What the Hekia Doing?
John Key enjoyed his first term as Prime Minister. It all seemed so easy. But now, in his second term, it’s not so much fun.
The rot began to set in even before the last election, with the ill-fated storm in the John Banks teacup, and the Epsom MP has continued to give him nightmares ever since. But it is not just the Prime Minister’s inability to take decisive action to purge his government of a toxic element that has hurt him; the perception is growing that he is not as good as he should be at running an effective government.
Too many of his ministers seem to lack proper direction; too many do and say things that surely cannot have been approved by Cabinet. When he looks at his education minister’s recent record, for example, with ill-judged initiatives followed by embarrassing backdowns on class sizes and Canterbury school closures, he could be excused for exclaiming “What the Hekia doing?”
And how close an eye does he keep on his Foreign Minister, who used his speech to the UN General Assembly to promote New Zealand’s candidature for a seat on the Security Council in 2014, but at the same time has virtually destroyed our proud record as an active member of UNESCO, of whose founding document we were the second country to step up to sign in 1946? Is that the way to demonstrate that we are a good UN citizen?
Even his most senior ministers seem to be laws unto themselves. Bill English, with whom he seems to have an increasingly tetchy relationship, seems not to have bothered to keep the Prime Minister in the loop over one of his main responsibilities while acting as PM during John Key’s absence overseas. And the Prime Minister himself seems to have a pretty cavalier attitude to those same responsibilities, declaring that a barely believable mistake by the spy agencies for which he is responsible minister – and one that was absolutely central to the performance of their prime functions – was nothing to do with him.
Little wonder, then, that the Prime Minister now displays the unmistakable symptoms of a familiar second-term syndrome. Prime Ministers often get tired of the continued pressure and criticism they encounter on a daily basis in domestic politics. They begin to yearn, and then actively to look for, the respite they gain from overseas trips, whether necessary or manufactured.
How pleasant it must be – after all the trials and tribulations of dealing with an ungrateful public – to go abroad to be feted and flattered, to be treated as an honoured guest, to enjoy the attention of uncritical media. But it is always a bad sign when, in any walk of life, someone doing an important job is happier away from it than actually doing it.
The Prime Minister enjoys – and why not – overseas travel. The opportunities to travel – particularly to the United States, whether to watch his son play baseball or to tour Hollywood studios – seem, however, to be coming with increasing frequency.
His latest foray to Hollywood is not just to collect a couple of autographs from some minor Hollywood celebrities. It has, we are assured, a serious purpose; but that serious purpose does not necessarily make us feel any happier about it.
His latest engagement with the major film moguls, after all, calls to mind his last involvement with them, when a handful of Warner Bros executives rolled into town, told the Prime Minister what they wanted, and left shortly afterwards with major tax concessions (that is, gifts) in their pockets and having forced a change in our labour laws that reduced the rights of New Zealand workers. And we must bear in mind that John Key’s usual response to powerful overseas corporations, from mining interests to purchasers of our assets, is “The answer’s yes, now, what’s the question?”
The Prime Minister assures us that he does not intend to make any further offers on this occasion – and short of handing over our powers of self-government, it is hard to know what more he could do to ingratiate himself with them. But what is the Prime Minister doing there at all?
According to his own account, he is there as a salesman – and that raises another set of questions. The Prime Minister’s special expertise, as a foreign exchange dealer, was as a deal-maker; but, given the whole range of responsibilities he has to shoulder and the many pressing problems demanding his attention, is this the best way he can find to spend four days in his busy schedule? And, if the government really does need to softsoap Hollywood, does he not have a trade minister to do that?
Do we really want or need a Prime Minister whose first and perhaps only thought is sell off whatever he can lay his hands on? And should those assets he seems so ready to sell include his – and our – self-respect as well?
Bryan Gould
2 October 2012
This article was published in the NZ Herald on 4 October.
John Banks – Guilty Twice Over
Politicians rapidly become accustomed to being pilloried as a matter of course by sizeable numbers of the population. Their customary ranking in the trustworthiness stakes alongside second-hand car salesmen and real estate agents is the penalty they must pay for putting themselves out there and having their thoughts, words and actions publicly judged on a daily basis.
My own experience, paradoxically, is that while politicians as a class are slated, individual politicians are often treated – on those many occasions when they meet the public – with exaggerated respect. But it remains the case that many politicians seem to try with some success to give their profession a bad name.
Politicians face two kinds of moral hazard; on the one hand, they face the same tests as the rest of us in meeting the standards that are normally required of everyone in their interaction with each other; but in addition they are required to make the correct responses to the demands that arise from the particular and public responsibilities they must discharge.
First, then, politicians cannot – or at least should not – seek any form of dispensation from the ordinary ethical requirements of honesty and straight dealing that are required of everyone in their normal dealings with others. There is nevertheless a temptation in some quarters – and it is a temptation to which some politicians fall victim – to believe that the assertion that “all’s fair in love and war” can be extended to politics.
I have never accepted that lying and cheating are acceptable because “it’s just politics”. If anything, the normal standards of behaviour should be higher for those who claim that they should be trusted with the power to make important decisions on behalf of all citizens.
Secondly, politicians also face the additional burden of ensuring that they use their special powers and responsibilities to the advantage of their constituents and not their own. These matters are not always easy to judge or regulate, and can often depend on culturally different assessments of what is or is not acceptable.
In my years as a British MP, I lost count of the number of times on which, in return for help that I felt it my duty to give, I would be offered a gift (sometimes quite valuable) by a constituent – often from another culture – and have to explain politely that I could not accept it. But there are of course those politicians who are less concerned with such niceties – and that way lie “pork barrel” politics and corruption.
New Zealand is consistently rated as one of the countries where such behaviour is least prevalent. But we should be alert to instances where one or other or both of these moral traps seems to have ensnared one of our politicians, which is why the John Banks affair should ring alarm bells.
There are two aspects of the case that worry me but which have attracted little attention so far. First, we are told, in Kim Dotcom’s sworn evidence, that he was asked by John Banks for anonymous donations because that would allow him to “help” Dotcom more effectively. This seems perilously close to an overt proposition that the mayoral candidate was willing to use his power, if elected, to offer differential “help” to a particular interest, and that this exercise would be aided if the financial help being solicited could be kept secret.
I am surprised that so few seem to have grasped the unacceptable nature of this proposed arrangement. The sale of favours by politicians should be anathema to any system of fair and open democracy.
The second issue is a mystery at the heart of the Prime Minister’s continued defence of his ministerial colleague. Whatever one may think of John Banks, there will be surprise that the Prime Minister has maintained such indifference to the compelling evidence that his minister was less than truthful in his treatment of supposedly “anonymous” donations.
The explanation usually offered for the “see no evil” stance by the Prime Minister is that he needs John Banks’ vote if he is to get his legislation through the House. But this doesn’t wash. John Key could easily dismiss Banks from his government and avoid further damage to his own standing without jeopardising his wafer-thin parliamentary majority; Banks would still be an MP and able to vote for the government’s legislation.
The fact that the Prime Minister has not taken this obvious course suggests strongly that there is an element in the situation of which we are not aware. That element can only be an implied threat from John Banks, along the lines of “as a minister, I’m obliged to vote for the government, but if I were reduced to the back benches, I could not guarantee to support any particular piece of legislation”.
If this is the case, as I think it must be, John Banks has compounded his slipperiness with the truth by, in effect, making an implied threat to the Prime Minister. We must hope that, in the interests of good government, the Prime Minister will have the courage to call his bluff.
Bryan Gould
20 September 2012
This article was published in the NZ Herald on 24 September 2012.
The Same Tired Old Excuses
As job losses reach crisis proportions, and many point the finger at an overvalued exchange rate, we have to put up with the same old tired and ill-informed assertions to the effect that overvaluation is not the culprit.
Those who say this usually make two assertions; first, the exchange rate is irrelevant and secondly, there’s nothing we can do about it anyway. Neither assertion is remotely accurate.
As to the first, the usual line is that factors other than price matter in international markets; yet only a moment’s thought will produce the commonsense conclusion that it would be very surprising if we could charge whatever we like. If we ask more for our products than the market says they are worth, we will have trouble selling them, or at least selling them at a profit. To argue otherwise is to deny simple reality.
The one sure way of ensuring that we have to charge more than we should is to allow the exchange rate to rise too high. The exchange rate, after all, converts all our domestic costs of production – for labour, energy, raw materials and so on – into the prices we charge in international markets, and that includes our own, where we compete with imports. As the rate rises, it ensures that those prices are artificially inflated, and are no longer competitive. Even on those sales we do make, it cuts the profit margin – just ask the dairy farmers; the whole economy suffers as the cream is blown off the top of our dairy exports by the overvalued dollar.
That is why, in a nutshell, we can’t pay our way in the world, and have to borrow excessively to cover the gap between what we can sell and what we want to buy. That is why we dare not grow our economy fast enough to bring down unemployment; it’s because we know that if we do, we’ll run into balance of payments constraints and will have to borrow even more.
We’ve been doing this for so long that we think it is natural and unavoidable. That’s why ministers in successive governments over three decades have believed that solemn lectures about improving productivity, and promising that new research – always “soon” – will generate new “sunrise” industries, will do the trick. As any manufacturer will tell you, if the profit on your exports is decimated by the exchange rate, you have no money to re-invest in improving productivity, funding new research and technology, or taking any of the other steps needed to close the gap on better-resourced international rivals.
The second argument is the fallback position always adopted by those who have run out of other arguments. All this may be true, they say, but there is nothing to be done about it. The dollar’s value is established by the market and reflects the fortunes of other currencies, like the US dollar. If that means a high New Zealand dollar, we just have to live with it.
But this is nonsense. There is no such thing as a clean float. The view that the markets take of the Kiwi dollar is strongly influenced by what they know to be government policy, especially if that policy has a direct bearing on the dollar’s value and has been maintained for decades so that there is little prospect of it changing.
What determines the value of the dollar, so that it is higher than it should be in terms of balancing our trade, is quite simple; it is the fact that we have for many years offered investors – especially overseas investors, the legendary Japanese housewife or Belgian dentist – an interest rate premium for buying New Zealand dollars. That premium has been so high for so long that short-term investors find it worthwhile to borrow money they don’t have at low interest rates in their own countries so that they can buy New Zealand securities at a high rate of return; and because so many do this, the demand for and therefore the price of the New Zealand dollar rises, and the investors make a capital gain into the bargain.
The only people who lose from this are the people and businesses of New Zealand. Why does our government go on allowing this to happen? Because we insist on using high interest rates as our main, indeed only, counter-inflation tool; and since those high rates destroy our competiveness by pushing up the value of the dollar, we are then forced to borrow even more at even higher rates.
Quite apart from other factors – like commodity prices and the terms of trade – that influence the value of the dollar, the main element of over-valuation is, in other words, a direct consequence of government policy. We could change that tomorrow if we wished. We need to understand that high interest rates and the overvalued dollar are not only damaging our economy but are not even appropriate as counter-inflationary tools. If we addressed the real reasons for inflation – excessive bank lending and credit creation for non-productive purposes – we could stop the insane process of deliberately pricing ourselves out of world markets.
Bryan Gould
12 September 2012
This article was published in the NZ Herald on 14 September.
Let Children Pay the Price?
As a young law don at Oxford in the early 1970s, I came to know Tony Lynes, the activist who had recently founded the Child Poverty Action Group in Britain. With his help, I set up a free legal advice centre in Oxford, and I have ever since had a particular interest in the issue of child poverty.
The report this week on child poverty in New Zealand will, I hope, stir more than a few consciences. How can a country that, despite its economic problems, is still one of the most prosperous in the world tolerate such a large and growing number of young children growing up in conditions of deprivation which threaten not only the health, well-being and life prospects of each child but also our integrity and cohesion as a society?
Even those who dismiss the growing gap between rich and poor as of no concern would surely not require blameless young children to pay the price for our society’s failings? Why then do we do nothing about it?
If we were serious about lifting children out of poverty we would address at least three fundamental issues. The most serious cause of poverty in today’s New Zealand is the high rate of unemployment. Every new lay-off or closure – and they are coming thick and fast – means more families left without adequate means to support themselves; the unemployment totals are an indictment of our lack of understanding and concern.
It is time we stopped deluding ourselves that unemployment is a lifestyle choice. People are out of work because there are not enough jobs. There are not enough jobs because the economy remains stalled in recession mode. We are still bumping along the bottom, not because of the usual excuses – the euro crisis and the Christchurch earthquake – but because we have identified different priorities, rather than getting the economy moving again.
Getting people back to work should be our top priority. Nothing would do more to relieve family poverty and to give 270,000 deprived New Zealand children a decent start in life. Ironically, reducing the cost of unemployment, limiting the lost production that unemployment necessarily implies, and increasing the numbers who pay taxes and spend their earnings would also be the best way of meeting the government’s goal of deficit reduction.
The second essential step to reduce child poverty is to improve the living standards of those in work. The working poor are a drag on our economy as well as a continuing reproach to our society. We seem to think that keeping people in poverty is necessary if we are to compete with Australia – but the main economic consequence of holding wages down is that more and more of us cross the Tasman.
Higher wages would mean families able to support themselves and with more spending power to stimulate the economy. The most obvious means of raising low wages by a small margin would be to raise the minimum wage, but a private member’s Bill to do just that will soon be defeated in parliament. Another obvious step would be not to turn a blind eye to attempts by major employers – in areas like care of the aged or freezing works – to hold down the wages of already low-paid workers.
The third priority should be to recognise that poverty is a particular feature of families with small children because bringing up children is an expensive business. Governments, in New Zealand and elsewhere, have in the past acknowledged this obvious problem by providing special help through measures like family benefit. We have, sadly, abandoned such efforts, often on the ground that it is up to parents to provide for their own children – a sanctimoniously rigorous thesis which ensures that it is the children who must bear the burden if it proves to miss the point in practice.
This week’s report is in no doubt that if we want to address the poverty of families with children we would ensure that every family with children would have a basic level of income – one that ensures that children are not disadvantaged. But this, we are told, is resisted because it would deliver benefits to the rich as well as to the poor.
This objection to a measure primarily designed to help the poor is a little surprising when we consider the insouciance with which advantages have been delivered exclusively to the rich over recent times. But there is in any case an obvious solution to the supposed problem.
It is clear that the most effective way of getting help to those who need it is to avoid means-testing and pay the benefit to all families with young children, as we have done in the past. That payment is then easily “clawed back” through their income tax returns from those who don’t need it. Modern computerisation makes this even easier than it has been in the past – and it is surely not beyond a government that has been willing, through measures like drug-testing, to ensure that the value of beneficiaries’ entitlements is driven down. Should we not require our government to show equal zeal in tackling child poverty?
Bryan Gould
29 August 2012
This article was published in the NZ Herald on 4 September.
Unemployment? It’s The Fault Of The Jobless Themselves
The latest figures showing higher unemployment may have dashed hopes that, in our fifth year of recession-induced stagnation, we have at last begun to recover, but we are still being offered the same old excuses. The problems arise, we are told, because of factors beyond our control – the Christchurch earthquake and the euro-zone crisis.
No one would argue that these factors have been helpful; but the real reasons for continuing high unemployment are very much within our control. People are out of work because that is what free-market theory dictates.
The theory takes a very simple view of how markets work. If the supply of a particular commodity exceeds the demand, the price will fall. So far so good; that is generally true of commodities, like 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.
There are several points to make about this. First, bringing wages down is seriously at odds with the government’s declared goal of closing the gap, in incomes and living standards, with Australia. It is a little odd that closing the gap requires us to accept lower incomes.
Secondly, 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.
That demand could easily be raised. A more buoyant economy would mean that employers were keen to take on more people, but that could only happen with a change in policy – and that is negated by the government’s insistence that, as the theory requires, wages must be cut. If the government’s priority is to cut incomes and therefore spending, there is no hope of increasing demand in general and demand for labour in particular.
The government, though, continues to pin its hopes on forcing down the price of labour, as though it were just another commodity. They refuse to recognise that labour is not merely a commodity, but is really another way of describing people’s working lives and their standards of life – that it determines the cohesion of families, the life chances of children, the strength of our society.
In any case, 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.
This explains so much of government policy. It is why workers’ rights at work have been weakened. It is why benefits are removed so that even solo mums with young children are forced back into the labour market, whether or not there are jobs. It is why the level of benefits is being cut and the minimum wage is held down while top salaries zoom upwards. It is why the government lends covert support to big overseas employers like Oceania or Talleys as they cut the real wages paid to already low-paid employees. It is why the government seems so relaxed about unemployment.
The government has worked hard to put a euphemistic gloss on this policy. When the Prime Minister recently listed ten priorities in public policy, the first goal identified was to “reduce welfare dependency”. Few of those who no doubt nodded in support of such a policy would have stopped to understand that this is merely part of an overall strategy to force down wages.
And the sad truth is that, even if the strategy succeeded in its immediate goal, it would still be bad news. Lower wages would just mean less purchasing power, and that would mean a more sluggish economy, tougher times for retailing, less money for investment – and it would mean the jobs market chasing its own tail downwards.
If we are really concerned, as we should be, at our lack of competitiveness in international terms, there is a much more obvious, more effective and fairer way of dealing with it than heaping the burden on to the poorest in our society. A lower exchange rate would immediately cut costs across the board and ensure that everyone made a proper contribution to becoming competitive.
But the theory doesn’t allow that. The exchange rate must be manipulated as a counter-inflation tool, whatever the impact on competitiveness. Isn’t it time that we kicked a theory that serves us so poorly into touch?
Bryan Gould
13 August 2012