Dr Paul Moon: Plea for alternative direction economical about alternatives

Dr Paul Moon is professor of history at AUT. Photo / Supplied

Opinion

History shows how social policies have really worked, writes Dr Paul Moon, a professor of history at AUT University and a fellow of the Royal Historical Society.

Initially, I was hoping that Dame Anne Salmond's opinion piece in the Herald on the New Zealand economy was a clever satire on interventionists - those who know little about generating wealth, but thump their chests when it comes to demands for its redistribution.

However, this was not the case, and in the course of her prolonged plea for an alternative (though unspecified) sort of New Zealand, she has written an essay comprised of a surprising inventory of unusual statements.

First, she attributes directly the country's recent credit-rating downgrade to the failure of the economic policies of successive governments.

Yet most economists concede that the rating downgrade was the result of a succession of crises that have afflicted the global economy.

Like a cork being tossed around on the ocean, New Zealand has comparatively limited control over its economic direction. Moreover, Dame Anne offers no example of the specific policies she blames, let alone an alternative. From there, she swerves to the subject of the Enlightenment, where she attempts to illuminate Adam Smith's principle of the "invisible hand" but nudging it closer to ideals such as the "rights of man" and the slightly more nebulous "human dignity". However, couching Smith's "invisible hand" in these contexts is more a sleight of hand.

What Smith forcefully argued was that by "pursuing his own interest, [man] ... frequently promotes that of the society more effectually than when he really intends to promote it". The salutary warning here about good intentions seems to have been overlooked, as does Smith's overt enthusiasm for the pursuit of economic self-interest.

On the matter of "the rights of man", Smith's position was that by prohibiting people from acting in a manner "most advantageous to themselves" the result would be "a manifest violation of the most sacred rights of mankind" - the opposite of what Dame Anne implies.

In a similar vein, her allegation that the invisible hand of the market "has failed to deliver prosperity" is contrary to the evidence of gross domestic product ratings of the world's market economies compared with those more centrally planned. The United Nations' GDP rankings show this correlation.

Then there is Dame Anne's suggestion that "in economic life, when collective values collapse, failure is likely", which might be a comforting homily but is one with little historical basis.

There are plenty of examples of nations throughout history with collective values whose economies have approached collapse (the Soviet Union, North Korea and Albania come to mind), whereas countries where the social values are much more diverse, such as the United States, have tended to prosper.

The historical perspective of New Zealand poverty was also sadly out of focus in Dame Anne's article. Anyone who has researched poverty assessments in New Zealand over the period since the 1920s will see that poverty measurements are notoriously malleable.

I am sure that if someone told a New Zealander in 1971, for example, that 40 years later, there would be people classified as being in the poorest quartile in the country owning more than one telephone, a car with power steering and air conditioning, they surely would have scoffed at the possibility.

And as for the mantra that greater income redistribution is somehow a panacea for whatever social ills we have, Lesotho, Namibia, Sierra Leone and Haiti stand out as examples of countries with high levels of income equality between rich and poor, whereas nations such as Switzerland Canada, Denmark have much greater disparities.

Yet, it would not be difficult to decide in which of these countries it would be preferable to endure poverty.

Indeed, if anyone wishes to experience a country that has made the redistribution of wealth a doctrinal priority, a visit to North Korea would be an instructive exercise.

And then maybe they could cross the border to South Korea and experience the sort of assertively capitalist economy Dame Anne seems so wary of. Koreans have voted with their feet and, in some cases, their lives, to escape the planned economy for the boisterously capitalist one.

Dame Anne's syntactically challenged prescription that "passion and commitment are unleashed, and pride and creativity" is unfortunately a platitude without much meaning.

And there are plenty more of these in her piece: "Many of the best things in this country happen when groups and communities are empowered to pursue their own projects"; "When the party is over, why stop?"; "More than a change of government, what is needed is a change of heart."

You get the picture.

Maybe we could both take solace in the observation of the great economist John Kenneth Galbraith, who asserted that economic policy "is the choice is between courses that are almost equally good or equally bad. It is the narrowest decisions that are most ardently debated".