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STATE SOCIALISM IN NEW ZEALAND



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STATE SOCIALISM IN
NEW ZEALAND



BY

JAMES EDWAKD LE ROSSIGNOL

PROFESSOR OF ECONOMICS IN THE UNIVERSITY OF DENVER
AND

WILLIAM DOWNIE STEWART

BAKRISTER-AT-LAW, DUNEDIN, NEW ZEALAND



NEW YORK

THOMAS Y. CROWELL & COMPANY

PUBLISHERS



Copyright, 1910,
By THOMAS Y. CROWELL & CO.



Published November, 1910.



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ob TO

HENRY AUGUSTUS BUCHTEL
[ CHANCELLOR OF THE UNIVERSITY OF DENVER
SOMETIME GOVERNOR OF COLORADO



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238582



PREFACE

In giving a critical account of some phases of state
activity in New Zealand, we have kept in mind the
point of view of the foreign observer and that of the
citizen of the Dominion who takes part in the discussion
of public affairs. From the former point of view it is
desirable that the workings of the various social experi-
ments should be shown as they are, without exaggeration
or concealment, if anything is to be learned of their suc-
cess or failure, or any knowledge obtained that might be
used in the cause of social reform in other countries.

From the latter point of view nothing is more impor-
tant than the active discussion of public questions, for it
is by this means that the conflict of interests results
in compromise and legislation. But it is not enough to
make a law and create a governmental department,
for a department is no more to be trusted than a private
corporation, and the struggle for good government must
go on all the time, if abuses are to be corrected and the
liberties of the people to be preserved.

It is well that members of Parliament and editors
give time and thought to public questions; but manu-
facturers and merchants, farmers and labourers, and all
the other classes must do the same, that no one set of
interests be allowed to dominate the rest, and that all
may work together for the common weal. In New
Zealand, as elsewhere, most of the people are busy earn-
ing a living, and their leisure time is given to amusements
of one kind and another, but there is an increasing num-
ber of good citizens who study the questions of the day,



viii PREFACE

help to form public opinion and make democratic govern-
ment possible. Still more might be accomplished if it
were fully realized that the chief work of the schools and
colleges is the training of citizens, and that the most im-
portant studies, after the elementary branches, are the
new humanities: history, politics, economics, and soci-
ology.

The chief authorities used in the preparation of this
book have been government reports, parliamentary
debates, and newspapers. Of the government reports,
the most important are the excellent Year-Books, con-
taining an enormous amount of information, and giving a
fine statistical history from the year 1892. The best
discussions of public questions are to be found in the
Parliamentary Debates, and the newspapers also are very
good, giving reliable news and excellent editorial articles.
Of secondary authorities, by far the best are the admir-
able works of Mr. Reeves. The works of Lloyd and Par-
sons contain much information and interesting comment.
The recent book by Mr. Scholefield is the best narrative
of the industrial development of New Zealand that has
yet been published. There is a conspicuous lack of
monographs on special topics, although there is a vast,
undeveloped field of research for University students
and other investigators. The subject of industrial arbi-
tration, however, has been carefully studied, and the
works of Pigou, Gilman, Knoop, Clark, Broadhead, and
Aves are especially valuable.

We desire to thank all those who have helped us in the
preparation of this book, especially the Hon. Sir Robert
Stout, the Hon. George Fowlds, the Hon. J. A. Millar,
Consul-General William A. Prickitt, Professor Ernest
Rutherford, Professor Frederick Douglas Brown, Mr.
J. P. Grossman, Mr. Samuel Vaile, Mr. John MacGregor,



PREFACE ix

Mr. Edward Tregear, Mr. E. J. von Dadelszen, and Mrs.
Hastings Bridge. Particular thanks are due to Professor
James Hight, of Canterbury College, who has read
several of the chapters in manuscript and has made a
number of valuable suggestions.

J. E. LE ROSSIGNOL.

W. D. STEWART.



CONTENTS

CHAPTER PAGE

I. The Functions of Government .... 1

II. Land Tenure 20

III. Land Monopoly 34

IV. Roads and Railways 52

V. Railway Finance 68

VI. The Public Debt 94

VII. The Land and Income Tax 117

VIII. Local Taxation of Land 138

IX. State Life Insurance 153

X. State Fire Insurance 167

XI. Old Age Pensions o 179

XII. The Public Service . . ... . . . 197

Xni. The Arbitration Act 216

XIV. Compulsory Arbitration in Theory and Practice 238

XV. Strikes 250

XVI. Wages and Cost of Living 269

XVII. General Survey and Estimate of Results . . 284

Index 307



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STATE SOCIALISM IN
NEW ZEALAND

CHAPTER I
THE FUNCTIONS OF GOVERNMENT

About the middle of the nineteenth century, in the

heyday of the Manchester School, when political economy

was a science and free trade a gospel,

it was common for writers on political The Policeman

questions to propound theories of gov- Theory

ernmental functions, to assign limits to

the sphere of governmental activity, to say to the

State: " Hitherto shalt thou come, but no further."

Buckle, writing in 1858, said:

" To maintain order, to prevent the strong from oppressing the
weak, and to adopt certain precautions respecting the public health
are the only services which any government can render to the
interests of civilization." (" History of Civilization in England,"
vol. I, ch. 5.)

To a New Zealander of the present generation the
words of Buckle sound like a voice from the tomb, and
even the most individualistic American must be inclined
to wonder why the State, like a policeman on his beat,
should be confined to this narrow round of duties. Now-
adays, the student of social evolution is less dogmatic
in his tone and less inclined to indulge in sweeping
generalizations. He is well satisfied if he can in a measure
account for the appearance of social phenomena, describe
and analyze their salient features, and arrive at some

I



2 STATE SOCIALISM IN NEW ZEALAND

conclusions, more or less dubious, as to their apparent
effects.

It is not easy to explain the causes which brought
about the multifarious activities of the New Zealand

Government. The settlers were chiefly
Origin of Stat eEnglish, Scotch and Irish, like those
Activities of British America in the early days, and

at the present time the canny Scot of
Montreal and Pittsburg feels perfectly at home in Dune-
din, the Canadian of Halifax and Toronto finds congenial
friends in Auckland and Christchurch, and the American
of New York can talk business and politics on an equal
footing with the citizen of Wellington, even though
they may not see eye to eye on all political and indus-
trial questions. Since there is no essential difference
between the New Zealander, on the one hand, and the
Anglo-Saxon of the United States or Canada, on the
other, the difference in regard to governmental func-
tions must be due to differences in environment rather
than in the character of the people.

Perhaps the early settlers, many of whom were
brought out by the New Zealand Company and other
associations, from 1840 onwards, had a sense of depend-
ence which made them look to the Company, and, after-
wards, to the State, to do things for them which the
American settlers, unwilling to be taxed and unable to
borrow, had to do for themselves. (Clark, " The Labour
Movement in Australasia," pp. 34-39.)

And yet the settlers were, as a rule, enterprising and
self-reliant people, the provinces were small and governed
by the leading men, and the work of the provincial
councils was the work of the settlers themselves, doing
by means of associated activity what could not be done
so well by individual effort.



THE FUNCTIONS OF GOVERNMENT 3

Indeed, for a number of years the provinces did not
differ much from other colonies in regard to governmen-
tal enterprise. They administered the
Crown lands, built roads, maintained Crown Lands
schools, had their own police, and,
although subject to the authority of the General
Assembly, they carried on governments quite similar
to those of the states of the Union or the provinces of
Canada. The essential feature of the situation was
that the provinces held and administered the Crown
lands, and, like other landlords, were expected to make
roads and otherwise improve their estates (Reeves,
" State Experiments in Australasia and New Zealand,"
vol. I, p. 62). The settlers expected a good deal of such
improvement, since the land was not given away, but
sold at prices ranging from 5,?. ($1.25) an acre in Auckland
to £2 ($10) an acre in Canterbury.

From the making of roads the provinces naturally
passed to the building of railways. Railways, as well
as roads, were needed for the develop-
ment of the country, and yet they were Roads and
not promising forms of investment for Railways
private capital. Colonial capital was
profitably employed in the exploitation of land and the
commerce in wool, and British syndicates could not have
been induced to build railways without large grants of
land, which the people were unwilling to give. Only one
course remained, — the provinces must borrow money
and build railways themselves, and this they did. The
first railway was begun by the Province of Canterbury
in the year i860, and in 1876, when the provinces were
abolished, there were about 70 miles of open line to be
taken over by the general Government.

The beginnings, then, of state enterprise were closely



4 STATE SOCIALISM IN NEW ZEALAND

connected with governmental ownership of land and
the building of roads and railways. The United States,
on the other hand, took another line of develop-
ment. Private capitalists were eager to establish rail-
ways in the relatively populous Eastern states, and
when it was proposed to build railways in the West
there was no serious objection to the chartering of private
companies assisted by large grants of public land. A simi-
lar development has taken place in Canada, where most
of the railways are owned by private companies and where
the Government's experience with the Intercolonial
Railway does not encourage the trying of further experi-
ments in governmental ownership.

The provinces could not have gone far in the exten-
sion of governmental functions without coming into con-
flict with the general Government, in
The Constitu- which rested the supreme power within
tion Act the Colony, but the general Govern-

ment itself was under no such limita-
tions. The Constitution Act of 1852 (15 and 16 Vict.,
cap. 72) granted such large powers to the General
Assembly that New Zealand became to all intents and
purposes an independent republic, with power to regu-
late practically all its internal affairs and even to repeal
or amend the Constitution Act itself, with the exception
of certain specified provisions. (Constitution Act
Amendment, 20 and 21 Vict., cap. 53.)

In the United States, both state and federal laws

are frequently declared unconstitutional because they

violate some provision of state or federal

„ . . , constitutions, — they involve class legis-
Constitutional . • 1 r t r

Limitations lation, they violate freedom of contract,

they interfere with interstate commerce,

they take private property without due process of law, —



THE FUxNCTIONS OF GOVERNMENT 5

in one way or another they are null and void, because
of the existence of constitutions in which are intrenched
the individualistic principles of the eighteenth century.
But the legislators of New Zealand are not troubled by
obstacles of this sort. Provided that the Acts of the
General Assembly are not " repugnant to the law of
England," they are perfectly legal. The New Zealand
Parliament, like that of England, can do practically any-
thing it pleases, for the will of the people is not ob-
structed by constitutional checks and safeguards pre-
scribed by the prejudice and timidity of a previous
generation. In this respect New Zealand is far more
democratic and less conservative than the United States.

But New Zealand did not go very far in the direction
of state socialism before the political revolution of 1890.
Before that time the Government was
largely controlled by the squatters and Early State

other well-to-do people, and the various Activities

governmental undertakings were de-
signed chiefly for their benefit and not primarily for the
good of the poorer classes. The establishment of the
Postal Savings Bank in 1865 is perhaps an exception to
this rule; also the creation of Village Settlements for the
benefit of immigrants, a charitable undertaking, first
begun in Canterbury in 1874 by the Hon. William RoUes-
ton, and afterwards taken up by the general Government
in 1886. (New Zealand Official Year-Book, 1894, p. 205.)

The first electric telegraphs were begun by the
provinces, but the general Government entered the field
in 1865 and afterwards took over the provincial lines.
This led to the establishment of telephone systems by
the Government in 1884. At the instance of Vogel, the
Government passed a law in 1869 establishing the State
Life Insurance Office. In 1872 the Public Trust



6 STATE SOCIALISM IN NEW ZEALAND

Office Act was passed, also through the influence of
Vogel, providing for the creation of a PubHc Trustee to
administer estates. In 1870, ParHament passed an Act
providing for the estabHshment of the New Zealand
University, and in 1877 the Education Act was passed,
providing for the free and compulsory education of
children.

In 1870, Vogel, then colonial treasurer in the Fox
Cabinet, brought forward his celebrated public works and
immigration policy, which Parliament
Vogel's Public endorsed in an Act providing for the bor-
Works and Im- • r „ 7» x

migration Policy ^owmg of £10,000,000 ($50,000,000)

within the next ten years, for the con-
struction of railways, telegraph lines, water races for the
gold fields, roads, and other public works, and for the
encouragement of immigration. In fact, twice the pro-
posed amount was borrowed and spent within the next
ten years and a tremendous impetus was given to
governmental enterprise, the effects of which have been
felt until the present day.

Vogel had great faith in the future of New Zealand
and still greater faith in the power of governmental
credit. He had established the State
State Credit Life Office on the basis of the Govern-

ment's credit; a little later he was to
found the Public Trust Office on the same basis;
and now he proposed to borrow enormous sums
for the development of the country, although the
public debt was already more than the Colony could
easily bear. But, as many a business man on the point
of bankruptcy has been saved by a timely extension of
credit, so the Government borrowed, private citizens
borrowed, and the Colony enjoyed for eight or nine
years a period of development, inflation and apparent



THE FUNCTIONS OF GOVERNMENT 7

prosperity, living on borrowed money. Then, in 1879,
came a terrible depression, from which New Zealand did
not fully recover for more than sixteen years.

The policy of Vogel greatly strengthened the power
of the general Government, particularly when, in 1876,
he had the provinces abolished, took
over their lands and railways, and left Abolition of
the general Government supreme, with the Provinces
a large civil service, a great annual
expenditure from loans and taxes, and an enormous
public debt. The Government had become the dominant
financial power in the Colony. Still, with the exception
of the work of the State Life Assurance Office and the
Public Trust Office, the Government was doing practi-
cally nothing more than was being done by New South
Wales, Victoria and other Australian colonies, and did
not go much ahead of them until the new democracy came
into power after the election of 1890.

The political revolution of 1890 can be traced, with a
considerable degree of certainty, to the methods of
acquiring and holding .land which had
obtained since the time of the Wakefield Theories of
colonies. Edward Gibbon Wakefield, Wakefield
the founder of the New Zealand Com-
pany, held peculiar views as to the disposal of colonial
lands. He thought it desirable to reproduce in New
Zealand a fully developed society, with well-to-do people
owning land and a sufficient supply of labour to do the
developmental work of a new settlement. To that end
he thought that land should be sold at a " sufficient
price," and that poor but carefully selected labourers
should be given free passage to the Colony, where, for a
time, they would be willing to work for others, since they
could not get free land from the Company. Under this



8 STATE SOCIALISM IN NEW ZEALAND

system, capitalists would buy land, since they would be
assured of a good supply of labour for the development of
it. The money received from the sale of lands was to be
spent on roads and other public works and on bringing
out a further supply of labour. (Reeves, " State Experi-
ments," vol. I, pp. 200-218; Scholefield, " New Zealand
in Evolution," pp. 172-176.)

Perhaps, if Wakefield's whole scheme had been put
into operation, and if there had been a sufficient supply of
land, and if a few wealthy people had
Landless not been allowed to acquire large blocks

Labourers by purchase and lease, and if the Colony

had been an agricultural rather than a
pastoral country, the assisted labourers might have
acquired land quickly instead of remaining labourers for
years, congregating in the towns, especially during the
winter months, discussing their grievances and clamoring
for political reform. But the land was not only sold but
leased in enormous tracts, and the new-comers, finding
it more and more difficult to get land, were much dis-
satisfied and looked to the Government to redress their
grievances.

The immigration and public works policy of Vogel,
while it provided employment at high wages for a time,
in the end increased the trouble, for the prices of land
improved by the roads and railways increased so much
as to be quite out of the reach of poor men, while people
who had a little capital were tempted to buy too much
land, chiefly with borrowed money, and had to give it up
to the mortgagee when the time of inflation came to an
end. Then the assisted immigrants, many of whom had
been employed in building roads and railways, were
thrown out of work, and either left the country or
remained to curse the landowners and importune the
Government.



THE FUNCTIONS OF GOVERNMENT 9

The statistics of immigration and emigration during
these years throw much Hght upon the situation. In the
year 1874, 43,965 persons arrived in the Colony, including
36,400 irom the United Kingdom, of whom 31,774 were
assisted immigrants; in the year 1881 there were only
9,688 arrivals, of whom only 103 were assisted; while
from 1885 to 1 89 1 there was an excess of emigrants over
immigrants amounting to 19,938 (Year-Book, 1894, pp.
71-76).

If the whole of Vogel's policy had been accepted by
Parliament, the amount borrowed for public works
would have been less, and more land
would have been available for settlement, Foresight of
for he proposed to defray a large part Vogel
of the cost of the railways by the sale or
lease of six million acres of public land, much of which
could have been taken up by relatively poor men. But
the landowners defeated this part of his scheme while
accepting the part involving enormous borrowing for
railways and other public works which should add to the
value of their lands without providing permanent occu-
pations for the surplus population.

The long years of depression which followed the
bursting of the boom were the worst that New Zealand
has ever seen. Mr. Scholefield says:

"All the glory of the seventies had
passed away. New Zealand was in a state Depression

of the utmost depression. Legislation was
quite powerless to remedy evils which were economic and not merely
political. Many colonies have had similar crises to face; but in New
Zealand a position which would naturally have arisen at a certain
stage of the Colony's development had been aggravated incalculably
by the reckless and extravagant importation of certain classes of
immigrants to whom the necessary avenues of occupation were
closed. Thousands of disappointed men, efficient, industrious, and
temperate, left the colony in despair. Of those who remained many
had emigrated from the Old World a few years earlier, full of hope
and enthusiasm. They were now inconsolable agitators. A revolution
was at hand." (Scholefield, " New Zealand in Evolution," p. 169.)



lo STATE SOCIALISM IN NEW ZEALAND

And yet it was during the dreary depression of the
eighties that an invention was made which revolutionized
the sheep-raising industry and laid the
Frozen foundations for the extraordinary pros-

Mutton perity of later years. This was the im-

provement of the process of refrigeration,
at first applied to the freezing of meat, but later used in
the shipping of dairy produce and fruit. The first at-
tempts to export frozen mutton were made by Australian
shippers, but the first really successful shipment was
made from Port Chalmers in 1882 under the direction of
Mr. Thomas Brydone, the general manager of the New
Zealand and Australian Land Company, one of the largest
holders of land in New Zealand. In this case, if in no
other, the large landholders rendered a service to their
country. Of this epoch-making event Mr. Scholefield
says:

" The meat was landed in perfect condition and sold for 6 1-2J.
per pound — a price which has not since been reached. The ' pro-
digious fact ' was there, to quote The Times, that fresh meat from
the antipodes had been landed in London in perfectly sound and
wholesome condition. And prodigious it was for the colonial meat
industry. For New Zealand it utterly revolutionized both agricul-
ture and grazing." (Scholefield, op. cit., p. 129; Year-Book, 1893,
pp. 190-198.)

The importance of this new industry can hardly be
over-estimated. Before 1882 it was impossible to ship

mutton to the European markets be-
An Industrial cause of the long voyage across the
Revolution tropics, and there was no market for

mutton in the Southern hemisphere

beyond the slight demand for local needs.

" At this stage the whole marketable product of a sheep was a
few fleeces of wool, a pelt, and a boiled-down carcase. Except in the
close environs of a town, cattle were useless except for the skin and
the horns. Possibly some preserved meat brought in a little income,
but more often the carcase was returned to the land from the animal
fertiliser works." (Scholefield, op. cit., p. 121.)



THE FUNCTIONS OF GOVERNMENT ii

Thousands of sheep were sold for sixpence a head,
and many more were merely destroyed by the farmers
when it no longer paid to keep them on pasture. Simi-
larly, butter and cheese were made chiefly for the local
markets, but with the advent of the refrigerator the



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