Bryan Gould on Gordon Brown
The following article was published in the NZ Listener of 14 July.
In the ten years after Gordon Brown and Tony Blair entered the House of Commons together in 1983, Gordon was always regarded as the senior member of the duo – slightly the older, better grounded in the Labour movement, apparently with more substance than his more charming but perhaps more superficial colleague.
Little wonder, then, that Gordon was first bemused and then angry that the Labour Party “fixers” (and principally Peter Mandelson) decided at the last moment – and just in time for the leadership election following John Smith’s untimely death and my own decision to return to New Zealand – to back Tony as the preferred leadership candidate. Gordon was persuaded to wait for his turn – something he was promised in return for not challenging Tony’s candidature.
The result was a ten-year wait – profitably spent, it is true, in a successful term as Chancellor of the Exchequer – but a period of increasing frustration on Gordon’s part and an increasing reluctance from Tony to keep his part of the bargain. It was only when the post-Iraq opinion polls turned sour that Tony bowed to the inevitable and that Gordon had his chance.
What will he make of it? The omens look good. The main thing going for him is that he is not Tony. Despite Blair’s extravagant gifts, as communicator and persuader, the British public has grown tired and cynical at the glibness and the endless spin. They seem ready to embrace someone with perhaps less surface but more substance. They want, at least for the moment, someone who says what he thinks and means what he says.
Brown also has the good fortune to face in David Cameron a Tory leader who has made the Tories electable again but who looks better suited to fighting the last war – against Blair – rather than a new battle against the more solid virtues of the new Prime Minister. There is already a “Brown bounce” in the opinion polls as the British public suddenly see the dour Scot in a new light.
This is not to say that Gordon will find that election success falls into his lap. More than anyone else, he is ineluctably and correctly linked in the public mind with the Blair government and its record. He is as much identified with the government’s failures as is Tony. He will have a difficult task in convincing people that he can free himself of the Blair legacy; nor will there be any shortage of defenders of that legacy if he succeeds.
And the truth is that what is known of him is not without foundation. He does find it difficult to smile and to chat to people. He does demonstrate some of the characteristics of a control freak. He is at times excessively cautious and calculating. And his record is not free from blemish, including most memorably his determined support for British membership of the European Exchange Rate Mechanism long after its disastrous consequences were becoming apparent.
I remain, however, optimistic about a Brown premiership. Here is someone who is a much more authentically Labour figure than his predecessor, someone whom the voters will easily recognise and therefore trust. Here is someone who has a better grasp of the fact that we would not bother with the messy business of politics if it were not for the need to reconcile competing interests and allocate scarce resources, with the consequent inevitability that some people must be disappointed – something Blair instinctively shied away from. Here is a Prime Minister who will want to use power, as opposed to simply holding on to it, and to use it for purposes that will commend themselves to voters who want a recognisably Labour government.
If he is to make that fresh start, however, he must do some difficult things. He must draw a line under the Iraq disaster; the appointment as Foreign Secretary of the Iraq war sceptic, David Miliband, is a good start but the most effective step would be to establish an independent inquiry into the origins of the war, and set a timetable for the withdrawal of British troops. He must reaffirm the value of public service and the public sector, and not turn always to the private sector for solutions. He must stop hobnobbing with the rich and powerful, something for which his predecessor had a fatal weakness. Above all, if he is to make that essential connection with the British public and to do so without Tony Blair’s exceptional presentational skills, he must re-establish trust in the political process. He can do that best by being his own man.
Bryan Gould
29 June 2007
Needless Casualties in the Economic War
On Anzac Day, we remembered the sacrifice made by thousands of young New Zealanders at Gallipoli – sent to their fate because those with the power to make decisions had neither the wit nor the courage to depart from a course that everyone knew was doomed to disaster.
A day after Anzac Day, we learned of another kind of sacrifice – of 350 jobs at one of New Zealand’s most iconic enterprises. This time, there was the same inevitability about the outcome of a strategy that everyone knew was failing but there were no incompetent and far-away British decision-makers to blame. This time, we were doing it to ourselves.
The Fisher and Paykel decision, after all, did not come out of the blue. We have been sleep-walking towards it for a very long time. Nor is it an isolated instance of policy failure. Behind this decision stand many other Fisher and Paykels, all facing the same imperatives, the same inevitability, the same disastrous consequences of a discredited orthodoxy that no one in power has the courage to challenge.
In theory, the current orthodoxy could not be simpler. Inflation is to be controlled by manipulating the price and therefore the supply of money, a task entrusted to technicians who are immune to political pressure. With the threat of inflation painlessly removed, the economy is free to flourish and investors can make their decisions with confidence.
We have now had a protracted opportunity to test this attractive theory in practice. We now know that, while increasingly ineffective and possibly even counter-productive as a counter-inflationary strategy, the orthodoxy is profoundly destructive of the high-productivity, export-oriented economy that our business and political leaders say they want.
Fisher and Paykel’s catastrophic loss of competitiveness as a New Zealand manufacturer represents just the first-order consequences of the high interest rate, high exchange rate regime that monetarist policy makes inevitable. Faced with an over-valued currency, all New Zealand enterprises that seek to do business in the internationally traded goods sector (including our own home market) face an unattractive choice; either they lose market share through declining competitiveness or they try to maintain price competitiveness by shaving margins and risk having to trade at a loss. For most, the outcome will be an even less attractive combination of both.
The medium-term impact is severely damaging to our economy. New Zealand companies struggling to maintain competitiveness find that shrinking markets and disappearing profits mean that they do not have the money to catch up on foreign competitors by re-investing in new technology or upskilling staff or conducting leading-edge research or mounting an effective sales campaign or offering improved after-sales service. The result? They fall behind in the productivity race, forced to lose yet more market share at home and to give up the attempt to export. If they do survive, they move offshore or are bought up by foreign competitors.
In the longer-term still, the consequences of an over-valued currency begin to shape our culture. The only people who make money are the speculators, who manipulate existing assets and create no new wealth. The best brains and best resources gravitate to the non-traded sector and we give up the attempt to move them to the traded sector where the real prospects for growth lie. We become risk-averse, preferring to invest in domestic assets, like housing, rather than chance investment in a high-risk productive enterprise where the threat of failure is ever-present.
In vain do our leaders berate us for our obsession with housing, our predilection for artificially cheap imports, our unwillingness to save. In vain are we urged to improve productivity, to spend less and to save more. Economics is a behavioural science. Like Fisher and Paykel, we each of us make the decisions made inevitable by the policies adopted by our leaders.
We are now being driven towards what everyone knows is literally a dead end. We have impaled ourselves on the horns of a dilemma of our own making. It is happening in the name of an orthodoxy that cannot deliver even the limited counter-inflationary outcomes that it promises. Ministerial exhortations do nothing but emphasise how far the dream of high productivity has become – by virtue of literally counter-productive policies – an unattainable chimera.
We cannot escape from this dilemma until we recognise what it is. The more we push up interest rates and the exchange rate, the less competitive we become and the more we fall behind in terms of international competitiveness. The less competitive our real economy, the more entrenched is our inability to pay our way in the world and the more dependent we are on short-term “hot money” to bale us out. The more we need “hot money”, the more we need to push up interest rates and the exchange rate, the more our competitiveness declines still further and the more threatening inflation becomes.
We must stop relying on interest rates and the exchange rate to perform tasks for which they are not suited. We should instead free our minds of current dogma, restore economic policy to democratic control and ensure that the economy is run in the common interest. That means a more accurate analysis of what is going wrong and what is needed to fix it. It means a better focus – not just on controlling inflation through fiscal measures, more effective controls on the level and purposes of bank lending, and measures to restrain the booming housing market – but on macro-economic measures to improve competitiveness and encourage growth and investment.
For the moment, however, there is only one question worth asking. How many more needless sacrifices must be made before we say that enough is enough and that a new course must be tried?
Bryan Gould
27 April 2007
The Beginning of the End of the Road
Let’s hear it, for once, for our politicians. It’s not every country that has a Finance Minister with the good sense to recognise a policy dead-end when he sees one and with the courage to try to do something about it.
The mere prospect of a discussion about a mortgage interest levy is enough to send some people into a panic attack. Those who are ready to consider more complex solutions to difficult problems will always be easy targets for the self-interested and short-sighted. But most thoughtful people will accept that an informed debate about possible alternatives to current orthodoxy is long overdue.
Spare a thought, for example, for Alan Bollard and the plight in which the Reserve Bank governor finds himself. He is like a doctor who prescribes a drug to treat a fever, only to find that the treatment is less and less effective in controlling the fever, but more and more damaging to the patient’s overall health. What is he to do? Does he continue with the drug, and risk long-term damage to the patient, or does he seek a different and more effective treatment?
Most commentators now expect that a commitment to monetarist orthodoxy will require an early hike in interest rates. This can only be regarded as a counsel of despair. The outcome of such a step is all too predictable – an inflow of “hot money” producing a further rise in an already over-valued dollar, a further loss of productive capacity, a further (and unsustainable) worsening of our current account, and the certainty that the day of reckoning, when it comes, will be terrible.
Yet, for as long as current orthodoxy remains dominant, he has no other option. The across-the-board raising of interest rates is his only weapon, even though it is increasingly ineffective and increasingly damaging.
We do not need to look far for the reasons. Much is made of the high proportion of New Zealanders with fixed-rate mortgages who are therefore insulated against the immediate effects of rate rises. I believe, however, that the problems are more deep-seated than this.
The New Zealand economy is now, as most commentators recognise, and as a consequence of decades of monetarist orthodoxy, seriously out of balance. The reality (and when not actual, the prospect) of an overvalued currency has meant increasingly a low-productivity, low-profit productive sector. The housing sector, by contrast, has been buoyant and a much more attractive prospect for investment. That has produced its own momentum. The higher house prices go, the more convinced people are that housing is the best investment, and the buoyant demand pushes house prices higher again.
In this scenario, interest rate rises are not only unhelpful to the counter-inflationary battle. They threaten to make matters worse. They raise the costs of building and buying houses, but so buoyant is the housing market that that cost increase is painlessly absorbed into the price structure, and provides a further fillip to rising prices.
If Alan Bollard is to bring that process under control, he will have to raise interest rates to dizzying levels, sufficient to stop economic activity dead in its tracks. The price for relying on across-the-board interest rate hikes in order to control inflation is, in other words, a further and debilitating blow to the health of our overall economy.
Those who are already squealing at the (still remote) prospect of new measures like a mortgage rate levy should recognise, in other words, that the alternative to new thinking is not “do nothing”. The only other option is a general rise in interest rates, which will still raise mortgage payments for home-owners, but will also threaten economic activity on the grand scale. Those who fear for their homes will have to look to their jobs as a well.
It is very much to the credit of Michael Cullen and Alan Bollard that they have had the intellectual and political fortitude to think the hitherto unthinkable. New Zealand is probably the first advanced country in the world to have first committed itself to monetarist orthodoxy, then tested it virtually to destruction, recognised its limitations, and then dared to contemplate better ways of doing things.
No one is saying that monetary policy should be abandoned as a counter-inflationary instrument. But the old simple certainties – that controlling the money supply through regulating its price was an effective and painless way of controlling inflation – have now been fatally undermined. A mortgage interest rate levy may or may not prove to be useful, but selective measures and fiscal policy will surely now play a larger role. A new era has begun.
Bryan Gould
9 February 2007
My Vision for New Zealand
The following article is a commissioned contribution to be published in a book edited by Dave Breuer of Anew New Zealand.
As most New Zealanders are quick to acknowledge, New Zealand has established – in its relatively short history – one of the most effective democracies in the world. The record is indeed a proud one. Universal suffrage, votes for women, equality before the law, the welfare state, human rights, race relations, are all areas where New Zealand has been amongst the pioneers of reforms which the rest of the world has been keen to emulate.
Yet even this proud history is not sufficient to guarantee to us a fully functioning democracy, one capable of equipping us to face and overcome the increasingly evident and serious challenges to our well-being and even survival, both here in New Zealand and across the globe. My fear is that without that robust and effective democracy, we – and others – will fail those challenges. My vision, on the other hand, is that New Zealand – true to our distinguished traditions – will find the means to restore a democracy effective enough to ensure that the challenges are met, both for ourselves and for others to follow.
The essential value of a democratic system of government is that it counteracts the natural tendency of all societies to allow and indeed promote the concentration of power in just a few hands. Left to themselves, most societies will operate so as to advantage the strong, the wealthy, the intelligent, the well-born, or even the plain lucky, who will then use that advantage to entrench and increase their power still further, to the detriment of others. The crucial decisions that are then taken will be made in an increasingly narrow sectional interest – that of the rich and powerful – rather than in the wider interest of the whole of society.
The great virtue of democracy is that it provides a counterweight to this natural tendency, by ensuring that political power at least is more fairly and evenly distributed, and that there are therefore certain limits as to how far the powerful can pursue their own limited interests without regard to the interests of society as a whole.
But what should we make of an apparently democratic system of government where power has indeed concentrated in just a few hands and where that concentration has occurred in places that are beyond the reach of our elected government? Should we say that we are content that we have the forms of democratic government, even though the substance has been hollowed out so that our elected government cannot ensure that they take important decisions in the general interest and are accountable for those decisions to the whole of society?
My contention is that this is exactly the dilemma we face, and that neither in New Zealand nor elsewhere do we have a functioning democracy such as to protect the wider public interest – now and into the future – against the accumulation of power into fewer and fewer unrepresentative hands. This is a situation fraught with danger. How has it come about?
It has happened because the wealthy and powerful have discovered a means of circumventing elected governments. Whereas once, an international investor (and in a global economy, it is the international investor who holds the most important purse strings) would have to comply with the requirements of the government of a country in which it wished to operate, now – by virtue of the unlimited movement of capital across national boundaries – the boot is on the other foot. A government which does not toe the line, in terms of what is wanted by a potential investor, will simply be told that the investment will go elsewhere.
Few governments have the power or will to defy this blackmail. Most will meekly comply, to the point that a measure that is regarded as likely to deter overseas investment will never see the light of day, let alone be put in place. The result is that the ability of governments to protect and advance the interests of their citizens has now been significantly diminished. And, as people sense that their governments have lost power, they in turn lose faith in democracy.
So, economic policies are framed to satisfy current orthodoxy, so that central economic decisions are taken out of the hands of elected governments and handed over to unaccountable bankers and officials. Policies are shaped to meet the needs of big business, tax rates for the wealthy are progressively reduced, spending on social and environmental issues is pared back, rules restricting the repatriation of profits are relaxed, the protections provided to workers are weakened, the fruits of prosperity accrue largely to the already wealthy, rules to protect the environment are bent, restrictions on cross-media and foreign ownership of the media are abandoned.
None of this happens openly – as an acknowledged consequence of the preponderance of one interest over all others – but is done piecemeal, each step part of an inexorable reduction in democratic protections against the overweening power of international capital.
Without our realising it, the political landscape has changed. A political revolution has taken place without a single vote ever being cast for it. The choices offered to voters have been narrowed. It is now the undemocratic global market, not political democracy, that makes the important decisions. A single global economy and market is, by definition, one in which there is no role for government, democratic or otherwise, since government intervention would mean that the market operated differently in one country as opposed to another, and there would no longer therefore be a single market. The danger is that – left unregulated – that single market does not recognise the public interest. It rewards instead the greedy and short-sighted minority.
It is not only the domestic political agenda that has been transformed. The dominance of increasingly unrepresentative and powerful international investors – narrowly focused and short-sighted enough to believe that their wealth and power allows them to ignore the threats that assail the rest of us – means that the undemocratic distortion of the political process now has wider and wider consequences and increasingly affects global issues. In matters like global warming, or religious tolerance, or third world debt – all arguably central to our very survival as a species – it is not humanity’s, but international capital’s interest that prevails.
This barely remarked yet profoundly threatening development presents all of us with a huge challenge. New Zealand, which has so often led the way to democratic reform, has the chance to fight back, not just in the interests of our own democracy, but as a beacon light for others to follow. Never has the need for democracy, for the broadest possible basis for critical decisions, been so pressing.
So, what can we do? Our main task is to restore a fully functioning democracy. We can begin by raising the level of awareness, so that people understand what is happening, and how high the stakes are. We can then demand from our politicians that they reclaim for us all the power that they currently pretend they have – the power to make the important decisions in our interests – and that they meet the obligation to be held accountable for those decisions. We should assure them that they will have our support if they have the courage to take on these challenges.
We should consciously rebuild a sense of the value of our democracy, not in the abstract but as a practical guarantor that decisions will not be taken over our heads by distant, unrepresentative and irresponsible forces. That means, among other measures, having the courage to insist that our governments restrict the freedom of overseas investors to buy up whatever they choose, so that we cease to have any say over what is done in our own country. It means reclaiming the freedom to set our own requirements as to how and in whose interests our economy should be run, and what laws should protect our citizens, so that those wishing to operate here comply with our wishes rather than the reverse.
It means placing economic policy under the control of our elected governments rather than bankers. It means acknowledging that governments have a vital role in identifying important issues and acting to deal with them, rather than leaving them to the global market to decide.
As we begin the fight-back at home, we should also work with other like-minded countries and governments to change the way in which international financial institutions work, to establish rules to govern international investment, and to control the flows of capital so that the power of international capital to defy and override elected governments in their quest for profit at any cost is limited.. We must ensure a fairer distribution of capital around the world and promote international cooperation in the interests of humanity rather than of maximising profits for a few.
My vision for New Zealand is not a pipe dream. It is rooted in our history and in our attachment to democracy. What is needed is the political will – and a sense of urgency.
British Labour in 2007
As we enter the new year, the first task for Labour should be to draw a line under an egregious error made in its name – an error that began with an abuse of power and a breathtaking deception of the British people, and then proceeded to devastate a faraway country, undermine the rule of international law, threaten the fragile integrity and cohesion of British society, increase the burden of religious division – in Britain, the Middle East and around the world, advance the claims of terrorism, and engulf the entire ten-year record of the Blair government in disrepute. It is hard to think of a parallel in modern times to such a tragic catalogue of catastrophe brought about by the blind certainties of an inherently good man.
Tony Blair’s departure will help to draw that line. So will the election of a new leader. That new leader, however, will face a Herculean task if a fresh start is to be made and a renewed mandate obtained.
If the new leader is Gordon Brown (as I – and most others – assume it will be), his first hurdle will be the need to demonstrate that, without the presentational skills of a Tony Blair and faced with a Tory opponent who is at least electable, he can still engage with the British electorate and enlist their support.
His best strategy in approaching this task is to be himself – to demonstrate that, when the voters look at him and the Labour Party, what they see is what they get. So, what is needed is an end to spin, to the short-term preoccupation with electoral advantage and news manipulation at every turn, and a return to recognisable Labour values – values updated and adapted to society’s needs of course, cutting-edge values applied to new and as yet unrecognised issues, but values so true to Labour that voters will feel that they know where they are.
So, let us have an end to hobnobbing with the rich and powerful, to riding shotgun for the Americans however crazy the enterprise, to the indifference with which widening inequalities in our society are tolerated, to the casual assumption that the government is above the law, to the disdain for the Party and the trade unions, to the belief that globalisers like Rupert Murdoch represent the only possible future, to the gut instinct that the private sector will always offer better solutions than the public sector, to the carelessness with which divisions in our already divided society are exacerbated, and to the self-serving belief that what the government wants is, for that reason alone, good and right.
Let us, in other words, have an end to New Labour (or, rather, Not Labour). Let us have instead Labour tout court, Labour unadorned, Labour true to itself. That would free the new leader to use 2007 to begin to build a new trust with the voters, based on a commitment to restoring the cohesion of our society, across social, economic, ethnic and religious divides. It would mean a return to Robin Cook’s ethical foreign policy, so that a relationship of trust is extended to include our international partners. It would mean recognising that the current world order, disfigured as it is by huge and growing imbalances and a dizzying attempt to stop the United States from toppling off the high wire of its unsustainable deficit, must be reformed.
It would mean a return to that central Labour preoccupation with diffusing power and wealth throughout society, rather than aiding and abetting its concentration in fewer and fewer hands. The new leader could give priority to the real economy in which most people live and work rather than the financial economy which disproportionately rewards the few, reassert the value of public service and the public domain, and return the most important decisions about the economy to the democratic process rather than handing them over to self-serving bankers.
If any of this is to be attempted, let alone achieved, there is no time to lose. It is essential that the first part of 2007 should not be wasted on the personal rather than collective project of protecting what remains of the Prime Minister’s reputation. The sooner the new leader is in place, the better.
Bryan Gould
19 December 2006
This article will be published in the first 2007 issue of The Parliamentary Monitor.