Bernard Hickey has become one of the country’s leading economic commentators, arguing from a position of the hardline neo-liberals – ie. the market is god. Now, he’s changed his mind. He’s come to the realisation that there’s no invisible god’s hand directing capitalist markets. Instead they are directed by short-termist elites. We need to take back control.
It’s time for me to recant and to say what I’ve been thinking for months: the economic god of completely free markets and capital flows is not worth believing in anymore and we must look for other things to believe in and do. I think New Zealand needs to have a debate about capital controls, about foreign ownership of assets, about measures to control our currency and about being openly nationalistic rather than internationalistic about our economic policy.
The neoliberal model introduced by the First ACT Government, further entrenched by National in the 1990s and largely left in place by the Fifth Labour Government has been nothing but a generation-long wealth grab by the elite.
In the end, our economic growth has suffered, our wages have suffered, and our work conditions and job options have suffered. Our national debt has spiralled while we’ve become ever more dependent on imports, while our economy has become effectively foreign-owned with around 7% of GDP heading overseas as profits. The neoliberal heroes failed to invest in this country. Instead, they sold off everything they can and made off with the loot.
“I think we need to rethink the way we run monetary policy, the way we allow foreign ownership of assets, the way we encourage savings, the way our financial institutions are regulated and change the things we are aiming for.”
We need to stop seeing ‘growth’ as an end in itself and realise that successful societies are fair and equal societies.
“We should debate more specific controls on who owns what assets, whether monetary policy should still use the Official Cash Rate to focus on inflation alone, and whether banks should still be free to lend however much they want to whomever they want.”
It’s about taking back the leadership of the economy. Putting it in accountable public institutions, rather than self-interested, unelected elites.
The ‘Great Moderation’ was actually a Great Fraud perpetuated by financial engineers in Manhattan and London who targetted massive short term bonuses by creating financial instruments that gave the appearance of reducing risk, but actually massively increased risk.
These investment bankers exploited all sorts of holes in financial regulations and in the way pension funds are allocated to enrich themselves at the expenses of middle and under classes in developed countries. The created a long term mess for short term gain. They privatised profits for themselves and socialised the losses for us all.
They worked in tandem with the managers of often publicly listed multinational corporates who specialised their operations in different countries, often moving manufacturing and services to lower wage economies in an endless hunt to lower costs and increase profits (often for their own personal benefit).
This seemed like a good idea at the time and even seemed noble, spreading the wealth around. But all it did was reduce real wages for the middle and under classes in developed economies, who then promptly borrowed more to keep spending as if they were richer. It was a recipe for instability.
All this debt-fueled consumption growth in the developed world that was funded and supplied by savings and production surpluses in the developing world.
It could not last. Like any Ponzi scheme, eventually the debt keeps rising until the interest bill overwhelms the ability of the borrower to pay.
And the Great Recession is more of the same. The elites are still getting wealthier, taking from the rest of us. Tomorrow’s tax swindle is just another example.
“Now investors are rightly worried that governments may not be able to afford the extra debt taken on to keep their economies pumped up after September 2008 and the toxic debt they took on that the banks couldn’t handle.
The financial systems in many of these economies remain broken, but more importantly, households know they have too much debt already and won’t borrow more to spend like they were. The great de-leveraging has begun and nothing can stop it.
So the tide really is going out and now we’re discovering the underlying structure of the global economy is flawed.”
Underlying the human artifice of the economy is the real world. We have been ignoring the value of that real world for far too long and, as a result, exploiting and damaging it. Consequences in the form of peak oil and climate change are about to it us.
Emerging economies such as China want to industrialise in a mercantilist way, holding down their currencies to subsidise producers at the expense of consumers.
The global economy is now dependent on production and saving in one or two parts of the world, China and Germany, offset by consuming and borrowing in other parts of the world, America, Britain, Southern Europe, Australia and New Zealand.
This is fine as long as the savers have somewhere safe to put their capital surpluses and the borrowers can keep borrowing. But it all ends when borrowers run out of borrowing capacity and the savers lose faith in the paper they’re exchanging for the product they’re producing.
We need to realise that sometimes the system doesn’t work. We need to have something in reserve.
We need to accept that a completely free and unfettered system of global muilti-national capitalism driven by an elite of CEOs and investment bankers will inevitably blow itself up in a frenzy of borrowing, bonuses, short term thinking and self interest.
That’s the kind of thinking that would get you burned at the stake in commercial circles in this country. Which tells us about another underlying problem – the poor intellectual quality of our economic leaders.
“We increased our foreign debt by NZ$97.5 billion inside the last six years, but all that happened is our per capita GDP actually fell over that period.
We borrowed from the free and easy and low interest rate global capital flows to pump up asset prices and go on a spending spree. All we have left for it now is some leaky homes, a big debt and a hollowed out workforce.”
Borrowing has its place, if it is being used to fund investment for the future. But that kind of planning simply isn’t part of the neo-liberal mindset. Instead, the easy money was borrowed to buy more imported consumer goods. Lack of controls on borrowing resulted in us hollowing out our own manufacturing and importing too much instead. It’s similar to what happened to Spain when it was awash with plundered South American gold. The difference is, we have to pay back the money.
“We need to recognise that in a world of competitive devaluations, growing trade tensions and nakedly selfish vested interests (governments, multinationals and global investment banks) that we have to defend ourselves and be just as nakedly nationalistic.
We have to assume, just as Marx pointed out, that free markets will eventually overheat and blow up if we allow them free rein.
Income needs to be redistributed to offset the concentration of wealth that naturally occurs in such a globalised, free flowing world of capital. Ownership of assets needs to be monitored and controlled. The growth of foreign debt needs to be restricted.
Consumers and bankers need to be saved from themselves.
That is what I think we’re starting to see filter through to our politicians from the grass roots upwards.”
In the end, New Zealand is an interdependent society and economy, and no-one will look out for us but ourselves. Simply letting ourselves be a cork on the stormy ocean of the world economy, or a minnow in a sea full of sharks, is not sensible.
“the inevitable result of these dislocations of capital and the means of production, along with competitive devaluations, is a global land grab for hard assets such as arable land, mines and technology. Bits of paper don’t cut it anymore. No wonder the price of gold hit a record US$1,300/oz overnight.
No wonder the Chinese want to buy our dairy producing land and factories. Or the mines in Australia.”
I can’t understand why selling our assets would ever be seen as a good idea. Especially strategic assets that we can’t afford to lose. We just end up paying profits that disappear offshore and the owners under-invest knowing that the country can’t afford to not bail them out.
“China likes free trade because it wants to build factories and sell stuff to the rest of the world. It wants to own assets in other countries that can provide it with the raw materials and food it needs to keep that export machine going and employing workers from the countryside.
But China will not allow others to buy those assets in its country. It is point blank refusing to allow its yuan to appreciate quickly versus the US dollar.
US politicians, under pressure from voters, are revolting against the multi-national free trading system in a messy way, looking to impose tariffs. The Tea Party movement, however flawed, is a reaction to the failure of this global system and the way it has been distorted by vested interests to transfer wealth from the middle classes to the richest Manhattanites.
America is trying to devalue and print its way out from under its debt. Europe will eventually have to do the same, if only to stop its single currency from exploding from within. China will not stop and Japan is about to announce a massive new stimulus in the wake of its second currency intervention inside a week.
Brazil has declared it is engaged in a currency war to try to stop its currency from rising.
Brazil, like Australia and New Zealand, has a freeish floating currency that is rising as others try to devalue and buy into countries with hard rather than paper assets.”
This is a world where direct ownership of real wealth-producing assets like farms and mineral deposits is once again going to be of prime importance. We need to hold on to ours.
“The government could consider limits on foreign ownership of major assets and restrictions on profit repatriation.
Savings into New Zealand KiwiSaver funds and the New Zealand Superannuation funds could be directed into New Zealand investments.”
We need to build a national wealth fund with money from Kiwisaver, the Cullen Fund, private contributions via Kiwibank, and oil and mineral royalties. That fund should be given a mandate to invest in assets of strategic importance to the New Zealand economy here and abroad. And we must nationalise any exploitation of our oil and mineral reserves, rather than let that one-off wealth endowment flow overseas.
“Much more could be done to protect ourselves and reduce the possible damage from future booms and busts.”
If the post-war period was define by historically long and rapid periods of growth and relatively shallow recessions, the coming decades will be marked by boom and bust caused by oil shocks and environmental havoc. We need to start work now to protect our economy and our society.