• Private Greed, Public Meanness

    As more information emerges about the destruction wreaked by typhoon Haiyan in the Philippines, New Zealanders will have been pleased to note that our government is listed amongst those who have offered help. They may have been less impressed to learn that the initial offer of help offered amounted to just $150,000.

    The sum offered to meet the desperate circumstances of tens of thousands who lost their homes, jobs and loved ones equated almost exactly – according to another current news story – to the amount claimed in salary and expenses by a single part-time Commissioner in Northland schools. Not only is this juxtaposition surprising in itself, but it demonstrates in a striking way the different values placed today on rewards to private individuals as opposed to spending on public and social purposes.

    Even the revised offer of a further $2 million is less than the salary paid to some of our higher-paid executives and comes at the same time as new statistical evidence emerges about the rate at which top salaries and directors’ fees have risen by comparison with the wages of ordinary workers. In the ten years from 2003, the salaries of the CEOs of the top ten companies on the NZ stock exchange rose by 137% – a figure that conceals the doubling, trebling and even quadrupling of some top salaries over that period.

    In a classic instance of “you scratch my back and I’ll scratch yours”, that generosity to top executives was exceeded only by the rise in the fees claimed by those who were responsible for awarding the salary increases – the directors of those self-same companies. Their fees rose by 146%. Over the same period, inflation rose by 32% and average wages by 47%.

    These figures take little account of course of a range of other remunerations, such as expenses and share issues, paid to top earners. And they take even less account of the favourable tax treatment accorded to the wealthy, and particularly of the fact that – in the absence of a capital gains tax – the principal source of wealth of the already wealthy in New Zealand is completely untaxed.

    This is a reflection of the phenomenon identified by Joseph Stiglitz, the Nobel Prize-winning economist, who found that – contrary to the comforting story that great wealth is the reward for hard work – the main income enjoyed by the wealthy accrues to them not because they have superior abilities or work harder or create new wealth but because they are already wealthy. Their greatest source of wealth is not the outcome of investment to create new production or provide new jobs – indeed, the net result of their activities (such as asset-stripping) is often a reduction in both production and employment – but the taking of a “rent income” from wealth they already hold and have often inherited.

    This is reinforced by the research done by Robert Putnam, the American social scientist, who finds that the best chance Americans (and, by extension, New Zealanders) have of becoming wealthy is to be born into a wealthy family. Pre-existing wealth allows the rich to buy advantages for their children – educational privilege, social contacts, exemptions from obligations such as having to work to pay for an education, and job opportunities in family firms or those run and owned by friends – to say nothing of the opportunities to earn the “rent income” from the family wealth they inherit.

    In the light of these findings, it is not a surprise to find that over the past three decades the share of national income going to profits has risen sharply while the share going to wages has declined equally sharply. Little wonder, too, that over those same three decades throughout the western world virtually the whole of the increase in wealth and income has gone to the very wealthiest; for the rest of us, it has been a case of running faster to stand still, with longer hours being worked and more members of the family working just in order to stop living standards from sliding backwards.

    Those who peddle the fiction that wealth is always the reward for effort and virtue and that growing inequality is therefore to be welcomed must also accept responsibility for the corresponding and equally misleading canard that hard times and poverty are a proper penalty for fecklessness and laziness. It is hard to imagine any doctrine that – as well as being morally and rationally indefensible – is more destructive of social cohesion and a united country.

    One of the great achievements of John Maynard Keynes was to prove conclusively that unemployment – the single greatest cause of poverty – was not (as the classical economists maintained) always voluntary. He showed (and experience as well as theory have proved him right) that unemployment would rise if demand – and particularly government spending – fell. For most of those seeking jobs, their only wish is the opportunity to work.

    In deciding whether we have the balance right between private wealth for the few and general prosperity for the many, we would do better to frame policy in line with established facts and wisdom rather than conveniently self-serving myths.

    Bryan Gould

    1 November 2013.

  • New Labour Betrays Its Supporters

    As the Labour Party steels itself for electoral meltdown, it may seem ironic – after the global-sized catastrophes of the Iraq invasion and the worldwide recession – that it is the descent into venality at home that will count most with the voters. But to underestimate the importance of the expenses scandal would be a mistake.

    The voters understand intuitively that, having presided over and applauded a society in which greed and the pursuit of self-interest have been elevated into positive virtues, New Labour’s own pursuit of power at any cost has produced its inevitable outcomes. The expenses debacle has been much more than a series of individual peccadilloes and defalcations; it has been the expression of a political culture that has created a gulf between what is seen as acceptable and necessary in the political world and the standards of decent behaviour expected of the rest of us. The individual manifestations of that culture may seem grubbily petty and venal, but the embarrassed squirming among the political class as the detail has been exposed is testimony to how out of touch our leaders had become and how serious that is for the whole political process.

    This matters more to Labour than to others. The Tories have never bothered to hide their view that power is to be sought so that it can be used to defend vested interests. The Liberals seem to believe that power is best exercised by “nice” people. Only Labour, traditionally, has pursued power with the avowed purpose of correcting the unfairness and inefficiency of allowing the dice to lie where they fall and of creating a better society.

    It is for that reason that the demise of Labour – under its “New Labour” leadership – is a matter not just for pain and anger at the loss of the opportunity presented by the 1997 election victory, and contempt for those who led us down this cul-de-sac into disreputability. It is also a major blow to our whole political structure which, in the absence of a substantial presence from the democratic left, will be less effective at creating a healthy society and a strong economy than it should be.

    The special importance of the left lies not just in the fact that it is, or at least has been, the major source of progressive ideas, that it has provided the most reliable stimulus of new thinking, that it has generated the most creative dynamic for reform – though all of that is true. Its true value is that it underpins the whole case for democracy and for the power of good government.

    Among the many lessons we should draw from the global recession is that this is what happens if government fails in its purpose. Ever since democracy was ushered in, there has been no shortage of powerful forces dedicated to undermining it. This is for the obvious reason that the whole point of democracy is to offset the power of the powerful with the political strength of the people. In the absence of that political power, without bringing to bear the legitimacy of the democratic mandate through an elected government, there is no force capable of resisting the might of the economically or socially or militarily powerful.

    The failure of government to lean against the economically powerful over the last three decades led directly to the unregulated excesses that created a market-driven recession. And, even as we grapple with the measures needed to recover from recession, the same central question is starkly posed – what is the proper role of government?

    The key feature of a recession is that every individual, every business, will have a cast-iron and rational reason for battening down the hatches. Only government has the capability and responsibility to act in a contra-cyclical way, against market logic, and to pull us out of recession faster than would otherwise happen, by spending and investing at a time when no one else will.

    What this tells us is that it is always the role of government – when necessary – to represent the wider interest against powerful forces, and to act in a way that would be irrational or impossible for the private individual, however powerful. It is only the left that has in the past carried into government this central concept of what the true purpose of democratic government really is.

    If this week’s elections do indeed show how thoroughly New Labour has debased and betrayed the legacy with which it was entrusted, it will not just be Labour’s party warriors who are relegated and enfeebled. The vast majority of the British people – irrespective of their party allegiances or lack of them – will have been significantly disenfranchised. The blow struck by the expenses scandal against faith in the democratic process will claim more casualties than just a few MPs. The real losers from the demise of the Labour Party will be millions of ordinary people who – perhaps without knowing it – will have lost their best defence against the depredations of the powerful.

    Bryan Gould

    2 June 2009

    This article was published in the online Guardian on 2 June