Setting up of Kiwibank

Andrew Cardow, David W.L. Tripe and William R. Wilson, of Massey University, have a working paper on Ideology or Economics: Government Banking in New Zealand. The abstract reads:

We argue that in the short history of New Zealand banking, political experimentation, based at first upon socialist ideology of the 1940’s led to the nationalisation of The Bank of New Zealand (BNZ), followed by a period of neo-liberalism in the 1980’s and early 1990’s in which the bank was privatised. We further argue that the establishment of Kiwibank Ltd (Kiwibank) in New Zealand at the dawn of the 21st Century was a return to the political ideology of the 1940’s. In this article we discuss the nationalisation and subsequent privatisation of the BNZ and draw a parallel between the perceived banking environment as it existed in New Zealand in the 20th Century and as it existed at the establishment of Kiwibank. By way of context setting we also discuss the political environment as it relates to the nationalisation of the Bank of England. We find that in New Zealand political experimentation, not commercial pragmatism was the underlying motivating factor for the state’s involvement in banking. The article contributes to the pool of knowledge regarding the political motivations behind nationalisation and state ownership of banking assets. The article is of interest to economic and political historians as well as those who study New Zealand political party history. Future policy makers could do well to reflect upon the motivations for state ownership of banking assets by asking if their decisions are driven by ideology or economics.

In their discussion of the reasons for the setting up of Kiwibank, Cardow, Tripe and Wilson write,

Thanks to the popular political rhetoric of Jim Anderton, Kiwibank became a reality. It is clear however that the decision to proceed with Kiwibank was a political decision. The business case was considered weak by the independent auditor and by banking commentators. It was the appeal to popular opinion and the image of being a New Zealand bank for New Zealanders that was the turning point. Like the BNZ and BOE nationalisation, the appeal to the ‘people’ was more successful than the appeal to economics.

and

The rhetoric employed by the main cheerleader Jim Anderton MP would not have been out of place 60 years earlier. Again the spectre of foreign owned banks was used as a rallying cry. Jim Anderton was able to point to the very dominant position that Australian banks held in New Zealand. It would be fair to comment that Australian banking interests controlled the retail banking market in New Zealand at the time. Again Jim Anderton was able to use the rhetoric of a ‘people’s bank’ – the same phrase first used by Nash when campaigning to nationalise the BNZ. Finally Anderton was able to suggest that a state owned bank would be more sympathetic to the plight of ‘ordinary’ new Zealanders than the large Australian owned banks.

As a result of political, and to a certain extent, marketing pressure from the New Zealand Post Office, Kiwibank was established. The new bank grew a presence quickly by utilising the branch network of new Zealand Post retail outlets. In establishing Kiwibank as a state owned bank, the government acted in a politically expedient manner rather than out of economic necessity.

Thus there was no economic necessity for Kiwibank but it was politically expedient and so once again we see politics trumping economics when it comes to policy.