Podcast: Two Cents' Worth

Two Cents’ Worth: 48 hours that changed us forever

As ‘Brexit’ threatens to derail the British and European economies, Bernard Hickey looks back to when we saw the UK’s ‘Brentry’ into the EEC in 1973 as an existential threat to our own nation’s future.

This isn’t another ‘Brexit’ will-they-or-won’t-they story where everyone gets very excited about a fresh deadline or Parliamentary vote and then nothing really happens. Until next time. (Phew)

This is a story that most New Zealanders living and working in a multicultural and diversified economy won’t recognise. It’s the story of ‘Brentry’ nearly 50 years ago and how we thought it could wreck our economy, which at that point exported 90 percent of our butter, lamb and wool to the ‘mother country’.

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A country our parents and grandparents had fought for to protect in two world wars in the sure knowledge it would always protect us and buy the bounty of our land.

Until it didn’t.

It’s the story about the betrayal of idea that two generations of young men died for. It’s about the death of an empire and the birth of a New New Zealand. It’s about the execution of a decade-long grand strategy that pulled victory from the jaws of defeat at the last minute. In the dead of night. With discipline, patience and a steely determination.

The hero of our story is a ‘gentleman’ politician and his faceless (to the public) trade diplomats fighting the nation’s life in a 48-hour period of intense trade negotiations.

“In Luxembourg, we had what we call our battle headquarters,” said ‘Gentleman Jack Marshall, who was New Zealand’s Deputy Prime Minister at that moment in June 1971 when access for New Zealand’s butter, lamb and wool into Europe’s virtually closed agricultural product markets was decided.

It was a conference room that Marshall had been told by British diplomats might be bugged by our European adversaries.

At the time, I was four years old and living on my family’s dairy farm in the Eastern Bay of Plenty valley of Galatea, nestled between the Kaingaroa Forests and the Ureweras. It was a farm broken in by my grandfather, a veteran of the trenches of France, as a ‘rehab’ farm to help him start a life after the war. My father and uncles had helped him clear the farm and find a way to make a living through the 1930s and 1940s.

The way I heard it in those tense moments in the early 1970s, our very livelihoods and futures were at stake because the British had betrayed us. All we could do was read the Dairy Exporter and hope Jack Marshall and his team somehow secured us the tonnes of butter quoted we needed.

“We were really constantly involved throughout a period of nearly 48 hours. I did lie down along once along four chairs in our battle headquarters,” Marshall told Radio New Zealand after the deal was done.

“And two of the top officials who were with me lay down on the carpet on the floor and we got a few moments of relaxation in that way.”

Marshall had this part of the world riding on his shoulders and he had to execute the final parts of a strategy devised across the political spectrum in the early 1960s after awful shock of realizing Britain wanted to join this Common Market, which could cut our lifelines of export revenues. The six nations of the European Economic Community, as it was known then, wanted only to secure a protected market for farmers in France, Italy, Germany, Belgium, Holland and Luxembourg.

It all started for New Zealand on July 31, 1961 when Britain’s Prime Minister Harold MacMillan gave a speech in Parliament. He was the one later taken down by the Profumo scandal, but then he had realised Britain was basically broke and needed to join the EEC.

The Common Market, as it was called then, was surging ahead thanks to all of America’s Marshall Plan aid and trade after the war. The irony is Britain may have won both the world wars with America’s help, but they wrecked Britain’s economy and stripped it of its lucrative territories of the empire.

America wanted to rescue Europe to create a bulwark against Russia, but didn’t help the ‘victorious’ Britain much. It initially refused to join the Treaty of Rome that created the EEC and the Common Agricultural Policy because it was worried about the ‘Dominion’s and still thought the pound should be the world’s reserve currency.

But by 1961, Britain was humiliated after the 1956 Suez Crisis (viewers of The Crown might remember it) and realized the dream of empire was over. It needed friends and a much bigger trading partner right on its doorstep.

“After long and earnest consideration, Her Majesty's Government have come to the conclusion that it would be right for Britain to make a formal application under Article 237 of the Treaty for negotiations with a view to joining the Community if satisfactory arrangements can be made to meet the special needs of the United Kingdom, of the Commonwealth and of the European Free Trade Association,” he said.

“No agreement will be entered into until it has been approved by the House after full consultation with other Commonwealth countries by whatever procedure they may generally agree.”

The news was a thunderbolt to a country that saw itself as an outpost of the empire and the ‘farm of Britain’. Suddenly, New Zealand faced being locked out as Britain’s membership of the EEC meant it was joining a trade bloc that we definitely not part of.

“It came as a resounding shock to New Zealand politicians and officials and the New Zealand export community,” said Brian Lynch, one of New Zealand’s most senior trade diplomats through the late 1960s and 1970s

New Zealand then had a choice. It could cry foul and try to embarrass Britain into not joining Europe by playing the blatantly emotional card of pointing to the sacrifices of war and painting the entry as a betrayal.

Emotions ran high here in New Zealand. I remember what was said behind closed doors. For many, Brentry was not just an economic event. It was a breach of a sacred trust formed in blood, sweat and tears. It would have been easy and understandable to let emotions rule over sense.

Instead, our politicians, diplomats and business leaders plotted a more cautious path along a high road. We publicly supported Britain’s move as an inevitable geo-strategic event that would help us all in the end. Publicly, we saw the bigger picture and worked to keep both the British and the Europeans sweet.

Realism and hope wins over bitterness and despair

Former Prime Minister Jim Bolger knew exactly how it felt in those sometimes-isolated farming communities. He grew up the son the Irish dairy farmers in Taranaki. As a young man, he moved to Te Kuiti to start a family and farm sheep and beef in the early 1960s. By the late 1960s, he was active in farming and National Party politics and understood how his neighbours and future constituents felt.

“Many were either returned men themselves or were families of returned men. They've felt greater hurt than others,” Bolger told me in an interview for the Newsroom/RNZ Two Cents Worth podcast.

“I think there was a realism that Britain was part of Europe. Europe was moving in one direction and New Zealand was not part of Europe, despite the belief for a long time that we were, and that we should be realistic and look at the markets closer to home,” Bolger said.

“Was that painful for some? Very painful. But there was a deep underlying, belief of the realism of the shift. We couldn't continue as we were before,” he said.

Lynch said the decision to publicly back Britain’s drive into Europe and avoid anger and bitterness was a deliberate one.

“There was certainly resonance in that emotional card, and frequently one would be the recipient of comment like that from various parts of the British community,” Lynch said.

“However, whatever that temptation might be, it was certainly not going to be in our own interests to try to play that card if we had sought to go over the head of the British government and the Whitehall officialdom and appealed along the lines of poor New Zealand, this will ruin us,” he said.

“If we had done that, our conclusion, and I'm sure it was the correct one, was that we would be on a losing wicket. We would I'm sure have poisoned relations at the political level and we would have soured our contacts carefully built up over decades with British officials.”

Long-time economist and economic historian Brian Easton reckons we could even have scuttled Britain’s entry into Europe if we’d pleaded desperately enough. He tells a great story of how Jack Marshall used the threat of playing that card very carefully. And with great success.

Brinksmanship on the way through Heathrow

“There's an interesting story, which is that the British negotiator was a guy called Rippon. And he went to our chief negotiator, who was a Jack Marshall and said, I've got you so many thousand tonnes of butter. And Marshall said, is it all? And Rippon said, well, it's a good deal. And Jack Marshall said: it's the best you can give us? And Rippon said: ‘Of course it is’.

“And Jack Marshall said: ‘oh, in that case, I'm going home.” And Rippon said: ‘what do you mean I'm going home? I'm going to catch the plane and fly back to New Zealand because you've given us the best deal we have. And Rippon said: ‘But that you'll have to fly out through Heathrow, London?

“Marshall said: ‘yes…’ And Rippon said: ‘and all the journalists will be there at the plane asking you what you feel about it.’

“‘Yes…

““And what are you going to say? Rippon asked.

“‘I won't say anything,’ said Marshall.

“‘You won't say anything? And all the baying press will conclude that you are upset about the deal.’

“Marshall said: I'm not going to say anything. And Rippon said 'I'll go back in here and get you a bit more and he got an extra 5,000 tons.'

“And that's how crucial we were in the initial deal. “Rippon was afraid of us ending up on the front pages of the anti-European newspapers, saying New Zealand was against deal.”

Just the suggestion we might play the card was enough to scare the British, but we never actually did.

‘Gentleman’ Jack’s steely resolve

Jack Marshall said on keeping his cool at that moment:

“That is very important in negotiations. You must keep control of yourself. Otherwise, you'll very soon lose control of the situation,” he said.

The moral of the story is that sometimes an essentially-New Zealand passive aggressive approach can work.

The end result was New Zealand kept access to Europe for more than 80 percent of its sheep meat and butter in the early years and bought time to find new markets in the Middle East and Asia.

“On balance, I think we did extraordinarily well. It was a huge team effort by what we like to call today New Zealand Inc. Which involved the government. The public sector, private enterprise, civil society, without exaggerating in terms of this country's survival,” said Lynch.

“That campaign through the 70s, 60s, 70s and 80s was the toughest battle we had outside the field of human conflict to enable this country to survive and prosper,” he said.

‘We could have stopped ‘Brentry’

It seems ironic now given the way most New Zealanders now see Brexit as a self-inflicted wound, but we could have actually become the heroes of Nigel Farage and Boris Johnson if we had been intransigent.

“It is it is possible that if we in New Zealand has said, no, we don't approve what was going on, that would have stopped that,” said Easton.

There were many in New Zealand who secretly hoped Britain would fail to get into Europe. MacMillan’s appeal to join was rejected by French President Charles de Gaulle in 1963 and 1967 because he saw Britain and the British as a Trojan horse for the United States. He blamed America for refusing to support the French and British during the Suez crisis of 1956 and its failure to help France in Vietnam in 1954.

Many here were cheering on De Gaulle under their breath.

Easton recalls that hope as a feature of the annual conferences of the New Zealand Association of Economists (NZAE).

“They saw General de Gaulle's no as a saviour of the New Zealand economy, given the threat that it was at that time. And so they drank a toast to him. And that continued until the 1970s that the toast was to the Generale,” he said.

Britain needed us for another reason

But there was another reason why Britain needed us, and it’s one most people haven’t thought of.

Britain also sold us lots of products and services. At times, there was even a trade deficit with Britain. All those Morris Minors and David Brown tractors and the profits going to Lloyds bank and Lloyds of London insurance premiums.

“If you factored in such services activity as insurance and transport and investment. In fact, the balance lay in Britain's favour. So an aspect of our negotiating approach was always to keep reminding British officials, ministers, British and the private sector that they had a serious interest in helping to keep the New Zealand economy afloat,” said Lynch.

‘Don’t come crawling back to us?’

But that’s all different now. New Zealanders can all lean back and watch Britain’s writhings over leaving Europe as a bit of a spectator. Britain is only our seventh largest buyer of exports, and only a third of our exports to Europe now go to the ‘mother’ country.

The question now is which of Britain and Europe we might pick as free trade deal partners.

Publicly, we are saying we’d like trade deals with both, but if push came to shove we would now pick Europe.

The diplomats and economists who steered away from emotional decisions in the 1960s say we should take the same high road again.

“it's not an either or situation. The way things are trending, I could see that a trade agreement with continental Europe on one hand, and another quite separate agreement with UK on the other,” said Lynch.

Maybe it forced us into a better place

But Europe is where we’re more likely to lean now, albeit from a very different place. We’re now a much more multi-cultural place. You could even argue we’re now more Asian than we are British.

Jim Bolger was the first to say that.

“The decision of Britain to move into Europe on its third attempt certainly made New Zealand face the real world. And that was we had to move our marketing to much different areas. And that was really into Asia. And I did make that statement to a conference of economists in Singapore,” said Bolger.

“We were now much closer to our market, which was Asia. And I said: ‘yes, we are now see ourselves as part of Asia.”

Serena Kelly is a post-doctoral fellow at Canterbury University’s National Centre for Research on Europe believes ‘Brentry’ played a major role in our societal changes in the last 50 years.

“We can in some ways thank the United Kingdom for joining what was then the European Economic Community for how New Zealand is as today's society,” Kelly said.

“It forced us to readdress our partners, our global outlook, and we had to find new trading partners, although we still have that close cultural connection to the UK today,” Kelly said.

She also thinks choosing Europe over Britain in any trade deal in some sort of fit of pique would be pointless and unlikely.

“I don't think that's New Zealand style. And I don't think either the United Kingdom or the EU will say it's one or the other,” she said.

“New Zealand knows not to put all its eggs in just one basket. We need number of trading partners because that's apparently what we did in the 50s and 60s. We've put everything into the United Kingdom, and that's why we were forced to adapt so quickly and it was painful.”

But did it matter in the end?

But over the broad sweep of history, it may not have mattered. The bigger issue is that New Zealand’s economy has actually fallen behind Britain because of policy choices we made, rather than anything that was done to us.

Former Reserve Bank economist Michael Reddell is now New Zealand’s most active public economic commentator through his Croaking Cassandra blog and believes relative under-performance since ‘Brentry’ has more to do with our own choices than Britain’s.

“Britain now has productivity levels, GDP per hour worked, that are probably about a third higher than New Zealand's. 40 years ago we were as productive, as wealthy as them. We've continued to fall a long way further behind,” he said.

“In some ways, that's probably the sort of outcome that people were fearing 40 or 50 years ago. And it's not that we're here because of Britain entering the EU, but because of other policy mistakes that we've made that have meant that the gaps between us and the rest of the world that started opening up probably as early as about World War Two widened quite a bit in the 50s and 60s have only continued to get wider,” he said.

“So the last decade we've had probably the lowest rates of productivity growth anywhere in the OECD. Our economy is a nice lifestyle for middle class people in New Zealand, but there's a lot of people in this country who do it really hard. And this lot would probably be a lot better if we'd fixed up the economy and found the answers to those productivity problems.”

Reddell believes our very high migration rates of the last 20 years have been a factor in that slow productivity growth.

“In an economy that still relies almost entirely on natural resources, whether it's agricultural tourism or gas or fishing or whatever, when you're not getting any more natural resources, what you're doing is simply spreading nature's bounty more thinly,” he said.

“So my argument is that what we should have done in response to declining opportunities for New Zealand is to make sure that we looked after our own and didn't invite more people into spread what there is here more thinly.”

Reddell has a point on limited natural resources.

To the eventual surprise of many, dairying went on to expand dramatically after the turn of this century as demand from Asia for our milk powder surged. But that has stretched our environment.

The family farm I grew up on in the 1960s and 1970s is now massively more productive than when I was a boy because of irrigation and higher stocking rates. It is 20 times more valuable than when my father sold it. We needn’t have worried so much about ‘Brentry’ killing off the future of our dairy farm.

But there has been a cost. The Galatea valley is now an intensely farmed dairy complex with high levels of nitrogen and phosphorous leaching into the Rangitikei River that runs through it on and down two the Lake Aniwhenua and Lake Matahina created downstream for hydro-election power stations.

“These lakes often have unsightly scums of algae and floating plants on the water surface, which can lead to decreased animal and plant diversity, and affect recreation,” the Bay of Plenty Regional Council recently wrote in a report on water quality.

We can’t blame Britain for that.

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