• Light Cast on the Future

    Every now and then, a single event can cast a bright and unexpected light on a complex issue of much wider significance. Just such an event was the government’s decision to award the contract to build a new ferry to a Bangladeshi firm rather than a New Zealand boatbuilder.

    At first sight, the main reason for concern may be seen as the safety and reliability of the new vessel. Bangladesh does not have a boatbuilding industry of any repute; the New Zealand order will be their first contract for a foreign customer. Those who eventually travel on the ferry – bearing in mind recent bad experiences with ferries plying Pacific routes – will hope that the government’s confidence is justified.

    But the real worry lies in the reasons given by ministers for the decision. The factor that weighed above all others, we are told, is that the Bangladeshis could build the vessel much more cheaply. The reputation for quality and technical excellence painstakingly built up by the New Zealand industry, it seems, counted for nothing. The efforts made to promote that industry to world markets – as witness the taxpayer subsidies to the America’s Cup campaigns – were apparently just money down the drain.

    And if even our own government preferred to rebuff the New Zealand industry by buying foreign, why should any other customer reach a different conclusion? If the reasoning followed by ministers is sound, the decision means, in effect, the death knell of a proud New Zealand industry that has represented one of the few (and dwindling) instances of a technically advanced capability that can look world competition in the eye.

    But the light cast by this decision illuminates yet more. If the reasoning applied in the case of boatbuilding is correct, why would it not apply to any other New Zealand manufacturing sector? We have already seen the consequences of such thinking in areas like railway rolling stock and aircraft maintenance; what will be left if, setting aside all other considerations, price alone must always determine the issue?

    Why does the government not take a more strategic view, recognising that money saved on an individual contract may cost the economy hugely more over time? If one contract after another, each taken in isolation, is awarded on the single criterion of price, and one industry after another accordingly disappears, will that not threaten the destruction of our total manufacturing capability, leaving all our eggs (or milk) in the one basket of dairying?

    The answer constantly offered to these questions is that “the market must prevail”. If decisions do not comply with market realities, we are told, our economy will be weaker in the long run. But, as Keynes’ famous dictum put it, “in the long run, we are all dead”. By the time the last person turns out the lights, those responsible will have departed the scene and will not be around to see the results of their handiwork.

    Do they not wonder why so many of today’s economic powerhouses (including many who now enjoy higher living standards than our own) have found it advantageous to provide some protection to domestic industries while they are building up their strength? Why do we think that we alone are so invulnerable that we can successfully entrust our future to a global market place in which we are a tiny player whose interests will be wiped out without a moment’s thought?

    And if even our own government puts New Zealand interests second to the dictates of the “free” global market, what does that tell us of the government’s attitude to the protection of New Zealand interests in contexts such as the negotiation for a Trans Pacific Partnership? Must “market realities” prevail there too? Must New Zealand interests be abandoned – in areas like intellectual property and pharmaceuticals – if they run counter to the demands of the major players in the international marketplace?

    The ideologically driven insistence that the “free” market must always prevail might not be so damaging if the market really were “free”. But the market is rigged – and rigged against our producers and exporters in respect of precisely the issue that our government says matters above all – that is, price.

    Ministers have decreed that decisions on contracts must be made on price alone; and they then ensure that New Zealand manufacturers must, by virtue of the overvalued dollar, carry an enormous price handicap in the race for orders. Our dollar is overvalued because comparatively high interest rates, and the prospect of higher rates to come, offer easy pickings to overseas speculators; our currency, the tenth most traded in the world, serves the interests of those speculators at the expense of our own producers.

    We have learnt nothing from past mistakes. We are about to embark on another destructive round of raising interest rates, thereby pushing up the dollar’s value, destroying yet more of our industry, weakening our ability to pay our way, worsening our trade deficit, increasing our need to borrow, and leading to yet higher interest rates.

    The boatbuilding decision is, in other words, just the latest instalment in a deliberate but disastrously short-sighted policy – and it casts a warning light on our economic future.

    Bryan Gould

    14 January 2014

  • A Dose of Reality

    As the cheerleaders for economic recovery build up to a Christmas frenzy, it is worth injecting a dose of reality into the optimism. Let us recall that the so-called recovery comes off the back of five years in the doldrums – a period of policy failure that has cost us an immense amount of lost national wealth, thrown thousands on to the scrapheap, relegated thousands more (and not least their children) to poverty, and left public services, including the defence force, in tatters.

    The recovery, such as it is, owes much to the Christchurch re-build, begging the question of why we had to wait for an earthquake before finding the money to get the economy moving again. But the real questions arise in respect of where the recovery is likely to take us and – most importantly – whether it means that we have at last resolved our deep-seated economic problems.

    The key feature of the government’s policy is, after all, – as the Herald identified in its leading article on Monday – short-termism. The government’s apparent strategy has been merely to apply a series of sticking-plasters rather than to find long-term solutions.

    Asset sales, for example, have filled an immediate gap in the government’s finances, even though in the longer term there will be a significant loss of government income; that, apparently, is something for future governments to worry about. The so-called industrial strategy amounts to no more than large taxpayer-funded subsidies to film companies, ill-judged deals with the likes of Sky City, and jeopardising our environment by backing any overseas project to dig up or drill for hoped-for mineral wealth under our land or sea.

    None of these strategies helps in any way to resolve our economic problems – indeed, the opposite is true. Our dangerously narrow productive base? We are more dependent than ever on high dairy prices which won’t necessarily last forever. Turning our backs on investment in new productive capacity in favour of an overheated housing market? Much of the increase in economic activity comes from the greater spending power home-owners imagine they have as a consequence of the rise in house prices.

    Our predilection for consuming and importing? Stronger than ever. The need to borrow from overseas and to sell our remaining assets to foreign owners in order to fund our spending spree? No change there. Our continued use of interest rates to restrain inflation as the sole goal of economic policy, with the consequent overvaluation of the dollar and its damaging impact on our ability to compete in the world? No lessons learnt. All of these familiar problems are about to rear their heads again.

    We are enthusiastically getting back, in other words, on to a money-go-round that means a damaging failure to pay our way and a weakened productive base. It is a safe bet that – after a brief consumer bonanza – there will be (with much wringing of hands) a new outbreak of bewildered concern as to why our powerful new competitors in Asia and elsewhere are doing so much better than we are.

    In the meantime, the government will carry on with the bizarre conviction that our economic future depends essentially on sucking up to overseas corporates whose sole interest is in cherry-picking our assets – actual or potential – and leaving us to pick up the pieces after they leave with the booty. At the same time, it is apparently believed that the plight of an increasingly large proportion of our population – with no jobs, poor prospects, worse education, sub-standard housing, third-world health standards – is irrelevant to our economic prospects and is merely a matter of individual responsibility.

    The government certainly cannot be accused of proceeding by stealth; it has loudly proclaimed its sadly misplaced faith in international finance and overseas corporates coming to our aid; it has been equally clear in its casual dismissal of any thought that our fellow-citizens might be worth consideration, not only as essential elements of a healthy and integrated society but also as important contributors to our economy.

    There will be, quite understandably, those who accept this critique of current strategy but look in vain for an explanation of what an alternative strategy might look like. But we can’t even begin to understand the need for an alternative until we understand why the current strategy is doomed to be self-defeating. And the case for an alternative is inevitably more complex than can accurately or persuasively be described in 800 words; readers might like to look out for my next book!

    The first important step towards a better strategy, though, is to avoid misplaced optimism as the economy recovers from a long period of stagnation. And one point is clear; the best guide to a better economic future is to enable our own people to become economically active and productive, so that everyone can share in economic success – everyone, after all, is entitled to a merry Christmas – rather than accepting the doubtful benefits of the self-interested whims and vagaries of overseas bargain-hunters.

    Bryan Gould

    17 December 2013

  • Myths, Politicians and Money


    My new book, Myths, Politicians and Money, was recently published in London by Palgrave Macmillan to coincide with the Labour Party conference in Brighton.  It has been very well received and reviewed, and has attracted a good deal of attention. It is a comprehensive account of what I think has gone wrong for Western democracies over the last three decades; the argument is summarised in a separate posting (called Myths, Politicians and Money) of a piece I wrote for the Yorkshire Post. Find out more here.

  • Air New Zealand Shows the Way

    In the ten years or so before my wife (English born and bred but now a proud Kiwi) and I returned to live in New Zealand, we flew back to New Zealand from Britain on many occasions. We always felt, as we boarded the Air New Zealand flight at Heathrow, that in doing so we had already returned home.

    There was something about the atmosphere on the plane, as we settled into our seats for the long flight, that was quintessentially New Zealand. Whether it was the soft New Zealand accent, the ready smiles of the cabin staff, that attractive combination of efficiency and friendliness that Kiwis seem to manage so effortlessly, there could be no doubt that we had already engaged with a slightly different culture from the one we were leaving.

    That sense was reinforced, I recall, on one flight that took place while a rugby test between the All Blacks and South Africa was being played. We, with many others on board, were keen to know the result. The captain obliged by relaying the score to us throughout the flight, and he was greeted with a mighty cheer when he reported that the All Blacks had won (this is, after all, a good news story!)

    On one of our earlier visits, I recall my wife wondering out loud as to why everyone we met (and by that she meant not people we knew but those we came across in shops, hotels, restaurants) was so friendly and helpful. I attempted an answer by observing that whereas the British class system meant that many of those obliged to serve others did so either with excessive obsequiousness or with sullen resentment, Kiwis had no such hang-ups.

    These recollections were brought to mind when we once again boarded an Air New Zealand flight to fly home last week. We had flown with a different airline (which will remain nameless) on two legs of our journey there and back, and had bemoaned the indifferent service, the poor food and the uncomfortable seats.

    The Air New Zealand flight, by comparison, was a revelation. The food (inspired by Peter Gordon) was excellent, the wine delicious, the seats (so far as they can be) comfortable, and the service – true to form – friendly and helpful.

    When our young grandson was asked after a long night what he would like as a hot drink for breakfast, he wasn’t interested in the suggested tea or coffee but, when prompted, expressed interest in a Milo instead. A few minutes later, the steward returned with a cup made especially for him.

    None of this means that Air New Zealand is perfect – no airline is, and long-haul air travel in particular is always a bind. But we are entitled to conclude that the particularly New Zealand characteristics they bring to their task do make a difference – and that is borne out by the consistently high ratings they register from passenger surveys and international awards.

    That customer satisfaction is reflected, too, in the impressive commercial performance that Air New Zealand turns in. These are tough times for airlines but Air New Zealand, while having its own problems to overcome, has succeeded in business terms better than most.

    But the real lesson to be learnt from Air New Zealand’s success is that treating customers as people and allowing the personality (and, in this case, the specifically New Zealand personality) of the company to shine through are not inconsistent with – and are indeed an important contributor to – a positive bottom line.

    It is worth learning this lesson and applying it more widely, before we are all absorbed into the same homogenised global economy in which national characteristics and individual service are sacrificed to the over-riding drive to cut costs. No country has embraced the global economy more enthusiastically than New Zealand and – more than any other developed country – we have allowed large chunks of our national economy to pass into foreign hands.

    The decisions that are made by those foreign owners are reached in boardrooms located far from our shores – in New York, Shanghai, or if we are lucky, Sydney – by people who know little and care less about what makes New Zealand and New Zealanders tick. They owe no loyalty or commitment to our values or ways of doing things; their sole concern is the short-term return on their investment.

    What Air New Zealand’s success should tell us is that our peculiarly New Zealand way of doing things has a real value. That value can be measured and expressed in social and cultural terms by New Zealanders because they are familiar and comfortable with it but also by others who find it appealing precisely because it is unfamiliar to them; and, importantly, it also has a marketable value in commercial terms in today’s global economy. We would be foolish to give it up.

    Bryan Gould

    3 August 2013.

    This article was published in the NZ Herald on 13 August.

  • Tipping the Balance

    In his first term as Prime Minister, John Key made a determined effort to be all things to all men – and women. In his second term, however, he hasn’t bothered; he has clearly calculated that he can still win an election while quite overtly tipping the balance of advantage further in favour of the better off and against those who are struggling.

    The evidence for this can be seen, for example, in the alacrity and openness with which he meets the demands of big business; but nowhere is it more apparent than in the burdens he is increasingly ready to place on working people.

    The ranks of the poor in New Zealand have been increased in recent years by the unemployed and their families. The Key government’s indifference to their plight has been one of the least appealing aspects of its skewed order of priorities. But what has attracted less attention, perhaps, is the pressure now being put on families that depend on the earnings of those in work.

    We have come a long way since the heady days of John Key’s commitment to close the wages (and living standards) gap with Australia. Far from trying to lift wages, the government is engaged in an undeclared campaign to depress real wages still further.

    And that is from a starting point where low wages were already the central element in the widening income gap in New Zealand. We suffered the fastest widening of inequality of any country in the last two decades of last century, and remain dishonourably in the top group. The top 10% of income-earners enjoy today an income 9 times greater than the income of the bottom 10%, up from 5 times in the 1980s.

    As Treasury research shows, New Zealand households in the lower half of the income range had no increase in real incomes between 1988 and 2010; all the increase in national income over that period went, in other words, to those who were already better off. Although labour productivity in the private sector rose by 48% over a similar period (1989-2011), the average hourly wage rose in real terms by only 14%.

    The price we have paid for this intensification of inequality is not just financial. As workers’ rights at work have weakened, our shameful record on health and safety at work has worsened. In industries like forestry, where employees work long hours in a virtually deregulated workplace and labour costs as a proportion of total costs have fallen sharply, the rate of industrial accidents remains unacceptably high.

    It is against this background that the government has intensified its assault on the ability of ordinary people to protect their living standards and safety at work. That assault has taken the form of a whole range of measures, such as maintaining the minimum wage at a level that is inadequate to halt the increase in family and child poverty and introducing a young workers’ wage even lower than the minimum wage. Low-paid workers in industries such as aged care are still expected to accept minimal wage increases that mean a further fall in their living standards. The unemployed are forced by benefit cuts and tighter rules about eligibility to try their luck in a labour market where there are few new jobs so that they are forced to try to undercut those in jobs that are already low-paid.

    These factors are not accidental. They seem part of a deliberate strategy to remove the floor under wages and force them lower as a means of re-stimulating the economy. It is an amazingly convenient coincidence, is it not, that our slow recovery from the recession apparently depends on sacrifices made by the poor while we can afford more goodies for the rich.

    The government is still at it. International research shows that the most important factor in determining the rate of wage growth is workers’ ability to use collective bargaining to negotiate wage rates. This is not surprising; individual workers have little bargaining power in the face of powerful employers and in a labour market weakened by high unemployment. It is only by joining with each other that they have any hope of protecting their wage levels and working conditions.

    It is easy for those whose economic fortunes do not depend on collective bargaining to underestimate its importance not only to trade union members but also to a properly functioning economy. The right to organise in a trade union is recognised as fundamental in international conventions and the Universal Declaration of Human Rights and is an essential element in ensuring that a market economy operates fairly and in everyone’s interest.

    But our government is pressing ahead with so-called “reforms” that in effect remove the right to collective bargaining and allow employers to refuse to engage with their workers other than on an individual basis. Sadly, this is just one more step in the campaign to reinforce the disadvantage suffered by ordinary people when faced with the overwhelming power of their employers in an unregulated marketplace. It turns back the clock to a society disfigured by division and inequality and an economy that fails to fire because it serves an increasingly narrow interest.

    Bryan Gould

    26 July 2013

    This article was published in the NZ Herald on 29 July.