Category Archives: Economy

Thinking of a post-pandemic future.

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I was recently invited to participate in an international teleconference on post-pandemic futures. It has a NZ-centric focus but involved distinguished participants from overseas, including former high level government and private sector officials. Discussions were held under Chatham House rules so I cannot get into particulars, but I am writing here as a reflection on what I heard.

Above all, I took away two troubling thoughts. The first is that the discussion was entirely elite-focused, with much talk about trade regimes, supply chain dynamics, attracting foreign direct investment, scientific diplomacy, political leadership characteristics and competition, plus other things of that sort. The second take-away was the nearsightedness of many of the discussants, particularly those representing the private sector. In a nutshell, they just want to get back to business as usual.

I made some remarks that attempted to amplify the context in which we are operating. I will elaborate on them here.

The CV-19 pandemic is an inflection point in a longer trend involving the intertwined crises of national and international governance and models of accumulation. It has exposed the dark contradictions in both. These must be addressed if the world is to emerge a better place. But there is a broader backdrop to this trend that needs to be understood before we get into unpacking its component parts.

The international system is in the midst of a long transition. It has moved from a tight bipolar configuration during the Cold War to a unipolar construct in the 1990s and an emerging multipolar system after 2001. The emerging system is characterised by the interplay between ascendent and descendent great powers, the emergence of non-state actors as key international actors (both irregular and corporate), an erosion of international norms and rules, and the resultant presence of conflict as a systems regulator. The underlying ideological consensus that dominated international relations from the end of World War two until the last decade, that being the notion of a liberal order where the combination of democratic government and market-driven economies was seen as the preferred political-economic construct, has eroded to the point of marginality.

In its wake has re-emerged the concept of realpolitik or power politics, whereby nation-states and other international actors pursue their interests above all things and do so with the resources at their disposal relative to the countervailing powers of others. This does not always mean that might makes right because not all resources are coercive. Some are persuasive, which helps distinguish between so-called “hard” power (coercive, be it economic, military or diplomatic), “soft” power (persuasive), “smart” power (a mixture of both) and “sharp” power (coating coercive intent in a persuasive argument or approach).

Over the last two decades several great powers have emerged or re-emerged, while the lone 1990s superpower, the US, has declined. This is seen in the fact that while superpowers intervene in the international order for systemic reasons, great powers do so for national reasons. One only needs to view the US inability to prevail in regional wars and then turn towards economic nationalism, populist politics and away from support for alliances and international organizations to see its descent. Meanwhile, pretenders to the throne and others have emerged: China, Russia, India, Japan, Germany in the forefront, but other regional contenders also in the mix (Indonesia, Brazil, South Korea, France and the UK, perhaps Iran and Turkey as part of lesser constellations).

The issue is not so much who these specific emerging powers are but the fact that they are moving the international system towards multipolarity. Given its relative decline, there is little that the US can do about this even if it attempts to reverse the trend (assuming that it recognises what is happening). And yet, the contours of the future system will not conform to the specific interests or designs of the emergent powers within it. Much like Adam Smith’s invisible hand of economics, it is the aggregate of power dynamics during the transitional moment that will give precise shape to the global future. A new balance of power will emerge, but it remains unclear as to its exact configuration or stability.

That is the broader backdrop to the global crises of governance and models of accumulation. As macro and micro-cosmic reflections of this larger reality, national, regional and international governmental organisations have been sidelined and/or undermined by a combination of forces. Some are internal, such as the ossification of agencies due to corruption and self-interest. Others are external, such as rapid and sudden migration trends resulting in ideological and racial backlash in recipient countries. Whatever the combination of factors, the crisis of governance is seen throughout liberal democracies as well as many authoritarian regimes (even Singapore!) and international organisations like the EU, WHO, WTO, SEATO, OAU, OAS and UN. Many of these agencies are seen as toothless at best and bastions of patronage, nepotism and corruption at worst. Above all they are mostly seen as (and many are) ineffectual and inefficient in discharging their mandates.

The decline in quality of political governance is paralleled and matched by the increasingly obvious contradictions of the global model of accumulation. Commodity supply chain concentration, hyper-specialisation, just-in-time production, “race-to-the-bottom” wage competition, and other features of the globalisation of production, consumption, supply and exchange have produced increased inequalities and fractures in the world social division of labour. Hyper-concentration of wealth in the so-called “one percenters” has happened on the backs of the global poor, who now extend well into what used to be the middle classes of advanced liberal democracies. Again, the US provides an example with its charity food lines and millions of unemployed (rising to 20 percent of the work force and over 30 million unemployment claims lodged in just three months) as a result of the pandemic. The US situation is particular dire because most private health insurance is tied to employment, so the loss of jobs is measured in both declines in income as well as health coverage.

This is what the pandemic has done. It has exposed in dark relief the ugly side of the global market. It has also glaringly revealed government incompetence and indifference on a global scale. These two pathologies have now combined, and the results are being felt by common people, not elites. This could well be the moment when the Liberal Order dies, killed by a disease whose spread was, in a bitter ironic twist, facilitated by its success.

That is why getting back to “normal” and business as usual by returning to the status quo ante will not work, and where short-term solutions will not suffice. That only staves off the inevitable, which is that the dual crises will continue to compound and deepen as they head towards a circuit-breaking outcome. Phrased differently, it appears that what students of social revolutions call the tension-release model is now well in play: there is a slow build up of accumulated tensions punctuated by episodic outbreaks of disorder or discontent, culminating in a cathartic moment in which the old system is destroyed and a new one–however unclear in its precise contours–begins.

If the root causes are not addressed, the next explosion of mass discontent will be precipitated by any number of calamities, man-made or natural: resource conflicts caused by draught, flooding, famine or competition over access to increasingly precious natural resources like fresh water; mass migrations tied to the above; great power war; civil war; sectarian and irredentist violence; pollution- or climate-caused environmental catastrophes; wide spread urban destruction caused by earthquakes, eruptions, hurricanes, thrones, cyclones or tornados; energy provision failures; and more pandemics. This list is not exhaustive.

It is not as if there has been no warning that things cannot hold. From the 2000 “Battle of Seattle” to the Occupy Wall Street demonstrations later that decade, to the Arab Spring of the early teens to the protests in places like Chile, France and Lebanon last year, there has been a slowly rising tide of resistance to politics and economics as given. The protests are not just about one or the other but are in fact about both: systems of governance and systems of profit and their influence on each other.

The malaise is wide-spread. The US and UK are polarised, India is riven by sectarian tensions, Arab oligarchies remain closed but under increased popular pressure, despotic politics have taken hold in Brazil, Hungary, Eastern Europe, Central Asia, the Philippines and Turkey under electoral guise, sub-national actors challenge sovereignty in a host of Sub-Saharan states and even the seemingly monolithic regimes in China and Russia are riven by internal tensions and political intrigue. The world stands at the brink of a valley of transition where the costs of change are real but the outcome is uncertain.

Returning to normal, at least if it is defined as the way things were before the pandemic hit, is a guarantee that the socioeconomic and political contradictions now laid bare will fester, accumulate and eventually explode. That is an outcome few would want. This is why the post-pandemic moment must be seen as a window of opportunity for comprehensive change rather than a resumption of what once was.

In order to avoid an explosive break with the past, the key to post-pandemic recovery lies in addressing the dual crises of governance and accumulation as the most important priorities even if short term economic and political remedies are offered (say, by removing Trump from office, turning to regional supply chains and re-committing international agencies to a rules-based international order). I cannot offer any specifics, but it seems to me that a move towards sustainable development based on restrained rates of profit and renewable resource extraction is a beginning. Given the resurgence of wildlife in urban and suburban areas and air and water cleansing during the lockdown, climate change mitigation efforts need to be wrapped into larger projects of environmental restoration in which a return to natural balance is given urgent attention.

These involve political reforms in which those who advocate for a return to the previous economic status quo are blocked from doing so. After all, there are many interests vested in the current global market framework and they will do everything in their power to resist and thwart meaningful change that undermines their positions and diminishes their bottom lines. The key is to find a consensus about reforming, if not an alternative to, the system as given, including the reconfiguration of incentive structures in order to promote broad adherence to the shift in the global model of accumulation.

The future will be multipolar. The question is whether it will be stable or unable, sustainable or exploitative, multilateral or parochial, driven by self-interest or concern for the collective good. The overall process of transition to multipolarity is immutable, but the specific features of the future system will be defined for better or worse by human agency. It remains to be seen if the opportunity to recast the world in a better image will be seized.

Given what I heard at the online meeting, I am not sanguine about the prospects of this happening. It is easier to go back to what is known than venture into the unknown. The forces pushing for a return to the status quo are many and powerful. But the pandemic has pulled away the layers of mystification and false consciousness that heretofore obscured the intense exploitation, class cleavages and unrepresentative politics that lie at the root of the modern global edifice/artifice.

It is time for economic and political architectural re-design on a world scale.

Living within our means.

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Years ago the Argentine sociologist Carlos Weisman wrote a book titled “Living within our Means.” It was a critique of Argentine society that focused on the paradoxical question of why, in a land of plenty, there was so much economic instability, inequality, corruption and political turmoil. His conclusion was basically that natural wealth produced indolence and greed: the vast natural resources in Argentina could be exploited inefficiently and without regard to the future, money was siphoned off of productive sectors into all sorts of nonproductive or money wasting enterprises ill-suited for the economics and demographics of the country, and the surpluses generated by the productive sectors (agriculture and mining in particular) could not only line the pockets of those lucky enough to control the means of production but could also be used to buy off subordinate group consent via State benefit distribution derived from minimal taxation on the export-oriented sectors that generated the bulk of the countries GDP.

His most important observation was that Argentines, so accustomed to an economic system that generated wealth in spite of itself, were living beyond their means. The State sector grew bloated, workers lost sight of the connection between productivity and wages, capitalists hoarded, spent and perfected the arts of tax dodging and capital flight, and politicians used patronage and public goods as a means of currying electoral favour, only to have the military step in from time to time under the pretence of putting things right but in reality only to shift benefits of political control to their civilian allies.

New Zealand is not quite as pathological, but for some time I have seen parallels with Argentina in that it appears that the country has, for at least two decades, been living beyond its means. Think of the so-called export sector.

Traditionally, “export sector” means those business that sell their goods overseas, to foreign clients. In NZ that historically meant agriculture (including cattle and sheep farming) mining, forestry and fishing. More recently, high tech value-added industries like software development have been layered into the export mix. But so too have industries like tourism and foreign language and tertiary education. Yes, tourism and educational services for foreign students are classified as “exports” in NZ even though all of the revenue generated and GDP share provided by these services are domestic in nature. Unlike traditional exports, other than some transportation companies, none of the economic activity associated with either industry is generated from abroad (say, via the sale of goods).

There is something insidious about this. Thriving in a largely unregulated environment, tourism surged. Adventure tourism, adrenaline tourism, hobbit tourism, backpacker and freedom camper tourism, glamour tourism, death tourism (trophy hunting) etc. all exploded even thought the infrastructure required to handle them was insufficient or non-existent. Likewise, dodgy fly by night language schools popped up catering to foreign students as young as high school age, and universities lowered admission standards and course requirements in order to attract unqualified foreigners who were willing to pay enrolment fees up to five times higher than domestic students. It did not matter that these foreign student often wound up as the victims of unscrupulous education “brokers,” local employers, hosts and homestay providers. That was fine because the business owners and senior managers operating these industries were rewarded handsomely for their efforts even if their contributions were not, to be clear, really advancing the productivity of NZ society. Both of these industries saw the foreigner’s dollar as their cash cow and soon became dependent on it. So long as the State got its share of tax revenues, all was hunky dorey as far as the economic-political elite was concerned.

A clear case of a non-traditional “export” that does more harm than good is the cruise line business. These floating Petri dishes used to be pretty scarce in NZ ports but now are now commonplace eyesores from the Bay of Islands to Akaroa and Milford Sound. They are seagoing pollution generators with dodgy labour and hygiene practices that disgorge thousands of clueless leisure lovers onto our shores to watch hokey “cultural” shows, go sight-seeing (including to active volcanoes) on fossil fuel vehicles and buy trinkets and baubles from money-grubbing vendors who otherwise could and should be providing services to their communities. What domestic benefit is derived from them is surprisingly narrow in scope, and yet they continue to come in increasing numbers–at least until CV-19 revealed them for what they are when it comes to public health risks.

Even traditional sectors like fisheries and dairy have come to rely more on export markets than on domestic consumption for their well-being, pushing unsustainable growth, environmental degradation, species destruction and oligopolistic market concentration. Uncoupling commodity pricing from domestic wage levels, some agricultural staples have been priced out of the range of most local consumers while a greater percentage of quotas and production are oriented towards foreign buyers. The situation has become so unbalanced in some sectors that, for example, given a drop in Asian demands due to the CV-19 pandemic, fishermen find it more economical to dump crayfish back into the ocean than sell them in the domestic market. Asian demand for cut wood has dried up, leaving huge surpluses in holding lots that are not being released into the domestic market. The price of many wage goods, consumer non-durables and staples is now set by international markets rather than by local demand, thereby narrowing the range of basic goods purchasable by the average NZ consumer.

In light of this, we might see the arrival of the Coronavirus (CV-19) as a great corrective on the national excess. The first industries to shut down are the ones that really should not have grown so large in the first place: tourism and tertiary education. These have been readily followed by service sectors associated with tourism and foreign students, including accomodation and food service provision.

Now the entire country is poised to “shelter in place.” With the government ordering mandatory closures and shut downs as it ramps up its response, primary and secondary schools have closed and a multitude of service providers have switched to at-home work or temporary closures. Soon a full scale lockdown will be imposed.

Essential industries and core state services continue to operate–transportation, food provision, emergency services, law enforcement, telecommunications, waste disposal, etc. Note that if we strip out the non-essential industries that are now shuttered or curtailed, we have a much smaller overall economic footprint yet a larger State presence within it. That is not necessarily a bad thing.

After years of market-driven logics that among other things pushed the kind of excesses described herein, the State is reassuming its role as macro-manager of the economy and direct provider of public goods and strategic production. Prudent financial management that protected surpluses “for a rainy day” allow the current government to ease the burden of pain inflicted on the working population by CV-19. It can also provide the material basis of an economic re-ordering on grand scale. One can only hope that, thanks to the pandemic, the era of down-sizing and privatisation has been proven to be a false promise when it came to national well-being and prosperity, and that it is replaced with a new economic logic that emphasises the importance of the social relations of production as much as the relations in and control of production itself.

There is one more component to this smaller, “natural” economic footprint: small businesses. The NZ economy runs on small business production and services. From metal working shops to plastics manufacturers, furniture makers and tradespeople, NZ has a middle sector in between the big agro-export corporates and State Owned Enterprises and private-public partnerships. The difference between them and the bloated tourism and tertiary education sectors is that they actually produce things of tangible value that benefit domestic society, not the degree-chasing aspirations or Instagram ambitions of foreigners.

The combination of big exporters, State sector and small businesses, one might say, is the critical component of NZ society. Not tourism, not foreign student education, not bars, restaurants, sports and other forms of mass entertainment. These can be resurrected when the pandemic has passed, but this moment of crisis demonstrates where value is created and preserved in NZ society. And it is not with hedge funds, sports teams, video game arcades, waterfront restaurants with space for tips on their service bills, ski resorts, golf courses or heli-tours.

Needless to say, this is a broad brush depiction of the economy of excess in which we live. There are bound to be fine details that prove the exception to the rule such as it has been depicted here. But the gist is clear: NZ has, as a result of the market-oriented experiment of the last 30 plus years created a entire range of parasitic/opportunist capitalism that contributes relatively little of value to the domestic economy or to the population at large. It is this sector that needs to be excised thanks to the arrival of CV-19.

Calls for self-isolation are getting more forceful as the government ramps up its pandemic threat advisories. This type of quarantine is a form of physical separation based on notions of collective solidarity (and not a form of social distancing, as pundits have called it). People retreat into their homes out a sense of collective responsibility and empathy for others, hoping to weather the worst of the pandemic in order to flatten the curve of its distribution. Here again, the burden of sacrifice is borne by small producers, public servants and waged labour, most of whom do not have access to the type of savings or surpluses that allow the corporates to ride out the storm.

It is these people that deserve government financial relief. Not the corporates or those in the bloated, non-essential and non-productive (in a value-added or material sense) sectors of the economy. Not those in parasitic financial sectors and non-traditional export industries. Not sports leagues and yachties.

In the end the CV-19 pandemic is not only a massive corrective to the world and NZ societies, demonstrating the dark and largely ignored side of the globalisation of production, consumption and exchange. It is more than an economic belt-tightening across the globe. It is a moment for pause and reflection on what living within one’s means really means in practice. For NZ, it means that the time has come to drop the growth is good mantra in certain non-critical sectors of the economy and to refocus energy and resources on those that comprise the economic triad underpinning the good society: “traditional” exporters, small businesses and the State-Owned and public/private enterprises that are the core of the national productive apparatus. This may require major adjustments in all three components, especially in the export sector (to include its very definition), but the moment has arrived thanks to the externality known as Coronavirus.

That result may be a smaller economy than what came before CV-19, but it will be more sustainable, efficient, value-generating and ultimately fairer for NZ society as a whole.

Legacy investments versus speculative investments.

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Among the arguments about instituting a capital gains tax in NZ (common in many parts of the developed world) is the claim that much property is family residence or inheritance in nature. The argument goes that it is unfair to not differentiate between the sale of a family home, granny flat or holiday residence by middle and working class people and the sale of properties bought by developers and speculators with the intention of “flipping” them for a profit. The first category are long-term, emotionally laden investments whereas the second is simply about making money.

I see merit in the argument for differentiation of property investment categories. In particular, I see a difference between legacy investments and speculative investments. Legacy investments are those where property is bought for family use over time. These can be the main family home but more often are second, smaller flats or holiday homes that are passed on between the generations (think of the archetypical bach or a crib). The emotional as well as financial investment in such places is not based on eventually securing returns but on preserving collective experiences and traditions from generation to generation and giving off-spring the chance to acquire a property stake without the exorbitant financial costs associated with the contemporary real estate market (for example, an equity share in a family bach may help towards securing a first time mortgage loan). It specifically excludes using family members as fronts for speculative purchases (say, of a family farm).

Speculative investments are just that: property investments that are designed to be on-sold in a relatively short period of time in order to secure a positive financial return. Here the intention is to make short-term money off of the buy/sell transaction.

I would suggest that a capital gains tax is appropriate for all speculative investments. They become another cost of playing the real estate flipping game and will eventually be incorporated into the real estate price architecture. On the other hand, I do not think that capital gains tax is appropriate for legacy investments. If a family property is on-sold within blood lines or divided into part ownerships to children and grandchildren, it seems to me that the less financial burden imposed the better for all. People get to keep their properties within the family and share in the collective benefits over time and generational change. That includes rental income from family owned property subject to the requirement that the property must be used by family members for given periods within a specified time frame (this would allow seasonal rentals and other short-term lease arrangements to non-family).

The system would work if there is a legacy declaration made on a property at the time of purchase. Again, this may be less appropriate for a main family home that could likely be on-sold to strangers as the family demographic shifts. There a capital gains tax would apply. But it very much should not apply to properties that families hope to preserve within the bloodlines for posterity. Here on-selling to relatives should not incur capital gains taxes.

On-selling under the legacy clause will require verification of family lineage, and any sale to non-family voids the legacy declaration and makes the sale subject to capital gains tax. Those who try to cheat the system and are caught will be subject to heavy financial penalties in excess of the tax otherwise to be paid.

I am not an economist much less a taxation expert but it seems to me that distinguishing between legacy and speculative investments in the property market strikes a good balance between profiteering and homesteading. I admit to not having thought through all of the implications inherent in this proposed scheme so if any readers want to illuminate me please feel free to do so.

I have no doubt that clever devils will immediately try to game the system and seek out ways to turn legacy homesteading into profit-driven speculation. But with a detailed code of compliance and robust enforcement regime in place, it is possible for this approach to split the fair difference between an all or nothing capital gains tax on property and one that reflects the nuances in property buying preferences. Or perhaps that is simply too much to ask in an ideological climate where the very idea of taxing something other than salaried income, business earnings and consumer purchases and services is considered sacrilegious by the Right.

PS: I have been informed by the smarter adult in my house that this is a silly idea and unworkable. She also points out that trusts already allow for inter-generational transfers of wealth/assets without being subject to tax on the transfer. I am not familiar with trust law and am not going to risk savaging by pointing out that family trusts are something more likely to be created by the well-to-do rather than the middle class, so must accept the scolding and move on. If anyone is familiar with the intricacies of trusts, please feel free to explain.

Interest, values, trade and security.

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The media frenzy about the NZ-PRC relationship got me to thinking, but as I got to thinking I found myself meandering off of my original train of thought. You see, at first I was pondering the one-sided, hectoring nature of the media coverage, where pro-China shills like the business writers at the Herald and assorted corporate types and National Party flunkies like Tod McClay were allowed to run their mouths about how the relationship with China was headed down the tubes. There was the Kiwi coward resident 34 years in China* who implicitly disparaged Anne Marie Brady by saying that “(i)t’s unhelpful for politicians and a few anti-Chinese professors to feed uncorroborated McCarthyite conspiracies about Chinese spy networks in their countries and targeting anyone who doesn’t share their view.” There was Audrey Young’s reference to “ivory tower” eggheads in her regurgitation of business lobby bullet points. All of this was offered without a single rebuttal.

  • *I am not going to mention this useful fool’s name but it would have been nice if a “journalist” has asked him, given his long residency in China and successful business ventures there, whether he was a dual citizen and/or member of or has ever had any formal contact with the Chinese Communist Party, whether he has ever had to “facilitate” transactions or provide pay-offs to party or local officials and whether he is on any Chinese government payroll as a spokesperson, business “ambassador,” representative, go-between or in any other capacity. I say this because it is unusual for Chinese authorities to allow non-diplomat Westerners to comment on official reactions to PRC-related events in foreign countries even if they are citizens of the country in question.

There were even pro-China academics featured in the media and assorted pundits opining that the Labour-led government needed to pull an about-face and correct things ASAP. There were the usual skeptics about the GCSB rational for advising against using Huawei in the 5G roll-out. One of them, a well known rightwing blogger and pollster, used a 2012 junket to Huawei headquarters paid for by the company to proclaim that all the security concerns were a stich up up of an honest company so that Western telecom firms could gain a competitive advantage. There were the usual shouts of racism from the Chinese language media and wanna-be “influencers.” There was even something that looked suspiciously like a planted fake news article in an English language mainland media outlet that was extensively and uncritically quoted in the Herald that said that Chinese tourists in Aoetaroa complained about being “stabbed in the back” by the Kiwis. I shall leave aside the curious fact that the article only appeared in English and used rather odd quotes to describe the reaction of tourists to a minor diplomatic row involving their home and host countries–a row that had zero effect on them.

It was all so sickly obsequious to the Chinese that my initial thought centred on whether most of NZ’s business and political elites (and their lackeys in the media and academia) were so obsessed by self-enrichment, greed and short term opportunism that they completely lost sight of their moral compasses. After all, China is a one-party authoritarian state that uses mass internment camps to control a restive ethno-religious minority, mass surveillance as a form of social control, violates human rights in systematic fashion, transgresses international norms and laws as a matter of course (such as in the island-building projects in the South China Sea) and uses bribery, corruption, fraud and intellectual property theft as an integral part of its business development models. This would seem inimical to the values of the paragons of virtue extolling the “special relationship” between the PRC and NZ but nooooooo. The Chinese are good for the NZ economy and that is all that matters. It would seem that the trade-oriented business elites and their political puppets are China’s Vichy representatives in Aotearoa.

That sent my thoughts in a more academic direction. I recalled that Marx wrote that the combination of private ownership of the means of production and universal suffrage could not hold because if everyone got an equal vote and only a few were property owners (capitalists), then capitalism would be voted out of existence. He was wrong about that due to the reform-mongering function of the capitalist State, but that got me to thinking that he also wrote that capitalists were incapable of being patriots because profits were made globally and hence their interests were not confined to their countries of origin. People may recall that in the Manifesto he wrote “workers of the world unite!” as a response to capitalism as it entered the Gold Age of imperialism, a topic that Lenin subsequently developed a greater length.

It occurred to me that in the arguments about China we see a NZ variant of this. NZ capitalists and their toadies do not give a darn about democratic values, transparency, norms, a rules based order or the security concerns of Western states. They are in it for the buck and if that means kowtowing to a dictatorship then so be it. Given that NZ business and political elites have kowtowed to the likes of the Saudis, this should not be surprising. In their view if there is money to be made then the less impediments to doing so the better.

The smarter types will show the structural impact of Chinese trade with NZ by citing the usual $27 billion in 2018 bilateral trade figure and 8,700 jobs connected to it. But this trade is mostly in milk powder, tourism and English language and tertiary education (as NZ exports) and consumer non-durables (electronics, light machinery and plastics, mostly) as imports, so it is not as if NZ is going to turn into a high tech artificial intelligence and robotic hub thanks to the Chinese. The bottom line, then, is the bottom line: NZ capitalists by and large will cling to the window of opportunity presented by the opening of the Chinese market even if it confirms our trade dependency on primary goods and agro-exports and even if it means sacrificing NZ’s commitment to principle when it comes to exercising an independent foreign policy.

That was going to be the end of my thought process on the matter. I was going to balance the criticism of China by noting that the US and traditional Western partners have less than stellar records in their foreign relations and spy histories and that the US under Trump is an insane clown posse when it comes to international affairs even if the intelligence and security professionals who staff the 5 Eyes network would not be swayed by the craziness swirling around them and would make assessments about security matters on objective grounds. But then I got to thinking about something I read repeatedly on right-wing political sites: values.

One of the major objections to the Chinese and NZ’s relationship with the PRC appears to be the issue of values, or the fact that we do not share values. People point out the long cultural ties that bind NZ to the UK and Anglophone Commonwealth as well as the US. They point to joint sacrifices in war and peace, common sports, notions of good and bad, proper behaviour, etc. These folk do not want these shared values to be usurped and replaced by Asian values, or at least the Confucian-derived cultural mores that contact with China brings to NZ. The list of fears and concerns is long but the bottom line is that many on the conservative side of the political ledger have real fears of the Chinese “other” that go beyond the “Yellow Peril” of the Cold War.

That prompted a turn in my thought. You see, although I have a fairly idealistic streak and understand the utility of constructivism in international relations practice, I am a realist at heart. And realists are not sappy snowflakes looking for a global group grope. Instead, they focus on two things as the currency of international relations and foreign policy: power and interest. As the saying goes, in an anarchic world or Hobessian state of nature where values are not universally shared and norms are contingent on voluntary acceptance by independent State actors as forms of self-imposed restraint, then what matters is the exercise of power in pursuit of national interest.

That leads me to the following pseudo-syllogism:

States have interests, not friends.

Foreign partnerships are based on interest, not friendship.

Trade and security relationships are therefore interest-based.

They may overlap, complement but should never countervail.

A State’s degree of interest in any matter is self-defined.

Values help define but do not determine interest.

Interest may be influenced by values and values may involve shared cultural mores, norms and history that make for notions of “friendship,” but interest is not reducible to them.

Interest prevails over values when interest and values are at odds.

It is the relationship between values and interest that concerns me now. If I accept that values are only part of the definition of interest, then I must accept that shared values do not necessarily place some forms of interest above others. Nor does the absence of shared values do likewise in the negative. And if that is the case, then the matter of trade versus security must be weighed based on the degree of value-free interest in each and the impact each has on the ability of NZ to wield what limited power it has on the global stage.

The issue is problematic because NZ has long claimed to have a “principled” foreign policy that is based on the values of independence, multilateralism, transparency, non-proliferation, human rights adherence and assorted other good things. I do not believe that NZ actually adheres to these when push comes to shove or even as a foreign policy bottom line, but if virtue signaling in international relations is characterised as lauding the role of “principle” in foreign policy, then NZ is the semaphore of that movement.

To be sure, NZ is a trading nation and is committed in principle to it. Securing a favourable balance of trade that helps GDP growth and distribution is a matter of economic security and must be included in any national security estimates, to include threat assessments. There are as a result practical and principled reasons why the issue of assessing relative interest is so important and why it may favour the trade whores.

Put another way, what are the interests at stake in NZ’s security relationships and what is their worth to the national well-being when juxtaposed against the country’s trade relationships (since security and trade have been uncoupled in the NZ foreign policy perspective)? If the benefits of trade are real and immediate while the benefits of security partnership are more ethereal or hypothetical than real (especially given the actual and opportunity costs involved), interest would dictate that trade should be favoured over security. But what if the benefits of security relations are more like those of insurance policies, in which you only fully realise them when you need them? How do you calculate the pluses/minuses of the trade-security dichotomy over the medium to long-term?

I do not have the answer to this. I have written plenty about the NZ-PRC-US strategic triangle and the unfortunate balancing act NZ has to engage in because of the misguided attempt to trade preferentially with China, on the one hand, and seek security guarantees through partnership with the US, on the other. Either could have worked in isolation or when the two great powers were not in competition, as it seemed when the two-track foreign policy approach was developed and refined in the late 1990s and early 2000s. But those days are long gone. There are ascendent and descendent great powers contesting for dominance in the Western Pacific, and we are just another pawn in their increasingly acerbic game.

So the question now is how do we measure “interest” in our trade and security relationships and which, on balance, should we favour given the centrifugal pull of each on our policy-makers? Do we give up our Western-centric security ties to fully embrace a China-led Asian/non-Western foreign policy orientation? Or do we give up the material benefits of our Asian-focused trade, learn to live within our means and reaffirm our security ties to our “traditional” partners? Is there a middle road or happy medium that can be pursued without suffering the consequences of alienating our partners on either side?

That seems to be the preferred option for the moment. But that assumes that NZ has a choice in the matter and that its behaviour will influence the corresponding behaviours of its larger, contending interlocutors because their respective interests are maintained by our dichotomous foreign policy approach. That is a very tenuous assumption to make because it is also quite possible that in the end it will be a larger partner who, exercising its power over us in its own national interest within a strategic context dominated by great power rivalries, that makes the choice for us.

Debunking business “confidence.”

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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.

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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.

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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!

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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).

It’s not a Housing Crisis it’s a Housing Hernia: And both John Key and Andrew Little have one!

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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.

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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?