In recent weeks Don Brash has been complaining in the media that the Government has no plan to deal with the number of issues our economy and our society face. Brash of course will argue that he does have the solutions. Bill English set out in the budget what he believes amounts to a plan for New Zealand over the next few years. The reality, I think, is that both have plan however there is little or no future in either plan. Neither Brash nor English have laid out a plan which deals with the present and quite near problems we will face.
There are some important differences to the Brash plan and the English plan. Brash may focus more on meaningful activity whereas the English plan adopts a more cross your fingers and hope attitude. Brash will be more extreme and ideological in his endeavors whereas English tends to be more measured and somewhat more realistic. Those issues aside, the end game for both Brash and English are generally the same. Their plans amount to less government, more free market, deregulation, and lower taxes (with a resultant a transfer of wealth upward) and promotion of the competition state. The pathway there for both may be different but the destination is proximate.
The problems with this plan can be argued on many levels and individual policy settings can be picked apart and criticized. I am going to concentrate on three broad issues which I see as failings of the Brash-English approach (from here on referred as the neo-liberal plan). The plan will be unfit to cope with the challenges we (all collectively) face but actually present some significant future risks to the relative health of society.
The first failure of the neo-liberal plan is growth and a resources constrained future. The plan demands that growth occur and a waterfall effect distributes wealth (unevenly) down the economic food chain. The rising water level raises every boat, albeit with a concentration of wealth in the upper echelons. They get wealthiest but the rest of us get something as well. Due to various resource constraints, real world forecasts for continuous economic growth are not optimistic however. The most immediate crunch may be the global supply of oil however other resource maximization and depletion sit behind. Low or nil economic growth is a challenge for all modes of growth which are growth reliant, Keynesianism approaches included. The significant weakness for the neo-liberal plan is that it relies on a sufficient magnitude of growth to fill the pockets of the wealthiest such that some falls out for the people below. If there is less wealth in circulation then the wealthy need to hang on to more of it to service their essentials of life. There is less for everybody else.
The second failure of the neo-liberal plan is economics. If neo-liberal economics was ever relevant following the global melt-down of 2008, it is not so any more. As much as it pains neo-liberals to face this reality (and they strenuously attempt to deny it), de-regulation and reliance on the proper operations of the market failed. The explanations for this have been well rehearsed by others so I will not attempt to do so yet again. A general observation will suffice. The neo-liberal policy settings facilitated the severing of ties between the enchanted world of money and the real economy. The resultant unstable edifice of credit and debt was typified by various terminology we have heard post 2008 such as ‘derivatives’, ‘fractional lending’, ‘credit swaps’, ‘securitization’, ‘financial bubbles’ and so on.
The third and last failure of the neo-liberal plan is very similar to the first, the creation of wealth, but here pertains to how that wealth is distributed through society. We already have gross distortions between the accumulation of wealth. A process which relies of trickle down as growth is stalling threatens to intensify that inequity. Not only would this be unfair and unacceptable, it could also be dangerous. Declining living standards for the many, as the few maintain or even increase their living standards, would put at risk the fabric of society unless wealth was more evenly spread around. A redistributive political economy would be required to maintain social cohesion in the face of significant challenges. The neo-liberal plan cannot deliver this as it is premised on selfish accumulation of wealth and a maxim of ‘line my pocket first’.
There are no ready-made solutions to these challenges. We do have some of the tools to find a viable future option however it is a work in progress rather than an off the shelf project. The danger, in light of a ready to go solution, is that the likes of Brash and English can continue to pretend for a little while longer that they have the plans we require. Continuing with that option will make it that much harder and more expensive to clean up the mess and then get things right.