Good Government Matters
Government over recent times has got itself a bad name. Politicians are of course always regarded as fair game, particularly by media whose proprietors often see themselves as competitors for power, but the critics’ task was of course made immeasurably easier by the expenses scandal. The damage suffered as a consequence of that self-inflicted wound has cleared the way for a renewed assault – by right-wing politicians and media alike – on the whole concept of government.
The notion that government is the problem, not the solution, is of course not new, and was famously and explicitly asserted by Ronald Reagan. It has never been strictly true of course that the right have disowned government as such; what they have wanted is government that serves the narrow interests of a privileged minority rather than a wider society. So, right-wing governments (including New Labour) have generally overseen an expansion of government in areas like security, law and order, defence, and – in economic policy – maintaining the value of assets and preserving the privileges of the wealthy.
It is nevertheless a surprise that the new coalition government should feel so clearly mandated by what was at best a confused election result to commit to smaller government as the central element in its programme. The major task faced by the coalition after all is to lead the country out of a financial crisis that, having been created by the failures of the private sector, was only just averted by the government doing what only government could do – using its authority and legitimacy to underpin the banking system and guarantee the value of the currency.
It is surely one of the miracles of the modern world that a private sector meltdown whose malign consequences are still with us, and against which the only defence proved to be the power of government, should have led to savage cuts in the role of government.
It is to be expected of course that – in tough times – the powerful should try to shift the burden on to the less powerful whose diminished voice means that they are less able to complain. The speed with which the lessons of the crisis have been re-interpreted in favour of less government rather than more is testament to the ability of the powerful to defend their interests. What is a surprise, however, is the readiness of other elements – including the junior partners in the new coalition government – to abandon government as the major means of achieving economic recovery and re-asserting the need for social justice.
A loss of faith in government seems now to have infected opinion across most parts of the political spectrum. Even on the left, there is a marked tendency to look for salvation anywhere but government. It is almost as though the left has concluded that – so disappointing was the experience of being in government – there is nothing more to be gained from that quarter. Nothing more clearly demonstrates how thoroughly New Labour let down its supporters.
Much political activism on the left now takes the form of community-based initiatives of one kind or another – whether it is support for a local currency or various forms of collective self-help or the development of local power schemes. The common factor in all of these small-scale projects is their conviction that ordinary people should take responsibility for changing society, or at least their bit of it, and that government is just another part of the conventional power structure – along with the bastions of capitalism – that has to be overturned.
There is much talk of the need to engage “civil society” as the essential element in changing society. Government, it seems, is to be by-passed as a snare and a delusion. There is an almost romantic sense that ordinary people possess an innate wisdom and goodness that are somehow sullied and rendered ineffectual by the formal and structured processes of democratic government.
No one, of course, who wants to see a better and fairer society could object to the impulses that drive these initiatives. But it is distressing to see the efforts of earlier generations to achieve universal suffrage and democratic government so casually set aside. Our forebears saw the power and legitimacy of representative and elected government as the essential safeguard against the overwhelming power of the capitalist and boss, the one guarantor that the interests of everyone and not just the powerful would be properly protected and advanced.
Community-based initiatives have their value but, as a means of changing society, they are too small-scale, fragmented and dispersed to make much impact. Nothing will better serve the status quo than the concession that government should be limited to protecting the interests of the powerful and that proponents of change should look elsewhere. A new Labour opposition leader can best confront the coalition and restore the faith of Labour supporters by re-asserting that good government matters.
Bryan Gould
22 August 2010
The Lump of Labour Fallacy
Popular wisdom and what passes for common sense are not always the best guides to running a successful economy. That is why businessmen who have a good practical grasp of what it takes to run a successful business are often wide of the mark when it comes to making policy for a whole economy.
An economy, contrary to what is often asserted, is not like a business. Particularly in down times, the measures that might be required in the interests of an individual business are the very reverse of what is needed by the economy as a whole. Cutting costs, deferring investment, and laying off workers will help to balance a single set of business accounts but are the last thing that a whole economy needs if it is to avoid continued recession.
It is often the case that good economic management may seem counter-intuitive. A case in point is what economists call the ‘lump of labour” fallacy – the belief that there is a fixed amount of work available and that the task is to decide how that is to be shared out fairly.
The fallacy is alive and well in the minds of even experienced policy-makers. We saw shades of it in the “nine-day fortnight” that emerged as a counter-recessionary strategy from last year’s job summit. The idea, which not surprisingly had little impact in practice, was based on the notion that if a fixed amount of work could be shared out, more jobs would be created, or at least saved. By diverting attention from what was really required – a policy which would increase the number of jobs – it actually hindered the fight against unemployment.
The fallacy rears its head unhelpfully in other contexts as well. In the perennial debate in developed countries about immigration, one of the main arguments advanced against allowing an inflow of newcomers is that they will “take our jobs”. There is little recognition of the real possibility that a controlled rate of immigration could create jobs and expand the economy.
There are of course many considerations in determining what are appropriate levels and kinds of immigration; but we would no doubt reach better decisions on matters such as this if we could free our minds of intuitive fallacies and look at the practical evidence. The great economic success of a Hong Kong, for example, was greatly helped by the constant inflow over many years of (often illegal) immigration from across the Chinese border.
The “lump of labour” fallacy also underpins an important current debate in our own country. The stubborn refusal of comparatively high unemployment to melt away has again prompted discussion of what the government could or should do to “create” jobs. The very suggestion that something could be done has, however, been greeted – even by very experienced commentators – with the apparently incontrovertible objection that “the jobs just aren’t there.” And that means, it is said, that there is nothing the government can do.
If that were really the case, of course, the government’s push to get people off benefits and into jobs would be futile. The jobs cannot both be non-existent for the purpose of getting unemployment down, yet waiting there for lazy beneficiaries to take up. And while it is certainly true that there are strict limits as to how far (if at all) governments should try to create jobs by putting in place “make work” schemes, that is not the real issue.
The reality is that the number of jobs in an economy is not a given, but is a function of the level of demand and therefore of economic activity. The number of jobs falls in a recession and rises in better times. If we want to recover from recession, we need policies that will stimulate demand and purchasing power so that people will buy what producers make, and retailers can boost sales, and employers can see that it is worthwhile to take on more staff, and more people earning good wages will keep the virtuous circle going – so that the government’s finances benefit as well through a higher tax take.
There is no mystery about this. And the level of demand is very largely determined by policy. A government that provides stimulus to the economy through maintaining or increasing its own levels of spending and investment, as the Australians did, can achieve a great deal in avoiding recession and fighting unemployment.
If the policy priority, however, is to get the government’s (perfectly manageable) deficit down, the outcomes are equally clear. We may comply with good business practice by pleasing our bankers in the short term, but our economy will be smaller, unemployment will be higher and the recession longer. If we really want to please our bankers in the longer term, we should be growing the proportion of our resources devoted to production and exports. That will not be achieved by allowing a prolonged recession to close down parts of our productive capacity.
Bryan Gould
15 August 2010
This article was published in the NZ Herald on 31 August.
Arise, Sir Robbie
Arise, Sir Robbie!
The New Zealand Rugby Union has attracted its fair share of criticism over the years, so we should not begrudge it the plaudits for devising and then implementing a strategy that has been brilliantly successful.
The outcome of that strategy is there for all to see – nine straight wins against the Wallabies, the Bledisloe Cup in New Zealand hands for an eighth straight year, and the All Blacks encouraged by those successes to approach next year’s World Cup with justifiable confidence and the knowledge that one of their most dangerous rivals is firmly on the back foot.
While the results may be obvious, the strategy that produced them is not well understood, and nor should it be. Indeed, secrecy and subterfuge were the essential keys to success; but those who devised the scheme could never have foreseen that the secret could have been maintained for so long. It is only now, when the penny is about to drop, that the true story can be told.
That story began in the immediate aftermath of the terrible disappointment of New Zealand’s failure in the 2007 World Cup in France. Within a week of the end of that tournament, New Zealand’s rugby bosses held a crisis meeting in secret to see what could be rescued from the wreckage and what course could be followed to ensure the right result next time.
The first issue for resolution was coaching. The team led by Graham Henry was widely seen to have failed, and there was considerable pressure to move quickly to appoint a new coach. The call for a new appointment was of course greatly strengthened by the evident availability of a well-qualified replacement.
The strategists were initially tempted to make a clean break and start the 2011 World Cup campaign with a fresh coaching team. There was of course some reluctance to ditch Graham Henry and his colleagues, whose record – apart from the 2007 defeat to France – had been impressive. There was a strong belief that they might still deliver the World Cup victory that the country craved.
It was at this point, as they wrestled with the complexities of what to do next, that the outline of a daring plan was conceived. It is not clear who first had the idea – an idea so outrageous that it was at first dismissed out of hand.
But, as the rugby bosses thought more about the plight they were in, the conviction grew that something extraordinary was needed, and that there was a chance – a slim chance – that the more unthinkable the plan, the better the chance of success.
They realised that the first task would be to hoodwink the man whom many regard as the sharpest operator in rugby – the Australian rugby supremo, John O’Neill, the man who singlehandedly out-manoeuvred the NZRU and walked away with sole rights to the 2003 Rugby World Cup tournament. If they could suck him in to the plan, the rest would become so much easier.
What was needed, of course, was the right man for the job. And, as luck would have it, the answer was at hand. The very man whose credentials made him a real contender for the All Blacks coaching role, and whose candidature accordingly created a real dilemma for the NZRU, was the one person who might have a chance of pulling off the coup.
So, a top-level deputation was sent to Christchurch. They talked far into the night. There was, of course, an initial disbelief and outright rejection, then a reluctant consideration of the chances of success, and finally – in the early hours – a simple handshake. The deal was done.
The rest of course is history. The initial result – a Wallaby win – was agreed upon as the necessary confirmation that the deal would stick. The original expectation was that the plot would be uncovered after five or six Wallaby defeats. Nine All Black victories on the trot, and an unshakeable grip on the Bledisloe Cup, have exceeded all expectations.
But, it now seems inevitable that, with his keen eye for a conspiracy, Peter de Villiers will bust the plot wide open. And even John O’Neill’s credulity has its limits. By the time he is brought face to face with reality, however, the damage will be irretrievable – at least on any time line that culminates with next year’s World Cup.
Robbie Deans, finally unmasked, will return home a hero.
Bryan Gould
9 August 2010
One Gaffe After Another
David Cameron is deservedly up against it, it seems, in trying to persuade the voters to see his public spending cuts in a positive light. Not surprisingly, many will marvel at how the greed and irresponsibility of the financial sector’s fat cats should somehow have been parlayed into the launching pad for what the Prime Minister admits is intended to be a long-term assault on the role of government.
But it seems that he is determined to make the task even harder than it need be by insisting on offending his audience and then compounding one gaffe with another. His apology to a pensioner in Hove for depicting Britain in 1940 as a junior partner to the United States in the war against Hitler was achieved at the cost of offending a whole new range of people who might also claim to have played a role in 1940.
David Cameron was almost pathetically keen to correct his blunder. He assured his critic that he was well aware of the true situation in 1940. Apart from, we were told, a few Polish and French pilots, Britain had stood absolutely alone against the Nazi threat.
Well, no one who lived through those days (and admittedly I was only one at the time) could cavil for a moment at David Low’s famous cartoon following the fall of France and his sombre and defiant pledge, “Very well, alone.” Nor would anyone begrudge the recognition of those French and Polish pilots who played their part in helping to fight the Battle of Britain.
But, while he was about it, one might have hoped that Britain’s Prime Minister would not so pointedly have revealed an apparently complete ignorance of the significant role played by pilots from the Commonwealth. Australian and New Zealand pilots in particular were especially prominent. Many distinguished themselves with feats of valour and daring; many lost their lives, flying alongside British pilots over British skies.
The statue of New Zealander Sir Keith Park in Trafalgar Square is testimony to the leading role he played in helping to direct the Battle of Britain. And David Low himself was of course a New Zealander.
New Zealanders and other Commonwealth citizens have long since reconciled themselves to the fact that their relationship with Britain has travelled a long way since a New Zealand Prime Minister could say at the outbreak of the Second World War “where Britain stands, we stand; where Britain goes, we go”, and then commit the farm workers and shopkeepers of his tiny country to a war half a world away in which they suffered a greater proportionate loss of life than almost any other country.
We have grown sadly used to the euro-centricity of modern Britain that allows visitors from Europe to join the UK citizens’ queue at entry ports while New Zealanders must queue as aliens. We accept that Britain has the right to decide its own future, even if that meant turning its back on a trading partner which denied itself the produce of its own land in order to send food supplies to Britain at a time of great danger.
What is disappointing, however, is that – in the course of correcting one error – today’s British Prime Minister could so thoroughly demonstrate how little value is given to the history that Britain and New Zealand, and the Commonwealth more generally, share. If, quite properly, he was ready to recognise the role of pilots from other countries, did he have to reveal so little awareness of the sacrifice made in that common cause by those from far-flung countries who chose to make that distant theatre of war their business too?
It is one of the mysteries of the post-war world that a Britain which found itself at the head of the most extensive and potentially influential group of countries in the world – a Commonwealth embracing a quarter of the world’s population and some of the world’s most significant emerging economies – should so carelessly, through neglect and ignorance, have thrown that huge advantage away. If realpolitik counts for little, one might at least have hoped that common courtesy and common sense would have avoided giving unnecessary offence. Iran and Pakistan are bad enough. Does he have to add Australia and New Zealand to the list?
Bryan Gould
6 August 2010
It’s The Economy, Stupid
A week, as Harold Wilson famously said, is a long time in politics, but the day-to-day ups and downs that hog the headlines rarely determine the outcome of elections. Voters’ preferences are usually shaped over longer periods and reflect underlying perceptions about the competence of governments and the preparedness of oppositions to meet the challenges of running the country.
Recent reports of government policy reversals or of Labour’s disciplinary problems matter less, in other words, than what is happening over the long term to the issues that really matter – and principal among those, as Bill Clinton’s campaigners declared, is “the economy, stupid”. For as long as the economy is seen to be on the right track, the Prime Minister will retain a good deal of political capital in the bank, and the government will not be too worried by the kind of occasional, short-term difficulty that afflicts all administrations.
But that scenario could change if, over time, the perception should grow that the economy is heading nowhere. A better economic performance, even if the goal of closing the gap with Australia is now said to be only “aspirational”, is after all at the very core of the government’s agenda. Other disappointments might well be accommodated without difficulty, but an economic policy that was seen to take us down a dead-end would be serious for any government, not least this one.
That is why the faintest of alarm bells might now be audible in John Key’s office. It is bad enough that the steady recovery from recession now looks as though it might have stalled. The current economic news suggests that, whatever the statistics might show, people are now much less confident that their economic circumstances will improve over the next year or so. And that is exactly the kind of perception that can have a big influence over election outcomes.
What will worry the government even more is that they seem to have few weapons left to try to improve matters. Even our relatively benign experience of recession over the past couple of years is now seen as owing more to the buoyancy of our major export markets in China and Australia than to any initiatives taken by the government. And, as those markets falter, the heat will turn up on the government to find its own way forward.
The trouble is that they have already fired what seem to be their best shots, to little avail. The jobs summit produced little. The priority to getting the government deficit down is said to preclude any further stimulus to demand and economic activity. The welcome focus on funding for research will take some time to bear fruit.
In the meantime, almost all of measures they have turned to have failed to carry conviction. They have either been tried before without achieving much or have provoked such opposition that they have been abandoned before they even got started.
So, removing “labour market rigidities” through amending employment law in favour of employers is a favourite nostrum of neo-liberal ideologues but has stubbornly failed to produce any benefits to productivity or growth when it has been tried before. Pressing on with the free trade agenda looks and sounds good but – in a country which has given it a more extended trial than almost anywhere else – has resulted over a couple of decades in a more rapid growth in imports than in exports.
The move to attract foreign capital by increasing our willingness to sell even more assets into foreign ownership seems to have stalled in the face of the Prime Minister’s recognition of the political risks involved. The attempt to transform our tiny financial institutions into world players in capital markets seems unlikely to get off the ground. And the latitude planned for international mining companies to prospect in prime conservation land quickly flew in the face of environment sensitivities.
The danger for the government is that these abortive steps will be seen not just as failures but as having been ideologically driven – reflecting the belief that economic salvation lies in tilting the balance in favour of employers – rather than directed at solving real economic problems. And that problem will be compounded as we seem to be preparing yet another re-run of measures – high interest rates and an over-valued dollar – that have already been seen to make the problems worse rather than better.
John Key has so far shown a sure political touch. He will know that perceptions about the government’s ability or otherwise to kick-start our economy will be critical to his chances of re-election. Stand by – if we are lucky – for an “agonising re-appraisal” of economic policy.
Bryan Gould
1 August 2010