There Is A World Beyond Politics
Politics is a tough business. Politicians need a particularly robust temperament if they are to ride the roller-coaster of political fortune for any length of time. The bouquets, of course, are welcome and enjoyable when they come, but the brickbats – and they can come thick and fast – can hurt. Politicians, like Shylock, bleed like anyone else.
Politicians have a curious image in public opinion. As a class they are usually denigrated and reviled, but as individuals they are usually treated with, I often thought, exaggerated respect. And the truth is that, despite the strong public perception that they are a class apart, politicians are on the whole a group of perfectly normal people, exhibiting all the weaknesses and virtues that are found in the population at large.
In a properly functioning democracy, that should not be a surprise. Politicians are just a representative group of voters. We get the representatives we deserve.
So, why do people do it? It is certainly not – again, contrary to much public opinion – for the money; most politicians, especially those who reach the higher reaches of their profession, could have earned much higher incomes elsewhere. In the end, they are self-selecting – motivated in most cases by a desire to make a difference that, according to their lights, will make things better.
These thoughts were prompted by the news that Shane Jones is to leave politics in favour of a top job in an area that he knows well – the fishing industry, and particularly fishing as a means of advancing the interests of indigenous peoples.
He is not of course the first politician to make such a decision. Even in recent times, one can think of Simon Power – seen by many as a potential leader of the National Party – who left to take up a career in the private sector; and even more recently, Tony Ryall has announced his intention not to stand again and to seek, at the age of fifty, a new career.
Such decisions, particularly for senior politicians, will inevitably raise eyebrows, especially in the “chattering classes” where it is an article of faith that politicians are all mad with the ambition to climb the greasy pole, and that every action must have a political explanation. I know this well, because I recognise a parallel between Shane Jones’ decision and my own departure from British politics and return to New Zealand.
In 1994, I found myself in a situation with some similarities to the one facing Shane Jones. I, too, had contested my party’s leadership and had been defeated. I, too, had begun – partly as a consequence of that defeat – to consider other options, helped in my case by the fact that my wife and I had already formed the intention of coming back to New Zealand in our retirement.
It began to occur to me that, rather than continue to fight a losing battle in the UK for the policies I believed in, it would make sense to come back to New Zealand while I was still able to make a contribution in a different field. So, when I was shoulder-tapped about coming back to lead Waikato University, I decided – as much to my surprise as anyone else’s – to accept.
My political colleagues were aghast, not so much at the prospect of losing me, I fear, but more because of what my decision showed about the view I took of what they regarded as the only thing worth doing. But some of the British commentators showed some understanding of my decision, and expressed the opinion that politics itself would be healthier if some of its practitioners recognised that there is a world beyond politics.
The decision taken by Shane Jones will be analysed and mined exhaustively by the commentators for its political significance. Has he lost faith in the Labour Party or its leadership? HHHHHas he been bought off by John Key? Why is he going just before a general election?
My advice, though, is that we should look at Shane Jones, not so much as a politician but as an ordinary human being. On any reasonable basis, he has given the Labour Party excellent service, and politics a good shot. He has had nine years in parliament, been a respected voice and effective shadow minister, and made a creditable challenge for the party leadership.
He has had his share of the brickbats in politics, and it is unlikely that he would succeed in another shot at the party leadership. He has a good experience and understanding of what is required to succeed in other fields and there is another such field that is close to his heart. When an opportunity has presented itself – even if engineered by scheming political opponents – why should he not, after years of party and public service, put his own interests first for a change? Isn’t that what most of us would do, and don’t we want our politicians to be more like us?
Bryan Gould
23 April 2014
If the Poor Are Worse Off, We’re All Worse Off
The Herald-DigiPoll last week cast an interesting light on the political debate as the election season approaches. The poll showed that no fewer than 74% of New Zealanders thought that inequality had widened over the past six years – that, in other words, the rich had got richer and the poor comparatively poorer.
On the face of it, this would seem to be good news for those trying to replace the current government with one that, it is presumably hoped, would have more of a social conscience. And the poll comes, of course, on top of the rising tide of concern about the increasingly manifest impact of poverty on so many of our young children – an impact that blights prospects and stunts lives.
It is certainly reassuring that Kiwis have not lost their traditional concern for the disadvantaged in our society. Whereas in some other western countries, the fact of poverty is simply denied or ignored, the polling shows that, in our country at least, inequality and its corollary – poverty, have registered in people’s minds as issues that warrant attention.
Yet the polls on voter intentions continue to show substantial support for the current government. What this quite clearly tells us is that, while the reality of inequality is recognised, it is not rated by many voters as important enough to determine the way they vote.
Inequality and poverty are, in other words, to be noted but need not be addressed. As long as it does not impact directly on people’s own lives, it can be treated as someone else’s problem. When it comes to polling day, the salience of inequality as an issue will have dropped well down the list, way behind the more pressing immediate problems of managing one’s own budget and prospects.
We get an insight into this kind of thinking from the Herald’s own poll of its readers following the publication of the Herald-DigiPoll. What the poll showed was that, while many respondents were concerned about widening inequality, many others were less concerned and just over a third were prepared to accept it as the necessary price to be paid for economic success.
The notion that inequality and economic success go hand in hand is, of course, well entrenched in the minds of those who embrace the modern doctrine that the market is infallible and must not be challenged; and it is a safe assumption that echoes of this view explain why, even for those who acknowledge the personal and social cost of poverty and inequality on both individuals and society, the need to do something about it tends to dim as polling day approaches.
Yet there is actually no evidence to support a belief that is cherished by so many. International comparisons of advanced western economies show conclusively that widening inequality is in no sense a corollary, let alone a pre-condition, of improved economic performance. Indeed, the opposite is the case.
The statistical evidence shows that countries with lower levels of inequality – such as the Scandinavian countries and Germany – have performed better than those countries, such as the UK, the US and, sadly, New Zealand, where high and widening levels of inequality have accompanied relatively poor economic performance over recent decades.
This compelling evidence should come as no surprise. A wide gap between rich and poor in an economy is inimical to economic success for reasons that apply at both ends of the scale.
If wealth is concentrated in a few hands at the top end of the scale, the result is a significant degree of economic inefficiency. The evidence shows that the rich have a greater propensity to “hoard” – that is to accumulate large cash reserves which remain unspent for long periods of time. They are therefore not available to stimulate activity in the rest of the economy and the Keynesian multiplier effect is thereby much reduced. And when they do spend, it is often on arbitrary and capricious purposes that do little for economic activity as a whole. “Trickle down” is not supported by any evidence.
At the other end of the scale, there is nothing economically efficient about depriving the economy of the productive capacity of a large chunk of the population. Can it possibly make economic sense to relegate those potentially productive people to unemployment and minimum wages when they could be both working and spending to the benefit of the economy as a whole?
Can it make sense to consign them to a future where poor education, skills and health – all consequences of poverty – mean that their productive contribution is limited for no good reason and they are more likely to become burdens rather than contributors?
The conclusions are clear. If the poor are worse off, we are all worse off. Those who lament growing inequality and poverty but reconcile themselves to it on the ground that it is a price worth paying are quite mistaken. Economic efficiency and greater equality are, together, the hallmarks not only of a successful economy, but of an integrated and happy society that is more at ease with itself.
Bryan Gould
3 April 2014
Bankers Know Little and Care Less
We were assured last week by the Deputy-Governor of the Reserve Bank, Grant Spencer, that New Zealand exporters had “adapted to” the overvalued dollar which, as interest rates climb, will go on rising.
So that’s all right then. Sadly, though, complacent and ill-informed statements like this do nothing to alter the grim reality; the current exchange rate – to say nothing of hikes in the dollar’s value yet to come – is doing, has done and will do great damage to our economy.
Exporters – or at least some of them, if they are lucky – have “adapted to” this circumstance by merely surviving. They have done so either by maintaining their prices in NZ dollar terms, at the risk of foregoing market share because their prices are thereby less competitive, or they have reduced prices in NZ dollar terms, thereby cutting profits and reducing the ability to stay in the market. In either case, this is not the path to successful exporting.
Exporting successfully is an expensive business. Unless margins are good enough to make possible all the spending needed to cover all the additional costs, such as freight and commissions, to develop the overseas market through promotion and after-sales service, and to provide the re-investment needed for product development so as to keep pace with foreign competition, it is not worth the effort. No wonder so many of our potential exporters either don’t try or give up quickly.
Even our most successful exporters pay a price for the dollar’s overvaluation – just ask our dairy farmers. Export profits are by definition lower than they would be if the dollar was at a more competitive level; even our best firms are therefore less able in the long run to keep pace with foreign competitors who don’t have to face the same currency head wind – and that’s to say nothing of those who are struggling at the margin.
And it is not only exporters who suffer. Everyone who looks for customers in the traded goods sector, whether at home or overseas, is at a price disadvantage by comparison with goods made by foreign competitors. New Zealand producers who have never thought of exporting will still be on the back foot because imported goods will be able to undercut them on price in their own home market.
Nor is it the case that the deleterious effects of overvaluation are limited to the traded goods sector. The problems and reduced performance of that sector mean that the whole economy suffers; effective demand for prospective investors is reduced across the economy, profits are lower than they should be, unemployment is higher, investment is discouraged, and the trade balance is weakened and thereby acts as a constraint on growth.
In that more stagnant economy, productivity growth and innovation are held back, and we become more and more dependent on the increasingly narrow sector able to keep its head above water in international terms. In order to maintain the living standards we insist we are entitled to, we find ourselves not only using our overvalued dollars to buy imported consumer goods at the expense of domestic production but we then try to cover the cost by selling off our assets to foreign buyers and borrowing more from foreign pedlars of short-term “hot money” who demand an interest rate premium as their reward.
At the same time, we prepare to enjoy the consumer and import boom that accompanies the huge volume of bank-created credit that is fuelling the rise in house prices in Auckland in particular; as first-time buyers are shut out by those rising prices, those who already own their houses respond to the growing value of their equity by feeling better off and therefore spending more.
As a result of that unsustainable consumer frenzy, the Reserve Bank then takes fright and – focusing solely on its single remit of controlling inflation – finds another reason for raising interest rates. And it is of course the prospect and reality of high interest rates that provokes the overvaluation of our dollar in the first place.
Every step in this vicious circle is foreseeable, yet the Reserve Bank contents itself by advising the productive sector to “adapt” – the equivalent of a doctor telling a patient suffering a wasting illness caused by drinking polluted water that he should go on drinking but “adapt to” the consequences.
The tragedy is that the longer we fail to face the reality of our situation, the faster becomes the trip round the vicious circle and the deeper becomes the downside. Each time we touch the bottom of the orbit, the less chance we have of hauling ourselves back up.
What we need now is some new thinking – not another circuit of a policy proven to fail. The Bank of England, no less, showed last week a willingness to face facts when it published a paper by three of its economists acknowledging for the first time that virtually all the money in our economy is created by bank lending – and that raises the interesting question of what that lending should be for.
Our own Reserve Bank, however, evidently remains stuck in a rut of its own creating.
Bryan Gould
31 March 2014
Why Austerity Doesn’t Work
I was honoured to be asked last year to deliver the keynote speech to the Public Services Association’s annual conference which was also the occasion of its 100th anniversary. I have recently discovered that a video recording of that speech is available on YouTube; it can be seen here:
The theme of my speech was the failure of austerity as a response to recession.
Why the Poor Can’t Put Food on the Table
The OECD revelation last week that 17.2% of New Zealanders found it difficult to afford food is a shocking and shameful statistic for any country that claims to be prosperous and developed. It shows how far we have come from the time when it could be said that “here, there is enough for everyone.”
Among all the issues demanding attention from government, this is surely the one that must claim pride of place – that is assuming that pride is an appropriate sentiment concerning such an indictment.
How did we come to this? How does a country that aims to feed the world fail to keep its own citizens well-fed?
The answer is that such deprivation has occurred for two main reasons; one turns on the distribution of wealth in our society, while the other reflects a long-term failure to make the most of our economic opportunities.
The sad truth is that, as we have become wealthier, the greatest proportion of that increased wealth has gone to the better-off; the disadvantaged have stood still – and are now, therefore, comparatively worse off. For the poor, unemployment, low wages, inadequate social benefits, poor health and housing, higher rents and power prices, have all taken their toll.
There has been a different story for the better-off. A renewed housing inflation is in effect a giant mechanism for increasing the wealth of home-owners and penalising those who must rent because they can’t afford to buy. The share of profits in our economy has continued to rise while the share for wages has fallen. Top salaries have risen fast while wages for ordinary workers have been restrained by high levels of unemployment and the failure to pay a living wage.
The untaxed capital gains from property have increased purchasing power for the well-off who have also benefited from tax changes, away from direct taxation (where top rates have in any case fallen) and towards indirect taxation which hits the poor hardest.
It is not the case, in other words, that we have become poorer as a society – merely that the well-off have taken the lion’s share of the economic growth of the past 30 year.
But the second factor has also played its part. Despite all the euphoria occasioned by the long-delayed recovery from recession, the fact is that we have failed over a similarly long period of several decades to do as well as we should with the resources we have – and while the well-off can protect themselves from such failures, the poor bear the brunt.
There can be no better illustration of our long-term failure than another piece of economic news published last week. We were invited to celebrate the fact that record commodity prices, particularly in dairy products, had allowed us to reduce our perennial trade deficit to smaller proportions.
What was remarkable about this was that literally no one bothered to ask why it is that we always run such a deficit. It may sometimes be smaller and is often bigger, but it is always there. It is the best possible evidence that, despite the constant claims of successive governments that they are prudent managers of our affairs, we have simply failed – over a very long period – to pay our way.
We cannot, in other words, sell enough to the rest of the world to pay for the living standards that we – or at least some of us – insist on enjoying. The consequences of this failure are far-reaching.
The gap between what we can sell and what we insist on buying has to be financed in one way or another; the rest of the world will not allow us to enjoy something for nothing.
We must either borrow to fill the gap, or we must sell assets. Our solution? Do both.
But the problem with both solutions is that they carry with them the certainty that they will make matters worse. If we want to borrow, that means higher interest rates, and those interest payments must be paid to foreign lenders. That outflow adds to our current account deficit.
So, we sell assets as well. The problem then is that a greater volume of profit is made from the larger range of assets owned by foreign owners, and those profits must again be repatriated across the exchanges. It is no accident that, at the same time as dairy prices reduced our current account deficit, it was being widened again by the sheer volume of profits being repatriated overseas.
What are we doing about this? Nothing – we simply accept it as a fact of life and continue merrily on our rake’s progress. As the economy resumes growth, we don’t care a jot that the huge increase in bank credit-creation – something that the Bank of England, no less, has at last conceded accounts for virtually all the money and monetary growth in a developed economy* – goes to stimulate housing inflation rather than the increased investment in productive capacity that we desperately need.
It is truly said that “those whom the gods wish to destroy they first make mad.”
Bryan Gould.
21 March 2014
*Money Creation in the Modern Economy” Bank of England Quarterly Bulletin, 2014 Q1