Shifting Foundations
As the global financial crisis unfolds, each country responds by seeking to protect its own institutions and economies. New Zealand is no exception. The steps we have taken have been sensible and – so far – effective in shoring up our economy as well as we can against the immediate prospects of worldwide recession and financial meltdown.
Soon, however, we and others must lift our eyes to more distant horizons – not just further into the future, but across a wider spectrum. The responses that must now be made cannot be merely national in scale, but must take an international dimension as well.
And it is when we look to that international landscape that we get a real sense of the change that has taken place. The world has truly shifted on its foundations. The agenda moving forward and the ideas now being discussed are now hugely different from anything that was thought worth considering even a few months ago.
Three years ago, I wrote a book called The Democracy Sham: How Globalisation Devalues Your Vote. In it, I developed the thesis that the global economy had dangerously sidelined democratically elected governments who found themselves no longer able to withstand the pressures placed upon them by international capital. The result was that unregulated markets were in effect out of control, with no restraining influence exercised by those we elected to protect us from the abuses and excesses perpetrated by a greedy and powerful minority.
I canvassed a number of solutions to these pressing problems. Some were national in scale, involving changes in national economic policy – a widening of the goals of that policy, a willingness to regulate the “free” market, a proper role for government as opposed to bankers, and a greater concern for social justice.
Other proposals, however, addressed the international scene. New Zealand has more than most to gain from a better regulated international financial structure. We would benefit greatly from less volatile exchange rates, from some diminution in the huge daily flows of “hot money” around the globe, and from a more prudent policy on the part of those who have driven the credit creation on which the global economy has perilously – and fatally – depended.
Many of these ideas were no doubt dismissed as irrelevant, possibly eccentric, even dangerous and misguided. What is now intensely interesting is the extent to which this kind of thinking has now – in a remarkably short time – entered the mainstream.
A striking indicator of how the picture has changed can be found in the debate on the world economy that has just taken place in the United Nations. Some of the world’s leading economists – like Joseph Stiglitz and Prabhat Patnaik – have presented papers in which they look to a new agenda going forward and are prepared to consider proposals that only a short time ago would have been regarded as anathema by most commentators.
They have, first of all, re-stated the fundamental dilemma identified by John Maynard Keynes, the twentieth century’s greatest economist. Keynes drew a distinction between investment and speculation. Investment took place, he said, in the real economy and produced new productive capacity. Speculation, on the other hand, was a phenomenon of the financial economy, took place on a short timescale and for short-term purposes, and was often undertaken irresponsibly. The only way, he said, that speculation could be reined in was by regulating financial markets, and this was essentially a task for national governments.
Stiglitz and Patnaik go on to call for action, not just to deal with the immediate crisis, but to make deeper reforms. They want a reform of bodies like the the IMF and the Basel Committee on Banking Regulation, and “a new Bretton Woods” – a UN-brokered international agreement which would regulate the international movement of capital and the volatility of exchange rates. They want a new international financing facility. They make these calls in the interests of a better balanced world economy, and not least to help the Third World which has lost out as a result of both the creation of the credit bubble (in which they had no share) and now its subsequent bursting. The economists are in effect reminding our political leaders of their responsibilities, and telling them that they can no longer leave these important matters to unregulated markets.
In placing these issues back on the agenda, these economists (who are backed up by an increasing number of leading thinkers around the world) are putting our own New Zealand leaders on notice that they, too, must respond with an increased understanding of what is now expected of them. There is a real opportunity for New Zealand to throw its weight behind, perhaps even to help lead, a drive for a new international agreement that would redress the balance of power in favour of democratic governments and against irresponsible markets and thereby protect us all against further instalments of the kind of damage we are now suffering.
Bryan Gould
5 November 2008
Yes, There Is An Alternative
The horror stories keep coming but even so it is doubtful whether we have yet grasped the scale and seriousness of what is happening in the global economy. And, as we stand transfixed by the need to surmount the current crisis, few will lift their eyes to the longer-term implications of what is sure to be a seismic change in the way the global economy operates.
We do not yet recognise that the imperatives that have driven governments around the world to take steps that would have been unthinkable just a couple of months ago will not lose their force just because the immediate crisis is past. The measures that are now being put in place are essential in the short term, but they also point the way to a post-meltdown future where the world will (hopefully) never be the same again.
The last couple of weeks have seen the unwilling slaughter of sacred cows to which we have been solemnly assured for nearly three decades “there is no alternative”:
• Governments must be kept well away from the main levers of economic policy? No. As even George Bush agrees, government action is essential.
• Monetary policy is all that matters? No. Fiscal policy now takes its proper place in the armoury.
• Only bankers are to be entrusted with the important decisions in our economy? No. As is apparent to everyone, banks worldwide have been irresponsible, foolish and greedy and their deficiencies mean that they must in many cases be taken into public ownership.
• “Free” markets must be left unregulated and will always produce the best results? No. The market has failed and created a catastrophe.
• All that matters is the bottom line? No. The goals of economic activity are wider than profit for a few.
The truth is, in other words, that if we are to survive the crisis in reasonable shape and look to a better future, we must now abandon the nostrums that have ruled our affairs and have proved so destructive. We need governments to acknowledge their responsibilities, to take a major role in first rescuing and then regulating our economy, to use a much wider range of policy instruments, and to treat markets as hugely valuable servants but dangerous masters. John Maynard Keynes, take a bow!
We may well be living through one of those seminal moments when the tectonic plates that go to make up the most important debate in modern politics have begun to move. For as long as we have had what might be recognised as an economy – in other words, for 200 years – the pendulum of intellectual fashion has swung between two contrasting views of the proper role of government in managing the economy.
On the one hand has been the view that governments have very limited capacity to manage the economy. Any pretension to extend that power will not only be self-defeating but also – because of the distorting effect on the proper and unfettered operation of the free market – positively damaging. Governments, according to this view, should limit themselves to those aims – such as the defence of the realm and maintaining the value of the currency – that are their proper concern.
The other view is that government is a major player in the economy, both as an actor in its own right and as a coordinator of other actors and a maker of policy. It should accept, and perhaps seek and welcome, a responsibility for the performance of the economy – a performance to be measured not just according to monetary criteria but according to real phenomena such as output, employment and investment. The economy will perform better if the power of government is harnessed to the needs and interests of industry, and if government undertakes those functions – such as the provision of major infrastructure – that cannot easily be carried out by private industry.
This latter view has a significant political dimension as well. If government is to do its job properly, it must use the power of democratic legitimacy to regulate and restrain the market so that society as a whole is protected against the depredations of powerful market operators. This view is on the whole (and not surprisingly) rejected by the right. But it is one of the most surprising and shameful aspects of modern political history that it has also been rejected – and enthusiastically so – by today’s “left”. New Labour has a question or two to answer.
The lesson of this crisis is that unregulated markets certainly lead to economic disaster; but, even more importantly, they are incompatible with democracy. If markets are always right and must not be challenged, the result is not only economic meltdown but government by a handful of greedy oligarchs rather than by elected representatives. If democratic governments do not, will not or cannot exercise that power to protect their electorates, the course is then set inevitably not only for the crisis we now face but also for the abuses and failures that disfigured our economies in the years preceding the crisis.
Shouldn’t our politicians be called to account?
This article was published in the online Guardian on 14 October
A Brown Study
The following article by Bryan Gould appeared in the Sunday Telegraph on 21 September
The first two months must have been very heaven. The long-awaited prize had been grasped. Opposition from both within and without had faded away. A long period at Number Ten seemed assured.
The voters seemed to like the new leader. They liked his plain-speaking and the absence of spin. They liked his re-statement of basic values and his robust defence of the national interest. Most of all, they liked the fact that he was not Tony Blair.
So, one month later, how have we arrived at the 7% Conservative lead in today’s poll? Is Gordon Brown on track to join the ranks of those Prime Ministers who were never granted an electoral mandate because they fell at the first electoral hurdle?
The first and partial answer is that it may be premature to ask these questions. The “Brown bounce” was always going to be short-lived. There was always going to be an audible thud as the polls came back to earth. What matters now is what will happen over the next eighteen months, and the current volatility of the polls (something to which David Cameron is himself no stranger) tells us little that we need to know.
None of this means that Gordon has not compounded his problems by making avoidable errors. He has lacked a sure touch in presenting policy and in Parliament. He has appeared to contradict his declared distaste of spin. And he made a serious mistake in handling the issue of an early election – a mistake that suggests that there is behind the appearance of iron resolve a much less certain political calculator.
A more confident leader might well have gone for the kill in the period leading up to the conference season. He could have argued with some justice that he was unwilling to serve for long without a full mandate for a Brown premiership, and that the voters deserved the chance to say whether they wanted him or not. He could have launched an election campaign from the top of the “Brown bounce”. And he could have denied David Cameron the chance to make a life-saving conference speech.
But to concentrate on these immediate mistakes does not explain the speed and scale of the decline in Gordon Brown’s standing. There are other, deeper factors at work – contextual elements that, unlike those with a short life, such as a conference speech or a mistake in presentation, are likely to influence events for some time to come.
First, there were always going to be elements of the poison chalice about Tony Blair’s legacy to Gordon Brown. We should not forget (and nor should the Blairites) that Tony left office, not because he wanted to, but because his party saw him increasingly as an electoral liability. Glad of a change, intrigued by a new face (or at least a familiar face in a new context), the voters were always going to recall before too long that Gordon had been a centrally important figure in the Blair government. Its failings were his as well.
Gordon knew this, too, but foreknowledge made the problem no easier to resolve. He could go just so far in drawing a line under the Blair legacy, and trying to distance himself from its more unpopular aspects. If he went too far, he would provoke several unwelcome responses.
The first would be the predictable question – if you were at odds with this or that policy, why did you not say so at the time? More damagingly, a break with the Blair record in government would prompt a damaging counter-attack from the still powerful guardians of the New Labour project.
And so it has turned out, and in a much shorter time than even Gordon’s enemies must have planned or hoped for. No sooner had Blairite spokespeople like Peter Mandelson declared that their long-nurtured hostility to a Brown premiership had ended than hostilities were resumed – and with a vengeance.
The all-too familiar off-the-record briefing is suddenly in full swing. Unnamed “insiders” warn darkly that they always knew that Gordon’s personal and political deficiencies meant that he would falter sooner rather than later. For the first time in years, we are now made privy to leaks from around the Cabinet table, designed to show that Gordon’s colleagues are unhappy. Blairite ex-Ministers proclaim their readiness, in effect, to campaign against the new leader. As we know, the voters hate to see division and infighting – and they look like getting it in spades.
Why has this happened? It is partly a matter of personal pay-back. The price is being paid for those brooding years at the Treasury, when the hint of an anti-Blair conspiracy was often in the air. But it may also be that there are issues of real political substance in play. The Blair government drew its strength only reluctantly from its democratic mandate, still less from the Labour party. Its main pillars of support were always Washington and the Murdoch press.
Any change of policy that Gordon Brown may wish to make would cause him real problems if it provoked an adverse reaction from these powerful allies. So, even a phased withdrawal from Iraq may be seen as unacceptable. Even the most careful hint of a slight move to the left, or at least towards traditional Labour values, might ring some alarm bells. The Blairite counter-attack may not be made in the interests of its front-men alone.
As it is, there is no quick victory – just the long haul. But the long haul – like the electoral arithmetic – may work to Gordon Brown’s advantage. He has time to get the balance right between acknowledging and distancing himself from the Blair legacy. He has time to confound his internal enemies by using the power of patronage and reminding his party of the electorate’s intolerance of disunity. He has time for the voters to understand and value his sterling qualities, and to turn his quintessential Britishness and love of his country to political advantage.
Above all, he has time to stop paying so much attention to “advisers” and to trust his own judgment. Today’s poll means that the campaign for the next election is only just beginning.
Bryan Gould
15 October 2007
Bryan Gould on Gordon Brown
The following article was published in the NZ Listener of 14 July.
In the ten years after Gordon Brown and Tony Blair entered the House of Commons together in 1983, Gordon was always regarded as the senior member of the duo – slightly the older, better grounded in the Labour movement, apparently with more substance than his more charming but perhaps more superficial colleague.
Little wonder, then, that Gordon was first bemused and then angry that the Labour Party “fixers” (and principally Peter Mandelson) decided at the last moment – and just in time for the leadership election following John Smith’s untimely death and my own decision to return to New Zealand – to back Tony as the preferred leadership candidate. Gordon was persuaded to wait for his turn – something he was promised in return for not challenging Tony’s candidature.
The result was a ten-year wait – profitably spent, it is true, in a successful term as Chancellor of the Exchequer – but a period of increasing frustration on Gordon’s part and an increasing reluctance from Tony to keep his part of the bargain. It was only when the post-Iraq opinion polls turned sour that Tony bowed to the inevitable and that Gordon had his chance.
What will he make of it? The omens look good. The main thing going for him is that he is not Tony. Despite Blair’s extravagant gifts, as communicator and persuader, the British public has grown tired and cynical at the glibness and the endless spin. They seem ready to embrace someone with perhaps less surface but more substance. They want, at least for the moment, someone who says what he thinks and means what he says.
Brown also has the good fortune to face in David Cameron a Tory leader who has made the Tories electable again but who looks better suited to fighting the last war – against Blair – rather than a new battle against the more solid virtues of the new Prime Minister. There is already a “Brown bounce” in the opinion polls as the British public suddenly see the dour Scot in a new light.
This is not to say that Gordon will find that election success falls into his lap. More than anyone else, he is ineluctably and correctly linked in the public mind with the Blair government and its record. He is as much identified with the government’s failures as is Tony. He will have a difficult task in convincing people that he can free himself of the Blair legacy; nor will there be any shortage of defenders of that legacy if he succeeds.
And the truth is that what is known of him is not without foundation. He does find it difficult to smile and to chat to people. He does demonstrate some of the characteristics of a control freak. He is at times excessively cautious and calculating. And his record is not free from blemish, including most memorably his determined support for British membership of the European Exchange Rate Mechanism long after its disastrous consequences were becoming apparent.
I remain, however, optimistic about a Brown premiership. Here is someone who is a much more authentically Labour figure than his predecessor, someone whom the voters will easily recognise and therefore trust. Here is someone who has a better grasp of the fact that we would not bother with the messy business of politics if it were not for the need to reconcile competing interests and allocate scarce resources, with the consequent inevitability that some people must be disappointed – something Blair instinctively shied away from. Here is a Prime Minister who will want to use power, as opposed to simply holding on to it, and to use it for purposes that will commend themselves to voters who want a recognisably Labour government.
If he is to make that fresh start, however, he must do some difficult things. He must draw a line under the Iraq disaster; the appointment as Foreign Secretary of the Iraq war sceptic, David Miliband, is a good start but the most effective step would be to establish an independent inquiry into the origins of the war, and set a timetable for the withdrawal of British troops. He must reaffirm the value of public service and the public sector, and not turn always to the private sector for solutions. He must stop hobnobbing with the rich and powerful, something for which his predecessor had a fatal weakness. Above all, if he is to make that essential connection with the British public and to do so without Tony Blair’s exceptional presentational skills, he must re-establish trust in the political process. He can do that best by being his own man.
Bryan Gould
29 June 2007
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