Resurrecting the Development State

The Government’s proposed infrastructural entity in context.

From the earliest European settlements in New Zealand, economic strategy was dominated by the notion that the state should lead the development of the economy. There wasn’t really anyone else to install the facilities and networks that progress needed. In any case, the development state had been integral to the evolution of capitalism elsewhere.

So there was a generation before Julius Vogel. His role in the development state was to consolidate and integrate the existing activities and expand their ambition, as he centralised the government of New Zealand following the abolition of the provinces.

It is well to remember that, as Raewyn Dalziel’s biography is subtitled, Vogel was a ‘businessman politician’. He did not assume the development state relied solely on state agencies. Business had a role. (Indeed Vogel sometimes blurred the line between the two, not least for his own profit.) But the state led the charge. It was the only institution big enough to grasp the whole ambition and big enough to be able to raise the offshore finance.

As a part of the strategy, Vogel established the Department of Public Works, which provided the transport and communications network (railways, roads, telegraph, wharves – later airfields), the energy system and a host of other components of infrastructure; it was the custodian of the town and country planning (from as early as 1926). There were allied organisations also dominated by engineers: the New Zealand Electricity Department, Forest Service, and Post Office.

In 1943, under the First Labour Government,, the PWD became the Ministry of Works and in 1974 under the Third Labour Government, it became the Ministry of Works and Development.

In 1988 the Fourth Labour Government abolished the MWD. Its policy functions were disestablished or passed on to other government departments, the ‘commercial’ operations were put in a state-owned enterprise and some units were sold. In 1996 the SOE was privatised.

As for many such changes under Rogernomics, the reasons for the disestablishment were complex. For instance, the Treasury thought the MWD was too powerful; its engineers quarrelled with their economists over which projects should proceed and the MWD was an early resistor to neoliberalist management.

Whatever, the abolition of the PWD-MoW-MWD was a rejection of the development state. In future, economic development was to be in the hands of private enterprise. Not quite. The Rogernomes could never work out how to privatise the roading system; it requires effective road-user pricing.

Even more fundamentally, they abolished the central agency with state-driven economic development at the core of its thinking. The neoliberal account of economic development is rather wishy-washy. Their economic analysis centres on a static economy with a growth element bolted on. Perhaps it was not surprising that Rogernomics resulted in seven years of economic stagnation.

The problem of economic development would not go away. The Fifth Labour (Clark-Cullen) Government established a Ministry of Economic Development with the intention of replacing the Ministry of Commerce with its legal-regulatory focus by an agency with a development focus. In turn, the Fifth National (Key-English) Government transformed the MED into the sprawling – and as has thus far proved far from effective – Ministry of Business, Innovation and Enterprise (widely called MoBIE as in ‘dick’). Infrastructure issues were scattered through a number of government agencies. Even the Treasury had its own unit; Bill English was the not particularly prominent Minister of Infrastructure.

Nor did the National Government forego the development state. It led the Ultra-Fast Broadband rollout through its Crown Fibre Holdings Limited. The driver was business politician Stephen Joyce; Vogel would be proud of him.

(To get an early oar in, the overall project is likely to have future financing difficulties and taxpayers will take a large hit. This is not because the broadband roll-out is ill-conceived, but because quality economic development does not always meet commercial criteria – something the Rogernomes never understood.)

The infrastructure portfolio is now held by Shane Jones, who has announced that a new independent 'entity' will be established so that ‘New Zealand gets the quality infrastructure investment it needs to improve long-term economic performance and social wellbeing’. Sounds like the MWD to me.

Watchers of the Wellington bureaucracy will be gripped by the infighting over the scope of the new ‘entity’ (the term indicates that thinking is very preliminary). National seems to have seen the Resource Management Act as a key element. (Much of the legislation the RMA replaced was the responsibility of the MWD and its allies; I am not sure if Jones had a role in the passing of the RMA but he was involved with it when he worked in the Ministry of the Environment.) Additionally some of the existing infrastructural entities are likely to be subsumed in it.

There are things which need to be reintroduced or intensified. The entity will need a plan. (I apologise for introducing a four-letter word which many – neoliberals – consider obscene; the editors have cleared its use.) If the infrastructural activities are not to be preoccupied with bottlenecks and failures, as they are today, there is a need to think systematically about the future.

There was an enormous destruction in our economic planing capacity under Rogernomics and it will take a long time to regain it. But we should start. (I have had in my mind a column about the future of farming and hence of the economy, but I have been inhibited because the exercise could just be hand-waving since we have no idea of the magnitudes involved.)

Another issue which needs to be addressed is the quality of our engineering work. Far too much recent capital investment has been replacing poor quality previously-installed works rather than adding to productive capacity. The leaky buildings fiasco is but the salient example; other houses built over the period have other problems. Have you noticed how many buildings built after 1990 either fell over during earthquakes or have needed very expensive attention? The deaths at Pyke River were a regulatory failure. Then there is the strange story of poor trailer couplings. What next? (Let us hope it is not a Genoa-type bridge failure.)

The Ministry of Commerce’s approach to regulation has been a part of the problem. It was called ‘light-handed’ (a.k.a. as ‘light-fingered’ and ‘light brained’), relying on the private sector providers to maintain high standards for reputational reasons and to avoid litigation. The pressure is on them to cut costs and hence standards and – anyway – by the time there is the failure they are elsewhere. (Litigation has proved costly and ineffective.) The Ministry has gone but its contribution to the neoliberal policy framework remains.

Would the MWD have made a difference? It had a key role in maintaining professional engineering standards; probably it would have intervened earlier and more intelligently. But who knows? We cannot do much worse that we have.

However, the new infrastructural entity will not resolve all our problems soon. It will takes a couple of generations to rebuild the professional competence of the MWD. As David Mayes (an economist who died – far too young – late last year) reminded us in his 1986 speech ‘Changes’, it is much easier to destroy than create.