GFC Part II
The collapse of Lehman Brothers in September 2008 ushered in the global financial crisis, and seemed to bring an era to an end. The orthodoxy that had prevailed for thirty years crumbled overnight. Markets, it was realised, are not infallible and self-correcting; private business skills and disciplines are quite different from those needed to run a whole economy; governments are not obstacles to economic development but its indispensable guarantor.
Suddenly, lifelong sceptics sought salvation in Keynesian prescriptions, for fear that the crisis would turn into full-scale depression. The taxpayer shelled out billions to save the global economy from total collapse.
The prescriptions worked. The depression was averted. The banking system was shored up. We lived to fight another day.
But the stimulus to make good the sudden collapse in global liquidity took us only so far. It was enough to steady the ship but not enough to prevent the vessel from foundering in the longer term.
Most of the taxpayers’ money went directly to the banking sector where it was used to re-build balance sheets and resume the payment of large bonuses. Surprisingly little went to re-build the economy, with the result that employment, investment and production continue to languish. But it was not only the banks that were keen to return to business as usual.
The global establishment quickly – and without waiting for the recession to be over – put Keynes’ General Theory of Employment, Interest and Money back on the shelf. In a surprisingly short time, the old orthodoxies were re-asserted.
Paradoxically, the main lesson drawn from a crisis that had been created by private sector failure and averted only by government intervention was that the role of government should be wound back. It was constantly asserted that governments should behave like private individuals or companies and must cut back their spending, irrespective of the deflationary impact on economies still struggling with recession.
The Keynesian lesson that governments have a responsibility for the economy as a whole and not just for their own finances was quickly forgotten. While some economies – like China and, on the back of a mineral commodity boom, Australia – continued to prosper, most others plunged willingly into austerity programmes that, in effect, closed down their economies.
The theory was that austerity was needed in order to preserve credit ratings and to reduce the need to borrow. The money markets, it was calculated – the same money markets that had created the crisis in the first place – had to be placated. If they did not have confidence that deficits would be reduced, they would be less willing to lend.
But, like most fairies, the “confidence fairy” has failed to materialise. Despite doing what the money markets are assumed to want, economies continue to languish. Austerity continues to do its depressing work and remains the order of the day.
In Europe, countries like the UK press headlong on into austerity programmes, even while the economy is stalling and less ideologically committed commentators look in vain for anything that might bring the recession to an end.
The financial crisis in Europe is of course exacerbated by the disaster that is the eurozone – a project that subjects weaker economies to monetary conditions that are dictated by much stronger economies, that denies to them the usual escape route of devaluing the currency, and therefore requires them to deflate savagely so that they are less and less able to afford – let alone repay – the huge borrowings that are needed simply to keep them afloat.
How is debt to be repaid and deficits reduced by economies that are going backwards? Can we be surprised that the world economy is increasingly threatened as the contagion spreads from Greece, Portugal, Ireland, and Spain to a growing group that includes Italy, Belgium and possibly others?
The picture is equally depressing in the United States. An expensive but only partial stimulus programme slowed down but did not solve the crisis. Unemployment continues at a high level and the recession persists, yet – reflecting an almost religious zeal – a minority of legislators has ignored those pressing problems and artificially elevated the raising of the government’s debt ceiling into the USA’s number one economic problem. The consequent US credit downgrade leaves the real problems more intractable than ever.
Almost everywhere we look, in other words, policy-makers seem determined to ensure that the conditions for recovery are displaced by the requirements of a failed ideology. Can we wonder that even the architects of these errors, as they survey the results of their handiwork, have lost confidence in the outcomes, and that another round of crisis is threatened?
We in New Zealand will of course be directly affected if the global financial crisis is given a new lease of life. It may be thought that there is little we can do to influence the situation. But we cannot escape responsibility for making our own small contribution to the general malaise.
We have – like so many others – treated unemployment, investment and productivity levels as of little importance and denied that government has any responsibility for them. We have eschewed intervention and treated the reduction in a modest government deficit as our over-riding priority. By placing ideology above common sense, we have played our own small part in prolonging an avoidable disaster.
Bryan Gould
7 August 2011
The “Best” System?
In 1974, as a newly elected MP for Southampton Test in the British Parliament, I was interrupted mid-speech on one occasion by a Liberal from the benches opposite. “How can you claim to speak for the people of Southampton,” he demanded “when you got only 39% of the vote?”
“Who would you replace me with?” I rejoined. “With the Liberal candidate, who got only 23%?”
That summed up for me a powerful advantage of the first-past-the-post voting system. If the purpose of a general election is to send a representative for each community to Parliament (and a House of “Commons” is historically a house of “communities”), it is hard to go past the candidate to whom that community gave more votes than any other.
The other great virtue of first-past-the-post is that it almost always produces a clear-cut winner. This is valuable in itself, but it also has a couple of further advantages. It means that the voters themselves – rather than deals done by the politicians after the votes are counted – decide the result. And the voters have that greatest of all powers in a democracy – the ability to throw out one government and to replace it with an identifiable and alternative government-in-waiting.
These virtues of certainty and predictability could be contrasted with the confusion and uncertainty that so often followed general elections in countries that used proportional representation systems. It seemed often that the voters played only a bit part and that the real decisions were left to the manoeuvrings of the politicians after the election.
In some countries, this meant that – however often the voters were asked – the outcome did not change. Post-war Italy, for example, had a record number of general elections, but the voters could never get rid of the Christian Democrats who simply came up with differing combinations of themselves and minor parties. In other countries, by contrast – and Israel was for a time a prime example – the results were completely arbitrary, with small, extreme parties often deciding who should form the government.
For all these reasons, I remained committed while in Britain to the traditional first-past-the-post system. Indeed, I once sat on a Commission that was asked to recommend any changes that might be needed to the British electoral system. I confess that I was instrumental in ensuring that the Commission made no such recommendation.
And I recall that, at the time of the 1993 New Zealand referendum on MMP, and while I was still in the UK, I was telephoned by the organisers of the anti-MMP campaign and asked for advice and a statement of support for their position. I would have voted against MMP in that referendum.
Eighteen years later, I am older and, I hope, wiser. My reasons for seeing virtue in first-past-the-post seem to me still to be valid, and my concerns about the dangers of proportional representation still carry weight.
But my experience of MMP has given me a greater appreciation of how its advantages stack up against the downsides of first-past-the-post. And what I now understand is that no system is ideal. Each has its strengths and weaknesses, and delivers its own particular benefits and drawbacks. In the forthcoming referendum, the question is not so much which system is “best” but rather, what do you want your system to deliver?
MMP supporters have always promised that it will deliver a fairer and more representative parliament and a more effective voice for otherwise unrepresented minorities. That promise has largely been delivered. And MMP has also meant to an end to what Quintin Hogg famously called the “elective dictatorship” – the power of a party with a parliamentary majority (even if it obtained only a minority of the total votes) to do whatever it wants without regard to anyone else.
MMP has meant that major government parties have been forced to take a more inclusive and conciliatory approach to other views and interests. They have seen the need to negotiate for support before introducing legislation, rather than relying on a parliamentary majority to ram it through – and that has meant, on the whole, better legislation and a more constructive parliament.
But the major surprise is that, even with these advantages, MMP has not denied us a fairly straightforward choice between broadly right-of-centre and left-of-centre governments. We get, in other words, the best of both worlds; we have made the promised gains in the sense of a more equitable representation without sacrificing our ability to choose between readily identifiable options as to who should form the government. And we still have that essential power to throw one government out and replace it with another.
This is not to say that MMP should be uncritically supported. No one watching the machinations in Epsom, for example, could say that change is not needed. I, for one, remain unhappy at the power exercised by party machines in deciding who should get into parliament via the party lists. And we need to watch carefully that fringe parties do not gain disproportionate influence over what our governments do.
But, in deciding which way to vote in the forthcoming referendum, we can at least applaud the genius of the New Zealand electorate who have ensured that, without achieving anything like perfection, we have at least created a system that works pretty well.
If Things Are So Good, Why Are They So Bad?
It is a measure of how subdued is the national mood and how modest are our current ambitions that we expect so little of our elected governments. Even nearly four years after our own home-grown recession began, we are, for example, expected to acclaim as a triumph of economic management the first signs of a patchy and fitful recovery that still leaves us well short of 2008 levels.
We might have expected much better. We were largely insulated from the direct effects of the global financial crisis. Our two major export markets remained surprisingly buoyant. And we have enjoyed record high commodity prices.
Yet, to hear our leaders tell it, even our woes are a sign of success. The soaring kiwi dollar, we are assured, shows that foreign investors see us as a “safe haven” – a claim that sits oddly alongside the repeated warnings about the risk of a credit downgrade and of the need to wind back public spending so as to reduce a rampant government deficit.
The truth is that the soaring dollar reflects a conviction on the part of overseas speculators – based on 25 years of experience – that our governments will go on paying them a premium and that the short-term demand for our currency thereby engendered will produce a capital gain as well.
This is entirely consistent with the growing evidence that, as the recovery at last manifests itself, we will use the opportunity to repeat the recurrent mistakes of the past 25 years all over again. We will continue to treat any prospect of growth as an inflationary threat, to be knocked on the head by a combination of high interest rates and an overvalued currency. We will continue to express puzzlement as to why – in this policy framework – productivity languishes and our economic performance falls behind that of our competitors.
There are occasional flickers of interest in a change of policy. Geoff Simmons, for example, points to the prospect of using tighter rules for bank lending as a counter-inflationary tool and as an alternative to high interest rates. But he also warns that the Reserve Bank – with its single focus on inflation (and it is, after all, a bank) – is unlikely to change course.
And governments, of course, particularly at this stage of the electoral cycle, may wring their hands at the high dollar, but will secretly welcome the consequently cheaper imports – a short-term advantage that helps to holds down a soaring cost of living through to election day but that is bought at a huge cost to our long-term economic performance.
It could be said that these problems are like old friends; they may be a nuisance and somewhat boring, but they are at least predictable, and it is true that there is a certain comfort to be drawn from getting what you expect. A right-of-centre government could be expected, for example, to stick closely to monetarist theory, and to pin its hopes for an improvement in economic performance on tax cuts for the well-off, asset sales, cutting government spending, taking a tough line on benefits, and seeking free-market solutions to most problems.
That is exactly of course what we have got and presumably what people voted for. In the past, after giving these measures a fair trial, they have judged that they have not worked and then voted to get rid of them. This time, the policies look like surviving for a little time yet. It is not that the policies are different – merely that the salesman is better.
But there is one consequence of current policy that even the most brilliant salesmanship cannot so easily sell to the public. The now unmistakable evidence of rising poverty, with children as the most vulnerable victims, is the inevitable result of widening inequality, higher unemployment, falling real incomes for the poor, less effective public services, and rapidly rising living costs.
The myth that families choose poverty as a lifestyle option can only be sustained in a society that is divided – where the well-off are comfortably shielded from the realities of life for the worse-off.
One of the advantages of being well-off is that it is possible to buy your way into a better neighbourhood, to go to better schools, to mix with better-off work colleagues and friends.
You do not then need to venture into the poorer neighbourhoods, to sit around the table to share inadequate and poor-quality food or to feel the cold and damp in overcrowded bedrooms. You do not feel the humiliation of being rejected for job after job or having to present yourself for close questioning as the condition for receiving a weekly benefit which – in a well-off family – might be entirely spent on a single meal for family and friends at a good restaurant.
Individual instances of hungry children might be dismissed as cases of fecklessness and inadequate parenting. But a rising tide of such children, whose health, education and very lives are threatened by hunger, is a social phenomenon with widespread social and economic causes. It might be – indeed, is – a predictable consequence of current policies, but that, surely, does not make it acceptable? Predictability in this case should not produce resignation but rather a clarion call for action.
If things are so good, why – for so many of us – are things so bad?
Bryan Gould
27 July 2011
This article was published in the NZ Herald on 2 August.
The Murdoch Monster
The worst moment of the Falklands War, from a British viewpoint, was the sinking in April 1982 of HMS Sheffield by an Argentinian Exocet missile. I was at the time working as presenter and reporter on ITV’s nationally networked current affairs programme TV Eye. I was immediately despatched by the programme’s editor to travel to Portsmouth, the Sheffield’s home base, to interview the young families who had learned overnight that their husbands and fathers had been killed.
I was required to walk up to their front doors at breakfast time, with a cameraman at my shoulder, and catch the newly grieving widows sobbing into the camera. I found that I could not do it. I returned to London without the requisite footage.
As we watch the phone-hacking scandal engulf the Murdoch media empire, it is worth registering that there has long been – at least in some parts of the media – a journalistic culture that says that “getting the story” is everything. Some hardened hacks glory in their willingness to break the rules, of both law and decent behaviour, if that is what it takes.
So the unpleasant truth about News International is in some senses nothing new. Yet there is a special significance to Murdoch’s travails. It is not just that his newspapers broke the rules (and we have yet to discover just how far-reaching those breaches were); it is the impunity with which News International thought it could be done, the power which it gave them, and the uses to which they thought it could be put that should worry us even more than the disregard shown for ordinary human decency.
I know, or knew, Rupert Murdoch slightly. We had, I suppose, a couple of things in common – both Antipodeans and both members of Worcester College at Oxford where he had been a student and I, some years later, a don.
But it was as a politician that I accepted a lunch invitation from him, and his then right-hand man, Andrew Neil, in the late 1980s. The three of us had a pleasant meal and an interesting conversation at News International’s Wapping headquarters, but – even to this day – I can only guess at what the purpose of the invitation might have been.
But that guess is a fairly informed one. We now know that Murdoch was intent on using the power that he wielded through his newspapers and other media to cajole, threaten, and suborn the leading politicians of the day. He presumably concluded over our lunchtime conversation that I was unlikely to be malleable enough to be worth pursuing. Others, however, seem to have reacted differently.
One of those who seem to have arrived quickly at a mutually advantageous modus vivendi with Rupert Murdoch was Tony Blair. Tony seems to have consulted Murdoch repeatedly about the policy stances he should take in order to win the support of the Sun newspaper, which was read by large numbers of working-class and potentially Labour voters.
Murdoch had never been shy about claiming the political and electoral influence which he said that the Sun gave him. Indeed, on the morning after the Tory general election victory in 1992, the Sun’s famous headline was “It Was the Sun Wot Won It!”
Blair went on to become one of Murdoch’s most faithful acolytes. It was Tony who was the guest speaker at the celebration of News Corp’s anniversary in California in 2006 and – standing shoulder to shoulder with Murdoch – who proclaimed that “we are all globalisers now.”
Blair’s example – his success in apparently riding to three election victories on the back of Murdoch’s support – brought most other politicians into line. It became the accepted wisdom that electoral victory depended on Murdoch’s endorsement, and this allowed him to demand more and more by way of special treatment from government in pursuit of his business interests. It was said of Blair’s government that Murdoch was the nineteenth member of the cabinet – and one of the most powerful – and Murdoch has been assiduously courted since by politicians of all parties.
Murdoch is of course also active and powerful in other countries, and particularly the United States, where his Fox News and ownership of the Wall Street Journal give him an influential platform. Only in Britain, however, has the cravenness of politicians allowed him to dictate to governments quite so blatantly.
Does any of this matter to us, in New Zealand? Yes, it does. The power that Murdoch has, whether real or perceived, means that one man, with extreme views that would be rejected by all but a tiny minority, is able to shape the international political debate behind the scenes, and dictate terms to elected governments, whatever the views of the voters themselves.
We have to live in the global economy that he has helped to shape. And, it is worth registering that no New Zealand government has dared to introduce the “anti-siphoning” legislation that would have prevented Sky Television from using their monopoly of sports broadcasting to develop a position of dominance that means the death knell of public service television.
The real threat of Rupert Murdoch, in other words, is not just to the decent standards we should expect from our media. It is to the very substance of our democracy.
Bryan Gould
16 July 2011
This article was published in the NZ Herald on 19 July.
The Maori Challenge
When I left New Zealand for the first time in 1962 to study at Oxford University, I took with me an LP (yes, real vinyl!) of the St Joseph’s Maori Girls Choir. I was amazed to discover over my years in Britain that the one thing guaranteed to make me homesick was playing that record.
Wiki Baker’s beautiful voice was only part of the explanation. I realised that the sound of Maori music awoke in me unsuspected emotions – as though I had throughout my early life picked up from the ether as part of my own heritage a cultural sensitivity to which my emotional antennae, even 12,000 miles from home, were still attuned.
This was all the more surprising to me, since – while I had always got on well with my Maori classmates, and recalled with pleasure the rivalry I had enjoyed with Johnny Tapiata when we contested the Oratory Prize at Tauranga College – it had never occurred to me that Maori language and culture were still alive and (comparatively) well.
When I returned to live in New Zealand in 1994, however, I discovered a country very different from the one I had left three decades earlier. There was a widespread recognition that New Zealand was – in its foundations – a bicultural society and that Maori had an equal part to contribute to that audacious enterprise. And I had the pleasure at Waikato University of working with Robert Mahuta in the committed work he was doing to bring about a raupatu settlement for Tainui.
One element of that settlement was that Tainui became the owners of the University’s campus. There were those who found this prospect disturbing – and it is true that a few days after the settlement was signed, an enthusiastic young man arrived in my office and demanded a guided tour of the estate of which he was now part-owner!
But Tainui proved to be ideal landlords. They saw the relationship with the University as a partnership, and substantial parts of the rent we paid each year found their way back to the University in the form of scholarships and other help for disadvantaged students.
The University derived a further benefit; we became one of the few tertiary institutions in the country to have a proper legal title (in the form of a perpetually renewable lease) to our own campus. Tainui, of course, has gone on to become an economic powerhouse in the Waikato and beyond.
How, then, should pakeha regard this Maori resurgence? Is it a threat to be nipped in the bud (assuming that to be possible) or is it an opportunity to be seized for the benefit of us all?
Let us first be clear about one thing. Maori and pakeha should have no difficulty in treating each other with mutual respect. Our joint presence in this beautiful land is the outcome of two of the bravest odysseys in human history; first, the great Polynesian navigation of the vast Pacific, and secondly, the voyage undertaken by my forbears, when families from small rural communities who had never seen the sea in their lives before boarded tiny sailing ships on a three-month journey to an unknown destination, the most distant point on earth.
I am proud of that achievement, as my Maori compatriots are of theirs. The difference was that the Maori journey took place much earlier, so that knowledge of the huge changes that had taken place in the rest of the world over a thousand years was denied to them. Pakeha have little understanding of the huge adaptation that has been required of Maori over the last relatively short 180 years or so.
It is greatly to the credit of both of us that we are committed to creating out of these historical givens something new and wonderful. If we succeed, we will have achieved something never before attempted – the synthesis of two very different cultures as the foundation stone of a tolerant and inclusive society where difference is seen as a source of strength rather than conflict.
But we are still far from that achievement. We cannot call it success when Maori – by virtue in most cases of just being Maori – have a less than a fair share of our effort at partnership.
We pakeha cannot be happy when a significant element in our country has worse health, poorer education and job prospects, and less chance of self-fulfilment than the rest. If we want to build a strong and successful country, who do we prefer as partners – a perpetually aggrieved, underprivileged, racially defined underclass or proud and successful brothers-in-arms, confident in their own heritage and identity?
There are those, of course, who say that it’s for Maori to get themselves to the starting-line, that they must take their chances like everyone else in a market-based economy which rewards the strong and leaves the rest to fend for themselves. But we can do better than that.
Yes, of course, there will be extremists on both sides of the issue who claim more than is justified. But the best defence against extremism is to recognise the justice of moderate claims.
This is not the time to be fearful and mean-spirited. A divided society is a weaker society. We should grab the chance to understand and value each other, to support each other, and to build together.
This article was published in the NZ Herald on 12 July.