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Debunking business “confidence.”

datePosted on 13:02, August 11th, 2018 by Pablo

One of the more suspect metrics used to evaluate a government’s economic program is so-called “business confidence.” The premise behind surveys of “business confidence” is that business is the motor force of capitalist economies and business leaders are the most accurate readers of their health. Business confidence in the state of economic affairs is therefore considered an accurate weathervane on prospects for growth and prosperity. The trouble is that the premise is false as well as one-sided.

That is because “business confidence” is a political rather than an economic indicator given by one collective actor in the process of production. In other words, politics frames the way in which economic policy is made and, given that, political context is what gives business “confidence” in economic policy. It simply reflects the attitude of capitalists towards different governments and their approaches to economic matters. This means that there is an inherent bias in any survey of “business confidence,” to wit, business confidence is always higher under right-leaning governments and lower under left-leaning governments, particularly during the early days of a government’s tenure when policy changes and legislative reform are being enacted.

Although business confidence may wax and wane under both government types, the starting point is always lower for left-leaning governments. Left-leaning governments are believed by capitalists to be interested in strengthening worker’s position in production at the expense of employers. Worse yet from a capitalist perspective, left-leaning governments also seek to alter the social relations of production via so-called social engineering projects that empower the working and disadvantaged classes at the expense of entrepreneurs. Business consequently sees the assumption of office by left-leaning governments as a zero-sum game: capitalists lose in the measure that workers gain (for example, by strengthening rights to organise and collectively bargain and pushing tax-funded redistribution schemes).

Conversely, the presumption is that under right-leaning governments business will gain at worker’s expense (say, via deregulation of  collective labour rights and health and safety standards). That is more a measure of expectation than confidence: business expects right-leaning governments to be favourable to their interests because they assume (often rightly so) that left-leaning governments will not be. The reverse is true for workers: they expect less of right-leaning governments than left-leaning ones. The issue for both sides is one of expectations being met. Confidence in government or the lack thereof derives from that.

Savvy business people will cloak their comments about confidence by citing larger macroeconomic factors such as interest rates, fiscal deficits, trade balances, currency market fluctuations, commodity booms and busts, taxation, skill shortages, foreign disruptions such as Brexit, etc. Although these clearly play a backdrop role, the relative confidence of business is often grounded in more mundane things. Consider New Zealand.

In the current NZ moment, business confidence is said to be low. Why is that? ? If the comments of the head of the NZ Employers and Manufacturers Association are anything to go by, not much. In televised remarks made a few days ago, the EMA boss said that the domestic violence leave and longer tea break legislation was an undue burden on businesses’ bottom lines. Think of that: granting short-term paid leave to employees who are the victims of domestic violence and giving workers slightly longer tea breaks somehow is injurious to business confidence. Apparently the notion of worker morale and welfare does not enter into the EMA equation, and therefore it is, in its own eyes, right for it to have less confidence in a government that seeks to address those issues.

The same goes for business complaints about minimum or living wage increases, paid parental leave, the right to organise and strike etc. None of these necessarily interfere with a company’s productivity or profitability.  What they do is make it harder to exploit the inherent vulnerability of workers in the labour process and/or degrade health, safety and environmental standards, thereby diminishing manager and ownership’s ability to secure gross material advantages as a result.

It is hard to believe that issues such as these are the real concerns that erode business confidence in the current government. In reality, business was always going to claim to be less confident once the Labour-led coalition formed a government, with that lack of confidence accentuated once labour market reform measures began to be implemented. It is quite possible that announcing a lack of business confidence in the Labour-led government’s policies is a capitalist way of punishing the coalition for its election victory. Nothing short of complete upholding of National-era labor laws and regulations would have kept business confidence stable, and even then uncertainty about future changes under the Labour-led coalition would likely have seen a drop in business confidence in anticipation of those changes. Here again, the issue is more about expectations than confidence per se.

In that light, the notion of “business confidence” being an indicator of anything other than capitalist hostility to or distrust of left-leaning governments is silly. A fairer measure would be to survey capitalist “expectations” of governments and compare business surveys with those measuring worker expectations. After all, workers are those who actually produce things and provide services, so even if they are not consulted in investment decisions and long-term planning, they are the (increasingly discardable,) human material upon which such (increasingly political) considerations are made. So their expectations are a necessary part of any honest discussion of “confidence” in government policy.

In other words, expectations are the basis upon which sectorial confidence is secured, and if expectations are negative or low, then confidence will follow accordingly.

It is likely that workers have a reverse image perception to business in that regard: they expect more benefits for workers from left-leaning governments than from right-leaning governments. Recent strike activity by public sector unions demonstrates a willingness of those workers to up the ante when dealing with a left-leaning government in a measure not seen under the previous right-leaning crowd. They simply expect more of the Labour-led coalition.

The true measure of confidence in a government is in the relationship between business and labour expectations. Matching up the expectations of business and workers allows determination of the relative confidence each group has in government. A tilt either way will lead to more or less confidence on the part of one or the other. It is in the balance between the satisfaction of expectations where the compromise on sectorial confidence is found.

It would be interesting to see what areas of common concern and agreement emerge from surveys of business and labour leaders. This could provide grounds for cooperative approaches to policy solutions involving those issue-areas.

All of which is to say that the confidence of those who ultimately produce wealth in society is as important as that of those who manage and own productive assets. This confidence is based on their respective expectations of government set against the economic backdrop of the moment. Only by comparing the two can an accurate picture be drawn of how productive groups view the performance of governments on matters of economic import.

Anything short of that is misleading and biased in favour of capital. But then again, perhaps that is the point of business confidence surveys as they are presented today.

Unions, Parties and the decision to strike.

datePosted on 20:12, July 9th, 2018 by Pablo

For the bulk of my academic career I worked on issues of regime change and interest group intermediation, with a particular interest in Latin America. I wrote a couple of books (one co-authored) about state-labour relations in several South American countries and a fair number of articles that included discussion of how labour engaged in collective action under different regime types. The comparative study of state-labour relations remains an abiding interest of mine.

One of the axioms of comparative democratic labour relations is that unions will engage in more cooperative labour relations strategies and therefore strike less under Left governments than they will under Right governments. The presumption is that since Left governments are working class based or supported, and because they are sympathetic to working class concerns in their policy platforms, there is less incentive for unions to take strong collective action against them, particularly with respect to strikes and  other forms of labour service withdrawal. This is especially so because such direct action could undermine the Left government in question and leave it vulnerable at the next election.

Because unions presumably prefer to have Left governments over Right governments in office, resorting to labour service withdrawals would be a counterproductive union political strategy over the medium term even if economically productive over the short term. That is true of public sector strikes in particular (since strikes, even when focused on economic issues, are inherently political when they involve the state as employer), but private sector strikes are also seen as electorally injurious to Left governments (after all, if a Left government cannot “control” unions then what is the point of having them?).

In terms of so-called political strikes as well as economic strikes, Labour governments are generally thought to offer a better prospect for labour peace.

Conversely, unions supposedly dislike Right governments and therefore engage in more confrontational approaches to labour relations, particularly if there perceive that there has been a rollback of union legal and economic gains under those or previous Right governments. Both economically and politically, unions have reason to adopt more militant strategies under Right governments.

The subtleties embedded in this dichotomy are found in the strategies of public sector versus private sector unions against a backdrop of relative union density and the legal frameworks governing wage-setting. This assumes that union leaders and members share the same ideological orientation and that union leaders accurately transmit the material demands of the rank and file during negotiations with the State and employers (i.e. the principal/agent relationship is tight and coordinated). At that point employer characteristics at the level of the firm as well as productive sector come into play, set against a backdrop of relative business sectorial organisation (both as producers and employers) and the labour relations framework operative at the time. A collective action and strategic interaction is framed by macroeconomic conditions and government budgets, with sectorial growth and Treasury surpluses being determinants of the latitude for negotiation in any particular instance.

For the last three decades all of this occurs in the context of the globalisation of production, consumption and exchange under market-oriented macroeconomic policies developed and implemented by public sector technocrats that seek to outsource public sector service provision and downsize the legal authority and managerial and regulatory functions of the State as part of government mandated, market-oriented ideological agendas.

In the era of market-oriented economic reform, changes in labour relations’ legal frameworks have tended to favour employers and business associations over labour unions under both Left and Right democratic governments, with the degree of favouritism seen in the approaches towards collective bargaining adopted by each. Overall, although Left governments have mitigated much market-oriented labour reform while Right governments have sought to accentuate and exploit them in order to weaken the labour movement and atomise working class representation and collective strength, the trend has seen a weakening of union power across the democratic capitalist world as measured in union density, membership numbers and the collective rights and legal authority governing working class representation in production. This has been acutely felt in the private sector where individual worker rights and contracts predominate over collective rights and representation. With their relative collective strength, public sector unions remain as the diminished core of most contemporary labour movements in capitalist democracies.

A key factor in determining the propensity to strike is wage-setting institutions. Generally speaking, the more centralised the bargaining nexus and more monopolistic the bargaining agents doing the negotiating, the more likely that unions will prosper in their demands without having to resort to strikes. In contrast, the more decentralised the bargaining forum and the more disparate the bargaining agents, the more likely it is that employers will have the upper hand in bilateral negotiations with employees, thereby increasing the possibility of strikes. For example, tripartite (labour, state, capital) wage boards governing wage negotiations in specific economic sectors tend to push compromises that trade incremental wage gains for productivity, job security and reinvestment guarantees. Conversely, enterprise level bargaining between employers and various employee bargaining agents tends to fix or depress wage bills in exchange for non-wage guarantees. In New Zealand collective bargaining is more closely based on the latter model rather than the former and yet overall strike levels have remained low.

The way in which the union movement is incorporated and inserted in the political system matters in this regard. The form of initial incorporation (that is, the way in which unions are initially integrated into the national political system), may be more of historical rather than practical import for well-established unions created in the previous century and whose insertion in the political system today was consolidated some time ago. But initial incorporation matters much to recently organised contemporary unions without long political histories. That is because the terms of their political incorporation and subsequent political insertion in the political system are still being determined and sometimes disputed, including by older or more established unions as well as the State and employers. These may not echo or even resemble the conflicts surrounding initial labour incorporation and political insertion in the past, but they nevertheless condition the way these newer collective agents are allowed to exercise economic and political representation in the present context.

There are three main forms of labour political insertion. In some liberal democracies organised labour is inserted in the political system in Left party dominant fashion, e.g., the party dominates the union in both leadership selection as well as member political affiliation. In other liberal democracies unions dominate or control the party, with union representatives holding key Party positions down to grassroots organising and regularly running for office. In still others unions are independent of Left political parties although nominally sympathetic to them, with union leaders and members displaying a broader range of party affiliations than under the first two types. In illiberal democracies so-called “yellow” unions (factory or business unions and “professional associations”) exist that are independent or affiliate with Right parties. In the main these are not considered to be authentic representatives of working class collective interests because they are created by or at the behest of employers in lieu of them.

This brings up the subject at hand. There currently is the possibility of nurses, public servants and teacher’s strikes in the next few weeks. Conservative commentators have claimed that this is to take advantage of the Labour-led coalition’s “weakness” and to seize the moment of opportunity provided by Labour’s unwillingness to confront the unions in question. That runs against the conventional wisdom about Left governments and unions. So the question is: why are the nurses, public sector and post-primary teacher’s unions threatening to strike?

One answer may lie in that all of these collective agents are public sector unions that are independent of the Labour Party and its coalition partners. Membership density is high but the sociological demographic in each is changing, with younger members being more ethnically diverse and less identified with the traditional class structures of the industrial era (since those under 30 are of the post-industrial, post-modern age). This may have led to a rejigging of agent/principal relations within the respective unions that might make them more prone to challenge the labour relations orthodoxies of the past, to include being more cooperative when Left governments are in power.

Another answer may lie in the fact that Labour, for all of its “progressive” policy pronouncements and initiatives, still clings to market-driven logics of production that, even when cushioned along the margins, reinforce the collective bargaining dominance of capitalists. Seen in labour legislation and the role of national labour administration as an interlocutor between labour and capital, this includes cost-cutting managerial rationales in the public sector, where modern Taylorist principles have been borrowed from the private sector and applied to public sector service provision.

That bureaucratic orientation could be partially due to the fact that most Labour leaders are career politicians with few backgrounds “grounded” in the realities of working class activism, and/or because the party’s focus has recently concentrated more on identity rather than class politics. This has caused Labour to accept market logics in principle and market-oriented solutions to employment relations in fact. The NZ Labour Party is less a working class party than a coalition of post-industrial causes joined by antipathy to conservative (read: Anglo-Saxon Christian capitalist heterosexual and patriarchal) mores. Seeing the situation in this light could well disincline nurses, teachers and bureaucrats from continuing to toe the “cooperative” line, especially if the union demographic traits outlined above prove to be correct.

It is worth noting that the long-established unions affiliated with the Labour Party have not uttered a peep about strikes, to include not offering solidarity with the nurses and teachers. Newly created unions like UNITE in the private sector have engaged in strikes regularly against private employers under the previous Right government and are supportive of the action. But in general the union movement in New Zealand has remained out of the conflict between the State (as manager and employer via the civil service, DHBs and Education Ministry) and the nurses, bureaucrats and teachers unions.

Another question is why did these unions (or most others, for that matter) not strike regularly when the National government was in office? Was it a matter of contracts being in force? Or was it the limits placed on strike action both legally and practically? On the face of it, it seems odd that civil servants, nurses, teachers and other productive groups would wait to strike until Labour was in office if they were out of contract towards the end of the National government. Did they think that striking in an election year would lessen Labour’s chances of winning a plurality and forming a government or, put more appropriately, strengthen National’s arguments that they needed to continue to hold a tight reign on labour market dynamics less the economy lose momentum? This is true for private sector unions but particularly so in the case of public sector unions. Or are the conservative commentators correct and non-Left party affiliated public sector unions simply more willing to exploit Labour’s perceived “weakness” on collective bargaining matters?

If so, then the Labour-led coalition has a problem that is more political than economic.

I am still working through the logics at play because I do not know the internal dynamics of the unions in question nor the Labour-led government’s strategy for handling the strike threat. But if any readers would like to join the discussion and illuminate me on the details of each position, that would be welcome.

From failure, opportunity comes.

datePosted on 17:19, January 24th, 2017 by Pablo

When President Trump signed the executive order withdrawing the US signature from the Trans Pacific Partnership Agreement (TTPA), he signed the death warrant of that multinational trade deal in its present form. The US was the core member of the TPPA and held the dominant negotiating position within it, so the decade-in-the-making, laboriously undertaken and vexing complex compact that was agreed to by the other eleven signatories is now all but null and void.

There are options, however, for the TPPA that may allow it to survive and thrive in light of Trump’s unilateral abrogation.

First, the other eleven member states can put the agreement into hibernation, wait for the 2020 US presidential election and hope that a more trade-oriented president succeeds Trump.

Second, they can hope that the Republican congressional leadership will force Trump to reverse his decision sometime between now and 2020. That would only occur if Trump is weakened by some failure and the GOP sensed that it could re-assert its traditional pro-trade stance at his expense. The Democrats would welcome the move for opportunistic partisan reasons even if some of its leading figures such as Bernie Sanders also oppose the TPPA and applauded Trump’s decision to pull plug on it.

Third, the members could look to themselves and re-draw an agreement that is less US-centric. Many of the provisions insisted on by the US could be reconsidered and even dropped in exchange for increased preferences for the interests of previously junior TPPA partners.

Fourth, the remaining TPPA partners could look to fill the void left by the US with another large market economy. The one that springs immediately to mind is China. That is where things get interesting, and where opportunity may lie.

China is already party to the ASEAN-China Free Trade Agreement (ACFTA) that established a regional free trade area that is the largest in terms of population and third largest in term of trade volume and nominal GDP. Some of the ACFTA signatories are also parties to the TPPA (Brunei, Malaysia, Singapore, Vietnam). This agreement is considered to be a “true” free trade agreement in the Ricardian sense because it reduces tariffs across 7,881 product categories to zero percent, with the result being that tariffs on ASEAN goods sold to China fell to 0.1 percent and those of China sold in ASEAN to 0.1 percent in the year the agreement went into force (2010)

The non-US TPPA members could opt to negotiate an agreement with ACTFA as one course of action. That may be difficult given that the TPPA is not a “genuine” FTA as much as it is an investor guarantee agreement (IGA) in which market regulations are altered to attract foreign investors and these are protected from legal liability in the event of disputes with the host state. What is not included in the TPPA are across-the-board reductions to zero tariff, and in fact many domestic industries remain protected or subsidised throughout the TPPA membership as part of the horse trading undertaken during negotiations over its central tenets. But it may be possible to reconcile the two trade deals in an effort to create a new super trade bloc on neo-Ricardian grounds.

Another option might be to invite China to the table. It has the second largest market in the world and is continues to grow at a sustained and rapid pace in spite of the vicissitudes of the world economy over the last two decades. It is making the transition from export platform to a mixed domestic mass consumption/value-added export model, and it has previously expressed interest in joining the TPPA. The US blocked consideration of China’s membership because it saw the TPPA as the economic equivalent of the military “pivot to Asia” announced by the Obama administration, that is, as a hedge against Chinese economic, diplomatic and military influence in the Western Pacific Rim in what amounts to a new Containment Policy in the Asia-Pacific.

With the US gone, China has an opening and the remaining TPPA members have an opportunity. The TPPA will have to be renegotiated, but it is likely that the non-negotiable provisions insisted by the US will not be supported by the Chinese and can be dropped in the effort to entice their interest. In turn, China might have to accept something less than blanket reductions in uniform tariffs and agree to a tariff reduction regime that is more segmented and scaled in orientation and gradual and incremental in application (i.e. more product or industry specific and phased in over a longer period of time). That is clearly within the realm of possibility, as is Chinese agreement to other TPPA provisions stripped of their US-centric orientation.

China has already signalled its intentions in this regard. President Xi used this year’s Davos Forum to preach the virtues of free trade and global commerce, arguing against protectionism as an impediment to international understanding and exchange. China has proposed the creation of a Regional Comprehensive Economic Partnership (RCEP) along the lines mentioned above with regard to an ACTFA-TPPA merger but with the provision that the US be excluded. There are many details to be ironed out but the groundwork has been laid for that to happen.

What makes the turn to a China-included trade bloc a potentially win-win proposition for remaining TPPA signatories is that the key provisions demanded by the US–changes in market regulations and preferential market entry clauses for US business interests (including changes in patent and copyright protection) and imposition of limited liability clauses in the event US businesses are sued by local governments–were those that were most resisted by domestic audiences in several TPPA member countries. Removing them not only allows the agreement to be free of those constraints but also diffuses a source of domestic opposition in countries where such things matter.

One thing TPPA states should think carefully about, especially small states like New Zealand, is the invitation to negotiate bi-lateral trade deals with the US instead of the TPPA (something just announced by the Trump administration). The historical record shows that large asymmetries in market size favour the larger over the smaller partner in bilateral trade agreements. This is due to economies of scale, market dominance, and economic and geopolitical influence derived from market size advantages. The recent track record of bilateral deals between the US and smaller states reinforces this fact. Australia, South Korea, Chile, Colombia and the Central American nations plus Dominican Republic grouped in the CAFTA scheme all have bilateral FTAs with the US. In all instances the majority benefits accrued to US-based companies and industries and the benefits accrued in the partner states were limited to specific export markets (mostly in primary goods), with little flow-on, trickle down or developmental effects in the broader national economies.

So rather than “jump on a plane” to sign a bilateral deal with the US, as one wag put it, smaller states such as New Zealand need to think hard whether the bilateral alternative with the US is more long-term beneficial than a multilateral agreement, especially when it has shown that under a certain type of administration the US is willing to renege on its commitments even if they are multilateral rather than bilateral in nature. With the Trump administration also set to review and replace the tripartite North American Free Trade Agreement with Canada and Mexico (NAFTA), it is clear that honoring commitments and maintaining continuity in trade policy is not, even if just for the short term, on the US agenda.

When one widens the lens on what the Trump administration is doing in terms of its threats to withdraw from various bi-and multinational defense agreements unless the partner states “pay more” for US protection, it becomes clear that the US is not, at least for now, a reliable international partner.

The reason is that the new US attitude to trade is part of a larger phenomenon. The neo-isolationist protectionism embedded in the “America First” approach adopted by the Trump administration has ended, however temporarily, over 50 years of bipartisan consensus in the US political elite on the merits of international engagement. Be it in trade, foreign aid or collective defense, the US policy elite, both public and private, have embraced globalisation as a means of projecting US power, influence and values world-wide. That era has come to end for the time being, and so long as Trump is successful in pursing his “America First” strategy it will continue to be so.

That may or may not make America Great Again but it could well have a negative impact on those who seek mutual benefit by engaging with it. They will be asked to do more, pay more and offer more concessions in order to be granted US favour.

In the absence of an alternative, that is an unenviable position to be in. But if alternatives are available, then the current moment in US politics provides a window of opportunity to countries that have found themselves marginalised by Trump’s policy directives. The re-orientation of TPPA is one such opportunity because, if for no other reason, a US return to the TPPA fold in the post-Trump era will see it with much less leverage than it had up until now. Add to that the possibility of increased benefits via a renegotiated deal with the remaining and possibly new partners, and the downside of the US withdrawal seems acceptable.

From a smaller nation perspective, that is a good thing.

Politics has made monsters of us all!

datePosted on 11:36, September 8th, 2016 by E.A.

Its a rant, no denying it.

I tried, I really tried.

Firstly I ignored all the reports coming out of Dunedin in the wake of Winstonfest 2016 that it will turn into a cat fight between Ron Mark (long serving but foul mouthed NZ First 2IC) and political mercenary Shane Jones over who will succeed Winston when he finally steps down (whenever that actually is) in one of the more interesting cases of “get your hands off my man!) We have seen in a while.

I turned the other cheek to Colin Craig’s sleazy behaviors being exposed in the press. If his chances of being an MP were slim to none before they are effectively nil now as it looks like his fellow party members (Christine; she of the extravagant spending while a civil servant, Rankin) are more than willing to publicly twist the knives in his back; also the man writes love notes with about as much passion and enthusiasm as a politically conservative Christian businessman running for office, oh wait…

But it got harder after John (I for one welcome our new reptilian overlords) Key blamed kiwi workers being lazy and drug addled as the reason for National having the immigration policies it does. Key (no pun intended) point: importing low skill workers under the guise of student and other visas allows employers to drive down wages and places anyone not willing to work for the same pay and conditions in employment limbo*. This is the equivalent to shooting someone in the foot and then complaining that they can’t walk.

By Wednesday it was getting much more difficult to tune out the noise when the government announced that it was spending 24 million dollars on housing in Auckland when the average house price was now “one meellion dollars” (which as many commentators gleefully pointed out) meant that there would be just another 24 houses up for grabs; Winston Peters decided that hypocrisy was the better part of valor (by taking someone’s money and then accusing them of being a front for the National Party); the Auditor General cleared the Niue hotel deal (but did admit that their hands were tied and their range of investigation limited); the Chiefs found themselves unable to say sorry to the one person they really needed to say sorry to (showing how much our sporting culture remains a bastion of macho BS); the blather about Helen Clark at the UN continued despite it being made clear she is not the preferred candidate (get over it, she is not going to be Sec Gen); Andrew Little called for Nick Smith to resign (about as useful as firing the captain of the Titanic after it hit the iceberg) and our beloved PM now saying NZ and OZ are still BFF’s (despite OZ deporting back all those its deems no longer BFF and treating kiwis living there like second class citizens). I had to laugh though when the Stuff article reporting this had to include an explanation of what a BFF was.

But what finally sent me over the top was watching parliament go into melt down over the housing situation with question time being cancelled and the government fumbling the ball as the process was hijacked by the opposition. Of course it’s not one of those overseas style parliamentary melt downs like they have in Taiwan or the Philippines with legislators throwing chairs, starting bonfires in the middle of the chamber or fist fighting in the aisles (although I would have tuned into parliament TV if such things were scheduled) but just some filibustering which will peter out sooner or later.

The reason why this particular event, in a week of hard core political gibberish sent me over the top was that it perfectly encapsulates the reason why we are in the situation in the first place.

The Housing Hernia continues to grow and the chances of all this shouting and filibustering (or for that matter any wet-paper bills) actually producing a solution are zero. We have been there and we have passed the point where this process is manageable by some quick fixes or legislative tweaks and we are now heading into territory marked more by backbiting, squabbling, lots of weasel words and no actual action on the matters at hand.

You would almost think that campaigning for the 2017 election had started but this is really just a small hint of what the 2017 election will be like. If you thought that vapid hot topics and political push button issues were going to have our politicians shouting, parading and grandstanding like no tomorrow now then you ain’t seen nothing yet!

And this is the state we are in today: political ineptitude and inaction; corruption and tabloid sleaze; empty political gestures over any genuine action; political infighting; low quality political journalism as a substitute for discourse (I get the irony of writing that) and issues which need genuine attention not more political verbiage.

The summation of the situation came to me last week, as I and several co-workers were in a taxi crawling out of Auckland’s CBD towards the airport, knowing that we had given ourselves over an hour to get to the airport but still not sure if we would make it, by the taxi driver who summed up Auckland’s transport problems in one succinct sentence.

“Auckland’s roads were built when Auckland had about 800,000 people living in it, today its about 1.4 million people and by 2020 it’s expected to have 2.2 million people but all attempts to fix the roads or improve transportation have been blocked or failed.”

Even if those numbers are out somewhat the metaphor remains painfully correct and applicable to NZ at large.

In areas like immigration, housing, the environment and all the rest we are now in a state where what we had is no longer able to cope with what we have got and the people responsible for sorting these problems out (those we elect to run this country for us) remain either unwilling (in the case of National clearly captured by those who are making coin of our current misfortune) or unable (in the case of Labour being too busy sucking up to potential voters and their mortgages to ever rock the boat) or putting their own personal gain over the general welfare of the country (Winston, Peter Dunne and the rest of the gumboots) to do anything about it.

So with that in mind I am no longer able to refrain from comment (I really wanted to keep on with research on Asia for upcoming posts and not get sidetracked). I assume that this week is a combination of moon, tide, weather, biorhythms, the stock market and all sorts of other factors which have produced the political crapfest this week has been so far, and its only Thursday!

And it’s the tone of events which is the most ugly, like other countries the problems are piling up and those supposed to be in charge are turning out to be incompetent middle managers at best and corrupt clowns at worst (I favor the latter).

All of this points to the 2017 election being a real watershed election as these issues won’t go away between now and then and will surely continue to worsen while the clowns continue to bicker over ticket prices to the circus while the tent burns.

I won’t play the doom scenario card too much but we live in interesting times to say the least and calls for action continue to grow. Our current political model is not working very well but will we get any viable alternatives?

Come campaign time I expect all of these little hot potatoes to remain hot and a lot of promises to be made to fix them to an electorate which will be in an ugly mood and in no mind to hear political and economic catamites parading around shouting dogma as solutions to rising waters. Dirty politics will be front and center and media manipulation will be all over the place.

The outcome? Polarization and a parliament less and less able to address the issues (under a minority Green/Labour government with Winston staying neutral) or worse Winston backing our dear leader Key followed by further economic shenanigans from his minions for another three years (imagine the housing hernia in three years time!) or the unthinkable and a Green/NZ First/Labour hate triangle of rivalries and poison looks until its inevitable implosion.

But we kiwi voters are not blameless in this, we tolerate this state of affairs and we continue to vote for the same ugly faces, their ugly messages and their ugly acts. We are as stained and muddled as those filthy beasts in Parliament. Politics has made monsters of us all!

*- The fact that Barry Soper in the Herald felt that such a position had some merit shows how pernicious such BS attitudes are as well as highlighting how out of touch Soper is to the reality of situation (but then I never really liked his reporting anyway).

Yes I am flogging this dead horse again except that its an all new flog, we are flogging a different part of the horse and the horse might just not be dead yet!

Well it had to happen and last week it did, the first difference of opinion between Labour and the Greens happened since their cosy little MOU in May. And what was the disagreement over? Not surprisingly it was housing!

But we are not calling it a housing crisis anymore, that term is too controversial, too running down the road with your head on fire, so instead we are now calling it the Housing Hernia.

I had a hernia once. I got it after five hours shaking my behind on a sweaty dance floor and then walking, dripping in sweat, out into the chill of a Singaporean pre-dawn. It was not a smart move. First I got a hacking cough, then it got worse, finally it got nasty. The cough became painful, very painful every time I sneezed, which was a lot. I had contracted tropical pneumonia.

Overnight I was transformed into a low budget Michael Jackson impersonator by the fact that every time I sneezed I grabbed my crotch and screamed. This entertained my friends and co-workers no end at first but since I couldn’t do the dance moves or sing Billie Jean it soon became tiresome.

Sensing a serious problem I made haste to my local Singaporean doctor, a hardworking gentleman who served the massive HDB (Housing Development Board) block next to where I lived. He was quick, he was efficient and after hearing my plight and testing for himself by pressing the affected area (eliciting a strangled scream from me) he pronounced me the proud father of a hernia.

“A hernia, you mean like what rugby players get?” I asked (forgetting that Singaporeans don’t play rugby and my own experiences of who might get a hernia was severely limited). “Yes” he said in that voice doctors have for patients who ask stupid questions. “So what do I do?” I asked. The doctor looked at me and said “you can have surgery to treat it or leave it as it is and risk a rupture” in the same way a waiter might give the options for desert (lemon tart or chocolate cake? The correct answer is cake!). Needless to say I chose surgery!

So off I went to see the specialist, who has two plastic gold lions outside his office (a common sight outside offices in Singapore) which denoted the wealth and taste of the occupant inside. Thankfully he was a skilled doctor and thanks to the magic of health insurance (the only expats in Singapore without it are the stupid ones) I was booked in and ready to have the little bugger removed.

I won’t bore you with the gory details but suffice it to say the operating room looked like an extremely clean, white tiled, mechanics bay (complete with a rack of shiny, stainless steel tools which looked like they could pull the wheel nuts off a F1 racer in 2.6 seconds) AND that the anesthetist was late because, and I swear I am not making this up, he was playing golf!

So I lay on the wheeled stretcher, listening to the heart monitor, attached to my thumb, beeping and made a game of trying to slow my heart rate down, which correspondingly made the beeping decrease but every time I looked at the “tool rack” on the wall the beeping suddenly shot back up.

Finally all and sundry were present, I was given a shot in the arm, and asked to count to 10. I made it to five.

When I woke up I was on a stretcher in the hall and there was a pain where the hernia had been residing along with a big bandage. I hobbled out of the hospital, helped by my wife, into a taxi and home to recover.

It took a week of walking round painfully but after that the pain was gone, I had a scar to show where the doctor had cut me open and put in a plastic mesh over the hernia (which prevented it from popping out/rupturing) and its never bothered me since despite continuing to do martial arts and all manner of things which might have “ruptured” me, had I not done something about it.

Now the point of this story is to illustrate that “hernia” is a much better term to describe the housing situation in New Zealand (with its slow building (pun intended) series of issues which lead to said hernia); that the process of dealing with the wee beastie at no point required me to behave as if my head was on fire and that if left unchecked will most likely lead to a “rupture”.

In New Zealand the housing hernia is at what we might call the “Michael Jackson” stage of the process with sudden painful outbursts before all, temporarily, returns to “normal” and the growing realization that something is seriously wrong.

In deciding what to do with it appears that the Greens, or perhaps just Metiria Turei in an unscripted outburst, have opted for surgery in the form of cutting house prices to around $350, 000, while Labour, justifiably upset at being caught on the hoof by the statement but still in denial about the issue, have decided to continue with pretending that they might have a chance at appearing on Stars in Their Eyes (fat chance once you see this guy).

But as Jo Moir points out in the media, the split between the two parties clearly reflects each’s voter/generational differences with the Greens supported more by younger renters and Labour by older home owners. Of course such splits are not total but it does seem to reflect the basic demographics of the situation.

And she is not the only one to pick up on this, as media commentator Johnny Moore, found out recently when he wrote a piece attacking (at least partially in jest) the NZ Baby Boomers for making their own lives comfortable at the expense of future generations.

The response was predictable and somewhat correct in that he was eviscerated for creating a generational generalization which while overly broad in its sweep by blaming the Me Generation, also missed the fact that it’s not just boomers who are buying up houses in Godzone or that the problem is also due to political inaction by successive governments. None the less he got the parameters of the problem right.

But the best articulation of the hernia goes to Pencilsword with his masterful cartoon which is the most succinct articulation of the divide growing in NZ, I highly recommend his work.

And gap is what the issue is and if the numbers in Pencilsword’s cartoon are even remotely correct then we have the making of a generational split in NZ that may never be bridged unless something very drastic is done, like reducing house prices to an average of $350,000.

Because, as he so cleverly puts it, if you don’t own a home you have to rent and rents go up at the same market rates as house prices go up (so their owners can service their massive mortgages) yet wages ARE NOT going up or keeping pace with the rapid rise of house prices so if you rent your ability to pay rent is reduced until you either have to move to somewhere cheaper (say a garage, a car or Australia) or you get a nice large pay rise like MPs get (because we all get those don’t we?).

And this is why, despite the not adhering to the terms of the MOU by just letting fly to the media without warning Labour in advance, the Greens (or just Metiria Turei) have thrown the problem into sharp light by proposing a solution which while painful is probably necessary to prevent the likely rupture if NZ keeps on ignoring the problem and then shrieking and reeling in pain every time the housing market painfully shoots up another $3000.

For the homeowners in NZ (some of whom are Me Generation boomers) they just want this issue to go away, and the media for a long while has been compliant (possibly because they are also of said generation) by not bringing it up.

But for the renters (some of whom are Generation X (like myself) and Y’s) the problem is not going to go away, it’s getting more and more painful as rent gobbles more and more of ones pay packet at the expense of everything else and nary without a decent pay rise on the horizon (unless you move to Australia).

I note that in Christchurch where I live, rents have recently stabilized by new housing coming on stream but rents are still high and those that I know who own more than one home have reported grumbling by tenants at the high rents to the point of even asking for a reduction.

So the schizophrenic standoff continues with John Key and National, and now Andrew Little and Labour, in denial while bedazzling their white socks and glove while the upsetting, and painful solution is being discussed by the Greens (who knows what Winston thinks of this matter?).

And again the hernia analogy works here, yes getting the problem fixed before the rupture occurs, by correcting market prices, is going to hurt for some people, but there are ways to bring things down without setting ones hair on fire and the result if left is very very obvious because ALL bubbles burst/overheated markets correct in time and when house prices are jumping at $3000 a week I think we can all agree that the market is booming but it’s not going to last.

The beggar at this banquet of home ownership is anyone who can’t afford the massive sums, let alone the deposit, for a house in one of New Zealand’s major cities or towns and who is going to get continually squeezed by rising rents until something has to give.

And the rupture, if/when, it comes will be broadly along generational lines, as declining levels of home ownership do mostly align with the ages of people, resulting in a generational explosion of non-home ownership, frustration and rage at being denied a shot at the Kiwi Dream (the Quarter Acre Pavalova Paradise) and political behaviors which while not Trumpian in their levels could lead to something/someone in office for which they will be later blamed for (ironically) while the true guilty parties will have either passed on or be living comfortably retired in their mortgage free homes.

Of course the simple argument is that Labour (and the Greens) are just representing their respective electorates and that Andrew Little can’t afford to take any action which might leave the Labour faithful with a house worth less than their mortgage but if that’s the case then Andrew Little better get used to Labours current polling because they will have to squabble with the ever popular John Key and National for the declining share of voters who have their own home while the Greens and NZ First continue to gain as they speak for the increasing numbers of those who can’t make the mortgage nut.

So if this little split between Labour and the Greens is real then its more than just the Honeymoon being over, kiss goodbye the champagne and lingerie for good as this difference is unlikely to go away with just some whispered sweet nothings and a box of chocolates. To heal this divide is going to require one party or the other to give some serious ground and there is no indication that either side will be doing that. So as Moir notes someone will be “sleeping on the couch for the foreseeable future”.

But if this is politics, policy or pragmatism it’s rapidly becoming irrelevant and the housing hernia will continue to cause pain in New Zealand until the market “ruptures” or pigs need clearance to land at airports.

Finally I add this little bit of piece of gossip as it came to me from two unrelated sources and while probably in the realm of speculative fiction is not beyond the pale of possibility.

Said rumor being that the reason why National is thinking about an early election next year (July 2017 instead of November 2017) is because they know the market is going to crash soon and want to be out of power so that Labour gets the blame much like Obama got blamed for GFC which was happily brewed up while GW was on watch (but who is going to let facts get in the way of a good ol session of political point scoring).

I am not quite sold on this, yet, as it requires National to have foreknowledge of the coming crash and be willing to give up all the perks of being in government for the minor political points accrued from Nyah Nyahing Labor while it struggles with the housing hernia blowing an O-ring and writhing around in pain like its head is on fire.

But what could change my mind about this is if our ever smiling PM was to be considering dropping out of politics for whatever reason as then Nationals chances of making a fourth term are slim to zero as none of the haggard, bloated visages in cabinet  is going to have the same mojo as Key when it comes to leading the party, winning over the populace or avoiding the deluge of knives aimed at their back.

In such a situation then I would fully expect National to cut their losses by running through as much of their political program as possible between now and polling day before taking the hit and leaving Labour with the inevitable mess and them free to play the blame game.

John Key made his money as a market speculator and the housing market has all the hallmarks of a speculators market (rising bubble prices, external third parties, owning more than one house etc) so if anyone in cabinet has an inkling of what’s coming it will be him and its clear he wants to leave a legacy (see the flag debacle) so all the more better to get out before the proverbial explodes all over the fan and leaves whoever is in government with a mess than won’t wash out. He can then at least claim it was Andrew Little’s fault and criticize government inaction from the opposition benches.

There is a reason why NZ got state housing in the 30s and it was due to similar circumstances like we are getting today (low home ownership and predatory landlords) so there is a historical precedent for dealing with this. If not State Houses then something for modern times which has the same effect of getting people into homes (I wont even get into why home ownership is important for a modern state/democracy today but there is a wealth of work on the death of the middle class and the goal of neo-liberal markets to sweep away any obstacles to all wealth being consolidated in the hands of a greedy few for anyone with time to read up on it).

So to end, back to my hernia story. It was clear that at some point I would have to make a decision and take action, leaving it off in the hope of it going away would only prolong the agony and the odds of it magically remaining in equilibrium and not rupturing were very low.

So the choice is really between action now under painful but controlled circumstances or emergency surgery later BUT with much more pain and a nasty generational scar that won’t heal over. The latest Labour/Greens spat may heal over until the election but the Michael Jackson impersonations won’t soon go away and Generation Rent might sound like a good musical story but I wouldn’t want to be in it.

A culture of tax evasion.

datePosted on 11:25, April 15th, 2016 by Pablo

I do not understand what the fuss is all about when it comes to John Key and the revelations in the so-called “Panama Papers.” So what if he and other Kiwi high rollers shield their incomes and assets from the IRD in assorted trusts, funds, investments and even shell companies? Isn’t it an axiom of capitalism that, as Donald Trump has openly stated, you try to avoid as much tax payment as possible? Forget all this nonsense about “paying one’s fair share of taxes.” Only rubes and idealists do that. Everyone else tries to minimise their tax exposure and the rich pricks just do so on a grander and more elaborate scale.

I say this because the entire NZ economy is riddled with tax avoidance. One of the things that struck me after I moved to NZ is the amount of cash transactions that are done with the explicit intention of avoiding tax. Almost every single tradesperson I have dealt with in the course of my time here has proposed a cash transaction that avoids GST, but more importantly, avoids traceable electronic or paper (cheque) financial transfers. And the offers of non-GST cash transactions are done without shame or concern; it is just part of doing business for many people and everyone knows it and acts accordingly based on their own circumstances.

If what I have seen in the small business trade and service sector is any indication, then it is reasonable to expect that such attitudes percolate upwards into larger corporate structures and repositories of wealth. Since these are too big to hide in a cash-only parallel market, the next best thing is to engage in tax evasion and income-hiding schemes whose complexity is based upon the ability of the tax authorities to uncover them. The move to off-shore trusts and the like is simply a matter of keeping one or two steps ahead of the law and three steps ahead of enforcement mechanisms. If those in government choose to structure the financial regulatory regime in such a way that it keeps the holders of wealth five to ten steps ahead of the tax authorities then, well, you get what you vote for.

The difference between the approach of NZ high and low rollers when it comes to tax evasion is in scale, not kind.

This is one reason why I believe that the Transparency International rankings that have NZ listed among the top three least corrupt nations on earth are rubbish.  Add to that the nepotism, cronyism, shoulder-tapping, sinecure swapping and insider trading of everything from personal and professional favours to board directorships to stock shares, and the picture of NZ is far less rosy and far more, let us say, “pragmatic.”  I am particularly critical of the TI indexes because not only are they mostly based on reputational analysis (mostly offered by those who stand to gain from gaming the system), but because I participated in a TI survey of NZ’s intelligence and defense forces and saw my scores (and those of some others) pretty much discarded in favour of higher scores offered by insiders that led to an overall TI assessment that NZ has the highest standard of professional integrity amongst the defense and intelligence services in the Asia-Pacific.

Even so, I am one of those who are a bit idealistic when it comes to taxes. I understand the concept of public goods and therefore comprehend the rationale behind taxation. In NZ I pay tax more readily at a higher rate than I did in the US because, among other things, I am not paying to support a huge war machine that in turn serves the interests of a taxpayer subsidised military-industrial complex. As a small business owner I feel the burden of taxation more heavily and immediately than the corporate moguls that run the nation’s largest firms and whose bottom lines rest on minimising two things: their tax liabilities and their labour force wage bills. Yet I try to believe that I am contributing my small bit towards maintaining a high standard of public education, health and welfare that will lead to future generations of productive and happy citizens (although my experience with NZ academia suggests seriously diminishing returns in that sector, and I have serious doubts that overall heath, education and welfare outcomes are on the rise rather than in decline as a result of nearly a decade of National government public policies).

In spite of these misgivings, I remain a residual idealist and want to believe that my contributions, when taken collectively with those of others, matter for the present and future well-being of NZ. But I do not expect others to share the same hopelessly naive view of how the systems works, and I therefore do not begrudge them trying to dodge the taxman as much as possible. Because in a country where market-reifying ideologies reign supreme in virtually every facet of life, only a fool like me would think that paying taxes is anything but state-imposed theft levied on the productive in order to buy the acquiescence of the parasitical. I know this to be true because National, ACT and certain elements in Labour tell me so, and who am I to argue with those who dominate our economic, political and social narrative?

I was invited by the nice folk at sustainnews.co.nz to contribute a short essay related to sustainable economics from my perspective as a geopolitical and strategic analysis consultant. The essay wound up  making the connection between political risk and sustainable enterprise, and more importantly, the relationship between sustainable enterprise and democracy. You are welcome to view it here.

Trading with the Mullahs

datePosted on 18:45, September 17th, 2015 by Pablo

I was a replacement panelist invited by the New Zealand Institute of International Affairs to join a discussion in Wellington on the Iranian nuclear agreement. It was a a pleasant event that addressed the pros and cons of the deal. I was impressed with some of the speakers, particularly Dr. Parsi from Lund University (speaking via Skype). I was less impressed with the Israeli discussant and the statements (not question) by an official from the Iranian embassy who was in the audience.  All in all, it was an engaging affair and I encourage the Institute to continue with such public outreach efforts.

I spoke a bit about how the deal can be viewed on two analytic levels: as a First Image (interstate) issue and as a Second Image (domestic sources of foreign policy) matter. I mentioned that a way to conceptualise the agreement is as part of a “nested game” (to use a game theoretic term): the deal is part of a series of interlocked interactions (or “games’) that can be seen much as those iconic Russian dolls are (one inside the other) or as building blocks towards a larger whole. I noted that the core of the agreement was to exchange trade for recognition and security–in other words, Iran gets more trade and recognition of its legitimate interests and stature as a regional power by putting the brakes on its nuclear weapons development program with an eye to cancelling the weapons program altogether should the agreement prove beneficial for all sides. They main lever is another trade-off: dropping of international sanctions against Iran in exchange for a rigorous international (IAEA-managed) inspections regime.

For those who are not familiar with the agreement, it is not a bilateral US-Iran affair although they are the major players in it. Instead, the treaty was negotiated by the P5+ 1 parties and Iran, the P5+1 being the permanent UN Security Council members (the US, UK, France, China and Russia) plus Germany. For those interested in the details of the deal, the official US government position is outlined here (which includes the text of the full Agreement itself). A US translation of the Iranian interpretation can be found here. The fact that the P5 agreed to the deal is remarkable given their history of disagreement and subterfuge on matters of international security.

There was an interesting sidebar about “breakout time” introduced by the Israeli, who waxed hysterical about the apocalyptic implications of the deal. Dr Parsi noted that “breakout” refers to the time needed to enrich uranium to weapons grade, in response to the Israeli claim that the deal gave the Iranians a breakout potential of one year. Prior to the deal, that enrichment breakout threshold was two weeks. The point is that “breakout” time refers to the time needed to begin enriching uranium to weapons grade rather than the time needed to build a bomb.

Dr. Parsi noted that “breaking out” on enrichment is not the same as putting nukes on missiles. I said nothing at the time but here I actually know a bit without being a nuclear scientist ( I studied nuclear strategy under one of the original strategists behind the nuclear bombing of Japan and so-called MAD theory. He grappled with the moral dilemmas involved in front of me and my student cohort at the University of Chicago (home of the Manhattan Project) and later changed his mind with regard to MAD). The notion that Iran can start enriching uranium or reprocessing plutonium to weapons grade in a short period of time and then quickly build a missile launched nuclear warhead is simply mistaken.

From a technical viewpoint beyond the specifics of Iran’s enrichment and reprocessing programs, the problem of weaponising nuclear material is simple. Unlike the multi-ton “dumb” bombs that were dropped on Hiroshima or Nagasaki using concentrated high explosives as triggers focused on the nuclear material, the bulk of testing then and now consists of reducing the nuclear payload to a size that can be carried in the nose cone of an (increasingly small and light) intermediate range or intercontinental missile (IRBM or ICBM). The smaller the size of the delivery vehicle, the better its chances of avoiding surface to air or air to air interception. Given that requirement and the need for accuracy, nuclear payloads share very tight space with guidance systems. All of which is to say that given the weight constraints on a high velocity long range projectile, the “bomb” has to be miniaturised for maximum bang for the buck. Doing so requires downsizing the trigger mechanism from focused high explosives to something else. Laser triggers are one option. There are others.  All of them are off limits to the Iranians irrespective of the deal. So not only is the fear of “breakthrough” unfounded and exaggerated for political purposes, but the real concern regarding mounting nukes on missiles is subject to  both contractual and non-contractual enforcement.

My general view is that the agreement is worth doing. Other speakers and I commented on the downside, which mostly involves the reaction of Israel and the Sunni Arab oligarchies as well as domestic opponents in Iran and the US. I noted that there are disloyal hardliners in both the US and Iran that have potential veto power over the deal in the future should governments change, and that it was imperative for the soft liners or pragmatists to accrue tangible benefits from the deal in order to resist the sabotage efforts of hardliners who have vested interests in keeping tensions alive between the two countries. I made the point that Iran is more akin to Cuba than North Korea, and can be brought into the community of nations so long as it was recognised as a regional power with legitimate interests.

Speaker’s times were very limited (7 minutes each), so I was unable to fully address what I had intended to say. So let me do so here.

The lifting of sanctions on Iran as part of the quid pro quo at the heart of the deal opens a window of trade opportunity for New Zealand exporters and importers (more so the former than the latter). Coincidentally,  Foreign Minster Murray McCully has announced that in a few weeks he will be leading a trade mission over to Iran to discuss those opportunities. This is in advance of the implementation of the accord (which goes into effect at the start of next year) and is, as far as I can tell, the first official Western government led trade mission to Iran in the wake of the signing of the agreement.

But let us be clear on what that mission needs to entail. Although Iran’s human rights record needs to be mentioned, however pro forma by McCully, to his Iranian counterparts, the point that must be emphasised is that New Zealand’s opening of trade relations with Iran is absolutely, explicitly contingent upon Iran adhering to its part of the bargain. Should Iran in any way shape or form renege on the letter or the spirit of the agreement and the inspections regime that it authorises, then McCully needs to make clear that New Zealand will terminate or at least suspend until Iran complies all imports and exports to the Persian giant.

I say this because under McCully and Tim Groser MFAT has turned into the Ministry for Trade with Anyone for Trade’s sake. Human rights and non-proliferation are not part of the Groser/McCully negotiating agenda. But in this instance both need to be and the latter has to be. The profit margins of New Zealand exporters and importers and the tax revenues derived thereof must not and cannot supersede New Zealand’s commitment to upholding the terms of this non-proliferation agreement in the event of violations. Those involve re-imposing sanctions, and the bottom line of private interests must not come before the commitment to non-proliferation, especially given New Zealand’s long held diplomatic stance on the matter.

McCully also needs to explain to New Zealand importers and exporters that any contracts they let in Iran are contingent and externally enforceable. That is, they are contingent on Iranian compliance with the inspections regime and the overall thrust of the Agreement (which is to reduce the prospect of weaponising its nuclear program); and they are subject to outright cancellation or suspension by the New Zealand government under penalty of law in the event Iran reneges or violates its side of the bargain. There are opportunity costs and risks involved, and these need to be outlined to interested parties in advance of the mission.

From announcements so far, it does not appear that the National government is interested in making such demands of the Iranians or its market partners. Instead, it appears that it is opportunistically jumping to the head of the cue of potential trade partners and will let the private sector lead the charge into trading with Iran. That is curious because McCully speaks of “not getting offside” with the P5+1, but the very fact that he mentions the possibility of “getting offside” indicates that he and his MFAT minions are considering the costs and benefits of doing so.

The Iran deal hinges on two things: verification and enforcement. There are instruments in place to verify that Iran is upholding its part of the deal. The sanctions will begin to be lifted on January 1, 2016. But it is enforcement of the terms that is the most uncertain aspect of the Agreement. If New Zealand does not explicitly tie its renewed trade with Iran to the latter’s compliance with the terms and be prepared to halt trade with Iran in the event that it does not comply, then it will begin the slippery slope of undermining the deal. For a Security Council member that depends more on reputation than power for its influence, and which has a past record of leadership on non-proliferation, that is a hypocritical and ultimately vulnerable position to be in.

I have noted with growing despair the xenophobia which is becoming a political commonplace this election cycle. On the left it’s about house prices.* But this post is not about racism; it’s about development.

The national median house price is $415,000, a figure skewed substantially upwards by the extraordinary cost of housing in Auckland. But you can buy a three bedroom house in Taumarunui for $26,000, or for $67,000 in Tokoroa. These are extreme examples, but for considerably less than half the median price you can buy a charming colonial villa in Tapanui ($149,500). For a little more than half the median you can buy a newly-renovated house on an acre in central Gisborne ($225,000). Similar houses are available for not very much more money in larger regional centres like Dunedin and New Plymouth, and that’s without considering many apartments, townhouses and more modest types of dwelling.

There are houses out there: there just aren’t jobs to go with them.

The chart above shows income and employment growth by region, and this is why the houses are so cheap. The growth is just not there. (From the Ministry of Business, Innovation and Employment Regional Economic Activity Report 2013).

Opportunity
It’s not just jobs, though; there’s more to life than work. People need confidence in their opportunities in a new place before they will, as Jolisa Gracewood says, buy shares in that community by owning or renting a house there and settling down. They need schools and hospitals and civic institutions and a sense of belonging, they need certainty about their community’s future, and their future within it.

The community likewise needs needs certainty in its new arrivals. A gold rush or an oil boom might provide jobs and cash, but it doesn’t provide certainty for either group. Certainty — and opportunity — comes from deep and sustained development. The fly-in/fly-out mining towns in Australia are a good example, and while that industry has been instrumental in maintaining Australia’s robust economy, its direct value to the regions has been limited — trickling down, lifting all boats — without the adoption of targeted development initiatives such as Royalties for Regions, which seek to return a share of the proceeds of industry to local communities.

As Eric Crampton said about the census income growth figures, increases in average wages across much of the South Island have been coupled with decreases in population, as people on low incomes move in search of better-paying work. Rob Salmond agreed, saying:

The regions with the supposedly highest median income growth also had some of the worst records in population growth, while the areas whose populations grew the fastest had relatively little change in median incomes.

Returning to the MBIE chart above, notice the regions in the top-right quadrant: the West Coast, Waikato and Taranaki. These are distinguished by two characteristic sectors: dairy, and mining, each of which provides a relatively small number of well-paid jobs within a narrow sector, skewing up the income levels but not necessarily changing the overall development picture very much. As crucial as the dairy industry, in particular, is and will continue to be to New Zealand’s economy, a complete solution to development it sure ain’t. Which is why you can buy an enormous Moorish-inspired villa for $220,000 in the middle of gas and dairy country.

Diversification and specialisation
The object of a regional development policy must be to promote structural change, to create industries and communities that are sustainable in their own right — neither transient nor exhaustible, and which attract people whose commitment is likewise neither transient nor exhaustible. These jobs need to go beyond the traditional churn industries like tourism, hospitality and service; though, of course, these jobs will be needed, they should be incidental to development, not its purpose. They need to be high-value and export-led — unlike, for example, our timber industry, and our wool industry. One of our key advantages here is our reputation for being clean and green — demand for premium food, the safety and quality of which can be assured, and including organic and sustainably-produced, is likely to grow strongly and we seem ill-prepared to meet this opportunity, as just one example. Another example is the potential of Māori business, which is as yet terribly underutilised.

In New Zealand we talk a lot about the roles of government in distributing wealth, and in ensuring public access to health, education and other scarce resources. These levers are well-recognised and there is at least a moderate degree of bipartisan agreement on their use. This is not the case with regional and economic development strategies, where there are deep practical and ideological divisions between the parties. I can see why the noninterventionist technocratic right parties like ACT and National are reluctant to consider — or even recognise the viability of — the sort of robust, hands-on regional development strategy that will sustainable economic and community growth in regional areas and persuade the frustrated and overcommitted residents of our major cities to risk a change. It will require considerably more input than building roads, granting mining permits and water rights to permit the extraction of value directly from the land. It will require a lot more than public-private partnerships and white-elephant monorails through virgin rainforest. It very likely will require PPPs, roads, and mining rights, though, meaning the left will have to reconsider some of its positions as well. It will require thorough investment in infrastructure, especially transport infrastructure, and purposeful community-building, possibly funded by a deeper cut from mineral royalties, a localised share of revenues from key industries, or loans from the government. It will probably require considerable autonomy devolved to the communities affected, and the strengthening — rather than the weakening, as is currently happening — of local government. It needs to be a little bit New Deal and a little bit Think Big.

Diversity is resilience, and our economy is very narrowly based. That must change. Different regions have their own strengths — environmental and historical, in terms of personnel and capability — and this represents an opportunity to improve the national economy holistically, by strengthening each of its component parts, rather than by building one economic muscle until it threatens to throw everything else out of balance. In many cases these nascent strengths will need considerable augmentation, and some will need to be developed almost from scratch. That requires significant and sustained investment in research and development — contributions to which the National government cut during the time when it was most crucial; when talent needed to be incentivised to stay here, and when industry needed to prepare to take advantage of the recovery, when it arrived. Public-sector research agencies can be beneficial in quite unpredictable ways, and when it comes to blue-sky research, patience can pay off enormously. If you’re reading this over Wi-Fi, you can thank the Australian government’s scientific agency, the CSIRO.

People and places
One obvious and direct means by which the government can influence regional development is by decentralising — by relocating government departments or agencies to regional centres. At a minimum, governments could decline opportunities to actively dismantle regional industries — such as Invermay — for the sake of short-term cost savings or change for its own sake.

It is clear that having a critical mass of mobile public servants all located within a kilometre of each other can increase efficiency and cross-pollination in government and business. Some significant new businesses — such as Xero and Vend — clearly benefit from strong cohabitation and the development of their own start-up cultures. On the other hand, in the past decade telecommuting has become plausible for a large proportion of people whose work is predominantly reading, writing and talking on the phone, and the major reasons it is not more widely used are to do with middle-managers wishing to retain some measure of direct control over their staff, which they label “team culture”.

There are costs and benefits to decentralisation, but it is hard to shake the sense that government, and the public service, are growing increasingly remote from the people whose interests they ostensibly serve. The gap between the experience of living in Auckland or Wellington and living in the rest of the country is vast already, and is likely to grow. Over the long term, as regional development improves, mobility will increase, as the economic and cultural risk of moving to or from a major centre will decrease, and this seems likely to yield an even greater cross-pollination benefit than that sacrificed by decentralisation.

Political laziness from the left
The reason the housing markets in Auckland and Wellington are refusing to cool is because people — both internal and external migrants — want to live where there is opportunity, and Auckland and Wellington is where the opportunity is. Blaming foreigners for the continually-rising house prices in Auckland is counterproductive. It’s lazy populism for the opposition to monger fear on these grounds, and it’s clear why the government is perfectly willing to let them do so: first because it cuts against the left’s political brand, and second, because it frees them from responsibility for what has proven a poor regional growth strategy during their time in government.

Labour and the Greens have taken strong and well-articulated positions in favour of regional development and smart growth but they’ve also gifted the government an opportunity to reframe what is essentially an economic development debate as being about housing and migration, when the former is a symptom and the latter is all but irrelevant. As a consequence the whole discussion gets sucked into an unwinnable partisan slagging-match. This isn’t so much a failure of policy, but a failure of political emphasis. It should be relatively easy to correct: they mainly need to stop complaining about the yellow peril, and start talking about the future of a country where wealth and innovation is spread beyond its main centres.

Although I disagreed with his dismissive attitude towards the marriage equality debate, it seems likely that the once and future member for Napier, Stuart Nash, will be an important member of the Labour caucus in future. Late last year he argued persuasively that the regions are crucial not only for the economic wellbeing of the country, but for the wellbeing of that party, and so for the wider left. As he says:

If any party only holds seats in Akld, Wgtn, Chch and Dunedin, then they don’t have a particularly wide mandate to govern because they haven’t got MPs in caucus putting forward the views of the vast majority of geographic NZ.

To an extent it is understandable that this hasn’t happened yet. Development is hard. It takes a long time and a lot of money, and in a political context where governments change no less often than once per decade, it requires an uncommon degree of accord between increasingly diverse political movements. With the Greens now forming a substantial and apparently-permanent adjunct to Labour on the left, and the emergence of new climate-sceptic and anti-environmentalist sentiments within National and its allies, this is a big ask. But it needs to be done nonetheless. The regions aren’t going to develop themselves; they haven’t got the wealth or the people to do so, because it’s all tied up in tastefully-renovated villas on the North Shore and in Thorndon.

Downsouthing
This is not an entirely theoretical discussion for me. All going to plan, at some point later this year my family and I will move from the Kāpiti Coast to Dunedin. My wife is going to the University of Otago to work on the postgrad study she’s been wanting to do for 10 years. We’d have done it years ago if we could — every time we’ve been to Dunedin, we’ve said we’d move there in a heartbeat if only there was work. Mostly what’s changed now is that I can bring my work with me.

The reason we live out here is because out here is where we could afford to buy a house on one modest Wellington income. The idea was always to move into town at some point, but that has gotten more distant, not closer, over the past five years with Wellington’s housing market proving largely impervious to the recession. So off we go.

We anticipate significant benefits. My wife will be able to do something meaningful with her life other than raise our kids full-time or working as a rest home carer, worthy though both those tasks are. Commuting into Wellington would cost dozens of hours and hundreds of dollars a week, and at some point both of us would inevitably end up far from our young kids when they needed us. But not least among the advantages is the regional arbitrage of continuing to bring in something like a modest Wellington income while living in a place where houses are, very conservatively, $100,000 cheaper.

But there’s the thing: unless you’re privileged enough to work in a field where you can telecommute (and bosses who’ll let you), or unless you work in a literal field, moving from Auckland or Wellington to pretty much anywhere else in the country is a big risk. (In Christchurch, the case is much more complex.) You can move, but for many people, the opportunity is just not there, and the risk of giving up what you have is very great.

The government that raises those opportunities will find favour with those who want to move, those in the regions whose economies and communities are boosted by new growth, and those in the main centres who wish to stay, or must stay, who will have richer opportunities for doing do.

L

* On the right it’s more about asylum seekers (National) and internal threats to the colourblind state (ACT). The only party that seems clean of this is United Future, for which Peter Dunne should be congratulated.

National Lite

datePosted on 17:29, May 15th, 2014 by Lew

It’s been almost a year since I wrote anything here. Things have been complicated. Anyway, this will — I hope, and circumstances permitting — begin a return to participation. All thanks due to Pablo for holding things together.


Answer: Nobody. That’s the problem.

Today was budget day. The carnage in Australia with Joe Hockey’s first budget two days ago was worse than even the Abbott government’s enemies had predicted, with deep cuts to education, welfare, superannuation, science funding and many other fields, including the imposition of a $7 surcharge for GP visits. The contrast here could not be more stark: a return to surplus not immediately thrust into lowering taxes, modest cuts in some areas, increased entitlements in others, particularly in support for young families, and notably the extension of free GP visits to children under 13 years of age.

I’m no big-city economist so I’ll stick mainly to the political aspects. But it basically looks like Bill English’s sixth budget — somewhat like the preceding five, but to a greater extent — does a little good and almost no evil, and that basically ruins the opposition’s game plan, which relies on Bill English and John Key being terrible ogres that eat babies, rather than supporting their parents with leave entitlements. When the man touted as the Labour party’s most left-wing leader in a generation is reduced to complaining that John Key has stolen his party’s policy — as if that is supposed to be a bad thing — things are pretty dire. The opposition’s increasing desperation over the past six years, continuously prognosticating doom over the horizon, simply looks ridiculous when the doom never arrives. The government has snookered the New Zealand left by simply doing what it said it would do, and as Pablo argued persuasively at the start of the year, that makes clear how lacking the New Zealand left is in its strategic vision. They — Labour especially — are relying on the government to do their heavy ideological lifting, and when the government declines to be explicitly evil, the opposition is left with nothing to say.

When your enemies move to occupy your ideological ground, it is an opportunity to extend that ground, replacing what they claim from you with more advantageous ground deeper within your ideological territory. The trouble for Labour is that National has moved towards them, and Labour are still trying to fight them for the same ground rather than staking out more ground of their own. Six years after the “Labour lite” campaign that saw them ousted in the first place, they haven’t learned. Today’s budget has been tagged Labour lite by commentators including Bryce Edwards and Labour’s own Rob Salmond.

Due to assiduous work by National, and a conspicuous lack of it by Labour, “Labour lite” is now more or less indistinguishable from “Labour”, and Labour has offered no sort of “Labour heavy”; full-cream Labour, deep-red Labour, or whatever other metaphor you like. Because of this lack of difference, the electoral decision comes down to competence: of these two groups of mendacious grey technocrats, which is the least likely to inadvertently screw things up, or intentionally, as Jan Logie puts it, f&%k people over? That’s an easy answer: Labour demonstrates its lack of general competence every single day. If it’s not clear by now that they’re simply not as good at being the Nats as the Nats are, when will it ever be?

It’s too late, now, to change this ahead of the election. The die is cast. Labour has — again — decided to rely on political meta-strategy like syllogising failures of judgement or conduct by individual MPs out to the wider government, and it might have worked had they any sort of foundation to build upon. But they don’t. Far from full-cream Labour, Labour itself is Labour lite. Light-blue, even; 98% Ideology-free. If they’re going to play the National-lite game, they at least need to get good at it.

L

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