Category Archives: Economy

Greatest good versus least harm, and the money proxy

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It seems to me that the main difference in principle between Labour and National-based governments in NZ is an old question of utilitarianism – whether one should work toward achieving the greatest good or toward ensuring the least harm. The two philosophical positions are sketched out reasonably well in the wikipedia article on utilitarianism.

In principle, the difference boils down to a strategy of positive ambition versus negative mitigation. The former sees achievement as the highest goal, and failure as a necessary collateral effect of attempted achievement. They grade a society by its upper bound, by how much success its leading members achieve. In this regard, the ideology emphasises ambition, celebrating that qualities as the most beneficial to society while disregarding the worst consequences of its failure – destitution, disease, starvation, etc. The caricature of an ambitionist, if I may coin the term, sees the world as humanity’s oyster, and humanity in positive terms – as potentially successful and satisfied and healthy and secure, and considers that anyone who does not achieve these things has simply not tried hard enough, or for long enough, or lacks the innate characteristics needed to achieve those things and is therefore not entitled to them. Entitlement accrues to a person on the grounds of their success. In symbolic terms, the way to appeal to these people is in terms of opportunity, advantage, individuality, and the idea of just desserts for effort rendered.

On the other hand, the caricatured mitigationist (to coin the opposite term) grades society on its lower bound, by the extent to which the least successful members of the society are allowed to suffer by the more successful. They see the world as a dangerous, inhospitable place in which the default state is abject meanness, and humanity in negative terms of limiting those inhospitable forces, keeping out the cold and the hunger and the disease, while anything else is a bonus. Entitlement accrues to a person on the grounds of their humanity alone. The way to appeal to these people symbolically is in terms of compassion, brotherhood, sacrifice, cooperative achievement and that principle that none should suffer needlessly.

Although it may sometimes seem so, the world is not made up of caricatures, and this is my round of defence against complaints of false dichotomy. Both of these two broad positions hold some resonance for each of us, and it seems plausible that the balance of that resonance has a strong determinant effect on our political preferences. The problem, as always, comes with implementation, and the primary problem of implementation in the society we have is that money is used as the main measure of success and therefore as a proxy for a person’s innate value. This is perfectly acceptable to the ambitionists, whose ideological basis enables them to embrace money just as easily as they might embrace any other measure of human importance, but it’s not so attractive to mitigationists, who argue that entitlements accrue to a person on the grounds of their innate status as human beings and members of society, regardless of their achievements.

Push comes to shove at times like this, when things (in terms of that prevailing measure of success, money) are tight. When many people are deprived them, the human necessities of health, comfort and dignity can more readily be achieved by an idea of the common good than by the burning desire of ambition. However, when things get good again, it’s a terribly hard ideological position to peel back, and inasmuch as the common good can constrain the urgency of effort required for success it can be counter-productive, entrenching mediocrity. Indeed, without the incentive of individual reward for ambition, it could be argued that society would never pull out of any trough. But contrary to what the Randroids say, this isn’t an absolute constraint. In good times it’s easy to emphasise the greater good because a reasonable minimum standard can be expected to exist or be trivially provided for the few who need it. None need suffer except by a relative standard. In hard times, however, when raw success is less achievable, mitigating harm at the temporary expense of ambition becomes more valuable by its easy achievement.

The case in point is the Key government’s recession strategy, which gives a great deal of consideration to maintaining ambition but little to mitigating harm. It’s a tacit acceptance of a certain amount of harm in service of a longer-term good. If not from the policy itself, you can tell this from the terms used to talk about it. That’s a complicated philosophical and utilitarian question for a supposedly non-ideological government to be tackling.

L

Not a very practical cycle way

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The government’s plan to build a cycle way the length of New Zealand encapsulates two key themes of this National administration.

  • It’s for wealthy tourists, not New Zealanders – it won’t get us to work or study, but it’ll allow wealthy western tourists the clean green NZ experience well insulated from the reality of our car dependency.
  • It’ll provide work for the construction industry – mostly men, mostly larger business, returning good profits to wealthy shareholders.

Of the two it’s the first that bothers me most (the second is just business as usual for National), building cycle ways to get people to work or study would make a real difference in our real lives. Whether you’re planning for peak oil, a recession, an ETS or carbon tax, or reducing obesity making it safe for people to cycle commute would have been a huge step forward.

Instead we’re green washing the exhaust fumes to look good to the rest of the world.

Clocks and Clouds

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Juan Linz wrote that political time was like cloud time—it moved at a different pace than chronological time, yet had a discernable rhythm of its own. I would like to reverse the metaphor to note that when it comes to political and economic cycles in liberal democracies, it is political time that is more chronological, whereas economic time is more akin to cloud time.

 Under conditions of liberal democracy, political time is codified, demarcated and predictable. Elections are held at regular intervals, parliaments sit for a given amount of days in a calendar year; government departments issue annual reports and respond to inquiries in prescribed (if not timely) fashion, bills are introduced in specified ways within specific timeframes, etc. Even political debates take on a predictable rhythm, with arguments over finances occurring around the time of government budget announcements (in New Zealand that is usually in May), and partisan and personal attacks occurring during periods of relative policy stability. Come summer, most things political more or less stop for the holidays, then resume in the Fall.

Economic time, however, is another matter. Capitalist economies are obviously cyclical, but the cycles are twofold and not coincident with political time. First, there is the “boom and bust” cycle in which markets expand and contract in pursuit of (re) equilibrated growth. This is the cumulus cloud time of economic cycles. That is, the short cycle dimension of capitalist economics, marked by sudden shifts in direction driven by the warming or cooling of market preferences. In parallel, there is a long cycle in which capitalist economies shift between market-driven or state-managed forms. This is the cirrus cloud dimension of economic time. The sclerosis, stagnation or failure of one economic form, such as the market failures now evident, leads to the shift to the other. Thus, the Great Depression spelled the end of laissez faire market economics and the advent of welfare statism, which after the resolution of World War 2 led to nearly forty years of prosperity in the liberal democratic world. In turn, by the 1980s the era of state-centered economics had come to an end, saddled as it was by rent-seeking behaviours, clientalism and systemic inefficiencies produced by bureaucratic distortions of the productive process. What emerged in response was neoliberal market economics. This era was driven by deregulation, trade opening and monetarist macroeconomic prescriptions that were premised on the belief—subsequently proven to be unfounded—that finance capital would be the most accurate determiner of global productive investment.

Two decades later, the era of neoliberal economics has concluded in ignoble fashion. Note that this market-oriented cycle lasted half as long as the previous state-centered cycle, which in turn was shorter than the original period of laissez faire. This shortened lifespan is due to the combination of market-driven globalization of production coupled with exponential advances in telecommunications and transportation. Phrased differently, it would seem that the economic cirrus clouds have sped up at a time when the negative cumulus layer has deepened, all while political time remains constant. Therein lies the rub.

It is generally held that market failures lead political shifts to the Left so as to facilitate the move to state-centered macroeconomic policy. Conversely, state-centered failures are said to lead to shifts to the political Right so as to facilitate the adoption of market-oriented strategies. In the 1930s and 1980s this rule generally held true for advanced democracies. But since economic and political time are not coincident, it is by no means a universal truth that such will occur at every moment of cyclical transition. The current moment is a case in point.

In the US the rule seems to have been upheld, as is true for several European countries. But in France, New Zealand, Japan and Italy, among others, Right-oriented governments are confronted with market failure and the need to provide political space for an economic transition. The political cycle in these countries does not allow for their immediate replacement with Left-oriented governments. There is a lack of synchronicity between political clock and economic cloud time in these countries. This places the ideological beliefs and policy prescriptions of such Right governments under pressure, since in principle they are averse to increasing the role of the state in macroeconomic affairs. Yet the magnitude of the current market failure is such that the role of the State, at least as a macroeconomic regulator, needs to be considered. This consideration needs to happen quickly, since the temporal horizons on finding solutions is near immediate given the speed at which the global recessionary pressure wave is advancing. Put another way,  the cumulus and cirrus aspects of economic time have come together in a perfect storm of economic necessity that Right governments find particularly difficult to address, much less resolve without betraying their foundational principles. To do so is to tacitly admit that there are inherent flaws in market logics that require State intervention in order to be overcome (in the reverse of the betrayal of foundational principles and tacit admission of State-capitalist failures by so-called “Third Way” Labour parties).

Thus the dilemma for Mr. Key’s government: how to reconcile clock and cloud time in a small island democracy at the outer edge of an economic storm front? From what has been seen so far, it appears that he has opted to shift to the Left, but as of yet without categorically stating that he is doing so. With ACT in the government coalition, that makes for interesting theater in the months ahead. Or to conclude with yet more metaphor abuse: could there also be internal storm clouds on NACTIONAL’s horizon?

Are FTAs OK?

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The Feb 27 announcement that NZ and Australia have signed a Free Trade Agreement (FTA)  with the ten member Southeast Asian regional grouping known as ASEAN has been hailed as another triumph for NZ’s economic openness, especially coming at a time when protectionist and nationalising policies have re-emerged in response to the global market crisis now ongoing. Although Trade Minister Tim Grosser signed the AANZ-FTA agreement at the 14th ASEAN summit in Thailand, it was MFAT officials working under instruction from the 5th Labour government who sealed the deal (after 4 years of negotiations), and it is these officials who are now beginning talks with India on a bilateral FTA similar to the one signed last year with the PRC. Yet, amid all the self-congratulation by government officials and business leaders, the nagging questions remains: are such FTA’s always good for the average Kiwi?

Pro-trade advocates will say yes on three counts. First, increased markets for NZ exports means more jobs in those sectors as well as their subsidiaries and ancillary industries. Second, increased foreign investment opportunities for NZ firms will eventually increase dividends for Kiwi shareholders. Third, access to a wider range of import markets means more competition and lower prices for Kiwi consumers. But there is more to the picture than this seemingly positive sum outlook.

The AANZ-FTA, like the FTA with the PRC and the P4 FTA signed earlier by NZ with Brunei, Singapore and Chile, is more properly seen as a tariff reduction scheme. In the case of the AANZ-FTA, the goal is to reduce common tariffs by 96% by 2020, thereby paving the way for the development of a a EU-style common market along the Western Pacific Rim that can compete with the EU, the US and emerging giants like the PRC, India and Brazil. NZ estimates are that it will eventually enjoy a 99% reduction in tariffs on its exports to ASEAN while ASEAN members will receive an 85% reduction on their imports to NZ. With US$ 31 billion is ASEAN exports to Australia and NZ  and US$16.8 billion of Australian and New Zealand exports to ASEAN members in 2007 (75% of that volume being between Australia and ASEAN, with NZ exporting US$4.6 billion to ASEAN members in 2008)), the objective is to raise the flow of goods and services ten fold over the next decade. Tariff reduction is seen as the key to achieving this goal, as it will lower transaction costs and remove fiscal impediments to investment within the partnership.

The problems with this arrangement stem from the asymmetries in the respective economies involved, from the lack of “after-entry” provisos, and from the dubious character of some of the regimes involved. With regard to the latter, the AANZ-FTA includes Myanmar and Brunei, two despotic regimes whose trade reliability and fiscal responsibility, much less human rights records, are open to question. It includes Thailand, which has the appearance of a politically failing state where sex tourism weirdness competes with highly exploitative labour-intensive low-cost production as the primary source of GDP, all amid grave ethnic conflict in its southern regions. It includes Laos and Cambodia, two states that barely meet the criteria for inclusion in a globalised trade regime. Its leading members, Singapore, Indonesia, Malaysia and the Philippines, have issues of political and/or corporate governance (be it in a lack of corporate transparency and/or a lack of political accountability), and the remaining member, Viet Nam, is a one party authoritarian regime that, if not as retrograde as Myanmar, has yet to exhibit the developmental potential of some of its most proximate neighbours. ASEAN is, in other words, a polyglot of corruption, nepotism, economic underdevelopment and exploitation mixed with crass materialism and indifference towards basic human rights and civil liberties in a highly charged ethnically diverse and stratified demographic, with a profoundly unequal distribution of resources and reliability amongst its members. Is that what NZ wants in terms of preferential trading partners?

Not surprisingly, the AANZ-FTA, which is due to go into effect on July 1 2009, has no common labour standards, including provisions regarding collective bargaining, right to organise, female and child labour, occupational health and safety and quality control. It has no environmental clauses. All of those are left to the industries involved. The Fontera PRC subsidiary’s Melanin scandal gives an indication of what can happen when such is the case.

Then there is the issue of size asymmetries and economies of scale. Is it plausible to think that with Australia coupled to NZ on one side of the AANZ-FTA ledger, NZ is going to be an equal beneficiary of the new tariff regime? If Australia turns out to be the major focus of ASEAN trade, will that not accelerate worker exodus and capital flight from NZ to Aussie under the terms of the CEP? Is it plausible to believe that with the lack of labour and other standards, NZ businesses in a variety of value added or service sectors will not have an incentive to re-locate their workforce in ASEAN countries where wages and benefits are lower? Is it plausible to think that NZ, with an export base in relatively inelastic primary-good industries and their derivatives (say, milk powder or paper pulp) will enjoy an equitable balance of trade with more elastic value-added importers? Is it plausible to think that foreign investors will not use the opportunity provided by relaxed investment regulation to assert direct control over NZ productive assets (which is an issue that also is at play with regards to the FTA with the PRC)? What NEW productive activities will actually  be created in NZ that will help diversify the economy while providing new employment opportunities that require so-called “knowledge-based”  skills? (For an earlier discussion of the problems of asymmetric trade, with specific regard to the PRC FTA, see http://scoop.co.nz/stories/HL0803/S00263.htm).

These are the questions that need to be asked in the parliamentary debates leading up to the July 1, 2009 ratification date. It is important that the Greens and other groups with concerns about FTAs avoid the appearance of knee-jerk protectionism that they have been saddled with in the past (as was the case with NZ First). Instead, the emphasis must be on the hidden “F” in an FTA–the FAIR aspect of trade, which for a small democracy such as NZ is as important as its free aspect. After all, free trade is not necessarily synonymous with fair trade, and it behooves the political Left to make that point since no one else (to include Labour) will.

Women are paying for bankers’ excesses

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The recession is spoken about as if it is universal: blind to gender, class and race it will hurt us all. Yet the reality is that groups which are already disadvantaged will pay the biggest price: not only are they they worst affected, but our government is providing them with the least support.

This is not the first time this pattern has occurred, the Asian recession in the 1990s forced women out of the workforce and back into the kitchen, or overseas, or into sex work. This recession is no different, early last year a US Senate committee investigated the impact of the growing recession and reported

These findings clearly demonstrate the severe and disproportionate impact of this recession on women and their families.

Analysis in the UK similarly predicts more severe effects on women. In New Zealand no-one seems to have done the research yet, but there’s every reason to expect the same outcome: women will experience redundancy, loss of hours, and reduced pay at greater rates than men.

So our government’s response? Well there are the tax cuts, which will disproportionately benefit men, there’s the economic stimulus package which appears targetted toward working men and, of course, Tony Ryall’s instructions to the public sector to suppress women’s pay.

National is determined to keep bankers in business, corporates afloat, construction workers busy, and boost the pay packets of the wealthy; women should expect no help as their jobs, hours and pay are cut.

Four-day week – analysis?

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Since I spend my workday up to my eyeballs in the media, it’s very rare that I watch ONE News Tonight, and even rarer that I come across something I don’t already know.

12152008_bigdig
(Red Planet Cartoons)

Today, I managed to elude the fact that the government is considering support for a four-day week for businesses which might otherwise consider layoffs, paying (part of?) the fifth day’s income, while staff undertake training or community work. Until Tonight, that is. This seems to me an excellent idea, if it can be well-implemented. It accounts for the necessary scaling-back in production which some industries will experience, while subsidising future productivity increases to come from improving the skill base of NZ workers, which means that once the recession passes, the country will be better-positioned to hit the ground running, as it were, and enable the government to pay back the debt which will necessarily accrue from the scheme.

(As a sidebar: that a National government is even considering such a thing represents a huge change in political culture.)

There are certainly pro- and contra- arguments to this sort of scheme which I’ve not considered; as you can tell by the cartoon, I’m not unaware of the general uselessness of make-work-for-the-sake-of-making-work schemes. Friedman’s quote, on the linked site, is especially well-taken:

“If all we want are jobs, we can create any number — for example, have people dig holes and then fill them up again, or perform other useless tasks. […] Our real objective is not just jobs but productive jobs”

The question is one of implementation: what would be necessary for a make-work scheme which results in productivity improvements down the line to be better than redundancy – the consequent productivity increase that brings as they try to better themselves, less the productivity drain they represent, being out of money and therefore not consuming, or on welfare?

This is a complex question, and I invite you to argue your corner. But please, I’m not interested in ideology-bound doggerel of the `OMG statist corrupt meddling communism’ sort, or its inverse – I’m not an economist, but I expect a high standard of analysis, the more formal the better.

L

National: cutting their way into the recession

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At Pundit Nicky Hager has an article up about National’s “spending” plans. Based on leaked material he shows that, having started to realise the gravity of the recession, English has increased capital expenditure by no more than an additional $250 million of capital spending a year: in terms of government spending that’s nearly nothing. As Hager concludes:

As the country heads into the worst recession of our lifetimes, John Key and Bill English have decided against any significant economic stimulus package. As other countries acknowledge the magnitude of the crisis and spend, our Cabinet will be putting their energy into finding places to cut.

At the same time the National cabinet is taking a knife to operational spending: 10% here, at least 500 jobs there, 30 more over here. These cuts of operational cuts will very quickly add up to $250 million, not to mention poorer services for all New Zealanders,

So National’s plans to get us out of the recession are… exactly what their plans always were: cut, cut and cut. Less service, less support, and what money there is will be redirected to the private sector labelled “infrastructure investment” and “improved competition”.

Short not-sharp shock

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NatRad’s PCR Jane Patterson on Nine to Noon this morning characterised the government’s counter-recession plan as “drip-feeding”, opposed to Obama and Rudd’s “big bang” approach (audio). But drip-feeding would imply a long-term commitment, and Key doesn’t believe the recession will be a medium or long-term problem.

Rather than either of those metaphors, I would characterise the front-loading of already-planned expenditure and development into the coming six to eighteen months as a short sharp shock; however, given the relatively small amount of expenditure and development in the plan, it’s not even very sharp. Of course, there’s the argument that the government doesn’t have any more money to spend, but Key has bet on a short recession, and that implies short-term debt. I would think that if one was betting on a short recession, one would do everything in one’s power to ensure it was a short recession.

If it turns out to not be a short recession, Key (and English) will have to return to the drawing board, and that will very likely mean another short (perhaps sharper this time) shock, rather than introducing a strategic counter-recession plan mid-term and mid-recession. DPF raises (in some jest) the idea that Key might emulate his hero Muldoon on another matter, but to me it looks like this track could lead to economic micro-management of a very Muldoon-like nature. And the broadband plan is very Think Big.

L

Freedom?

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The right-wing fringe think-tank, the Heritage Foundation, has scored NZ slightly higher on its yearly Index of Economic Freedom. NZ comes in at number 5. Rankings here.

This despite a Labour-led government being in charge at the time the data were collected.

According to the Heritage Foundation, the increase–from 80.6% to 82%–was due to improvements in trade, investment and property rights. The Herald notes that, “Freedom from corruption declined but remained high at 94 per cent, and labour freedom fell but was also high at 89.65 per cent”, but doesn’t tell us that the “labour freedom” score declines with higher minimum wages, protections against arbitrary dismissals, etc. It doesn’t mean freedom for workers. Still, with December’s stripping of low-end workers’ protections against arbitrary dismissal (barring provable discrimination), NZ should score even higher on this “freedom” next year.

Interestingly, NZ came in just behind Hong Kong, Singapore, Australia and Ireland, and just ahead of the United States and Canada. What do all these countries have in common? A clue… Britain came in at number 10. Yep, the English-speaking, common law countries–all ruled by Britain at some point– share a predilection for light regulation of business. (This is borne out in the rankings of the right-wing Fraser Institute as well.)

It will be interesting to see how the Anglo-American economies and their Asian cousins fare compared to the rest of the world over the next couple of years.