The Globalisation Bell Tolls for us All
The decision taken in New York to close the Colgate Palmolive factory in Petone and supply the New Zealand market from production in Australia and elsewhere is the latest demonstration of just how far this country has lost control of its own economic destiny.
Successful New Zealand companies – Trade Me, 42 Below, Ihug – are snapped up by overseas investors. Failing New Zealand companies, like Feltex, are bought at a knockdown price by overseas competitors and the domestic workforce forced to accept poorer wages and conditions. Overseas owners of our basic infrastructure threaten, as in the case of Toll Holdings, to limit the service they deliver in the interests of maximising their profits. Even the most New Zealand of New Zealand companies, like Air New Zealand, propose to take large chunks of their operations offshore, and invite foreign contractors to deliver supposedly cheaper services by driving down wages and conditions.
In most of these instances, it is the workforce that pays the immediate price. But none of us escapes. Workers may lose their jobs and suffer wages cuts, but we all bear the loss of that growing volume of profit that is repatriated – profit produced from our economy but, by virtue of increasing foreign ownership of that economy, benefiting others. We all bear the cost of the high interest rates needed to attract the “hot money” without which our record current account deficit could not be sustained, a deficit made larger by precisely those selfsame high interest payments and profits repatriated across the exchanges. And we all suffer the loss of control over our economic lives as a result of decisions increasingly made in boardrooms which may hardly know where New Zealand is, let alone care about it.
These are high prices to pay for our enthusiasm to offer ourselves up to the global economy. Whereas once, an overseas company wishing to operate in New Zealand could be required to meet conditions stipulated by our government – conditions designed to protect the workforce, and consumers, and our social and environmental interests – our governments are now powerless to stipulate anything. If they should indicate any wish to establish minimum protections for our interests, they will smartly be told that the investment will go elsewhere.
Now, as the economic and industrial news reinforces every day, our ability to establish our own conditions and pursue our own policies in the interests of our own people, has well and truly slipped through our hands. We have sold so much to foreign interests that we have little left to sell. We are no longer able to take the decisions needed to protect what is left. We are rapidly being absorbed into the economy of Australia, and – if not Australia – then further afield, without a single democratic vote being cast.
Overseas interests now dictate a whole range of policies. Wage rates are increasingly set according to the benchmark of Chinese wages. Tax rates have to follow the Australians. Employment and industrial relations law, health and safety legislation, rules about the re-investment of profits, have to comply with the requirements of overseas investors, not of New Zealanders. Even environmental issues – so much in the news following the Stern Report – are determined according to the wishes of overseas operators. When a carbon tax was proposed in order to meet our Kyoto commitments, it was rapidly scuppered by the threat from Comalco and others to move their plants elsewhere.
It is not, in other words, only economic power which has moved decisively out of our hands. It is political power as well. The political debate is now shaped and constrained in the interests of a small, self-interested and ideologically unrepresentative group of immensely powerful investors who could never have secured support for their extreme positions if they had had to seek a democratic mandate.
Their influence extends as far as deciding what the macro-economic policy settings should be and how they should be decided. This week, we had yet another meeting of top businessmen to consider the question of how we, as a country, could improve our economic performance. The best they could apparently come up with, as a “big idea”, was that the removal costs of people appointed from overseas should be tax-free!
No one apparently questioned the policy settings which are largely dictated by international capital and which mean that central issues of economic policy are decided by unelected officials, that the chosen instruments – like tinkering with interest rates – are increasingly ineffective as a counter-inflation strategy but do great damage to the real or productive economy, and that the economy as a whole is forced to pursue a dizzyingly damaging course up and down an exchange rate roller coaster.
No one would want to put up the shutters, or to see a “fortress New Zealand”. But we should surely be debating the question as to whether our wholehearted readiness to hand over our economic fortunes to the whims of a more and more concentrated number of international investors is not exacting too high a price in terms of lost economic benefit and diminished democratic control over our own future. Isn”t it time – if democracy is to mean anything -to restore the power of governments to govern, in all our interests?
Bryan Gould
2 November 2006
This article was published in the New Zealand Herald on 7 November 2006
Global Warming and Market Failure
The Stern Report draws some alarming conclusions from the growing scientific consensus that global warming is a fact and is caused by greenhouse gas emissions arising as a result of industrial and other man-made processes. The Report demands an immediate and effective response from governments around the world.
It also prompts a prior question. Why has the free market – so often hymned as infallible by right-wing economists – allowed this situation to arise? And why have governments not intervened before now to protect us against this extreme example of market failure?
As I point out in The Democracy Sham, the world economy is now controlled by a small number of highly ideological and self-interested power players who are prefectly prepared to put that self-interest ahead of the health of the planet itself. They are able to treat any cost that does not arise directly – in terms of the bottom line – as “externalised” – that is, to be borne by someone else or, in many cases, by no one at all. Environmental costs fall clearly into this category. Their existence is either denied altogether, as in the case of global warming, or lip service is paid to dealing with them. Governments, other agencies and individuals who dare to take a different view are told that if they do not like it, the economic activity at issue will simply be moved somewhere else.
A prime example of the impotence of governments, when faced with this kind of blackmail in tlhe global economy, arose recently in New Zealand. The New Zealand government has signed the Kyoto Protocol and proposed a carbon tax as a means of helping to meet its Kyoto commitments. They were promptly told by Comalco, the multinational aluminium smelters, who are major users of electricity, that a carbon tax would mean that they would move their plant elsewhere. The government abandoned the carbon tax and is left for the time being without any credible means of bringing about a significant reduction in emissions.
Global warming, in other words, is just the latest and highest-profile example of the heavy price we pay for conceding control of the world economy to a “free market” in which a handful of operators can hold the rest of the world to ransom. It is time, in the interests of us all and of the planet, to re-establish political and democratic control over the economic process.
Bryan Gould
2 November 2006
The Democracy Sham
In The Democracy Sham: How Globalisation Devalues Your Vote, Bryan Gould considers the impact of the global economy on the democratic process in a number of countries, including New Zealand and Britain. He shows that international capital is, by virtue of its freedom to move at will across national boundaries, now able to dictate to democratic parties and elected governments the economic and other policies they can and cannot pursue. The result is that the political choice offered to voters has, without their realising it, been narrowed and constrained and the voice of the left has been muted and virtually extinguished.
Bryan Gould explains the development of the global economy and the reasons for its current hegemony. He shows that the orthodox justifications for globalisation – that it has delivered better economic and other outcomes for both the world economy and individual countries – cannot be supported, and that it has, on the contrary, produced a global slowdown and unsustainable inequalities and instabilities on both the international and domestic scale.
He looks at the political implications of what he describes as an historic shift in the balance of power between capital and labour, and at the failure of parties of the left to mount any effective resistance. He concludes by considering the steps that could and should be taken to restore balanced and sustainable economic development in the world economy and a fully democratic choice to voters in countries as diverse as New Zealand and the United Kingdom.
The Democracy Sham: How Globalisation Devalues Your Vote is published by Craig Potton Publishing in September 2006.
National Radio Interview
Bryan Gould was interviewed by Chris Laidlaw about The Democracy Sham on New Zealand National Radio on the morning of Sunday, 10 September. Excerpts from the interview appear below.
“What I am concerned to do is to dispel the notion that the social and political and environmental downsides [of globalisation] that are becoming increasingly apparent can be offset by economic considerations…in other words, the economic story is not a good one either. National governments have found the going tough and internationally the economy has grown quite slowly since globalisation and has been marked by tremendous inequities and uncertainties and instabilities.
If we’re drawing up a balance sheet, and we can show that it’s not very strong on the economic side, that then frees us to look at the political and environmental and social consequences that I think are inimical to the kind of world economy we’re trying to develop.”
“It’s not surprising that people have on the whole been persuaded that globalisation has meant better times because for some people it has. What you have to ask is, but which people? It turns out that those who have done well, both globally and within national economies, have been the top ten or twenty per cent. They are able to develop the myth of better times for all by virtue of their ability to influence the way the media treats these issues. The facts show that many people – certainly those below the median point and some of those even above it – have not done well out of globalisation, and that’s true in strictly economic terms as well as in terms of controlling their own lives and influencing events close to home.”
“I wrote the book to answer the question as to why, when there is so much unhappiness about particular aspects of globalisation across the political spectrum, these concerns have so little political traction. The answer is, I think, that people have lost touch with the sort of analysis that I have tried to develop. They tend to look at third world poverty or threats to the environment or the loss of control to multinational corporations as separate, individual and discrete issues rather than as manifestations of the huge loss of control that has flowed from the ability of international capital to dictate to elected governments what the political agenda should be. So, without people being aware of it, the political debate has been narrowed, so that no major party, either in power or seeking power, dares to pursue a policy, either economic or flowing from economic policy, that would discomfort the international investors on whom they think they depend. So, even quite liberal or radical governments, like the Labour government in New Zealand, tailor their economic policies to suit international investors.”
“Thirty or forty years ago, overseas investors would have to negotiate terms with the elected government of a country in which they wished to operate. That government would specify the terms that were needed to reflect the interests and needs of their electorate. Today, the free movement of capital around the world means that international investors – and that means in reality fewer and fewer but bigger and bigger – can roam the world looking for the most congenial conditions, with the result that across the globe wage rates are driven down, and the treatment of profits becomes ever more favourable because competing governments feel that they must do what is required of them if they are to secure the investment they need.”
“One of the many downsides of increasing globalisation is that there are fewer and fewer companies [in a country like New Zealand] flourishing and maintaining their headquarters in New Zealand….That means that fewer and fewer decisions about our economy are being made in New Zealand and that decisions about how workers should be treated and where investment should be made are being made by people who don’t even know where New Zealand is, let alone care about it. And there are some severe economic consequences as well. One of the major burdens overhanging the New Zealand balance of payments is the huge proportion of our economy accounted for by repatriated profits and the interest we pay to [purveyors of “hot money”] in order to finance our deficit.”
“You can’t argue that the huge power of international capital will be deployed to secure the best outcomes from the viewpoint of the international investor, which means that only market values and market forces that impact on the bottom line will be taken account of, and that they will then sit back and allow governments to come along and change those outcomes. This is not a play exercise. International investors want certain outcomes and they will insist on getting them. They might allow a little cosmetic exercise at the margins but they are not going to allow claims for social justice to override the infallible market. The deliberate objective of free market economics is social injustice. The dice must lie where they fall.”
“I think it’s quite possible that the pendulum [of intellectual fashion that would normally allow a change of policy in the light of increasing dissatisfaction with globalisation] may have got stuck because of the power of international capital and the international media, which are just a subset of that same group, to dominate the agenda.”
Implications of the Euro
Implications of the Euro
The subtitle of “Implications of the Euro’ (edited by Philip Wyman, Mark Baimbridge and Brian Burkitt and published by Routledge, 2006) is “A critical perspective from the left”, and that is exactly what it provides. With a foreword by David Owen, and essays from academics like the editors and Jonathan Michie, politicians like Austin Mitchell and Tony Benn, and journalists like Larry Elliott, it is a long overdue and valuable exploration of the political and economic aspects of the euro from a left perspective.
Bryan Gould provides a preface which summarises the issues in these terms:
“This book is long overdue. The debate about Britain and the euro – so far as there has been a debate at all – has been largely the preserve of the right, and has been pretty much dominated by simplistic posturing. On the one hand, those in favour of British adoption of the euro have stressed the lower transaction costs and the convenience to travellers, and – if they are a little more knowledgeable – the familiar argument that to stay out would be to threaten trade and investment.
The opponents, on the other hand, go for the nationalistic pitch, stressing the importance of national symbols like the pound and the Queen’s head on our currency. Neither side seems greatly interested in exploring the fundamental issues of economic and political significance that could help shape both Britain’s and Europe’s future.
The left has hardly entered the debate, reflecting an unwillingness to be identified with either position adopted by the right, a broad but rather fuzzy commitment to internationalism, and an unthinking suspicion that exchange rates and currencies are properly the concerns of right-wing businessmen and technicians. Some – like the commentators – prefer to see the issues in terms of domestic and especially personality politics. Could Tony win a referendum? Or will Gordon use opposition to the euro to open the door to Number Ten?
All of this misses the point – or rather several points. As a policy issue, the euro poses real challenges, and real opportunities, to the left. The careful exploration and successful resolution of these issues could determine the prospects of Labour governments for years to come.
The economic consequences of embracing the euro can hardly be overstated. A single currency inevitably requires and dictates a single set of monetary conditions brought about by a single monetary policy. In an economic zone as large as the current European Union, it is inherently unlikely that a single monetary policy could conceivably meet the interests of all the diverse parts of that economic zone. A monetary policy that suits the stronger countries (who have the major say in what that policy should be) will harm the interests of the weaker, reinforcing the natural tendency in any economy for productive capacity to concentrate in the stronger parts.
A single currency means the renunciation of one of the major (and potentially beneficial) instruments for dealing with this misalignment. Correctly aligned exchange rates allow differently developed economies to interact with each other to mutual advantage, encouraging each to move resources to the potential growth points where they enjoy a comparative advantage. With a correctly aligned exchange rate, a weaker economy can trade productively with a stronger one, with both concentrating on the things they do best.
In the absence of that possibility of adjustment, inequalities do not disappear. They simply re-emerge in other forms. Those parts of the wider economy that find the going tough will experience a further loss of economic activity, investment and employment. The consequent fall in demand will in turn depress the wider economy, affecting even the stronger parts who were the initial beneficiaries of the single monetary policy.
It is for these reasons that the United Kingdom’s decision on the euro is important for Europe as well as for the United Kingdom. A decision to stay out of the euro zone could be argued not only to be in the United Kingdom’s interests but to point the way to a better economic future for the European Union as a whole. The European economy would function better if component parts had the freedom to set their own monetary conditions and exchange rates so that they can trade with each other in optimal conditions.
These arguments are not purely theoretical. The experience of European countries over the last twenty years (bearing in mind that the Exchange Rate Mechanism gave us an early test of the economic consequences of currency union) testifies to the damaging effects of compressing diverse economies into a single monetary and currency zone. It is no accident that the European Union continues to struggle while the United Kingdom has, by comparison and since leaving the ERM, prospered.
In the absence of any possibility of exchange rate adjustment, there are only two escape routes for depressed parts of a wider currency zone. First, they can wait until a lower level of economic activity so depresses comparative living standards and wage rates that investment is attracted by those lower labour costs. The problem with this is that it takes a long time and that the loss of output while this slow and painful adjustment takes place will harm both the particular component part and the wider economy. This is, nevertheless, where the euro zone now is.
Secondly, the depressed area can throw itself on the mercy of the wider entity, arguing that it is making a sacrifice of its own economic prospects for the sake of some wider goal, and that it is therefore entitled to all the benefits (such as they are) of the wider entity’s regional policy and, ultimately, social security largesse, in order to offset the loss of economic welfare.
The wider goal for which this sacrifice is made is presumably a degree of political integration which is also the necessary pre-condition for the assumption of regional policy and social security responsibilities by the wider entity. It is only in a political union (and even then the strains are immense) that the parties recognise such a community of interest as to make possible both the sacrifice on the one hand and the assumption of responsibility on the other.
The economic aspects of a single currency, in other words, inevitably elide into the political aspects. The deleterious economic effects of an inappropriately wide currency union can only be made tolerable – so it is calculated – if the parties agree to throw in their lots with each other to the point where the value they place on their common political identity outweighs the economic sacrifice. Those who do not dare propose such a step in its own right calculate that it can be achieved by a detour.
Such a step remains, however, fraught with difficulty. We know from our own experience in the United Kingdom that even a long-established political union suffers huge strains that are only exacerbated by economic divergence. Major questions of concern to any democrat arise – issues of self-determination and accountability, representation and identity. Democracy is, after all, about more than voting. It means being governed by those by whom we choose to be governed.
The price we are asked to pay for a less than optimal economic performance is, in other words, a political step which we might be prepared to take one day, but which even its proponents do not dare to describe openly right now. This should be of real concern to the left – indeed, to any democrat – and this book is a valuable step towards a proper exploration of that concern.”