic nature of the Eurasian continent.

In particular, Eurasia had a wealth of domesticable plant and animal species.  Crop domestication began around 9500BC in the Levant, and rice was domesticated in China about 6200BC.  Eurasia’s east-west major axis and minimal latitude changes facilitated diffusion of valuable plant and animal types, and the movement of people, ideas and technologies.  Food surpluses allowed settled communities that supported higher specialisation of labour and political organisation.  This in turn saw the emergence of advanced technologies such as metallurgy, writing, mathematics, and the development of complex institutions.

It was much more difficult for plants, animals, ideas and technologies to move along the south-north axis because of latitudinal barriers and oceans.  As humans moved south among small island groups flows of new ideas and learning sharply diminished, and some technologies were lost. 

Māori survived in New Zealand without a single grain crop, no herd animals, and dependent on what they could fish and forage to augment the inferior kumara varieties, gourds, yams, taro, rats and dogs they brought with them.  They depended on carcinogenic and barely edible fernroot as a staple food. 

The historical fact that pre-European New Zealand was a stone age culture is exclusively and unavoidably a reflection of how environmental constraints determined stages of economic development.  It is not a reflection on Māori intellect, innovation and openness to new learning. 

A history classroom discussion could pose such questions as: “Imagine if Māori had brought with them and established in New Zealand potatoes, corn, wheat, oats, sheep, pigs and cattle.  What might their economy and society look like when Tasman and later Cook arrived?”

New Zealanders have inherited the learning created by other cultures over thousands of years.  This includes mathematics and science from Mesopotamia from as early as 3000BC, ancient Greek philosophy, Roman law, Chinese inventions such as paper and the compass, Indian and Islamic mathematics, and the European Enlightenment of the 17th and 18th centuries.

Changing belief systems and institutions also shaped New Zealand. Christianity was an open not a closed institution and it quickly took root in New Zealand.  Māori gifted land to missionaries and helped build schools to access technology and literacy.  Human capital and new ideas were transferred in immigrants’ minds and they diffused within New Zealand, including through marriage.

Great Māori leaders such as James Carroll, Apirana Ngata, Peter Buck and Maui Pomare advocated adoption of modern technology: “a new net goes fishing”.  They supported the Tohunga Suppression Act 1907 to ban charlatans who claimed supernatural powers, and to support access to modern rather than outdated traditional medicine.  This Act was supported by all four Māori MPs as well as by other Māori leaders. 

New Zealand’s history has been shaped by the most dramatic of all economic events: “The Great Enrichment”.  Economists such as Angus Maddison and Deirdre McCloskey have documented how, for millennia, real per capita incomes and living conditions increased at a glacial pace up to the late 18th century. Then from around 1800, GDP per capita grew at an explosive rate first in Britain, followed by Germany, America and throughout the developed world.

This Great Enrichment lifted billions of people out of poverty and extended lifespans by decades.  It came from technological and institutional innovation, from liberated human minds, and from social norms valuing business success, innovation and entrepreneurship. The poorest people in New Zealand now live far better than Queen Victoria lived in 1840.

New Zealand has drawn on learning accumulated over thousands of years from many parts of the world, and from the European Enlightenment and the science, reason, democracy, humanism and civil liberties that came with it.

School students should understand that the rights we take for granted are unusual in the world and vulnerable. In the 1990s many Hong Kong Chinese emigrated to New Zealand in fear for their rights after the territory was transferred to China in 1997.  The CPC has since reneged on its assurances and ended civil rights in Hong Kong.  We need to uphold our civil libertarian and democratic rights if we wish to remain part of the modern humanist world and not the tribalistic or authoritarian worlds. 

The history curriculum should celebrate individuals for their social contribution rather than their narrow self-interest.  In our humanist democracy individuals are free to exercise their rights.  Individuals are not the instruments or property of religious, ethnic, nationalistic or other tribalist groups – students should learn to think for themselves.

Throughout world history it was individuals who challenged repressive religion, slavery and patriarchy, who made the big scientific breakthroughs, who reaped their teeming artistic, lyrical and musical brains and gave us their harvests, who innovated and built businesses and created whole new industries.

Americans celebrate Abraham Lincoln, Thomas Edison and Martin Luther King.  New Zealanders can celebrate such figures as Apirana Ngata, Maui Pomare, Kate Sheppard, Emily Siedeberg, Hayward Wright, Ernest Rutherford, Janet Frame, Woolf Fisher, Kiri Te Kanawa, Graham Liggins and Bob Elliot.  Increasingly our leaders and heroes will include ethnicities other than Māori and Pakeha.

Key questions to pose to school history students might include:

  • How did New Zealand go from a stone age society in 1769 to one of the world’s wealthiest and most equitable societies by 1900?
  • What explains the Great Enrichment from 1800 and how did this affect New Zealand?
  • What caused the Great Depression in the 1930s, and what role did this play in the 1939-45 conflagration? 
  • How was Apirana Ngata able to foresee that the Versailles agreement would lead to the emergence of an authoritarian leader in Germany and to new conflict?
  • What have been the key economic events in New Zealand over the post World War Two period?
  • How has New Zealand maintained individual and civil rights and democracy whilst still succeeding economically?
  • How has New Zealand adapted to the economic rise of Asian economies?

Students who can grapple with such questions will be well educated in history, and above all will have the critical thinking skills that will serve them well in later life.

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Donald Trump: the foul-mouthed, thrice-married bard of Mar-a-Lago will be with us for some time yet, if only in the echo chambers…

Donald Trump won the 2016 election after a polarising, scandal-ridden campaign amidst allegations of moral turpitude and foreign interference.  Despite nepotism and manifest incompetence in his term as POTUS, in 2020 Trump won more votes (74M) than any other presidential candidate in history other than Joe Biden (81M). 

Trump’s popularity can only be understood in the context of America’s political system and economic performance.  The Jim Crow era may be over but administrative and logistical impediments to voting still favour Republicans over Democrats.  The Electoral College system has seen Republican candidates such as George W Bush and Donald Trump (in 2016) win the presidency while losing the popular vote.

From 1994 when he took charge of Congress, Newt Gingrich began to polarise politics and radicalise the Republican Party, aided by partisan outlets such as Fox News.  Later, social media siloed discourse, allowing fixed views to harden further and become disassociated from reality.

Compared to now there was low inequality in America from the late 1930s through the 1940s – “the Great Compression”.  However, “the Great Divergence” beginning from around the late 1970s led to growing inequality. The rules came to favour capital over labour.  The effective tax rate on labour in the 1980s and 1990s was around 25% whilst the tax on capital returns was only 15%.

China joined the WTO in 2001, and much American production activity shifted offshore or to Mexico.  The financial sector grew bigger as a proportion of the whole economy. CEO compensation soared, and international tax avoidance occurred on a massive scale.

Americans were told for decades that globalisation would benefit all, yet the 1941 Stopler-Samuelson theorem predicted otherwise.  Many benefited from globalisation, especially capital owners and consumers, however the impacts of liberalised trade and technological change hit workers hard in industrial areas.Democrat as well as Republican administrations failed to address the socio-economic downsides from this.  Mainstream economists understood the Rust Belt pain intellectually but not palpably, and little effort was made to reskill workers and manage transitions into new jobs. 

The Republican tax cuts in 2017 disproportionately benefited capital owners and the wealthy.  It gave 79% of its benefits to people making more than US$100,000 a year.

America’s extreme inequality has destroyed dignity, eroded mental health and cost lives.  Anne Case and Angus Deaton in Deaths of Despair and the Future of Capitalism noted that death rates for middle-aged whites without a college degree have risen steadily since 1999.  The proximate causes have been opiates, alcohol and suicide, however more fundamental causes have been poverty, rising inequality, hopelessness and the healthcare system’s poor coverage and crippling costs. 

In 1960, the US healthcare system absorbed five per cent of national income. The figure has now grown to 18 per cent.  This burden has fallen disproportionally on lower income working people – the benefits have accrued to the big pharmaceutical companies, health insurers, and the medical profession itself.

The elitist Washington narrative was that America was a meritocratic society and if people failed to get to the top it was their own fault.  However, the problem with meritocratic competitions is that someone wins them, which means others lose. This leads to rank status humiliation and resentment of those who Trump blamed for all of America’s problems – migrants, Muslims, elites living in Beltway swamps, the deep state, Chinese exporters and so on.

Political polarisation and economic problems provide context for Trump’s ascent in 2016 but do not explain his psychological appeal to voters.

Trump’s grandiose narcissism, abnormal need for admiration and prickliness at the slightest criticism reflects deep-seated insecurity.  Many of his supporters had their own insecurities and connected to Trump as an authoritarian leader who would keep them safe.

Insecure people resent those who do better than themselves, and they delight in cutting “elitists” down to size and diminishing their status. The Apprentice was not reality TV; it offered a fantasy life as an Alpha Male who fires those lower than him.

People are especially conscious of their social rank status, and become more sensitive to it when their status is challenged by job loss or by perceived threats from out-groups such as racial minorities or immigrants.  The MAGA slogan says effectively that “I once was great and am no more because someone took away my greatness and so making America great again means making me great again.”

Politicians such as Lyndon Johnson and poets such as Bob Dylan understood that poor whites were “pawns in the game” of manipulative politicians who encouraged them to look down on black people and draw psychic strength from their superior rank status.  The alternative, devoutly to be wished, is for poor whites and their black brothers and sisters to organise politically to challenge exploitative business practices and economic inequality so that all may rise.

Donald Trump loves his children, grandchildren and other close kin, and no one else.  His nepotism drives his business and political lives.  Ivanka and his two oldest sons Donald Jr and Eric have been active in The Apprentice show and been key players in the Trump Organization business empire.

Trump’s nepotism might be explained through Bill Hamilton’s kin selection theory which shows how gene selection can occur through kin relatedness. Because other members of a population may share one’s genes, a gene can increase its evolutionary success by indirectly promoting the reproduction and survival of other individuals who also carry that gene. These individuals are typically close genetic relatives. 

Nepotists are likely to favour close relatives over more distant ones.   This means they can be generous to their close blood relations and be callous to others in direct proportion to their genetic distance.  The more distant the relatedness, the more Trump puts people into stereotypical boxes.  Black people came from “shithole” countries.  Muslims, whether from Iran or Indonesia are lumped together.  Florida’s Cuban minority are favoured, however everyone else from the Rio Grande to Cape Horn are “Mexicans”.

Insight into Trump’s appeal comes from Big Lie psychology.  Trump understood that big lies told with confidence would stick, or at least leave a long and influential tail even after refutation. “I won the 2020 election by a landslide but it was stolen” is easily shown as false, however it will continue to sound in the echo chambers.

The most effective liars are those who believe their own lies.  This makes a liar convincing to others because he gives away no micro-cues suggesting he is lying.  In one Apprentice episode Trump, in challenging apprentices to sell high-priced art told them, “If you don’t really believe it yourself, it’ll never work”.

Daniel Kahneman argues there is Type 1 and Type 2 thinking. Type 1 thinking is fast, intuitive and unconscious thought that enables quick responses in most activities.  It may be visual and concrete – “we will build that wall”.  The Type 2 system is slower, calculating and conscious thought, for example about a maths problem or economic reasoning.  Kahneman argues that Type 1 is fast but prone to bias, whereas Type 2 is slow but more resistant to cognitive bias. 

Trump appeals to Type 1 thinking.  He projects certainty and power that attracts those who lack both, highjacks their thought processes and numbs their critical faculties.  The leader’s pathology then becomes contagious and spreads virally, mutating into delusionary beliefs that may be strung together into narratives and conspiracy theories.

Conspiracy theories fill a need in those who cannot handle complexity and uncertainty.  They attribute events to others’ intentional acts.  Conspiracy theories give order to what would otherwise be an inchoate universe, allowing believers to feel they are part of a privileged minority who know The Truth. This empowers them to attack those perceived as hiding the truth.  In doing so, they are embarking on a mission higher than themselves – to oppose those who are behind the conspiracy and foil their evil plans.

Conspiracy theories are akin to mutating viruses. Peter Medawar said that a virus is a piece of bad news wrapped in protein.  A conspiracy theory is out-group hostility wrapped in Type 1 thinking and vectored through social media.

Ever the innovator, Trump has invented a new type of “conspiracy without theory”. This starts with repeated fact-free assertions lacking any logical connecting thread. In some cases, Trump would simply arrive at a gathering, stand up and say the first thing that popped into his head.  His credulous adherents then assume these random assertions have deep meaning, and they flounder around for a connecting thread that organises them into a coherent narrative.  Eventually someone dreams up something plausible, such as Hillary Clinton running a paedophile ring from a pizza parlour, and outbreaks of cannibalism at Democratic party gatherings. 

Once someone believes a conspiracy theory they find it difficult to abandon it.  You can’t reason people out of positions they didn’t reason themselves into in the first place.

The Democrats are best to change the socio-economic conditions that give rise to the hardship and humiliation that leads to collective psychosis.  This means focusing on economics, not on the culture and identity wars that the Trumps and other populist politicians want to fight.

The Democrats have a complex fight on their hands.  After its election defeat the Republican Party is not mellowing, and some elected members have links to extremist groups and networks.  The Republicans will try and make it more difficult for Democratic Party supporters to vote – Stacey Abrams will have a busy four years ahead of her.  With a few exceptions such as Mitt Romney the Republican Party is still craven to the Trump support base and morally directionless. 

Perhaps even worse, conspiracy theories have been let loose in social media and they seem to be mutating; who knows in what direction?

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How do we balance the benefits and risks from the digital technology giants?

Digital technology giants such as Facebook, Google and Amazon create value  through their technology, network effects, information non-rivalry, and through managing aggregated or “big data” in service delivery. 

However, their dominance creates market power concerns.  Big data misuse can erode civil society and challenge democracy itself. The big digital technology companies control personal data, and this creates privacy concerns. There are calls for tighter regulation, yet these companies are productivity-enhancing technology leaders, and they deliver “free goods” and new affordances for society. 

How then can we optimise the benefits from the digital technology giants, while managing risks?

People value privacy to protect themselves from material harm such as identity theft, and also because it is bound up with self-identity, individual rights and personal freedoms.  Information or data that private firms or government have about a person has important privacy implications.

From 1890 Louis Brandeis began to create a basis for the right to privacy and legal protection for it.  As a Supreme Court judge he was a free speech and privacy rights advocate, and he opposed big business monopolies.  In the 1960s Alan Westin started to lay the legal foundation for consumer data privacy protection suited to the digital age.  He framed privacy as the right to control how much of ourselves we reveal to others.  Westin closely associated privacy with personal freedoms. 

In recent years data privacy breaches, including alleged misuse of data for politically manipulative purposes, has roiled around digital technology firms, including Facebook and Google.

However, such companies have strong incentives to protect privacy and to safeguard consumer interests more generally.  For example, Facebook is a two-sided platform company with consumers and advertisers interacting through a common platform.  Facebook must retain both sides confidence and avoid privacy breaches to stay in business.

Recent decades have seen digital technology transform economies and societies, and play a pervasive role in almost everyone’s workplaces, homes, and in their lives more generally.  Consumers have rewarded the lead digital technology businesses, and investors have valued this.  As at March 2020 the top five biggest US companies by market capitalisation were all digital technology companies – Microsoft, Apple, Amazon, Google and Facebook.  Their success reflects the digital and computational technologies they have harnessed, and the non-rivalry and networking economies these give rise to.

These technology-based companies have transcended the constraints of mainstream product market businesses.  In the traditional business model, a firm draws on supplier inputs, adds value, and then delivers products or services to customers.  The product mix is typically physical rival goods that can be “consumed” only once.  However, internet-leveraged digital technology has given rise to firms based on non-rival goods, that is “goods” such as information where one person’s use does not deprive another of that same information. 

While it is expensive to create valuable information, once created the marginal dissemination costs to additional users can be near zero.  Non-rivalry drives marginal costs down and helps big digital technology companies deliver consumer as well as producer surpluses.  Consumer benefits include free goods such as Youtube, Google Maps, and social media connections that pervade our lives and fall outside market exchange and GDP statistics.

The digital technology giants exploit network effects that arise when something becomes more valuable to consumers as more people use it – a telephone network in the old economy or a digital technology platform in today’s economy.  Network effect accumulation is akin to the “Matthew Effect” in the Bible – “to he who has shall be given even more”. 

Dominant digital technology companies strengthen their hold through software upgrades, new functionality, and tight control over data channels.  They learn constantly from platform users’ search inquiry patterns and revealed preferences and draw inferences from them. 

Industry dominance by a few or even one company does not necessarily lead to efficiency loss and stagnation.  For example, when America’s telecommunications industry was highly concentrated in AT&T, researchers working in AT&T’s Bell Laboratories helped develop radio astronomy, the transistor, the laser, the photovoltaic cell and other transformative technologies that had impacts far beyond AT&T’s commercial interests. Nine Nobel Prizes and four Turing Awards were awarded for work completed at Bell Laboratories. 

America’s digital technology sector is highly concentrated, and some key companies  have bought out likely nascent competitors.  They have used their network economies, data aggregations (“big data”) and control over data channels as barriers to competitive entry. 

However, these companies deliver knowledge and technology spill-overs that feed into wider innovation they cannot fully capture the benefits from.  They also diversify and create value in new markets.  For example, Google began as a search engine and has diversified into business management and communication tools, email services, cloud storage, language translation, research tools, mapping, navigation, and self-driving cars. 

Companies such as Microsoft, Google and Amazon provide connectedness and other capabilities to respond to societal challenges with speed, flexibility and fitness for purpose.  In the coronavirus crisis they are helping keep essential services functioning during lockdowns, and facilitating the connectedness that helps international researchers deliver new vaccines at unprecedented speed.

There has always been a public good and open society culture in the digital technology sector.  The internet is the ultimate network of networks, and the uber-platform for platforms.  It has made possible many non-profit public good initiatives.  An example is Wikipedia – an information resource with unparalleled global heft. 

However, some digital capabilities and networks that promoted internationalism have at times been turned into tools for nationalism, separatism and political polarisation.  The Facebook-Cambridge Analytica incident that played out over 2014-2018 highlighted the potential for big data to be repurposed for political purposes.  Digital technology, including social media, has been used to interfere with democratic processes in Europe and the United States. 

New challenges to privacy, civil society and democracy are looming, and may well be amplified by computational and artificial intelligence advances.  For example, biodata, face and voice recognition technology will allow inferences to be drawn relating to an individual’s health risks.  However, such technology could also be used against individuals, for example through capturing and analysing data relating to ethnicity, beliefs, values, personality, peoples’ vulnerabilities, and how behaviour can be predicted and perhaps manipulated in different contexts and scenarios. 

Such dystopian risks may come as authoritarian governments command such technologies.  However, democratic governments, polities and civil society can channel new digital technologies towards good social purposes.  A further check on authoritarian power abuse is the distributed nature of the Internet, the private ownership of key companies, and VPNs that protect private information.

Governments have been under pressure to regulate and perhaps even break up digital technology giants.  However, society as a whole benefits from these companies’ technological contributions.  Heavy-handed regulation could stifle innovation, reduce benefits from technology spill-overs, and create huge compliance costs.

Breaking up dominant digital technology companies could fragment their aggregated databases (their “big data”).  However, in both the private and public sectors the most powerful insights, explanatory power and predictive analytics depend on big data aggregations.  The more data available the more value that can be created from its analysis.  This is true whether the big data is held by Facebook and Google or in government databases such as New Zealand’s integrated data infrastructure (IDI). 

There may also be opportunities for government and technology companies to partner together on joint analyses using both public and private sector big data to support non-proprietary applications, for example public health objectives.

In relation to privacy concerns, excessive transaction costs make it impractical for individuals and digital technology companies to negotiate bespoke agreements on private data ownership and how such data can be used.  However, consumer data rights (CDRs) can create individual rights over personal data held by a private company – New Zealand government agencies are working on this.

In Europe, the General Data Protection Regulation (GDPR) enforces data portability. CDRs in New Zealand could make consumer data held by a company portable to a third party.  Consumers could use their rights over portable data to opt for better banking, utilities and other services options.  This might be especially beneficial in encouraging open banking and fintech innovation.  It might also in some small way help check the dominant power of the big digital technology businesses. 

The optimum overall approach is therefore not to tightly regulate the digital technology giants, and rather to allow them high freedom to operate subject to strengthened individual data rights, for example through CDRs.

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The Treaty of Waitangi (Te Tiriti o Waitangi) and New Zealand’s constitutional evolution

“Good leaders join networks so that their followers can have greater opportunities. Bad leaders develop walls so that outsiders cannot get in and insiders cannot get out.”
Sir Mason Durie

Unlike the US, New Zealand has no supreme constitution, and has instead an archipelago of laws, treaties, common law principles, articles of association and documents defining the purposes of thousands of community, sporting and other such clubs and collectives.

The 1840 Treaty of Waitangi (Te Tiriti o Waitangi) is a starting point in New Zealand’s constitutional evolution.  It was an international treaty of cession, and by itself not enforceable domestically.  A government system needed to be established for laws and regulations to be made and enforced in New Zealand.  The British Government enacted the New Zealand Constitution Act 1852 to establish representative government, with some provision made “for the time being” for the maintenance of Māori “laws, customs and usages” so far as “they are not repugnant to the general principles of Humanity”. 

The 1852 Act enfranchised propertied males over 21.  This included some Māori, however most were excluded because they failed the property criterion, even though many held collective property in traditional form. This anomaly was addressed by the creation of four Māori seats through the Maori Representation Act 1867.  This enfranchised all Māori males over 21 regardless of their property holdings.  Pakeha males without property were only enfranchised in 1879.

The 1852 Act created one of the oldest continuously operating Parliaments in the world.  The 1840 Treaty as an international agreement and the 1852 Act together started our journey to becoming an outward-looking and independent democracy. 

New Zealand’s decolonisation and transition to an independent country began in 1907 when New Zealand ceased to be a colony and became a Dominion.  The Statute of Westminster in 1931 gave the Dominions responsibility for their own law making, though New Zealand only accepted this in 1947. 

The 1852 Constitution Act was finally replaced by the New Zealand Constitution Act 1986.  This Act is now our key constitutional document. It formally states New Zealand’s constitutional arrangements, including the roles of the executive, the legislature and the judiciary.  It continues to recognise the Queen as the head of state, however in practice the 1986 Act marks the point where the elected Parliament became fully sovereign with the Crown’s only roles being symbolic and procedural.  It is now Parliament not the Crown that makes laws.  It is also the elected government and its executive that have relationships with its citizens, not Queen Victoria or Queen Elizabeth the Second.

The 1996 introduction of MMP helped counter the risk of majoritarian governments overriding minority interests.  The logical next constitutional step for New Zealand may be a republic and/or an even closer relationship with Australia. 

New Zealand’s modern history began with early contact between Europeans and Māori, driven largely by trade interests.  Foresighted Māori leaders from early in the 19th century on were more internationalists than nativists.  Māori were keen to acquire metals, tools, textiles, muskets, new food crops and the know-how to make use of them.   They actively competed for trade contacts and immigrants to facilitate access to new technology.  Mission stations were encouraged and protected, with the missionary schools playing a key role in literacy and the spread of Christianity. 

However, European contact also caused instability through, for example, access to muskets.  The “musket wars” from around 1807 to 1837 killed around 20,000 to 40,000 Māori.  They further altered tribal boundaries that had been fluid in pre-European times as iwi fought among themselves for resources and mana. 

In the years leading up to the Treaty, New Zealand was as lawless and violent as any modern failed state.  European immigrants included ex-convicts, thieves and murderers.  Charles Darwin after his 1835 visit to New Zealand described the (non-missionary) European population as “the very refuse of society”. 

Aware of the disorder, violence and fraudulent land sales, James Stephen an undersecretary in the Colonial Office conceived of a treaty between the Crown and New Zealand’s indigenous people.  Stephen was the son of a prominent abolitionist, and himself a social reformer.  He had strong Christian faith and was concerned to protect indigenous peoples from harm.

When the Treaty was signed in 1840 New Zealand had a population of around 70,000 to 90,000 Māori and less than 2,000 Europeans.  Māori were the strongest party, however they needed European trade and technology and a central authority that could keep the peace. 

The Treaty was initially drafted in English, and the missionary Henry Williams translated it into Māori.  Governor Hobson greeted each chief signing the Treaty with the pledge: “He Iwi Tahi Tatou” (we are now one people).  

When chiefs debated the Māori language Te Tiriti o Waitangi, Williams told Māori they would be “one people with the English, in the suppression of wars, and of every lawless act; under one Sovereign, and one Law, human and divine”.  The “divine” was left out of the final text – the Treaty is secular.  Williams then took the Māori language version that had been discussed with and acceded to by Māori and retranslated it back into English.  This then became the official English language version.

The Treaty consists of a Preamble and three Articles.  The Preamble states the need for the rule of law and for stable government.  It foreshadows further immigration, tacitly inviting Māori acceptance of this.  It states that Civil Government will “avert the evil consequences which must result from the absence of the necessary Laws and Institutions alike to the native population and to her Subjects.” 

Article One establishes Crown sovereignty and its right to govern.  It requires that chiefs “cede to Her Majesty the Queen of England absolutely and without reservation all the rights and powers of Sovereignty which the said Confederation or Individual Chiefs respectively exercise or possess.”

In William’s translation, “kawanatanga” is the neologism for sovereignty.  It is a transliteration of “governance” or, as Sir Hugh Kawharu translated it, “kawanatanga” means “government”.  At least 700 Māori had visited Sydney alone by 1840 and had observed the effects of Crown governorship in Australia.  The over 500 chiefs that signed the Treaty unequivocally agreed to cede sovereignty completely and forever to the Queen.  Māori were under no illusions about Queen Victoria’s powers.  Te Heu Heu was one of the few chiefs who did not sign the Treaty, because to do so would “place the mana of Te Heu Heu beneath the feet of a woman.”

As Apirana Ngata wrote in 1922:

It was the first article of the Treaty which transferred the chiefly authority of your ancestors, affecting you and future generations for ever (Ngata 1922).

Ngata also wrote that the Treaty:

“…made the one law for the Maori and the Pakeha. If you think these things are wrong and bad then blame our ancestors who gave away their rights in the days when they were powerful” (Ngata 1922).

The Treaty did not even metaphorically create an equal partnership between the Crown and Māori.  Māori could not in the same treaty be both subjects of the Crown and partners with it. 

Treaty Article Two extended to Māori English common law and Magna Carta rights at the individual as well as the tribal levels.  Magna Carta included a fundamental principle that:

“No freeman shall be… stripped of his rights or possessions…except by the lawful judgement of his equals or the law of the land (modern translation).

Article Two protects property rights.  The English language version of Article Two confirms and guarantees rights “to the Chiefs and Tribes of New Zealand and to the respective families and individuals thereof the full exclusive and undisturbed possession of their Lands, Estates Forests Fisheries and other properties.” This makes clear that individuals as well as Chiefs and Tribes are protected.  In the Māori version “ki nga tangata katoa o Nu Tirani” refers to “all the peoples of New Zealand” being guaranteed ownership rights and powers (“tino rangatiratanga”) over their properties. 

In traditional Māori society “ariki” were first-born chiefs in high-ranking families, whilst “rangatira” were akin to “gentlemen” (Firth, 1929).  That is, tino rangatiratanga protected the rights of propertied individuals and did not privilege ariki over rangatira.  Tino rangatiratanga is about property rights and has nothing whatever to do with sovereignty – an issue clearly determined in Treaty Article One. 

Tino rangatiratanga, in protecting individuals and their whanau, is powerfully anchored in English belief in the strong  relationship between property rights and human rights.  “An Englishman’s home is his castle”, or as the great Prime Minister William Pitt the Elder said in 1763:

The poorest man may in his cottage bid defiance to all the forces of the Crown. It may be frail; its roof may shake; the wind may blow through it; the storm may enter; but the King of England cannot enter.

The Māori version of Article Two does not refer to forests or fisheries.  It states that the “Queen of England confirms and guarantees to the Chiefs and Tribes and to all the people of New Zealand the possession of their lands, dwellings and all their property” (“taonga”).  Some words used in the Treaty have changed in meaning since the mid-19th century.  Hongi Hika used “taonga” to refer to tangible “property procured by the spear.” However, in modern times “taonga” is now claimed to include cultural “properties” such as language.  This wider definition gives litigants and advocates more leverage in Treaty and other claims relating to intangible assets.

When there is conflict between statute law and common law it is statute law that prevails.  If the government makes or exercises laws or regulations that override property rights, the expected norm is that due process should be followed and compensation be paid for property rights takings.  

The Treaty only reduces Māori rights compared to other New Zealanders’ through the Article Two pre-emption clause giving the Crown the exclusive right to buy Māori land.  This right reduced the prices that Māori might have realized from land sales.  This Crown pre-emption clause is now outdated.  However, it was justified in the 1840 context where there was widespread land fraud, and confusion over who owned what and who had rights to trade in land.  

Article Three confers on Māori the rights and privileges of Crown subjects and extends to them the Crown’s protection.  It creates equal rights with other Crown subjects, not different rights. In Article Three the English version refers to the Queen of England extending “to the Natives of New Zealand Her Royal protection and imparts to them all the Rights and Privileges of British Subjects.” 

The Treaty reference to the Queen’s Royal protection included protection against external as well as internal threats.  This was prescient – a hundred years after the Treaty was signed the Japanese Empire posed an existential threat to New Zealand.

Ngata reflected on Treaty Article Three in 1922:

The Treaty found us in the throes of cannibalism: that was murder, a crime punishable by death, be the murderer rich or poor. That was the British law which became law for the Maori under the provisions of the second part of the above article “and imparts to them all the rights and privileges of British subjects”. The Treaty found the strong committing outrageous acts against the weak, the chiefs against the commoner, the Pakeha against the Maori, and such acts were breaches of the law punishable by imprisonment with hard labour, according to the British code of law adopted as the law for both the Pakeha and the Maori…” (Ngata 1922).

The equal rights guarantee in Treaty Article Three might imply but cannot by itself lead to socio-economic equity.  The Waitangi Tribunal process was needed for just restitution and to safeguard the Crown’s honour.  However, it was not designed to close the economic gaps between Māori and other New Zealanders. 

The Treaty wording, including tino rangatiratanga, creates rights for individuals and whanau.  However the Waitangi Tribunal deliberations have focused on the iwi and hapu level. Treaty settlements have been managed by Māori leaders (“chiefs”) more so than by individuals. Many settlements have been well-managed, but there has been some corruption, and some tribal elitists have captured disproportionate benefits.  The settlements have encouraged some retribalisation, yet it is difficult to identify internationally a tribal or kinship-based society that has ever flourished in modern times. 

The socio-economic gap between Māori and other New Zealanders is a social class issue that can only be addressed through economic interventions, yet the wider Treaty-related discourse often focuses more on constitutional change and culturalism rather than economic wellbeing. 

Group identity politics, separatism, suppression of free speech, and contempt for democracy, science and humanism have shaken Europe and the United States.  They are also challenging New Zealand. 

Advocacy for separate Māori representation, parallel structures or co-leadership in government and non-governmental institutions can amplify the differences between people rather than strengthen the commonalities.  It can exacerbate centrifugal forces that pull people apart, and weaken the centripetal forces that pull people together. 

Achieving socio-economic equity for Māori at the individual and whanau levels would deliver tino rangatiratanga in a tangible rather than rhetorical sense.  When we have achieved this we can then thank rather than blame our ancestors for the wisdom they showed from the lead-up to our 1840 Treaty and onwards.

References

Firth, R.1929: Primitive economics of the New Zealand Maori. London, George Routledge and Sons Ltd.

Ngata, 1922: The Treaty of Waitangi: An Explanation. The Treaty of Waitangi an Explanation | NZETC (victoria.ac.nz)

Relevant earlier blog posts are linked at:

What is matauranga Māori? | Peter Winsley (wordpress.com)

The evolving Treaty of Waitangi discourse and its wider benefits | Peter Winsley (wordpress.com)

Maori, identity and socio-economic development | Peter Winsley (wordpress.com)

The upstart crow and why I feel I belong here | Peter Winsley (wordpress.com)

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Let’s use the NZSF and KiwiSaver to invest in economic development as well as retirement security

The Kirk government’s 1974 superannuation scheme required compulsory contributions to individualized and portable accounts drawn on at retirement age, supplementing a base pension.  A Superannuation Corporation invested in shares and bonds to grow retirement savings, while at the same time investing in New Zealand’s economic development.  However, in 1975 the Muldoon government repealed the 1974 scheme and replaced it with a “pay as you go” system with no compulsory savings element.

Australia took until 1992 to introduce its own equivalent of New Zealand’s 1974 scheme, however it has stuck with it, and as at June 2020 its superannuation assets totaled around A$2.9 trillion.  As a result, Australia is a more capital-intensive and productive economy than New Zealand, it has higher per capita income, and its retirees are far better off financially.  Australia owns dominant stakes in its major industries and corporates, and it has a much stronger offshore investment position.

Since Muldoon’s disastrous decision, successive governments have struggled with the NZS’s affordability.  With Michael Cullen’s visionary leadership, the Clark administration established the NZ Superannuation Fund (NZSF) in 2001, to accumulate savings to part-fund future NZS outgoings.  The NZSF has also contributed significantly to capital market development.  In 2019 the NZSF was worth around $44B, with over $6B invested in New Zealand, including in knowledge-intensive businesses such as Datacom and financial services businesses such as Kiwibank.

KiwiSaver was launched in 2007, and as at October 2019 it manages around $62B.  It is deepening and diversifying our capital markets.  For example, KiwiSaver managers such as Booster, Milford, Kiwibank and Simplicity are investing in venture capital and in private equity.  KiwiSaver funds could also be encouraged to invest in domestic as well as overseas infrastructure. 

Long-term productivity determines per capita income and therefore wider wellbeing.  However, New Zealand’s economy is capital-shallow, and this means a low capital to labour ratio and therefore low labour productivity.  Furthermore, capital investment flows are distorted towards property and the non-tradeable sector rather than export businesses and supporting infrastructure.  From Glaxo over a century ago to recent digital, biotechnology, electronics and electrical engineering examples, thin and impatient capital markets have long stunted growth or forced our most knowledge-intensive businesses to move offshore.

To lift productivity and grow international competitiveness we need to lift domestic savings and steer its investment into wealth-creating tradeable sector businesses.

Within the NZSF, the Elevate NZ Venture Fund was established in 2019 to support early stage growth companies and the venture capital ecosystem as a whole.  While there is plenty of seed and start-up venture capital available, Elevate NZ may fill a gap for growth capital investments of around $20M.  However, it is difficult for our growth businesses to raise locally $50M to $150M in equity investment to achieve international scale and competitiveness, while anchoring core benefit streams in New Zealand.  This lack of $100M or so “growth and anchoring” equity investment is a big gap that should be filled. 

Covid-19, recession and international instability have shaken New Zealanders.  A Labour government with a strong electoral mandate opens an “Overton window” Overton window within which it can progress fundamental change.  Michael Cullen’s work on the NZSF and KiwiSaver, David Parker’s on Elevate NZ, and business voices such as Brian Gaynor and Sam Stubbs have laid a platform to build from.

Sovereign wealth funds invest internationally, however they tend to have a strong domestic focus.  Keynes himself argued that while ideas must be international, capital investment should be local  What we might learn from Keynes about investment being local

Substantial ongoing contributions must be made to the NZSF to support its NZS pre-funding role.  However, a larger share should be invested in knowledge and technology-based businesses, focusing on their internationalization whilst retaining core competencies in New Zealand.  As well as Elevate NZ, the NZSF should invest in around the $100m business equity range.  KiwiSaver should be made compulsory, to deepen capital markets and support economic growth as well as lift retirement savings.  With these changes, the NZSF and KiwiSaver together would replicate the economic impacts sought from the 1974 Superannuation Act, and would create a productivity-enhancing growth path for our sustainable economic development.

The question now is who in our polity or business community can understand how disruption in our times creates opportunities for future times, perhaps saying to herself, whilst thinking of those who come after:

The time is out of joint, O cursed spite,

that ever I was born to set it right…

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Donald Trump, and the stress-testing of constitutions and institutions

Donald Trump’s term is a stress test of America’s constitutional protections and institutions, and their ability to limit the damage from an unqualified and narcissistic President. 

James Madison, John Jay and Alexander Hamilton wrote the Federalist Papers that argued for the ratification of America’s Constitution.  Madison in Federalist No. 10 explored how a republic could balance diverse perspectives, while elevating the public good over factional interests.  America’s Constitution aimed to balance power within and between states, and to unite them into a republic. It has endured, however it has been slow to evolve and for its principles to be fully reflected in all Americans’ lives. For example, it took from the end of the Civil War till the 1960s to remove discriminatory laws and deliver civil rights to black Americans, and Jim Crow still casts a shadow. 

History tells us that democracies need supporting protocols and norms as well as well-designed constitutions and institutions to flourish.  Civil societies require politeness, respect, inclusiveness and decorum – these are not Donald Trump traits.  History also teaches us that leadership matters, and that it requires humility, curiosity, vision, prudence, the ability to draw out the best from people, and the willingness to change one’s views in accord with the facts.

Donald Trump ignored evidence and disparaged science.  He assailed the public service, forcing out those who adhered to the law’s letter and spirit, did due diligence, and gave objective non-partisan advice.  He was unable to distinguish between state affairs and his own private business interests.  Democratically-elected leaders have fiduciary duties, they must uphold institutional integrity, and they need to work for the wider public good and for future generations.  Donald Trump always asks “what do I want and how do I get it”.   Democrats and Lincoln Project Republicans ask “for whom am I acting, and how should I behave?”

America’s polarisation between warring Republican and Democratic camps has origins in the 1980s, as broad-based, lively and pluralistic media outlets started to lose ground to cable TV and narrowcasting.  Newt Gingrich took over as Speaker of the House in 1995, and used such tactics as government shutdowns to impede the Clinton administration’s ability to function.  Fox News swung Republicans towards political extremes that saw no room to learn from or compromise with the Democrats.  The electoral college evolved from a deliberative to a ceremonial body.  Both George W Bush and Donald Trump lost the popular vote, but were still appointed as President.  Over time, the internet and social media siloed factions.  They gave a forum to ludicrous conspiratorial theories and memes such as from QAnon that have deepened political polarisation even further.

However, there are signs that the US is starting to overcome polarisation.  Democrats and Republicans are jointly promoting the Endless Frontiers Act to massively boost American investment in technological innovation in response to perceived PRC threats.  Survey evidence suggests that responding to coronavirus is uniting Americans who otherwise would be at “cultural war” with each other. 

President Biden will face huge challenges.  Every American state is entitled to two Senate representatives regardless of its population base.  This means a lightly-populated state such as Indiana has the same number of Senate representatives as California.  Even within strongly Democratic states, the way district boundaries are drawn can mean that the State Assembly is still Republican-controlled.  The Supreme Court will be stacked 6-3 against the Democrats, which means Republicans can obstruct Democrat fiscal, healthcare and environmental initiatives. 

America needs to fine-tune its Constitution and achieve a better balance between Federal and State powers, for example to deal with challenges that traverse state boundaries. It needs to adopt a proportional voting system, and to select candidates on merit not on how much money they can raise.   The two major parties need to be more pluralistic and less partisan.  They must learn to “hold hands across the aisle” on the major challenges America faces.

America still plays a dominant world role in multi-lateral institutions, including those concerned with health and global commons as well as financial, trade and security institutions.  It must reassert this role not through displays of raw power but through its heft and benign exceptionalism.  Franklin D Roosevelt united Americans as his New Deal dragged America out of the Great Depression, and when he led the war against Nazism and the Japanese Empire. 

A Green New Deal may be the next flagship policy ensemble for America’s socio-economic and environmental future.  This in turn will shape the world’s wider and longer-term prospects.  America can then again lead the world, and be the City on a Hill.

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Why is science productivity so low and technological change so stagnant?

A hit, a very palpable hit – Hamlet

Never before have we had so many researchers in the world, so much knowledge to build on, and so much computational power and experimental technology.  However, science productivity has dropped and technological change has stagnated in recent decades.  This may result from too much science being centralised and disconnected from technology and from people’s lives.  Furthermore, we need to develop better ways of moving young researchers faster to the frontiers from which they can then begin to create new knowledge.

Learning is evolutionary and cumulative.  It is Bayesian.  It accords with Occam’s razor, and aims to minimise energy use needed to optimise learning.  Learning comes largely from doing and involves sensory feedback that helps retain learning. 

Learning retention is directly related to the extent that environmental or experiential feedback is palpable.  This ensures learning feedback is felt in impactful ways and therefore retained.  Some feedback is feather-light, some shocking enough to trigger amygdala-mediated recalibration, as in PTSD. 

Sensory feedback is translated through and shaped by touch, sound, vision, smell, sensation, respiration, temperature, heart rate and the emotional circuitry, biochemical and physiological processes associated with them. Palpability works at all learning levels – including the highest.  Great scientific advances often involve feelings of transcendence and awe that are visceral, “sending a shiver down your spine”. 

Learning is therefore haptic, emoted, tangible, that is, it is palpable. There is therefore no mind-matter nor self-world dichotomy, only learning endogenous to the world.

Learning forms connect through an ensemble of processes that operate from primitive life right through to advanced technological innovation.

All life evolves through natural selection.  Within a rugged fitness landscape, variations are selected through differential survival.  What survives reflects what the past has “taught”.  Primitive life learns as new information is genetically encoded, cumulates, is passed on genotypically and expresses itself phenotypically.  Later comes consciousness, and from this learning by doing, and purposeful and prospective higher learning.

The Second Law of Thermodynamics suggests that entropy can lead to disorder.  Karl Friston asked how, given entropy, can an organism stay alive?  Organisms create structures from the cellular to the most complex levels that are akin to Markov blankets protecting from external harm, whilst drawing resources and learning from the external environment. 

Friston argues that neuronal processes start from prior beliefs and make predictions which are then compared with sensory feedback.  They aim to minimise the gap between predictions and feedback.  Friston labels this gap “free energy” or “surprise”, though it is better termed “waste energy” that life depends on minimising.  Cognitive processes are very energy-intensive, and therefore energy must be used as efficiently as possible, given the learning to be acquired.

When feedback differs from predictions, the brain can update its assumptions, or it can seek to change reality, that is to remake the environment within which it is living.  The brain can also deny the feedback and fail to adjust to reality, which can be fatal as natural selection does its work.

Efficient cognitive energy use requires focus and parsimony.  Einstein said “everything should be made as simple as possible, and no simpler.” Occam’s razor holds that where there is more than one explanation for a phenomenon, the one with the fewest assumptions is likeliest to be correct.  This parsimony principle is applicable in physics, biology and in learning.  Rivers rise in the mountains and follow the easiest path to the sea.  Some metal alloys and muscle have memory.  Neuronal connections that wire together fire together, and so minimal brain energy is used once connections are well developed. 

In its primitive origins most learning was concerned with survival.  Learning by doing is amplified by necessity, that is by the drive to survive through natural selection.  Unschooled street urchins learn the language and arithmetic needed to trade. 

Blue skies thinking, ideation and thought experiments have long contributed new insights and generated theory and propositions far in advance of means of testing them, let alone of practical applications.  However, science is not generally driven by free-ranging intellects rating each other’s papers.  It comes from engagement with the real world.  Science may lead, but more commonly it follows technology that links science to human experience.  Technological innovation solves real world problems, and technology then advances science.

Most fundamental scientific advances are grounded in or spin-offs from practical problem solving.  Radio astronomy arose from Jansky’s telecommunications work at Bell Labs.  Louis Pasteur became microbiology’s father by tackling health and agricultural problems, leading to advances in vaccination, industrial fermentation and of course pasteurisation.

Technological change typically starts with trial and error learning rather than ex ante theory.  From this learning, theory with explanatory and predictive power is developed and used to refine technology towards optimality.  That is, reality creates data, and from this data theory is developed, rather than abstract theory generating hypotheses that selectively narrow the data against which they are tested.

Rather than being concentrated in universities or research laboratories, learning by doing typically draws on tacit knowledge that is decentralised and differentiated by local context. It encompasses Alfred Marshall’s view that “the secrets of industry are in the air”.  It fits with the Austrian economic preference for methodological individualism, and its discomfort with mathematical modelling and macroeconomic analysis.

In industrial settings learning can occur as an unplanned and natural social process.  Erik Lundberg demonstrated that, beginning in the 1930s, the Horndal steel works in Sweden achieved productivity gains of 2% a year for 15 years with virtually no new capital investment. In his famous 1962 learning by doing paper, Kenneth Arrow argued that technological change is a process of learning about the environment in which we operate. Production activity gives rise to problems for which favourable responses are selected over time.  That is, evolutionary natural selection is at work.

Arrow integrated learning by doing into endogenous growth theory, arguing that productivity growth results from internal factors not from knowledge showers from welkin ivory towers.  Technological innovation arises from differentiated, domain-dependent learning that is socially interactive and integrating. It is an evolutionary and cumulative process that lays a platform for further knowledge creation and technological functionality that is superior to that which came before.  Knowledge’s indivisibility and non-rivalry means sharply diminishing marginal costs as ascending knowledge platforms build from antecedents and create exponentially new potentialities and affordances.  To survive and to be passed on, knowledge has to be valuable.  Such knowledge tends to be irreversible, and if it underpins new learning it is typically cumulative. 

Nassim Taleb describes as a “Ludic Fallacy” abstract modelling of the real world and making long-term predictions from this.  A map is not the territory – a representation of something is not the thing itself.  A model can so simplify reality as to turn it into non-reality.  Desk-top modelling that purports to predict long-run future states departs from messy reality that can only be understood by those who live in, engage with and receive feedback from the world. 

Wall Street and City of London financiers can do a lot of damage through naïve and unworldly modelling and manipulative rent seeking.  In contrast, London’s Inns of Court live through experience and felt necessity.  Common law is not academic brain coinage. It builds enduring legal principles from case law derived from interactions between warm-blooded people doing things that matter to them.  Common law has its feet on the ground, not its hand in the till. 

Abstract models may start with well-informed prior beliefs, but they are projected long into the future without ongoing updating from real world feedback.  In contrast, plumbers, chefs and musicians all receive instantaneous or near-term feedback.  Not so financial and macroeconomic modelers.

Learning by doing is undertaken by those with “skin the game”, and with incentives to minimise energy use.  Abstract modellers typically face no risk from failure, and lose nothing when models mislead because others bear the consequences.  Economic and financial modelers move on before their prognostications are mugged by reality – with some exceptions. 

Long-Term Capital Management (LTCM), a hedge fund, was established in 1994 based on an absolute returns and high financial leverage model.  On its board were Robert Merton and Myron Scholes, who had been awarded the Nobel Prize for a “new method to determine the value of financial derivatives”. LTCM was caught out by the 1997 Asian and the 1998 Russian financial crises.  LTCM’s collapse caused another international financial crisis, and it was dissolved in 2000.

In contrast with much financial and economic forecasting, epidemiological models are grounded in empirical evidence, with exponential projections updated with new data from real-world observations.  Coronavirus modelling projections were Bayesian and constantly revised in near real-time.  Testing, diagnosis, treatment, demographic, sociological and behavioural data led to revised inferences, and sometimes to the abandonment of flawed prior beliefs.

Learning involves natural selection, so that beliefs that are maladaptive pass away funeral by funeral.  However, some flawed or false beliefs, and the institutions, societal rules and norms that instantiate them persist long after beliefs have been logically discredited.  Dogmatic belief defies reality because it is not exposed to it.

In past times belief, only some of which was knowledge, was translated into traditions, rituals, religious beliefs or memeplexes that were passed on through the generations.  Uncritical acceptance economised on cognitive energy, but stifled new learning.  The lack of Bayesian updating of beliefs over time made them maladaptive.

The changing world leaves behind outdated cultural, religious and scientific beliefs , except where they ossify into sects, dogmas or identarian habitations.  These can function as group Markov blankets, with a surface tension that blocks out external sensory feedback and critical thinking – for a time…  “Darwin’s dangerous acid”, the receding tide on Dover Beach, new Kuhnian science revolutions, the Vatican’s 1992 newspaper headline: “Galileo got off”, and the 2008 global financial crisis are surfactant way marks.

Transformative new technological advances and potentialities have trended down over recent decades.  Different reasons for this are cited.  Perhaps the greatest advances have already occurred, and we are up against natural law limits?  Perhaps too many fine minds are playing on-line games, or are engrossed in Facebook?  Or are scientific and technological advances being constrained by their public good nature, which means industry doesn’t invest in them because their benefits are not privately appropriable? 

What seems plausible is that science’s self-referenced peer review nature has led to disconnectedness from technology and therefore from people’s lives.  In our times, the overweighting of abstract science and disembodied information technology means we have become remote from tangible material technology and engrossed in abstractions.  Yet living standards depend on the material engineered world, not its internet-mediated phantasmagoria.  Our mobiles require metals and rare earths, and our bitcoin consumes electricity produced by coal, natural gas, concrete hydro-dams and metal wind turbines.

Prior knowledge is the starting point for new learning.  As Pasteur said: “fate favours a prepared mind”.  As knowledge in every discipline accumulates there is a higher threshold learning burden to reach the starting point for new knowledge creation, let alone to move beyond it.  This can lead to longer research apprenticeships as doctorate graduates have to complete a post-doctoral fellowship before they have a chance for a secure career.  It also leads to more narrow specialisations, and often to larger teams being required to pull together the capabilities needed to make progress. 

However, these constraints can be overcome.  Much science is translated through technology into optimisation routines that codify complex knowledge and make it accessible without too much need for every technology user to have deep understanding. 

Knowledge embodied in technology that is digitally retrievable can be functionally valuable to learners without needing to be visible.  New knowledge and means of acquiring it can be subject to low or near-zero marginal costs of dissemination.  Digital technology codifies pertinent knowledge and enhances its retrieval.  Computational technology will only get better.  Autonomous intelligence will drive learning advances unforeseeable to us now.  Whether this will take eons, eras, periods, epochs, ages or next year only time will tell. 

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