The Buck Stops Anywhere But Here
It was Harry S. Truman, the post-war U.S. president, who famously had a sign on his desk that read “The buck stops here.” It was apparently a play on “passing the buck”, a phrase once used in poker to indicate that it was someone else’s turn to deal.
Our own Prime Minister has not bothered with a sign, but in his case it would read “The buck stops anywhere but here.” He has made an art form out of shuffling off responsibility to someone else when things go wrong.
There have been countless occasions when John Key has claimed not to remember (his “brain fades” are notorious) or not to know – it is amazing how often a Prime Minister who totally dominates his government seems to have been left out of the loop when crucial issues are decided.
Nor has he been overly fussy in choosing whom to blame. A misleading allegation about a security briefing received by the Leader of the Opposition? It was the Director of the Security Intelligence Service, Warren Tucker, who was required to carry the can.
A series of damaging exchanges with the blogger Cameron Slater about “dirty tricks”? It was a staff member from the Prime Minister’s office, Jason Ede, who stepped forward to accept responsibility.
His ministers have been quick to learn. One of the prime exponents of the art of ducking responsibility has been Murray McCully. A botched “reform” of the Ministry of Foreign Affairs? Nothing to do with the Minister but the Chief Executive, John Allen, was moved on. The Saudi sheep scandal? It was the lawyers who gave bad legal advice and landed him in it.
Perhaps the most extreme example of the genre, however, is the Prime Minister’s current attempt to distance himself from the IRD’s inexplicable decision to abandon their planned inquiry into the damage to New Zealand’s reputation that could result from our disreputable activities as a tax haven.
In this instance, the fall guys are the Prime Minister’s personal lawyer and one of John Key’s junior ministers. The cover story requires the lawyer, Ken Whitney, to plead guilty to misrepresenting the Prime Minister, and the junior minister, Todd McClay, to profess to feel “insulted” by any thought that he might have allowed himself to be influenced by the Prime Minister’s known support for the foreign trust industry.
The Prime Minister himself, of course, claims to have been totally unaware of the IRD’s concerns, and to have pleaded ignorance of it when approached by his lawyer – someone he knew to be a leading figure in the foreign trust business and indeed to be the chair of the Antipodes Trust Group, a major player in the industry.
The Prime Minister’s own view of such matters is now well-known, though it is worth recalling that no one would have known anything about those views and his connections to the industry if it had not been for the leak of the Panama Papers. Even after that leak, the Prime Minister was still happy to express strong support for secret foreign trusts as a worthwhile business – indeed, he expressed the hope that New Zealand could become the “Switzerland of the South”, a haven where the rich could hide their money in secret.
When Ken Whitney became alarmed at reports that the IRD was preparing to launch an inquiry and approached him on the matter, neither party would have been in any doubt, in other words, as to where they both stood. The approach was in essence a request that the Prime Minister should intervene in a matter of concern to them both and that the IRD should be told to drop its proposed inquiry.
John Key has – improbably enough – tried to equate this request to those many instances when he is no doubt buttonholed for a moment or two by strangers about matters of little consequence.
We are asked to pile improbability on top of improbability by believing that Ken Whitney would then, at the Prime Minister’s direction, repeat his concerns to a newly appointed and anxious-to-please junior minister and that neither of them would have thought to mention John Key’s known views or to take them into account.
What we do know is that the Whitney/McClay meeting was organised almost immediately following the approach to the Prime Minister and that the IRD subsequently, and without explanation, abandoned its plans for an inquiry into foreign trusts.
The end result is that, instead of an independent inquiry organised by the IRD in the public interest into business practices that do New Zealand no credit, we have a limited inquiry conducted by a single finance industry insider, hand-picked by a Prime Minister whose hand has been forced.
When the establishment of that inquiry was announced, it was met with widespread scepticism. With all that has happened since, both the credibility of the inquiry and the Prime Minister’s reputation have suffered further damage. We need something better.
Bryan Gould
4 May 2016
Nibbling at the Edges
The introduction of a possibly contentious policy on a controversial issue under this government usually follows the same pattern, especially when the interests of the government’s supporters might be affected. First, the broad outline of the new policy is floated, both to gauge reaction and to get people used to the idea. The new policy is often said to be contingent on some further piece of information that is already available to the government but not yet known to the rest of us.
Criticisms from political opponents are rubbished; comments from supporters are taken into account; and the new policy eventually emerges fully fledged, often in a form that is subtly different and with less impact than was originally proposed.
So it has been with the notion of a land tax. The initiative is nevertheless to be taken very seriously, for at least two reasons. First, it is an acknowledgment by John Key that housing affordability is now of major public concern, not just because of the difficulty it means for those seeking to start a new life in a new home, but for what it is doing to social cohesion.
The $70,000 untaxed capital gain made by the average Auckland home-owner in a single month should be contrasted with the Prime Minister’s “generous” 50 cent increase in the hourly minimum wage. And, since the capital gain (admittedly as yet unrealised for most) does not represent any corresponding increase in real wealth for the nation as a whole, it has to come from re-distribution – from the poor to the rich. Asset inflation in housing is the principal driver of inequality.
The government is cautious in dealing with it is because Auckland home-owners are naturally (and short-sightedly) very happy with what is happening. They are inclined to thank the government for the cosy glow that getting richer without any effort can produce.
The second point to notice is that a land tax would endorse an analysis of what lies behind soaring land prices that has so far been rejected by the government – and most others. A land tax for foreigners (as is proposed) would represent an attempt to discourage investment and thereby to reduce the volume of demand and purchasing power that is currently fuelling the Auckland market.
This focus on the level of demand is at odds with the reasoning so far adopted by the government and by most so-called experts. Their preference has been to point to supply-side issues as creating inadequate supply and therefore unaffordability – the shortage of land, bureaucratic rigidities, construction bottlenecks. A new focus on bearing down on demand is welcome, but threatens to take the government further than it wishes to go.
If the problem can be eased by reducing the level of demand, why does that argument not apply to the whole market and not just to foreigners? And if the volume of purchasing power coming into the market is a central factor in causing prices to rise, as it surely is, then why do we not look at where the overwhelmingly greater part of that purchasing power really comes from?
If we were to do that, we would rapidly come to the realisation that the Auckland market is the product of a veritable tsunami of new credit flooding into it day by day, week by week, month by month. This huge volume of new credit is created by our banks and is made available for the sole purpose of buying property. Without it, the housing market would be unrecognisable.
The banks have created the housing market and will go on fuelling it until they are restrained. In the meantime, asset inflation in the housing market could not suit them better. The demand for mortgage finance from those whose purchasing power is inflated by their ability to borrow many times their income is stimulated ever further by soaring house values. Lending on mortgage keeps growing – as do bank profits by virtue of the rising volume of interest paid on the ever-increasing volume of new loans. The risk is minimal since the value of the security – houses – will keep on rising for as long as the banks keep on lending.
Tweaking interest rates or imposing a low rate of land tax in an attempt to cool the housing market are likely to be ineffective for as long as the market is awash with constantly growing volumes of new credit. Small marginal increases in the cost of investing in property will be quickly swamped by the tidal wave of new credit and by the capital gains thereby created, and will just become another (small) factor to be added into the price structure.
It is unlikely that government will have the courage to tackle the banks (or their home-owning supporters) on this issue. Any action that might be taken would in any case have to be taken gradually and cautiously, so as to avoid a bursting of the bubble and great damage as a result both to individual family budgets and the national economy.
It is now up to the Reserve Bank. They must devise “macro-prudential” measures that will effectively restrain bank lending on mortgage. The longer the current situation prevails, the more damaging and dangerous it becomes.
Bryan Gould
27 April 1016
The Left Case for Brexit
The following is my contribution to a pamphlet to be published early next month.
Readers of the centre-left or liberal press are constantly told that supporters of Brexit are not only inevitably right-wing, but ignorant, prejudiced, xenophobic, or just plain deranged. The possibility that there is a perfectly rational case for reconsidering our future in Europe, a case that is not only consistent with a left-of-centre stance but actually required by it, is overlooked. The debate is all the poorer for it.
I have been involved with this issue since, as a new recruit in 1964 to both the Labour Party and the Foreign Office, I worked on Common Market issues and later, from our Brussels embassy, helped to organise the Wilson-Brown tour of Common Market capitals as part of a further attempt to have the Gaullist veto on our membership lifted.
By the time I returned to the UK in 1968, I was clear that the issue was not whether we should or could be part of Europe, since no one could doubt that we were historically, geographically, culturally, and politically an integral part of that entity, however defined. The question was not whether, but what kind of Europe?
I had come to the realisation that what we were offered was not “Europe” but a Franco-German deal guaranteeing free trade in manufactures to the Germans in return for subsidised agriculture to suit the French. It was a deal that was directly inimical to British interests and, in particular, to the jobs and living standards of British workers.
It is often forgotten that joining “Europe” in 1972 represented for Britain a restriction of our trading opportunities and an abandonment of a rational and long-established trading pattern. It meant a substantial increase in food prices and therefore in domestic costs, making British manufactured goods more expensive and therefore less competitive. It also meant an end to the preferential markets we had enjoyed beyond Europe, and opened us up instead to direct competition from more efficient manufacturing rivals in a single European marketplace.
Yet we are told, in support of the constantly repeated refrain that Britain has no option but to stay in the EU because there are no other viable choices available, that we derive unmatchable trade advantages by virtue of the simple fact of our geographical proximity to the European market. We cannot afford to turn our backs, we are told, on the market in which we now do most of our trade.
This argument is so full of holes that it is surprising that its proponents think it worthwhile to make it. First, it would be hugely surprising if the figures did not show an increase in our trade with the EU and a comparative decline with the world outside. What, after all, was the whole exercise about, if not to concentrate our trade in Europe and divert it from elsewhere?
If more than 40 years of managed (rather than free) trade, in which a European customs union on the one hand and tariff barriers against the world on the other have quite deliberately and systematically narrowed our trading opportunities, we would surely be able to sue for false pretences if something of the kind had not materialised. But is that outcome necessarily to be welcomed?
The UK is surely the last country to be told that trade is something best done at close quarters. No other country has enjoyed more extensive trade links or has a longer or more successful experience of the great advantages of trading on a world-wide scale. It is surely a matter of regret rather congratulation that British goods are rarely seen today in markets such as Australia and New Zealand and that EU membership restricts our freedom to improve our trading prospects with some of the fastest growing economies in the world such as India.
The concentration of our trade in Europe, while markets elsewhere have been systematically neglected, may please the true believers but it has left our trade dangerously unbalanced and focused unnecessarily on a market where the evidence over four decades demonstrates that we are at a substantial disadvantage.
Let us put to one side the very large net annual contribution we pay to the EU (a continuing burden on our balance of payments and variously estimated at somewhere between £8.5 billion and £11 billion each year). The crucial fact is that we have now run a trade deficit in every year since 1982, just, as it happens, when the full impact of EU membership took effect – hardly a coincidence, since the greater part of that deficit is with the other members of the EU, and much of it arises in the trade in manufactured goods.
That deficit continues to weigh on the whole economy and shows no sign of diminishing. In the quarter to the end of January this year, it amounted £23 billion; in January alone, the deficit in our trade in goods with the EU amounted to £10.3 billion.
That trade imbalance does more than suck productive capacity and jobs out of the UK. It means that we dare not expand our economy for fear that an increased level of activity will mean yet more manufactured goods sucked in from the EU, and an even higher deficit that can be financed only by increased borrowing and the sale of yet more assets – in addition, that is, to the more than £600 billions worth we have already sold in recent years.
The deficit in our trade with the EU in manufactures has meant that our manufacturing sector has shrivelled away, and now contributes just 10% of our GDP – a lower proportion than is to be found in any other advanced industrial country. This dramatic loss of manufacturing capacity has meant that working people and their families, especially those in the regions, have lost out on jobs and decent pay – the steel industry is just one example among many.
And, with manufacturing prospects so poor, it is not surprising that our net investment in new manufacturing capacity is virtually nil, so that our ability to compete in the future is even further reduced. These developments, with their serious implications for the living standards of working people, are, or should be, of major concern to the left.
The seriousness of these downsides of the current arrangement is not usually denied, since the facts cannot be gainsaid. Apologists try instead to distract attention from them by framing the debate in terms of rival pessimisms; we are constantly told that the burdens of membership are unfortunate but are outweighed by the risks of being left out in the cold. We are solemnly warned that our EU partners will refuse to trade with us if we upset them by pressing for a different and better Europe.
But – while blood-curdling warnings designed to deter us from reaching a rational decision are only to be expected – are our partners really going to turn their backs on a one-sided trade relationship that has been so much to their advantage? Once we decide to re-negotiate our relationship with the EU, it will no longer be a case of issuing dire warnings but of grappling with a real situation. Talk of retribution and punishment for daring to take a decision in our own interests will no longer be relevant. The focus will inevitably be on optimising the trade opportunities for both the EU and the UK, and our own interest in maintaining access to the EU market will be at least matched by the European unwillingness to lose access to ours. It beggars belief that valuable trading opportunities would be passed up in a fit of pique.
We should take in any case take courage from the lessons of our own experience. Similar arguments were made about the supposedly disastrous consequences of leaving the European Monetary System and of not joining the euro. Most people in Britain will offer daily thanks that we had the courage to reject those arguments and to stay out of the euro. Our euro-zone partners rapidly decided that they needed us at least as much as we are said to need them, and then simply got on with it, on the terms that we had decided.
The issue of the EU’s response to a Brexit is of course an interesting test of the real purpose of the EU. Is that purpose really free trade, in which case they would do their utmost to keep trade links open? Or is it really the creation of a European super-state, run in the interests of the dominant economies? It is only on that latter assumption that we might expect that, even at the expense of the EU’s own economic self-interest, defectors would be punished pour encourager les autres.
A decision in favour of Brexit would not in any case produce, as is so often alleged, the complete rupture of our relations with the EU. It would not mean turning our backs on Europe. It would signal instead the real possibility of a new European agenda, aimed not only at a better deal for the UK but also at a better and more constructive Europe, and one with a greater chance of success.
A new Europe would not operate, as it has done since its inception, against the interests and instincts of the left. It would no longer operate as a manifestation of free-market capitalism, providing an intervention-free zone so that market forces can always prevail and serving the interests of big business rather than those of ordinary people. It would not, in thrall to neo-classical economic doctrine, impose a policy of austerity across the continent, trashing the interests of working people across the euro zone and requiring them to bear the burden of free-market failures – ask Syriza and the people of Greece.
It would not run a hugely diverse economy in terms of a monetary policy that suits Germany but no one else. It would not attempt to impose a political structure decided by a small elite, but would allow the pace of cooperation and eventually perhaps integration to be decided democratically by the people of Europe.
There are those on the left who urge the UK to remain in the EU on the ground that we are lumbered with a Tory government for the foreseeable future and that to leave would mean giving up any chance of defending social and employment provisions, in both UK and European law, that would be vulnerable to Tory attack. But to treat as a plus the fact that a body of law cannot be overturned by democratic decision or through the exercise of the powers of self-government is surely an extraordinary position for the left to take; such a defeatist and anti-democratic argument should not be countenanced by any democrat or anyone prepared to work for a Labour government. The left was keen to oppose Mrs Thatcher when she asserted that “there is no alternative” but we are invited to acquiesce when a similar message is delivered by the EU.
Even if it had any merit, it is in any case outweighed by the much more powerful and democratic argument that an incoming Labour government would find it much easier not only to defend but also to advance the interests of working people if it were untrammelled by EU commitments.
It would not, for example, be unable – by virtue of the EU’s injunction against state intervention or giving priority to domestic suppliers – to defend the jobs of steel-workers. It would not be obliged, given the EU’s outlawing of subsidies for public services and its predilection for privatisation, to sell off the Royal Mail. It would not be bound by a Transatlantic Trade and Investment Partnership to concede to international corporations the power to sue a Labour government if its policies threatened to reduce their profits. It would not be powerless to stem the inward flow of cheap labour which has done so much to lower the floor that underpins the level of wages. And it could view the threatened fall in the value of sterling following a Brexit as an opportunity rather than a handicap.
The left’s failure to understand these issues speaks volumes for its loss of intellectual self-confidence and the reduced level of its ambitions. But the removal of the EU as both crutch and straitjacket could change all that. Among the many economic benefits of a Brexit, we might also find the restoration of the left’s confidence, optimism, vision and momentum.
Bryan Gould
25 April 2016
The Bad News Keeps Coming
The bad news keeps coming. In the last couple of weeks, New Zealanders have discovered that our country is being touted to tax dodgers and other criminals as a good place to hide their money with no questions asked. Our Prime Minister’s initial response was to welcome the business, however disreputable it might be. It was only when the damage to our reputation became apparent that he agreed to set up an inquiry.
Then, we were alerted by the Morgan Foundation to the fact that our response to international pressure for action on climate change is a sham. We have, in reality, done little to restrain our emissions of harmful gases, but have instead relied on a carbon trading scheme that allows credits to be bought by New Zealand emitters from those who – like foresters overseas – actually reduce gas emissions.
It seems, however, that the credits we buy from foreign traders are not genuine but are issued by countries who are known to be scamming the scheme. Most countries have refused to sanction such a trade, but New Zealand, sadly, goes along with it, and is by far its biggest customer – another shady deal and another blow to our reputation as a good international citizen. We are, it seems, climate change cheats.
And then, we have the saga of the political donation and the Matavai resort on Niue. The facts can be simply stated. The owner of Scenic Hotels, Earl Hagaman – a well-known and perennial donor to the National party – made a donation of over $100,000 to the National party, and a month later his company was awarded the valuable contract to manage a resort on Niue.
The contract turned out to be even more valuable than had appeared at first sight when $7.5 million of taxpayer-funded aid money was paid to Scenic Hotels to upgrade the resort.
In any other country, and especially in those where such deals are commonplace, no one would be in any doubt as to what had really happened. In New Zealand, however, we are naively inclined to accept the blank-eyed, slack-mouthed assurances that it was all a coincidence and that nothing untoward had happened.
We are told by Scenic Circle that Mr Hagaman would not have been aware when he made his donation – one of the largest political donations on record – that his company was in the running for the Niue contract. We may safely assume that Mr Hagaman did not succeed in business by displaying such a lofty indifference to commercial opportunities and that he was not in the habit of shelling out more than $100,000 without any expectation of a return on his investment.
We are then told by the office of the responsible Minister, Murray McCully, that he would not have been aware of the donation made by Mr Hagaman when the Niue contract came to be awarded. Mr McCully, however, is the most inside of National party insiders. It beggars belief that he did not know who was giving what to the National party coffers.
But, say the apologists, it was not Mr McCully who awarded the contract to Scenic Hotels. The deal was done by an independent board. But the board was one appointed by Mr McCully, and – probably without even knowing they were being manipulated – discerned pretty accurately what was expected of them.
Mr McCully, after all, has form – think Saudi sheep. And the more worldly-wise will again recognise all too easily the tell-tale signs of a familiar device; when leaving fingerprints would be risky, set up an intermediary to distance the decision from the real decision-maker.
The chances are that the Auditor General, to whom the matter has been referred, will report, having made a genuine attempt to get at the truth, that it is not possible to reach a definitive conclusion. And that report will in any case be made some months from now, when memories have faded and the issue has dropped down the list of newsworthy items – again, think Saudi sheep.
The government will treat the issue as business as usual – as, sadly, it has become. Its supporters will gladly believe that it was all an invention by political opponents. But this is an issue that transcends party politics.
There are good political reasons for supporting or criticising a government on a whole range of issues, but those issues surely do not include attitudes towards sleaze and corruption. New Zealanders of all political persuasions can surely unite in insisting that the highest standards are met in our public life. The government’s supporters have a special responsibility, since one hopes that the government will listen to them, to ensure that their government understands what is and is not acceptable.
In such issues, perception matters greatly. Unless we make it clear that we are not prepared to accept this erosion of our reputation for probity, the bad news will keep on coming and, little by little, our readiness to accept that erosion will grow. In that case, however, the bad news will not just be for the government but for New Zealand.
Bryan Gould
19 April 2016
The Price of Democracy
Those fortunate enough to have visited Huangpu Park, alongside the Bund in Shanghai, will know about the sign that was supposedly displayed in the Park in the early part of the last century, at a time when the British had taken over Shanghai. The sign was said to have read “No dogs or Chinese allowed.”
Most historians now regard the story as apocryphal, at least in its detail; but whether true or not, it epitomises and justifies a sense of outrage and grievance felt by Chinese at the humiliation imposed on their country by their unwelcome occupiers.
However much we may sympathise with this Chinese sentiment, it was still a surprise to see that the issue – understandably important to the Chinese – had somehow become a significant factor in the debate about our national flag. We have it on the authority of Lewis Holden, the chairman of the Change Our Flag campaign that, at a dinner arranged for the Prime Minister and his National Party colleagues to solicit substantial contributions to the campaign from a group of Chinese businessmen, the donors agreed to pay up because they wanted “the Union Jack gone from the New Zealand ensign.”
The dinner gives the lie, of course, to the story that the flag campaign was non-political. And, as the media reports made clear, John Key was repeating a ploy that had involved a dinner with Dong Hua Liu – an experience from which he seems to have learned little.
Of much greater interest, though, is how what was surely a minority preoccupation in New Zealand terms became a key factor in the flag campaign in a way of which most people were completely unaware and did not in any case have the resources to match.
The RSA’s flag preference was just as strongly felt and their allegiance to our current flag was shared by many more than the Prime Minister’s dinner companions; but the RSA did not have the cash to throw at the campaign and would have been alarmed to know that they were being outgunned from such an unlikely quarter.
The revelation from Lewis Holden, a former National candidate, about the motivations of his benefactors, however, was not the only revealing point he made. He sought to justify the pitch to his Chinese colleagues by saying “That’s the necessary evil of the democratic process – money plays a part….Democratic processes are costly. The more democratic they are then the more costly they are.”
Mr Holden clearly has a curious concept of what democracy means. In his mind, it seems, it is simply a process, in which rivals compete to manipulate public opinion – a competition that costs the participants a great deal of money and where victory goes to whomever can raise and spend the most money.
We see a graphic demonstration of this view of politics unfolding before our eyes in the United States as millions – perhaps in some cases even billions – of dollars are being spent by rival candidates for the Presidency.
In New Zealand, however, we have always regarded democracy not just as a process, expensive or otherwise, but as a form of government that actually represents what people want and that serves their interests accordingly. The true purpose of democracy is not to win the propaganda battle but to elect a government that is accountable to the whole community and not just to a few with money to spend.
Mr Holden’s belief that democracy is like wallpaper – the more you spend the more you get – runs directly counter to that view. It is, however, rapidly gaining ground and taking over our public life. We have fairly sensible limits – at least by comparison with the Americans – on how much can be spent on elections but there is still a huge advantage to those who can tap large resources from private donors to fund their campaigns. That disparity in funding is increasingly a threat to our democracy – a threat that will go on growing for as long as we allow only minimal public funding of political campaigning and leave the running to those with access to the deepest pockets.
It is only occasionally that the lid is lifted on what is really happening. Mr Holden has done us a service by revealing the truth – and alerting us to the very real danger that completely unrepresentative minority views can exercise a disproportionate and hidden influence on how our country is run.
It might have been hoped that the National Party would be particularly alert to the dangers. They have, after all, been burnt in the past by their willingness to take money from donors with a purely sectional interest. Have they so quickly forgotten Don Brash’s disastrous flirtation in 2008 with the Plymouth Brethren?
Bryan Gould
10 April 2016