Unemployment Makes Us All Poor
Last Thursday’s jobless figures – the worst in thirteen years – show that the four years since the global financial crisis plunged the world into recession have seen New Zealand unemployment get worse, not better.
And, as is always the case in a recession, the official figures inevitably understate the numbers of those seeking work. In a more buoyant economy, improved employment prospects would bring many of those currently resigned to being out of work back into the jobs market.
In the wake of the grim news about factory closures and lay-offs over recent months, the figures were only to be expected. Indeed, the warnings about a crisis in manufacturing have been coming thick and fast, and from all quarters.
There was, though, one person, it seems, who was blindsided by the bad news. The Prime Minister, we were told by the television news, was “taken by surprise”. The only explanation for this is that John Key has paid little attention to the unemployment issue over the past four years, despite its destructive impact both on individuals and their families, and on society as a whole.
Over that whole period, I and others have warned consistently that the policies currently being followed would inevitably see unemployment rise. This was entirely consistent with the low priority given by the government to the problem – apart from an ineffectual “Jobs Summit” in the government’s opening months, unemployment has been left to look after itself.
But that neglect has been anything other than benign. The government has deliberately put in place policies to restrict benefits and cut their value, and to slash wages at the bottom end of the scale, so as to force those without work back into a non-existent jobs market.
The object has been to make people compete for the few low-paid jobs available by offering to work for lower and lower wages, so that there is downward pressure on the whole wages structure. There, in a nutshell, is the government’s strategy for dealing with unemployment – don’t bother about creating more jobs by getting the economy moving again, but force down wages in the hope that people will price themselves back into work.
Even if this strategy were to work in its own limited terms, lower wages would mean less purchasing power and lower demand. How would this help to get the economy moving?
The government has reinforced its strategy by cutting public spending and throwing public servants out of work, so that they add to the competition for the dwindling number of jobs. This leaves the obvious question – where is the increased demand needed to create more jobs to come from if the government, instead of stimulating economic activity, makes its own contribution to closing the economy down?
Are they unaware that the IMF, taking fright at last at what austerity is doing in Europe, has published a new assessment of the powerful multiplier effect of cuts in government spending on the level of economic activity? Even the government’s supposed central goal – eliminating its deficit by 2014/15 – is made much more difficult if high unemployment and a flat economy generate an equally flat tax revenue.
What is really depressing, however, about our current plight is that even if by some miracle the economy were to get moving again, we would have done nothing to re-balance the economy towards saving, investment and exports and away from consumption and imports.
We are about to start another familiar and vicious circle – an overheated Auckland domestic property market, fuelled by unrestrained lending by banks whose sole concern is easy profits, leading to higher interest rates, producing an overvalued exchange rate that prices our production out of international markets and cuts our margins, so that we are forced to borrow more from overseas and sell our remaining assets to foreign owners. Little wonder that those fortunate enough to have money to spare see domestic housing as the only sensible investment and making and selling things into international markets as a game for mugs.
The chances of breaking out of this destructive cycle seem slimmer than ever. The new Governor of the Reserve Bank has wasted no time in abjuring the hints of greater flexibility issued by his predecessor and instead nailing his colours to the mast of an orthodoxy that has now been doing its destructive worst for three decades. We see not a scintilla of new thinking from either the government or the Reserve Bank; surprisingly the only hint of the need for a new approach now comes from the Treasury.
Planet Key is apparently a sunlit place of leisure and fun. The real world, at least the part of it for which John Key has some responsibility, is a much harsher place. The plight of the unemployed makes us all poorer. Without changes in policy, we face the grim prospect of national decline, despite the advantages we enjoy of political stability, an educated workforce, a supportive context in which to do business, and access to growing markets for the premium products we are uniquely expert at producing. Sadly, that is all outweighed by the mistakes that our leaders are determined to go on making.
Bryan Gould
12 November 2012
This article was published in the NZ Herald on 14 November.
Batshit?
It is the sad fate of leading politicians in a democracy to be heartily disliked, whatever their personal merits may be, by a substantial proportion of the voting public. That is as true of John Key as it was of his predecessor, Helen Clark.
It is not usually the case that it is the personal qualities of the political leader that are at issue, although those who disagree with a politician will often project their political opposition on to the supposed personal deficiencies of the object of their hostility.
But in most cases, even in the case of a political opponent, people are quick to close ranks when it comes to supporting a political leader, particularly a Prime Minister, as a representative of our country overseas. Whatever the controversies and disputes domestically, most of us want to see our Prime Minister performing with distinction and earning respect when it comes to the international arena.
I recall an occasion when I had the privilege of being present when Helen Clark, as Prime Minister, met leading members of the Chinese government. Some members of the New Zealand delegation would almost certainly have been opposed to the Prime Minister in terms of domestic politics (and even I did not agree with her on some issues), but we were all impressed with the way she conducted herself, and proud of the obvious respect in which she was held by her hosts.
Even on those occasions when she said something she perhaps later regretted – as on the occasion when she suggested that, if Al Gore had been US President, there would have been no Iraq invasion – it was on an important issue on which she was entitled to hold a well-considered opinion. The standing she enjoyed in international terms was confirmed, of course, when she was offered the UN’s third most senior post in 2009.
It is therefore disappointing that John Key, whatever his other qualities, has not projected an image overseas of which we can be equally proud. He is beginning to establish something of a reputation in the international media as someone who is at best not to be taken very seriously and at worst prone to gaffes and mis-statements.
His gratuitous and rather coarse insult concerning David Beckham was hardly serious enough to cause a diplomatic incident; but it did receive worldwide coverage and made the front-page headlines in some British tabloids – and it is, sadly, the case that the person who came out of the episode with damage to his reputation was not David Beckham but the New Zealand Prime Minister.
This minor mis-judgment may not matter much in itself, but it may be symptomatic of an increasingly casual and flippant attitude taken by the Prime Minister to the responsibilities of his job. On the same day as the Beckham comment, John Key – presumably in an attempt to show that he was “one of the boys” – ventured an ill-judged “joke” (this time on New Zealand radio) that managed to use the word “gay” as an insult.
The increasingly numerous “brain fades” that John Key has suffered in recent months, and the number of times that he has shuffled off responsibility on to other agencies when his government has been found at fault also suggest a political leader whose mind is not entirely on the job.
And it is of course disappointing that – when he is occasionally reported in the international media – his profile is so indistinct that he has in recent times been described as “David” and “Geoff” Key , or as John “Kay” or John “Keys” – clearly not someone who is making a big impression.
“’So what?” will be the response of many of his supporters. Who cares what foreign journalists make of him, so long as he is doing a good job for the people at home? But representing New Zealand with grace, dignity and authority at international gatherings is very much part of his job, and the country suffers if it is not done well. As a small country, we are in more need than most of a leader who can punch above his weight.
The suspicion must be that John Key, by preference and temperament, sees himself more as a populist domestic politician – a role where his lapses matter less and are more easily forgiven – than as a serious international figure. It may even be that he is someone who is more attracted by popularity than power. But do we really want a Prime Minister who would rather be Paul Henry?
Bryan Gould
6 November 2012
This article was published in the NZ Herald on 8 November.
More Than “A Decade of Dominance”
When the All Blacks play Scotland at Murrayfield next Monday, it will be just over ten years since they last lost to one of the Six Nations countries on their own ground (the 2007 loss to France was at Cardiff). This “decade of dominance” – as it has been described by Northern hemisphere rugby writers – is just one more indication of how remarkably New Zealand has dominated the world game over its whole history.
The All Blacks’ triumph in the World Cup tournament at home last year is of course still fresh in the memory. But that elusive victory is only one small part of the uniquely successful record they have established over more than a century of international rugby.
The current All Blacks are the number one-ranked team, according to the International Rugby Board’s ranking system. Their margin over the second-ranked team is as great as the spread covering the next six teams and as a margin of superiority is surpassed only by – you’ve guessed it – an earlier All Blacks team.
They have just won the inaugural Rugby Championship, having beaten each of the other three contenders (which include the second and third-ranked teams in the world) both at home and away. This success follows their record – in the predecessor of this competition – of having won more often than the other contenders combined.
The All Blacks have the distinction of almost certainly being the “winningest” team in the whole history of international team sport. The Australians at cricket or the Brazilians at football come nowhere near the All Blacks’ winning percentage of just on 76% of all the test matches they have played against all-comers over 107 years. That ratio of wins comfortably exceeds the next-best Springboks on 62%; and, not surprisingly, reflects the fact that the All Blacks have a positive win-to-loss ratio against every opponent over the same period.
As the All Blacks approach their end-of-season Northern tour, we should remind ourselves that three of the Six Nations countries have never beaten the All Blacks in a century of trying – and, in the case of Wales, their last victory came nearly sixty years ago. (I well remember being allowed to get up at 3 am to listen to Winston McCarthy’s commentary from the warmth of my parents’ bed, and how distraught I was, as a 13 year-old, when the All Blacks went down 13-8).
That match stands out because, as is true for most teams, victories over the All Blacks have been so rare that a one-off or occasional triumph lives on in the annals of the successful opponent. Indeed, so great an achievement is a win against the All Blacks believed to be that their best-remembered matches around the world are often their occasional losses rather than their many wins.
Not surprisingly, and as the recent $80 million sponsorship deal with AIG demonstrates, the All Blacks own the most potent brand in any major sport played internationally by national teams. It is no exaggeration to say that the All Blacks are the most widely recognised aspect of our international profile – something we can celebrate not only for sporting reasons but for what it tells the world about our bicultural heritage and multicultural society.
But it is not just the All Blacks who represent New Zealand’s record of rugby success. The Chiefs’ win in the Super Rugby competition this year contributed to the impressive eleven wins by New Zealand teams in that competition’s seventeen-year history. The New Zealand Sevens team are the current holders of the IRB trophy and have an unsurpassed winning record in the history of the competition, as well as a series of Gold Medal wins in the Commonwealth Games. The Black Ferns are the current holders of the Women’s World Cup and have won the trophy on the past four occasions, dating back to 1998. New Zealand lost the final of the Under-20 World Cup this year to South Africa but had been champions for the preceding four years.
Individuals as well as teams stand out. New Zealand players are prized in rugby teams across the globe, as are New Zealand coaches. Of the twenty teams at the World Cup tournament last year, five were coached by New Zealanders.
These achievements are so comprehensive and longstanding that it is easy to become blasé. There is a tendency to take it all for granted, and to look for excitement and novelty elsewhere. Yet, as a contributor to a British newspaper remarked wonderingly last month, “how could a small country of only a few million stay at the top of a world sport for so long?”
Even those who take little interest in rugby or even actively dislike it should be able to feel some pride in New Zealand rugby’s achievements. They can surely take some comfort from the fact that today’s teams are led by fine men and women as well as by fine players. And in Richie McCaw and Daniel Carter, we have two of the finest players ever to take the field. I tell my grandsons that they will be able to tell their grandchildren that they saw the great Richie McCaw and the great Dan Carter play.
Bryan Gould
29 October 2012
Why Housing Isn’t Affordable
As a young solicitor in Auckland in the early 1960s, I handled the conveyancing for a number of young couples who were buying their first home. It was one of the more satisfying parts of my work.
At that time, a deposit of just L50 ($100) would purchase, for a total price of L850 ($1700), what was called a deferred licence on a quarter-acre section. It was then possible to borrow the total cost of building a new house on the section through a low-interest 100% mortgage with the State Advances Corporation or the non profit-making building society with which the young couple had been saving and of which they were members and co-owners.
These arrangements promoted what was then virtually the highest rate of home ownership in the developed world. Many young families were enabled to bring up their children in the secure environment provided by ownership of their own homes. But I suppose we must have been doing something wrong, because that system was changed for what was supposedly something better.
We know that the changes have achieved their purpose because of the huge fortunes made out of the housing sector by property developers over recent decades and the even greater profits from lending on mortgage made by our Australian banks and repatriated to Australia. In that respect, the changed policies have been a roaring success.
What a pity, though, that the impact on the availability of affordable housing was not so positive. By the time I returned to New Zealand in 1994, home ownership had passed beyond the reach of many young families; and housing is even less affordable today, with the result that home ownership rates have slumped and we are rapidly approaching a housing crisis.
The government is of course concerned. It would like to do something to help, as witness their response this week to the recommendations of the Productivity Commission on the subject. True to form, however, they look everywhere for solutions rather than where the real responsibility lies.
The government prefers to avert its gaze from what has really happened to create the housing crisis. The fortunes made from property development by some of our most successful business leaders have come from somewhere – and that “somewhere” is an important element in the hugely inflated prices now being asked and paid for houses. The very term “property development” gives the game away. The development value of property, which is almost entirely produced by the wider community’s success in building new communities and local economies, has been siphoned off into private pockets.
An even more significant factor has been the increasing role of the banks in financing house purchase. With the replacement of mutually owned building societies by profit-making banks, the whole nature of lending for house purchase has changed. The banks make most of their money from lending on mortgage. Its appeal is that it is risk-free lending, with houses providing real and immoveable assets as security. It is in the banks’ interests to go on lending ever more, whatever the consequences for individual borrowers or for the housing market or for the economy as a whole.
The banks have in effect applied a huge pair of bellows to the housing market and have accordingly inflated house prices to their current – and, for many, unaffordable – levels. They are about to start all over again, as the Auckland market already demonstrates. The increased prices being paid by house purchasers will in effect disappear westwards across the Tasman as bank profits. If we want an explanation of the huge rise in housing prices, that is where we should look first.
It is hard to exaggerate the price we pay for these excesses. Not only have we generated a quite unnecessary housing crisis, but we have also created a powerful mechanism for creating ever-widening inequality, as the untaxed capital gains as a result of house price inflation mean that wealth is in effect transferred to those who own homes and away from those who cannot afford them.
The huge increase in the money supply caused by inflated bank lending for non-productive housing purposes, moreover, seriously skews the whole economy. It diverts resources from productive investment and creates an inflation problem which we choose – unbelievably – to address by raising interest rates so that productive investment becomes even less attractive and bank profits grow even larger.
The government’s response to all of this? More of the same. Their “remedy” is to remove remaining restrictions on property developers – even to the extent of displacing families from their homes to allow private “redevelopment” to occur – and to bypass elected authorities so that the community interest or environmental concern can no longer inhibit the drive for profit. And they set their face against any change in the monetary policy that conveniently overlooks the damaging role played by excessive bank lending.
As on so many issues, the government’s loyalties seem to lie with its big business and corporate backers. As we assess the government’s plans, let us remember that families without decent homes, and children being brought up in unsafe and unhealthy conditions, need and deserve more than crocodile tears.
Bryan Gould
29 October 2012
Crisis? What Crisis?
In January 1979, the British Prime Minister, Jim Callaghan, returned from a Summit meeting in the Caribbean to a Britain suffering the serious industrial unrest that became known as the “winter of discontent”. Interviewed at Heathrow airport, Callaghan’s relaxed attitude to talk of chaos was translated by The Sun the following morning into a headline reporting the Prime Minister as saying “Crisis? What Crisis?” The electorate’s reaction led directly to Mrs Thatcher’s election victory later that year.
John Key, returning from Hollywood this week, was equally dismissive of talk of a crisis in manufacturing. Our Prime Minister was in some ways even more insouciant than Callaghan; faced with Statistics New Zealand figures showing 40,000 manufacturing jobs lost in the last four years, he airily asserted that our expert official statisticians had simply got it wrong.
But the Prime Minister’s denial of the facts reveals more than just a surprising and mistaken reliance on his own expertise in handling statistics and a confidence that he will be believed, however improbable his assertions. It reflects a deliberately relaxed attitude by the government to the whole issue of unemployment.
The Prime Minister resists talk of crisis because he believes that people are out of work because that is what free-market theory dictates. That theory takes a very simple view. If the supply of a particular commodity exceeds the demand, the price of that commodity will fall – which is certainly true for most commodities, such as, say, sugar or coffee. Where the free-market ideologues part company with common sense, however, is in insisting that labour is just such a commodity.
Unemployment happens, they say, because the supply of labour exceeds demand. This should mean that the price of labour will fall – in other words, wages should come down. The government takes the view that the remedy is therefore in the hands of the unemployed themselves; they can correct the situation by accepting lower wages.
The first objection to this view is that the theorists are looking at only one side of the equation; by concentrating only on the supposed excess supply of labour, they take a completely static view of the demand for labour and of how a market economy really works.
The demand for labour could easily be raised, but that would require a change in policy – and that won’t happen for as long as the government insists that wages must come down, since lower wages and lost jobs mean lower spending, and therefore no stimulus to demand in general and demand for labour in particular.
True to the theory, the government continues to pin its hopes on forcing down the price of labour, as though it were just another commodity. After four years, we can say with some confidence that the policy has failed. Unemployment remains stubbornly high. The economy has stalled. But the government is not deterred.
Ministers dare not say so publicly, but they use economists’ jargon to explain why unemployment remains high. Labour costs are “sticky” – that is, they have not fallen in order to clear the market, as the theory says should happen. Their conclusion is, therefore, that the market must be helped by “unsticking” labour costs to force them down.
It may be hard to credit that our government wants to bring wages down, yet that is what they have set out to do. How else to explain why workers’ rights at work have been significantly weakened, so that workers can be taken on, and then thrown back on the scrap heap without any redress? Why else are young workers to be paid less than the minimum wage, if not to remove the floor placed under wage levels? Why was a modest rise in the minimum wage voted down while top salaries zoom upwards?
Why have benefits been removed and reduced so that even solo mums with young children are forced back into the labour market, whether or not there are jobs? Why is covert support lent to big employers like Oceania or Talleys as they cut the real wages paid to already low-paid employees?
These measures are explicable only if the intention is to force the lowest wages lower, so that downward pressure will increase on wages across the board. We can now see that “closing the gap with Australia” was only ever so much pie in the sky; far from encouraging New Zealand wages to match Australian levels, the government is intent on using high unemployment to force them lower.
While Bill English occasionally lets the mask slip by touting lower New Zealand wages as a competitive advantage, the government is unwilling even to engage in debate about improving our competitiveness through changes in exchange rate policy. A lower exchange rate would at least give us a fair way of reducing our costs across the board, and provide a platform from which we could begin to grow the economy again. The government, though, would rather see the whole burden of reducing our costs in international terms borne by working people. Little wonder that the share of national income accounted for by wages has fallen.
Bryan Gould
9 October 2012
This article was published in the NZ Herald on 11 October.