Gerald Hensley: Reflecting on the Fourth Labour Government

This is the text of a speech delivered yesterday to a conference at the Stout Research Centre at Victoria University. The conference dealt with the Fourth Labour Government which came to power in 1984 and brought radical economic change to New Zealand.

Gerald Hensley, now retired, is former head of the Prime Minister's Department and former Secretary of Defence. He spoke about the bureaucracy and advisers.

The changeover of power in 1984 was a difficult one. It was complicated by the currency crisis and consequent devaluation, but the adjustment between the new Government and the bureaucracy was also more sensitive than usual.

Incoming governments, of course, always look with suspicion on the bureaucracy they have inherited. They have after all been at the side of the rejected government and, who knows, shared the responsibility for many of their sins. Labour Governments have been especially mistrustful.

Mike Moore claimed that Labour has a tribal instinct of wariness about public servants even though the majority have probably voted for them.

Certainly Norman Kirk had it. Even after some months in office he complained that he felt that as Prime Minister he had been presented with a mahogany box with impressive brass handles for him to pull, but when he looked underneath his desk there were no wires connected to them.

In the case of The Fourth Labour Government, though, the distrust was especially marked. It was partly inexperience. With the normal swing of the electoral pendulum incoming Ministers usually know and in the past have worked with some of their civil servants. But in 1984 with the exception of Roger Douglas and Bob Tizard no one had sat in a Cabinet before. The new Ministers were not familiar with the uses and limitations of civil servants. They were an exceptionally intelligent group - the brightest that I can recall and felt the less need of advice from others.

For nine years, after all, these bureaucrats had been advising on the failed policies of the previous government. There was a widespread sense, almost a 1935 feeling, that the former things had been swept away, that this was the start of a new era.

The adjustment between the new Ministers and their senior civil servants was uneven - much more rapid on the economic than on the international side - but on the whole it was more awkward than with other governments, both before and since. I believe that this awkwardness, which showed itself in a persisting reluctance to place full trust in the public service, had an important influence on the achievements of the Fourth Labour Government.

It is worth examining four major issues to look at the evidence: the Anzus quarrel; economic reform; the reform of the public service; and crisis management of the unexpected, like the Rainbow Warrior or the Fiji coup.

Anzus

Perhaps the clearest mandate given the new Government was its anti-nuclear policy. It was also clear that both the Government and the public wished to continue in the Anzus alliance with the United States and Australia.

Reconciling the two was difficult but not impossible given time and patience and the necessary will on both sides. It had been managed, when the issue was admittedly less sharply-defined, by the Rowling Government. And this is precisely why governments have diplomats and experienced advisers: to explore the choices and look for ways of achieving two conflicting but not incompatible aims.

The first requirement was time. In July, just before the Government took office, David Lange had told George Shultz, the American Secretary of State, that he needed six months. There has subsequently been much dispute about what he meant by this but his officials were in no doubt that his intention was to secure a breathing-space during which to examine possible solutions.

The Americans agreed not to request any early ship visits The new Prime Minister established a small informal group consisting of the CDF, the Secretaries of Foreign Affairs and Defence and the Head of the Prime Minister's Department to meet with him from time to time to discuss the way forward.

The strategy settled on, with the Prime Minister's assent, was to quarantine the most difficult issue as long as possible. The best course was to arrange a visit by an American warship which was plainly neither nuclear-powered nor armed. Thereafter, with American understanding as in the past, the question of further visits could be postponed for two years or more. The anti-nuclear policy and the American alliance would remain intact.

In November therefore the Prime Minister despatched the CDF, Ewan Jamieson, to Honolulu to discuss an acceptable ship. The CINCPAC there, Admiral Crowe, understood the delicacy and offered a visit by the USS Buchanan.

Given the Americans' worldwide "neither confirm nor deny" policy, he was not prepared to give any undertakings. But by offering an ageing oil-fired destroyer coming straight from Pearl Harbour, rather than returning from a patrol, he was making it clear that the vessel was most unlikely to be nuclear-armed.

By now time was pressing. There was to be a three-nation Anzus exercise in the Tasman Sea the following February and it would look most odd if an American ship were not to visit at this time. So in December the Foreign Ministry was authorised to seek a visit. My recollection is that the paper on Buchanan was to go to Cabinet at its last meeting before Christmas but was dropped because of the length of the agenda. By the time it was taken, at the first Cabinet of the new year, David Lange had been out of the country for some time, a noisy anti-Anzus agitation was at its height and Labour Party policy had been changed to exclude even nuclear-capable ships.

This shut off the possibility of any American visit and the alliance was broken.

The Americans, who had tried to be helpful, felt deceived by the New Zealand Government and the resentment of some of their officials persists to this day. Were the Government's advisers deceived too? A senior State department official, Morton Abramovitz, said to me the following February, "We thought you guys must have been smoking pot, you were in some dreamland."

While the New Zealand officials were working on the Buchanan visit the American Embassy was reporting that David Lange was saying nothing to inform the public and indeed did not seem to have discussed it with any of his colleagues. There was clearly a lack of frankness in the Prime Minister s dealings with his advisers but I doubt there was deliberate deception; rather that he disliked showdowns and was content to go with the tide.

The tide carried us into a major crisis in our relations with both the United States and Australia, with consequences that are with us yet, and the basic cause was over-confidence and inexperience. A Minister commented to me a few years after: "You know, if we had taken the Buchanan eighteen months later, the decision would have been different".

Economic reform

This revealed a very different relationship between Ministers and their economic advisers. The two fitted together immediately as a hand into a glove. This was a case where the new Government did not have to learn by experience. Treasury had done its homework and had sorted out its ideas.

Roger Douglas, who had at times walked a rather lonely path in the Opposition Labour Party, found a machine ready and waiting to do his bidding. The foreign exchange crisis was the immediate trigger or, if you like, excuse. The sixteen carpet factories went out the window and New Zealand embarked on its most sweeping period of economic change since the late 1930s - ironically to undo many of those earlier policies.

The speed and extent of the reforms would not have been possible by ministerial fiat alone; they depended heavily for their implementation on the thinking which Treasury had already done in the last years of the Muldoon administration. It raises the question whether reform had to be so fast and so sweeping. Certainly the social costs were high and we are perhaps still paying them. Some, like Paul Keating, were privately critical of the pain being caused by our refusal to take a more deliberate approach. Others thought that in our haste we did not carry through the reforms in the optimal sequence.

These charges have some force. On the other hand the reform process in the eighties was not an academic exercise. By 1984 we were drifting dangerously close to the economic reefs; much longer and we would have had to be towed off by the IMF. That might have been more acceptable and the social consensus might have been better preserved if we had had reform forced upon us by an outside body. I am sceptical - Argentina does not look any happier because its reforms came from the IMF.

What is clear is that if the task was to be carried through by New Zealanders it had to be done quickly. New Zealanders are a conservative lot and tend to agree with Lord Eldon: "Why all this talk of reform?" he said, "things are bad enough already."

A stately and well-signalled pace of change - desirable though it is - would have called up such a weight of angry interests as to block any further progress. A small indication is the row which followed a speech by John Fernyhough in Sydney in which he said that the reforms had had to be done by stealth.

What did help the economic reforms, I believe, was the Anzus crisis.

There is no evidence of any conscious trade-off between the two and a moment's thought tells you that public affairs do not work in that way. But it is a reasonable supposition that, but for the nuclear agitation, discontent with the economic changes would have been much greater in the Government caucus and the extent of change in, say, import licensing and tariffs, much less likely. Or, to put it another way, if the Buchanan had been accepted the full weight of the Left would probably have been brought to bear on the Government's domestic policies.

Reform of the public service

This was largely a consequence of the urge for economic reform. The trading activities of the Government clearly needed to be put on a self-funding basis and the SOE model was an ingenious solution. Applying this to the core or non-trading government departments was a less happy fit.

If reform were needed here (and I am rather with Lord Eldon on this) it would have been better to devise a separate regime. But the commercial model was the only one which the reformers knew or admired, and so the Government was compared to a holding company, departments subsidiary enterprises and their heads were renamed CEOs.

It is hard not to see in the Government's willingness to go along with this a lingering distrust of the old public service. Business school thinking was fashionable but it was never made clear why commercial concepts had to be applied to non-commercial departments. There is in fact no business like public business. It is messy and untidy but that is politics.

Governments have to broker and reconcile so many interests that manufacturing or marketing models have only a limited relevance. Harold Macmillan, asked the most important thing in public affairs, said, "Events, dear boy, events". A framework of purchase and performance agreements is not much help in coping with events, the unforeseeable, which is the nub of the relationship between Ministers and their advisers.

The rearrangement started with the Prime Minister's Department. In 1985 the Prime Minister's Office and the Advisory Group were separated under John Henderson, leaving the Department with its intelligence and crisis management functions. In March 1987 the department itself was abolished and its duties transferred to a Domestic and External Security Secretariat.

Two years later, like some vanishing island, the Department reappeared in its original form, when Geoffrey Palmer became Prime Minister.

By then the momentum of change had spread to most of the public service.

Doctrines requiring the separation of policy from delivery, funding from providers were applied with what now seems uncritical enthusiasm. The number of departments and CEOs doubled and effective establishments like Agriculture and Justice dissolved into a profusion of smaller agencies.

New Zealand became the only country in the world with two Defence departments - one to reflect and one to fight.

All this was done in the name of management. Repeated statements stressed that management - not advice - was the job of the public service.

Indeed the State Sector Act went through several drafts with management defined as the sole duty of the CEO. Only at the last minute was policy advice included.

The relationship between a Minister and CEO which the Act envisaged was a curiously stilted affair. It was to be at arms-length, governed and defined by formal arrangements like purchase agreements. It bore little resemblance to the informal ways in which successful Minister-department relationships worked. I suspect that, in fact, things went on in much the old way, not so much from conservatism as from the inner logic of the parliamentary system. But the confidence and therefore the quality of the public service was damaged.

Crisis management

The major responsibility for crisis management rested with the Prime Minister's Department. In 1983 the machinery was revised to make it more flexible. The Terrorist Emergency Group or TEG, chaired by the Prime Minister, was established to bring ministers and senior officials together in a single body with a floating membership which could be adjusted to suit the nature of each crisis.

Regular exercises and briefings of the TEG were carried out, as realistically as possible. One was vivid enough for Frank O'Flynn to worry about the fate of supposedly hijacked passengers at Wellington airport, and he was aggrieved when enlightened by his colleagues.

How arrangements work in practice, of course, depends on the inclination of the Prime Minister who directs them. David Lange had all concern with organisation, all the interest in systems and flow-charts which marks any one-man law office. His quick intelligence enabled him to grasp situations quickly and with a minimum of paperwork. His restlessness made him impatient of formality and of lengthy sittings. He preferred the personal to the procedural approach, to rely on his empathy for people rather than on consultation with his colleagues.

In the Rainbow Warrior affair his disinclination to use the TEG machinery did not greatly matter. Co-ordination of the investigation was left in the hands of departmental heads sitting as the old Official Terrorism Committee which met seventeen times as the mystery was unravelled. The Prime Minister liked to drop in and be briefed but never stayed for a full sitting. Co-ordination was not a problem: he directed and authorised the enquiries and other Ministers were presumably kept informed by their departments.

When an Air New Zealand aircraft was hijacked at Nadi two years later, the speed of events made co-ordination important, and the Prime Minister's decision not to convene the TEG left key colleagues and departments in the dark.

Helped by the Minister of Police, who happened to pass by, I struggled to man the phones in the Prime Minister's outer office. Between talking to the Police, Air New Zealand, the control tower at Nadi and the pilot, it was simply not possible to brief Foreign Affairs and Defence who understandably became concerned. Perhaps fortunately, the crisis was resolved not by official action but by the flight engineer with a bottle of whisky.

With the crisis over Cyclone Bola, though, the Prime Minister was in his element. Speed and flexible thinking were needed to restart the East Coast after it had been hit in March 1988 by New Zealand's worst economic disaster.

Fortunately we had completed a general plan for disaster recovery just as the rain began to fall but plans give no more than general guidance in a particular crisis. What determined the pace of the operation was the Prime Minister's close interest, his ability to give quick decisions and then, if necessary, get them retrospectively validated by Cabinet the following week.

As soon as the rain stopped he toured the whole region by helicopter. That gave him a framework in which to visualise our proposals. When we wanted to use unemployed labour to dig silt from houses and horticultural crops the following Saturday, the Prime Minister was about to attend a Samoan Church in Auckland. He listened to the idea over the phone and told us to put it out in his name. Two hours later the rather grandly-named Disaster Recovery Employment Scheme had been announced and the workforce was being assembled. A Sunday later it was the turn of the agricultural compensation plan, a radically new concept which the Prime Minister unhesitatingly sponsored. In this sort of situation, where afflicted people were looking for action, the Prime Minister's energy and readiness to act quickly were the keys to reviving the region's economy.

Conclusion

The adjustment in 1984 between the new Government and the bureaucracy it inherited was unusually prolonged. Unfamiliarity cannot have been the only reason, nor that progressive governments often find it more difficult to distinguish between the personal and the political. The transition proved easier for the British Labour Government, though it had been out of power twice as long, and its civil service saw little change.

In New Zealand's case it may have been influenced by the relatively shallow roots of institutions like our public service. Perhaps also by a generation gap in outlook and sympathies. The Government passed overnight from the RSA generation to the baby-boomers, and Ministers were in many cases younger than their departmental heads. As time passed, the Government inevitably came to see its public service advisers in more individual and congenial terms but it could never quite shake off a lingering mistrust of the institution. The shadow of Sir Humphrey was a long one in New Zealand.