• The Deal-maker

    Our Prime Minister revels in his reputation as a deal-maker – and with good reason. His success in making a personal fortune as a foreign exchange dealer is, it seems, a major factor in establishing his claim to be an expert in how to run our economy.

    It may not be immediately obvious that the short time horizon of the foreign exchange dealer – perhaps at times only a few hours or even minutes – is necessarily the best qualification for making good long-term strategic decisions about our economic future. But few would doubt John Key’s ability to close a deal.

    It is only when we look closer at the deals that the Prime Minister concludes that doubts might arise. It seems that his negotiating stance in approaching a potential deal usually begins with, “The answer’s yes, now what’s the question?”

    Those doubts might seem to be well-founded when we look at some of the deals he has concluded in recent times. The “negotiation” with Warner Brothers over The Hobbit seems to have been a process in which the Hollywood moguls dictated their requirements – $67 million in tax relief and a change to employment law that reduced the rights at work of actors and film crews – and John Key’s government “negotiated” by meekly complying, with the passage of overnight legislation.

    We see a similar pattern in the “negotiation” with Sky City over a convention centre in Auckland. The Sky City offer was made conditional by the gambling bosses on the award of a significant number of new pokie machines – something strongly opposed on social and health grounds by those rightly concerned at the damage done by gambling to families who can ill afford it, but immediately conceded by John Key.

    On this form, we can be confident that we will see the same pattern in future “negotiations” with, for example, overseas firms wishing to drill for oil, or mining companies wanting to operate in conservation areas, or foreign buyers proposing to purchase national assets. In all such cases, we can expect our “deal” maker to take whatever is offered and run.

    “Show me the money” was John Key’s election campaign challenge to Phil Goff; in his mind, it seems, “showing the money” is the essential and only condition needed to settle any deal on offer.

    Peter Dunne’s blog last week, in which he warned that there were real dangers in the Prime Minister’s propensity to “cut through” obstacles to a deal, was making a similar point. John Key, it seems, is quite ready to set aside legal safeguards, as well as commonsense considerations, if that is what is needed to close out a “deal”.

    The defining characteristic of the Prime Minister’s big-ticket deals is that they typically involve large firms, preferably from overseas. He seems so impressed at being involved with such entities that any concern about whether or not a “deal” offers good value for New Zealand goes out the window.

    The worry is that, in negotiations like those with the US and others over a Trans Pacific Partnership, the Prime Minister will take a similarly cavalier attitude to the protection of our national interests. We are already being softened up for what seems now to be an inevitable outcome – that, on a range of important matters, such as a continued and unchanged role for Pharmac, the “negotiations” will end up with an abject capitulation by our government. For John Key, the outcome that matters is putting the signature to the “deal” – not the practical (and possibly adverse) consequences thereafter for our economic wellbeing.

    A similarly short time horizon is in evidence when it comes to asset sales. It is almost as though the Prime Minister is so dazzled by the potential price tag of billions of dollars that he is blind to any longer-term disadvantage. Yet, selling assets that generate a minimum return of 7% per annum at a time when the government can borrow at roughly half that rate is simply to put a short-term gain ahead of a much larger longer-term loss for future generations.

    As on so many other issues, John Key seems not to understand that the sale of our income-producing assets into foreign hands is to deny future generations important (but dwindling) national income streams. Their loss makes us poorer, increases our need to borrow from overseas and weakens still further our power to decide our own future.

    We have travelled a long way from the time when New Zealand was prepared to take a stand and stick to it, even in the face of condemnation from powerful overseas interests. Ask yourself a simple question. If John Key had come to power before our non-nuclear policy had been decided, would he have taken the initiative and introduced it on his own account, and then maintained it against all the odds? Or would keeping in with the Americans have been his first priority?

    Bryan Gould

    8 March 2013

  • Can We Trust John Key to Fight Our Corner?

    Ask yourself a simple question. If John Key had come to power before our non-nuclear policy had been decided, would he have initiated it on his own account? Or would keeping in with the Americans have been his first priority?
    The question is worth asking because New Zealand Prime Ministers are constantly faced with striking the right balance between protecting our own interests on the one hand and pleasing powerful external forces on the other.
    The answer to the question is surely obvious. The Key government has shown itself repeatedly to be keen to meet the demands – whether commercial or political – of outside interests. Whether it be reducing the rights of New Zealand workers at the behest of Warner Bros – described by the New York Times as John Key being “bent to the will” of the film studios – or denying the right to protest on the occasion of a visit from the Chinese Vice-President, or following the US lead in abandoning the Kyoto Protocol, we can have little confidence that our government will stand up for us when they come under pressure.
    The issue arises again in the context of the negotiations over the Trans Pacific Partnership. Once again, we need to know whether we can rely on our government to resist the pressure to sell us short.
    Typically enough, the attempt is being made to define the debate about the TPPA in the black and white terms of being either for or against free trade. If only it were that simple. Most people, me included, would see – all other things being equal – considerable advantages in an extension of free trade. But we might also observe that many countries – especially smaller and weaker ones – have prudently avoided opening up their economies to powerful competitors until they are confident they can handle the challenge.
    It is sensible to ask, therefore, whether we are strong enough to face direct competition in our own backyard from the world’s most powerful economies; and, if there is doubt about that, should we not realise that what is presented as a free trade agreement might really just be a recipe for absorption into those selfsame economies?
    The TPPA also raises a number of specific issues. It is agreed by experts in international trade law – even by those who are in favour of the TPPA – that New Zealand will need to pay particular attention to at least three of those issues which, unless satisfactorily resolved, could adversely affect our interests.
    First, the powerful US pharmaceutical industry has attacked Pharmac – the state agency for drug purchase that has saved us billions of dollars – as a barrier to the kind of profits they want to see. The danger here is that, even if Pharmac is not targeted for actual abolition, its powers may be scaled down to make it less effective. On the same principle, other public and cooperative mechanisms, such as Fonterra and Zespri, could be challenged as unacceptable to the concept of “free”trade. And, ironically, the kind of tax sweetener we provided to Warner Bros could also be struck down as a distortion of trade.
    Second, it is recognised that attempts to restrain the buying up of our assets by foreign interests would be opposed as contrary to the “free trade” encapsulated in a TPPA. Nor would discriminating in favour of local New Zealand suppliers in preference to overseas companies be tolerated. When it comes under pressure on this issue, our government will be reduced to asking for special exemptions – something sure to be strenuously resisted by the Americans and others.
    A third area which warrants concern is the “investor protection” provision – typically found in this kind of “free trade” agreement – that allows overseas corporations to sue our government in special tribunals, even though they are not parties to the TPPA and even though a later government might have been elected to put in place a totally different policy on a given issue. Again, the unduly optimistic language in the face of this threat is that of the need for “mitigation”.
    The Herald’s advice – that we need not worry about these issues because we could always break the treaty if it turned out badly – is not guidance that should be offered to or accepted by a responsible government.
    No one disputes that the Americans will push these issues hard and will expect to win. Whether we can defend our interests will depend entirely on how strongly our government fights our corner, and whether it is prepared to say no.
    Hence the question with which I started. Do you have confidence that John Key will stand up to the pressure? I fear that the best we can hope for is a fudged outcome that will in reality be a capitulation on each of these issues. Our confidence cannot be helped by the fact that the negotiations are being conducted in secret and that, by the time we know the outcomes, it will be a done deal that cannot be changed.
    And all of this gambled on the hope that the powerful US dairy industry will welcome the tariff-free entry of our dairy products into the US!
    Bryan Gould
    9 December 2012

  • Batshit?

    It is the sad fate of leading politicians in a democracy to be heartily disliked, whatever their personal merits may be, by a substantial proportion of the voting public. That is as true of John Key as it was of his predecessor, Helen Clark.

    It is not usually the case that it is the personal qualities of the political leader that are at issue, although those who disagree with a politician will often project their political opposition on to the supposed personal deficiencies of the object of their hostility.

    But in most cases, even in the case of a political opponent, people are quick to close ranks when it comes to supporting a political leader, particularly a Prime Minister, as a representative of our country overseas. Whatever the controversies and disputes domestically, most of us want to see our Prime Minister performing with distinction and earning respect when it comes to the international arena.

    I recall an occasion when I had the privilege of being present when Helen Clark, as Prime Minister, met leading members of the Chinese government. Some members of the New Zealand delegation would almost certainly have been opposed to the Prime Minister in terms of domestic politics (and even I did not agree with her on some issues), but we were all impressed with the way she conducted herself, and proud of the obvious respect in which she was held by her hosts.

    Even on those occasions when she said something she perhaps later regretted – as on the occasion when she suggested that, if Al Gore had been US President, there would have been no Iraq invasion – it was on an important issue on which she was entitled to hold a well-considered opinion. The standing she enjoyed in international terms was confirmed, of course, when she was offered the UN’s third most senior post in 2009.

    It is therefore disappointing that John Key, whatever his other qualities, has not projected an image overseas of which we can be equally proud. He is beginning to establish something of a reputation in the international media as someone who is at best not to be taken very seriously and at worst prone to gaffes and mis-statements.

    His gratuitous and rather coarse insult concerning David Beckham was hardly serious enough to cause a diplomatic incident; but it did receive worldwide coverage and made the front-page headlines in some British tabloids – and it is, sadly, the case that the person who came out of the episode with damage to his reputation was not David Beckham but the New Zealand Prime Minister.

    This minor mis-judgment may not matter much in itself, but it may be symptomatic of an increasingly casual and flippant attitude taken by the Prime Minister to the responsibilities of his job. On the same day as the Beckham comment, John Key – presumably in an attempt to show that he was “one of the boys” – ventured an ill-judged “joke” (this time on New Zealand radio) that managed to use the word “gay” as an insult.

    The increasingly numerous “brain fades” that John Key has suffered in recent months, and the number of times that he has shuffled off responsibility on to other agencies when his government has been found at fault also suggest a political leader whose mind is not entirely on the job.

    And it is of course disappointing that – when he is occasionally reported in the international media – his profile is so indistinct that he has in recent times been described as “David” and “Geoff” Key , or as John “Kay” or John “Keys” – clearly not someone who is making a big impression.

    “’So what?” will be the response of many of his supporters. Who cares what foreign journalists make of him, so long as he is doing a good job for the people at home? But representing New Zealand with grace, dignity and authority at international gatherings is very much part of his job, and the country suffers if it is not done well. As a small country, we are in more need than most of a leader who can punch above his weight.

    The suspicion must be that John Key, by preference and temperament, sees himself more as a populist domestic politician – a role where his lapses matter less and are more easily forgiven – than as a serious international figure. It may even be that he is someone who is more attracted by popularity than power. But do we really want a Prime Minister who would rather be Paul Henry?

    Bryan Gould

    6 November 2012

    This article was published in the NZ Herald on 8 November.

  • Crisis? What Crisis?

    In January 1979, the British Prime Minister, Jim Callaghan, returned from a Summit meeting in the Caribbean to a Britain suffering the serious industrial unrest that became known as the “winter of discontent”. Interviewed at Heathrow airport, Callaghan’s relaxed attitude to talk of chaos was translated by The Sun the following morning into a headline reporting the Prime Minister as saying “Crisis? What Crisis?” The electorate’s reaction led directly to Mrs Thatcher’s election victory later that year.

    John Key, returning from Hollywood this week, was equally dismissive of talk of a crisis in manufacturing. Our Prime Minister was in some ways even more insouciant than Callaghan; faced with Statistics New Zealand figures showing 40,000 manufacturing jobs lost in the last four years, he airily asserted that our expert official statisticians had simply got it wrong.

    But the Prime Minister’s denial of the facts reveals more than just a surprising and mistaken reliance on his own expertise in handling statistics and a confidence that he will be believed, however improbable his assertions. It reflects a deliberately relaxed attitude by the government to the whole issue of unemployment.

    The Prime Minister resists talk of crisis because he believes that people are out of work because that is what free-market theory dictates. That theory takes a very simple view. If the supply of a particular commodity exceeds the demand, the price of that commodity will fall – which is certainly true for most commodities, such as, say, sugar or coffee. Where the free-market ideologues part company with common sense, however, is in insisting that labour is just such a commodity.

    Unemployment happens, they say, because the supply of labour exceeds demand. This should mean that the price of labour will fall – in other words, wages should come down. The government takes the view that the remedy is therefore in the hands of the unemployed themselves; they can correct the situation by accepting lower wages.

    The first objection to this view is that the theorists are looking at only one side of the equation; by concentrating only on the supposed excess supply of labour, they take a completely static view of the demand for labour and of how a market economy really works.

    The demand for labour could easily be raised, but that would require a change in policy – and that won’t happen for as long as the government insists that wages must come down, since lower wages and lost jobs mean lower spending, and therefore no stimulus to demand in general and demand for labour in particular.

    True to the theory, the government continues to pin its hopes on forcing down the price of labour, as though it were just another commodity. After four years, we can say with some confidence that the policy has failed. Unemployment remains stubbornly high. The economy has stalled. But the government is not deterred.

    Ministers dare not say so publicly, but they use economists’ jargon to explain why unemployment remains high. Labour costs are “sticky” – that is, they have not fallen in order to clear the market, as the theory says should happen. Their conclusion is, therefore, that the market must be helped by “unsticking” labour costs to force them down.

    It may be hard to credit that our government wants to bring wages down, yet that is what they have set out to do. How else to explain why workers’ rights at work have been significantly weakened, so that workers can be taken on, and then thrown back on the scrap heap without any redress? Why else are young workers to be paid less than the minimum wage, if not to remove the floor placed under wage levels? Why was a modest rise in the minimum wage voted down while top salaries zoom upwards?

    Why have benefits been removed and reduced so that even solo mums with young children are forced back into the labour market, whether or not there are jobs? Why is covert support lent to big employers like Oceania or Talleys as they cut the real wages paid to already low-paid employees?

    These measures are explicable only if the intention is to force the lowest wages lower, so that downward pressure will increase on wages across the board. We can now see that “closing the gap with Australia” was only ever so much pie in the sky; far from encouraging New Zealand wages to match Australian levels, the government is intent on using high unemployment to force them lower.

    While Bill English occasionally lets the mask slip by touting lower New Zealand wages as a competitive advantage, the government is unwilling even to engage in debate about improving our competitiveness through changes in exchange rate policy. A lower exchange rate would at least give us a fair way of reducing our costs across the board, and provide a platform from which we could begin to grow the economy again. The government, though, would rather see the whole burden of reducing our costs in international terms borne by working people. Little wonder that the share of national income accounted for by wages has fallen.

    Bryan Gould

    9 October 2012

    This article was published in the NZ Herald on 11 October.

  • What the Hekia Doing?

    John Key enjoyed his first term as Prime Minister. It all seemed so easy. But now, in his second term, it’s not so much fun.

    The rot began to set in even before the last election, with the ill-fated storm in the John Banks teacup, and the Epsom MP has continued to give him nightmares ever since. But it is not just the Prime Minister’s inability to take decisive action to purge his government of a toxic element that has hurt him; the perception is growing that he is not as good as he should be at running an effective government.

    Too many of his ministers seem to lack proper direction; too many do and say things that surely cannot have been approved by Cabinet. When he looks at his education minister’s recent record, for example, with ill-judged initiatives followed by embarrassing backdowns on class sizes and Canterbury school closures, he could be excused for exclaiming “What the Hekia doing?”

    And how close an eye does he keep on his Foreign Minister, who used his speech to the UN General Assembly to promote New Zealand’s candidature for a seat on the Security Council in 2014, but at the same time has virtually destroyed our proud record as an active member of UNESCO, of whose founding document we were the second country to step up to sign in 1946? Is that the way to demonstrate that we are a good UN citizen?

    Even his most senior ministers seem to be laws unto themselves. Bill English, with whom he seems to have an increasingly tetchy relationship, seems not to have bothered to keep the Prime Minister in the loop over one of his main responsibilities while acting as PM during John Key’s absence overseas. And the Prime Minister himself seems to have a pretty cavalier attitude to those same responsibilities, declaring that a barely believable mistake by the spy agencies for which he is responsible minister – and one that was absolutely central to the performance of their prime functions – was nothing to do with him.

    Little wonder, then, that the Prime Minister now displays the unmistakable symptoms of a familiar second-term syndrome. Prime Ministers often get tired of the continued pressure and criticism they encounter on a daily basis in domestic politics. They begin to yearn, and then actively to look for, the respite they gain from overseas trips, whether necessary or manufactured.

    How pleasant it must be – after all the trials and tribulations of dealing with an ungrateful public – to go abroad to be feted and flattered, to be treated as an honoured guest, to enjoy the attention of uncritical media. But it is always a bad sign when, in any walk of life, someone doing an important job is happier away from it than actually doing it.

    The Prime Minister enjoys – and why not – overseas travel. The opportunities to travel – particularly to the United States, whether to watch his son play baseball or to tour Hollywood studios – seem, however, to be coming with increasing frequency.

    His latest foray to Hollywood is not just to collect a couple of autographs from some minor Hollywood celebrities. It has, we are assured, a serious purpose; but that serious purpose does not necessarily make us feel any happier about it.

    His latest engagement with the major film moguls, after all, calls to mind his last involvement with them, when a handful of Warner Bros executives rolled into town, told the Prime Minister what they wanted, and left shortly afterwards with major tax concessions (that is, gifts) in their pockets and having forced a change in our labour laws that reduced the rights of New Zealand workers. And we must bear in mind that John Key’s usual response to powerful overseas corporations, from mining interests to purchasers of our assets, is “The answer’s yes, now, what’s the question?”

    The Prime Minister assures us that he does not intend to make any further offers on this occasion – and short of handing over our powers of self-government, it is hard to know what more he could do to ingratiate himself with them. But what is the Prime Minister doing there at all?

    According to his own account, he is there as a salesman – and that raises another set of questions. The Prime Minister’s special expertise, as a foreign exchange dealer, was as a deal-maker; but, given the whole range of responsibilities he has to shoulder and the many pressing problems demanding his attention, is this the best way he can find to spend four days in his busy schedule? And, if the government really does need to softsoap Hollywood, does he not have a trade minister to do that?

    Do we really want or need a Prime Minister whose first and perhaps only thought is sell off whatever he can lay his hands on? And should those assets he seems so ready to sell include his – and our – self-respect as well?

    Bryan Gould

    2 October 2012

    This article was published in the NZ Herald on 4 October.