Universities “More Than Just Agents of Economic Development”
A former New Zealand vice-chancellor has cautioned that universities must be more than mere instruments of economic growth and development. Bryan Gould, former vice-chancellor of the University of Waikato and current chair of the board of the Foundation for Research, Science and Technology, issued his warning in opening the University of Auckland’s winter lecture series, “Challenges for research in modern academia”, earlier this week.
Calling on universities to be vigilant not just in defending themselves against familiar threats, Mr Gould said, “They must also be alert to new challenges, which sometimes come in unfamiliar guises.” Expanding on the theme, he added that the danger today is not so much that universities are threatened by direct, hostile, and deliberate assaults by governments or the private sector, though it also must not be assumed that these were things of the past.
“The threat arises from the growing importance that universities are increasingly invited to assume in promoting economic growth and development,” said Mr Gould, adding that commentators from across the political spectrum and from all parts of the economy have agreed that universities are essential agents of economic change.
“Our economic future is increasingly said to depend on the research effort undertaken by our universities and by their role in producing graduates with the skills needed to promote economic growth,” he said. “This view is naturally congenial to the universities, since it affirms their value to society and appears to guarantee at least an approximation of adequate funding. But the argument comes with an unstated but potentially damaging downside, that this role is what universities are essentially about and that it is only to the extent that they fulfil that expectation that they will be supported and funded,” he said.
Pointing to the dangers of the approach, he continued, “If it is asserted by political or business leaders that the universities have failed to come up with the required outcomes – that the economy is, for example, short of particular kinds of graduates or is handicapped by the failure to undertake particular kinds of research projects – then continued support and funding for the universities will be placed at risk.”
He said that the problem, then, is that universities would be tempted, so as to maintain continued public support and funding, to go along with the inviting but dangerous assumption that their only true value is as instruments of economic change. “In doing so, they would accept a barely recognised but increasingly damaging constraint on their freedom to pursue knowledge – and we would have significantly misread our own intellectual history,” he concluded.
The End of New Labour?
The local election results, and the subsequent opinion polls, suggest that the game is up – not just for Gordon Brown, but for the Labour government. It seems unlikely now that recovery is possible. If anything like the local election result is repeated in a general election, Labour could be out of power for a decade or more.
This may, in other words, be one of those watershed moments in British politics when an apparently well-entrenched political hegemony is suddenly seen to be vulnerable and is about to be replaced by another. In my own political lifetime, I can recall several such moments, when the commentators’ solemn pronouncements that the status quo was unlikely to change were suddenly falsified by an overwhelming swing in political fortunes.
It may not be premature, therefore, to begin thinking about an obituary for Blair/Brown and their New Labour government; for, make no mistake, Labour has not only won as New Labour and governed as New Labour – it will have lost as New Labour too.
It is of course true that no government goes on forever. The cumulative disappointments that inevitably attend the exercise of power mean that any government’s survival for three terms is a signal achievement. In judging New Labour, we should not, therefore, be too harsh about the fact that they may now face defeat.
The obituary writer might however linger longer over New Labour’s legacy. The body politic is, after all, like a tree trunk. A dendro-chronologist is able to derive a huge amount of information from a cross-section of the trunk; each ring is a detailed record of climatic conditions, natural disasters, liability to disease, and so on.
Similarly, the political scientist or historian can see in the development of a given society the imprint and permanent record of each particular political era. British society today still lives with the legacies of the great Labour post-war government, the trauma of Suez and the “never had it so good” prosperity of the Macmillan era, the confusions and struggles – at home and in Europe – of Heath, Wilson and Callaghan, and the harsh – some would say bracing – certainties of Thatcher.
What, then, when the dust has cleared and a sober assessment is possible, will the tree rings show about New Labour? What mark will they have left on British society? If, as New Labour enthusiasts proclaim, the new doctrine was a break with the past and a new beginning, surely what remains will be of considerable significance? And – given the unparalleled opportunities offered by huge parliamentary majorities, a virtually defunct opposition, a charismatic and gifted proselytiser as leader – the government’s programme of reform will have left a particularly lasting legacy?
Sadly, where the tree ring marks the point where the New Labour era ended and another has begun, it is likely that its outline will be blurred and in places non-existent. The “break with the past” will hardly be visible. There will be a broad continuity between what went before and what came after; the New Labour interlude will stand out hardly at all.
There will be clearer marks at places – the Northern Ireland peace process to set alongside and offset the Iraq war for example – but the broad themes will show little change. The tolerance – even encouragement – of inequality, the blind faith in market provision, the exaggerated respect paid to the rich and powerful, the abandonment of the weak and powerless, the impatience with public service and the public sector and organised labour, the reliance on spin rather substance, the belief that the purpose of government is to keep power rather than use it, all represent themes that have changed little in what may well be seen by future commentators as merely an interregnum between Thatcher and Cameron.
It is a sad reflection of this ethos that one suspects that there may be many in New Labour whose main response to Gordon Brown’s travails will be one of schadenfreude. Some will say that if only Tony Blair had remained at the helm, everything would have been different. But, like Mrs Thatcher before him, Tony’s supporters will conveniently forget that he was forced out because he had lost the confidence of his party and the country.
Gordon has had to reap what Tony had sown. I was one of those who hoped and believed that Gordon could save the Labour government, that an injection of more recognisable Labour values might restore some faith in a doomed enterprise. But Gordon has been simply overwhelmed by the torrent of disappointments and resentments of erstwhile Labour supporters. His personal qualities or lack of them have become the lightning rod for all those who wanted change but did not get it.
There is a certain rough justice in this. The New Labour project proved itself to be adept at winning elections – at least for a time. Where it has failed, as readers of the tree rings will one day confirm, is in using government’s power to bring about the change that was needed and that they promised. Instead, they wasted their opportunity and delivered more of the same. All of those who framed the New Labour project are implicated in that failure.
Bryan Gould
This article was published in The Guardian (online) on 12 May 2008
12 May 2008
A Fibre Optic Network – Twenty Years Earlier
One of the leading issues in today’s New Zealand news is the desirability of establishing a nationwide fibre optic cable network so that high-speed broadband can be extended to the whole country.
The National Party has proposed a NZ$1.5 billion investment; the Labour government has promised its own plan within a few weeks; and visiting international experts at an IT conference have urged that the whole project should be completed within less than ten years.
The news coverage rang a distant bell with me and prompted me to go back to check my own records. I was able to confirm (it is referred to on page 204 of my autographical Goodbye to All That) that, when I chaired the British Labour Party’s Working Party on the Productive and Competitive Economy in 1988, I had pushed a proposal that a new Labour government should invest in a fibre optic network for the whole of Britain.
I had been supported in that idea by Ken Livingstone (himself recently in the news when he lost the London mayoralty). Although we had got our own way on most of the issues covered by the report we produced, we had been defeated on the fibre optic proposal which apparently seemed too way out for most of my colleagues.
It is interesting to reflect on what might have been if an idea that only now seems to warrant serious consideration and whose advantages are now so widely proclaimed had been acted on twenty years ago. Foresight in politics is not always rewarded.
So Much for Liquidity – Now Let’s Have a Serious Approach to Inflation
The Reserve Bank’s announcement of new provisions to improve the trading banks’ liquidity in the face of the world-wide credit crisis will be widely and justifiably welcomed. It is just a pity that the Reserve Bank is not similarly proactive when it comes to the battle against inflation.
Any liquidity problem for our banks is, of course, prospective rather than actual or immediate. It nevertheless makes sense, both for current confidence and as a practical response to the possibility of problems ahead, to ensure that the banks have a wider base of liquidity on which to operate. As the Reserve Bank makes clear in its Financial Stability Statement, we cannot assume that a banking system that relies heavily on borrowing from overseas will remain immune forever from the problems that threaten the liquidity of overseas financial institutions.
While the Reserve Bank deserves a tick for its foresight in this respect, it is less deserving of plaudits when it comes to other areas of its operations. It is reassuring that it has moved promptly to forestall liquidity problems, but this contrasts sadly with its failure to exercise effective prudential supervision over non-bank lenders. The failure of so many finance companies over the past year or so – at a cost to investors of over $1 billion – has left the Reserve Bank seeming more concerned with the viability of the banks than with the savings of ordinary New Zealanders.
Perhaps we should not be surprised at this apparent peculiarity in the spectrum of the Bank’s concerns. The Reserve Bank is, after all, a bank. It owes a particular loyalty to and has a particular concern for the interests of other banks. It has acted quickly, and properly, to ensure that the banks are able to maintain their operations – something that is very much in everyone’s interests of course – but it has been much less assiduous in meeting its other responsibilities.
That criticism applies with even more force if we look at a field of operations that is even more significant than the viability of the banking sector or the prudential supervision of finance companies – the Bank’s role in controlling inflation. It is now apparent to everyone that the Reserve Bank is struggling – and failing – to keep inflation under control except at a price that threatens the rest of us with recession.
The search is therefore on for counter-inflationary policy measures that are both more effective and less damaging than the single blunt instrument of constantly raising interest rates. The Reserve Bank went so far in 2006 as to commission a report on what it described as “supplementary stabilisation measures” – in other words, on further measures that might be taken in addition to what we are usually assured is a policy instrument to which there “is no alternative” – while the Finance and Expenditure Select Committee is currently engaged in a similar exercise in preparing its report on the future monetary policy framework.
In neither case, however, is it likely that the Reserve Bank or those who advise them will notice what is staring them in the face – that the most obvious (and easily dealt with) cause of inflation in our economy is the high and fast-growing volume of bank lending. Private sector credit has grown by six times over the last twenty years, from $44 billion in 1988 to $266 billion in 2008; the largest and fastest-growing element in that credit growth has been bank lending on mortgage for the purpose of buying residential property.
Current interest rate policy actually makes matter worse. As interest rates have risen, the banks have had to market their lending more and more aggressively – and they have protected themselves against the consequent risk of lending inappropriately by concentrating especially on the housing market where they can at least take adequate security over people’s houses.
Why has the Reserve Bank not focused immediately on this and imposed limits on the banks’ freedom to inflate the economy in this way? If the key to controlling inflation is to limit the growth in the money supply, why not deal with the fastest-growing element in that money supply? If the Reserve Bank is ready to improve the banks’ liquidity at times of credit stress, why do they not intervene to restrain that liquidity at time of inflationary pressure? Why destroy the viability of large parts of our productive economy, but leave the banks free to do as they please?
The answer is that there is a perhaps unconscious and certainly unstated bias in the way the Reserve Bank looks at these issues. They are unwilling to act against the banks, and would rather burden the rest of us with the responsibility for grappling with inflation. They see measures such as regulating capital requirements or loan-to-value ratios for bank lending – as amended and sometimes extended by the Basel II international agreement – as appropriate for prudential supervision and for ensuring adequate bank liquidity but not for controlling inflation. This point is made explicitly by the Bank’s External Monetary Policy Adviser in his submission to the Select Committee.
The Bank gets away with this bias because the bank economists who dominate the economic policy debate in the media have a vested interest in diverting attention away from it. It is time that the darker corners of this debate saw the light of day and that the banks were brought within the purview of counter-inflation policy.
Bryan Gould
8 May 2008
This article was published in the NZ Herald on 16 May 2008
Let’s Hear It For The Macro Economy
The decisions announced last week by Fisher and Paykel and the ANZ Bank to relocate parts of their operations overseas grabbed the headlines and sent a shock wave through New Zealand industry. What may not be so apparent, however, is that the factors that led to those decisions have been part of our day-to-day experience over 25 years – and they continue to inflict their damage on all of us on a daily basis.
Last week’s news, in other words, is just the tip of an iceberg – just the latest high-profile instalment in the slow-motion but inexorable crumbling away of our economy. Very few understand the damage that has been done to our economic fortunes by the literally counter-productive effects of current policy settings over a quarter of a century. Very few accept that – as long as our macro-economic policy relies on the highest interest rates in the developed world and a grossly overvalued exchange rate – it is inevitable that there will be more news stories like last week’s.
Faced with current policy, even the strongest and most successful of our enterprises are less able to grow and compete than they should be. They do not generate the return on investment that they need to re-invest in future success. Because they are not profitable and competitive in international terms, they are always vulnerable to being bought up at bargain basement prices by foreign buyers or tempted to move their operations overseas. And when the tough times come, they are less able to withstand the shock – rather like tall trees with weak root systems that surprise everyone by keeling over in a high wind.
Weaker enterprises simply close down or fail to get off the ground. Innovation and productivity improvements are inhibited. The economy as a whole is less able to invest in future capacity. Our brightest talents go overseas or seek opportunities elsewhere than in productive industry. Instead of growing and becoming more efficient at the margins, we see loss of performance and decline.
Most of these instances fail to make the headlines but they are constantly happening nevertheless. When these debilitating effects are felt over decades, as they have been in New Zealand, the culture itself changes. People become risk-averse, lose interest in new wealth creation and concentrate on safe investments like housing or on manipulating existing assets in the money markets.
We have lived with this for so long that we no longer realise how sharp has been our comparative decline and how precarious is our ability even to sustain our current disappointing performance. We are fed a constant diet of assurances that our problems are nothing to do with policy; indeed, some apologists for monetarist orthodoxy urge us to push further down a track that we have already travelled further and longer – with correspondingly worse results – than anyone else.
Others tell us that we must simply accept that other economies are more efficient and have lower costs than we do. But, if that is the case, why do we make matters worse by deliberately ensuring that we destroy our own ability to compete?
Perhaps the most commonly touted advice is that no change in macro-economic policy is required and that what we must do instead is boost innovation and productivity by spending more on education and research.
As a former university Vice-Chancellor and the incoming Chair of the Foundation for Research, Science and Technology, I am the last person to question the need for more investment in education and research. That investment is an essential element in improved economic performance. But how is that investment to be made, and how is it to be made effective, if the tide of macro-economic policy is running so strongly against innovation and productivity improvements?
Those who offer this advice are still, it seems, prisoners of the comfortable illusion propagated by monetarist theory that monetary policy has little or no impact on the real economy. We know now beyond doubt that this is simply not true; to believe otherwise is a triumph of ideology over practical experience.
If our producers struggle simply to stay afloat, because the policy settings ensure that they are inadequately profitable and competitive, where is the extra resource to come from to turn things around? How are they to afford the new equipment and technology, the new product development, the skill training for their workforces, the marketing to develop overseas opportunities, the improved after-sales service and all the myriad and hugely expensive elements that go to make up a successful campaign in international markets, including our own? Neither the New Zealand investor nor the taxpayer can produce those resources out of thin air.
The need now is not for glib advice but for positive action. That action must take as its starting point a recognition that the current macro-economic policy settings must change if micro-economic measures are to be as effective as they should be. The search for a better way – and in particular, a better way of controlling inflation – will not be easy but it must not be shirked.
Bryan Gould
20 April 2008