Take Courage – Remember the MAI?
“Please Mr Gould, what can we do to stop it?” was a question prompted by my article in the Herald a couple of weeks ago about the risks posed to our democracy by the Trans Pacific Partnership.
My first reaction was to reply “I wish I knew!” The government’s readiness to ignore public opinion if it runs counter to the interests of big business, and – as in the case of the deal over pokies with Sky City – to prevent any future government from reviewing such arrangements does not, after all, inspire much confidence that public opposition to a carte blanche for overseas corporations will have any effect.
But I have had second and better thoughts – and those who have followed these issues over a couple of decades or more might understand why. We have, after all, been here before – and on that earlier occasion, governments and big business backed down in the face of public concern.
We should not forget that the TPP is just the latest of the persistent attempts by global corporations (most often American) to establish a regime that allows them to pursue their own interests in any given country, irrespective of the wishes of the citizens of that country and of the policies of their elected governments.
The saga begins with the power conferred on international corporates, as the global economy began to develop, to threaten national governments that, if they didn’t do what they were told, they would lose valuable investment to more compliant regimes. The subsidies demanded from our government by Warner Brothers are just one recent minor example.
But that was not enough for global investors. They feared that once an investment was made, and the country concerned realised what a bad deal had been done, a future government of that country might try to reassert domestic law to ensure that national interests were properly protected.
So they demanded as the price of investment in individual countries a series of Bilateral Investment Treaties whose effect was to limit the ability of both governments and courts in the host country to restrict the freedom of overseas investors to do what they liked.
But even this did not go far enough. Global corporates persuaded the OECD that these bilateral treaties should be brought together in a wide-ranging international treaty which would rationalise and make uniform all such provisions and would establish the primacy of global corporate interests over national democracy right across the globe.
Negotiations for this Multilateral Agreement on Investment (MAI) began within the OECD in 1995. At first sight, there was a cautious welcome for the idea; national governments saw the opportunity to restrain the freedom enjoyed by international investors to ride roughshod over local democratic interests.
As the negotiations proceeded, however, it became increasingly clear that the proposed treaty was really a charter for global investors – a charter that would ensure that their operations could never be challenged either by elected governments or properly constituted national courts.
It was proposed, for example, to establish a compliance regime under which “liberalisation” would always move forward, with no power to wind it back — the so-called “ratchet” effect. This would be enforced by so-called “rollback” and “standstill” provisions, requiring nations to eliminate regulations that were contrary to MAI provisions — either immediately or over a period — and to refrain from passing any such laws in the future.
Compensation would have to be paid for any national rules that caused loss of profit to investors. Disputes arising under the agreement would be settled in a specially constituted tribunal instead of by the national courts of the host state. The intention was that neither governments nor affected communities could challenge the behaviour of investors, who accepted no binding obligations on themselves.
There was little public awareness of these details of these provisions until – crucially – a draft of the agreement was leaked in March 1997. The leaked material prompted a wave of criticism. Opposition to the MAI began to mount – first in the US and then increasingly among other OECD countries. Such was the backlash that first France and then other countries successively withdrew from the negotiations. On 3 December 1998, the OECD announced that “negotiations on the MAI are no longer taking place.”
Does this brief account of the central features of the MAI sound familiar? Of course it does. Not deterred by the failure of their project in 1998, global corporates have now returned to make another attempt. The MAI provisions that were – as soon as they were exposed to “sunlight” – rightly condemned and finally rejected are now central elements of a TPP being peddled as an innocent “free trade” arrangement but being negotiated in secret.
The signs are growing that, like the MAI before it, the TPP is in trouble; as more information is leaked and becomes available, the chances of a secret deal being agreed over the heads of voters are falling fast. Concern is mounting in participant countries, including the US. Even our own government might be forced to think again once we are no longer kept in the dark and realise what is at stake. We still have the chance to make our voices heard.
Bryan Gould
29 November 2013
This article was published in the NZ Herald on 6 December.
“Free Trade” for Big Corporations, Not For Us
The leaked document from the negotiations over the Trans Pacific Partnership, reported in the Herald last week, shows that the fears expressed in many quarters as to the outcome of those negotiations are more than justified.
We are constantly assured that the great advantages of extending free trade, particularly with the Americans, will more than offset any minor changes we might have to make as the price of such an agreement. The record of the negotiations shows, however, that – exactly as was to be expected – the Americans see the supposed advantages of free trade entirely in terms of advancing the interests of major American corporations.
The inevitable result? Since cooperative arrangements for handling both exports and imports are regarded by “free trade” zealots as an infringement of the “free” market, what is peddled as a simple free trade deal could require major concessions in the way we organise our exports – through Fonterra or Zespri – and in the freedom we have to negotiate, by using our collective purchasing power through agencies like Pharmac, the best possible prices for imports like pharmaceuticals.
The leaked document, focusing as it does on intellectual property issues like patents and copyright, pays little attention, however, to one of the main threats from the TPPA – the requirement that overseas corporations should be able to sue a future New Zealand government in a specially constituted tribunal if their trading opportunities were to be reduced by future legislation.
Foreign businesses would, as a consequence, have much greater legal rights than any New Zealand enterprise would enjoy, and those legal rights could not be altered, even by a future government elected with a mandate to do so.
These fears are in no sense fanciful. Other countries which have agreed to such obligations in the past are now regretting having done so. South Africa, for example, which accepted such arrangements in trade deals with the Americans in earlier years is now insisting that the deal should be re-negotiated in the light of their damaging experience of what they mean in practice.
Ecuador and Venezuela have already refused to extend trade agreements with the US containing such provisions and India has rejected an investment agreement with the US only if the dispute-resolution mechanism is changed.
Countries like these understand that granting permanent rights of this kind to American corporations would mean, for example, giving up the ability to protect the environment from the activities of mining and petroleum companies, or (as the Australian government has discovered) being sued as a result of trying to restrain tobacco companies from selling a product that is known to cause death and disease.
Our government would have to accept many other restrictions, as the Argentine government discovered when it imposed a freeze on energy and water prices, in an attempt to help hard-pressed consumers, and had to pay over a billion dollars in compensation to international utility companies.
Even the judges who sit on these specially constituted tribunals are amazed at the power they exercise; as one has commented, these provisions mean that “three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.”
Concerns like these have now extended to Europe and to the UK in particular. The Americans are negotiating a Transatlantic Trade and Investment Partnership with European countries which will contain the same investor-state dispute settlement provisions as are intended for the TPPA. It seems likely that those countries will provide stiffer resistance to these provisions than our own government will offer in the TPPA negotiations.
What justifies such pessimism about our government, you may ask? The first warning sign is that the negotiations are being conducted in secret and that, by the time the deal is done and announced, it will be too late. The government’s willingness to defy public opinion over asset sales is convincing evidence of the scant regard it pays to what our citizens want when it is a question of pleasing business interests.
Even more worryingly, the government has demonstrated in the deal it has made with Sky City over an Auckland convention centre that it suffers no twinge of conscience over signing up to a legally binding arrangement that is intended to prevent future governments from altering the deal. The granting of the licence for an increased number of pokies is meant to run for 35 years, whatever a new government – or the voters – might think.
The risk is clear – the TPPA, while presented as a free-trade arrangement, is really a very different beast. Free trade, in principle, is undoubtedly to be welcomed, but in the normal sense is meant to remove restrictions in order to benefit the consumer and ordinary citizen through lower prices and increased opportunities.
The TPPA is intended to do the reverse – to ensure that the dominant market positions of powerful overseas corporations are immune from challenge, so that prices stay high and the interests of the ordinary citizen, and the principles of democracy, are sidelined. You have been warned!
Bryan Gould
14 November 2013
This article was published in the NZ Herald on 21 November.
Private Greed, Public Meanness
As more information emerges about the destruction wreaked by typhoon Haiyan in the Philippines, New Zealanders will have been pleased to note that our government is listed amongst those who have offered help. They may have been less impressed to learn that the initial offer of help offered amounted to just $150,000.
The sum offered to meet the desperate circumstances of tens of thousands who lost their homes, jobs and loved ones equated almost exactly – according to another current news story – to the amount claimed in salary and expenses by a single part-time Commissioner in Northland schools. Not only is this juxtaposition surprising in itself, but it demonstrates in a striking way the different values placed today on rewards to private individuals as opposed to spending on public and social purposes.
Even the revised offer of a further $2 million is less than the salary paid to some of our higher-paid executives and comes at the same time as new statistical evidence emerges about the rate at which top salaries and directors’ fees have risen by comparison with the wages of ordinary workers. In the ten years from 2003, the salaries of the CEOs of the top ten companies on the NZ stock exchange rose by 137% – a figure that conceals the doubling, trebling and even quadrupling of some top salaries over that period.
In a classic instance of “you scratch my back and I’ll scratch yours”, that generosity to top executives was exceeded only by the rise in the fees claimed by those who were responsible for awarding the salary increases – the directors of those self-same companies. Their fees rose by 146%. Over the same period, inflation rose by 32% and average wages by 47%.
These figures take little account of course of a range of other remunerations, such as expenses and share issues, paid to top earners. And they take even less account of the favourable tax treatment accorded to the wealthy, and particularly of the fact that – in the absence of a capital gains tax – the principal source of wealth of the already wealthy in New Zealand is completely untaxed.
This is a reflection of the phenomenon identified by Joseph Stiglitz, the Nobel Prize-winning economist, who found that – contrary to the comforting story that great wealth is the reward for hard work – the main income enjoyed by the wealthy accrues to them not because they have superior abilities or work harder or create new wealth but because they are already wealthy. Their greatest source of wealth is not the outcome of investment to create new production or provide new jobs – indeed, the net result of their activities (such as asset-stripping) is often a reduction in both production and employment – but the taking of a “rent income” from wealth they already hold and have often inherited.
This is reinforced by the research done by Robert Putnam, the American social scientist, who finds that the best chance Americans (and, by extension, New Zealanders) have of becoming wealthy is to be born into a wealthy family. Pre-existing wealth allows the rich to buy advantages for their children – educational privilege, social contacts, exemptions from obligations such as having to work to pay for an education, and job opportunities in family firms or those run and owned by friends – to say nothing of the opportunities to earn the “rent income” from the family wealth they inherit.
In the light of these findings, it is not a surprise to find that over the past three decades the share of national income going to profits has risen sharply while the share going to wages has declined equally sharply. Little wonder, too, that over those same three decades throughout the western world virtually the whole of the increase in wealth and income has gone to the very wealthiest; for the rest of us, it has been a case of running faster to stand still, with longer hours being worked and more members of the family working just in order to stop living standards from sliding backwards.
Those who peddle the fiction that wealth is always the reward for effort and virtue and that growing inequality is therefore to be welcomed must also accept responsibility for the corresponding and equally misleading canard that hard times and poverty are a proper penalty for fecklessness and laziness. It is hard to imagine any doctrine that – as well as being morally and rationally indefensible – is more destructive of social cohesion and a united country.
One of the great achievements of John Maynard Keynes was to prove conclusively that unemployment – the single greatest cause of poverty – was not (as the classical economists maintained) always voluntary. He showed (and experience as well as theory have proved him right) that unemployment would rise if demand – and particularly government spending – fell. For most of those seeking jobs, their only wish is the opportunity to work.
In deciding whether we have the balance right between private wealth for the few and general prosperity for the many, we would do better to frame policy in line with established facts and wisdom rather than conveniently self-serving myths.
Bryan Gould
1 November 2013.
The Public/Private Partnership Illusion
There has been over recent years a surprising reversal of roles. It was always thought that ideologues were to be found on the left while politicians of the right tended to be pragmatists. But, as the Herald pointed out last week over asset sales, today’s government of the right seems overly concerned with ideology, while parties of the left seem more driven by outcomes than by doctrine.
We see a similar commitment to ideology over another issue – the role that private finance should play in funding projects that are in most senses public in nature. If it is the mark of the doctrinaire that evidence and experience should be ignored in favour of political theory, then Bill English’s repeated assertions of the case for Public Private Partnerships (PPPs) – in the face of all the evidence that they represent a poor deal for the taxpayer – surely fills the bill.
As it happens, and after thirty years of experience of PPPs in the UK where they originated, a great deal is now known about how such arrangements perform. In principle, of course, the private funding of capital projects like new prisons will relieve a burden on the taxpayer, with supposedly a saving as a consequence to the public purse.
But a moment’s thought would suggest that this is unlikely to be the case. The cost of raising capital for a project will usually be lower for government than for a private borrower, as was confirmed in research recently completed by Professor David Hall of the University of Greenwich. And while the initial capital cost under a PPP might be met by the private investor, that investor will want to cover the cost of capital and in addition earn a return on capital (or profit) and will usually want to secure as well contractual rights to run the project (think Serco) over the lifetime of the scheme – typically, 25 or 30 years.
Not surprisingly, the UK experience confirms that PPP projects will cost the taxpayer much more over the whole period than if they were built and funded by more conventional methods. The UK Treasury reported in 2012 that the 717 PPI contracts, funding new schools, hospitals and other public facilities with a total capital value of £54.7bn, would ultimately cost £301bn by the time they are paid off.
Much of this difference was due to ongoing running costs built into the contracts, but the schemes were also criticised for providing poor value for money. The Treasury found that some National Health Service organisations will end up paying almost 12 times the initial sum over what is usually a 30-year contract.
Governments of the right have, in other words, quite unnecessarily and wastefully spent billions, saddling future generations of taxpayers with massive debts, for the sake of an ideologically driven preference for private business as opposed to public provision. And this despite the fact that there is no evidence that anything of value is gained from this excessive expenditure, other than inflated profits for the fortunate contractors.
It is certainly not the case that there is a gain in efficiency, since there are many instances of private providers, not least in New Zealand, performing very poorly – and this is on top of a study by our own Treasury that found that there was “little evidence of systemic underperformance” in New Zealand’s publicly owned State-Owned Enterprises.
Professor David Hall found that “the empirical evidence shows that the private sector is not more efficient than the public sector”. PPPs, he found, have to offset the handicap of a higher cost of capital by achieving lower operating costs, supposedly the result of greater efficiency, but usually meaning higher prices for consumers and lower wages for employees.
Professor Hall also draws on an analysis of UK privatisations by Professor Florio of MIT which meticulously examines all the companies privatised by the Thatcher Government and finds no evidence whatsoever of efficiency gains; Professor Florio also shows that in almost all instances of privatisations, the assets sold were underpriced, there was a large rise in management salaries and most important of all privatisation made little difference to long-term trends in productivity and prices.
In a scathing review of the history of British privatisation, the author James Meek identifies the signal failure of the safeguards that were supposed to protect British consumers – in industries like electricity and water – from the pricing policies of rapacious new owners. The regulators thought they had done enough by putting in place a regime that allowed the new owners to raise prices only in line with inflation. What they had not bargained for was the scope for cost-cutting that was gratefully exploited by the private owners; and reduced costs, of course meant that it was the workforces that lost jobs and had wages held down so as to allow large profits to be made by the new – and largely foreign – owners.
What can be offered to offset this wealth of expert research and evidence showing that Public Private Partnerships are an expensive folly? The answer is nothing – other than the political convictions of those who believe that in all circumstances private ownership is best.
Bryan Gould
27 October 2013
In Our Democracy, It’s Dollars Not Votes That Count
In what we are pleased to call a democracy, we count votes – one per citizen – on polling day, but on every other day we count only dollars; and when it comes to dollars, the more you have, the more political influence you wield.
Very few of us seem to realise how thoroughly the power of the purse has colonised and subordinated our supposed rights as citizens to an equal voice as to how we should be governed. Our government (and the present government especially), once elected, pays little further attention to ordinary citizens and makes its decisions according to what might serve the interests of the wealthy.
The rationale for this approach is presumably the long-discredited “trickle down” theory of economic wellbeing – that if the rich are encouraged to become richer, we will all be better off by virtue of the crumbs we might enjoy from the rich man’s table.
But the belief that wellbeing is to be measured purely in dollar terms takes us much further than that, and now penetrates almost every aspect of our national life. An obvious example is a trend that has begun to really gather pace over recent years – treating universities and other institutions of tertiary education, not as repositories of learning, mainsprings of new knowledge and the facilitators of a wiser and more far-seeing society, but simply as agents of economic development.
If an institution’s graduates cannot be shown to be immediately of value to the process of making a buck, it will be marked down and its future funding threatened. Little value is given to a more educated society for its own sake; the only purpose of education, it seems, is to promote a higher GDP.
Considerable effort is devoted to “educating” the public to accept that the only worthwhile goals are those with a dollar value. The search for profit, we are told, is the only motivation that will produce a higher level of effort and achievement. We see instances of this thinking wherever we look.
Selling off (or privatising) public assets? Who worries about levels of public service for society as a whole when better-off members of the public can be introduced to the joys of making some unearned income on the stock market?
The “free trade” deal with the US? Who cares about maintaining some element of control over our own destiny as a nation if some of us can trade that away for increased profits?
Instances of this kind abound, even at a very detailed level. I came across a further example the other day. This country welcomes immigration as a stimulus to growth, but we have also learned to value its benefits in helping to develop a society with a richer texture and a wider cultural base.
Commendably, our government set up a few years ago, under the aegis of Immigration New Zealand, a support service for immigrants to help them to settle and adapt to their new country. The service, known as Settlement Support, has done excellent work and has eased the path for countless new migrants so that they can enjoy greater success and can make a worthwhile contribution to our national life.
Until now, the service has provided face-to-face help to any migrant who cares to ask for it. The help largely takes the form of information on where to go for advice on a whole range of matters, and is of value both to the migrants themselves and to employers who might contemplate employing them. Customer satisfaction (at 91% for migrants and 83% for service providers and employers) is at a high level.
But someone has decided that the service is too “unfocused”. The inevitable consultant’s report has been commissioned and it has duly served the purpose of those who commissioned it.
It seems that too many migrants of low economic value are availing themselves of the service. What is needed, the consultants recommend, is a service that focuses on the 12% of “high priority” immigrants; the employers of such people are also to be priority customers. There will be a second category of medium-priority customers (20% of the total) who might one day become “high priority”. It is these categories who will receive a high level of support and attention.
At the bottom of the heap are the 58% of “low priority” customers. Under the new “Proactive Customer Management Model”, they will no longer have a face-to-face service. They will not be encouraged to seek help; they will have to make do with a web-based service.
These migrants, whose low economic value apparently makes them undeserving of real help, must overcome their unfamiliarity with the language, their lack of resources to allow them to access the internet, and their sense of confusion about the society in which they find themselves, to negotiate their own way through the maze of agencies and sources of help and advice that might be of use to them.
Immigrants of “low economic value” might be seen as of little consequence; but are they not just a sub-category of those ordinary home-grown citizens of whom our government makes the same judgment?
Bryan Gould
19 October 2013