Eating the Seed Corn
Many people are concerned when they see New Zealand assets – land or infrastructure or businesses – sold into foreign ownership. But, we are constantly assured, that instinctive reaction is at best misplaced and at worst an expression of xenophobia. There is, we are told, no cause for concern; indeed, the reverse is true. The willingness of foreigners to pay good money for our assets should be seen as an expression of confidence in our economy and a welcome increase in the spending power available to New Zealanders.
Yet those concerns, those instincts, have considerable substance. Kiwis are naturally concerned when they see a large proportion of our national economy and productive capacity passing into foreign hands – a larger proportion, as it happens, than for almost any other developed country. They don’t need degrees in economics to understand that if the ownership of income-bearing assets changes, so too does the right to the income. Assets that used to benefit New Zealand owners now produce income for foreign owners – and the repatriation of that income overseas imposes a further burden on our already overstretched balance of payments.
The old analogy of selling off the family silver and then living off the proceeds is not easily dismissed. And it is not only the income stream that we lose; we also give up the rights of ownership and control over more and more of our economy, so that decisions of great importance to us are made in foreign boardrooms far away by people who know little and care less about our interests.
The issue is, in other words, not as straightforward as it is said to be. The first step towards a clearer understanding is to differentiate between two different types of inward foreign investment. An investment from overseas in a new factory would at least provide some new employment and tax revenue, even if the profits were sent back to the foreign owners. But where the foreign investment is to purchase existing assets, it has little to commend it, except to the vendors (who might receive a higher price than they would otherwise have done).
There may of course be cases where foreign ownership is a price we have to pay to keep an enterprise going; but even then, foreign ownership, especially where the buyers are overseas (and often Australian) private equity partnerships, is often just a stepping stone to asset-stripping, followed by a quick departure with the loot.
The reality, which is hardly ever spelt out, is that selling off our assets is a sign of weakness and not strength. We do it because we need to; the proceeds are needed to pay for the imports which we otherwise could not afford. It is hard to imagine a more classic definition of a rake’s progress.
Many people will intuitively understand that selling our assets is minus and not a plus, but there is a further downside that may escape the attention of even the well-informed.
The sale of our assets to foreign owners inevitably brings an increased inward flow of foreign capital – but without a corresponding increase in the volume of domestic production, so that the inward flow could be expected to have some (usually adverse) impact on issues like the inflation rate (though this is hardly an issue at present).
But the inflow of foreign capital will also mean an increased demand for New Zealand dollars so that the purchase price for our assets can be paid to the New Zealand vendors. That increased demand will in turn mean, as is true of any commodity for which there is an increased demand, a rise in the value of the New Zealand dollar.
Is this a bad thing? Ask New Zealand manufacturers and exporters. Ask the Reserve Bank. The answer is that a higher dollar hands a price advantage to foreign manufacturers and importers, reduces market share for New Zealand industry both at home and overseas, and – as our dairy farmers will testify – makes exporting more difficult and less profitable. And the net result is a worsening balance of trade.
That is why the recent fall in the New Zealand dollar has been welcomed as helping New Zealand exporters and manufacturers, and also why the Reserve Bank, which might normally want to raise interest rates in order to cool the housing market, has refrained from doing so – for fear that higher interest rates would push the New Zealand dollar higher and choke off the slight recovery in our productive sector.
It is the role of our high interest rates in pushing up the exchange rate and handicapping our producers that usually attracts all the attention. But it is less well understood that there is a further culprit – the inflow of foreign capital as we sell off more and more of our assets.
We have created for ourselves, in other words, a vicious circle. We sell assets because the high dollar means that we have a perennial trade gap and we need to bridge that gap; but selling assets helps to drive the dollar still higher, the trade gap widens further as a result, so we have to sell yet more assets. We are paying the price for failing to face our real problems.
Bryan Gould
24 January 2016
Covering All Bases
It is one of the peculiarities of a Westminster-style constitution that the power to conclude international treaties rests exclusively with the executive – in our case, with the Cabinet. The Trans Pacific Partnership (TPP) is no exception. While a National Interest Analysis will be prepared by the Ministry of Foreign Affairs and Trade, and will most likely be considered by a Select Committee, our elected representatives can – if the government wishes – be totally ignored.
This constitutes not only a potentially damaging side-lining of parliament but also a denial of democracy itself; it continues a process that has been throughout characterised by secrecy and the contemptuous refusal to take any account of public opinion.
Yet it is clear that the TPP is not just a run-of-the-mill trade agreement but a major concession of the powers of self-government to large, international (mainly US) corporations. The treaty provides those corporations with the power to over-ride elected governments and to re-write the laws of this country in their own interests. There can be no set of issues that should more importantly require the consent of parliament and people.
It is not as though these worrying downsides are to be offset by major trade gains. Our negotiators, having boasted of the improved access we would have for our dairy products, stood by impotently when the crunch came and our interests were almost totally ignored by the big boys. As Joseph Stiglitz, the Nobel Prize-winning economist, pointed out in these pages, the TPP is just about the worst “trade agreement” that can be imagined.
It is little wonder then that those who have taken the trouble to understand the issues and who are concerned at their implications should have looked for other aspects of our constitution that might come to their aid and ensure that the public does not sleep-walk into giving up its powers of self-government for no good reason.
A petition has accordingly been drawn up and signatures invited; the petition is to be presented, not to parliament, since that would be pointless, but to the Governor General. On taking his oath of office, Sir Jerry Mateparae undertook to protect the proper government of this country; the petition invites the Governor General to use his constitutional powers to do just that – to act as a constitutional guardian and to refuse assent to legislation that fails to uphold the rule of law and the principles of responsible government.
On the face of it, the petition would seem to stand little chance of success. Governors General are normally careful to avoid becoming involved in controversial issues and will leave political questions to the government of the day. But there are precedents, in other Commonwealth countries – Canada and Australia – for Heads of State intervening in matters that were seen to be of sufficient importance.
It is a fair bet that the organisers of the petition had no realistic expectation that Sir Jerry would respond positively; all they were hoping for, no doubt, was that he would agree at least to receive the petition and that the resultant publicity would help their cause in some small way.
But Sir Jerry did not respond positively – indeed, he did not respond at all; he may not even be aware of the petition’s existence. The letter to him from the organisers, asking him to receive the petition, was replied to by his Official Secretary – one Gregory Baughen. Mr Baughen made it clear that he would not even ask the Governor General to receive the petition, let alone act on it.
Who is Gregory Baughen? Until a year ago, he was a senior staff member of the Department of Prime Minister and Cabinet, and the head of the National Assessments Bureau, one of the three main intelligence organisations. He was, in other words, a senior member of the executive with special responsibility for a range of security and intelligence matters.
It is this official who has now been transferred across to a quite different, and supposedly independent, part of our constitution. The Governor General’s office is, in principle, above politics, but it now seems to be managed by someone who is best regarded as a representative of the executive. The nature of Mr Baughen’s appointment and his refusal to allow the Governor General even to receive a petition that is arguably on a matter of national (rather than party political) significance suggests that the authorities are anxious to cover all bases, and to take no chances.
Not content with conducting negotiations in secret, and with excluding any consideration of public opinion, the attempt has been made to close down even a scintilla of publicity that might indicate a degree of public concern. Even the public signing of the TPP in New Zealand on 4 February is being so carefully managed that we know about it only because the news was leaked in Chile.
Democracy is necessarily at times a messy and discomfiting business. But when such care is taken to deny it, we should be truly worried.
Bryan Gould
13 January 2015
Is All Fair in Love and War – and Politics?
Many people will agree with the old saying that “all’s fair in love and war”. Others, however, would be inclined to add “and politics” – a view that certainly seems to be taken by some politicians.
I have never accepted the notion that the ordinary principles of decent behaviour should for some reason be suspended when it comes to politics. Someone who lies and cheats in politics is no less a liar and a cheat. Indeed, such behaviour in politics is arguably an even greater offence than it would be elsewhere, since it is brazenly committed by those who owe a duty of trustworthiness to the public, and its significance is likely to have much wider connotations.
There is, nevertheless, no shortage of politicians ready to defy the normal conventions and to behave irresponsibly and dishonestly for the sake of personal or political advantage. The latest recruit – and on a massive scale – to these disreputable ranks is the US Republican presidential hopeful, Donald Trump.
Mr Trump is a colourful character, and nothing wrong with that – though one might have thought that his deliberate cultivation of an image more appropriate to a fairground might have been a disadvantage.
But where he has distinguished himself – if that is the right phrase – is in his readiness to make snap judgments in the most extreme terms on issues that surely require more careful consideration.
Donald Trump seems to have calculated that the only thing that matters is that he should stay in the headlines. He may insult women and virtually every kind of foreigner; he may propose outlandish “solutions” to complex problems, such as building a wall across the whole US-Mexico border to keep out Mexican “rapist and murderers” or banning entry to the US of anyone who could be described as or claiming to be “Muslim”; but his concern is not to make sense but to make news.
This leaves us with a dilemma. Is he to be taken seriously, or is he just a buffoon? The opinion polls suggest, for the time being at least, that he needs to be taken seriously. But that raises a different question. Does he do and say outrageous things in order to capture the headlines – is he, in other words, just a demagogue prepared to say anything – or, even more worryingly, does he really believe what he says?
It is a measure of how self-absorbed a large chunk of the American public is, and of how little they are aware of the world beyond their borders, that they seem completely unaware of the dire picture painted of their public life by the possibility that a Donald Trump could be elected to the Presidency. The rest of the world can only look on in disbelief at the prospect of the free world being led by such an apparently irresponsible loose cannon.
Before we become too self-righteous, however, we should acknowledge that our own public life is not immune from political leaders prepared to act – even if on a substantially smaller stage than Donald Trump’s – in a way that falls short of the standards we might reasonably expect. We might, sadly, not be overly surprised that this is the case – but what is perhaps surprising, and certainly disappointing, is that when such a lapse is brought to the attention of the public, and even more so of the media, the consequences for the wrongdoer are minimal.
This certainly seems to have been the case with the return to Cabinet of Judith Collins. The response has been, in general, a tolerably warm welcome for the return of someone seen as a repentant sinner. The “political comeback of the year” has been portrayed as a matter for congratulation. Her supposedly admirable qualities as a politician – exemplified by her cultivation of the sobriquet “Crusher” – have been celebrated. There is even renewed talk of the possibilities of her ascending to even higher office.
This is surprising, not just because of Judith Collins’ manifest errors of judgment and policy as a Minister (just think of Serco’s contract to run Mt Eden prison), but also because we know quite a lot about her approach to politics. Most people will not have read Dirty Politics but the journalists certainly will have done. We don’t need to rely on hearsay or reportage to judge Judith Collins, because we can turn (for good or ill) to the words she herself actually used in e-mail correspondence with Cameron Slater and others.
No one reading that correspondence can be in any doubt about the distorted view of politics, and political life, held by the returning Cabinet Minister. A political career is, according to this view, not a matter of principle and service, but of bitter and vindictive in-fighting, requiring dirty tricks, ambushes and plotting, all expressed in the language of the gutter.
Before we cast stones at other people’s glasshouses, should we not expect those who report on our own public life to provide us with the whole picture?
Bryan Gould
11 December 2015
Where’s the Christmas Spirit?
When the condemnation by an independent review of “state-sponsored” doping of Russian athletes is reported on Russian television, followed by an assurance from Vladimir Putin’s Minister of Sport that the accusations are groundless and should be ignored, we feel justified in rolling our eyes. “What else do you expect?” we say. Russia may claim to be democracy but we know that Putin has such a hold on Russian opinion that he can get away with murder – and probably does.
When the Fijian police chief resigns, claiming that he can no longer tolerate interference from the military, but is then immediately replaced by an army colonel, we shrug our shoulders. We know, don’t we, that the army is calling the shots, whatever the claims that democracy has been restored, and that Fijian majority opinion will simply accept what they are told.
We, of course, live in a proper democracy. We wouldn’t swallow such nonsense. But when our Prime Minister launches an intemperate and unprincipled attack on those who stand up for human rights as “backers of rapists and murderers”, in an attempt to divert attention from his failure to act on abuses committed against New Zealand citizens by the Australian government, what do we do? Nothing. We, or at least many of us, say “well, he’s got a point, hasn’t he?” And “good old John, he tells it like it is.”
What each of these instances – and there are many more – illustrates is that democracy is about more than form. There are many regimes that parade the trappings of democracy but whose practice actually falls well short of the democratic ideal. The lesson from such instances is that democracy essentially depends on constant scepticism and scrutiny, on not believing everything we are told simply because the person telling us is an authority figure or someone we like or generally support.
It was Thomas Jefferson who is usually credited with the aphorism that “the price of liberty is eternal vigilance”. If that vigilance flags, if we once accept whatever we are told, if we no longer challenge or question, our democracy becomes a mere cipher, and our government can confidently do whatever it likes.
How real is that threat in New Zealand? No one would argue that our government is undemocratic, in the sense that it consistently ignores or flouts public opinion – indeed, quite the contrary, since there is a strong populist flavour in much of what it does.
The risk we run is rather different but perhaps just as real. Our Prime Minister is adept at reading the runes and staying closely in touch with public opinion – it is one of his great political strengths. But he has become so accustomed to exploiting that ability, so confident that he will be believed however implausible may be what he says – indeed, he has so often stayed upright while skating on very thin ice – that he can now be forgiven for believing that he can get away with anything.
On most occasions, he has been able to stay just the right side of credibility and judges correctly how far he can go. But on the Christmas Island issue, his antennae seem to have let him down.
Even so, he will judge that the furore created by his display of manufactured outrage in parliament has meant that, while the media and others debate the rights and wrongs of what he has said on an issue that has no substance, he does not have to answer the difficult questions. Have these New Zealanders detained on Christmas Island – those with criminal convictions – not served their time? Are they not now being doubly punished? When they are told that they can go “home”, have they not made Australia their home? Are they not being discriminated against because they are not Australian? Are they not being locked up in a prison camp, and denied recourse to protection from the law, and is this not an abuse of human rights? Why does the Prime Minister not raise these questions with his Australian counterpart?
In a proper democracy, we would demand that these questions should be answered, not just because we need to know the particular answers in this case, but because our leaders should be obliged as a matter of principle to be accountable, by providing truthful and accurate information, for what they do in our name.
Trusting our leaders to do the right thing, even if the evidence suggests otherwise, is not good enough. In a democracy, we need to keep our eyes – and our minds – open, not closed.
Bryan Gould
12 November 2015
Whose Interests Are Served by Unemployment?
The unemployment figure announced this week at 6% and rising is a disgrace – not only a personal tragedy for individuals and families but a senseless waste of the nation’s resources that makes us all poorer. Nothing contributes more directly to growing poverty and widening inequality. What’s more, the official statistics undoubtedly understate the number of those seeking work, or who would do so if there were jobs available, so the lost output and the numbers of blighted lives are even greater than they seem.
Unemployment at this level is not just a fact of life or an act of God – it’s a policy choice and is the best indicator we have that the government has other priorities and that the economy is failing. There is nothing economically efficient about denying a significant sector of our population the opportunity to make their contribution.
The unemployment total tells us that we have failed to address our many problems. It tells us that the focus on eliminating “the deficit” at the expense of other more important goals has been sadly misplaced and that sustained government spending cuts have meant not only poorer services but also a lower level of economic activity – certainly lower than the level needed to provide full employment.
The government, after all, is a customer like any other; if it cuts and lays off staff, there is a smaller market for the goods and services provided by the private sector, and therefore less incentive to employ more staff across the whole economy.
The unemployment total also tells us that nothing has been done to remedy the deficit that really matters – the country’s deficit, or, in other words, our failure to pay our way in the world. It is that deficit that requires us to sell assets and to go on borrowing from overseas in order to make up the difference, and it is that deficit too that represents our continued appetite for imports that we can’t afford or that we could be producing ourselves.
A sluggish economy and high unemployment tell us that we have wasted the opportunity provided by record commodity, and particularly dairy, prices, to broaden our productive base. Our dangerous dependence on the dairy industry has left us with few options when prices fall. The rest of the economy struggles to pick up the slack under the burden of interest rates that are still higher than elsewhere and of a dollar that is still overvalued and that prices Kiwis out of jobs.
The one area of the economy that is, in some senses at least, booming, is the Auckland housing market. But that is little comfort to the unemployed who do not on the whole own their own homes. While record mortgage lending may have produced record bank profits, at over $4 billion, and Auckland home-owners can take comfort from an average $1600 weekly increase in house values, the unemployed have trouble making ends meet – and gains made in housing values and asset values more generally provide few jobs.
While continuing high unemployment may be the mark of a malfunctioning economy, are we justified in holding the government to account, or is it the result of factors beyond their control? Keynes, the greatest economist of the twentieth century, provided a direct answer.
His response to the Great Depression of the 1930s was to demonstrate that unemployment was the result of an inadequate level of effective demand in the economy – and that government policy was the main determinant of effective demand. A government that focused on a goal other than its own deficit, in other words, could act effectively to reduce unemployment. That lesson was learned last century – but seems to have been forgotten in the aftermath of the Global Financial Crisis and the consequent recession.
So, why does the government not act? The answer is that it feels no need to, since most people – though not of course the unemployed – seem unconcerned, and in truth the government is not unhappy about the current numbers of jobless.
The reason for this is not hard to find. The news bulletins, in reporting the rise in unemployment, also remarked on the fact that wage levels were barely moving. That stagnation in wage rates is an important factor in the current unduly low level of inflation that means that the Reserve Bank is in danger of missing its inflation target.
But the flatness in wage levels is of course causally linked to the high unemployment rate. A labour market where there are multiple applicants for every job that becomes available is also one where employers have the whip hand and where the bargaining power of workers is much reduced.
An economy with a permanent pool of unemployed and with no real growth in wage rates is also an economy with less purchasing power and demand than it ideally needs. We are all worse off as a consequence. Most of us can soldier on without too much inconvenience. It is the unemployed who are the sacrificial lambs on the altar of neo-classical orthodoxy.
Bryan Gould
5 November 2015