Published in the NBR 7 May 2004
Did the Lange/Douglas alliance break down because neither could walk between the seventh and ninth floors of the Beehive to talk face to face?

This was the intriguing possibility dangled in front of the reunion bash of the major players in the Fourth Labour Government at Parliament last weekend.

Absent was the one person who might have answered the question posed by Roger Douglas about the 1986 break up time. "We should have talked to each other, but we didn't. If we had it might have been different."

David Lange wasn't invited, a matter organisers admit they should have 'revisited.' Others were less kind, calling it a major blue.

The programme, which had been initially billed around Lange, was switched to focus more on the first term of the government, and then, as the "blue" became apparent, sessions were relabeled with one speaker hastily rushed in to address the question of Lange's Falstaffian language.

Underlying the historical questions of who did what to whom and why, were the more contemporary questions of what should be done to the current economy to sharpen its performance.

Former Treasury Secretary Graham Scott said "It is indisputable that in the eleven years to 2002 the New Zealand economy grew by 0.5% above the OECD average for the first sustained period in decades. OECD reports confirm this."

A new generation of advisers at the Treasury, Scott says, accepts the Douglas reforms as the reason for the economy's better performance. He quotes the April 2004 report New Zealand Economic Growth: An Analysis Of Performance And Policy. This unofficial view is the view of officials but is not endorsed by Ministers.

"Institutional and policy reforms since the early 1980s are likely to have raised New Zealand's steady-state level of per capita GDP and the speed at which New Zealand converges to this steady state. The lags in this process mean that the full effects of these changes are likely to still be emerging."

The reforms were " a significant and lasting achievement." Scott says the report calls for changes " if a further improvement of the same magnitude or a bit more, is to occur, which is necessary if the (current) Government's growth goals are to be achieved."

In short, Treasury officials are flagging that they are unconvinced that current policy settings, the Minister's rhetoric, the huge budget surplus, and the declining dollar notwithstanding, are enough to produce the accelerated growth New Zealand needs to catch up with the rest of the developed world.

Four questions resonated with the same vehemence the players displayed at the time:

• The 1984 devaluation - did Douglas contribute to the run on the dollar?

Occasions where Douglas talked openly about devaluation in 1983/84 were detailed. Jim Bolger, "many may have missed the policy signals but the market did not." Hence $1.7 billion went out and a crisis resulted when Muldoon refused (for a night) to devalue as the incoming government requested. Accident or intent?

• Nuclear ship visits - why went wrong?

Lange acted alone, and didn't tell Cabinet what he was doing. He authorized the Ministry of Foreign Affairs to ask the US to send the USS Buchanan, an "ageing rust bucket" with diesel power "highly unlikely" according to officials to be nuclear armed.

Helen Clark, Anderton and Wilson pressured Lange. A policy against nuclear powered and armed ships was converted into a stand against nuclear capable vessels. A semantic twist ended any possibility of a ship visit. The US felt betrayed because "there was not enough consultation (with Ministers) and therefore no agreement. It was a failure of process." (Norrish).

• Did the nuke ships issues make economic reform easier - was there a conscious trade off?

"There was no evidence' of this " (Hensley) although officials agreed that the nuke policy made passage of the economic changes easier. Ross Vintiner, Chief Press Secretary and eminence gris of the Lange team cryptically said the two were not "wittingly linked"

• Could the Lange/Douglas rift have been prevented?

Douglas "I like to put all the approaches on the table (and then have a robust debate). Lange disliked this approach. He had a set of boundaries about fairness beyond which he would not go. We should have talked to each other, but we didn't. If we had it might have been different."

Lange managed by personal empathy not paperwork (Hensley) and he "seldom had firm views on any policy issue." (Bassett)

"On the two issues on which the government foundered, the December package and the nuke ships, the Cabinet processes were not followed." (Kerry Burke)

The most fundamental change of the Lange/Douglas government was floating the dollar. Ron Burgess of the CTU recounted Roger Douglas telling him in 1985 "there is now nothing anyone can do in the short or medium terms to alter the economic direction of New Zealand."

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