THE POWER ELITE: The Treasmy and New Zealand Business Roundtable's Power in the Formation of the Privatisation Programme (1984 - 1987) : A Theoretical Analysis A Thesis submitted in partial fulfilment of the requirements for the Degree of Master of Arts in Political Science in the University of Canterbury by Andrew W. Mansfield, -~----~- - ¢ -- University of Canterbury 1990 Abstract This thesis has two primary aims. The first is to more fully understand the power that the Treasury and New Zealand Business Roundtable (NZBRT) had in the formation of the privatisation programme. The second aim is to test the bureaucratic, rational-actor and economic elite models to see how effectively each can identify and explain the nature and degree of power that these groups possessed. To do this, the bureaucratic and bounded rationality models are first applied to the Treasury's relationship with the Minister of Finance. The economic elite model is then applied to the NZBRT's relationship with the Minister. This thesis concludes with four significant findings. First, in light of the evidence presented, the power that the Treasury and NZBRT had in the formation of the privatisation programme is argued to have been less dominant than conventional wisdom has suggested. Second, the models are only of limited use in analysing the power held by both organisations. Third, significant analytical difficulties exist when attempting to view the concept of power in non-conflicting situations. Finally, power is found to be both an elusive and multi-dimensional concept; it can operate in a non­ conflictual, covert and impersonal context. The political resources used by groups can be used not only to dominate and control, but also to facilitate and reinforce the status quo. Pagel Acknowledgements Many thanks to my two supervisors. Dr. Martin Holland, who's ruthless editing (in the earlier chapters) and "no frills" approach forced me to think through the issues and structure of my thesis more clearly. Indeed, his input throughout is greatly appreciated. A most sincere "thank-you" to my second supervisor, Dr. Jim Lamare whose advice and guidance became increasing sought after - and appreciated - as the ideas and research progressed. I would also like to recognise Dr. Jonathan Boston's assistance. Many thanks to all my friends. First, to Jill Dolby and Phillipa Greenman for their unfailing cheer and support here in the Department. To Grant, John and Ayleen Laugesen go my thanks for their friendship and invaluable software (and hardware!) support. Also to Ray, Barbara, Tim and Suzy Matthews - the "Wellington thesis support team" - who provided a roof over my head while I was researching up north. I am very grateful to Kirsty Pilcher for her encouragement throughout and her preparedness to proof the (many) drafts. Finally, a big thanks to my two fellow thesis sufferers and good friends, Dave Sanders and Donnette Willie. Dave, I, like the rest of humanity, are hoping to read your (elusive) thesis this side of the Twentieth Century... On the home front, my thanks to Mike for his support throughout my time at University, and Annemarie, for her love. Finally, I expressly wish to thank Anthea, Janine and Sarah for their continuous support and understanding throughout the· papers and thesis years. I hate to end with a cliche, but I really couldn't have done it without them. Christchurch, February 1991 Page ii Contents Page Abstract i Acknowledgments ii Contents iii Tables and Figures iv Introduction v Chapter One: Interest Groups and the Distribution of Power: A Theoretical Approach 1 Introduction 1 The Elusive and Multi-Dimensional Nature of Power 1 Democratic Theory and the Distribution of Power 5 The Pluralist Model 6 The Elitist Model J 10 The Economic Elite Model V 14 The Bureaucratic Model v 19 The Bounded Rationality Model 27 Conclusion 30 Chapter Two: The Pxivatisation Programme: Background Events and the Establishment Of~the Elitist Assumption 38 Introduction 38 From Intervention to "Moremarket" - A Brief Sketch 38 The Corporatisation Programme 44 The Privatisation Programme 48 Privatisation - The Process 50 The Privatisation Programme's "Lead In" Time 50 The Enabling Legislation 59 Opinion Polls 61 Conclusion 64 Chapter Three: Treasury's Relationship wi~ Douglas: Bureaucratic or Political "Capture"? 69 Introduction 69 Operationalising The Bureaucratic Model 71 The Bounded Rationality Model- Treasury's Use of the Satisficing Process 87 A Limitation to the Notion of Bureaucratic Capture . 89 The Consistency in Thinking Between Douglas and the Treasury 90 Influencing Factors Prior to 1984 93 Douglas' Principles 97 Douglas' Personality 99 Conclusion · 101 Chapter Four: The New Zealand Business Roundtable's Relationship with D~~ ~ Introduction 108 Operationalising the Economic Elite Model 109 Defining the Economic Elite 109 The Use of Direct Access-Points by the NZBRT 115 The Nature of Douglas' Relationship with the NZBRT 132 Douglas' Predisposition Toward Private Sector Interests 133 Favourable Disposition Toward the NZBRT 134 Consfstency in Thinking and Development of Events 135 Conclusion "/ 138 Chapter Five: Conclusions 144 Introduction~ - '· ., 144 The Elitist Assumption- A Pluralistic Political System? 144 The Utility of the Models and the Difficulties in Analysing the Concept of Power 149 The Bureaucratic and Bounded Rationality Models 149 The Economic Elite Model 152 What Has This Study Captured? 154 Bibliography 160 Page iii Tables and Figures Page Figure 2.1 The Corporatisation programme's structural reorganisation of the State sector 46 Table 2.2 The Privatisation of the SOEs 48 Table 2.3 Questionnaire : "The Sale of State Owned Enterprises" 62 Table 2.4 Questionnaire : Support for the Sale of State Enterprises 62 Table 2.5 Questionnaire : Support for New Zealand Ownership of the SOEs 63 Table 3.1 Elimination of Debt burden with Asset Sales 84 Table 4.1 NZBRT members: 31 November 1986- 31 December 1990 110 Table 4.2 Selection of Individual NZBRT members holdings in Round Table Companies (1988 & 1989) 111 Table 4.3 NZBRT members sitting on the same Board of Directors (1989) 112 Table 4.4 Representatives from Fletcher Challenge sitting on private and State Corporation Boards (1989) 113 Table 4.5 Company Stock shared by NZBRT members (1990) 114 Table 4.6 NZBRT members of the SOE Boards (1987 - 1989) 120 Table 4.7 Number of NZBRT related articles in the major newspapers (1984 - 1987) 122 Table 4.8 Strategic strength of NZBRT aquisitions (1989) 131 Table 4.9 NZBRT consultancy fees (December 1987 - June 1989) 132 Figure 4.10 State sector reform - chronology of events leading to the December 17 Statement 136 Pageiv Introduction ,.- \ 1 The Purpose of This Study 1 (The f~t1rth Labour Government, during the six years in office, is argued to have adopted a distinctly "elitist" style in the process of political decision­ making. Rather than allowing a high degree of popular participation and corporatist consultation with interest groups, it was supposedly influenced by a small group of public policy advisers and businesspeople) These individuals are identified as belonging primarily to two organisations -the Treasury and the New Zealand Business Roundtable (NZBRT). Thus, both these organisations are argued to have possessed a significant degree of political power in the formation of public policy, dictating both the direction and pace of change in the New Zealand economy. The result of this, so the argument goes, is that the values of the few have been systematically \ ' '• :· I ',· ' I) imposed on the many. ! ---.__ (ij. 1 . , , , , With this in mind, and under the umbrella of this elitist assumption, the nature of this enquiry is twofold.~irst, it seeks to more fully understand the power that the Treasury and NZBRT had in the formation of public policy.Jhe central questions to answer here are: were these groups as "powerful" as some political commentators have implied? In what ways can this power be systematically observed and analysed? In the process of answering these questions, this enquiry also seeks to "test" a number of Pagev Introduction theoretical frameworks. In doing so, the aim here is to see how effectively each model can identify and explain the nature and degree of power that these groups possessed. To facilitate both these aims, the privatisation programme is used as a case study. More specifically, this thesis looks at t~e Treasury and NZBRT's impact on the programme's decision-making proces~ prior to 17 December 1987 - the day the Government announced that it would implement the programme as an "on-going" policy initiative. In other words, this study seeks to understand ~he power that these two organisations had in the formation of the privatisation programm9 For the purposes of this enquiry, the choice of case study is both stimulating and appropriate~ecause the privatisation programme is considered to be one of the Government's most significant - and controversial - policy initiatives. Moreover, it is a policy in which, on one hand, a large number of individuals and groups are argued to have been excluded from the decision-making process, while on the other, the Treasury and NZBRT are purported to have been "profoundly influential." 2 J Summary of Chapters This thesis is conducted in five chapters. Chapter one theoretically examines the distribution of power among groups in society. It starts by briefly examining the concept of power, turning then to consider the pluralist and elitist models; two divergently opposed theories explaining how power is distributed among groups in society. Finally, the three theoretical frameworks that will be tested with reference to the Treasury and NZBRT are discussed; namely, the bureaucratic, bounded rationality and economic elite models. Page vi Introduction The purpose of chapter two is to "set the scene" prior to the operationalisation of these models. First, it describes the privatisation programme's background, explaining the events leading up to, and the rationale behind th~(Government's decision to privatise th~: State Owned Enterprises (SOEs).Jsecond, and by way of three observations, the / discussion examines the elitist assumption upon which this study is based.