Ruth Richardson takes the baton from Roger Douglas on behalf of Corporate Raiders

Excerpts of Ruth Richardsons’ book – Making A Difference – Published 1995

This a work in progress as I have to maintain a family and a job in the realsector whilst finding the time to make as widely available as possible, in simple form, irrefutable evidence from the own mouths of the main players that exposes the current unfettered free-market ideology for the threat to democracy and the commercial pyramid scam that it has become.

This review is a summary followed by excerpts:

From my observations I would describe Ruth Richardson relationship with her Treasury mentors as one similar to teenage nerd that becomes lovestruck when the cool kids bother to talk to her. Before reading her book I had her pinned as being an outright slaveminded co-operative of the foreign corporate raiders, after reading it I now think her intentions were civil, but she was not financially literate enough to know that the doctrine she was being taught would achieve exactly the opposite of her civil intentions.

Pg 9 Ruth Richardsons’ motivations

Pg 12 Inviting slavery

Pg 15 Muldoon Think Big Projects

Pg 21 Using womans issues to become popular

Pg 21 Trade off between freedom, fairness and wealth

Pg 34 Douglas and Treasury

Pg 37 Douglas and privatisation

Pg 42 Did Ruth Richardson blackmail her way into the position of Finance Minister on behalf of corporate raiders. Michael Laws observations inserted* Did the public really give a mandate for market liberalism or had they once again been conned?

Pg 46 “ it was more important that I build up credibility within my key constituencies – business and the financial markets”

Pg 47 A path to economic slavery, Ruth describes the failings of the very system she was brainwashed into championing

Pg 48 Re economic sovereignty

Pg 50 No formal qualifications, so asked Douglas for an advisor

Pg 51 Smoozing the business sector for support

Pg 55 Media training by Jack Byrum, same man that trained Richard Nixon

Pg 56 Iain Rennie, Treasury influence on Jim Bolger “coming along nicely”

Pg 60 Ruths’ three main priorities, monetary and fiscal Policy, and labour reform

Pg 63 Factions within party’s, Business Roundtable, labour reforms

Pg 64 Markets always assist Ruth, coincidence or not?

Pg 66 Allowed to fudge finance numbers when in opposition

Pg 68 Jenny Shipley great alley, surplus only achieved by asset sales

Pg 70 One year window for radical reform, Graham Scott Treasury

Pg 74 BNZ Bank debacle, Fay Richwhite buy in

Pg 76 A crisis gives golden opportunity for radical change

Pg 78 Roger Douglas partners in crime, Ruth rues not having such ally’s within her own party

Pg 80 Don Brash, Graham Scott influence on Jim Bolger

Pg 82 Ruth meets Graham Scott who had led monetarist reform for a decade

Pg 82 Swapping of Treasury figures between Public and Private sector

Pg 83 Private sector influence upon Treasury advisors

Pg 88-9 Individual Workplace Contract Act is born out

Pg 90 Reducing RBNZ from acting in the national interest to that of corporat raiders

Pg 91 Ram it all through just before x-mas while no-one is paying attention

Pg 93 Pat Duigan, another Economic Hitman, delivers the next sting

Pg 94 Standard & Poors move in for the kill

Pg 97 Telling foreign bankers/ corporate raiders what they wanted to hear, and they loved their little monetarist puppet

Pg 100 Corporate tax’s not being paid

Pg 102 “Mother of all budget’s”, written behind the scenes by Treasury

Pg 108 Health service example of “interim administration” they use to turn public assets over to corporate raiders

Pg 113 Failed to get radical monetarist agenda in one door, so went to another

Pg 120 Financially illiterate backbencher’s, Ruth glad to see Muldoon gone

Pg 121 Tariff’s on items for the “Global Program”

Pg 124 Re Cabinet Collective Responsibility, would Ruth have been more humane had Wyatt Creech not been there?, as he was a Minister of Revenues with glaring conflicts of interest toward corporate raider’s

Pg 126 Again, did Ruth have a more humane equitable side?

Pg 128 Jim Bolger wanted a “cup of tea” David Lange style

Pg 137 Treasury takes over tax policy

Pg 139-40 Influencing markets and “confidence trick”

Pg 141-2 Privatisation increasing nicely, all proceeds to go to debt servicing, not social services

Pg 143 Housing Corp mortgages sold of, BNZ etc

Pg 144 Jim Bolger asks “ just why are we selling BNZ?”, Winston Peters’ failed in trying to get a banking inquiry, later kicked out of National Party

Pg 145 The world’s slave-minded elites praise New Zealand for leading the way despite public backlash

Pg 146 British Junior Treasury Minister goes against the tide, punished by market, coincidence or not?, Ruth has little understanding of supposed market self stabaliser’s

Pg 148-9 Treaty Of Waitangi, Fiscal envelope

Pg 150 Jim Bolger goes off Ruth, wants a David Lange “cup of tea break”

Pg 151 Challenge Ruth and the markets punish you, coincidence or not?

Pg 152-3 Land Aggregation Law debate, Ruths elitist veiws

Pg154 Sotto Voce Stategy, Land Aggregation Law changed on bunmum grounds that those who can afford lawyers side step it anyway so we might as well make it legal

Pg 156 Don Brash touted as next Governor of Bank Of England

Pg 163-4 Cementing her radical changes in order that they be very difficult to undo. Fiscal Responsibility Act

Pg 166 Birth of the pre election finance disclosure, good idea, but destroyed by exemption’s

Pg 169-70 The conditions that undid effectiveness of PREFU, Just who runs things? Treasury or Parliament?

Pg 171 Governments routinely hide true fiscal position, increasing public debt burdon

Pg 173-4 Unfettered foreign takeovers, Company’s Act passed dispite not going to cabinet in either National or Labour Government’s

Pg 177 Won election, but disappointed at MMP being voted for as would be detrimental to radical monetarist reform, crying on phone with Treasury and Reserve Bank Governor Don Brash

Pg 178 Would Jim Bolger opt for “power or the programme”?

Pg 181 Jim Bolger again re David Lange style “ cup of tea break”

Pg 183 I received no thanks from Jim Bolger, what would you expect from someone you blackmailed to get your position?

Pg 184 Ruth’s slave-minded friends, Peter Elworthy

Pg 187 Ruth happy Bill Birch would replace her as he was “easily captured by officials”

Pg 188 We received great submissions from Treasury and Business Roundtable

Pg 190-1 Treasury had invested a great deal of time in Bill Birch, and he was eager to please the market, Jim Bolger was questioning

Pg 198-9 NZ trained the world in monetarist reform, we need to be more like Asia

PG 202-3 Restructuring farming and market boards to the unfettered open market

Pg 205-6 Further Privatisation

Pg 211 Happiness is not derived from money, what a contradiction to the prevailing doctrine of the rest of the book.

Pg 226 Abolish the minimum wage and workers protections

Pg 229 Hand Government over to the Private Sector

EXCERPTS

Pg 9 – There are two kinds of politician. Most politicians spend their careers largely reacting to various forces in the body politic. Their guideposts are public opinion, pressure groups and conventional wisdom. I was never that kind of politician, and never wanted to be…….we are confident to leave the verdict on our actions to history. Our political lives are often short, but they do not go unremembered. For good or ill, we make a difference…….History is often fickle, there can be long periods of little change, despite the building of subterranean forces that will eventually rock the foundations of existing structures. There can be a short period of rapid action, where fortune favours the brave and the agents of change are given their chance. Our time has seen such a period. Shakespeare wrote that there is a tide in the affairs of men which, taken at the flood, leads onto fortune. In my political career I was lucky enough to catch that tide and play a major role in transforming New Zealand. That transformation has been truly remarkable. The market reforms changed New Zealand utterly, and for the better. They have captured the imagination of the world.

Pg 12 – Competition is the spur to innovation. In a small country, where domestic competition may sometimes be limited, it is especially important that there be competition with foreign goods. By facing international competition, domestic industry is forced to innovate and become productive in order to survive.

Pg 15 – There were other misconceived responses from the government. Diversification of New Zealand’s export base – still heavily dependent upon primary products and a limited range of markets – was one of the watch words of the time. There can be no doubt New Zealand’s export base was to limited and needed to become more diverse. Rather than using market forces to that end, however, the government often strove for diversification by a deliberate strategy of picking winners. Most notorious by far were the Think Big projects – an attempt to use the energy sector for a range of export and import competing projects, underwritten by the government, most of which turned out to be lemons.

Pg 21 – Federated Farmers was a time honoured stepping stone for future National Party politicians. During these years, much of my energy as a political activist was going into feminist issues: family law reform, the Matrimonial Property Act and the Womens Electoral Lobby. However, I never saw womens issues in isolation. I saw them as part of a wider agenda of the empowerment of individuals.

Pg 25 – All Western style democracies will witness, during the closing stages of the 20^th century, the continuous trade offs and strains between freedom and fairness and wealth.

Pg 31 – The 1982 Official Information Act brought a radical change, introducing the basic presumption that information should be made publically available. There were strictly limited grounds for withholding information, and any decision to hold could be appealed to an independent Ombudsmen.

Pg 34 – Those in the National caucus who saw the need for wholesale change were in a small minority. Straight after the 1981 election four of us – Derek Quigley, Michael Cox, Doug Kidd and myself – held an out of Wellington strategy meeting on how to advance the freemarket agenda…..the arrival of Douglas as the Treasury Minister was a most fortunate meeting of minds. Douglas had clear plans to liberalise the economy, reform the tax system and bring down inflation. The Treasury for its part had learned a great deal from the failures of the Muldoon years, and was more than ready to give Douglas the assistance he required…… Legislation was soon introduced to deregulate the banking sector.

Pg 37-8 – The onset of Rogernomics set the terms for the policy debate within both main political party’s over the next seven or eight years. Substantial but incomplete economic reforms had taken place. There was those in both parties who rejected Rogernomics and all its works, and wished to return to the more controlled economic management of the past. Equally, there were those eager to push the reform programme forward. And, human nature being what it is, there were large numbers who were in the middle, who were not quite sure what they thought. In the National Opposition much of the debate centred on the high interest rates and high exchange rates. Many argued that the government should loosen monetary policy and/or attempt to manage the exchange rate down. Those of us in the free-market camp argued that the high interest rates and high exchange rate were symptoms of a deeper problem: unbalanced reform. The proper response, we claimed, was to push on with the reform programme……Previously the commercial and social functions of many state agencies had been inextricably mixed, leading to inefficiency and poor focus. SOE reform seperated out the purely commercial functions. The ‘SOE model’ – that of the tax and dividend paying company whose shares are held by government was one of Treasurys’ most technically assured and successful contributions to the reform programme. As subsequent events showed, setting up the SOE’s not only led to large increases in efficiency, it put state trading activities into a form easy to privatise.

Pg 42 – In offering me the finance job, Jim undoubtedly placed great weight on the level of support I had received in caucus. Other factors would also have been important. I was one of the few National Mps with much support from the business community. And, as the election result showed, the tide seemed to be flowing in the direction of market liberalism.

* Author of this summary feels it is timely to Insert some paragraphs from From Michael Laws book – The Demon Profession –

“Richardson was a devout monetarist who believed the only problem with Douglas’s reforms was they had not gone far enough. After Jim Bolger ousted Jim Mclay as leader of the National party in

1986 the Deputy leader position became vacant, Richardson wanted it, but Bolger did not want her

anywhere near it because she had also sought the leadership at the same time he did. Bolger gave

her the finance spokesperson as a ruse to keep her happy, as he had no intention of giving it to her

should they win the next election. Richardson knew this, so set about ensuring if National won the

next election Bolger would have no choice but to make her Treasurer.

She began to seek support from newer MP’s and started approaching the National parties powerful

business allies, telling them of her plans for labour market reforms such as individual work place

agreements.

They in turn soon began telling Bolger that their continued political and financial support was

dependant on Richardson becoming treasurer should National win the next election. Bolger duly

began to announce publicly his intention to appoint Richardson as treasurer should they win, then in

turn the substantial donations from big business began to flood in and the 1990 election was won.

Fair and reasonable conduct for a member of the public service or corruption, I’ll let you decide. It

is at least a fine example of why big business should not be allowed to contribute to the electoral

funding of any political party. They are not citizens and have glaringly obvious conflicts of interest

such as the fact they will always act in the interests of their large shareholders over social

responsibility because those large shareholders demand it. Thus their huge available financial

influence should not be given any opportunity to corrupt our political processes, thus they should

not be allowed to make political donations anonymous, declared or any other*”

 

Pg 46 – I was keen to bring a different style to the opposition finance role. I did not wish to oppose the government simply for the sake of it. Political grandstanding can be tempting and has undeniable short-term benefits. For me, however, it was more important that I build up credibility within my key constituencies – business and the financial markets. To do this, I needed to pick the right issues and be more selective in my attack on the government. I am proud of the fact that as Opposition finance spokeswoman I persuaded my National colleagues to support both the Public Finance Act and the Reserve Bank Act.

 

Pg 47 – The question, then, was how to set up an institutional arrangement so that monetary policy would be run, not for the short-term benefit of politicians seeking re-election, but for the long-term benefit of the economy as a whole.

Labour also faced a more immediate problem – how to establish the greatest degree of credibility for their own anti-inflationary policy. Their solution, enshrined in the Reserve Bank Act, was to put the Reserve Bank onto an autonomous but accountable footing. The balance struck by the Act was a good one. Price stability was specified as the primary function of the bank, with policy targets having to be agreed between the bank and the Minister of Finance for carrying out the banks primary function. On the other hand, there was provision for the government of the day to override the bank by substituting a different economic objective to price stability. Any override was required to be done in public. Thus any government could at the end of the day have the monetary policy it wanted, but was forced to be transparent in it’s instructions to the Reserve Bank.

The public nature of the override, combined with the open nature of New Zealand’s capital markets, made it unlikely the override would be used. A loose monetary policy only succeeded in raising output in the short-term if it “fooled” participants in the economy into thinking there had been an increase in the real demand for their services when in-fact there had only been a “paper” increase in demand. If the governments override to the Reserve Bank were made public, the surprise effect would be greatlt desipitated. Interest rates would rise immediately, in anticipation of the higher inflation resulting from the governments actions. This provided a built in check against a government tempted to misuse monetary policy for short-term political ends.

 

Pg 48 – Even today, while Bill has come to accept the framework of the Reserve Bank Act, Jim in his heart of hearts would still like to run the monetary policy from the Beehive…..While I personally saw no need for an override provision – and still do not – having one enabled me to argue that the bill did not preclude the government of the day from exercising sovereignty over monetary policy. Some groups such as the Manufacturers Federation – had campaigned against the bill by arguing it would completely tie the governments hands. That was plainly not true.

 

Pg 49 – In making me his finance spokeswoman Jim Bolger had taken a decision that was – for him – a major new departure. He would not have made the appointment without severe misgivings: I was seen as radical, I had not supported him for the leadership, we had little in common beyond a shared rural background, and it would be idle to pretend we were good friends. Our minds worked very differently. I tended to reason from first principles; he used a more intuitive approach. I was by instinct a reformer; he was by instinct a manager, and a man of middle ground. I preferred to drive a tank at obstacles; he preferred to search for compromise. I was sometimes criticised for not being political enough; he was a politician to his fingertips. My opponents said I was dogmatic; his opponents that you never knew where he stood. I was praised for firmness of principle; he for flexibility and reasonableness.

 

Pg 50 – I soon made it a cardinal priciple that there not be a hairs breadth between me and Jim in public. For a time this disappointed some of my philosophical allies outside Parliament. They thought I was not pushing issues hard enough, not ‘leading the debate’. But I was in it for the long game……..In those days there was very little in the way of support staff available in the Opposition. I had no formal qualifications in economics; though philosophically a free-marketeer I was on a steep learning curve on the detail of economic policy. Soon after taking the finance job I wrote to Roger Douglas requesting a fulltime economic advisor. Douglas generously agreed and I managed to persuade my friend Charlotte Williams to take on the role. Charlotte proved to be an ideal choice. She was a breath of fresh air around the opposition wing and helped inject a long-overdue dose of economic rigour into the Oppositions policy machine.

 

Pg 51 – While not emerging with much visible success, during this period I was putting a lot of time into meeting and networking with the business sector. I also met regularly with participants in the financial markets. The Oppositions reputation with both audiences was still low and I was well aware that the first step toward business and financial markets gaining confidence in the party was their gaining confidence in me personally.

 

Pg 53 – Early in 1989, at the annual retreat of Nationals caucus at Waipuna Lodge, I at last succeeeded in getting an economic position paper agreed with my colleagues. It was a bland document, but considerably better than not having anything. The document did not seriously tackle monetary policy, saying merely that National’s monetary policy would be ‘appropriate’. The treatment of fiscal policy was stronger, though not yet strong enough. The document committed National to ‘diminish the demands of the state on the economic resources of the nation.’ It also committed National to balancing the budget and ‘reigning in’ government spending. The document contained a reasonably strong statement on National’s intentions for labour market reform.

 

Pg 55-6 – To help me acheive this new softer persona I was sent to charm school under the guidance of former United States image-maker Jack Byrum – the man who had reputedly turned Richard Nixon from losing Presidential candidate into President……… Late in 1989 I had an intensive two day session with Jack Byrum. He analysed me relentlessly, stripping me down and gradually building me up again, making some extremely acute points along the way. Towards the end, thoroughly brainwashed, I was ready to do almost anything he asked. Unfortunately at that point Jack got his hands on the speech I was due to deliver the next day. The speech was to the Mont Pelerin Society – a pretigious worldwide association of market liberals which was having its first ever conference in New Zealand. It was one of the most intellectually high-powered audiences I would ever address – precisely the wrong audience to try out Jacks touchy-feely approach. However, by this stage I……..

pg 56

was past resistance. My speech was completely rewritten. Out went all the boring economics and in went some heart and soul.

The next day I stood up before an audience that included a Nobel prize winner and other luminaries, treated them to my coquettish new smile, and delivered a speech of numbing emptiness. Still under the influence, so to speak, I thought I had gone down rather well. I little knew that over morning tea a dozen converations were going on to the effect of: ‘what has got into Ruth’? My philosophical allies had intended the conference to be a symbolic handing over of the torch from Roger Douglas to me. Over subsequent days, as I gradually became myself again, various people quietly broke the news to me that my speech had in fact been less than a roaring success. The moral of this story is not that I should have made no attempt to soften any image – only that I should have picked the right audience.

At the same time Anna came on board, I also managed to persuade Jim to have a Treasury economist seconded to his office – something had had always been entitled to do. The economist who came, Iain Reenie, would do an outstanding job in helping to educate Jim, and steadying him at crucial times. Jim even became considerably attached to Iain, who, when we eventually took office, for a short time went into the Primeministers department. Those of a paranoid disposition, who believes treasury has its tentacles everywhere and secretly runs the country, would of had their theories further reinforced had they observed Iain Rennies influence on Jim.

In a further staff change at this time, Martin Hames took over from Charlotte Williams as my economist. Martin came to the job with impeccable economic credentials: he had been working for a major bank and had earlier done a stint with the Reserve Bank, so he had an excellent theoretical and practical understanding of the world of finance. But Martin was much more than a mere economist. While personally reserved, he would become feircely assertive across the whole spectrum of social and economic policy. Politically he was no shrinking violet either, and had much to say about and to contribute towards political strategy and day – to – day tactics.

Martin, like Anna, ended up staying with me until the end of my time as a Minister. Like me, he was insistent and persistent about the need for high quality labour market reform.

 

Pg 60 – All spokespeople with proposals involving new spending came before the caucus economics committee, chaired by my other associate finance spokesman, Doug Kidd. The committeee had little formal power but it did provide us with a forum for scrutinising new initiatives. I kept a running tally of National’s spending commitments, which I would periodically run past my colleagues, especially in front-bench meetings where confidentiality was greater than at full caucus…….Along with monetary and fiscal policy, labour market reform was a third area I saw crucial to our economic strategy. Though I did not have direct responsibility for labour policy, I was intent on using my influence as finance spokeswoman to the greatest extent possible.

 

Pg 61 – Jim in particular was extremely nervous about being seen to oppose pay equity. Though caucus decided to oppose it, Jim would be still trying to persuade us to vote in favour of the pay equity legislation right up to its third reading in the house.

Those of us in the opposite camp on labour market reform were thinking through the issues from first priciples. Maurice Williamson deserves praise for being an enthusiastic advocate for fundamental reform. Maurice and I and others like us wanted a radically new regime where there was genuine freedom of contract.

 

Pg 63 – Perhaps riskily, I told the Business Networking Society;

“under National the only parties to labour contracts will be the employer and the employee’s. The governments role will be restricted to enforcing the standard rules of contract.’

 

Bill, however, soon tried to release his earlier position paper as a final policy paper, but he made the serious tactical mistake of being oversea’s at the time of the launch. I found out about it at the very last minute, got hold of the paper, and managed to persuade Jim that it was inconsistent with the vision document. Jim altered the paper, fudging the crucial passages.

The ups and downs of this saga stand as good example of the capriciousness, the zig-zags, the manoeuvring, the tricks, the blind chance and the sheer confusion that constitutes so much policymaking within a political party………The Business Roundtable put a great deal of effort into trying to educate Bill on the concept of free contracting, with some limited success.

 

Pg 64 – Jim’s comments came as a complete surprise to me. The interveiw had an immediate impact on the financial markets, which saw a weakened inflation commitment from the political party likely soon to become the government. Bond rates rose. Jim was both surprised and rattled at the interest rates. It was a most valuable lesson.

Jim and I had a meeting on damage control. We agreed that National’s target would be 0-2 per cent inflation by 1993, i.e. one year later than Labours target. From my point of veiw, getting Jim settled on the 0-2 per cent target was a major advance; our one-year extension to the target was relatively minor by comparison. To ‘clarify’ Nationals’ position, I issued a statement announcing the new inflation target, and repeating the growth target.

The incident illustrated how much of an ally the financial markets would prove to be for me. It also convinced Jim that the time was now right to produce a formal economic policy document, to improve market confidence in the Party. I got to work with enthusiasm, and Nationals’ Economic Vision rapidly came together.

 

Pg 66 – This was another area where my colleagues proved politically wiser. Including numbers in a document may raise more questions than it answers, and the numbers themselves may become the focus of debate, rather than the key themes in the document. The Opposition inevitably has an information disadvantage compared with the government. Rightly or wrongly, experience suggests that it is better politically for Oppositions to run with a degree of fudge regarding their budgetary intentions. What Oppositions must do is spell out their general framework.

 

Pg – Jim’s new-year reshuffle of his line-up in 1990 reinforced the message sent out by the Vision document. First-term MP Jenny Shipley was given a big promotion to take on the Social Welfare role, replacing the retiring Venn Young. Jenny was to prove a key appointment. She possessed undoubted ability, drive, a clear sense of focus and considerable political courage. The pressure on her to rule out cuts in benefit levels prior to the election was intense but she withstood it and went on to play a crucial role in the Bolger Cabinet. If there was one Minister whose absence in government would have made my task of driving through the economic strategy doubly difficult, it was Jenny…….As 1990 went on, the economic news became worse and worse for Labour. Both external and internal shocks hit the economy. We suffered a serious weakening in the prices of many of our pastoral products, plus rising oil prices as the conflict in the Gulf got under way. New Zealand’s current account deficit deteriated substantially. That year also saw a weak budget, with a paper ‘surplus’ achieved only by including asset sales. Many spending decisions had not been included in the budget numbers.

 

Pg 70 – We had to demonstrate early to the financial markets and the business community that we mean’t business. The sooner we did this, the sooner we could start to bank the upside that would be flowing from our strategy. There would be plenty of short-term downside. I was acutely conscious of our three-year electoral cycle. I was well aware that, if I were lucky, there would be one year of radical reform. After that it would be consolidation, and nerving ourselves for the next election.

We agreed that we would aim to have legislation reforming the Labour market in the House by Christmas. By then we would also have opened the books and made a start – to use Jim’s words- controlling, reducing and eliminating the budget deficit. I was keen to sign a new contract with the Governor of the Reserve Bank before Christmas. Also by then I would liked to have a statement, if only in general principle, about the shape of post 1992 tariff regime. National’s watch word on tariff’s, however, was ‘consultation’, which which ruled out early resolution by the government.

By now I had also discussed with Treasury Secretary Graham Scott how I wanted my office to run in the event of my becoming Minister of Finance. The discussion had been initiated by Graham at the request of David Gaygill – a generous gesture on Caygill’s part.

The election campaign itself had few memorable moments. It was all but inevitable National would win; the main question was the size of our majority. Privately I feared too large a caucus. A large caucus inevitably mean’t a large number of new members, most of whom would not be as keyed into National’s economic strategy as existing members.

 

Pg 74 – The day after the election, when Prime Minister-elect Jim Bolger arrived back in Wellington from Te Kuiti, he received news that was as unexpected as it was unpleasant. The Bank of New Zealand(BNZ), in which the government was majority shareholder, was in a parlous financial state so serious that unless the government produced a rescue package the bank would almost certainly collapse.

We had all been aware that recent years had been difficult for the BNZ. A number of banks had over-extended themselves during the share-market boom and the BNZ had become more carried away, and more divorced from reality, than almost any other. Slack lending criteria and a gung-ho corporate culture, not least in its Australian operations, had left the BNZ seriously exposed when the loans began to turn bad. In 1989 the bank declared a huge loss. As a means of injecting capital, the Labour Government had allowed investment company Fay Richwhite to buy a substantial minority holding in the bank…..Everyday that passed increased the risk of news of the financial state of the BNZ leaking and starting a run on the bank.

On learning the news, Jim immediately brought me, and his ever present comfort blanket Bill, into the circle of those dealing with the issue. We had extensive discussions with officials. In theory we could simply let our largest bank go into liquidation. But this would have had such serious flow-on effects to other companies, and to general economic and financial confidence, that we did not even contemplate it. The real question was how to inject funds into the bank in a way the minimised the inevitable loss of confidence and gave the clearest possible signal that the bank had put its troubles behind it. We also wanted Fay Richwhite to contribute to the rescue package. Involving the smaller shareholders was, of course, totally impractical.

The favoured option of officials, which three of us accepted, involved isolating the BNZ’s bad loans into a seperate “bad bank”. This had the presentational advantage of allowing most of the losses associated with the write-down of the past bad loans to be absorbed in the accounts of the “bad bank”, rather than through the profit and loss statement of the BNZ. The details of the rescue package were extremely complex, but involved the government injecting over $600 million into the bank.

 

Pg 76 – The whole episode was excellent propaganda value for the government. As Roger Douglas knew only to well, a crisis inherited from your predecessor can give you a flying start in terms of impetus and goodwill.

 

Pg 77-8 – To be fair to Caygill, he cemented in the legacy of Roger Douglas in two key aspects. He saw into law both the Public Finance Act and the Reserve Bank Act, the latter in the face of considerable opposition from within his own ranks. Though these were Douglas initiatives, it was Caygill who had to see them through. Caygill and Richard Prebble had also been outstanding ‘outriders’ for Roger Douglas in Labours final term. They were his highly effective associate ministers who ‘front footed’ the case for reform tirelessly, and ‘mixed it’ for Douglas when he wished to stand above the fray. (I would not be lucky enough to have such a consistent run with my own various associates) In his own right, Caygill was also Minister for Trade and Industry, and obviously relished that role.

 

Pg 80 – Very early on Jim decided to invite business and sector leaders to a growth summit at the behive. To me the conference was frankly, a distraction. I had been listening to business for three years; the time had come for action. Jim saw the conference as a public relations exercise. It was memorable cheifly for an intemperate attack by Fletcher Challenge chief executive Hugh Fletcher on Treasury Secretary Graham Scott and Reserve Bank Governor Don Brash – both of whom were present. Fletcher called for the two men to be sacked, and for the Reserve Banks price stability gaol to be abandoned. Graham replied that if he gave advice of the sort Fletcher was advocating, he would deserve to be sacked. Jim defended Graham and Don, as did I -stoutly.

Though Jim’s public reaction on that occasion was intirely proper, in private it would take a longtime before he was entirely comfortable in dealing with Treasury. To Jim the Treasury staff were ideologues whom he instinctively mistrusted. I would regularly arrange meetings between Jim, myself, Graham and Don, seeking to provide Jim with that ‘comfort zone’ around macroeconomic policy that I knew would be vital. I thought it important that Jim be exposed regularly to Don Brash’s thinking. I also thought it important that the Treasury re-establish contact with the ninth floor of the Beehive – a region they had rarely seen in the latter years of the Labour Government. These meetings often started with a Jim grizzle about how the Treasury’s advice to the last government had not worked. The Treasury’s forecasting performance was another sensitive area. The frequency and scale of their revisions often left Jim unsettled. Over time, however, he gradually became more and more comfortable with their advice, and uncertainty associated with fiscal forecasting.

 

Pg 81
If you listen to the Treasury’s critics, and there were many, you would be forgiven for thinking they were a bunch of pimply faced, scarcely shaving, economic eggheads who had done their very best to wreck the New Zealand economy. One had to assume that when the catch cry went up “what about the human face of the economy?”- that their designs were inhuman. Nothing could be further from the truth. They have played a major role in transforming the New Zealand economy from an object of national shame to a source of national pride. Their economic and policy skills put them at the forefront of the best international practice. With little license to boast, their ambition to be “the best little Treasury in the world” has largely been fulfilled.”

Pg 81-2 Dr Graham Scott was the Secretary of the Treasury for all but the last few months of my tenure as Minister of Finance. Highly experienced and possessing considerable intellect, Graham led the Treasury for the bulk of the decade of reform……..His Treasury was teeming with talent and he gave them inspired leadership. While it was up to me and the government to set the policy agenda, much of the horsepower to translate those idea’s into practice came from the Treasury. The very excellence of their expertise would often set up resistance, which the Treasury, therefore I, experienced from many quarters, particularly fellow ministers and the senior bureaucracy……. Treasury people, to their credit, wear such criticism as a badge of honour. They have much to be proud about. They emerged from the long trauma of the Muldoon years with their economic powder and shot dry. Their advice to the incoming government in 1984 was a legendary piece of work. During Labour’s years the Treasury’s public-policy influence came to be matched by their private-sector presence. A wave of key Treasury thinkers migrated from the public to the private sector, taking with them an analytical quality that was to become such an asset to private enterprise. The most influential migrant was Roger Kerr, who became the brains behind the Business Roundtable. Roger is a market missionary. Unfailingly courteous, unflinchingly pricipled and unceasing in his advocacy, Roger was to aquire somewhat of a Treasury in exile reputation. His contribution to the quality of public policy, while often pivotal, is generally unacknowledged. Indeed when praise should be his due, scorn his heaped on his head.

Pg 83 – While Treasury is expected to be a source of robust economic advice, New Zealand is virtually alone in enjoying similar leadership from the private sector. With Roger Kerr as anchorman and a parade of private business people, the Business Roundtable has made a major contribution to the quality of public policy in New Zealand. What distinguishes that contribution is that the advice tendered is often against the immediate self-interest of businesses that back that advice.