Blame the Officials
Murray McCully draws a substantial salary as a Minister and seems to enjoy the prestige and perks that come with being New Zealand’s Foreign Minister. He doesn’t seem quite so keen on facing up to his responsibilities.
What is admitted by all parties to have been a pretty substantial mishandling by the Ministry of Foreign Affairs of the saga involving a Malaysian diplomat and the criminal behaviour that he is alleged to have committed against a New Zealand woman is not, it seems, something for which Mr McCully accepts responsibility. We are led to understand that he saw no need to do more than to blame his officials.
Yet his job, under our system of parliamentary government, is to be accountable to parliament for the performance – and failures – of his department. Those failures, on this occasion, have put at risk the justice that a New Zealand victim of a serious crime is entitled to expect from our courts and have jeopardised the good relations we have enjoyed with a Commonwealth partner.
Mr McCully, of course, has – as they say – “form” on this issue. He has a record not only of sliding out from under his responsibility to parliament but for denying the whole doctrine of ministerial responsibility on which our system of government is based.
Back in 2012, having appointed a Chief Executive who knew literally nothing of diplomacy and with the explicit goals of re-shaping the Ministry so as to save up to $40 million, he had declared his intention to replace diplomats with businessmen and proposed to remove from those who remained the job security that would be essential if their services were to be retained.
He authorised the spending of $9.2 million on a “cost-saving” plan – money spent mainly on outside consultants, reflecting his apparent belief that expertise in diplomacy counted for little and that his Ministry was incapable of reforming itself.
But when the disastrous nature of the plan became apparent, and the threat to New Zealand’s trade and foreign relations too serious to be ignored, the Minister ran for cover. It was only then that we were assured that the plan had all along been Chief Executive John Allen’s idea, and that the Minister had been so disengaged that he had barely noticed what was going on.
He went further, elevating the whole doctrine of what we must now call “Ministerial irresponsibility” to new heights – or depths. He solemnly proclaimed that, as Minister, he was no more than “the purchaser of the Ministry’s services” – an astonishing new take on what the role of a Minister is and should be, and betraying a shocking ignorance of what parliamentary government is about.
On this view, Ministers would be merely shoppers in the market place – looking for the best bargain, weighing up where they can get the best deal. Their departments would be simply just another possible provider, no longer part of government or of what might reasonably be called the public service; they would be autonomous bodies –free agents, not subject to Ministerial direction – competing, like any other provider, for the Minister’s attention and custom.
This doctrine, if accepted, would be yet another step towards unaccountable government by the executive. We are already a long way down that track – in effect, governed by “TeamKey” – an entity that apparently expects to treat parliament as simply a rubber stamp.
The duty owed by our MPs is increasingly seen as not to their constituents through parliament but to their political parties – as witness the surprise and criticism that greeted the decision by two Labour MPs to vote against their party on the issue of the logging of native trees that had fallen in the recent storms because they believed, rightly or wrongly, that this was in their constituents’ interests.
I know from my own experience that an MP feels many claims on his or her allegiance. Each new decision is likely to require the reconciliation of the often conflicting interests of the voters who sent the MP to parliament and of the political party to which the MP belongs – and that is to say nothing of the values and views that are held by the MP himself or herself.
Under the McCully doctrine, however, parliament and the voters count for little. The main responsibility undertaken by Ministers in respect of accountability is apparently to suppress public discussion on difficult issues and to negotiate the questions put by the media so as to limit any adverse fallout for their party. Public officials, in line with the general devaluing of the public service as a whole, are convenient sacrificial lambs if things go wrong.
We can see how far this doctrine might take us in another little episode that is likely to involve Murray McCully. John Key admits to “considering” whether or not Murray McCully should contest his East Coast Bays seat or should step aside in favour of the Conservative Party.
Any bets on whether our Foreign Minister will decide to stick by his loyal constituents, or will abandon them in order to serve the interests of TeamKey?
Bryan Gould
3 July 2014
An Impartial Press?
The leader of the British Labour Party, Ed Miliband, is undoubtedly competent, and he enjoys the support of his party, but his poll ratings are abysmal – and that is welcome relief to a Conservative-led Coalition government, whose performance in office has been less than stellar and for whom Ed Miliband’s troubles are the only thing going for them.
The overwhelmingly right-wing British press has played a significant role in this scenario. They lose no opportunity to show the Labour leader in a poor light, as witness the media frenzy when Miliband was filmed making a mess of a bacon sandwich during a television interview.
A bacon sandwich? A minor affront to good manners or good taste, you might think, but hardly a hanging offence. But the press knew what they were doing. The episode offered a chance to reinforce an image of incompetence – and a politician, particularly one of Jewish origins, eating a bacon sandwich would offend significant numbers of voters from different religious groupings.
In New Zealand, the episode may occasion a wry smile; we all know that the British press is notoriously biased. Our own press may have their own allegiances but they manage to maintain (don’t they?) a reasonable degree of impartiality in their political reporting.
Which is why there are some disturbing features about the press treatment of the supposed “scandal” (as it is regularly referred to) of Donghua Liu and David Cunliffe. There can be no doubt that this supposed saga was deliberately designed by National Party strategists to do the maximum damage to the Labour leader, and that the bullets they fashioned were duly fired, as they knew they would be, by the national media.
Let us rehearse how the saga developed. A perfectly appropriate letter written by David Cunliffe on behalf of a constituent in 2003 was discovered by National’s Immigration Minister a month or two ago. It was then held back until after David Cunliffe had been lured into denying that he had ever advocated for Donghua Liu – something he had no reason to remember and which a search of his records had failed to reveal. The letter was then released with the intention of showing that Cunliffe, in making that denial, was either a liar or a fool.
That same Donghua Liu then alleged that he had donated over $100,000 to the Labour Party; that allegation had been signalled in advance by the Prime Minister from New York. “There is more to come – wait and see,” he said, and in doing so revealed that he knew that the allegation – true or otherwise – was coming and that he was confident that it would be headlined by the media, as it duly was.
The allegation has, of course, crumbled following proper investigation. But, another day, another headline – this time the shocking revelation that Donghua Liu had given $2000 in 2007 to a Hawkes Bay rowing club whose members included the daughters of a Labour politician.
How is it that this minor gift, an unsubstantiated allegation made by a convicted criminal, and an innocent letter written by a constituency MP doing his job, were magnified to dominate the political agenda for so long? How did the Prime Minister know in advance that a story that had little or no substance would be so useful in damaging the Labour party and in diverting attention from the much more significant story of Maurice Williamson’s , Judith Collins’, and his own links with various Chinese businessmen?
And how can the media as a whole be proud of their role? Is this what is meant by and is to be expected from an even-handed treatment of the political debate? Or does it show that our press is prepared to offer its services to one side of that debate, by giving maximum coverage to a story deliberately engineered to show the other side in a bad light?
The defence offered will always be that a free press must be allowed to make its own judgments of the newsworthiness of particular stories and that there are other outlets that take a different and equally partisan approach. But can we be happy when supposedly responsible journalists so deliberately use their privileged access to our most important news outlets to shape the news, thereby serving the interests of just one party and reflecting the political preferences both of themselves and of the major corporations that own the papers they work for?
And, on the day when the Herald prominently promotes the carefully-timed, pre-election hagiography of John Key written by one of its senior leader-writers and political journalists, we are surely entitled to ask, how close is the nexus between that paper and the National Party? Is our press really so different when it comes to the political treatment of bacon sandwiches?
Bryan Gould
24 June 2014
Is Democracy Too Left-Wing?
There is never any shortage of advice to political parties who seek to challenge the prevailing orthodoxy that to do so would be to court electoral disaster. Any indication of a wish to move away from the status quo will, they are told, be seen as a dangerous “move to the left”.
It was Mrs Thatcher who assured voters that “there is no alternative” and we see in New Zealand today the same insistence that the current orthodoxy is the only option. Yet if they accepted the advice they are given, parties who want to offer an alternative set of policies could no longer do so, but would be reduced to gesture politics and smiling sweetly.
The democratic process would thereby be denied its real purpose and – in the absence of an effective challenge through the ballot box – the grip on power of already dominant interests will be further strengthened.
It is, after all, only through the democratic process that the powerful can be restrained. All societies inevitably demonstrate that power, left unchallenged, will concentrate increasingly in a few hands. That power will be used to entrench the position of those who hold it, to protect it from challenge and to increase their advantage over their fellow-citizens.
The whole point of democracy was to enable the political power and democratic legitimacy of an elected government to offset and protect ordinary people against the otherwise overwhelming economic power of those who dominate the so-called “free market”.
That inevitable tendency towards the ever-increasing concentration of power has been graphically confirmed in an important book recently published but the French economist Thomas Piketty. He analyses data over a period of more than two centuries to show that, with one brief exception, economic power has increasingly passed to a few at the expense of the many.
The exception is significant. In the two or three decades after the Second World War, power moved back to ordinary people and away from the powerful; this reflected the determination of ordinary people whose efforts had won the war to ensure that there was no return to the “bad old days” that had produced war and Depression.
They used the power of democratic government to strike a better balance between the rich and powerful on the one hand and ordinary people on the other. If they were told – even by Winston Churchill – that this would mean a dangerous “move to the left”, they paid him no attention.
Since that time, however, the rich and powerful have found ways to reclaim, and now increase, their advantages, and to restore the normal condition of widening inequality in our society; indeed, Piketty predicts that that process is gathering pace. And there is no message more congenial to the powerful than that this is how it has to be.
Yet we can do something about it, if we have the courage to use the power that our forefathers who fought for democracy have bequeathed us. The whole point of democracy is that it allows us to challenge existing power structures – and that challenge is not automatically “left-wing”.
Is the Labour Party’s proposal to use a universal savings scheme as an alternative to ever-rising interest rates left-wing? Or is it just a sensible and better alternative to a failing policy? Is the Greens’ proposal for a carbon tax left-wing? Or will it do the job of reducing climate change more effectively and provide a tax-break for ordinary people into the bargain? Is the refusal to accept that businessmen always know best left-wing or just a re-assertion of the democratic principle?
We should take heart from the fact that most New Zealanders will affirm, if asked, their continued belief in the values of fairness, compassion, tolerance, concern for others. But those values have become submerged under the tidal wave of “free-market” propaganda; democratic politicians need to find effective ways of bringing them back to the surface and to a central position in our lives.
Most people do not think about politics in any systematic way; they are perfectly capable of nodding in agreement to contradictory propositions offered from every part of the political spectrum. What determines the way they vote is which of those contradictory values is closest to the tops of their minds on polling day.
The rich and powerful are expert at using their dominance of the media to raise the salience in the popular mind of values that suit their interests. The task facing politicians who want to resist the further concentration of power is to remind New Zealand voters at every opportunity of the values they continue to hold – values that built this country and that continue to define a healthy and integrated society.
The advice that this should not be attempted for fear of seeming “left-wing” could hardly be more suited to serve the interests who have everything to gain from protecting the status quo. If our democracy is to prosper, we must remember what it is for – to resist the concentration of power and to ensure that the interests of the great majority are properly taken into account.
Bryan Gould
5 June 2014
This article was published in the NZ Herald on 10 June 2014
The House Price Spiral
The OECD finding that New Zealand houses are the most overpriced in the developed world will come as no surprise to the young couples locked out of Auckland’s housing market or to those families condemned to substandard housing conditions and high rents.
The Prime Minister, however, assures us that there is no crisis; our house prices simply reflect high levels of employment (with 6% unemployment?) and a buoyant economy (with the first glimmer of normal growth in six years?).
More thoughtful observers, however, acknowledge the damaging impact of the crisis on our economy and social cohesion, but continue to analyse it in market terms. It is, they say, a matter of inadequate supply and excessive demand, to be resolved either by scrapping planning protections and providing more opportunities to developers, or by restricting the number of potential buyers, particularly those from overseas.
This is, however, to mistake the real issues. Our overpriced housing market is the product of decades of mistaken policies. It is, as the OECD report says, an affordability crisis, and reflects a growing asset inflation and a capital structure that is now completely out of control.
The housing market, it should be remembered, is unlike any other. Experience over decades has taught New Zealand house-owners that the value of their homes, unlike any other asset of remotely comparable value, will go on rising over time. In buying a house, they not only gain necessary accommodation, but also an appreciating capital asset.
They finance the purchase of that asset – probably the most expensive they will ever buy – by obtaining a loan on mortgage. Their bank will be keen to lend to them because it is the easiest and most profitable way for the bank to make money; there is no shortage of willing customers, the returns are predictable and high, the security is almost always easily realisable, and the rate of default is in any case comparatively low.
Once the house-buyer has bought the house, rising house prices will reduce the comparative cost of the mortgage, and the rising value of the equity (and perhaps a larger mortgage) will allow the purchase of a more expensive property next time.
This process – which really built up a head of steam when banks moved in to replace much more conservative building societies and to dominate the mortgage market – has meant that, over a generation or two, there has been a constant injection of new mortgage finance (at a much faster rate than the growth of incomes or of most other asset values) almost every time that a house is purchased. That repeated injection of new money has come on top of the already inflated value brought about by earlier mortgage lending and has been steadily and cumulatively built into the rising market prices of our houses.
If there were to be a sudden increase in the number of homes being built, this would simply provide a new stimulus to the process. The main effect would be to increase the profits of both banks (who would leap at the chance of lending even more) and property speculators and developers; the affordability crisis would remain untouched.
The problem arises, in other words, not for reasons of supply and demand, but because of the way we finance (and tax – or fail to) house purchase and ownership. It is no accident that, while marking us as the worst offender, the OECD identifies other countries, such as Australia and the UK, with similar methods of financing house purchase, as principal culprits as well.
The scale of the problem can only be understood when we realise how powerful an impact on our economy is created by bank lending for house purchase. As the Bank of England conceded in a ground-breaking report earlier this year, by far the greatest proportion (well over 90%) of new money in our economy is created by the banks out of nothing – and most of that goes to finance house purchase.
When the banks lend money on mortgage, they create that money by a simple book entry – the stroke of a pen, or today, a computer keyboard; the loan in no way represents real money, that is, money deposited with them. It is that bank-created money that artificially inflates the value of the class of assets into which it is principally directed – in this case, housing.
This process then operates as a giant mechanism for transferring wealth to home-owners, whose good fortune comes at the expense of our economy as a whole and of those who are debarred by the asset inflation effect on house prices from ever sharing in it themselves.
Our policy-makers, and certainly our Prime Minister, seem to have no glimmer of understanding of what is happening. There is just a small ray of hope; our central bankers, who have been asleep at the wheel on this issue for the last three decades, have begun to stir. The Bank of England has opened its eyes; and our own Reserve Bank’s Loan to Value Ratio restrictions on bank lending show that they, too, have recognised that something has gone wrong. Graeme Wheeler may know more than he is letting on.
Bryan Gould
19 May 2014
Economics Students Demand Better
Economics students are revolting! No, not an admission from the teachers of economics that they find their students less than appealing, but a declaration of war by economics students across the globe who are fed up with the kind of economics they are taught.
Students in some of the world’s leading universities, including many UK universities, such as the London School of Economics, University College London, Cambridge, Essex, and Manchester, are leading the protest, and the campaign is now going worldwide.
Movements with similar goals have sprung up in the United States, Germany, France, Brazil, Chile, India and elsewhere (though not yet in New Zealand) and have organised a global alliance, calling themselves the International Student Initiative for Pluralist Economics. Students are flocking to this banner and hits on their website are growing exponentially.
The phenomenon has begun to attract attention from the economics profession. Two leading Cambridge economists expressed support for the campaign in an article in The Guardian last week; professional economists, agreeing that economics degrees are no longer “fit for purpose” and have little to do with the real world, have joined in.
What has prompted this revolt? The student protesters have noticed an obvious fact that seems to have eluded the wider economics profession. The economics that failed to foresee, much less understand, the Global Financial Crisis and the ensuing recession – the worst since the 1930s – is still being taught in our universities; students find it hard to believe that, despite those failures, the content of their courses has not changed in any way since 2008.
They are still being taught, in other words, an economics that depends largely on hypothetical postulates, expressed usually in mathematical terms. A number of assumptions are made – that consumers and investors, for example, all have equal access to perfect information, and act in a perfectly functioning marketplace.
On this basis, deductive logic arrives at economic models which appear to have great logical validity but which – as Keynes asserted – bear little relation to reality. The goal is not to explain the real world but to provide students with an analytical toolkit that allows economics to be treated as just as much a science as, say, physics.
This deductive and highly theoretical economics has dominated economic thinking over recent decades; it is in marked contrast to a quite different tradition, dating back to Adam Smith. This earlier approach derives economic conclusions from inductive reasoning based upon observed facts and detailed data analysis.
Adam Smith exemplifies this approach in The Wealth of Nations with his explanation of specialisation; he demonstrates, from his own observations, how a few specialised workers can create thousands of pins a day when one man on his own could hardly produce one pin per day. Keynes used a similar approach in reaching his conclusion that labour markets, left to market forces, do not produce full employment.
Today’s students have begun to realise not only that the deductive approach has been shown by experience to be deficient, but that there are many different approaches to economics, many of them better able to explain the real world and to guide policy. That is why they are calling for a more pluralist and open-minded approach to economic teaching and research.
Are they right and does it matter? Yes, because the theoretical deductive economics that is being taught to the exclusion of all else takes little account of how real people behave in response to economic stimuli; and this mistaken focus continues to produce mistaken policies.
A recent example of those mistaken policies is this week’s Australian budget. The Abbott government saw the chance to convince the Australian public that the economy is in worse shape than it really is and to use that as an excuse to push through “free-market” reforms. What they describe as “structural reform” is just code for a programme of privatisation, de-regulation, asset sales, lower wages, and public spending and benefit cuts – exactly the failed nostrums that the IMF used to propagate but is now backing away from and that have done such damage to the economies unwise enough to apply them.
Tony Abbott will nevertheless fancy his chances of convincing his voters that this is the right course because he knows that most of the opinion-formers and commentators on economic matters have been brought up on the same sterile doctrines. It is that closed mind – what the French call the “pensee unique” – that explains why public opinion, despite all the evidence to the contrary, is still easily persuaded that “there is no alternative” and that the economy is best managed by those who slavishly follow the current orthodoxy.
Our own government has of course applied the same policies – though not so blatantly and with greater subterfuge – and has also exploited the voters’ gullibility to persuade them that, as the Prime Minister claims, his government is “clearing up the mess left by Labour”.
We, at least, have the advantage of some strong-minded economics teachers in our universities who are ready to buck the trend; perhaps we can now look to our economics students as well to join the campaign for more open minds?
Bryan Gould
14 May 2014