CTU’s Alternative Economic Strategy

The CTU has just released its Alternative Economic Strategy. Well, they call it ‘alternative’ but it’s not like the Nats have one beyond Key smiling and waving. Anyway, the CTU’s Economic Strategy is an extremely impressive document. It goes through the current problems and suggests 100 reforms for a more successful, fair economy and country.

There’s so much worth reading in the document itself that I’ll restrict my comments to brief asides in indented italics:

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Capitalism has never been fair, nor has it cared for the environment. But under the neoliberal policies followed in New Zealand for the last quarter of a century not only have these conditions got worse but the policies have failed in their own terms. Those policies are rooted in the idea that less government is better government and that “the market” if left to itself will lead to faster.

We do not believe these unsustainable and unconscionable trends are necessary, nor do they reflect what is good in New Zealand.

It was the growth of a finance sector far beyond the needs of the real economy that encouraged and inspired neoliberal ideology, along with the powerful economic forces of corporate globalisation which demanded the increasing deregulation and undermining of the social functions of government which have been so damaging. They said “leave us alone and the world will be a better place”. In fact the financial sector enriched itself at the expense of the rest of the economy, taking absurd risks, too often behaving unethically and criminally, harming hundreds of millions of hard working people and causing huge damage to the real economy which blameless workers will be left to pay for in lost income and taxes.

In New Zealand these policies

§ stripped away collective employment and union rights so that workers’ wages have fallen behind their increasing productivity and workers are increasingly forced into vulnerable temporary or contractor jobs;

§ privatised swathes of services and assets whose new owners neglected infrastructural investment, failed to create new infrastructure such as broadband, and ignored needed services such as community banking;

§ slashed benefits to poverty levels, especially affecting families;

§ hamstrung social and economic use of the monetary system by limiting regulation to the control of inflation through interest rates, hindering development of the real economy;

§ grew banks that accelerated New Zealand’s international indebtedness and the housing price bubble, and a non-banking sector riddled with instability and fraud; and

§ entered international trade and investment agreements which removed much of our ability to manage our international economic relationships and made many of these actions difficult or impossible to reverse.

Despite the propaganda, New Zealand’s economic growth and international competitiveness have stagnated.

This Strategy is a response to these failed policies.

We seek a coherent alternative to current policy principles and institutional structures which will improve the position of working people and New Zealand. Current economic policies and principles have demonstrably failed. A new approach is needed which learns the harsh lessons of not just the financial and economic crisis, but the trend of economic events that led to that calamity. We also need to learn from New Zealand’s recent history and the unsustainable degradation of the environment. We want policies which work together to strengthen each other and are sustainable, not only from the point of view of government finances, but also because they create and nourish a healthy economy, a healthy society and a healthy environment.

They lay out three goals of a successful economic strategy:

Sustainable economic development

Decent work and a good life

Voice: real participation in decisions in the workplace, economy and community.

First off, they suggest measures to tackle the current employment crisis:

With unemployment forecast to remain high for two to three years, more government action is needed. This could include

§ Action some of the large range of possible initiatives which would both have long term benefits for the economy and quickly create jobs which the CTU put forward for the Job Summit.

§ Stop cutting government jobs.

§ Expand the Job Opportunities scheme, continue with Community Max, significantly increase Task Force Green and other environmental work.

§ For those unemployed over 13 weeks, an entitlement to a Skills Investment Fund Booster package that adds to the normal level of the Skills Investment Fund support to take to new employment, and provides access to individually tailored skills audits.

§ Co-finance projects with local government to bring forward infrastructural and environmental work such as water and sewerage projects.

§ Bring forward more national infrastructure spending such as investment in schools and hospitals, and green retrofitting of government buildings.

§ Increase spending in tertiary education to allow more people to increase their skills and education, with additional support to unemployed people and beneficiaries who wish to enter tertiary education.

§ Accelerate the rollout of tourism initiatives.

§ Government and SOE purchasing that assists New Zealand manufacturers and services.

§ Back New Zealand jobs in KiwiRail projects.

§ Partially underwrite bank lending to businesses according to agreed criteria in return for a guarantee of job retention for a specified period.

§ Build more state houses, and support iwi and local government housing initiatives.

§ Invest further in home insulation and clean heating.

Then, it’s down to the reform agenda:

Economic Development

§ A strategic approach to sustainable economic development

If no-one’s directing the ship, it’s not surprising that it doesn’t end up where we want it to go. As things stand, we haven’t even agreed where we want to go.

§ Priority to chosen sectors such as ICT, high level processing of agricultural products

Why shouldn’t we, through the democratic system, choose winners? The market has proven incapable. And the fact is that time and again, here and abroad successful innovation has come from government leadership (eg the Internet)

§ Strong powers preventing or regulating market power that is not in the public interest

The neoliberal model turned a blind eye as private monopolies or oligarchies were allowed to develop or government monopolies were sold into private hands. Unregulated capitalism trends towards monopolies. Any monopoly that is allowed to exist should be collectively owned.

§ Support the development of co-operatives, especially worker co-operatives

It’s an under-acknowledged fact that our largest exporter is a cooperative. Quite rightly the dairy farmers have resisted attempts to destroy their cooperative because they know the result will be profits going offshore. Cooperatives can be very successful business models because workers have a real incentive to contribute to the business and they get the just reward for doing so.

Infrastructure

§ National and regional infrastructural plans

§ National physical telecommunications network owned by central or local government

§ Buy back Telecom’s physical network priced to reflect its short life and long neglect

§ Begin to buy back the privatised electricity system to optimise it in the public interest

Leaving vital national infrastructure in the hands of private companies that do not have the same interests, or the long-term outlook, as the country is a recipe for disaster. It leads to underinvestment and asset-stripping, with the owners knowing the government will be forced to bail them out if everything comes apart.

§ Port and shipping strategies for better use of ports, and coastal shipping’s survival

§ Develop urban public transport and support local suppliers of bus and rail equipment

All the more important in the age of peak oil.

§ A “human infrastructure” fund for tertiary education and workplace training

It’s unbelievable that National is cutting education. It’s like a farmer eating the seeds for next year’s crop.

Innovation, Research and Development (R&D)

§ Support for R&D through shareholding, intellectual property ownership, or tax credits

§ Encourage open ownership of intellectual property or co-ownership with researchers

§ Preference for centres of research excellence and capability funds over contestability

§ Extension services to form a knowledge bridge between researchers and firms

I’d like to see universities be given a much more prominent role in tech development and holding on to the rights to the innovations they develop.

Government Procurement

§ Use government and state owned enterprise procurement to develop local industry

§ Tender conditions to reflect national benefit rather than narrow “value for money”

§ Commission products in sufficient numbers to support firms to develop scale

§ Responsible contracting policies to encourage adoption of good practice

With government spending totalling nearly 50% of GDP, the government can have a huge impact on the market if it chooses to. Why shouldn’t the government use that power to demand best practice in employment and environmental standards? It’s better than fluffing about with indirect measures like tax credits and grants.

Māori

§ Continuing support for Treaty settlements including capacity building and training

§ Support Māori co-operatives such as in the seafood industry

§ Greater support for housing on Māori land and assistance for community housing

Education and skill development

§ National network of high quality publicly owned early childhood education centres

A public system means we’re not having taxpayer money funding someone’s profits, while equality of access and quality control is easier to ensure.

§ Continuing professional development for teachers to maintain top educational practice

§ Tertiary education available to all with a reasonable likelihood of benefitting from it

§ Lower fees for learners willing to be bonded to work in New Zealand

§ Employer workplace training funding conditional on skill recognition in pay scales

§ Support life-long learning by right to one year of fees and allowances in every five

Financial System

Stability

§ Require regulatory approval for high risk financial services, sourced locally or abroad

§ A Financial Activities Tax (FAT) on profits and high-level remuneration

§ Reduce reliance on foreign funding; stop other risky behaviour demonstrated overseas

§ Define bailouts and deposit guarantees in statute; fund by a levy on institutions

§ Scale up Kiwibank to same size as the big four; move government accounts to it

The government accounts themselves aren’t highly profitable, but the huge increase in deposits they represent would allow kiwibank to upscale itself to be a major player

§ Ban offshore outsourcing of financial system infrastructure

Social responsibility

§ Increase public accountability of the sector reflecting its dependence on government

§ Require charges to be related to real costs; create a Financial Consumer Agency

§ Encourage the expansion of trustee banks, mutuals and co-operatives

Finance for economic development

§ Government owned development finance agency with public and private funds

§ Long term Kiwi bonds for infrastructure

§ Encourage NZ Super and Kiwisaver funds to invest more locally

These ideas could be brought together with the buying back of major assets in a New Zealand Future Fund mandated to secure this country’s economic sovereignty by buying key assets here and abroad. It would mean fewer profits heading overseas.

Monetary policy, exchange rate

§ Give the Reserve Bank the role and power to peg the exchange rate for stability

New Zealand’s is one of the smallest free-floating exchange rates. It’s madness that we have the tenth most traded currency in the world, it’s nearly all speculation and hot money.

§ Ensure the Reserve Bank has sufficient powers to manage international capital flows

§ Review Reserve Bank Act, and Fiscal Responsibility part of the Public Finance Act

§ Reduce reliance of monetary policy on interest rates (e.g. use capital ratios, liquidity)

The OCR is a blunt and increasingly ineffective tool – it doesn’t do its job and it causes too much damage as side-effects

§ Terms of reference to take account of employment, living standards, exchange rate

International economic relationships

§ Support moves to increase international financial regulation and end tax havens

§ Support an international Financial Transactions Tax (“Tobin Tax”)

Some countries have passed laws so that a Tobin Tax will come into effect in their country when other countries pass similar laws. New Zealand should join the club to ratchet up pressure for an international Tobin Tax.

§ Controls on foreign direct investment to enable selection of beneficial investment

§ No further concessions in international agreements that conflict with this Strategy

§ Remove constraints on development and stability in international agreements

§ Stronger international union collaboration and labour agreements

Taxation

§ A tax-free band and/or tax rebate for people on incomes under $35,000

§ Tax rates of 38% on income above $100,000 and 45% on income above $150,000

My own preference is for a negative tax/guaranteed minimum income which would also, by and large replace the benefit system

§ Reduce GST to 12.5% and progressively replace it with other forms of tax

Personally, I’m not so against GST in general. I agree with taking it off food but my priority would be less taxation of income and saving, not consumption.

§ Increase royalties on commercial use of resources; tax polluting/greenhouse emissions

§ Ensure lower income people do not pay an unfair share of pollution taxes

§ Change trust and company tax rules to cut tax dodging; restore company taxes to 30%

The neoliberals want to believe there’s some race to the bottom on corporate rates and we have to be part of it or companies will go elsewhere. Rubbish. Any decent company doesn’t make decisions of that scale on a basis of a couple of percent of tax.

§ Capital gains tax or a “Risk Free Rate of Return” assets tax, exempting primary home

Good stuff. But what about Gareth Morgan’s idea of a capital tax? It could be used to do away with a lot of income tax.

Environment and measuring progress

§ Comprehensive approach to ensure a “just transition” to a more sustainable society

§ Support for workers displaced as a result of the response to climate change

§ Invest in skills for the new economy; research and information freely available

§ Provision for assistance when a whole community is affected by climate change

§ Participation by workers in the approaches taken to climate change in workplaces

§ Adopt alternative measures of progress to use alongside GDP to guide priorities

GDP doesn’t actually measure anything very important. National Disposable Income is an existing measure that is more interesting. The Genuine Progress Indicator deserves more development work. Even just looking at changes in our net national wealth provides a more informative picture than GDP alone.

Decent work and a good life

Employment and Unions

§ Extend union coverage and collective bargaining to wider groups of workers

§ Mechanisms for national and industry level standards setting

§ Living Standards Review Authority reporting to a Tripartite Social/Economic Council

§ Full employment a central objective of government policy

Full employment and decent wages, the evidence shows, are the key foundations of a healthy society.

§ “Flexicurity” providing security of employment alongside flexibility for firms

§ Retain 90% of prior income for up to 12 months unemployment

§ Conditional on commitment to acquire new skills and job search

§ Fund through compulsory employer levies and taxation, underwritten by government

Not sure I agree. Seems likely to encourage abuse and most favourable to high wage people who lose their jobs. It would reduce the multiplier effect of recessions, though, were job losses cause a big drop in income and spending, sparking further job losses.

§ Active support to acquire new skills and find new jobs including relocation assistance

Social Security, Retirement, Housing, Equity, Inequality

§ Review benefits to eliminate poverty; set base rates proportional to average wage

§ Return ACC to a social compensation scheme funded on a pay as you go basis

§ Maintain NZ Superannuation and resume Fund contributions as soon as practicable

How many millions have we lost so far from the Nats’ short-sighted decision to cut the Cullen Fund’s contributions?

§ Kiwisaver enhancements after an appropriate inquiry could include:

§ Compulsory employer contributions of 6% phased in over 4 years

§ Compulsory employee contribution 2%; Government top-up 2%

§ Government contribution for women and others with low life time incomes

Kiwisaver has the potential to generate a massive domestic capital pool, reducing our reliance on foreign capital, which we pay interest on.

§ Create National Housing Strategy

§ Expand Housing New Zealand Corporation’s (HNZC) housing stock by 20%

National’s big plan is 30 houses were you can buy the land later. 30. Oh, and they slashed the money for building new state houses.

§ Encourage affordable housing in new developments

Shouldn’t that say require?

§ Reform tenancy laws to give greater security to tenants

§ Phase out accommodation supplements in favour of other assistance

§ Support public rental and third sector housing programmes

§ Subsidise home lending in tailored programmes for targeted and low income groups

§ During downturns, consider low interest Reserve Bank funding for new housing

I think the government should led in building new, eco-smart homes, rent them through Housing NZ but also be prepared to sell them to first home buyers with the condition they can’t be rented out privately.

§ Right for workers to require a workplace Pay and Employment Equity assessment

§ Extend paid parental leave to 52 weeks, raise pay to 66% of average weekly earnings

§ Increase the minimum wage rate to 66% of average ordinary time hourly earnings

Good. There’s no reason why it can’t be that high. It was in the past.

§ Electricity pricing entitling every household to a certain amount of low cost electricity

Get rid of daily charges and have a rising price scale per kw/hr.

Voice: real participation in decisions

Consultative structures, Worker Participation, Media

§ Government consultation with unions, business and others on all policy development

§ Active citizenship in the workplace: access for community consultation with workers

§ Recognise increased worker participation assists increased productivity

§ Firm, industry and national participative structures to sustain worker participation:

§ Involve unions in processes of change in workplaces and in skill development

§ Consider worker representation on boards and on-line workplace consultation forums

§ Encourage trust-owned “public service” non-profit newspapers and other media

§ Fund investigative print journalism through the equivalent of “New Zealand On Air”

I think they need to look at combining RNZ and TVNZ’s resources to create a single 21^st century, cross-format media outlet with one goal: provide the best news service in the world.