An Impartial Press?
The leader of the British Labour Party, Ed Miliband, is undoubtedly competent, and he enjoys the support of his party, but his poll ratings are abysmal – and that is welcome relief to a Conservative-led Coalition government, whose performance in office has been less than stellar and for whom Ed Miliband’s troubles are the only thing going for them.
The overwhelmingly right-wing British press has played a significant role in this scenario. They lose no opportunity to show the Labour leader in a poor light, as witness the media frenzy when Miliband was filmed making a mess of a bacon sandwich during a television interview.
A bacon sandwich? A minor affront to good manners or good taste, you might think, but hardly a hanging offence. But the press knew what they were doing. The episode offered a chance to reinforce an image of incompetence – and a politician, particularly one of Jewish origins, eating a bacon sandwich would offend significant numbers of voters from different religious groupings.
In New Zealand, the episode may occasion a wry smile; we all know that the British press is notoriously biased. Our own press may have their own allegiances but they manage to maintain (don’t they?) a reasonable degree of impartiality in their political reporting.
Which is why there are some disturbing features about the press treatment of the supposed “scandal” (as it is regularly referred to) of Donghua Liu and David Cunliffe. There can be no doubt that this supposed saga was deliberately designed by National Party strategists to do the maximum damage to the Labour leader, and that the bullets they fashioned were duly fired, as they knew they would be, by the national media.
Let us rehearse how the saga developed. A perfectly appropriate letter written by David Cunliffe on behalf of a constituent in 2003 was discovered by National’s Immigration Minister a month or two ago. It was then held back until after David Cunliffe had been lured into denying that he had ever advocated for Donghua Liu – something he had no reason to remember and which a search of his records had failed to reveal. The letter was then released with the intention of showing that Cunliffe, in making that denial, was either a liar or a fool.
That same Donghua Liu then alleged that he had donated over $100,000 to the Labour Party; that allegation had been signalled in advance by the Prime Minister from New York. “There is more to come – wait and see,” he said, and in doing so revealed that he knew that the allegation – true or otherwise – was coming and that he was confident that it would be headlined by the media, as it duly was.
The allegation has, of course, crumbled following proper investigation. But, another day, another headline – this time the shocking revelation that Donghua Liu had given $2000 in 2007 to a Hawkes Bay rowing club whose members included the daughters of a Labour politician.
How is it that this minor gift, an unsubstantiated allegation made by a convicted criminal, and an innocent letter written by a constituency MP doing his job, were magnified to dominate the political agenda for so long? How did the Prime Minister know in advance that a story that had little or no substance would be so useful in damaging the Labour party and in diverting attention from the much more significant story of Maurice Williamson’s , Judith Collins’, and his own links with various Chinese businessmen?
And how can the media as a whole be proud of their role? Is this what is meant by and is to be expected from an even-handed treatment of the political debate? Or does it show that our press is prepared to offer its services to one side of that debate, by giving maximum coverage to a story deliberately engineered to show the other side in a bad light?
The defence offered will always be that a free press must be allowed to make its own judgments of the newsworthiness of particular stories and that there are other outlets that take a different and equally partisan approach. But can we be happy when supposedly responsible journalists so deliberately use their privileged access to our most important news outlets to shape the news, thereby serving the interests of just one party and reflecting the political preferences both of themselves and of the major corporations that own the papers they work for?
And, on the day when the Herald prominently promotes the carefully-timed, pre-election hagiography of John Key written by one of its senior leader-writers and political journalists, we are surely entitled to ask, how close is the nexus between that paper and the National Party? Is our press really so different when it comes to the political treatment of bacon sandwiches?
Bryan Gould
24 June 2014
Is Democracy Too Left-Wing?
There is never any shortage of advice to political parties who seek to challenge the prevailing orthodoxy that to do so would be to court electoral disaster. Any indication of a wish to move away from the status quo will, they are told, be seen as a dangerous “move to the left”.
It was Mrs Thatcher who assured voters that “there is no alternative” and we see in New Zealand today the same insistence that the current orthodoxy is the only option. Yet if they accepted the advice they are given, parties who want to offer an alternative set of policies could no longer do so, but would be reduced to gesture politics and smiling sweetly.
The democratic process would thereby be denied its real purpose and – in the absence of an effective challenge through the ballot box – the grip on power of already dominant interests will be further strengthened.
It is, after all, only through the democratic process that the powerful can be restrained. All societies inevitably demonstrate that power, left unchallenged, will concentrate increasingly in a few hands. That power will be used to entrench the position of those who hold it, to protect it from challenge and to increase their advantage over their fellow-citizens.
The whole point of democracy was to enable the political power and democratic legitimacy of an elected government to offset and protect ordinary people against the otherwise overwhelming economic power of those who dominate the so-called “free market”.
That inevitable tendency towards the ever-increasing concentration of power has been graphically confirmed in an important book recently published but the French economist Thomas Piketty. He analyses data over a period of more than two centuries to show that, with one brief exception, economic power has increasingly passed to a few at the expense of the many.
The exception is significant. In the two or three decades after the Second World War, power moved back to ordinary people and away from the powerful; this reflected the determination of ordinary people whose efforts had won the war to ensure that there was no return to the “bad old days” that had produced war and Depression.
They used the power of democratic government to strike a better balance between the rich and powerful on the one hand and ordinary people on the other. If they were told – even by Winston Churchill – that this would mean a dangerous “move to the left”, they paid him no attention.
Since that time, however, the rich and powerful have found ways to reclaim, and now increase, their advantages, and to restore the normal condition of widening inequality in our society; indeed, Piketty predicts that that process is gathering pace. And there is no message more congenial to the powerful than that this is how it has to be.
Yet we can do something about it, if we have the courage to use the power that our forefathers who fought for democracy have bequeathed us. The whole point of democracy is that it allows us to challenge existing power structures – and that challenge is not automatically “left-wing”.
Is the Labour Party’s proposal to use a universal savings scheme as an alternative to ever-rising interest rates left-wing? Or is it just a sensible and better alternative to a failing policy? Is the Greens’ proposal for a carbon tax left-wing? Or will it do the job of reducing climate change more effectively and provide a tax-break for ordinary people into the bargain? Is the refusal to accept that businessmen always know best left-wing or just a re-assertion of the democratic principle?
We should take heart from the fact that most New Zealanders will affirm, if asked, their continued belief in the values of fairness, compassion, tolerance, concern for others. But those values have become submerged under the tidal wave of “free-market” propaganda; democratic politicians need to find effective ways of bringing them back to the surface and to a central position in our lives.
Most people do not think about politics in any systematic way; they are perfectly capable of nodding in agreement to contradictory propositions offered from every part of the political spectrum. What determines the way they vote is which of those contradictory values is closest to the tops of their minds on polling day.
The rich and powerful are expert at using their dominance of the media to raise the salience in the popular mind of values that suit their interests. The task facing politicians who want to resist the further concentration of power is to remind New Zealand voters at every opportunity of the values they continue to hold – values that built this country and that continue to define a healthy and integrated society.
The advice that this should not be attempted for fear of seeming “left-wing” could hardly be more suited to serve the interests who have everything to gain from protecting the status quo. If our democracy is to prosper, we must remember what it is for – to resist the concentration of power and to ensure that the interests of the great majority are properly taken into account.
Bryan Gould
5 June 2014
This article was published in the NZ Herald on 10 June 2014
The House Price Spiral
The OECD finding that New Zealand houses are the most overpriced in the developed world will come as no surprise to the young couples locked out of Auckland’s housing market or to those families condemned to substandard housing conditions and high rents.
The Prime Minister, however, assures us that there is no crisis; our house prices simply reflect high levels of employment (with 6% unemployment?) and a buoyant economy (with the first glimmer of normal growth in six years?).
More thoughtful observers, however, acknowledge the damaging impact of the crisis on our economy and social cohesion, but continue to analyse it in market terms. It is, they say, a matter of inadequate supply and excessive demand, to be resolved either by scrapping planning protections and providing more opportunities to developers, or by restricting the number of potential buyers, particularly those from overseas.
This is, however, to mistake the real issues. Our overpriced housing market is the product of decades of mistaken policies. It is, as the OECD report says, an affordability crisis, and reflects a growing asset inflation and a capital structure that is now completely out of control.
The housing market, it should be remembered, is unlike any other. Experience over decades has taught New Zealand house-owners that the value of their homes, unlike any other asset of remotely comparable value, will go on rising over time. In buying a house, they not only gain necessary accommodation, but also an appreciating capital asset.
They finance the purchase of that asset – probably the most expensive they will ever buy – by obtaining a loan on mortgage. Their bank will be keen to lend to them because it is the easiest and most profitable way for the bank to make money; there is no shortage of willing customers, the returns are predictable and high, the security is almost always easily realisable, and the rate of default is in any case comparatively low.
Once the house-buyer has bought the house, rising house prices will reduce the comparative cost of the mortgage, and the rising value of the equity (and perhaps a larger mortgage) will allow the purchase of a more expensive property next time.
This process – which really built up a head of steam when banks moved in to replace much more conservative building societies and to dominate the mortgage market – has meant that, over a generation or two, there has been a constant injection of new mortgage finance (at a much faster rate than the growth of incomes or of most other asset values) almost every time that a house is purchased. That repeated injection of new money has come on top of the already inflated value brought about by earlier mortgage lending and has been steadily and cumulatively built into the rising market prices of our houses.
If there were to be a sudden increase in the number of homes being built, this would simply provide a new stimulus to the process. The main effect would be to increase the profits of both banks (who would leap at the chance of lending even more) and property speculators and developers; the affordability crisis would remain untouched.
The problem arises, in other words, not for reasons of supply and demand, but because of the way we finance (and tax – or fail to) house purchase and ownership. It is no accident that, while marking us as the worst offender, the OECD identifies other countries, such as Australia and the UK, with similar methods of financing house purchase, as principal culprits as well.
The scale of the problem can only be understood when we realise how powerful an impact on our economy is created by bank lending for house purchase. As the Bank of England conceded in a ground-breaking report earlier this year, by far the greatest proportion (well over 90%) of new money in our economy is created by the banks out of nothing – and most of that goes to finance house purchase.
When the banks lend money on mortgage, they create that money by a simple book entry – the stroke of a pen, or today, a computer keyboard; the loan in no way represents real money, that is, money deposited with them. It is that bank-created money that artificially inflates the value of the class of assets into which it is principally directed – in this case, housing.
This process then operates as a giant mechanism for transferring wealth to home-owners, whose good fortune comes at the expense of our economy as a whole and of those who are debarred by the asset inflation effect on house prices from ever sharing in it themselves.
Our policy-makers, and certainly our Prime Minister, seem to have no glimmer of understanding of what is happening. There is just a small ray of hope; our central bankers, who have been asleep at the wheel on this issue for the last three decades, have begun to stir. The Bank of England has opened its eyes; and our own Reserve Bank’s Loan to Value Ratio restrictions on bank lending show that they, too, have recognised that something has gone wrong. Graeme Wheeler may know more than he is letting on.
Bryan Gould
19 May 2014
Ministers Should Not Lie
A politician who has enthusiastically cultivated an image as “Crusher” Collins will not expect much by way of public sympathy when she comes a cropper. Public sympathy will be in even more limited supply when she is seen to blame everyone but herself for her misfortunes.
Judith Collins has one loyal supporter, however, in the Prime Minister. Maurice Williamson made, on a single occasion, a naïve mistake and was summarily (and correctly) dismissed. Judith Collins, however, planned, executed and involved others in an elaborate arrangement to use her Ministerial clout to help the business interests of her husband and friends – and she survives.
The Cabinet Manual is quite clear. It says that “conflicts of interest may arise between Ministers’ personal interests and their public duty because of the influence and power that Ministers exercise”, and that “a conflict of interest may be pecuniary (that is, arising from the Minister’s direct financial interests) or non-pecuniary (concerning, for example, a member of the Minister’s family).”
It goes on to say that “a conflict may arise if people close to a Minister, such as a Minister’s family, whanau, or close associates, might derive, or be perceived as deriving, some personal, financial, or other benefit from a decision or action by the Minister or the government.”
It is puzzling that, in the light of these warnings and as the details of the efforts made by Judith Collins to organise a meeting between her husband’s company and a Chinese border official come to light, the Prime Minister does not recognise the inevitability that she cannot remain in office.
There are two indications as to why that may be. First, John Key – by acknowledging that he knows the name of, and the office held by, the Chinese official who attended the dinner with Oravida, but refusing to reveal that information – has made himself complicit in the deception attempted by Judith Collins.
Secondly, the fact that, within a few days of obtaining the necessary clearance, Oravida made a $30,000 gift to the National Party (on top of an earlier $56,000) indicates a relationship between the donor and recipient that in another country would be quickly identified as corrupt.
These failures to maintain the “high standards” John Key claims to have set for his government will no doubt become starkly clear as the conflict of interest implications of the Judith Collins saga unravel. But there are other charges to be laid at the door of the Minister and the Prime Minister.
No one doubts that the dismissive tone adopted by Judith Collins in explaining her meeting with Oravida as “dropping in for a cup of tea on the way to the airport” was an incongruous misrepresentation, intended to deceive. In ordinary parlance, it would be called a lie.
The Cabinet Manual surprisingly, makes no reference to lying in the performance of ministerial duties, but this was a deliberate lie designed to give the public an entirely false impression of what had really happened. I have never accepted, as a former politician myself, the easy excuse that “all’s fair in love and war – and politics”. We are entitled to expect, and John Key should insist, that Ministers tell the truth, or at the very least do not deliberately lie.
The question for John Key is that, if he is serious about “high standards”, how can he allow a proven liar on an important public matter to remain in office?
Lying to the press and public is one thing; lying to parliament, under the Westminster conventions that apply in our parliament, is quite another. Some of the most notorious ministerial careers – the Profumo case was an example – came to an inglorious end, not because of the original offence but because the Minster lied to parliament about it. Judith Collins will not relish a scrutiny of what she has said in the House.
There are two further issues which John Key must take seriously. First, Judith Collins has deliberately and unforgivably involved public servants both in the use of her ministerial office to help her friends and in trying to cover her tracks when it was discovered.
She has blamed her own private office for the confusion caused by her use of her ministerial status for private purposes. She has involved the Ministry of Foreign Affairs in a request for an eventually aborted official briefing for what she now claims was a private dinner. And she has involved our Ambassador in Beijing, both in the arrangements for the dinner she had organised for her own purposes and in the attempt to explain that uncomfortable fact away.
It is a fair bet that Judith Collins has only come clean to the extent that she has because she was advised that the Embassy and other public servants would not allow themselves to be used to confirm an inaccurate account of what had happened.
And secondly, she has wrongly implicated a reputable journalist, and threatened retaliation against the parliamentary press corps generally, for simply reporting the facts. Does this Muldoonian attitude reflect the “high standards” John Key says he wants? Or are threats to a free press just another price we are expected to pay for the government’s determination to help and protect its friends?
Bryan Gould
6 May 2014
Yes, There Is An Alternative
Phil Verry was a patriot, a leading businessman and head of New Zealand’s largest sawmilling firm. He was also an innovative thinker.
I was privileged to become his friend and colleague, and to help him develop an ingenious refutation of the assertion constantly made by those with closed minds that “there is no alternative” to the failed orthodoxy of relying entirely on raising interest rates in order to combat inflation.
Phil understood very well that New Zealand producers and investors, as a result of that orthodoxy, are constantly lumbered with an extra-market interest rate surcharge across the board, the cost of which is paid in the main to overseas speculators who contribute nothing to the New Zealand economy.
Their gain at our expense in fact costs us twice over – by worsening our current account deficit (through interest payments across the exchanges) and by penalising us – through prompting an inflow of short-term lending – with an overvalued currency. The result? Our whole economy is handicapped by our difficulty in competing, both at home and overseas, with foreign producers.
Phil devised what he called the Interest-Linked Savings Scheme – whose details are set out in my 2007 book Rescuing the New Zealand Economy – which would mimic the operation of interest rates as a counter-inflation tool without burdening the New Zealand current account with unnecessary payments to foreigners or harming our competitiveness.
Phil would have been delighted to learn that it is that scheme, or something very much like it, that David Parker committed to this week on behalf of an incoming Labour government.
The first element in Labour’s version of the scheme is to make the KiwiSaver scheme compulsory, thereby resolving our perennial problem of inadequate saving (and worth doing on its own account in any case); a variable savings rate would then be used as a supplement or alternative to the Official Cash Rate as a counter-inflation tool. If the rate was raised, it would, by lowering the immediate spending power of consumers, have much the same counter-inflation effect as a rise in the OCR.
But, instead of paying an interest rate premium to foreign peddlers of “hot money”, the savings surcharge would be paid into the individual KiwiSaver accounts of New Zealanders and would in due course be paid back, with the addition – in accordance with KiwiSaver rules – of whatever return had been made on investing the money.
The potential scope and practical operation of this scheme strongly suggest that it would be more effective and less problematic than the OCR in combating inflation. The ability to raise or lower the surcharge at short notice, and its immediate impact on pay packets, would mean that it would be much more quick-acting and better focused than interest rates.
It would be less easily evaded than the OCR, which has seen its effectiveness substantially reduced by the preponderance of fixed interest rate mortgages. A lower evasion rate would mean that the surcharge could be lower for a given counter-inflation effect than the less reliable and more easily evaded OCR. And the fact that the surcharge would eventually be returned to those paying it would reduce any political reluctance to taking quick action to deal with inflationary risks.
But the scheme will produce a number of further benefits as well. We would no longer be penalising ourselves and losing national wealth by making free gifts to short-term lenders from overseas. Foreign lenders would not be paid a premium above the market rate. Unnecessarily high interest rates would no longer deter new investment. We would no longer be burdening ourselves with an over-valued currency, an inflated current account deficit and a productive sector that was less competitive than it should be.
The wider remit to be given to the Reserve Bank would encourage a more balanced approach to macro-economic policy, which could be allowed to fulfil its proper purpose of promoting the continued development and competitiveness of new wealth-creation. Lenders and investors would be free to respond to normal market factors in agreeing on what interest rate should apply in a given transaction. Both interest rates and the exchange rate, in other words, would be freed up to perform their essential market-clearing functions in a properly functioning market economy.
Phil argued – and Labour agrees – that those who might be nervous about departing from the current orthodoxy should be reassured, since the OCR would not be abandoned, but would be kept in reserve and turned to as and when necessary.
The most important advantage of the scheme is the fact that we would raise the level of saving, improve the competitiveness of our industry, and encourage export success, while at the same time restraining inflation more effectively.
Phil sadly died a few years back and therefore did not live to see the adoption of his ideas. He would have been pleased at the largely positive reception accorded to the new proposals. And he would have been delighted at the belated discovery that “there is an alternative.”
Bryan Gould
30 April 2014