1998 || January 1999 || March 1999

Two kinds of Deflation; two kinds of Inflation    (28 February)
Are Labour Parties addicted to Control?    (23 February)
Five Millenniums    (23 February)
Asset Sales, Tax Cuts and Social Dividends    (14 February)
What is the US playing at?    (14 February)
Why did 290,000 people say they want just 99 MPs?    (14 February)
The Century ends when the 1990s end    (5 February)
Why is Inland Revenue so Heavy-Handed?    (3 February)
A Very Small Tax Hike    (2 February)
Y2K and GDP    (2 February)
Reforming the Universities    (1 February)

Two kinds of Deflation; two kinds of Inflation    (28 February)

The Economist last week had a feature on deflation; ie on falling prices. (I published a piece - "Inflation, Deflation and Monetary Policy" - on that theme in the Herald in January.) The authors of The Economist's special report correctly noted that there are 2 very different kinds of deflation; one associated with cost-cutting technological change, the other associated with a glut of goods and services that we cannot pay for.

The same of applies to inflation. Inflation could be benign or malign. A good economics profession should, among other things, focus on distinguishing between inflations that are a problem and those that are not. Instead we got one remedy fits all, whether or not there was anything that needed remedying. That particular remedy - a squeeze on the money supply - was likened by one 1980s' British commentator to trying to cure diarrhoea by putting a plug into the patient's backside.

Inflation was often just a relatively painless means to the restoration of macroeconomic equilibrium. That means it was a part of the solution, and not a part of the problem.

The tragedy of our unenlightened approach was not only that we damaged ourselves by trying to suppress a "problem" that was not a problem, we failed to note that inflation in the 1980s was suggestive of a number of other structural problems that we proceeded to make worse. We fed the plugged patient with salmonella. Prices slowed down while costs accelerated. We had to absorb the poison. We suppressed the smoke while stoking the fire. We told the gnomes of Wall Street that there could be no fire because they could see no smoke.

Actually we survived all that surprisingly well; foreign "investors" have funded the imports that our exports could not pay for, and, in their own interest, they will continue to do so. The point is though, if we hadn't had our simplistic anti-inflation fetish, we could have had a stronger, more sustainable and more equitable economic society. We might not be paying huge rents to our overseas landlords. And, if we had diagnosed our situation correctly, then we could have had no inflation today without having had an anti-inflation policy.

Are Labour Parties addicted to Control?    (23 February)

Panorama (BBC World) last Friday was about "The People's Party". Tony Blair has won a well deserved reputation as a control freak. He has been using manipulative anti-democratic processes to get people close to him elected to new assemblies - such as the new Welsh parliament. He sees these assemblies as his own creation and therefore his right to control. In the process, the popular candidates, supported by local people and the Labour Party membership, are being pushed aside, in one case by the manipulation (corruption?) of the block union vote and in another case through the use of Party lists in elections for the European Parliament.

There are disturbing similarities in New Zealand, relating to both the Labour Party and the New Labour Party. Seen in the light of what is happening in Great Britain, New Zealanders should be very concerned about the "anti-defectors" bill that Michael Cullen and Jim Anderton promise to give us next year.

One key feature of MMP is the party list. It is imperative that party lists (which should be closed to electors) are determined through open and democratic processes within each party. In effect, the election of party lists and local candidates is the MMP equivalent of the United States primary elections.

New Labour, in both Great Britain and New Zealand seem very reluctant to adopt primary elections. Within the Alliance, they have been reported to have conspired to place their top performing ex Green MP Phillida Bunkle to position 9 on their list. This manoeuvre seems to be identical to the way Blair demoted an inconveniently popular candidate for the European parliament.

Parties play a very important role in the democratic process. They enable good people who do not have public profiles to get into parliament. And they give parliament structure, and make the process of forming governments much more intelligible than if all MPs were perceived as Independents. Nevertheless, in order to prevent the control freaks from taking over once again (as they did in 1984) it is absolutely imperative that, from a constitutional point of view, MPs maintain their independence.

My disappointment with NZ Labour continued today, with the vote of confidence in Parliament. I got the impression that many of those who voted against the motion of no confidence did so with great reluctance. I felt, that if it had been a constructive vote, with an alternative government ready to take over, some of the Independents and Mauri Pacific MPs would have gladly supported the alternative. By my count, this is the 4th time that Helen Clark could have formed a government had she wished to do so.

The problem, as I see it, is that NZ Labour is a control party, and that they would rather that a right-wing government destroyed New Zealand than form a government in which they were unable to exert control from the top.

Five Millenniums    (23 February)

Which millennium is the most millennial?

1. The anniversary of the Roman calendar.
2. The anniversary of the birth of Christ.
3. The BC millennium.
4. The AD millennium.
5. The anniversary of the introduction of the AD and BC dating systems.

The first relates to the calendar that was in force when Jesus Christ was born and continued to be used for another 5 to 8 centuries in Christian Europe. The millennial years were AD248 and AD1248. The third Roman millennium finishes in AD2248.

The 2000th anniversary of the birth of Christ passed unnoticed in AD1997. Somehow I don't think our interest in the millennium has much to do either with the birth of Christ, or when any person in history thought he was born.

The BC scale counts backwards. Hence, in continuous time, the middle of the year 1BC was equivalent to the number 0.5, and the middle of the next year (0BC) was equivalent to the number -0.5. The present year in the BC scale is -1998. As we are now 15% of the way through this year, today represents the number -1998.15 on the BC scale. The BC millennium occurs when, at then end of next year, -1999 becomes -2000. The BC millennium is 677 days from now. It celebrates 2000 years since the end of the year BC1. This is the pedants' millennium; the millennium of those who believe that the year AD2000 is in the 1990s' decade.

The millennium on the AD scale is exactly 2000 years after the year -1 gave way to the year 0. The year 0 in the AD scale is the same as the year 1 on the BC scale. Like the BC scale, the AD scale is just a set of numbers; a set of numbers that we have adopted by historical accident. Neither the year 1 nor the year 0 nor the year -1 have any historical meaning. A person turns 100 at the end of their 100th year of life. During their 100th year of life, their age is 99. In our first year of life, our age is 0, not 1. So we are at present in the 2000th year of positive AD numbers. We enter the 2001st year of positive AD numbers in 311 days time. That is all the AD millennium means.

The BC and AD scales were invented in AD525 by Denis the Diminutive (Dionysus Exiguus) and popularised by Bede in England (early 8th) and the Carolingians in continental Europe (latter 8th century). [My information here is courtesy of internet site www.mille.org.] If we are to celebrate the adoption of the AD calendar, then the next millennial year will not be until AD2525. We can, though, if we choose, celebrate the sequimillennium in 2025. I look forward to that!

Asset Sales, Tax Cuts and Social Dividends    (14 February)

In the Sunday Star-Times today, Ian Templeton says in his political column: "The sale of Contact Energy, if it yields a big gain over book value as some analysts suggest, could transform next year's [budget] bottomline. Enough for a millennium tax cut? A bit too early to talk about it, says the canny [Treasurer] Birch."

What Templeton is saying is that the revenue the government receives from Contact Energy is much less than the interest payments that would be saved if we sold Contact Energy and paid off some of the public debt.

Let's say that is in fact so. If we were talking about a company's accounts, that might well be a reason to pay an increased dividend to shareholders. Hence it is reasonable to interpret to carrot of a millennium tax cut as being the public equivalent of an increased dividend; ie, an increased social dividend.

The problem of course is that a tax cut - and especially a cut in the top tax rate - will not give anything to a large proportion of the public. Rather it will give social dividends on the basis of income; people on higher incomes will get big increases in their social dividends, whereas people on lower incomes will get less, perhaps nothing.

It is absurd accounting to pay dividends according to people's incomes. Dividends should always be paid in accordance with each shareholder's equity. One share is an entitlement to one dividend, regardless of the income of the shareholder. Public property is held in equal shares by all members of the public.

By using "tax cuts" as a means if paying public dividends, the government is making a statement that it equates "the public" with "the rich". Now, that's not the meaning of public that I grew up with. (See "Does 'the Public' mean all of us, equally?")

It is imperative that we formally incorporate the concept of social dividends into our public accounting framework. Thus, when the bottomline improves, there is an automatic increase in the properly accounted social dividend, meaning every NZ resident gets an equal dollar benefit.

Likewise, when the bottomline worsens the social dividend should be cut. That will stop us selling assets that earn us a lot of revenue. And it will stop us making reforms - such as the recent electricity reforms - that reduce the book value of our public assets on account of having wiped many millions of dollars off the revenue accruing to our assets.

The people of New Zealand, as shareholders of former companies such as the Electricity Corporation of New Zealand, have been robbed blind.

What is the US playing at?    (14 February)

According to the editorial of the NZ Herald of 12 February, the United States International Trade Commission has ruled that "an upsurge in lamb imports from New Zealand and Australia last year has unfairly threatened the livelihoods of local lamb producers." Apparently, United States lamb producers' costs are higher than ours, and the "protectionist sentiment [that] is never far from the surface of American politics" is going to shut us once again out of the American market.

Now it is not necessarily a bad thing that America should tilt its playing field in favour of its farmers. However, on the same morning I watched The Money Programme on BBC World Television. Apparently, the American International Trade Commission is accusing the European Union of breaching free trade principles by its longstanding practice of importing bananas from the Caribbean (eg Jamaica and St. Lucia) in addition to importing cheaper bananas sourced from Central American plantations.

The Americans are trying to have it both ways. They are being protectionist towards New Zealand, while threatening to impose prohibitive tariffs on various European industries (including on cashmere sweaters) on account of a dispute in which they claim to be the champions of free trade.

In fact the banana dispute is a simple case of free trade imperialism, which is really a form of economic nationalism. Caribbean banana producers are free peasant farmers with longstanding contracts with European buyers. (Europe does however buy about 80% of its bananas from Central America.) As one speaker (Professor David Thorns from Canterbury University) at yesterday's Massey University Symposium on "The Global Society" noted, the workers on the Central American banana plantations face appalling working conditions and very low wages.

The Americans are not promoting free trade on behalf of those workers. Rather, as "The Money Programme" pointed out, it is the interests of the American transnational banana distributors (eg companies like Chiquita) that are at stake. While professing free trade, American commercial policy is acting to protect the financial interests of its multinational fruit distribution companies.

The US is moving the de facto world public service which it controls (which includes new organisations such as the World Trade Organisation [WTO] as well as the International Monetary Fund [IMF]) into a new era of "beggar-thy-neighbour" nationalism. It is doing so under the rhetorical cloak of what is ostensibly its opposite, namely "freedom of trade".

The opposite of such free trade imperialism is any form of protection that has a cosmopolitan rather than a nationalistic focus. Each country should protect its own to some extent, including its traditional suppliers. Countries like St. Lucia do not deserve to be sacrificed on the altar of American commercial hypocrisy. The global economy will remain stronger if buyers and sellers remain loyal to each other over long periods.

Why did 290,000 people say they want just 99 MPs?    (14 February)

On Wednesday (9 February), it was confirmed that an indicative referendum would be held on the question of what number MPs we should have (see NZ Herald report "Ballot on MPs 'to be heeded'"). 290,000 people signed a petition seeking that the number of MPs should be reduced from 120 to 99.

Why 99 instead of 100? It appears that the initiator of the petition, Margaret Robertson, was under the impression that there would have been 99 electorates in 1999 had we not fixed the size of Parliament in 1996 when we moved to proportional representation. We used to have a variable sized Parliament which would have given us 102 or 103 MPs in 1999, about 120 MPs by around 2020 and 130 MPs by 2030.

We cannot tell from the petition question whether those supporting the petition were seeking a return to a variable-sized Parliament, or were seeking a fixed sized Parliament. That is the more important issue. The exact number of MPs in the 1999-2002 parliament, or the 2002-2005 parliament is a trivial matter. It is the formula to determine the number of MPs, and the balance between electorate and list MPs that matters.

On a radio interview ("Morning Report", National Radio, 10 February) Margaret Robertson told us that many of the men who signed the petition were reluctant signers who were stood over by their wives. As she put it, the wives were saying, "you grumble about them all the time; now is your opportunity to do something about them".

My interpretation of that is that many of us don't dislike our politicians nearly as much as we say we dislike them. We grumble about them in the way we grumble about an All Black who misses a goal kick. We actually quite like our politicians, individually if not collectively, and don't really believe that our lives would be in any way better if we had fewer MPs.

At election time we usually re-elect our sitting MPs. The first MMP election showed that, in many electorates, sitting MPs were re-elected, even when the party vote favoured another party. Furthermore parties whose lists contained many sitting MPs were favoured over parties whose lists contained few or no sitting MPs. In the old FPP days, it was notoriously difficult to unseat MPs in marginal electorates; they tended to win a personal vote that offset the swing against the government party.

Much of the problem lies in the role of the media: press, radio and television. Our journalists tend to approach politics from the standpoint that politicians by their nature are power-usurpers and not representatives of the people who voted for them and their parties. Hence, they are quick to suspect or find fault, but very slow to give credit. Furthermore, by emphasising that an MP being criticised is a "list MP", they leave a background impression that we have created a class of unaccountable add-on MPs who could be easily dispensed with.

The fact is that there is absolutely no difference between list MPs and electorate MPs, except that a disproportionate number of list MPs belong to smaller parties. All MPs have electorate offices, and all MPs do the same kinds of tasks. If many list MPs received fewer votes as electorate candidates, it is because more of them were representing small parties, or because they were not well known. Even then, a number of list MPs received more votes in their electorates than did successful MPs in other electorates. The list MP for Whangarei, Brian Donnelly, is the real MP for Whangarei; not the electorate MP, John Banks, who lives in Auckland and is working as a fulltime radio announcer.

A good research poll might like to ask New Zealanders the following questions to establish whether they really want fewer Members of Parliament:

1. Before the introduction of MMP, the number of MPs increased after each census, in accordance with population growth. Do you wish to return to that system of determining the number of MPs?
2. Which party would you vote for if an election were to be held today?
3. Do you approve of your electorate MP?
4. Would you like your electorate to be larger?
5. Of the 6 MPs who have electorate offices nearest to you, which ones if any do you think should not be in Parliament? [I suspect that most respondents would not choose to lose an MP of the party they support, meaning that the MPs they don't like are disliked because of their party and not because they are a bad MP.]
6. The country would save about $1.50 per person per year if the number of MPs was reduced to 99 this year. Would you prefer to receive a tax cut of 3 cents per week, or to receive 3 cents per week of additional services?

The Century ends when the 1990s end    (5 February)

I get quite frustrated with people like Paul Holmes (eg Holmes, 5 February), when talking about the coming millennium celebrations, go on about the new millennium not really starting until 2001.

Nothing special happened on either the 1st of January 0AD or on the 1st of January 1AD. The millennium event is no more nor less than the turning over of the western world's odometer. Given that we don't know the date of the big bang that started the universe, we are forced to adopt a purely arbitrary dating system.

Some readers will say that there was no year 0AD, but that's nonsense. OK, so the year 0AD is also called 1BC, and many other names besides. A year can have more than one name, just as 30 degrees Celsius can also be called 86 degrees Fahrenheit. (My water boils at 100, not 101 degrees Celsius.)

At the moment, we are in the decade of the 1990s. I like decades; I can relate to them. At present I am in my fifth decade, but I am nowhere near 5 decades old. The century is in its ninth decade and will soon be 10 decades old.

I remember the beginning of the present decade; it was 1990, our sesquicentennial year. Please don't tell me that 1990 was actually in the 1980s, or that the Treaty of Waitangi was in the 1830s.

Now if this decade is going to be ten years long, like all other decades, then the 10th decade of the present century will end in just over 300 days time.

So please Paul Holmes. Just report the coming millennium celebrations without sniping about their authenticity. I don't want to have to put up with another 700 days of dubious millennial correctness.

Why is Inland Revenue so Heavy-Handed?    (3 February)

"A tax system without compassion is a tax system that encourages avoidance", and that breaks down the "voluntary compliance" (strictly "quasi-voluntary compliance") that the public revenue collection system ultimately relies on. So concluded a Holmes television discussion (TV1, 2-3 February) about the way the Inland Revenue Department intimidates small businesses.

A "rigid culture" is being formed (according to Holmes' tax consultant guests); a culture that is ultimately counterproductive, because a tax system that "doesn't breath" becomes a tax system that doesn't work. [PS]

The IRD is imposing huge - and often arbitrary - penalty payments on even small defaults. At minimum, a $1,000 default is compounded to $4,900 in 4 years; an effective interest charge of 390% over 4 years. Obviously, a person who cannot pay $1,000 is even less likely to be able to pay $5,000.

The IRD has a policy of initiating bankruptcies rather than making practical settlements. A common form of settlement sought by defaulters is to pay the base amount (plus genuine interest) but to have the penalties waived. The IRD prefers to force a bankruptcy, at risk of getting nothing, than to receive non-penalty payment in full.

People such as Patrick Caragata, who has done much work commissioned by the IRD, see local community barter schemes as nothing but tax evasion. These people have no sense for life at the grass roots; they seem to be acting more like protection racketeers than as a agency of democratic government.

The matter has come to a head this week, following revelations that a man committed suicide following his inability to come to any arrangement with the IRD. Out of frustration, he waited until he could pay off all his other creditors and then he took his own life. 9 months later, his 13 year old son also committed suicide.

Strange as it may seem, I suspect that the IRD is pursuing an anti-tax agenda, on behalf of an increasingly affluent minority. Their commissioned research - eg by Texan economist Gerald Scully and by Dr Caragata (see here and here) - tends to make the Treasury look like a group of socialists. Also, the "Winebox Inquiry" - investigating whether the IRD and the Serious Fraud Office had underinvestigated the tax affairs of a number of New Zealand companies (including the then government owned Bank of New Zealand) - revealed that the IRD take a surprisingly soft line on their big business clients. [3]

The political right have a serious anti-tax agenda; indeed it seems to have strengthened as taxes have fallen (ie as tax-benefits for the rich have risen, given that even the Minister of Finance accepts that a benefit is a negative tax). They exaggerate the amount of taxes New Zealanders pay (see a recent letter by Roger Kerr to the NZ Herald). It is in their interest to create a constituency in middle New Zealand that sees tax collection as tantamount to state terrorism. The result is that the small-business community - who are really far more adversely affected by high interest rates and high exchange rates than by our not-so-high tax rates - come to prefer a low tax low social wage environment, and to vote for parties offering cuts in company tax. From their point of view, it would be a bargain if they could pay their families' education and hospital costs instead of their escalating penal taxes.

Whole communities are affected by the negative experiences of a small number of people, plus the nation via radiotalkback. Not only does the IRD approach net less revenue than a more gentle approach; it discourages people from starting the small businesses that are needed if we are to return to full employment. The cost of their culture includes the loss of revenue from companies that would otherwise have started, and from the employees that they would have had.

The IRD culture wrecks the social contract upon which our tax system is based. I cannot believe that the IRD chiefs - or their principals - do not know that. If they were more interested in destroying the public side of the economy than in maximising public revenue, it would make sense for them to behave as they apparently do.

PS:

1. [6 February] Holmes reiterates this theme that dominated his television show this week in his Herald column today. He quotes one of his tax consultant guests as saying: "A tax system without compassion is a tax system which discourages compliance". And Bill English, the new Minister of Revenue, when interviewed on Holmes on 4 February, confirmed that tax collection is a delicate balance between voluntary compliance and coercion; in short the "quasi-voluntary compliance" that is the theme of Margaret Levi's 1998 book, "Of Rule and Revenue" (see my 1997 commentary "Trust Accounting" and "Quasi­Voluntary Compliance").
2. Media reports include "MPs to look into IRD's methods of collecting" (6 February).
3. "QC blames tax officials for fraud case failings", by Brian Fallow, Business Herald, 27 February 1999.

A Very Small Tax Hike    (2 February)

Michael Cullen, the Labour Party's shadow Treasurer, has confirmed that Labour, if/when it becomes the Government (or a large part of the Government), will raise the marginal income tax rate from 33% to 39% for income in excess of $60,000 per annum. All other tax rates will stay the same.

Bill English, the Minister of Finance, noted on National Radio today (Checkpoint) that the announced tax increase is "minute". His only criticism was that Labour is overselling the benefits of this tax increase to its "social audiences" but giving a quite different message to its "business audiences".

So, when some people on the right make crazy statements to the effect that there will be a rush of people leaving for Australia or turning themselves into companies on account of Labour's tax "hike", we know from English's words that they are grossly exaggerating. Indeed, it is these right-wingers who do more than anyone else to reinforce in the minds of Labour's social constituency that Labour will "soak the rich" in order to spend more on social services than National. (Gareth Morgan is an example. See his "The Tax Route to Better Times" [27 October 1998] and my "Lies, Half-Truths, and Statistics" [19 November 1998].)

I think that Labour and the Alliance should consider making one small change to their proposed income tax scales. They should set the amount of the last threshold at the amount in which Child Support liable parent payments cease. Currently, that amount is $64,478.

With a tax rate of 39% (or 49% as the Alliance wants), then a person paying Child Support as an effective surcharge on income tax, would pay between 57% and 69% (or between 67% and 79% if the Alliance prevails) on income in the $60,000 to $64,478 range. If they are repaying student loans, then add another 10 percentage points. The net effect of this is that some people earning $65,000 will receive about the same net income than they would if their gross income was around $20,000; the combined effect of Family Support and Accommodation Supplement abatements, and Child Support levies and Student Loan repayments.

The other reason for tying the top tax threshold to the Child Support threshold is that the latter is indexed to inflation (and to deflation). Thus, the inflationary effect of fiscal drag (also known as "bracket creep") would be eliminated, at least for that particular tax bracket. OK, inflation is close to zero at the moment. But it would be unwise to assume that it will stay close to zero indefinitely.

Mr English also disputed Dr Cullen's claim that the 1996 and 1998 tax cuts favoured higher income earners. English said that the main beneficiaries were families on around $35,000 per annum, who got an gained up to $70 per week.

This dispute centres on whether an increase to the Family Support benefit (paid as a tax credit by Inland Revenue) is to be included as a part of the tax cut. It is interesting to note that, for Mr English, an increased benefit and a tax cut are to all intents and purposes the same thing. Thus, it is as valid to call the entire exercise of 1996 and 1998 as a benefit increase as it is valid to call it a tax cut.

What that means is that the central pivot of the right-wing Act Party's policy is to increase benefits payable to those on high incomes.

Y2K and GDP    (2 February)

Adam Gifford, in his column in today's Business Herald, says:

There are several issues here. In 1999, gross world product (GWP) will increase to the extent that people are being employed who would otherwise have been idle. At the same time, the world's welfare is reduced to the extent that people are fixing the bug instead of doing other things that would have added to the wellbeing of the biosphere.

If the bug causes serious infrastructural damage to much of the world, but not to us (as Gifford implies), then the world will be worse off, but the GWP may rise as otherwise unemployed people set about rebuilding infrastructure.

Could New Zealand profit from a disastrous aftermath of the Y2K century bug, in much the same way as it profited from the Korean War wool boom? Maybe, but we cannot count on countries whose economies have collapsed to raise their levels of imports. The main thing they would want from us would be credit, which means NZ exporting to them without receiving any payment for the foreseeable future. Ultimately, we cannot expect to profit from the relatively greater misfortune of others. Indeed, we didn't profit out of the Korean War. NZ's GDP was much lower than it should have been from 1951 to 1954. (See my "Cycles of Growth".)

In the longer term, I think that both GWP and New Zealand's GDP will be raised by the Y2K "crisis". This will not be because of extra employment. Rather the contrary. Y2K is a great opportunity for the world's software to undergo an overdue spring-clean. The end result will be much better designed, faster and more reliable software than if we hadn't been forced to audit the software that we have been coming to depend on.

The investment in post-stone-age software has begun, and will continue until well past the year 2000, whether or not the century bug underwhelms or overwhelms us.

I expect information technology to come of age next century. IT has had no positive impact yet on productivity. Next century it will lead to higher living standards, meaning that average real incomes per unit of labour expended will be higher than they otherwise would be. Those of us who are not computer professionals need to make sure that those gains are fairly distributed.

The systems fixes being undertaken today will form a crucial part of the public domain of tomorrow.

Reforming the Universities    (1 February)

Yesterday Prime Minister Jenny Shipley created a new Ministerial portfolio, and handed it two senior neoliberals: Max Bradford becomes Minister for Tertiary Education and Maurice Williamson becomes Associate Minister for Tertiary Education. (See Universities braced for ideological row, NZ Herald 1 February.)

The drift towards placing universities at the service of "the economy" that has become the centrepiece of modern life is already far advanced. So I hope that the opposition to reforming our universities according to neoliberal criteria does not become a reactive battle to hold the line. Neoliberalism has already taken too great a toll on tertiary education in general and universities in particular. They are not worth defending, as they are now.

The neoliberal thrust can only be countered with an alternative vision of the place in society (not in the economy) of universities in particular and of research and education in general.

This is not the place to spell, out that vision, except to note that "the university" is a critical component of the public domain of any economically developed society. So a constructive forward-looking vision of the university is likely to emerge naturally from a wider vision of the public domain, and of public domain economics as a distinct and forward-looking alternative to neoliberal economics.

At present, the universities are the subject of a slowly unfolding funding crisis. The student loan scheme is increasingly bearing the burden of tertiary education. By making the government more into a guarantor rather than a direct funder, the government is able to shift much tertiary education funding off budget.

By acting as guarantor for loans rather than as the direct funder of an independent public university system, the long run cost to the government is probably greater. Many student loans will never be repaid.

Because of student loans, it is likely that more ex tertiary students leave the country than would otherwise do so. Also, student loans allow many students to spend more than they otherwise would; eg on better accommodation, on cars, or on overseas trips.

More importantly, many new third-tier tertiary education providers have appeared. For them, the student loan scheme is a cash cow. By offering shorter vocational courses that lack critical content - eg courses in Travel and Tourism - they are supported by the student loan scheme while directly competing with universities for students. Student fees are, on balance, "price inelastic" when funded by loans that only have to be repaid in the distant future as a kind of income tax. Some students fear getting into debt too much, though, and may choose one-year courses in the new colleges in preference to 3-year degree courses in an established but under-resourced university.

The overall trend here is that tertiary education providers with a short-term vocational focus - and, taken together, with a propensity to oversupply their markets - are gaining access to resources while universities, with their long term societal focus, are losing ground.

Despite all this, universities will evolve in their own way, with decisions by politicians probably less important than changes in the marketplace for university education.

We traditionally think of university students as being young people, aged say 18-25. Well, the future is likely to be very different. In the new labour market, young people are more readily employed because they accept low wages, are probably less likely to be critical of their employers (and of capitalistic values) than their parents' unionised generation.

It is the older "post-employed" generation who seek a more reflective type of education. Increasingly, older people (eg over 45) will be either self-employed or university students (or both) and will be less likely to be in fulltime salaried positions. The ageing of the population next century will reinforce such a trend.

The student loan scheme further reinforces this trend. Not only do older persons not fear debt the way younger persons might, they have less reason to fear student debt. For younger persons, student debt repayments just reinforce the Family Support / Accommodation Supplement poverty trap most of them inevitably fall into if they try to settle down and start a family and a career in New Zealand. Older students, on the other hand, will be retiring at about the time they graduate with their MA (Hons) or whatever. They will not have to repay any of their student loans, because their annual incomes in retirement will not be high enough. And, of course, their life expectancy is lower.

I feel quite certain that, in the 21st century, the universities (and here I mean in particular the Arts faculties) will become dominated by older persons winding down their careers by taking more control over their lives, rejecting the corporate rat race for reflective study and opportunities to research some topic that interests them. (An interesting recent example is covered in the Herald's Late bloomer a sign of the times, 18 January).

Vocationally-oriented tertiary colleges will of course remain the domain of the young.

The age divergence in the market for tertiary education does not figure in the vision of the neoliberal reformers. But their reforms, their failed attempts to bulk underfund tertiary education, and a set of market forces that they haven't foreseen but which has been unleashed by the non-sentimental 1990s' attitude to redundancy, will make that happen.

I look forward to the enunciation of a non-neoliberal vision in which universities (and especially post-graduate studies) are seen as the natural pre-retirement domain for our fifty-somethings, male and female.

PS: (2 February) See the Herald's editorial today, "An exercise in division". And see "A glimpse of the Brave New World of tertiary education", by Carl Davidson and Neil Lunt, lecturers in Sociology and Social Policy at Massey University (Albany); NZ Herald, 6 January 1999.

© 1999 Keith Rankin

Rankin File