Category: Economics

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Really too big to fail.

Market responses to the US debt crisis and financial downgrade have been like king tides as of late, and inevitably speculation centers on the possibility of a “double dip” global recession (this speculation is more than rhetorical. Gold and other precious metal prices have spiked overt the last three weeks as investors flee the stock, bond, commodity and currency markets). There is much talk, some fearful and some hopeful, of a global meltdown of epic proportions. The argument goes that downgrading the US credit rating devalues US Treasury bonds and the dollar, which slows US private investment at home and abroad, decreases domestic consumption, increases unemployment and generally prolongs the recession begun in 2008. This ripples negatively across the globe given the interconnectivity of commodity chains and the central role of the US in them. Be it on the Left or the Right, the belief in state bankruptcy is taken as an article of faith.

The reality is different. What is happening is a fiscal crisis of the Western State rooted in a cyclic crisis of capitalism. Arguments about the blown-out US public debt obscure the fact that it is the result of the same conditions that produced the 2008 recession and which are at root the cause of the next one. For the last thirty years the ‘bubble” of private debt was replicated by the US Government, in the last decade under the strain of simultaneously fighting two prolonged low intensity conflicts. In Europe public debt was in part procured in order to compensate for private debt (via the provision of subsidized entitlements). Capital was lent on looser and looser terms as interest payment calculations came to rival returns on productive investment as the dominant macroeconomic logic. The market in financial derivatives boomed, then busted, bringing with it a crisis in small scale property ownership at the same time that major manufacturers were being bailed out by the US government.

There is a difference, however, between the private sector and the State when it comes to fiscal crises. The analogy between States and firms is overdrawn. Firms go bankrupt; States do not. States may default on loans and suffer the indignities of downgrading by financial institutions, but they do not go out of business. The reason is simple. States  with a presence in the global economy may fail but they do not cease to exist.

Modern states are political entities with other measures of power beyond economic resources, are rooted in historical and cultural ties within more or less fixed borders, have distinct political systems and political regimes that govern them, and are therefore sheltered from the hard realities that beset wayward market agents in a globalised system of production, service and exchange. More importantly with regard to the social and political relations of production, the modern nation-state supercedes the market at any specific moment even while being generally subject to its rhythms and dictates. It is, after all, a capitalist type of state that is not reducible to the productive apparatus.

Imagine even if the US defaulted on its current obligations. Its credit rating would fall further in parallel with the value of its currency, but how long will that last? Even if the US fails its financial obligations, it would be the markets that push for a debt restructuring favourable to it.  As the core of the global economy, the US is simply too big to fail because its financial collapse would reverberate widely and deeply through the world. In fact, with the exception of undeveloped failed states and microstates with minimal economic resources to promote, virtually all modern states can survive a fiscal crisis and default.

 Take Argentina, which in 2000 defaulted on its foreign loans, uncoupled its currency from the US dollar and then renegotiated the terms of its obligations. Since most of the outstanding balance was interest rather than principal, foreign creditors were eventually forced to settle on terms favourable to the Argentines (about 60 cents on the dollar lent). The weakened Argentine peso stimulated commodity exports and attracted foreign investment in resources and primary goods. In spite of endemic corruption, political interference and a multitude of market inefficiencies, over the last five years Argentina has averaged growth rates in excess of six percent and attracted the highest levels of foreign investment ever even while maintaining a large public deficit.

 Greece, the poster child of all that is supposedly wrong with governments and societies that do not couple entitlements with production, is another such case. What would happen if Greece defaulted on its recently rescheduled loans? Will it cease to be? what it could do is drop out of the Eurozone, replace the Euro with the much less expensive drachma, and print money to fund its domestic obligations. Somee foreign investors may flee, but local capitalists will continue to engage the domestic market, people will continue to consume, albeit at lower rates with regards to imported goods, tourists will still flock to see the historical sites and visit the islands, and the country will continue to exist. In fact, should it be successful at restructuring its economy on more internally-focused terms out from under the straitjacket of Eurozone obligations (say, by making its tax collection system more rational and efficient), it could serve as a model for the other “PIGS” nations—Portugal, Ireland and Spain—as well as Italy.

It was Northern European, mostly German capital, directly and channeled through the European Central Bank, which sought to recycle in the European periphery the super-profits accrued during the last two decades of derivative market expansion. These are the creditors who took the risk in the PIGS and who now demand debt repayment schedules rooted in austerity measures and privatization programs. They are also the beneficiaries of a strong Euro, unlike the weaker Southern European economies now under siege. Should debtor countries in Europe decide to reconfigure their economies around a devalued national currency a la Argentina, the European Union will be finished as a currency regulator. Here the sub-regional ripple or contagion effect makes each of the PIGS too big to fail, something that is magnified in the case of the US. Loss of credit rating and a high debt to GDP ratio, in others words, does not translate into State bankruptcy.

 The larger point is that states can default but they cannot be bankrupted because they are not solely economic agents but instead sovereign political actors with interests that transcend a financial bottom line. They can be upgraded and downgraded as financial risks, but even if investment falls and inflation rises, they will not disappear. Think of Brazil and Argentina in the late 1980s when inflation ran at over 1000 percent per year. Did they disappear? Did all foreign investment dry up? Did local markets crash?

Truth be told, capitalism, led by finance capital, was on overheated overdrive for the two decades before 2008, only slowing down briefly after events such as 9/11, even when objective conditions advised against the maintenance of the macroeconomic policies private agents used to calculate the speed of their returns. Western States emulated private agent logics, whereas Asian banks and sovereign wealth funds  were less keen to adopt derivatives-led financial approaches backed by increasingly unsecured loans (although some of that did creep into Asian markets as regional economies attracted Western investment).

Here is where global networks come in. Rather than wage war on States with economies in default, other States that are debt free or less indebted work to cover their investments, and those of their private agents, in the debtor States. This means that even if private agents in the debtor States fail as a result of their market excesses or miscalculation, and State treasuries do n not have enough reserves to cover their debts, States remain open for business, perhaps even on more favourable terms depending on the nature of sovereign debt restructuring agreements (public debt for equity swaps are one measure that can improve State efficiencies as a result of restructuring). Inefficient producers are expelled from the market; inefficient States muddle along.

The entire Western capitalist combine was due for a retrenchment given the downward slope it has been on since spending, both public and private, exceeded productive output in material goods and services. So long as money could be made off of lending money and risks were passed on to increasingly lower-level actors, early 21st century capitalism saw States tax and spend without coherent productive purpose (which mirrored the approach of the financial markets). This was a good political calculation but not a sound economic grounding for future productive growth within current capitalist parameters. Thus the turn towards private sector retrenchment in 2008, with public sector retrenchment now following.

We hear about the demise of various States because they can no longer afford to repay what they have borrowed in order to maintain whatever it is that is considered precious to national identity and political stability–public goods and entitlements in Europe, a war machine in the US. Retrenching Western States may not be able to provide these services in the measure they used to, but thy remain (however diminished) as linchpins of an international system that has its origins in the Treaty of Westphalia rather than Bretton Woods or the Washington Consensus. States are the ties that bind that global system of exchange, and Western States continue to have a central role in it even as the system moves towards increased multipolarity.

Markets and politicians alike need to be cognizant of this fact, because as Keynes pointed out, it is political conditions, not economic conditions, that are the best guarantors of long-term investment. Rather than the economic particularities of a given investment climate at a specific moment in time, political stability offers better conditions for secure future private return. A stable national polity is the best guarantee of profit even if the public books are not balanced. That is the political cost for the social peace that is the basis for economic stability.

Ironically, it was the short-term focus of the macroeconomic logics that propelled the “bubble” that led first to the financial crisis of 2008 and now to the current conditions of political impasse and social instability in many liberal democracies. That is where the convergence of the fiscal crisis of the Western State and the cyclic crisis of capitalism can lead to liberal democratic State failure: when it produces a crisis of legitimacy of the political elite, often confused with regime crisis, that once rooted in and superimposed on the economic downturn and social unrest constitutes an organic crisis of the State. The UK evidences these type of pre-conditions.

Rather than demand zero-sum tax cuts and a diminished State role in guaranteeing the social relations of production,  the priority of the market during a State fiscal crisis should be to to express confidence in the State because delegitimisation of the latter is an absolute guarantee of disasterous market consequences for the private actors involved with them in the event that they are overthrown or fragment. That is where market ideologues have failed in their basic obligation: to help foster the political and socio-economic conditions in which stable rates of private return are generated. Instead, they are exacerbating the crisis with their jitters, demands and panic trading. This will not lead to an organic crisis in most liberal democratic states (which will muddle along), but it could produce legitimacy crises in newly democratic states or those with significant social cleavages. Even then the prospect of State, as opposed to regime or private sector failure, is unlikely.

All of which is to say that when it comes to the fiscal crises of modern Western States, this too shall pass.

 

 

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Rioting Poms.

A short while ago we were treated to the spectacle of a Royal Westminster wedding, a royal tour of Canada and the US, then another lesser royal wedding. The UK and colonial media went crazy with 24/7 coverage of the fairy tale personae involved, and the image conveyed was of stability and continuity in British foundational politics.  All was well in the Realm.

In the months since the first royal celebration things have grown dimmer. There is the hacking scandal in which politicians and the police appear to be complicit in the illegal tapping of private information by media corporations (primarily but not exclusively Murdoch-owned assets). Added to this sign of elite criminal coziness, now there is a police shooting followed by wildcat riots that represent criminal opportunism rather than outrage about the death itself. The UK media are swamped with reporters, police spokespersons and politicians all chanting in unison about the “mindless thuggery” and criminality of the youth who are widening the scope of violence beyond Tottenham and London itself.

The official emphasis on criminality cannot hide a number of things that depict a reality that s a far cry from royal bliss. The youth involved, while criminally opportunistic in their looting and vandalism, are a mix of ethnicities, but all seeming of working class or unemployed status (On TV I actually saw some young Hassidic Jews amongst the rioters in Tottenham). Some may have participated in earlier demonstrations and rioting about restrictions on access to higher education and the cost of basic services. They appear to be coordinated–in yet another tweeter and smart phone fashion–enough to stay a step ahead of the thinly stretched British Police. The fire service is not attending to full alarm fires because of fears for their security and the Police cannot predict when the next smash, burn and grab will happen. The mob is ahead of the Man, and the mob is angry.

So far the British government has declined to send in the army even though suggestions have been made that they have very robust anti-riot capabilities in Northern Ireland. The language used to justify that non-action is precious: the government states that it does not deploy such hard assets on British soil. So the riot police in London chase rioters using shields, helmets, horses and batons while the British Army uses armoured personnel carriers, water cannon trucks and live ammunition to keep the peace in Belfast and beyond. Some Imperial habits are hard to break, even though the Empire is long gone and its post-colonial consequences have come home to roost in the capital itself.

The hard fact is that the criminality of the rioters is a political act whether or not those involved or the government and corporate media would like to admit it. At a time when the PM, Police Commissioner, Mayor of London, and assorted other leading officials were on vacation in places like Ibiza, Tuscany and Milos, the youth now on riotous display swelter in the housing estates where unemployment, racial separatism, ethnic conflict and everyday economic insecurity are rife. Like their counterparts in any number of less developed countries, they can see up close the material lifestyles and commodity consumption of the royals, celebrities, sportsmen and corporate elites, but do not have (and likely will never have) the means of access to them. Worse yet, they live in a world where the institutional framework is stacked against them, leading to the violent turn inwards when the opportunity presents itself. The Police response is to ask parents to lock up their children.

Be it Marx, Luxemburg, Lenin, Guevara, Marighella, Ayman al-Zawahari, or Muqtada al-Sadr, revolutionaries understand the potential of the criminal mass engaged in collective violence. Lumpenproletarians are the street vanguard who, however unconsciously, help to bring social contradictions to a head and expose the weakness of the elite response and the inherent fragility (sclerosis?) of the status quo as a whole. Where instigated or abetted by politically conscious cadres (and there is some evidence of this at play here), their actions are designed to accelerate the organic crisis of the State, in which economic, social and political cleavages overlap and congeal into compound fractures not resolvable by force, reform-mongering or after-the-fact piecemeal pacification. Given the ongoing repercussions of the 2008 recession and the increasingly global debt crisis, and no matter how they are disguised by ethnic and religious division, the structural foundations for a larger class war in the UK may be fixing in place.

This does not mean that the British government will not be able to quell the disturbances this time around. But what these riots may be is a dress rehearsal for more to come, perhaps in conjunction with the Olympics next year, where militant planners accelerate the pace, focus and intensity of mass collective violence at a time when the British elite are exposed to global scrutiny and their security resources are already working at full capacity. That raises the issue of whether the official approach to rioters will shift to the more lethal Northern Irish “solution” set, and whether those charged with adopting a more lethal approach will have the ideological conviction to respond in such a way to the actions of fellow citizens rather than foreigners (I note that it will be possible for the official narrative  to scapegoat “outsiders” drawn from minority ethnic communities that hold non-Western beliefs, but even that may fail to overcome foot soldier or beat police reluctance to turn their weapons on their own).

In any event, we should see the riots for what they really are: an expression of mass subordinate discontent and disaffection, the product of profound alienation, expressed through collective criminal violence operating in seemingly opportunistic and decentralised fashion in the face of official incompetence or lack of will. That, by most reasoning, is a good sign of a pre-revolutionary situation, one that has the potential to become more of an existential threat to the status quo should tactical guidance and coherent ideological justification be given to it. After all, if what we are experiencing is a crisis of capitalism in the liberal democratic world, then it was only a matter of time before superstructural conditions and precipitating events would combine into a violent rejection of the system as given in countries in which the societal contradictions were most apparent. Be it in Greece, in France, in Spain or now in the UK, should these contradictions continue to fester and combine, it will not be Tea Party-type clones that will lead the insurrectionary charge, nor will they be as polite.

 

PS: Before Red Dave and other ideologically militant readers opine that I am belatedly joining their ranks, let me state that I do not see this as the beginning of a global revolution or necessarily of one in the UK. It is a pre-revolutionary moment, which means that the UK government still has the ability to engage in divide-and-conquer, selective application of force and reform-mongering tactics (along the lines I mentioned with regard to the Arab uprisings in an earlier  post dedicated to them). There is a fair bit of ground to cover before the Arab Spring gives way to a Red European summer.

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Capital punishment

Do yourselves a favour and listen to this morning’s debate between Chris Trotter and Deborah Coddington on Morning Report. This is (or ought to be) the agenda for this year’s election, and this is (or ought to be) how the national debate runs.

The leak of Labour’s purported capital gains tax (by former One News deputy political editor Fran Mold, now Labour press secretary, to her former colleague Guyon Espiner) is undoubtedly Labour’s play of the year to date. It takes an issue of great public interest and thrusts it into the national debate at a time when the electorate is preoccupied with less directly political considerations. As Maxwell McCombs famously said, what the voters think isn’t as relevant as what they think about, and this is a great example of taking the initiative and giving the electorate something to think about.

But not just the electorate. Everyone is thinking about this, because it is — finally — a genuine flagship policy from Labour. John Key’s comments on the topic take up two-thirds of the Vernon Small’s Stuff article yesterday. The property investment lobby are predictably livid about it. David Farrar has come out swinging, despite having been cautiously supportive of considering a CGT earlier in the term. Deborah Coddington, in the linked discussion above, saw fit to analogise CGT to child prostitution laws. Seriously.

The announcement has riled ’em, and it’s not even official yet. They’re scaremongering furiously, and if Labour have an ounce of sense the pitch of the official policy announcement (tomorrow next Thursday) will be to allay the worst of these fears. It should be framed as “redirecting investment to more productive sectors in theeconomy” and “paying our fair share”, with Phil Goff and Labour MPs (many of whom own investment properties) laying down a challenge to others: “we’re prepared to suffer a bit for the good of the rest of the country: are you?”

And then there’s the class-consciousness, demographic wedge, which Chris Trotter got pitch-perfect: property speculators are “landlords”, and the object isn’t to win back disgruntled National voters, but to engage the 20%+ of the electorate who didn’t vote last time because they felt none of the parties spoke for them, and the thousands of people who were too young to cast a vote in 2008 and are now even further from the possibility of home ownership because even the worst recession in half a century has failed to bring sanity to real estate markets.

This is positive-sum, strategically sound and tactically smart politics. Now what remains to be seen is whether Labour can win the battle of ideas over it.

L

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Enough rope

On Mike Hosking’s Newstalk ZB show this morning, a discussion of the gender pay gap and Catherine Delahunty’s bill on the topic — and an object lesson in not believing your own hype:

Alasdair Thompson [Employers & Manufacturers’ Association CEO]: “Let me get down to tin tacks here. It is unfortunate, if you like, that men and women are different –“
Helen Kelly [Council of Trade Unions President]: [incredulous laughter]
AT: “– they are. The fact is, women have babies, they take time out of their careers to have babies. Women have — look, I don’t like saying this, this is how contentious this is, but here’s a fact of life. If you really want to keep some statistics, look at who takes the most sick leave. Why do they take the most sick leave? Women do in general. Why? Because, ah, you know, once a month they have sick problems. Not all women, but some do. They have children that they have to take time off to go home and take leave of. Therefore their productivity — not their fault, it’s … it may be because they haven’t got it sorted out with their partners, where the partners take more responsibility for what happens outside work. There are all of these issues, and none of this is covered in these statistics that this bill wants to sort out. Now, I’m sorry, I don’t like saying these things because it sounds like I’m sexist, but it’s a fact of life.”
HK: “Sure does, Alasdair, I’m glad you said them, it’s fantastic. I let you go on that one.”

(Audio)

Helen Kelly played Alasdair Thompson like a harp here. For a start, his argument is bogus — as Kelly says, the figures don’t back it up in the general case, and where they do back it up there’s a host of confounding variables. (For just one of many possible objections, since women already earn less than men for the same work, there’s an advantage at the margin where they retain the primary childcare responsibility, all else being equal. On the basis of this Thompson says they should be further penalised.)

But quite apart from the standard of the argument, Thompson ended up defending the indefensible in indefensible terms. It’s one thing to defend the indefensible in terms that seem reasonable, quite another to do so in terms that are repugnant. Rather than arguing the difference of interpretation and retaining the dignity of a Captain of Industry, a benevolent leader of men (and women) who cares about their wellbeing, he slipped into the worst sort of boss-man-splaining. This might work just fine in boardrooms where the interests of those present are aligned, but it’s not much good in the public sphere. He clearly realised this, but only once he had committed to it: his delivery was garbled and disjointed, clearly ad-hoc, and so heavily caveated that it’s hard to take any of it seriously.

But that’s what we must do. This guy is an experienced representative of New Zealand’s employers, speaking in his official capacity on a topic for which he had (or ought to have) prepared, in a mainstream media outlet. We are entitled to take him at his word, and we should thank him for telling us what he really thinks. And we should thank Helen Kelly for giving him such a plum opportunity to do so.

Update: Not one to do things by halves, Thompson has doubled — or, tripled down, with a press release arguing that women are paid less because they’re just not worth as much, and statements to the Herald blaming “socialists”, “Labour” and “unions” and claiming 90% support for his position. That number has now mysteriously vanished from the Herald’s story, and comments by readers of the National Business Review — Thompson’s natural constituency — are running 80-20 against him at the time of writing this update.

You could say he’s quadrupled down, even, since he’s now taken to twitter, responding to criticism and barbed quips with cut & pasted lines from his press release. A more epic fail is hard to envisage.

L

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Recuerdos de la Muerte (Memories of Death).

Today (March 24) is the 35th anniversary of the coup that ushered in the “dirty war” in Argentina that cost 30,000+ lives, more than 10,000 “desparecidos”  (“disappeared,” or those who were last seen in custody but whose bodies have never been discovered), with tens of thousands tortured and exiled. Never has the dark side of the Argentine psyche been on worse display than during the so-called “Proceso de Reorganisacion Nacional” (“Process of National Reorganisation”), and hopefully the bitter lessons learned will prevent a repetition of that wretched episode in Argentine history. The hard truth is that although the September 11, 1973 golpe that ousted Salvador Allende in Chile is more well-known (as was the dictator Pinochet), and the Argentine coup followed others in Uruguay (1973), Bolivia (1974), Peru (1968), Brazil (1964) and several previous ones in Argentina itself (1962, 1966, with an internal military coup in 1970), the dictatorship installed in 1976 was the most sadistic, murderous and cruel of them all. In its brutality and efficiency it was the exemplar of South American authoritarianism.

For people like me–raised in Argentina and directly exposed to the dictatorships of the 1960s and 1970s–the horrors of those days do not go away easily. For a generation of Argentines, to say nothing of their counterparts in Chile and elsewhere such as in Central America, the traumas of those years will linger forever, and it is only now, with the birth of a generation completely unaffected by the dictaduras, that the process of psychological healing can begin in earnest. While people who came of age in the 1960s and 1970s continue living, it will be impossible to erase from the collective memory the pervasive climate of fear that characterised life during those times.

The immediate result of the climate of fear was known as “atomizing infantilisation:” the body politic is forcibly stripped of its horizontal solidarity networks by the imposition of state terror, which paralyses resistance and reduces the individual social subject to the level of a child’s nightmare. Just as children fear the monsters under their beds and are powerless to stop their depredations, so too a society subjected to a systematic campaign of state terror is reduced to a sense of utter helplessness and vulnerability. After all, in the case of the dictatorships, the monsters were real and death or torture could occur at any time, for seemingly any reason. Terror appeared arbitrary but was in fact systematic, with the objective being to break the will of anyone who might oppose the dictatorial project.

The result was a condition of survivalist alienation: people just tried to go about their personal business, retreat into their immediate private lives and avoid trouble by relinquishing public commitments. The Argentines had a phrase for this: “de la casa al trabajo y del trabajo a la casa:” From the house to work and from work to home. Under such conditions there is no collective social subject. There is just submission.

It was under these conditions that the beginnings of the neoliberal macroeconomic experiments began in the Southern Cone. It was not just a matter of outlawing unions and political parties. It was about “cleaning the slate” of all those who could thwart the laboratory experiment that was the imposition of monetarist policies in South America. It was about using the climate of fear to reforge collective identities  so that the working classes would never challenge the primacy of capital again. It was about elites taking advantage of the window of opportunity provided by dictatorship to restructure the economy in a more favourable image, setting in place structural changes that would fundamentally alter class relations and the relationship of the state and society to capital in a way that the latter would always have the dominant say in social life. It was about, in the language of the time, “forcibly extirpating without anesthesia the malignancies of communism, atheism, feminism and homosexuality from the body politic” (the phrase is attributed to Argentine General Benjamin Menendez, who was one of the dictatorship’s most bloodthirsty leaders). In sum, the project was about using systematic application of state terror to sow the seeds of fear, alienation and despair in which market-driven projects could be imposed. Above that, the use of state terror was focused on social cleansing–in Chile it was about eliminating class challenges to capatilist rule. In Argentina it was about preserving an elite way of life. In either case, the dictators stopped at nothing to make their point.

These are the projects from which Roger Douglas, Richard Prebble, Ruth Richardson, John Key and the Business Roundtable take inspiration. These are the models upon which the NZ economic reforms are based. And if we think of the way in which NZ macroeconomic reform and other aspects of social policy have been “reformed,” we can see that the authoritarian example has been emulated in more than the economic realm. In other words, the NZ market “model” is a softer version of the Southern Cone dictatorial projects, absent the repression but with the same thrust.

We should also remember the climate of fear when we observe the Middle East. Populations that have been victimised, brutalised and traumatised by long-standing dictatorships are unlikely to have forgiveness and conciliation on their minds as the dictators begin to tremble. But the dictators and their allies know this, which stiffens their resolve to not suffer the retributions that they richly deserve. That does not easily make for a democratic “spring.”

All of which is to say, when it comes to contemplating the virtues of dictatorial regimes because they provide economic models or security partnerships, the answer in the first instance should be the rallying cry of the heroic Mothers of the Plaza de Mayo: “Nunca Mas!!”

NB: The title of this post comes from Argentine author Miguel Bonasso, who wrote a book by that name.

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Political rights and economic rights.

Recent discussions have reminded me of the relationship between economic and political rights, and the varying interpretations of it. For orthodox Marxists economic rights supersede political rights for two reasons: 1) without an equitable material distribution of resources political rights mean nothing; and 2) with an equitable material distribution of resources there is no need for political rights.  In this view “politics” is either a status quo instrument of domination that conforms the masses to the requirements of production in a system dominated by private interests, or is a means of revolutionary challenge to that status quo. In neither case is it an end of itself. Subsequent Leninist, Stalinist and Maoist interpretations all concur with this view.

Socialists see economic rights as taking precedence over but not superseding political rights. Here the view is that economic rights are more important than political rights but the latter are needed to ensure the just distribution of material resources in a society. Even if imposed by dictatorial fiat, the maintenance of economic rights requires popular participation in the decision-making process surrounding the collective allocation of resources. That is a matter of political rights.

Social democrats see political rights preceeding economic rights. Here the priority is on gaining political rights first in order to subsequently secure economic rights to the material benefits of production. Since they see political rights as a universal good, they recognise the rights of non-socialists in the political arena, which means operating from a position of structurally-conditioned disadvantage within capitalist societies. The emphasis thus shifts from control of production to redistrubution of surpluses (via taxation and state involvement in the social relations of production, mostly).

The Right has its own interpretations of the relationship. Libertarians place the emphasis on political rights (e.g. the right to do as they please so long as it harms no other) and, in the most extreme version, do not believe in economic “rights.”  Beyond that, the Right gets a bit fuzzy. Some free-marketeers assume the precedence of economic rights over political rights, so long as the rights conferred are market-driven in  nature (i.e., the “right” to make a buck without government interference). Other conservatives see political rights trumping economic rights (e.g. “no taxation without representation” or the right to mandate morality on a collective scale). The Right notion of economic rights differs from the Left notion, as it is not about material redistribution but about unfettered access to and freedom within an economic system controlled by private interests. Likewise, the Right view of political rights is more about freedom of choice and expression rather than about vehicles of collective redress and representation.

Showing my colours, I subscribe to the view that political rights are required for economic rights to obtain. The formation of unions, the extension of suffrage, the recognition of indigenous claims, the redress of past injustices, the acceptance of  universal “human” rights and the very ability to speak truth to power and challenge the status quo or elements of it all hinge on the prior granting of legal authority, or at least recognition, to do so. That is a political act, and legal recognition is the certification of political rights. That makes the move to secure political rights the precondition for the eventual recognition of other rights, to include those of an economic nature.

This is the hidden factor in transitions from authoritarian rule. The transition is most fundamentally marked by the extension of political rights to previously excluded groups, who in turn use the opportunity to agitate for previously unobtainable economic rights. The more the extension of political rights is achieved by force and economic rights redefined as a result, the more revolutionary the character of the regime change. The more negotiated the extension of political and economic rights, the more reformist the change will be.

This is just a broad sketch and not meant to be a definitive pronouncement. Readers are welcome to add their own intepretations as they see fit (within the bounds of civility, of course).

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Underclass Redux


Campbell Live tonight returned to McGehan Close (see the report, by Tony Field, here). This street in Mt Albert — on the boundary of Helen Clark’s and Phil Goff’s electorates — was visited by then-opposition leader John Key before Waitangi weekend 2007 for a particularly cynical stunt. This was Key’s first big symbolic play as leader of the opposition, and it was a hum-dinger. He had already singled out the residents of this street in that year’s State of the Nation address at a whitebread rugby club in faraway Christchurch, branding them archetypal members of the New Zealand ‘underclass’, and the visit saw him glad-handing and patronising a bunch of poor brown people who’d already been used as shot in the National party propaganda cannons.

The purpose of the speech, and visit, was to install one of the core planks of the National party narrative about the Clark government — that it was at best unconcerned with the plight of said underclass; and at worst, actively cultivated such a demographic, which would be permanently dependent on Labour’s welfare policies and would therefore be a permanent source of electoral support for the Labour party. (So the ‘bribing the bludgers to breed’ theme goes, rarely uttered by anyone with authority in public but a commonplace among the usual proxies; check almost any General Debate thread on Kiwiblog from around that time for instance.) This is absurd in more ways than it’s feasible to explain here, so I won’t bother. Let’s just leave it at ‘the underclass doesn’t really vote’.

Nevertheless, the visit was a roaring success. Key, bearing smiles and gifts and wearing a tiki t-shirt, charmed the residents of McGehan Close and evidently persuaded them both of his party’s goodwill toward them and of its social and economic plan to lift them from their grim circumstances. The event culminated in Key taking 12 year-old Aroha to the Waitangi Day celebrations — a move full of potent symbolism, even if it was seen to be somewhat exploitative. Drawn out over a full week of coverage (at the time a rare commodity for Key, who had replaced Don Brash as leader just before the Christmas break) this was a highly successful stunt and should have been an early warning of Key’s great talent for making cheesy set-piece events ‘work’ and feel human. The sentiment he evoked in the people of McGehan Close was certainly real.

It’s just a pity the ‘ambitious’, ‘aspirational’ policy programme Key promised them wasn’t.

Joan Nathan, Aroha’s mother, remains on the DPB (having been let go from her hastily-arranged job working for National MP Jackie Blue) and struggles more than ever to cope, now with a sixth child. Aroha, now 16, is living in the care of Child, Youth and Family, which Joan says is the best thing for her, since she is unable to provide a decent life for her daughter. Nathan and others, although they believed in and voted for Key, are now disenchanted and universally express the sentiment that the government’s policies favour the rich, not the poor, and that they haven’t been helped one iota by the change of government; in fact, things have gotten worse. Not much of this is different than it was this time last year, when the Sunday Star Times visited the Close.

So far, so obvious, you might say — and it is; indeed this sort of outcome was very widely predicted at the time. But this is important because it is as strong a counter-narrative as exists for the opposition in this election year. It reframes Key as a faker, a charlatan, an opportunist who’ll exploit whatever circumstances will advantage him, without loyalty or the willingness or ability to follow through on his word; as someone whose focus is on boardroom issues rather than on peoples’ wellbeing. Discussing and reading around the topic on twitter this evening I’ve seen considerable criticism of this Campbell Live story as a cheap human-interest stunt, as opportunistic and exploitative (or moreso) than the original event. I couldn’t agree less. It is a clear, unambiguous example of an investigative journalist simply revisiting a story where much was promised, and measuring it against what has actually happened. This is crucial to its narrative value: these events reframe Key by measuring his own defining stunt — his signature trick — against the objective reality of lived experience. Theory and rhetoric versus real people, living in the real world governed by the policy built from that theory and rhetoric. It is a reality check in its purest form.

There are disadvantages to this narrative line, also, and the virulent responses to the Campbell Live report this evening — I believe I saw presenter Rachel Smalley shudder a little whilst reading some of them out — hint at them. One is the obvious suggestion that Joan Nathan and the other residents of McGehan Close could have done better for themselves, but have chosen not to; the victim-blaming routinely visited upon the poor by the less-poor. A more serious and related line of critique is that there’s a recession on, and everyone’s hurting. Or that it’s only been three years, and change takes time.

But hang on a minute — wasn’t the point of the whole point of electing a Key-led National government to take advantage of the resulting step-change which would boost economic growth, job growth, provide better opportunities, an end to welfare dependency, safer communities and a general increase in general socio-economic mobility and wellbeing? Key made all these promises quite explicitly, not just in person to the residents of McGehan Close, but to the whole nation throughout the campaign and at almost every opportunity since. There are no jobs. There are no higher wages, and without these things you can’t exactly buy shares in SOEs. There is no greater social mobility. The ‘underclass’, as exploitatively defined by Key, still exists.

Having failed McGehan Close, John Key has failed all of us. Quite apart from the fact that we were all promised these things, or things like them, and by and large have yet to receive them, a central theme of the ‘underclass’ policy argument was that by lifting people out of poverty and bringing then into the ‘overclass’ (? — this shows just how meaningless ‘underclass’ is except as a propaganda term), the government would make society better for everyone. This is a noble goal, and one I agree with in its idealistic entirety. I think you would go a long way to find someone in a position of any political credibility who’d publicly disagree with it. The first order of business for any opposition should be to hold John Key to those promises, and demand of Key the wealthier, more mobile, and socially healthier society we were promised.

But the most vicious response will be the one which the initial stunt in 2007 was meant to evoke — the notion that the ‘underclass’ are breeding in order to get more welfare from the Labour party. The core of this line of reasoning, if I may call it that, will be attacks on Nathan herself as a mother, having had a sixth baby and having had Aroha, the subject of the initial stunt, removed from her care. The attacks will be highly personalised, racist and gendered, and they will be lashed closely to Labour party policy and doctrine. But, assuming a competent and spirited opposition, that’s ok — the National party aren’t in opposition, 18 months out from an election; they’re in government in election year. Having been elected on a moderate, sympathetic platform with strong support from women and Māori, and looking to consolidate that platform into a strong and honestly-won mandate means that the government no longer has such freedom to dog-whistle. Particularly given that an opposition counter-narrative would cast doubt on all those sympathetic characteristics, the resort to the divisive tactics of 2008, such as trying to wedge ‘hard-working kiwis’ against the ‘underclass’, and so on, would be extremely risky for the government.

In light of my last post, perhaps it is a little glib to assume a competent and spirited opposition, and in perfect truth I don’t really think Labour has this fight in them (although Grant Robertson saw the Campbell Live piece and seems to have had a similar response to mine, which is heartening). But it is an argument waiting to be had, and one which must be had sooner or later. The boundaries are drawn up; media interest is already piqued, and this is a bread-and-butter social and economic justice issue for Labour. There’s a wealth of symbolic material and slogans to employ — ‘reality check’ and ‘by failing McGehan Close Key has failed us all’ are two they can have for free, and if a Labour party can’t base a campaign around ‘underclass‘ then they’re not worthy of the name.

Time to engage.

L

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‘Efficient’ pricing and social cohesion in disaster recovery

In my view, one of the more shameful episodes in the Canterbury earthquake was the call by some for retailers to implement so-called ‘efficient’ pricing of crucial goods such as water. Among these was University of Canterbury economist Eric Crampton, whose article on the topic was even printed in the papers. Read his blog post In defense of price gouging. I often agree with Eric, but on this topic I just don’t.

I’m no big-city economist, and I seem to have misplaced the argument I wrote on the topic at the time, but essentially the problem is: if nothing is done, the resource just runs out and people who need it can’t get it. Absent some mechanism (rationing, gouging, &c) the criterion for access to the resource is speed and/or ruthlessness — the person who goes down to the supermarket & fills their ute with bottled water wins; everyone else has to rely on other means, such as asking their neighbours or others for help. I see efficient pricing as simply a means to shift the the criterion for access from ‘speed+ruthlessness’ to ‘accessible wealth+ruthlessness’. Those neither speedy nor wealthy (that is, almost everyone) will have to fall back on those same social structures of cooperation and goodwill to get their water in either case, and I don’t accept that privileging those with cash on hand is much of an improvement over privileging those who can get through the gate quickest.

However there is a non-economic factor to consider: in times of disaster, social cohesion is crucial. To large extent it operates on the notion that both the mighty and the humble are brought low; that we’re all in this together, and when the chips are down, Jack’s as good as his master. A resource allocation mechanism which punctures these illusions so as to damage social cohesion, such as by turning the poor against the rich, must deliver an enormous efficiency benefit in order to offset the harm it causes by sapping the goodwill upon which disaster recovery thrives. At a time when the foremost objective should be to promote social cohesion, ‘efficient’ pricing is an ugly imposition of individualism on the collective spirit.

Anyway, the point of this post wasn’t to relitigate that, or to criticise Eric, so much as to say that — by contrast — reports of price-gouging in post-flood Queensland have drawn a firm response from officials. Fair Trading Minister Peter Lawlor warned retailers of the possible strategic consequences of gouging:

“I think traders who attempt to profit from the misery of others during the floods should keep in mind that people have long memories. Even if there’s no official complaint, any quick returns they seek to make will be of little value to the business in the longer term.” [he said]. Mr Lawlor says if there is evidence they are breaking the law, they will be prosecuted.

More robust still was the statement from Ipswich Mayor Paul Pisasale, the same who warned looters that they would be used as flood markers if caught:

Ipswich Mayor Paul Pisasale says the city will remember businesses that try to take advantage of the disaster. “I know I’m not supposed to say [this] – but the health inspectors are on their way and the building inspectors are on their way after we finish this to see if we can help those businesses – [but] like hell,” he said.

This suggests a vigilante streak and willingness to bring the coercive force of the state to bear for social, rather than strictly regulatory reasons, and this is not usually a beneficial trait in a civic leader. However I think in cases like this there is some justification for such a stance. Pisasale’s position is a manifestation of the ‘Queensland culture’ called upon by Premier Anna Bligh in her speeches, and which may now be her political legacy. If it all came to pass, perhaps a disgruntled gouger might take legal action against Pisasale or his agencies for harrassment; but this would be an uphill battle, because Pisasale enjoys the protection of being right in the eyes of his society. After all; the only thing most Aussie battlers hate more than a government bureaucrat is a disaster profiteer. He is on firm ground as a representative of his people, because his representation rings true. His commitment is to the cohesion of his society. He is doing what crisis leaders do; efficiency be damned.

L

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The Blues go Black.

The announcement that National will undertake labour legislation reform has revealed the dark side beneath its happy face veneer. Riding high in the polls and 14 months before having to call an election, the Key-led government has dropped its populist pretense and unveiled its anti-worker credentials with the thrust of its proposed reforms. It also violates a 2008 campaign promise not to substantially revise the Employment Relations Act (ERA). In fact, the reforms are a return to the old Employment Contracts Act (ECA), one of the most draconian, overtly authoritarian pieces of labour legislation seen in the modern liberal democratic world. Rather than address all of the proposals, to include making dismissals easier, narrowing the scope of personal grievance claims and extending the 90 day probationary period to all industries, I would like to focus here on just one: the proposal that unions must secure the permission of an employer before accessing a work site. 

Due to the asymmetric power relationship between employers and workers, collective action is the best way for the latter to secure rights and protections within the productive process. Collective action requires organisation, and the ability to organise is contingent on the ability of prospective agents to access workers in an effort to persuade them to act collectively in defense of their common interests. Access does not mean compulsory membership or even recruitment success. It just means that prospective collective agents have the ability  to approach workers at their work places in an effort to organise them collectively.

Under International Labour Organisation Convention 87 on freedoms of association, such access is defined as an absolute democratic right for both workers and agents. In fact, it is a cornerstone of most democratic labour legislation that employers not have the right to interfere with the right of workers to organise, including organisation efforts by collective agents such as unions. Thus National’s proposal that unions must secure employer consent before approaching employees on a work site, and that such consent must not be withheld “unreasonably” (with the definition of reasonable left purposefully vague), is a direct violation of one of the most cherished international labour standards.

There is a historical precedent for this move, and that is where National’s real darkness shows. The 1991 ECA entered into law by the Bolger government had exactly such provisions. In 1993 the ILO upheld a complaint that the ECA violated convention 87 on rights of association as well as convention 98 on freedom to bargain collectively. The Bolger government ignored it and it was not until 1999, after the 5th Labour government came into office, that the more egregious anti-worker sections of the ECA were eliminated in the revamped ERA.

National’s black side runs even deeper. The ECA explicitly borrowed many of its provisions directly from the 1979 Chilean Plan Laboral. The Plan Laboral was the Pinochet dictatorship’s labour code, and was championed by its then Labour Minister Jose “Pepe” Pinera, the father of the current Chilean president. Under the pretense of promoting “labour market flexibilisation,” the Plan Laboral was an outright assault on the Chilean union movement, using both structural as well as politically-focused clauses to atomise the Chilean working class and forever break union influence on economic decision-making. To a large extent, and even with subsequent reforms by successive post-Pinochet democratic governments, it largely succeeded in doing so.

Pepe Pinera, somewhat unsurprisingly, was a friend of Roger Douglas and made regular Business Round Table visits to NZ in the 1980s and 1990s before his death. Ruth Richardson, the main instigator behind the ECA, was also an admirer of Pinera. These two individuals, with their direct and immediate past dictatorial connections and coalition relationship with National, are believed to be the prime movers behind this attempt to return to the ECA as the framework in which the social relations of production are determined. In other words, National is proposing changes to the labour relations system that have their origins in the Pinochet dictatorship, and which were suggested by people with direct links to that dictatorship. Beyond the violations of ILO convention 87, that alone should give reason for concern.

Hence, while some of the other proposed reforms can be the topic of honest debate keeping in mind where the balance between efficiency and fairness in production should be located, the attempt to curtail union access to workplaces is an overt assault on working class collective rights. This proposed clause is not about getting unions to ring employers up in order to make an appointment to see employees. This is about shutting them out.

It remains to be seen if this time around the CTU and other mainstream unions will offer more than token resistance to these proposals (as was the case when the 90 day probation period was introduced). It also remains to be seen if the NZ working classes will do anything other than bow meekly to the powers that be. But if ever there was a moment to rise up against the resurgent union-busting, anti-worker tide, that time has come. Remember: the reforms embodied in the ERA where at best minor adjustments meant to “humanise” the ECA. But the thrust of NZ labour law under the ERA was by no means a bold step towards worker’s control of production, and in fact retained much of the pro-business biases of its predecessor. Thus the current labour reform proposals are very much about putting the boot into the working class, and the union movement in particular.

It may take defection from mainstream, Labour-affiliated union ranks to more independent and militant unions for any effective resistance to happen, but whatever the case, if the worker’s movement stands silent on this one, then further rollbacks of worker’s rights can be expected the longer National is in power. For workers, those will be dark days indeed.