What Price Inequality?
It is surely no accident that both Garth George and Tim Hazledine have, in the last week or two, highlighted growing inequality as a prime cause for current concern. I find that many of those I talk to share that view.
It was, however, salutary to read Martin Robinson’s argument last week that growing inequality should be, if not actually celebrated, at least endorsed and justified. What was remarkable, though, was the paucity of the arguments he advanced to support his position.
It was noteworthy that he did not deny that the gap between rich and poor had widened substantially; nor did he contradict the OECD’s recently published finding that inequality had grown faster here than in most other countries. And he did not explain why todays’s more unequal society is an improvement on the New Zealand which, at the same time as once enjoying one of the highest living standards in the world, was also one of the world’s most egalitarian societies.
He seemed unconcerned by the increasingly strong evidence – stressed by the OECD – that widening inequality is the hallmark of societies and economies that are functioning poorly; indeed, he seemed completely unaware of the excellent research produced by the authors of The Spirit Level showing that countries where inequality is most marked – like the US and Britain – are also those which face the most intractable social and economic problems.
He took refuge instead in attacking positions that no one actually holds. To deplore widening inequality is not the same thing as insisting that everyone should be paid the same, nor does it mean rewarding the idle and feckless at the expense of those who work hard.
His main argument was that paying the All Blacks top salaries has made them the world-beating team they are. But All Black excellence depends on many factors, most of which have little to do with salaries; they were world leaders long before they turned professional and even today are often paid less than they would be if they went overseas. And, sadly, however much our business leaders are paid more than the rest of us, our economic performance stills fall a long way short of All Black standards.
Whole societies are, in any case, much more complex undertakings than a sports team, however eminent. The ground on which Martin Robinson really seeks to stand has nothing to do with rugby. Rather, it is the belief that if the market sanctions very large salaries, then those payments must be justified, since the market cannot be wrong.
It is precisely of course this touching faith in the infallibility of the market that produced our present difficulties. It was the unregulated market that brought about the global financial crisis, that continues to pay huge bonuses to failed bankers, and that exposed thousands of investors to the loss of their savings through the failure of finance companies.
It is only very recently that the view that challenging the market is somehow immoral has gained credence. Even Adam Smith took an explicitly contrary view. What extreme free-market ideologues do not seem to grasp is that the unregulated market can become an instrument of oppression, since it is so easily manipulated by those who wield dominant power in the market-place. And if the market cannot be challenged, then there is nothing to prevent that dominance from being repeatedly exploited to extend that advantage, to the disadvantage of everyone else.
All too often, the market’s apparent recognition of merit simply reflects the dominant position of those who walk away with the spoils. The best-paid people set each other’s salaries; and they are adept at ensuring that, while the global economy demands that working people’s wages are driven down to third-world levels, it requires that top people are paid the huge salaries that are now the norm in the international market-place.
No one begrudges appropriate rewards for those whose efforts add to the general welfare. But many big earners do not create new wealth; they merely manipulate existing assets. Bankers, property speculators and even (dare one say?) foreign exchange dealers cream their fortunes off the top of assets that others have created, thereby siphoning off wealth for themselves that might otherwise have been more fairly distributed.
Growing inequality of course means that the wealthy lead quite separate lives, buying themselves out of life as the rest of us live it. We gain little from them and they know even less of us. While few now give credence to the “trickle-down” theory, the flipside of the market as moral arbiter – invariably rewarding the deserving – is the belief that the poor have no one to blame but themselves. Those who manipulate the market to their own advantage enjoy not only material rewards but a sense of moral superiority as well.
What the apologists for inequality do not grasp is that we are all, including the wealthy, made worse off, not only because we live in a more divided and less cohesive society, but also because – by diverting so much national wealth into so few pockets – we thereby undervalue and make poor use of the productive potential of the rest of us, so that we produce less as a country than we should.
Bryan Gould
7 January 2012
This article was published in the NZ Herald on 12 January.
Leadership for A New Crisis
When Anne Tolley disclaimed responsibility last week for misleading Parliament, blaming her department instead, those with long memories might conclude that we have come a long way from Crichel Down.
Crichel Down was a tract of land that had been compulsorily acquired for the war effort by the British government, on condition that it was returned to the owners when the war was over. After the war, the government broke that promise by retaining the land and leasing it to new tenants. The Minister, Sir Thomas Dugdale, who was personally unaware of the error, resigned when it was discovered because he believed that was required by the doctrine of Ministerial responsibility.
Modern governments seem to recognise no such doctrine. Public servants enjoy so little esteem, so it seems, that they are cheerfully thrown to the wolves when Ministers are asked to take responsibility for mistakes made by their departments.
It isn’t just the former Education Minister who rejects any responsibility for misleading Parliament. The Prime Minister, too, seems remarkably insouciant. His attitude suggests that, whereas it was the Prime Ministerial smile that was the leitmotiv of his first three years, it will be the Prime Ministerial shrug that characterises his second term.
We will see less of the affability he showed while basking in the public approval of his first term, and much more of the somewhat grumpy dismissiveness and impatience that we saw during the election campaign when he came under pressure. The task of an effective opposition, under its new leadership, will be to ensure that there are many more such moments.
David Shearer made a good start in appointing his new front bench. He struck a good balance of old and new, and made effective use of the considerable talent available.
He now has to show what he himself is made of. He won the leadership with the claim that he represents a fresh start, but freshness alone is a rapidly wasting asset and is not enough by itself.
He also has a claim (though it should be made by others rather than himself) that he can match, if not out-do, John Key in the niceness stakes. Indeed, he could re-define niceness to mean more than just a ready smile and a glib answer but rather a genuine concern for all our fellow-citizens, including the most vulnerable and disadvantaged. His own personal record of humanitarian service helps to give substance to that claim.
But what he now has to show is that he has the stuff of which leaders are made. Re-connecting with voters, and listening to what they say and want, is commendable, but leadership is about leading and not just following. We are entitled to expect from our potential leaders a view, if not a vision, as to where the country – and even the world – are or should be heading.
So far, our political leaders have shown no real grasp of the dangers we now face. We cannot expect a John Key government – content as it is to just go along for the ride – to face up to the challenges that confront us. Yet it is now clear that business – or politics – as usual will not cut it.
The last time we faced comparable risks was in the non-nuclear world of the 1930s. World leaders then failed abysmally to deal with the Great Depression. The consequent economic strains were not only disastrous for millions of people, but produced an international climate which led directly to the Second World War.
The risks this time are even greater. Today’s leaders, particularly of what we used to call the West, are repeating the mistakes of the 1930s; it is now virtually certain that the euro-zone’s crisis will drive us into renewed and prolonged recession. This time, though, in a nuclear world, a major international conflict would not have a happy ending – and our self-inflicted economic wounds would in any case leave us in a state of permanent weakness.
We desperately need leaders who can see wider and further than politicians usually do. We need to recognise that the world has changed, that the extreme “free-market” global capitalism that has prevailed for three decades has shown itself to be fundamentally flawed, economically and socially, and now threatens to impoverish and enfeeble us. We need to understand that others, less burdened by this same ideology, are doing much better than we are.
New Zealand, it may be thought, is no more than an observer of this unfolding tragedy. But that is not quite true. We are one of the most credible and at the same time most exposed proponents of Western values and the Western way of life. We have both an interest and a duty to propose the changes that are needed to avoid their destruction.
In the 1930s, our leaders led the world in striking out in a new direction to lead us out of recession. For David Shearer, winning the next election is of course a top priority. But winning elections is not enough. We need far-sighted leadership that will set the country on the right course.
Bryan Gould
21 December 2011
Travelling Further Down A No-Exit Road
By the time of the 2008 election, New Zealand had already been mired in our own home-grown recession for nearly a year. A response that would get the economy moving again quickly was clearly needed.
That urgency was reinforced by the global financial crisis that shook the world in the later part of 2008. Our Australian-owned banking system was mercifully affected only mildly by the turmoil, but the increased recessionary pressures across the economy as a whole made it all the more imperative that our new government should act decisively.
We waited in vain for that decisive action. Apart from a largely abortive “jobs summit” in early 2009, the government seemed content to sit out the crisis, waiting for others to bring the recession to an end – and this, despite the buoyancy of our main export markets and a rise to record levels in our main commodity prices.
The government’s main preoccupation was not –so it seemed – to get the unemployed back to work, so that incomes, purchasing power and demand would rise. They focused instead on government debt – surprisingly since, at just 23.4% of GDP, New Zealand’s government debt was one of the three or four lowest in the OECD.
They asserted that – successful though the Labour government had been in bringing that percentage down – it was now their main focus to get it down further. Only in that way, they believed, would confidence return, recovery from recession be achieved, a credit downgrade be avoided, and interest rates be held at low levels.
In expressing such faith in what the Nobel prize-winning economist, Paul Krugman, calls the “confidence fairy”, our government was following down a track mapped out by the leaders of other Western countries – those same leaders who had presided over the global financial crisis in the first place.
Let’s be clear. Manageable levels of government debt are clearly desirable. The question is not whether that should be the goal, or at least one of them, but rather whether the government’s chosen method of achieving the goal has been effective.
Three years later, how have we done? Did the “confidence fairy” appear and work her magic? The answer is sadly disappointing.
Despite the priority they had, the government’s finances remain in a parlous state. As Brian Gaynor pointed out recently, the government’s cumulative deficit over three years will rise to $35.5 billion, compared to a surplus of $35.6 billion under the Labour government. As a result, government debt will rise to 37.7% of GDP. Why has this happened?
The answer is really a matter of common sense. The main drag on government finances is the loss of revenue in an economy that refuses to grow out of recession – and, as this week’s figures show, still does. You don’t solve that problem by slowing the economy still further, by cutting what could have been a sensible investment in getting the economy moving again.
The government, in other words, backed the wrong horse. If they had concentrated on getting people back to work, so that they earned and spent more, the economy would not only have been more buoyant, but so too would government revenues. The deficit may have been higher in the short term, as the investment in our future was made, but it would not have been so persistently high now and over the longer term. Cutting government deficits does not promote recovery; it is the other way round.
Not only has the government failed to control its own deficits and debt. It has also increased the country’s debt, with the result that we have suffered the credit downgrades the government warned against, while the interest rates we pay to overseas lenders will rise.
It is cold comfort to know that we have not been alone in making these mistakes. In many other Western countries, the expected appearance, in response to austerity and cutbacks, of the “confidence fairy” has not materialised. The Conservatives in Britain, the eurozone’s leaders, the Republicans in the United States, have all pinned their hopes on austerity – and, as those hopes have been dashed, their only self-defeating remedy is to inflict yet more pain.
The “confidence fairy” seems unimpressed by more blood-letting, to which the nearest analogy is the use of leeches by medieval doctors to bleed their sick patients.
We may feel sorry for the Greeks or Italians, but we have suffered the same dead-end policies that they have had to endure – albeit, given the size of the eurozone economy, on a smaller scale.
We, too, have been driven by ideological tunnel vision down a one-way, no-exit road, unable to go forward or back – not a comfortable situation with a second recession bearing down on us.
And, in case the we try to blame our lamentable performance on the global financial crisis or the Christchurch earthquake, let’s be clear that our government blew its best chance of pulling us out of recession well before the full impact of those factors was felt – a point not depending on hindsight but made by me and others at the time.
If the exodus across the Tasman is to be stemmed, we surely cannot afford another wasted three years.
Bryan Gould
5 December 2011
Can Labour Win Next Time?
There are never any final battles in politics. No one should begrudge John Key his moment of triumph on Saturday, but – as he will be well aware – the campaign for the next general election has already started.
A 48% share of the votes cast was, on the face of it, an outstanding achievement. But we should bear in mind that fully two-thirds of New Zealanders eligible to vote did not give their support to National, either failing to register or vote, or voting for someone else.
This was not, in other words, a coronation. Not everyone loves John Key. Yet we can already see the “elective dictatorship” syndrome in John Key’s claim that he has a mandate for asset sales, despite the incontrovertible polling evidence that the policy is opposed even by National voters.
The election campaign was at times an unhappy experience for John Key. It revealed to his supporters, both amongst voters and in the media, a politician whom many may not have seen before. The images of an uncomfortable and defensive John Key, clearly irritated at being challenged and having to answer questions he would prefer to have ignored, will remain in the memory for a long time.
Nor is it the case, as some have suggested, that Labour’s poor showing means that the next election is already a lost cause. We should not forget that, in 2002, National’s share of the vote dropped to just 22%, yet three years later, under the leadership of that “strange fellow” Don Brash, National very nearly pulled off a win.
None of which means that there is any disguising the mountain Labour has to climb if it is to mount a real challenge in 2014. The first casualty of their failure has been their leader – rough justice in a sense, since Phil Goff emerged from the campaign with an enhanced reputation.
The lesson that Labour must learn, though, is that elections are rarely won on the strength of a four-week election campaign. Labour worked hard through the recent campaign but they made virtually no progress in undermining the image that John Key had projected over the preceding three years.
The truth is that Labour lost the election because they were, for most of the parliamentary term, an ineffective opposition. They did not work hard enough. They left their run, such as it was, far too late.
Labour’s new leader needs to think hard about the politics of being in opposition. If they are to do better this term than last, there has to be a carefully planned, developed and staged strategy so that, by the time the next election campaign starts, the groundwork has been properly laid.
The first objective must be to help voters to look behind the smile and the photo opportunities, and to ask the hard questions about exactly what the government is doing, what it has achieved, and – above all – whether the Prime Minister can be trusted to tell the truth. The goal must be an electorate that is ready to examine John Key’s words much more critically, and media that do their proper job of ensuring that voters are properly informed.
A classic example will arise early in the life of the new government. John Key has so far avoided giving a straight answer to concerns about the foreign ownership of the assets that he intends to sell – concerns that are hardly surprising in a country that has already sold a higher proportion of its assets into foreign ownership than any other developed country.
He hints that he will somehow ensure that shares in those assets will remain in New Zealand hands. Yet John Key knows (and Bill English has tacitly admitted) that the trade agreement with the United States and others that is currently being negotiated in secret is almost certain to make it illegal to discriminate against foreign investors when those assets are sold.
The task of an opposition is to make sure that, on this and other similar issues, the Prime Minister cannot simply smile and shrug – and make up an answer that doesn’t quite mean what it seems to mean.
The Labour front bench must also think harder about how and when to launch policies that are needed but contentious – policies like a capital gains tax, raising the retirement age, and extending the emissions trading scheme to agriculture. Policies like this should not be launched at the last minute, leaving little time for them to be properly understood.
The policies that should appropriately be launched near or during the election campaign are those that will have a wide and immediate popular appeal – policies like raising the minimum wage or using the dole to subsidise youth employment.
There are, in other words, three stages in a successful campaign. First, changing – through hard work and relentless pressure – the public perception of John Key as a leader who can be trusted. Second, taking enough time – well before the election – to build support for policies that opponents can easily misrepresent. And third, launching vote-winning policies so as to generate momentum through the election campaign.
A new leader and a strategy like this could make for a very interesting election in 2014.
Bryan Gould
28 November 2011
This article was published in the NZ Herald on 30 November
Free Trade or Self-government?
In the final weeks of the election campaign, the question of whether or not to sell some of our key assets remains, for many voters, a defining issue. Yet, while that question is hotly debated, a related issue of equal if not greater importance is sliding by under the radar.
That asset sales should raise real concerns is hardly surprising in a country that has already sold a higher proportion of its economy into overseas ownership than any other developed country. For many, it raises fears, not just about the loss of control over our economic future, but about our powers of democratic self-government as well.
Yet, while those issues rise to the top of the election agenda, Bill English will – this weekend in Hawaii – give consent in our name to the broad principles of a new multilateral agreement which will pose an even greater threat to our continued existence as a genuinely self-governing democracy.
He will do so without ever consulting us. Not only that – we will not be allowed to know what is in the agreement, and even the record of the negotiations themselves will be kept secret, it seems, for up to four years.
Parliament will not be allowed a say until the deal is done. There will be no scrutiny by a select committee. The government – in the persons of the Prime Minister, the Minister of Finance, and the Trade Minister – will make these secret decisions for us.
Yet we already know that the Trans Pacific Partnership Agreement is certain to raise issues of the greatest importance. We already know that the government is so convinced that “free trade” is a good thing that it will be prepared to sign away almost anything for the chance to sell to our trading partners the products that – in a food-hungry world – they want to buy anyway.
We know that our government will roll over at the mere sight of a dollar bill. Who can forget the unseemly haste with which we gave away huge tax advantages and changed our labour laws at the behest of Warner Brothers? Hardly the action of a government or a country with any self-respect.
Little wonder that there is a real concern that the American pharmaceutical industry will insist that the role of Pharmac – the government agency that has used its buying power to keep down the price of prescription medicines and has accordingly saved New Zealanders hundreds of millions of dollars – will have to be reduced so that the drug companies can extract much greater profits from us.
On this, as on other similar issues, Ministers give us general assurances – and by the time we discover what those mean, it will be too late.
It is now clear, however, there is an even more insidious and threatening danger at the heart of this secret agreement. One clause that the Americans will insist on (as they have done with other similar agreements) is a provision that would allow foreign private corporations to sue our government (including all future governments) if they saw any sign that the terms of the secret agreement might not be adhered to.
The legal action would be brought, not in our own courts, or even in a properly recognised international court, but in special tribunals set up specifically for the purpose. It would be necessary to establish these courts especially because they would be dealing with very unusual cases – cases where privately owned companies could sue a sovereign country to enforce treaty provisions to which those companies were not even parties.
Let us be in no doubt what that would mean. It would mean that an American corporation would have far more extensive rights against our government than any New Zealand company would ever have. It would mean that a future government, perhaps elected to change policy in an area like environmental protection or health and safety, could be prevented from doing so by a foreign corporation suing that government in a special tribunal.
It would mean, in other words, that concessions made in secret by today’s government could never be claimed back. We, as a country, would be locked into a marketplace controlled by foreign corporations.
This is not mere speculation. American and European companies investing and trading overseas have regularly enforced these rights arising from similar treaty provisions.
Ironically, the history of this kind of provision has begun to attract attention because it has come back to bite those who created it. The Germans, some decades ago, began to insert such provisions in treaties with third-world countries, so that the interests of German investors in those countries could be protected. Such was the power of German investment, and the weakness of the recipient countries, that no one took much notice.
Now, however, with the crisis in the eurozone and the growing investment of formerly third-world countries in Europe, the boot is on the other foot – and European countries are suddenly crying foul at the prospect of being sued by private companies from China or Korea.
Before New Zealand gets embroiled in similar proceedings, could we at least get a clear answer to a simple question? Does the TPPA, to which Bill English nodded assent this weekend, contain a similar provision?
Bryan Gould
11 November 2011.