The President As Hero
Donald Trump is, as we all know by now, a simple soul. The real world may present him with all kinds of intractable problems, but there is always room in the Trumpian world for the President as hero, riding to the rescue and calling “Hi ho Silver!” or, in his case, “Increased tariffs on imports!”
This is not to say that President Trump has not identified a real problem – it is the proposed solution that is a little less than convincing. As the President looks at the American economy, he is right to ask why the United States, with all of its industrial power, is a less efficient producer of steel and aluminium than many other countries who can supply the America market at prices significantly lower than those charged by domestic producers.
He is also right to recognise that this state of affairs is both a consequence and a cause of the de-industrialisation that has destroyed so many American jobs in what has now become known as the “rust belt” – a region that delivered so many votes to Trump in the 2016 election.
But, instead of facing facts, and listening to expert opinion on what needs to be done by way of increased investment, better skill training and a macro-economic environment that is better able to encourage innovation and efficiency, President Trump has gone straight for the apparent and simplistic solution. If foreign suppliers can undercut American producers, he reasons, it is nothing to do with American shortcomings but is attributable to unfair practices by dastardly foreigners, and the problem must be faced by raising the prices that they unfairly charge, whether they like it or not.
The problem is that, not surprisingly, they do not like it, and they are all too likely to retaliate. So, in addition to coming up with a “solution” that simply entrenches the real problem – the relative inefficiency and therefore uncompetitiveness of American industry and their propensity to charge more than the going rate – President Trump has launched a trade war that will hurt not only the American economy but the global economy as well.
Protection for domestic industries is of course a remedy to which many economies have quite properly had recourse – particularly when, as in the case of post-war Japan, they are trying to build or re-build their industrial strength. (Not all countries are as naïve as New Zealand in ignoring economic realities and unilaterally throwing open its borders to all comers, without securing any corresponding benefits in return so that they have nothing left to offer when it comes to multilateral trade deals.)
But it would be stretching credulity to a considerable degree to treat the US as a developing economy that needs protection if it is to survive as an industrial power. Even the President’s own advisers and Republican political supporters are aghast at what he has now so proudly announced as an instance of putting “America first”. They can see that his supposed solution is in reality no more than an admission of failure, and that it will in reality make matters worse, as America’s trading partners have recourse to retaliatory measures as an expression of their displeasure.
President Trump, however, is so deluded and so persuaded by his comic-book version of how a “President as hero” should behave that he avers that “trade wars are good and are easily won.” The reality is that, as even a cursory survey of history would reveal, trade wars are not only bitter and destructive but also, in the end, dangerous, and can be a precursor to wars of a rather more militaristic kind.
At the very least, a trade war developing off the back of this Trumpian “solution” could be damagingly inimical to the interests of a small open economy such as New Zealand. “Free trade” may not always be what it seems – particularly when it takes the form of a TPP – but we have more to lose than most if trade barriers are re-erected. We should always be alert to the price we are asked to pay for apparently “free” access to overseas markets (like China), but we should be under no illusion that we could be badly hurt by this latest outburst of simple-mindedness from the White House.
Let us hope that, for once, the Republican party will recognise its responsibilities and keep their wayward toddler under better control, and unable to throw his toys out of his playpen.
Bryan Gould
9 March 2018
What Has Happened to Australian Sport?
Australians love their sport and, as we all know, they are very good at it. But, in recent times, the evidence is mounting that their proud record is being sullied by the unavoidable conclusion that there is something seriously wrong with Australian sport.
The most recent evidence to support this thesis came in this month’s first cricket test between Australia and South Africa. David Warner’s scuffle with a South African player, and Nathan Lyon’s bizarre and nasty action, having run out the South African A.B. de Villiers, in appearing to drop the ball on his face as he lay on the ground, came in the wake of a series of similarly unpleasant moments, many of them involving cricket.
We do not need to go back far to recall the “underarm bowling” incident involving our own cricket team and it was, after all, the Australians who invented both the term and the practice of “sledging” – the use of constantly repeated nasty and personal remarks designed to unsettle one’s opponents. This practice – which has now become something of an art form, and is defended as a legitimate element in Australia’s game-day strategy – is not restricted in Australian sport to cricket; indeed, it reached its high (or perhaps one should say low) point when Nick Kyrgios, the notoriously badly behaved Australian tennis player, remarked to an opponent as they crossed at the net in a close match, that he should know that his girlfriend had slept with another named player.
What is disturbing about these incidents is that they are not just lapses on the part of wayward individuals but seem to be endemic in, and part and parcel, of the underlying attitude to sport in Australia. So important has sporting success become to the Australian psyche, it seems, that “anything goes” as long as the victory is secured.
Most Australians would dismiss any talk of “fair play” or of “the spirit of the game” or of “sportsmanship” as the talk of “losers” or, at best, hopelessly old-fashioned. A deliberate aggressiveness is thought to be the key to success and, when victory is won, an excessive triumphalism is expected as the appropriate Australian response. And, if a David Warner or Nick Kyrgios is criticised for bad behaviour, most Australians would defend them and their actions as long as they win – indeed, as with sledging, the bad behaviour is seen as an essential part of a winning strategy.
None of this might matter if it were a purely sporting phenomenon. But attitudes such as these, seen in sport, are (predictably enough, given the important place occupied by sport in Australian society) sadly reflective of the attitudes that increasingly imbue Australian society as a whole.
Individual Australians can be the nicest people in the world, but I am sure I am not alone in having noticed an increasing intolerance of other views, an unwillingness to consider the interest of others, and a harder-edged nationalism in the voice and face that Australia now displays to the rest of the world, and not least to their friends. It is as though the citizens of the “lucky country” can hardly believe their luck and are determined to make sure that they make that luck pay and that no one else tries to muscle in. These trends seem to have been exacerbated by the growing realisation that Australia has the opportunity to play an increasingly important role in the region and in the world as a whole.
The best friends are often those most prepared to speak frankly. The risk in speaking frankly, though, is that offence is taken. But the risk is worth it – and, in sporting matters, as long as the Bledisloe Cup continues to elude our Aussie friends, we are well-placed to put up with the odd bit of sledging when we point out the (sadly and increasingly) obvious.
Bryan Gould
7 March 2018
New Zealand Must Grow Up In Trade Matters
New Zealand’s involvement with the rest of the world, in trading and economic terms more generally, has always been atypical. For the first century or more of European settlement, the country developed as an economic appendage of Britain. Virtually all of our trade took place with Britain; they took almost all of our primary production, in return for which we offered preferential access for British manufactured goods.
But that cosy pattern, which meant that we did not have to worry too much about trade agreements and markets, was disrupted dramatically by two major developments in the 1970s and 1980s. First, Britain joined what was then the Common Market, and was accordingly obliged to play its part in reducing what was popularly called the “butter mountain” by buying expensive and otherwise unsaleable food in preference to our own more efficient production. Secondly, and just as importantly (though with much less fanfare and public concern), Margaret Thatcher and Ronald Reagan agreed to remove exchange controls – a move which suddenly meant that the owners of capital could roam the world, looking for the best investment opportunities (which often meant the lowest labour costs or the most accommodating regimes concerning tax, labour laws, and health and safety requirements).
New Zealand suddenly found itself not only bereft of markets for its main exports but also a target for multinational corporations looking for safe investments and easy profits. Much of our recent history in, and attitudes towards, international trade and economics is attributable to these two shocks to our system.
As luck would have it, these changes in the international context took place at the same time as a domestic economic revolution was under way. “Rogernomics” not only swept away subsidies and elevated the unfettered market to an unchallengeable status at home; it took the same “free market” ideology into the international sphere. The counterpart to the “free market” domestically was “free trade” internationally.
So, we took with us, as we looked for markets to replace those we had lost, a commitment to aggressively dismantling tariffs – and, in order to show our ideological commitment to the principles of free trade and free markets, for which we were receiving plaudits from right-wing commentators around the world, we proceeded to remove unilaterally our own tariffs and protections for our own industries without bothering in many cases to get anything in return. This naïvete – there is no other word for it – was to cost us dearly.
It colours still our attitude to free trade. In the absence of the managed trade we enjoyed as an economic colony of Britain, and unable to find a suitable replacement for that cosy arrangement, we became obsessed with the need to reach trade agreements with all and sundry. The signing of each new deal was represented as a return to nirvana; the emphasis was always on the boost each new deal would supposedly mean to our exports and economic growth, with virtually no account taken of what free access to our market for powerful competitors would mean for domestic production.
The excessive value we placed on new markets led us to count our chickens before they were hatched and to treat as achieved realities what might only be distant prospects. “Free trade” agreements were sold to the general public by listing, long before they had materialised, the supposedly long lists of manifold benefits to our exporters that would be delivered. The recent TPP negotiations, for example, were constantly justified by the confident and repeated expectation that a TPP agreement would provide us with tariff-free access to the US market for dairy produce.
Such a prize would certainly have been worth a good deal, but our naïve optimism on this score should surely never have survived the repeatedly stated determination of the American dairy industry to resist any such concession. As it happens, that mirage has been swept away in case, at least for the time being, by Donal Trump’s decision to have nothing to do with a TPP.
None of this means that we should turn our backs on free trade. The case for free trade in principle is as strong as ever. As Adam Smith and David Ricardo argued, it is free trade that allows each economy to concentrate on what it does best, that encourages weaker and smaller economies to trade successfully with stronger ones, that means that there is a constant stimulus to greater efficiency and innovation, and that develops economic bonds between countries which support the general comity of nations.
But, as always, arguments in principle need to be tempered by what is known or foreseen as to practical realities and consequences. Free trade between a stronger and a weaker economy can all too often mean that the stronger simply reinforces its advantage while the weaker slips further behind. All depends on the stage of development of the economies concerned.
Most of the world’s economies have at some stage in their development recognised that some protection for their own domestic industries is needed. Japan is a case in point. In the course of re-building Japanese industry following their disastrous defeat in the Second World War, Japan did not hesitate to use tariffs and other non-tariff protections (such as an under-valued yen) to give their industry the chance to build its strength. It was only once they could be sure that Japanese industry was big and strong enough to be internationally competitive that they became enthusiasts for and practitioners of free trade.
In New Zealand, however, we have blithely ignored such reasoning. We have rejected any notion that we might not be a fully developed and internationally competitive economy and have wilfully saddled ourselves over long periods with an over-valued currency. If we insist on committing to free trade for ideological reasons, we should at least have enough sense to give some weight to the foreseeable and adverse practical consequences.
Our naïvete in these matters has become even more evident when we have attempted to negotiate trade agreements, and have discovered that our premature and unilateral disarmament in matters of protection has meant that we have literally nothing to offer in return for the improved access to other markets that we seek. Trade partners that already have free access to our market see no need to offer us concessions in return for concessions we have already granted to them.
Nor does it stop there. With the development of the global economy – the direct consequence of the free movement of capital engineered by the Thatcher/Reagan ending of exchange controls – we have discovered that our economic relations with other economies are not limited simply to matters of trade. In such a global economy, the price we are asked to pay for trade (and, more particularly, investment) can extend well into the domestic policies we wish to apply.
A good illustration of this point was the demand made by Warner Bros that, if we wanted them to make films in New Zealand, we would have to change our labour laws, so that the people they employed were not to be regarded as employees with all the rights and protections provided under our law to employees, including the right to belong to a union, but should be treated instead as independent contractors, negotiating individually with the US film company. To the great shame of our then government, the law was changed to suit Warner Bros.
We can see the same demonstration of the imbalance of power between our government and foreign corporations displayed on a much wider canvas. There was much celebration when a free trade agreement with China was signed, and there is no doubt that improved access to the Chinese market is of considerable benefit to our exporters.
But we have been very slow – and reluctant – to recognise that our economic relationship with China looks somewhat different when seen from China rather than from New Zealand. For the Chinese, quite self-consciously on the way to becoming a global super-power, merely being able to buy our production is not enough. A true super-power, they feel, must be able to guarantee access to the products it needs. It should not have to rely on doing trade deals, or bidding in auctions – what is needed is not the power to buy a product produced by someone else, but the power to own and control the means and process of production itself.
So, the Chinese interest in us is not that they want to be able to line up and compete with other customers to negotiate purchase arrangements for our dairy products. Rather, they want to acquire and control the production itself. Hence, we see the Chinese interest in purchases of dairy farms, the construction or purchase of dairy factories and the marketing by Chinese agents of dairy products made in New Zealand directly into the Chinese market. Their purpose is not to develop a trading partner, but, in effect, to incorporate the New Zealand economy (and particularly the dairy industry) into the Chinese economy.
It is not just the Chinese government that has this goal in mind. Chinese companies doing business abroad invariably act as arms or agents of the Chinese government. Virtually all business deals with Chinese companies will be, in effect, made with the Chinese state. None of this means that we should avoid doing business with China but it does mean that we should be aware of what really is at stake.
A further example of how extensive are the obligations we undertake when we negotiate what may appear to be a simple trade deal is the Trans Pacific Partnership. That Agreement has long masqueraded as a “free trade” deal but, under it, foreign companies can insist, to the point of forcing our government to change the law in New Zealand, that they should have a “level playing field”, by which is meant that we must ensure that their profitability and successful operation is not adversely affected by any legislation we pass.
So, for example, an attempt to restrict the sale of cigarettes or to make the business less profitable could land our government in court, before a specially constituted tribunal. The government would be similarly open to attack if it used its power to negotiate agreements with foreign suppliers that would reduce their profitability. So, Pharmac’s ability to use its monopsonistic purchasing power to hold down the cost of imported pharmaceuticals could be litigated by foreign pharmaceutical companies before those same tribunals.
The current government claims to have restricted the range of these provisions in the TPP so that they are not such a threat to our sovereignty and democracy, but only time and practical experience will tell us if that is so. Even setting aside the specific provisions of a TPP, however, there is no doubt that – for a small economy – getting into bed with powerful foreign corporations is fraught with danger, and almost inevitably raises the possibility of a loss of our power to decide important matters for ourselves. Those corporations almost invariably want more than the goods themselves; they want to guarantee that they have the rights and protections that are properly available only by decision of our government.
Without selling ourselves unnecessarily short, it is surely prudent to recognise that – in making trade deals with larger entities – we are a minnow getting into a global tankful of sharks. If we are to survive and prosper, we need to be much more hard-headed and understand exactly what we are up against. We need a much tougher approach than we have seen so far if we are to avoid being bought and sold by those who see us as fair game. If we are not careful, by the time we wake up, it will be too late, and – for the sake of “free trade”, we will have sold our unique productive capacity and assets to foreign owners and with them the power to ensure that the benefits they produce come to New Zealand, rather than to those foreign owners.
Bryan Gould
22 February 2018
A Period of Silence Would Now Be Welcome
In the aftermath of England’s loss to Scotland at Murrayfield last week, a British rugby writer said of Eddie Jones that “a period of quiet reflection, with an emphasis on the ‘quiet’ is now required” – shades of Clement Attlee’s famous rebuke to Harold Laski in the postwar British Parliament when he said, “a period of silence from you would now be welcome”.
It might certainly be hoped that the observation by former England hooker, Steve Thompson, that the Scotland defeat showed that “England are not as good as they think they are” (or, at least, as Eddie Jones says they are) will be taken on board. And it might also be an opportune moment to re-assess Eddie Jones’ credentials as a coach.
It should first be conceded that Eddie Jones inherited an England team at a low ebb, following their disastrous dismissal in 2015 from the World Cup tournament of which they were hosts. The comparative success they have since enjoyed has no doubt been seen in greater relief than might otherwise have been the case, given what went before – and might partly explain why Eddie Jones has been welcomed as a saviour or demi-god whose every word is treated as gospel and repeated ad nauseam (literally) by an adoring media.
If we are to make a proper assessment, we should start by taking into account the huge resources, both financially and in terms of player numbers he has had to play with. Even an average coach should have been able to turn these to account.
Has he, however, done better than an “average” coach might have done? Let us first recognise those things he has done well. Almost all commentators (and his players as well) accept that he has worked hard to make his players fitter (some would even say that he has, on occasions, worked his players too hard, so that they are exhausted by match day). But England are certainly now up to international standard in terms of fitness (as they may not have been before), though it is doubtful if they now have any advantage in that respect over other top teams.
As a selector, he has a somewhat spotty record. He has been loyal to those he likes – Dylan Hartley and James Haskell example – and that is a plus, but he has been slow at times to recognise limitations in those he selects – as in the case of Chris Robshaw – and he has sometimes resisted making more adventurous selections.
He has clearly succeeded in building the confidence and self-belief of his team, which were sadly lacking when he took over. But there is a downside to his constant assertion that England are destined for World Cup glory and world number one ranking. It has certainly helped to build his own image with the English rugby public, but unrealistic expectations can be just as oppressive for the team as downplaying its chances.
A fitter and more confident England are undoubtedly achievements, but more should be expected of a top coach. England may be training harder, but are they training to better effect? Are they building their skills and techniques? Are they better able to change tactics and strategies mid-game?
Eddie Jones has shown little aptitude in these respects. As confident prospects of a Grand Slam and a Six Nations title crumbled in the Scotland game, England’s defensive weaknesses and apparently complete absence of any attacking ideas were clearly shown up. It may be beginning to dawn on the English rugby public that these deficiencies have to be remedied (and if not by the coach, then by whom?) if England are to compete for top honours.
The former England loose forward, Neil Back, has warned that, if Jones does not remedy them, England could well lose the remaining two games – against France and Ireland – of the Six Nations Championship.
We should never forget that Eddie Jones’ stint as Wallaby coach came to an unsuccessful end, which may explain why he so much enjoys the adulation heaped upon him by British media who are unduly grateful for small mercies. It will come as a welcome relief to the international rugby public if he now refrains from making extravagant and unsupported claims about England’s future international standing and prospects and if the English rugby media treat those claims with a little more scepticism.
England may yet overcome their current problems and confound us all by soaring to new heights. If and when that happens, that will be the time to celebrate. In the meantime, a less garrulous Eddie Jones would be welcome. When it comes to boasting, less is usually more – and timing is everything. It always works better if it comes after, and not before, actual achievement.
Bryan Gould
27 February 2018
How to Make the Regional Development Fund An Even Better Idea
Our new government will have surprised some people with its confident start, and not least with one of its better ideas – the establishment of a Regional Development Fund. We now know enough about this proposal to recognise just how valuable it will be, not just to the regions but to the whole country.
That it will deliver a boost to those parts of the country whose economy has been languishing cannot be doubted. The focus on communications and transport alone, with the special emphasis on rail, will help to bring far-flung areas of the country back into the mainstream, able to share better in the prosperity to which we have all contributed. And better rail communications will not only keep trucks off our roads but will benefit enterprises such as the Port of Tauranga.
But it is not just economic activity and output that will benefit. It will be local employment as well – and more jobs will provide a shot in the arm to retailing, construction, new investment – a veritable virtuous circle.
And even beyond those considerations will be the benefits to the environment that are clearly being targeted. Tree-planting on a large scale will boost forestry but will also help us to meet our greenhouse gas target. The shift in transport policy away from building more roads in favour of updating our rail network will do likewise, as well as reducing the road toll and opening up new development.
The one fly in the ointment, perhaps – especially for those conditioned by years of being told that cutting government spending is the top priority – is the cost of these measures. Funding all these initiatives from one dedicated new fund is a good idea, but the money for the fund still has to come from somewhere, doesn’t it?
Even though it may be clear that the rewards and returns from making this kind of investment in our regions would satisfy even the hardest-headed private investor, the question as to where the money to be invested comes from in the first place will still be asked.
Well, not necessarily. You may be surprised to hear that the one thing that governments are never short of is money. How do we know that? Because governments all around the world have been creating large quantities of new money for the past ten years or more. They haven’t called it “creating new money” but have preferred to call it something like “quantitative easing”, but creating new money is what it is.
When governments have created new money over recent years, however, their aim was usually the limited one of providing money to the commercial banks so that, after the Global Financial Crisis, they could re-build their balance sheets. But new money created by governments does not have to go on such limited purposes – indeed, creating it to invest in the productive economy so as to produce an immediate return to the country as a whole makes a good deal more sense than just helping out the banks.
And experience in earlier times and in other countries, has shown just that. Many countries have in the past created new money to fund increases in output – whether it was Japan re-building its industry after its defeat in the Second World War (and they are doing so again today) or President Roosevelt building American industrial capacity in preparation for that same conflict. What those countries both realised was that the need and the capacity to increase output both existed, and that it was ridiculous that such an effort should be frustrated for the lack of money, when the government could create all the money that was needed.
Our own history offers us one of the most important instances of this being done. In the 1930s, in the middle of the Great Depression, the great Michael Joseph Savage authorised the creation of new money so that thousands of new state houses could be built, thereby providing jobs for the unemployed and homes for the homeless and – incidentally – an income-producing asset for the government.
As the economist Ann Pettifor (who recently visited New Zealand) remarked, “We can afford what we can do” – in other words, the real constraint is not the lack of money but a lack of productive capacity, and that constraint, for those who believe in a market economy, is easily overcome. If the money is there, the capacity will come. Money is merely a facilitator or enabler and it makes no sense for a government that is ready to create new money for other purposes to decline to do so for productive purposes, if the need is there and the capacity can be built.
The great economist, John Maynard Keynes was very clear. Given that the banks create new money every day of the week for their own profit-making purposes, why shouldn’t governments do likewise for the purpose of investing in our productive capacity? Creating money by the government cannot be inflationary, said Keynes, if it is matched by increased output – and isn’t increasing output exactly what the Fund is designed to do and will achieve? Why shouldn’t the government use all of its powers to support such a worthwhile goal?
Bryan Gould
25 February 2018