• How MMP Is Meant to Work

    There will no doubt be many who will be outraged if Winston Peters agrees to join Labour and the Greens in a coalition government.  But they will be wrong – reflecting a first-past-the-post mentality that should have no place in an MMP environment.

    The objectors will argue that New Zealand First’s obligation is to join the party securing the greatest number of votes (and seats).  But – however strongly they may feel that the National party, as the largest party, somehow has a moral claim to be in government – there is no such obligation, either in principle or in the rules.

    On the contrary, MMP is specifically designed to ensure that the largest party does not necessarily walk off with all the spoils.  One of the great weaknesses of a first-past-the-post election is that it ensured that the “winner” – even if falling short of a majority of the votes cast – can in most cases secure a parliamentary majority, and can then proceed to treat parliament as its poodle, paying little attention to the interests of that wide range of opinions not represented in government.

    It was this kind of outcome that led Quintin Hogg, later the British Conservative peer, Lord Hailsham, to describe such a government as an “elective dictatorship”.  MMP was designed to ensure that a party would, improbably, have to win an outright majority of votes and seats before it could govern without reference to any other party.

    The essence of an MMP government is, in other words, not that it has more votes and seats than any other single party.  The only thing that matters – as it always does under any voting system in a Westminster-style parliament – is that it must be able to win crucial votes in parliament – that is, it must have a parliamentary majority.  How that majority is made up, and whether or not it includes the largest party, is completely irrelevant.  A coalition of (let us say) the five smallest parties in parliament would be perfectly legitimate, as long as it commanded a majority.

    The point of the MMP reform is that it should produce a parliament that is more representative of the various interests and opinions in the country, and that the government of the day should have to pay more attention to the views of the whole of parliament rather than just those of its own members.  It is not unrealistic to say that, in our experience of MMP, those goals have largely been achieved.

    Today’s parliament, by comparison with those of a couple of decades ago, boasts a greater representation of women and minorities of various kinds, and governments are more likely to be compelled to negotiate for support from smaller parties rather than being able simply to over-ride them.

    The delay as we await the formation of a coalition government, in other words, is not some unforeseen and unfortunate and quixotic malfunction.  It is the intended and positive outcome of a constructive and planned reform.

    The interesting aspect of MMP, though, is that it has produced for us a beneficial combination of outcomes that may not have been fully foreseen.  In what we might flatter ourselves is an expression of the genius of the New Zealand voter, we have succeeded in not only bringing about a more representative and fairer parliament and a more responsive government.

    We have at the same time managed to retain for the voters a genuine and recognisable choice between two main groupings – in conventional terms, one on the left and one on the right.  So, we have in effect the best of both worlds – a fairer system but also one that does not preclude the emergence of an effective majority government that is more or less in line with the public’s wishes.

    In our current situation, the two competing blocs are perhaps less to be described in conventional terms of left and right (it would not be clear where New Zealand First might fit in such a dichotomy). The distinction is rather between those favouring the status quo and that majority who are looking for change.  New Zealand First’s position on that spectrum is pretty clear – and they deserve no criticism for acting on that preference.

    Bryan Gould

    8 October 2017

     

     

     

     

  • Are We As Brave As Labour in the 1930s?

    New Zealanders like to think that we are, in most respects, up with – if not actually ahead of – the play.  Sadly, however, as a new government is about to emerge, there is no sign that our politicians and policymakers are aware of recent developments in a crucial area of policy, and that, as a result, we are in danger of missing out on opportunities that others have been ready to take.

     

    The story starts, at least in its most recent form, with two important developments.  First, there is the now almost universal recognition that the vast majority of money in circulation is not – as most people once believed – notes and coins issued on behalf of the government by the Reserve Bank, but is actually created by the commercial banks through the credit they advance, using bank entries rather than cash, and usually on mortgage.

     

    The truth of this proposition, so long denied, is now explicitly accepted by the Bank of England, and was – as long ago as 1994 – explained in a letter written by our own Reserve Bank to an enquirer, and stating in terms that 97% of the money included in the usually used definition of money known as M3 is created by the commercial banks.

     

    The proposition is endorsed by the world’s leading monetary economists – Lord Adair Turner, the former chair of the UK’s Financial Services Authority and Professor Richard Werner of Southampton University, to name but two.  These men are not snake-oil salesmen, to be easily dismissed.  They have been joined by leading financial journalists, such as Martin Wolf of the Financial Times.

     

    The second development was the use by western governments around the world of “quantitative easing” in the aftermath of the Global Financial Crisis.  “Quantitative easing” was a sanitised term to describe what is often pejoratively termed “printing money” – but, whatever it is called, it was new money created at the behest of the government and used to bail out the banks by adding it to their balance sheets.

     

    These two developments, not surprisingly, generated a number of unavoidable questions about monetary policy.  If banks could create billions in new money for their own profit-making purposes, (they make their money by charging interest on the money they create), why could governments not do the same, but for public purposes, such as investment in new infrastructure and productive capacity?

     

    And if governments were indeed to create new money through “quantitative easing”, why could that new money not be applied to purposes other than shoring up the banks?

     

    The conventional answer to such questions (and the one invariably given in New Zealand by supposed experts in recent times) is that “printing money” will be inflationary – though it is never explained why it is miraculously non-inflationary when the new money is created by bank loans on mortgage or is applied to bail out the banks.

     

    But, in any case, the master economist, John Maynard Keynes, had got there long before the closed minds and had carefully explained that new money could not be inflationary if it was applied to productive purposes so that new output matched the increased money supply.  Nor was there any reason why the new money  should not precede the increased output, provided that the increased output materialised in due course.

     

    Those timorous souls who doubt the Keynesian argument might care to look instead at practical experience.  Franklin Delano Roosevelt used exactly this technique to increase investment in American industry in the year or two before the US entered the Second World War. It was that substantial boost to American industrial capacity that was the decisive factor in allowing the Allies to win the war.

     

    And the great Japanese (and Keynesian) economist, Osamu Shimomura, (almost unknown in the West), took the same approach in advising the post-war Japanese government on how to re-build Japanese industry in a country devastated by defeat and nuclear bombs.

     

    The current Japanese Prime Minister, Shinzo Abe, is a follower of Shimomura.  His policies, reapplied today, have Japan growing, after years of stagnation, at 4% per annum and with minimal inflation.

     

    Our leaders, however, including luminaries of both right and left, some with experience of senior roles in managing our economy – and in case it is thought impolite to name them I leave it to you to guess who they are – prefer to remain in their fearful self-imposed shackles, ignoring not only the views of experts and the experience of braver leaders in other countries and earlier times, but – surprisingly enough – denying even our own home-grown New Zealand experience.

     

    Many of today’s generation will have forgotten or be unaware of the brave and successful initiative taken by our Prime Minister in the 1930s – the great Michael Joseph Savage.  He created new money with which he built thousands of state houses, thereby bringing an end to the Great Depression in New Zealand and providing decent houses for young families (my own included) who needed them.

     

    Who among our current leaders would disown that hugely valuable legacy?

     

    Bryan Gould

    2 October 2017

     

  • Time for Progress on Gender Equality

    Events in Saudi Arabia do not often hit the headlines in New Zealand.  But the news that, following a new dispensation issued by the Saudi king, Saudi women can now acquire driving licences, and are therefore allowed to drive, will have been applauded by all those who have been aware of – and shocked by – this longstanding and extraordinary instance of gender discrimination.

    For those who have only now, by virtue of that news report, become aware of this abuse, it may seem incredible that such an egregious example of the subjugation of women should have existed in the first place and survived for so long.  Nothing better exemplifies the attitudes of a male-dominated society and their ill-treatment of their mothers, wives, sisters and daughters, than their insistence for so long that women should be denied the right to move around as men do as a matter of course and that they should lose as a consequence the ability to participate fully in the social, cultural, sporting and economic life of the society of which they are in every respect, and – as biology dictates – in one respect in particular, indispensable members.

    Not only was denying Saudi women the ability to drive an assault on their freedom, but it begs the question – how did it ever seem acceptable that men could and should, as a statement of their own perceived sense of superiority, refuse the usual rights of citizenship and membership of society to more than half the population?  Where did such a belief come from?

    These attitudes are particularly obnoxious and unacceptable in the eyes of a society like our own.  We are proud of our record in advancing the interests of, and removing discrimination against, women.  We led the world in extending the franchise to women – and there is probably no other country that has ever seen the four major offices of state (in our case, those of Governor General, Speaker of the House, Prime Minister and Chief Justice) all occupied at the same time by women.

    But let us not kid ourselves.  Despite our long and commendable history in such matters, we still fall far short of true gender equality.  The most obvious area of discrimination is, of course, in the field of employment.  Pay rates and opportunities for promotion for women remain at a level much lower than that for men.  And we continue to live with high rates of domestic abuse of women – both physical and psychological.

    These quantifiable aspects of discrimination do little, though, to capture the more subtle forms that it can take – the unspoken assumptions, the “old boy” networks, the pressures on girls and young women to conform to male-defined stereotypes, the cultural practices that figuratively consign small girls, in their early upbringing, to dolls and pink booties.

    We have seen, even in the last few weeks and months, striking examples of the ways in which women who enter public life are treated differently from men.  Jacinda Ardern, for example, applauded as she has been for the qualities she has shown in turning round the fortunes of the party she now leads, was not spared intrusive questions, when she acceded to the leadership, about her plans, if any, for motherhood.  Not many men are quizzed at job interviews on their intentions as to fatherhood.

    And consider the case of Metiria Turei.  She was hounded out of the deputy leadership of her party for an offence which she admitted and to which she had indeed drawn attention herself.  Her treatment was in stark contrast to that of another leading politician – a male party leader who had wrongly claimed a substantial housing allowance from parliament and who paid it back only when the mistake was uncovered.   That man not only escaped censure but now seeks to be re-affirmed as Prime Minister.

    There is always, though, hope for the future.  If Jacinda Ardern is able to form a government, she will be our third woman Prime Minister, and the second of two to have taken office following a general election.  As Helen Clark did before her, she will no doubt reinforce, by what she does as well as says, the message that running the country is not just a male prerogative.

    Bryan Gould

    29 September 2017

     

  • Not Just a Numbers Game

    Winston Peters is no stranger to coalition negotiations – and the situation he finds himself in has not arisen by accident.  It is instead the planned outcome of a deliberate strategy to position his New Zealand First party, in an MMP environment, as likely to hold the balance of power in the event that neither of the two biggest parties commands a majority of seats in parliament.

    So successful has this strategy been that he has become accustomed to being courted by suitors, and to extracting from the main rivals for his hand the best deal he can get – both for himself and his voters.  He is under no illusion that his charm or good looks are the lure; it is rather the dowry – in this case, nine MPs – that he can bring to the agreed arrangement.

    I suggest that this time, however, it may not be only the numbers that matter.  For Jacinda Ardern, intent on building on her success in denying a majority to National by forming instead a Labour-led government, Winston may have more to offer than simply making up the necessary majority.

    It is not just that a relatively inexperienced Prime Minister, heading a party that has been out of government for nine years, might welcome someone of Winston’s experience and political savvy.

    Winston could in addition bring to a new government – one committed to a change of direction and an uplift in the energy needed to deal with our obvious and many problems – some policy perspectives that could be very helpful, and some potential ministers of real ability.

    First, he already takes a position very close to Labour’s on those issues that are the legacy of mishandling or neglect after nine years of National government.  His reinforcement of Labour’s proposed remedies for those problems would certainly help to bring solutions closer.  And he would help to identify others that need attention, such as the neglect of our manufacturing base.

    There are two further issues (and no doubt more), not at present high on Labour’s agenda, where his political experience and independent view could strengthen the performance of a new government.

    The first is the difficult question of how to take the maximum advantage from our increasingly close economic relationship with China, without in effect being absorbed into the greater Chinese economy.  That can only be achieved if we have a clear understanding of what is actually happening and recognise the full implications of each new step that is taken.

    The National government has shown little concern for or understanding of this issue.  Their links with Chinese interests, both as individuals and as a political party, have induced them to applaud the upsides while closing their eyes to the actual and potential downsides.

    Winston will not be so starry-eyed; he knows that the maintenance of some semblance of sovereignty and independence is not an ignoble goal.  The greater realism he could bring to a new government on this issue would be of considerable value.

    Even more positively – Winston seems to have a more up-to-date understanding than most of recent developments in modern monetary policy and theory.  The widespread use, post the Global Financial Crisis, of “quantitative easing” to bail out the banks has removed some of the mistaken phobias concerning an obvious (and Keynes-endorsed) tool for funding productive investment and stimulating economic activity.

    Why, forward-looking observers ask, should government-created new money be reserved for bailing out the banks?  Why not use it for other purposes – like new infrastructure projects – that serve public and not just private banking interests?

    Paradoxically, perhaps, Winston may be more likely than today’s Labour party to recall the successful precedent set by Michael Joseph Savage’s government in the 1930s, when thousands of state houses were built to house the homeless, using money created by that government for that purpose.

    Thinking of this kind could revolutionise the prospects of a new government and usher in a new era of a stronger and more integrated society and a more securely based economy.

    If the instincts of a new Labour government were encouraged and their implementation facilitated by an experienced campaigner like Winston Peters, the future prospects of both Labour and New Zealand First would be greatly enhanced – so too, the prospects for the country.

    Bryan Gould

    26 September 2017

  • The Incoming Tide

    The 2017 election was a roller-coaster ride – and it’s not over yet.  The special votes, yet to be counted, could well – in an election of such tight margins – make all the difference, and that’s to say nothing of the post-election coalition negotiations yet to come.

    In the meantime, some player ratings.  The star of the show was surely Jacinda Ardern.  Her charm, energy and intelligence lit up the campaign.  She resurrected Labour, from a standing start less than two months ago, when Labour support stood at 23%, to the real possibility of forming the next government.  Whatever the outcome, she will live to fight another day.

    The National party achieved the creditable feat of winning the largest number of votes after three successive terms in office, but the loss of two of their coalition partners (and the Epsom indulgence of ACT having gained them nothing more than an irritant) has left them exposed, without visible means of support – and more people voted against retaining the government than voted for it.

    National’s achievement was, of course, tainted by their readiness to resort to “attack politics”, supported as it was by deliberate misrepresentations about Labour’s plans which not one reputable economist could be found to endorse.

    The acceptance of, and susceptibility to, such tactics by New Zealand voters leaves our politics all the poorer.  We must hope that this distressing disregard for principle will not be carried into government.

    The collapse of the Maori party suggests that Maori voters have realised that the issues that particularly matter to Maori cannot be safely entrusted to a government that sees its priority as serving the interests of business.  A large number of similarly placed pakeha voters have been much slower on the uptake.  Labour, and Labour’s Maori MPs, must now show that they are worthy of the trust reposed in them.

    The Greens held on, surviving mistakes of their own making, and remain in play as a possible coalition partner in a progressive government.  They continue to bring a valuable dimension to our politics.

    As always seemed likely, the final decision as to who will form the next government rests with Winston Peters and his New Zealand First MPs.  I make no predictions and offer no advice.  But I do express a hope.

    I think the election shows that there is an appetite and a momentum for change that is likely to grow rather than subside.  “More of the same” is not sufficiently inspiring to claim new adherents.

    We have a real chance to make a fresh start.  And remember that, in MMP politics, votes for the largest party carry no additional weight.  What matters is whether a majority exists in parliament, not where the votes come from.

    The chance arises to bring fresh minds to bear on old and neglected issues.  Rather than act as a mere adjunct to an existing administration, Winston could play an important role, as an elder statesman in, and foundation member of, a new government – one that catches the incoming tide.

    Bryan Gould

    24 September 2017