Extracts from an early draft of paper presented to the May 1999
AGM of the New Zealand Institute of Forestry.



by   B. J. Swale, B.Sc; M.A. (Forestry)

For reasons primarily of space, this extract was not used in the paper as presented, but parts of it might be published in the NZ Journal of Forestry later in 1999.

Abstract:

This short article describes actual events preceeding, during, and after the 1984 General Election in New Zealand. The restructuring of the New Zealand economy commenced then, with profound and lasting effects on all of society. The focus of the writing is the corporatisation and then sale (or privatisation) of the State production forests of New Zealand. These forests constituted at least 50% of the production forests area.

The NZFS in the early 1980s was a busy, focussed, very productive Department of State, intent on doing the best for NZ, and in so far as the exotic forests were concerned, very aware that the current investment in new forests and their silviculture would soon provide immense dividends for the nation as yields came to be realised. For details of achievements, see Appendix 1. In many aspects of forestry practice, recent excellent advances in techniques were providing high quality results, and enthusiasm was running high. What happened?

The political and macroeconomic background - Source and scope.


A person coming in future years across the topic of what happened to State forestry in New Zealand in the 1980s could be excused for thinking that the prime reason for the corporatisation and then privatisation of the NZFS and the State exotic forests, was that there were sufficient explicit and severe problems with the performance of the NZFS that government had decided that the only way to correct them was privatisation.

This is incorrect. The prime source of the expressed discontent was from one person (Roger Douglas) , and was directed to government generally, in a manner that did not focus on any one government department.

        -

Setting the stage for change.



By the 1970s and early 1980's, New Zealand had a protectionist, interventionist government lead by a authoritarian Minister of Finance and Prime Minister Robert Muldoon, (Kelsey, 1995, p. 25) who preached financial responsibility and practiced the opposite, who was elected for private enterprise but was essentially socialist, and who was increasingly out of touch with the increasingly urban electorate. (Russell, 1995). His National Party only just squeaked into power in the 1981 election. Muldoon was an accountant by profession, very able and quick, who delighted in verbally taking opponents apart when confronted, rather than dealing with the substantive matter. The electorate were fed up with that too.

Photo of Sir Roger Douglas

Roger Douglas, a junior Minister in the 1972 opposition Labour Government, was the third generation of his family to be in politics, though most people did not know that. He is also an accountant. In 1980 during a flight to the UK and partly to kill boredom, he wrote an alternative budget using a theme that New Zealand had to change economic direction for the first time in 30 years, or sink. (Douglas and Callan, 1987) This budget caused an uproar when he released it 4 days before Muldoon's official budget, and he expanded on it in his 'wish-list' book 'There's got to be a better way.', (Douglas, 1980).

Labour lost the 1981 election. However, working from those base documents, Douglas with several other Labour MP's, leading businessmen, an economist and a Treasury official developed a 51-page economic blueprint "Economic Policy Package". (Birchfield & Grant, 1993, p. 23). Douglas later reported that it contained every step subsequently taken by the fourth Labour Government. (Douglas and Callan, 1987).

Muldoon called a snap election in 1984 (Russell, 1996, p. 53). At that time the economy was in a very bad state in respect of exterior balance of payments, and the election announcement caused a prompt, heavy outflow of funds. $NZ 1.7 billion were borrowed during four weeks, and the fact concealed from the country. Muldoon failed to see or acknowledge that his actions had caused all these events. (Russell, 1996, p. 56).

A secret (Labour) agenda was prepared. 'The secret agenda was fully formed by the beginning of 1984, long before the election. And the tragedy is the union movement knew about it ....we were requested to destroy all copies of this document but I kept one. (Federation of Labour Secretary) (Russell, 1996, p.79). This secret agenda was probably based on the "Economic Policy Package", and the irony was that it was a right-wing policy to be carried out by a supposed left-wing government. Hence the secrecy; it was unprecedented for Labour to be so inclined.

For various reasons including the entry into the field of the somewhat wildcard "New Zealand Party" headed by property tycoon Bob Jones, Labour won the election. Outgoing PM Muldoon refused to hand over power for about five days, during which time he borrowed another 20 million dollars in order to balance the external deficit. When eventually power of government was exchanged, the State was revealed to have a severe financial crisis. The new Prime Minister, David Lange devalued the currency by 20 percent, and the sense of emergency enabled him to introduce Roger Douglas' policies. I remember hearing him ,with a sense of foreboding, announce on radio that they had decided that New Zealand should no longer be run like an East European socialist economy, while I thought that the attractiveness of NZ was that it could be at the same time capitalist and have many beneficial socialist practices.

David Lange was an Auckland-based lawyer, a quick-witted large man with an ebullient personality, and made it to the top of Labour in a series of bruising events typical of New Zealand politics.

He later said "The circumstances of those first few days in government gave Roger (Douglas) the opportunity to do what he had always wanted to do anyway. But he wouldn't have been able to do that had we gone through the orthodox routine of an election in November, then a budget in June ... When the crisis hit in July 1984 it was Roger Douglas who, above all, had thought through the economic issues - so when the Cabinet needed to fall back on an economic philosophy, it was Douglas who had one." (Kelsey, 1995; pp. 29, 30.)

Douglas' "Economic Policy Package" contained a lot of sense for the time, and for state forestry, he wanted, for example, that the stumpages paid for timber from state forests be realistic. Privatisation wasn't mentioned, but Roger Kerr (a Treasury official at that time) was on radio saying that State forests should be privatised, and I thought then, "How ridiculous and grotesque, the man's a fool!". It is no accident that Mr Kerr is now Chief Executive of the Business Round Table, the main right-wing entrepreneur organisation of NZ. He has remained close to Douglas. (Kelsey, 1995, p.48).

Douglas himself wrote 'By the time I became Minister of Finance in 1984 I had decided that governments didn't have to run things. Their role was to design an environment that positively encouraged the people they represented to go out and run things.' (Douglas, 1993 p. 12).

The new Minister of Forests, Hon. Koro Wetere, was particularly ineffective in defence of the NZFS when attacked by environmentalists and others "(he has) been struck dumb either in defence of the Forests Service's past record, or his government's plans for the service's future" (Birchfield & Grant, 1993, p.41), and NZFS staff watched his lack of performance with horror.

Within a month of winning the 1984 election, Labour held an "Economic Summit" in the Parliamentary Debating Chamber. It was a carefully orchestrated campaign designed to gain apprival for the undeclared financial package "Economic Management" from Treasury. (Russell. 1996, pp. 75-76). This was followed by a full Economic Summit Conference in September 1984.

In April 1985 government held an Environmental Forum in continuation of their policy of appearing to seek consensus, and following the Economic forums. The 1984 Labour Party Manifesto had promised the Establishment of a new Ministry of the Environment. The outstanding feature of this Forum was that neither of the two government departments with largest land-based responsibilities, the Forest Service and Lands & Survey, were permitted to speak, only observe, whereas alternative non-Governmental organisations had full rein to speak and debate. (Roche, 1990.)

The post-forum Working Party of Environmental Administration made five recommendations to Russell Marshall, Minister for the Environment. Very considerable debate, both within government and outside it, resulted. (Roche, 1990)

Roger Douglas wrote 'I took a paper to the Cabinet Policy Committee seeking approval for a set of principles to reorganise SOEs (State Owned Enterprises) so they operated on a commercial basis, shifting non-commercial functions elsewhere ... ' The Committee sent officials away to compile a summary (of detailed and conflicting reports) and report back in three weeks time. We never received that report and it was not until six months later that (they) were able to pick up from where we had been in May. (Douglas and Callan, 1987. pp. 224-225).

To quote Roger Douglas again;

'A paper war went on at the officials level as departments engaged in ... bids.. to take control of the policy advisory process.

As events transpired, we made fastest progress on forestry and lands. We were helped by the fact that a number of the issues involved in the SOE policy were debated publicly in the .. Environment Forum in April 1985. ... In September the Cabinet Policy Committee received recommendations on the reorganisation of forestry and lands into two commercial organisations with a separate Department of Conservation. ... Even then the State Services Commission wanted to proceed as slowly as possible. ... The departments wanted a decision.

I was away the following Monday when Cabinet considered the Policy Committee's decision. I told the Treasury people to brief Richard Prebble who had been absent from Policy Committee when we made that decision.. ... Prebble can be a hard man to argue with. I don't know what he said or did in that cabinet meeting, but at the end of it we had a decision to set up commercial forestry and lands agencies and a separate conservation department.

A 'commercial agency' was not necessarily a fully commercial independent state corporation. ... Dr Mervyn Probine settled the matter for me. When he saw the cabinet minute he took exception to the term 'commercial agency'. He seems concerned that this could be construed as permitting privatisation, although nobody had this in mind. My worry was that it would be construed as allowing the Forest Service to continue as to operate more or less as a traditional government department.

Dr Probine (chairman of the State Services Commission) persuaded David Lange to have the minute amended to say that we would set up commercial state operations for forestry and lands.

That decision was a milestone ...' (Douglas & Callan, 1987).

What Richard Prebble actually tabled in Cabinet at that meeting, according to Russell Marshall, was a Treasury paper that recommended corporatisation, and he said it took Cabinet totally by surprise. They decided in favour in about 5 minutes. (Russell, 1996, p. 120).

This also paid back the conservation movement for supporting Labour during the election campaign. Since 1981, Labour had been courted by environmentalists who disliked some NZFS practices, and clearly were interested to use their support for political gain, (Roche, 1990, p. 428), and this turned out to be at the expense of any long-term vision for managing the total national strategic forest resource.


In 1987 the NZFS came to an end, many staff lost jobs, and the New Zealand Forestry Corporation (FC) was created (Bilek & Mead, 1991, p .49). For accounts of the brief history of the FC the reader is referred to the two excellent books, Birchfield & Grant, 1993; and Kirkland & Berg, 1997.

The chairman of the Board of Directors of FC was leading businessman Alan Gibbs, a friend of Roger Douglas, (Birchfield & Grant, 1993. p. 49), subsequently favoured with other apppointments. (Kelsey, 1995, p. 49).

The FC was staffed by an enthusiastic group of the very best of the ex-NZFS staff who enjoyed making things hum. They must have been very crestfallen when barely a year after commencing work they had to start planning to sell FC. The major sales took place three and a half years later, and FC ceased to exist.

While the existence of great difficulty in reaching agreement with Treasury over the value to be placed on forests to go to FC caused sale to be viewed favourably, the real resons were probably ideological.

Certainly, when the time came to decide whether or not to accept certain low bids or not, (the actual value of all bids was only 70% of the estimated true value), the forests were sold on time anyway due to the ideological beliefs of Alan Gibbs.

' Alan Gibbs stuck to his strongly-held market philosophy. "We went down the lists of offers and some were ridiculous, real fire sale stuff," recalls John Fernyhough. "Alan told the board that 'the market is the market' and that we should sell at the prices offered, but I couldn't accept that.'

As Mark Ford remembers: "It was partly Alan's impatience with getting the sales process over and done with, but he also genuinely believed that public ownership should be liquididated at any cost and that the benefits to the country were much greater than any discount price. He would have given the forests away to get them out of public hands." (Birchfield & Grant, 1993. p. 228).

Definitions.



New Zealand Forestry Corporation: FC
New Zealand Forest Service: NZFS
State Owned Enterprise: SOE

Appendix 1

The mission of the New Zealand Forest Service.

The New Zealand Forest Service (NZFS) mission was set out in the Forests Act 1949. In Clause 14 , the functions begin to be set out, including all aspects of forest management and utilisation of forest produce, and exercise of powers granted to the Minister under the Act. Then followed Clause 15 endorsing the above, where the Minister was empowered to train staff, carry out research, and collect and disseminate information. Leadership was provided for in 15(2)(f), he was to prepare plans and publications for the advancement of forestry .

What did the NZFS do? See below. The list is worth reading.

It is important to realise that when the exotic (mostly conifer) forests were started and for decades after, the timber experience of New Zealanders was of the indigenous timbers which mostly were defect-free, of uniform properties, easily worked, often quite durable, stable, and cheap. The new ‘pine’ timbers which rotted easily, were consumed rapidly by borer, had many knots and weaknesses, warped and twisted in drying, and had relatively coarse grain, were regarded with much suspicion. They were valued accordingly. There was much development work to be done, and it was. Others built on this leadership.

For decades, commodities in NZ were price-controlled. Timber was held under (political) price control longer than any other commodity, about 60 years. This kept prices artificially low, affecting all forestry profitability, and therefore forest extension.

The NZFS, in the creation (for example) of State Forest Parks which included public participation and active development of public facilities, took the lead in non-commercial forestry. In these forests commercial forestry was not precluded.

New Zealand forest researchers have lead the field in very many research areas, too many to mention here. Just two to illustrate; critical examination of the economics of pruning and thinning, linking with overseas work by Hiley and Craib, had consequences around the world. Eventually linking with this work, a pioneering stand growth simulation technique, originally calculated manually but later computerised, formed the basis of many excellent growth and yield simulation programs.

Achievements of the NZ Forest Service.

References.

Allsop, F. 1973. The first fifty years of New Zealand's Forest Service. A.R.Shearer, Government Printer, Wellington. pp. 123.

Bilek, E.M. 1989. New Zealand's State Forest Assets; "Sale of the Century"? NZ Journal of Forestry, Vol. 34 (3).

Bilek, E.M. 1990. State Forest Asset Sales: Myths and Realities. NZ Journal of Forestry, Vol. 35 (1).

Bilek, E.M. and Mead, D.J. 1991. Impacts of Corporatisation of the State Forest Plantations in New Zealand. In: Allen, J.C. and A.G.D. Whyte (eds.). 1991. A Compendium of Invited and Contributed Papers. School of Forestry, University of Canterbury. Christchurch. pp. 174-190.

Bilek, E.M. and Horgan G.P. 1992. The Challenges of Privatisation: New Zealand's Experience with Forestry. Published in: INTERNATIONAL UNION OF FOREST RESEARCH ORGANISATIONS Division IV and VI Joint meeting, (Puskino, Russia). Copenhagen, Denmark. pp. 120 - 160.

Bilek, E.M. and Horgan G.P. 1998. The Impact of Institutional Reform on Private Plantation Forest Management in New Zealand. Paper prepared for: INTERNATIONAL UNION OF FOREST RESEARCH ORGANISATIONS, International Symposium: Institutional Aspects of Managerial Economics and Accounting in Forestry. Rome, Italy.

Birchfield R.J. and Grant, I.F. 1993. Out of the Woods; The restructuring and sale of New Zealand's State forests. GP Books. pp. 250.

Dombeck, M. 1999. Reforestation and Timber Stand Improvement Report for Fiscal Year 1997. < http://www.fs.fed.us/land/fm/2470/welcome.htm http://www.fs.fed.us/land/fm/2470/Reforest.htm > and related pages (USA).

Douglas, R. 1980. There's got to be a better way: A practical ABC to solving New Zealand's major problems. Fourth Estate Books Limited. pp. 79.

Douglas, R. 1993. Unfinished Business. Random House (NZ). pp. 305.

Douglas, R. and Callan, L. 1987. Toward Prosperity. David Bateman. pp. 256.

Dyck, W. and Thomson, P. 1999. Carter Holt Harvey's Millennium Forestry. New Zealand Journal of Forestry, Vol.43/4

Forests Act 1921-22 No. 43. Statutes of New Zealand.

Healy, Brian. 1982. A hundred million trees: The story of N. Z. Forest Products Ltd. Hodder and Stoughton. pp. 219.

Kelsey, Jane. 1995. The New Zealand Experiment; A World model for Structural Adjustment? Auckland University Press, and Bridget Williams Books. pp. 407.

Kirkland, A. and Berg, P. 1997. A Century of State-honed Enterprise; 100 years of State Plantation forestry in New Zealand. Profile Books. pp. 176.

MAF NZ. 1999. National Exotic Forest Description. Examples are:
          http://www.maf.govt.nz/MAFnet/publications/nefd97/nefd9722.htm

            http://www.maf.govt.nz/MAFnet/publications/nefd97/httoc.htm

McTigue, M. 1998. http://www.ti.org/nzsolution.html

Poole, A.L. 1969. Forestry in New Zealand; The shaping of Policy. Hodder and Stoughton, and English Universities Press. pp. 112.

Poole, A.L. 1998. Trees, Timber and Tranquillity. C. Rex Monigatti Publishing. pp. 144.

Prebble, R. 1996. I've been thinking. Seaview Publishing. pp. 113.

Roche, M. 1990. History of New Zealand forestry. New Zealand Forestry Corporation Limited and GP Books. pp. 466.

Russell, Marcia. 1996. Revolution; New Zealand from fortress to free market. Hodder Moa Beckett. pp. 255.

The Forests Act 1949 No. 19. Statutes of New Zealand 1949 pp. 391 to 429.

Treasury. 1995. http://www.treasury.govt.nz/pubs/canada/report1/progress.htm

                 http://www.treasury.govt.nz/pubs/canada/report1/about.htm

                 http://www.treasury.govt.nz/pubs/canada/report1/after.htm

Postscript.

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