Professor Robert MacCulloch: Treaty of Waitangi legal "experts"....

Treaty of Waitangi legal "experts", in particular judges, have misunderstood its economic rationale, endangering national prosperity in the process.

The underlying aim of the Treaty of Waitangi, at least in economic terms, was to promote a higher standard of living for Māori and non-Māori alike. This article's purpose is to argue how its words were unambiguously designed to achieve that purpose, but have since been hijacked by political operatives and NZ's legal profession, ruining its original intent. 

Those two groups, more than any other, have thrown the security and clear definition of property rights into confusion. In the case of politicians, their motive was power; for lawyers, it was fee income and status. Although pretending to stand for the public interest, they've both stood for their own private interest. The consequence is that Treaty debates have been perverted, scuttling national productivity. The Spinoff media outlet sums up who's been in charge: "They [Treaty Principles] were developed by academics (particularly historians), lawyers, judges .. alongside government officials & politicians". Not a (small) business, finance, economist type in sight. God save our economy.

So what is an economist's perspective? A remarkable discovery in the subject has been how well-defined, secure property rights form the basis of long-term prosperity in nations. There is little incentive to create practically anything if you're not sure whether you will enjoy the rights of ownership and fear what you've worked hard to build up may one day be taken off you. It was this contribution that won Douglass North the Nobel Prize. Another discovery has been that, provided property rights are well-defined & secure, then the folks possessing them can achieve the highest level of welfare for society by privately bargaining amongst themselves, even solving social problems like pollution and over-fishing. If I own a resource that you're harming, then the harm can be priced & voluntary payments made between the parties to recognize the cost, enabling the best aggregate outcome. The article outlining how this works was called "The Problem of Social Cost", by Nobel Laureate Ronald Coase.

It is these two discoveries that, in my opinion, lie at the heart of why the Treaty of Waitangi had the potential to create a nation with exceptionally high productivity growth, as well as one that respected the rights of original property owners. The implications of the Treaty are, from the point of view of economic efficiency and equity, quite beautiful. First, it spelt out clearly, in a few lines, where existing property rights lay. In a resource-rich nation, it was important to avoid the fighting we still observe in many African countries, where armed factions use violence to gain control of diamonds, rare-minerals and rich agricultural land. Second, to ensure economic efficiency and highest aggregate welfare, the Treaty set up the "rules of the game" regarding how assets would be traded and bargained. In NZ's case, the rules were initially based on British law. Since that legal system has been the most successful one for commerce, leading to the rise of the City of London as the world's largest Financial Center, the Treaty set the stage for great economic prosperity. By contrast French & German legal systems have thrown many of the countries that adopted them into chaos.

Yet the judges, lawyers & politicians who've endlessly pontificated about the Treaty, putting their views into law, have shown a lack of insight into how the discoveries of the "greats" of economics, like Mr North and Mr Coase, should have affected their interpretation of that document. A symbolic example occurred when former Prime Minister Ardern, at the height of the Three Waters controversy, was left unable to say what it even meant to enjoy property rights. Apparently, it can mean you own a house in some weird technical sense, but have no rights to go on the property, control it, live there, or sell it, without the permission of others. Her line on Three Waters (to TVNZ's Tame) was, "Well, local government maintain the ownership .. and with these regional representative boards, yes we have mana whenua represented [with 50% of the seats]. But the ownership rights continue to sit with local government and .. councils .. The reason I'm coming back to ownership is because for most people power sits with ownership". How about it? A PM misleading a nation by declaring a bizarre form of ownership exists that means you have total power - and no power, since you don't exercise control rights - both at the same time. Where did she get the nonsense from? Legal advisers. Why peddle it? Because she had to mislead Māori that they were gaining control of resources to maintain their support, but at the same time didn't want to lose votes from non-Māori, and so also mislead that constituency, telling them how power still lay with them. In doing so, she sunk the clarity and integrity of property rights in NZ.

A related confusion introduced into Treaty debates by our legal & political elites regards it being a "partnership". That term has a narrow legal sense, but is empty when it comes to the macro-economic management of a country. The idea of a partnership was introduced by a judge thinking about the way law firms worked. Law and accounting firms, and some investment banks, may form partnerships because of a specific micro-economic problem they're trying to solve. To maintain a good reputation, and quality of service by all partners, they typically rely on having "joint & several liability". If one partner screws up, the others can be held accountable (and liable). As a consequence, partners have an incentive to monitor one another and ensure only the best (in terms of being hard-working & honest) are selected as new partners. However, the idea in the judge's mind when he introduced the word "partnership" (and "fiduciary duty") into Treaty debates was devoid of economic content at the aggregate (or "macro") level. Its hard enough to monitor what ten other partners are doing in a law firm, let alone assume that two groups, each with over a million people (Māori and non-Māori) could ever monitor one another at the national level. Arguing representatives can be appointed doesn't help, since finding legitimate ones is fraught. The economic mistake of Treaty judges & lawyers has been one of aggregation. What they knew about firms & individuals doesn't translate to national-level economic management. The difference between individual & aggregate behavior is what distinguishes micro- from macro-economics, subjects Treaty 'experts' ignored. In what meaningful economic sense can two equal partners exist at the national level? In terms of ownership, it descended into farce in Three Waters. In terms of designing the 'rules of the game', how can two equal partners jointly design laws? I know of no precedent in macro-economic theory, or practice.

Ask a Māori or non-Māori child growing up in NZ today: would you like to live in a country of boundless opportunities with a thriving economy, to have an exceptionally high standard of living so you can pursue your dreams - or do you instead want to endure endless debates between lawyers, judges, politicians, anthropologists, academic sociologists, politicians & Main Stream Media about meanings of words that waste time, sow deep confusion & crush prosperity? We already know the answer. Much of what has been debated by legal 'experts' these past years is of no real-world use, if one interprets the Treaty as having been designed to ensure NZ would be a nation where property rights were clearly defined and protected, including original ones, and were to be governed by rules that facilitated free trade and bargaining between private parties so that the highest welfare for all could be attained.

Sources:
https://www.nobelprize.org/prizes/economic-sciences/1993/north/lecture/
https://www.jstor.org/stable/10.1086/674872
https://www.nzherald.co.nz/business/kate-macnamara-three-waters-and-jacinda-arderns-contention-that-ownership-matters-not-control/SGWN74BD46MB6BXCPQNSTDE27E/
https://thelawassociation.nz/the-principles-of-te-tiriti-o-waitangi-where-it-all-started/
https://thespinoff.co.nz/atea/03-02-2024/the-principles-of-the-treaty-of-waitangi-explained

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.