Equality Matters
In the opening months of the year, the political issues are coming at us thick and fast. Standards in schools, what to do about crime, tax reform, improving our economic performance, meeting Maori interests, have all crowded their way on to the political agenda.
The government has addressed each of these, one by one. National standards in primary schools will, we are told, improve the life chances of those who are currently being left behind. “Three strikes and you’re out” will reduce violent crime. A shift from direct to indirect taxation will transfer resources from consumption to investment. A renewed emphasis on economic growth will close the gap with Australia. And the Maori Party’s agreement with the government will help to advance specifically Maori interests.
There may be merit in each of these responses. But what if they all miss the real point? What if there is an underlying factor that unites all of these issues? And what if overlooking that factor means that the specifically targeted responses to each individual issue are less likely to be effective?
It can be argued that there is such an underlying and unifying factor – one that does not necessarily explain every dimension of these pressing issues or offer a comprehensive solution to the problems but that – if ignored – will make an effective response unnecessarily difficult. That issue is the growing inequality that has disfigured our society in recent decades.
Each of the specific issues is, after all, a consequence or an expression of that inequality. Both the 20% of students who are said to be let down by our education system and those misfits who are filling up our overcrowded jails come overwhelmingly from the economically disadvantaged in our society – and the former group are all too likely to migrate eventually into the second group.
The tax concessions for the better off are linked to the drive for economic growth, and both are linked to the “trickle-down” theory that the poor will eventually benefit if the rich get significantly richer – a theory whose implementation has done so much to widen the gap between rich and poor in our country. And the Maori struggle for a fairer share of national wealth is – at least in some senses – a crusade by and for the dispossessed and disadvantaged in our society.
To make these links between inequality and the problems confronting New Zealand today is more than mere speculation. In a ground-breaking piece of research, the authors of a study called The Spirit Level* have established that in countries where inequality has increased most sharply – countries like the US and the UK – there is also the most damaging rise in social problems like crime, drugs, early pregnancy, and gambling, and – even more significantly – the most significant impairment of the physical and mental health of the population. It is of course very obvious that these are also the same countries whose failing financial systems precipitated the global recession.
In countries where equality is much more evident – countries like Japan and the Scandinavian countries – the record on social ills is much better. The researchers are able to show that the statistical correlation between inequality and social dysfunction is too sustained, over time and place, to be accidental.
Where does New Zealand stand in such an assessment? From having been one of the most equal societies in the developed world, over the last 25 years New Zealand has progressed (if that is the right word) towards inequality faster than almost any other country. So, if the research is to be believed, we should not be surprised if we now exhibit the same difficulties as afflict other unequal societies.
The research shows that the steeper the income inequality ladder, the harder it is to climb, and the slower and more difficult social mobility becomes. At the same time, greater equality improves the quality of life for everyone and not just the poor. Even the wealthy will enjoy life more in an integrated and whole society. People across the board will live longer and will be less likely to suffer violence or have a problem with obesity; their children will have a better chance of doing well at school and will be less likely to use drugs or become teenage parents.
Our best chance, in other words, of giving children – Maori and pakeha -a better chance at school, or of keeping them out of jail, is to reduce income inequality. Our best chance of improving national economic performance is to focus on improving the education and health of the whole population so that everyone can make a full contribution.
Conversely, to allow or encourage the income gap to widen is seriously to prejudice the chances of dealing successfully with current problems, and to risk making future problems worse. As we look to the current range of responses, from national standards in education to re-balancing the tax system, we must hope that our political masters understand this simple truth. It would be a tragedy if the measures directed at specific issues make the underlying problem worse.
*The Spirit Level: Why More Equal Societies Almost Always Do Better, by Richard Wilkinson and Kate Pickett, 2009
Bryan Gould
12 February 2010
A Matter of Luck?
As the Australian economy motors forward, while we continue to bump along the bottom of the recession, it is not surprising that envious glances are cast across the Tasman. How, it is asked, have the Aussies managed it?
The most obvious explanation is that they have a huge mineral resource that the world – and particularly the Chinese – are keen to buy. If only we were similarly blessed, so the argument runs, we would do just as well. That, presumably, is why such high hopes are pinned on the discovery of new oil and gas reserves, and why it is proposed to dig up some of our most beautiful and vulnerable landscapes in search of coal and other minerals.
I take leave to doubt, however, that success in these ventures would improve our fortunes. Each economy has a different mix of components, and it does not matter very much whether – over the longer term – one component is bigger in one economy than in another. What matters is how we respond in policy terms to the mix we have and to changes in that mix. It is not the hand we are dealt but how well we play that hand that counts. And the omens in that respect are not encouraging.
A classic case in point was the UK experience with North Sea oil. By the time the oil came on stream, in the early 1980s, the UK had adopted a monetarist policy stance. Monetarist theory predicted that an increase in oil production would lead to a rise in the exchange rate. A higher pound would make manufacturing less competitive, with the net effect that the oil production would simply replace a swathe of manufacturing capacity with little or no gain to total production. As the oil revenues began to flow, policy-makers – convinced as they were by the theoreticians’ predictions – were content to watch the exchange rate rise and did nothing to counteract it, with the result that manufacturing did indeed contract as oil production rose. The Dutch had a similar experience – to the point that the adverse effects for their economy were dubbed the “Dutch disease”.
The Norwegian experience of North Sea oil was very different. They paid no attention to monetarist theory. They succeeded in ring-fencing the proceeds of the oil (largely by using them to buy assets abroad) so that their exchange rate remained stable. The benefit to the trade balance allowed them to grow faster than would otherwise have been the case, and – as growth in oil production eventually slowed – the repatriated profits from overseas assets were re-invested in the Norwegian productive economy so that good levels of growth were maintained.
There are no prizes for guessing which course we would follow in the event that we discovered major new sources of mineral wealth. We do not need a crystal ball when we can read the book. Not only have our policy-makers slavishly followed monetarist prescriptions over a long period, but we have some useful case studies of our own to guide us.
Those instances exhibit the same errors in policy-making as those made by the British and the Dutch. A recent example has been the rise in world dairy prices. Our response was to allow the exchange rate to rise (thereby wiping out any gain to domestic profitability, investment and growth) all because we see high dairy prices as an inflationary problem – requiring a tighter monetary policy – rather than as a stimulus to better economic performance.
Even more telling – and depressing – is another instance. It can be argued (and I am indebted to my colleague, Brian Easton, for this point) that we have already discovered a new source of wealth – not new mineral discoveries or even higher prices for our primary produce – but overseas borrowing and the sale of our assets to foreign buyers. The impact of this “new income” on our productive capacity – under the current policy regime – is just the same as the impact that North Sea oil had on the British and Dutch economies. The only difference is that, unlike them when the oil began to run out, we will find when our borrowing capacity is exhausted that we not only have to do without it but have to pay it back.
Our policy settings ensure in other words that, even if we suddenly discovered huge reserves of oil or gold or whatever, we will waste the potential for growth by taking the benefits in higher consumption (through a higher exchange rate and therefore cheaper imports) rather than through production-focused investment. Moreover, the new wealth would actually displace productive capacity – the very reverse of the priority that the government believes it is giving to the productive economy. If we want to do better, we need not complain that we have not been as fortunate as the “lucky country”. We should be making our own luck.
Bryan Gould
7 February 2010.
This article was published in the New Zealand Herald on 23 March.
There Are Other Options
The Reserve Bank Governor, Alan Bollard, used a speech last week to defend the policy that has been applied in this country for over two decades – a policy that he inherited and has since perpetuated. That approach to running the economy essentially revolves around monetary policy – and Alan Bollard’s advice to his critics was that they should accept a monetary policy framework which takes inflation targeting as its central element as the best means available of achieving good economic outcomes.
His critics are unlikely to be convinced. It is not just that our economic performance over more than two decades has been less than impressive and has seen us slide down the OECD tables. It is also that the Governor seems to misunderstand the nature of the criticism.
If we are to take his argument at face value, he is rather like a pastry chef who – using only flour – produces a flat and tasteless cake and then tries to rebut critics by insisting that flour is a very important and valuable ingredient. Most would argue that eggs, butter and sugar might also be helpful – just as, in economics, the Governor’s critics would say that to rely entirely on monetary policy is to ask it to do too much, including much for which it is not suited, and its exclusive use therefore prejudices the chances of achieving a buoyant and successful economy.
No one says, in other words, that monetary policy should be abandoned. But what the critics do say is that we would do better if we used other policy instruments as well.
The irony is that, if we read the Governor’s speech carefully, he seems to agree with this. And it may be better to watch what he does, rather than what he says. Whatever the headlines may say, Alan Bollard indicates very clearly that he is increasingly looking to other elements of policy, even while still focussing on the very narrow definition of his responsibilities with which he is saddled by our legislation.
Let us take, for example, the Governor’s plea to the government that it should get fiscal policy under control by mid-year. We can put to one side whether or not he is right to call for a reduction in government spending, which seems a little misplaced, given that we are still bumping along on the bottom of the recession. What is significant is his argument that an effective fiscal policy will reduce the burden that has to be carried by monetary policy – an acknowledgment that monetary policy needs help from an integrated fiscal policy, even when the policy focus is as narrow as simply controlling inflation. How much more true would that point be if we widened the focus to the wider and proper goals of economic policy?
He is also right to call for a re-appraisal of taxation policy, particularly as it affects the taxation treatment of housing as an investment proposition. This again is a recognition that taxation policy, by focusing on the micro-economic mainsprings of inflation, might have a useful role in a counter-inflationary strategy.
And, the Governor’s rehearsal of the tighter regime he has applied to the banks in respect of their lending policies may find its justification on prudential supervision grounds, but it also has the merit of addressing one of the most significant of factors contributing to inflation – excessive bank lending, particularly for residential property. Again, the Governor has identified an important and additional ingredient – beyond interest rates -in a sensible policy mix.
Alan Bollard, in other words, may talk a good fight against the critics of an exclusive reliance on a monetary policy focused on inflation targeting, but his actions tell a different story. The call for a new debate about macro-economic policy has not fallen – in his case – on entirely deaf ears.
It should be acknowledged that the Governor made some points in his speech that even his fiercest critics would support. His rejection of an Anzac currency, as a means of achieving greater currency stability, is entirely right. A common currency could only work within the context of a common monetary policy; and a common monetary policy could be applied in a democracy only by a common government. Unless we see our future as an Australian state, we should maintain our own monetary policy – and currency.
He was on less convincing ground when he also rejected the kind of competitiveness target that has worked so successfully for Singapore. But whether or not he is right in this, he has at least recognised that a debate on these issues is desirable and appropriate. We are at last making some progress by consigning the mantra that “there is no alternative” to the dustbin of history!
Bryan Gould
1 February 2010.
This article was published in the NZ Herald on 8 February
Remembering The Holocaust
This is the text of a speech delivered by Bryan Gould in the Grand Hall, NZ Parliament Buildings, to mark the UN Day of Holocaust Remembrance on 27 January.
Sixty five years after the defeat of the Nazi regime, we mark again today the United Nations Day of Holocaust Remembrance. The passage of time has inevitably reduced the numbers of Holocaust survivors. And, some may say, in a world that has sadly become enured to other atrocities – the killing fields of Cambodia, the genocide in Rwanda, the ethnic cleansing in the former Yugoslavia – the Holocaust is gradually losing its power to shock.
I beg to differ. The Holocaust must be and will be remembered because it is unique in the annals of man’s inhumanity to man.
It is not just the scale and intensity of the savagery that was inflicted, though they were both unprecedented. There were so many other aspects of the Holocaust that demand that we should fully learn the lessons it should teach us.
It was, first, a deliberate and planned expression of that most ancient and pervasive of all racial prejudices – anti-semitism. This was no careless paroxysm of sudden anger against a briefly vulnerable minority; it was the central and structured element of a hateful ideology that used anti-semitism as both an end in itself and as the means to unite a deluded people in the pursuit of other goals.
Furthermore, this was state-directed savagery. This was not the work of a small group of criminals pursuing their goals while the state turned a blind eye. This was the state itself, directing and demanding that the crimes should be carried out in its name.
Nor was this a case of the state suddenly being taken over by a gang of desperadoes, who then perverted the state’s powers to serve their own ends. This was the legitimate, elected government of one of the world’s most advanced nations. The German people, knowing what Hitler intended, nevertheless voted him into power. It was a government that remained in power for twelve years. And this in a country which had a strong claim to being at the heart of European culture and civilisation.
No one could mistake what Hitler intended. His targets did not choose themselves by becoming criminals or outlaws. They did not hold up their hands by acting or conspiring as a group against the regime. They had, through their mere existence, been in Hitler’s sights from a long way back. They were targets because they shared one characteristic and one only – they were Jewish. Women, children, the elderly, the sick, all qualified so long as they met that one single criterion. That was all that was needed to destroy their homes, shatter their families, and send them to the gas chambers.
What remains astonishing, even at this distance and even in a modern world that is sadly harder to shock, is the sheer indifference to human feeling and suffering that those responsible for the Holocaust demonstrated. It was the denial of humanity to the victims that made it possible for the perpetrators to do what they did.
In the immediate aftermath of the Second World War, and as the horror of the Holocaust became fully apparent, there was a feeling that what had been revealed was a deep flaw in the German character – something specific to the country that had allowed Nazism to flourish. But gradually the understanding developed that, if it could happen in Germany, it could happen anywhere.
When the Allies convened after the war to set up the United Nations, they were determined to ensure that those lessons should be learned. New Zealand was one of those architects of the post-War world. The United Nations Educational Scientific and Cultural Organisation was the first UN Agency to be set up.
In 1946, when UNESCO’s Constitution came into force, New Zealand was the second country to step forward to sign it. We did so, in the aftermath of that tragic conflict and with the horror of the Holocaust fresh in our minds, so that the instinct for peace and for a common humanity should take hold in the minds of new generations. So, with other founder members, we signed up for a future built on the life of the mind and the heart and the spirit – on education, culture, the sciences, and the free exchange of information and ideas. We saw these as the building blocks for a world that would strive to avoid such dreadful events in the future. And that is why the National Commission for UNESCO, which I have the honour to chair, will gladly play its part in today’s ceremony to mark Holocaust Remembrance Day – to help ensure that we will never forget.
Bryan Gould
23 January 2010
A False Dichotomy
Nothing better illustrates Labour’s current malaise than the reported difficulty the leadership group is having in agreeing on a strategy for an election that is now only a few months away.
Some, we are told, including most of the “New” Labour veterans, favour a direct pitch for middle-class support, with plentiful assurances that the Party’s leaders come themselves from “comfortable” backgrounds. Others recommend a focus on Labour’s “core vote” in a belated attempt to re-assert the Party’s traditional values and priorities.
Neither group seems to doubt that this is an unavoidable dichotomy. Just as the Blair/Brown schism is seen as essentially unbridgeable, so this dispute seems to reveal a deep fault-line in the Party’s thinking. After thirteen years in government, and nearer sixteen years with the current leadership group, it is surprising that this is the best that can be done.
It is hard, after all, to see that either strategy offers much prospect of electoral success. First, the notion that “we are all middle-class now” is hardly new. It has been the leit-motiv of New Labour since its inception. If the aim is to re-enthuse the voters, the strategy seems to lack a certain sense of excitement or breath of fresh air. “Vote for us and we’ll go on doing what is perceived to have failed” is not much of a rallying cry.
It also commits the cardinal sin in political strategising of allowing one’s opponents to frame the debate. The American specialist in cognitive science and linguistics, George Lakoff, is clear that to adopt the opponent’s language is to concede the debate. In a contest as to which party is more likely to put middle-class lifestyles, privileges, and values ahead of anything else, especially off the back of recession, there will only be one winner.
There is not much better to be said for the rival strategy. Labour’s “core vote” is now a sadly wasted asset – one of the consequences of ignoring it for the past sixteen years. It is unlikely to be revived by a quick and short-lived about-face by Labour’s spin doctors. And it is in any case a defensive strategy designed only to limit losses – a strategy that, by abandoning a large part of the battlefield to the enemy, necessarily concedes defeat in advance.
If Labour cannot do better than this, they deserve to lose. The inevitable burden of cumulative disappointments after thirteen year of government, to say nothing of egregious errors like the Iraq War and a recession engendered by a sustained obeisance to the City, will not be overcome if Labour’s much-touted strategists do not come up with something more intelligent and imaginative – and more optimistic.
The perceived dichotomy in electoral strategy must be rejected as a chimera. There is no success for Labour in either restricting itself to the “core vote” or in ignoring it by manifestly adopting other priorities. Labour strategy has always required a successful effort to persuade a sizeable slice of the more affluent that they will be better off, both materially and in other ways, under a government that accepts as one of its priorities that it should look after the less advantaged.
The argument should be that both the economy and society will function better if everyone has a chance to make a positive contribution. Excellent public services will produce a better educated, better housed and healthier workforce, better able to take the jobs that full employment will make available. Running the economy in the interests of the whole workforce, and not just City fat cats, will boost output and productivity and increase the resources that can be invested in our economic future. Investing in new skills and technology, and in the development of new products and markets, will in turn lay the foundations for an inclusive prosperity in which all can share.
An economy run like this would produce a stronger and better integrated society, no longer riven by division, no longer weakened by a disadvantaged underclass that increasingly sees the only way out being achieved through crime, drugs, gambling and prostitution. Even the most purblind defender of middle-class privilege might be persuaded to recognise the benefits of living in a healthier and more inclusive society.
A message like this might sound impossibly idealistic, but would this necessarily be a bad thing? To set a course that at least aims at something better is more constructive, more likely to enthuse, than constantly triangulating for supposed electoral advantage. Labour should not, in other words, allow itself to be forced to choose between its “core vote” and middle-class support. The two are perfectly compatible, and to act with that conviction offers Labour’s best hope for the forthcoming election.
Bryan Gould
19 January 2010
This article was published in the online Guardian on 20 January.