No, not Stephen Toplis.
This is a story about an earlier BNZ Chief Economist, Len Bayliss. A commenter on my post on Graeme Wheeler’s attempt to silence Stephen Toplis reminded me of how Bayliss’s career at the BNZ ended, victim of intense pressure from the then Prime Minister and Minister of Finance, Robert Muldoon, and a pusillanimous Board and management of what was then a wholly government-owned bank.
Len Bayliss was one of New Zealand’s leading, and most prominent, economists from the 1960s to the 1980s, particularly as the BNZ’s chief economist for 15 years or so. A few years ago I did an interview about his career with him for the newsletter of the New Zealand Association of Economists. As he records it, that interview and some follow-up questions from me prompted him to put together a volume of documents and recollections – Recollections: Bank of New Zealand 1981-1992 – dealing with his ouster from the BNZ and his later term as a government-appointed director of the BNZ as it descended into crisis and near-failure in the late 1980s and early 1990s. I’m fortunate enough to have a copy.
Bayliss and Muldoon had, at one time, worked very closely together, with Bayliss having served as a member of the Advisory Group in the Prime Minister’s Department when National returned to office at the end of 1975. A lot of financial liberalisation went on over the following couple of years, and Bayliss appears (there are conflicting accounts, but I’ve found Bayliss’s persuasive) to have played a key role in that.
Decades on, in that interview I did with him, Bayliss could still record of Muldoon
Excellent. He was the best boss I’ve ever had. Absolutely decisive. I wrote his speech for the Mansion House dinner, the most important speech he’d made after becoming PM. I gave it to him. He said send it to Treasury and see if it’s all right with them. They wrote back wanting something changed and wrote a little memo and he just put ‘No’. And he always was very proper. He may have been tough to his political opponents but as Bernard Galvin used to say, certainly in the time I was there, it was a very happy group. He never tried to force you to do anything. In a sense, he treated you just like a public servant, as a politician should treat them. He was decisive. He would argue very intelligently. Watching him at the Cabinet Economic Committee, he really tore strips off ministers who hadn’t done their homework. And I saw him several times in debates with Noel Lough [senior Treasury official]. Noel Lough was a lovely bloke but Muldoon really won the debates.
But after Bayliss’s return to the BNZ, and as New Zealand’s economic difficulties became increasingly apparent – with Bayliss among those openly highlighting the issues – the sentiments certainly weren’t reciprocated.
The crisis began to come to a head after Bayliss was interviewed on Radio New Zealand’s Morning Report on 14 August 1981. After a lengthy introduction, setting the scene for a discussion of the value of the exchange rate, the presenter turned to Bayliss
Bayliss: I think we have to do a number of things. We have to change the exchange rate, we’ve got to get our budget deficit reduced, we’ve got to get better control of the money supply and we’ve got to replace import controls by tariffs, and we’ve got to get more competition into the economy.
Reporter: Well, you’re talking about the exchange rate. You’re talking devaluation are you?
Bayliss: That would be it, yes.
The interview went on, concluding thus
Reporter: Well, this artificially high value of our currency has been held for many years I mean its not a recent thing. You know, why do we keep on doing it?
Bayliss: I think the reason we keep on with it is two-fold. First of all if you just devalue and do nothing else….you get a very short-term gain and in six months’ time the rate of inflation is worse. I think the second reason is that we’ve built up a system in New Zealand where a large number of industries and sectors and firms and so on are subsidised and naturally these people fight hard to maintain their subsidies……. The New Zealand economy has had nil rates of growth for about five years and rising levels of unemployment and this is a pretty deplorable economic performance……If we are going to improve our economic performance then we have to make some pretty dramatic changes in economic policy.
The Prime Minister was not happy at all. That shouldn’t have surprised anyone – who likes have their approach openly criticised? But the Prime Minister didn’t just complain to his colleagues, thump the desk, and get on with his day. Instead, he wrote a letter to the chairman of the Board of the BNZ. News of this letter got out – it took a while – and on 15 October there was parliamentary question about it. Answering on behalf of the Prime Minister, Jim Bolger stated
“I wrote to the Chairman of the Bank of New Zealand on 25 August 1981 expressing concern that Mr Bayliss’s comments were not only misleading and not factually based, but that they would also have an adverse effect on our international credit. Both the management and the Chairman of the bank have told me they regretted Mr Bayliss’s comments”
Opposition MP Stan Rodger then asked
“Can this be taken as as indication that the Government is adverse to having open debate in society within the news media on economic developments and on economic factors affecting New Zealand society?”
Bolger: “No it most certainly cannot be taken as an indication that we do not welcome public debate on issues. The question that was posed is whether or not the issue that was being debated was being debated factually, whether it was being debated in a manner that would not be harmful to New Zealand. As the answer was written by the Prime Minister, it was his belief that the NZ comments would affect New Zealand’s international credit. That is something that is of some moment.”
Another Labour MP, Michael Bassett continued
“When the Prime Minister wrote to the Bank of New Zealand was it his intention to silence Mr Bayliss altogether, or was it simply to ensure that he debated the economy on terms that were agreeable to the Prime Minister?”
Bolger: I cannot answer the question in the way it was posed because I do not know the precise intention of the Prime Minister when he wrote the letter. However, I am sure the Prime Minister will welcome debate on this issue or any other based on facts, not on any other basis.”
At the next meeting on the BNZ Board, (according to a contemporary file note) the Board apparently spent “considerable time discussing public statements on economic matters by the Chief Economist – in particular forthcoming speech to Hutt Chamber of Commerce”. The chief executive informed Bayliss that “in future contents of any public statement on economy by Chief Economist should be such that they provoke no criticism whatsoever by Prime Minister.”
Bayliss responded (again, according to the file note) “impossible to make accurate, balanced and professional analysis of economy under such criteria – a view which would be shared by all economists and many others. Board placing Chief Economist in impossible position – best to cancel speech.”
To which the chief executive is recorded as responding “Can’t do that – must make speech. Cancellation would damage image of BNZ and provoke public questioning of Board’s attitude. Only consideration must be BNZ’s public reputation.”
And so it went on in subsequent days. Bayliss eventually informed that BNZ that under these conditions he would probably feel obliged to resign, and did so early the following year. Both the Board of the BNZ and the Prime Minister disavowed any responsibility.
Bayliss includes in his collection of documents, a letter he received shortly after his resignation from John Stone, then the Secretary to the Treasury in Australia (and still vigorously contributing to the debate in Australia in his late 80s). Stone wrote
“I learned yesterday of the announcement of your impending resignation from your present position with the Bank of New Zealand. The reports which I saw of that development were naturally only of a general kind – the suggestion being that there had been some reaction from the political heights to the outspokennes and straight-speaking on the New Zealand economy which over recent years you have become well (and let me emphasise favourably) known.
“Whether or not there is truth in those kinds of speculation I naturally do not know. If there were I would think it is a sad reflection upon a country for which as you know I retain a considerable affection.
Graeme Wheeler was a junior Treasury official in late 1981. I wonder what he made of Muldoon’s attack on Bayliss? Did he even imagine that one day he’d be writing to the BNZ to complain of another economist whose style and/or substance had offended him, as high public servant and powerful regulator? Surely not.