What Went Wrong?
The crisis in the dairy industry is of course a savage blow to many individual dairy farmers. There is no tougher job than running a dairy farm, and it can only get tougher when the expected rewards for all that effort do not materialise. For some – too many, it will mean the end of the road.
The consequences for New Zealand as a whole will also be serious. There will be many suppliers and traders who will suffer, the general level of economic activity and output will fall, and our perennially worrying trade deficit will get worse.
The crisis has of course been brought about by the worldwide slump in dairy prices, caused in turn by factors, such as increased European production, falling Chinese demand and the closure of the Russian market, over which we have little control and for which we cannot blame our government.
But our policymakers cannot escape all responsibility for our current plight. They are guilty, to use an agricultural metaphor, of putting too many eggs in one basket and of not using the good times to prepare for a rainy day. We have blithely increased our dangerous dependence on a single commodity and have done little to broaden our economic base, with the consequence that we have little to fall back on when the rains come.
The government was happy to take the credit for the dairy price boom. They must now look at how well they managed the boom times to prepare for the tougher times that, in a cyclical industry, would inevitably come. Sadly, they did little.
Indeed, the government has quite deliberately increased our reliance on dairying, by itself providing important financing for capital-intensive projects like irrigation so as to speed up the conversion to dairying – done without regard for environmental considerations and creating exactly the kind of farming that is most vulnerable to falling prices.
And, they have been far too optimistic in assuming that the Chinese market, on which we have become heavily reliant, would go on growing. Even without the current downturn, it is surely prudent to recognise that the long-term Chinese goal is to make themselves as nearly as possible self-sufficient in dairy, as in other products. Free trade agreements, in any case, do not always deliver what they promise – just ask our exporters of wood to China.
But, the apologists will say, as dairying declines, tourism is booming. The tourism industry deserves congratulations on its success; but, before we become too self-congratulatory, we should at least acknowledge that countries that rely on tourism for their foreign exchange earnings are usually found in the ranks of developing economies – countries which struggle to pay their way through selling competitive goods and services into international markets.
Is that where we see our future? And, since our unique selling point is the space, tranquillity and beauty our country offers, can we expect to go on increasing tourist numbers without damaging the very virtues that tourists seek and are willing to pay for?
So, what is to be done? In the short term, it is clearly essential that dairy farmers are able to weather the storm and stay on the land. The banks have a crucial role to play. The Reserve Bank, itself a bank whose primary concern is the health of the banking system, assures us that the banks are strong and secure and have the capacity to withstand any likely losses. That presumably means that they expect little impact on the more than $4 billion record profits that our Australian-owned banks send back to Australia every year.
That may be reassuring, but in a contest between the maintenance of record bank profits and the health and survival of our dairy industry, there can surely be only one winner. The national interest requires that the banks should exercise some forbearance, even at the cost of some short-term dip in their profits.
Lending and borrowing are, after all, matching parts of a single and voluntary transaction. The borrower understands the risks and penalties of failing to repay a loan, but the lender also agrees the deal with their eyes open. They must be ready to stand by their decision to lend and to bear the consequences if the loan is not, or cannot be, repaid. And we must never forget that the money supposedly lent by the bank is created by the bank for that purpose; they are able to charge interest and require security, not on real money but on a book entry.
None of this dissuades the usual suspects from expressing shock and horror that we might look to the banks to play their part in resolving the dairy crisis. For those commentators, it is clear that the farmers can go to the wall, as long as bank profits at their current level are sacrosanct.
The real lesson, however, is this. We will get through this crisis, albeit at a considerable price in both individual and national terms. When we do, we must put in place policies that ensure we are no longer so vulnerable to a downturn in a single commodity.
Bryan Gould
18 March 2016
The Left Case for Brexit
An uncommitted reader of the British press would rapidly conclude that, on the issue of the UK’s continued membership of the European Union, there is an easily-drawn dividing line. Those who favour withdrawal are on the right in political terms; those who would retain membership are on the left.
Readers of the centre-left or liberal press would go further; coverage of the issue would suggest that the supporters of Brexit are not only right-wing, but ignorant, prejudiced, xenophobic, or just plain deranged. The possibility that there is a perfectly rational and moderate 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.
My own involvement with this issue goes back a long way. As a new recruit to the Foreign Office in 1964, I worked on Common Market issues and later, from our Brussels embassy, I 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, politically, and inevitably, an integral part of that entity, however defined. The question was not whether, but what kind of Europe?
I came 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.
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, through the Common Agricultural Policy, to whose costs Britain was and remains a major contributor, a substantial increase in food prices and therefore in domestic costs, making British manufactured goods more expensive. It also meant an end to preferential markets beyond Europe, and opened us up instead to direct competition from more efficient manufacturing rivals in a single European marketplace.
But have we not derived great advantage from our trade with the EU? Well, hardly. Let us put to one side the very large annual contribution we pay to the EU (a continuing burden, as it happens, on our balance of payments). We have now run a trade deficit every year since 1982, which was just as the full impact of EU membership took effect – not just 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.
The result is that our manufacturing sector has shrivelled away, and our net investment in new manufacturing capacity is virtually nil. We are of course solemnly warned that our EU partners will refuse to trade with us if we insist on a different and better Europe; but are they really going to turn their backs on a one-sided trade relationship that has been so much to their advantage?
The weakness of the case for continuing membership of the current arrangement is shown by the fact that it is almost always articulated in terms of rival pessimisms; we are constantly told that the burdens of membership are outweighed by the risks of being left out in the cold.
But we should take courage from the lessons of experience. Similar arguments led us to join the European Monetary System, which proved disastrous, and were then repeated in respect of 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, and there is no reason to suppose that they have any greater weight in the current debate. Our trading partners in Europe need us at least as much as we are said to need them, as post-Brexit negotiations would surely demonstrate.
In any case, a decision in favour of Brexit would not mean, as is so often alleged, turning our backs on Europe. It would signal instead the opening of a new agenda, aimed at developing 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, as a manifestation of free-market capitalism, serving the interests of big business rather than those of ordinary people. It would not impose a policy of austerity in thrall to neo-classical economic doctrine. It would not run a hugely diverse economy in terms of a monetary policy that suits Germany but no one else. It would not impose a political structure decided by a small elite, but would allow the pace of cooperation and eventually integration to be decided by the people of Europe as they and we became more comfortable with the concept of a European identity.
If we have the courage, we could, in other words, not only benefit ourselves but help the development of a Europe that truly does serve the people of Europe. That is surely a project to attract even the most enlightened of bien pensants.
Bryan Gould
17 March 2016
Jumping the Gun – and the Flag
I voted in the flag referendum today. I didn’t particularly want to, so I did it without great enthusiasm. I did it as a matter of civic duty.
I can see why some people want to change the flag. But I like it, mainly because I know it and it’s familiar and comforting. I’m used to thinking “that’s our flag” and feeling patriotic when I see it. I don’t expect flags to do much more that – I’ve never understood the fervour that some people, particularly Americans, feel for their flag. I don’t expect the flag to be a triumph of design or to burst with significance or to make my chest swell with national pride. A flag is just a flag.
I agree with the current flag’s critics that it suffers a couple of quite significant drawbacks. It’s definitely an oddity that it includes the flag of another nation. The Union Jack is a relic of our past, and even relics have their sell-by date; this one is surely getting perilously close. On the other hand, flags are not logos or brands, requiring to be constantly up-dated. It’s not unreasonable that an important part of our history – one that is almost deliberately played down today – should have made an appearance when the flag was adopted over a century ago and that some reminder of that past should still survive. And, as those of my generation will attest, that reminder was still of some significance during some of the most important moments of our history. In any case, it’s not just a relic; it accurately reflects, like it or not, our current constitutional arrangements and our links with the British crown.
The second drawback is its similarity to the Australian flag. The confusion this engenders can only play to the constant tendency overseas to lump us in with the Aussies in what is a barely recognised “little brother” role if we are lucky. Perhaps it’s the Aussies who should break that particular deadlock and strike out for a new identity?
That brings me to the question of timing. For the reasons I mention, I recognise the case for a new flag and I’m not opposed to deciding on one in the fullness of time. But, while some enthusiasts have been campaigning for a few years, I detected – and still do not detect – an upswell of national feeling that now is the moment – that we must not wait another day before making the change.
There is far from a consensus, in other words, on the need to make what – if and when it is made – will be a momentous decision. It is that absence of a demand for change that leads so many of us, I suspect, to feel a sense of vague irritation that this is a manufactured issue that has been foisted on us – at considerable cost, time and trouble, and at the expense of other more important matters. Why unnecessarily invent an issue that can, at this point, only divide the nation?
There will come a time when the issue of the flag will move of its own accord to the top of the agenda. We can’t foresee exactly when, but we’ll know when it happens, and it could be sooner than is currently thought. In the meantime, there is a strong sense that someone has jumped the gun.
If I were to hazard a guess, I would look to a point when Queen Elizabeth II’s record-breaking reign has ended, and when the move to become a republic has taken its virtually inevitable course. When and if that happens, the case for changing the flag will be undeniable and the public will rightly recognise the need to do so.
This sense that the timing is premature is supported by the fact that efforts are currently having to be made to drum up support and interest – at further cost no doubt – when most people would, at this juncture in our affairs, rather not be bothered. And it is further bolstered by the botched nature of the process that has produced the unconvincing alternative design.
When we finally decide that the time is right for a new flag, we should at least take the design of the new flag seriously. The panel appointed to drive the current process comprised excellent people, but none had any design experience or skill. Public approval for a new design is of course required, but the public does not have the competence to produce properly designed candidates from which to choose.
The shakiness of the process was demonstrated when it took only a minor campaign in the social media to persuade the Prime Minister to undermine the validity of the original short list and to add to an already uninspiring collection a fifth candidate of no particular merit.
I expect – or at least hope – to live long enough to see a brilliant new flag adopted by Aotearoa/New Zealand. But that is not for today.
Bryan Gould
10 March 2016
Trumpery Is the Last Thing We Need
The US matters to us. If we must have a global super-power, we’d rather it was the US than anyone else. That is why, observing from the sidelines, we have a growing sense of incredulity and consternation as the battle for what is often touted as the leadership of the free world unfolds.
We are of course accustomed to the excesses that, in our terms, often characterise American public life. But, even then, it is hard to comprehend that a figure as bizarre and extreme as Donald Trump could be taken seriously by American voters.
It is at least of some comfort to know that there are many Americans who share that distress. Nicholas Kristof, writing this week in the New York Times, reports that he invited his followers on Twitter for words beginning with “p” to describe Donald Trump and was rewarded with a deluge, ranging from “petulant” to “pompous” and on to “pernicious”.
It is not as though there is anything special about “p”. Choose any letter you like. “B”? What about “bombastic”, “blustering”, and “bigoted”?
The odd thing is, however, that we do not need to scour the dictionary for a word that accurately captures the essence of Donald Trump. There is a perfectly good English word, with a respectable provenance, that pithily says it all and is just waiting for its moment in the sun. That word is “trumpery” – and it could, I suppose, be spelt with a capital T, if one wished.
The dictionary definition tells us that “trumpery” means “foolish talk or actions”, with a secondary meaning as “useless or worthless”. How extraordinary that here is a word that has existed for centuries and has innocently waited all this time – unsung and unheralded – for a Donald Trump to come along and embody its meaning as though it was his sole purpose in life.
There must, surely, be a small possibility that Donald Trump has been aware of the word from an early age and perhaps developed an irrational fixation and affinity for it. That would explain why his name is now Trump – so that even his name is “trumped up” – and it may even suggest that he has deliberately tailored all his actions and speeches since then so as to fit the word that so appeals to him.
These are possible explanations for Donald Trump’s extraordinary behaviour during the primary campaigns. But none of then goes all the way to explain how the foolishness of “trumpery” has become something darker and more worrying.
Trump is, after all, the classic demagogue. He has learnt how to amplify and exploit the prejudices of his supporters. He recognises no responsibility to take on the true tasks of leadership, to explain and educate; indeed, he glorifies ignorance, trumpeting that “I love the poorly educated”.
He offers no solutions to difficult issues, other than the bombastic and egocentric assurance that he is himself the solution. He has learnt that, in the age of celebrity, the greatest risk is to stay out of the headlines. He cares little for the damage he may do to social integrity and the interests of women, or those of different ethnicities and religions, still less to America’s standing in the world; that is just another sacrifice required of the American people in order to secure the greater good – the election of Donald J. Trump. He knows that there is little or no downside in being outrageous, as long as the television cameras are there to record it – and no one does “outrageous” better.
So confident is he in his ability to capture the headlines – any headline – that he does not bother even to try to conceal what he is really about. “If I were to pull out a gun and shoot someone,” he boasts, “people would still vote for me.” It is that combination of apparent frankness and readiness to shock on the one hand and calculation and cunning on the other that makes him so dangerous. “Trumpery”, sadly, is only the half of it.
Bryan Gould
7 March 2016
A Distorted Trade Pattern Isn’t An Advantage
We were treated this week, by Chris Giles of the Financial Times, no less, to an amazingly convoluted piece of logic. To support the constantly repeated refrain that Britain has no option but to stay in the EU, because there are no other viable choices available, he asserts that we derive unmatchable trade advantages by virtue of the simple fact of our geographical proximity to the European market.
He supports this assertion by pointing to two comparisons which he apparently finds convincing. New Zealand and the Czech Republic are economies of roughly the same size, but the UK does nearly four times as much trade with the latter as with the former, he says, and he goes on to make a similar point when comparing our trade with Australia and Spain.
This demonstrates, he says, that our easy physical access to the European market makes all the difference. Leave the EU, and we would lose that irreplaceable benefit.
This argument is so full of holes that it is surprising that Mr Giles thought it worthwhile to make it. First, it would be hugely surprising if the figures did not show that kind of pattern – 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 customs union on the one hand and tariff barriers 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 Mr Giles celebrates had not materialised.
But that entirely predictable outcome is far from settling the question as to whether it is inevitable or even desirable, or whether it renders other outcomes beyond reach. And 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.
In line with the consistent pessimism that tells us we must accept the European option, since it is the best we can expect, it is often forgotten that joining the Common Market in 1972 represented for Britain a restriction of our trading opportunities and an abandonment of a rational and long-established trading pattern that was mutually beneficial for both ourselves and our partners.
That pattern had provided the British consumer with not only the cheapest and most efficiently produced food and raw materials from around the globe, but also preferential markets for British manufactured goods overseas.
That in turn allowed a cheap food policy at home (using subsidies to farmers to bridge the gap between the costs of domestic and foreign production), and cheap food in turn meant that manufacturing costs could be kept down, thereby creating a significant competitive advantage over Britain’s otherwise more competitive manufacturing rivals.
Common Market membership brought an end to these advantages. It meant, through the Common Agricultural Policy, to whose costs Britain was and remains a major contributor, a substantial increase in food prices and therefore in domestic costs, making British manufactured goods more expensive. It also meant an end to preferential markets for those goods overseas, and opened us up instead to direct competition from more efficient manufacturing rivals in a single European marketplace.
Today, in a country like New Zealand, British cars and other manufactured goods are rarely seen. They are little lamented, since the British market for New Zealand produce is also much reduced. Can we be surprised that trade with New Zealand, Australia, and other Commonwealth countries (which now include some of the world’s fastest developing economies) has languished? Didn’t we guarantee that outcome?
But what of the other side of the coin? Have we not derived great advantage from the trade we have developed with the EU?
Well, hardly. Let us put to one side the very large annual contribution we pay to the EU (a continuing burden, as it happens, on our balance of payments). We have now run a trade deficit every year since 1982, which was just as the full impact of EU membership took effect– not just a coincidence, since the greater part of that deficit is with the other members of the EU, and much it arises in the trade in manufactured goods.
The result is that our manufacturing sector has shrivelled away, and our net investment in new manufacturing capacity is virtually nil – not really the kind of success that Mr Giles wishes to celebrate and that we are told we cannot afford to lose. And, when we are solemnly warned that our EU partners will refuse to trade with us if we insist on a different and better Europe, are they really going to turn their backs on a one-sided trade relationship that has been so much to their advantage?
Mr Giles has, however, effectively made one point. The essence of what he is saying is that we cannot survive without the current lopsided arrangements, however detrimental they are to our interests. The weakness of his argument tells us that we shouldn’t believe a word of it.
Bryan Gould
26 February 2016