Now It's Time For Realism

Bernie Madoff in a Vee-Dub? There are times when good intentions simply aren't good enough. As the war poet, Siegfried Sassoon, wrote of another old man who cost people all they had: "'He's a cheery old card,' grunted Harry to Jack/As they slogged up to Arras with rifle and pack./But he did for them both by his plan of attack."

THE COLLAPSE of South Canterbury Finance (SCF) is just the latest in a long line of serious business failures. What’s different about the latest debacle is that, this time, it’s taxpayers who are picking up the tab.

More than $1.5 billion is being paid out to SCF investors – a sum greater than the entire amount set aside by the Government for new spending in the coming year.

The Finance Minister, Bill English, has been quick to reassure us:

"The up front cost to the Crown of repaying South Canterbury's depositors is about $1.6 billion, but we would expect to recover the bulk of that as the receiver sells the assets over time."

An expectation is not, of course, a guarantee. Time alone will tell whether Mr English’s sanguine response to SCF’s collapse is based on fact or folly.

Right now, however, it’s time to face the brutal fact that New Zealand’s business community has become this country’s biggest liability.

For the best part of thirty years business-people have been telling us that all they need to restore New Zealand’s prosperity is for the State to get out of the way and let them get on with the job.

Labour’s Roger Douglas and National’s Ruth Richardson took them at their word.

And even though it cost us of tens-of-thousands of well-paid jobs and scores of thriving communities, we stoically and selflessly "bit the bullet" of radical economic "reform".

By the time Rogernomics and Ruthanasia had run their course, New Zealanders had lost control of their finance sector, most of their news media, and much else besides. Valuable state assets, the product of more than a century of public investment, had been sold-off to foreigners for a song.

Undeterred, we kept on chewing the business community’s ammunition. Why? Because they’d successfully brainwashed us into believing that the "long-term gain" would, ultimately, be worth the "short-term pain".

Unfortunately, "ultimately" turned out to be a moveable feast.

And while we waited for that ultimate pay-day, things went from bad to worse. The 1987 Stockmarket Crash revealed not only that New Zealand’s business titans had feet of clay, but that some them were also just plain, old-fashioned crooks.

If we’d been smarter, we’d have realised back then, in the early 1990s, that the entire neoliberal project was one almighty scam: a weird sort of political Ponzi scheme in which the early converts reaped all the benefits, and the late-adopters paid all the bills.

And pay we did – with the Employment Contracts Act.

The ECA absolved the business community of all responsibility for learning the lessons of the excesses of the 1980s. Instead of upgrading their technology and upskilling their workforce, New Zealand’s businesses spent the 1990s stripping their staff of hard-won conditions and allowances and putting an end to penal rates.

By the turn of the century thousands of New Zealanders were living off their credit-cards just to make ends meet. Indeed, the whole New Zealand economy seemed to be adrift on a limitless ocean of debt. Like Tennessee William’s fragile heroine, Blanche DuBois, New Zealanders had become hopelessly dependent on "the kindness of strangers".

Also, like Blanche, they no longer wanted Realism – but Magic. And, as it has done so often in our history, this unwavering faith in the "unseen hand" of the market, and the superhuman powers of entrepreneurial capitalists, has led thousands to financial ruin.

"Kindness" and "Magic" are certainly the operative words in the tragic demise of Alan Hubbard’s empire. How else should we explain the quaint anachronism of a man who, in an age of instantaneous data and light-speed capital flows, was still willing to put his faith in the unwritten contract of a handshake; the reliability of a Canterbury cockey’s spoken word?

Now it’s time for realism.

From Vogel to Muldoon, the growth and development of New Zealand’s economy has not been driven by the daring visions and fluctuating fortunes of individual capitalists, but by the cautious intelligence and financial solidity of successive New Zealand governments.

Over and over again, throughout our history, we’ve had to learn this lesson. That we are too small to let big things fail. And that the only institution with both the collective resources and the collective wisdom to make big things succeed - is the New Zealand State.

Who else could have rescued SCF?

This essay was originally published in The Dominion-Post, The Timaru Herald, The Taranaki Daily News, The Otago Daily Times and The Greymouth Evening Star of Friday, 3 September 2010.