Friday 9 August 2013

Removing The Blinkers Of Free-Market Devotion

The March Of Folly: The Chinese Communist Party, speaking through the Xinhua News Agency, has called time on New Zealand's slavish devotion to neoliberal economics. If we are serious about restoring New Zealand's reputation after the Fonterra contamination scandal, then our obsession with applying market-based solutions to every problem must end.

“ONE COULD ARGUE the country is hostage to a blinkered devotion to laissez-faire market ideology.”
That, at least, is how one anonymous Xinhua commentator views the New Zealand dairy industry’s latest contamination scandal.
I say “at least” because the Xinhua News Agency’s opinion pieces generally reflect the thinking of the Chinese Government. Its sharply-pointed political critique should, therefore, remind us that, all glib neoliberal references to “Chinese Capitalism” aside, it is still the Communist Party of China that rules in Beijing.
That Xinhua opinion piece should also dispel any notion that Beijing is indifferent to the politics of its tiny, South Pacific, trading partner. Having drawn attention to our blinkered devotion to laissez-faire capitalism, Xinhua’s writer helpfully provided his readers with a telling example of its effects:
“Many New Zealanders fell victim to this when the construction industry was deregulated two decades ago resulting in damp and leaky homes that quickly became uninhabitable.”
Sometimes it takes an outsider to correctly diagnose an affliction to which its sufferers – that’s us! – have become inured.
The People’s Republic of China survives and thrives today because, unlike the Soviet Union, it was able to set aside the dogmatic certainties of its revolutionary founders before the damage they were inflicting became irreparable. (Who knows what might have happened if a Mikhail Gorbachev had taken power in Russia at the same moment that Mao Zedong’s pragmatic successor, Deng Xiaoping, set China on its new path to a mixed economy?)
Some have summarised Deng’s economic position as: tolerating as much market as possible, while retaining as much state as necessary. It certainly marked a radical departure from Mao’s “iron rice bowl”, which attempted to impose a raw equality of outcomes upon the entire Chinese population.
But, in allowing the market to do what the market does best (which no Chinese leader has ever construed to mean everything!) Deng was not deviating one step from the Chinese Revolution’s three central objectives: to remove the burden of foreign domination; to allow the Chinese people to stand up; and to create the material conditions for their country’s future prosperity.
Whether that prosperity was unleashed by the market, or planned and executed by the state,  was, according to Deng, something to be dictated by the circumstances prevailing in each case – not by the inflexible dogma of the Communist Party in Beijing.
“It doesn’t matter if a cat is black or white”, Deng was fond of saying, “so long as it catches mice.”
It is now a matter of some urgency that we all grasp the fact that New Zealand is one of the mice the Chinese cat has caught. It is what the sharp tone of the Xinhua opinion piece is reminding us.
China singled New Zealand out among all the Western nations by granting us the huge advantage of a Free Trade Agreement. This vast, and still rapidly expanding, economic power agreed to take everything we could send her. In doing so, the Chinese Communist Party effectively guaranteed New Zealand’s prosperity for the next hundred years.
We have been very quick to pat ourselves on the back for this achievement. Indeed, to hear our politicians talk, one could easily get the impression that the whole thing was their idea. But such small nation chauvinism is misguided; it’s fatuous; and very, very dangerous.
What has been true for the last 3,000 years, remains true: that China never confers a benefit without a guarantee of reciprocation. She has opened her markets to our agricultural exports, and she expects those exports to be safe. She has consented to let us feed her children, and she expects New Zealand’s infant formula to be free of botulism.
Since 1984, New Zealand politicians have trumpeted the notion that the market is all-wise and all-powerful. That regulation – especially “heavy-handed” regulation – is unnecessary. John Key, in particular, has consistently devalued the goal of “100% Pure New Zealand” by declaring it a mere aspiration: “It’s like saying ‘McDonald’s, I'm loving it’ – I’m not sure every moment that someone’s eating McDonald’s they're loving it ... it’s the same thing with 100 Percent Pure. It’s got to be taken with a bit of a pinch of salt.”
Well, not any more, Prime Minister. Not if we want China’s doors to remain “a bit” open.
The era of “blinkered devotion” is over.
This essay was originally published in The Waikato Times, The Taranaki Daily News, The Timaru Herald, The Otago Daily Times and The Greymouth Star of Friday, 9 August 2013.


Anonymous said...

Free market fundamentalism is based on an elementary logical fallacy. Just because a hypothetical free market would be perfectly efficient (which is a logical truth - if redundant, because no such entity could ever exist), it does not follow that making any actual market freer will increase efficiency. To say that it would is like saying that we should settle for wearing half a T Shirt instead of some other shirt if we can't get the whole T Shirt we want.

It's a subtle fallacy, but essentially the root of free market mania.

Anonymous said...

"What has been true for the last 3,000 years, remains true: that China never confers a benefit without a guarantee of reciprocation. She has opened her markets to our agricultural exports, and she expects those exports to be safe. She has consented to let us feed her children, and she expects New Zealand’s infant formula to be free of botulism."

That is true, Chris, but I am sure that Mainland China will expect a lot more from New Zealand governments and the people here than just that.

New Zealand may until the present have registered nice growth rates in exports of milk powder, baby formula, wooden logs, raw fish, and a few other things, but that also means, value added products made here are just not going to be allowed to be competitive enough for exporting to China.

Even though their middle class may have growth in incomes, this does not apply to all, and they still have armies of willing, relatively low paid workers, working endless hours to produce things out of raw commodities they import, and then sell back to New Zealand and other places.

New Zealand will be nothing more like a giant farm yard for Mainland China, and a tourism destination for their better off. Some will send their kids here to learn English, others will migrate here to enjoy a better life.

New Zealand though will compete with other countries to deliver all this.

I am concerned that the Chinese model applied to economics is not one we should hold up too high. It is based on state capitalism, run by a corrupt regime, that favours those with good connections and pockets full of money. The occasional conviction and punishment of some for corruption there is more of a show case scenario, to keep the masses quiet.

I see challenging times ahead for New Zealand, also in regards to the remnants of democracy we still enjoy. When governments and mayors are already making sure to keep 'Free Tibet' protestors out of sight of visiting Chinese dignitaries, we are already bending under the strong-arm tactics applied by that regime.

Anonymous said...

As a contractor who often carries out work in Fonterra's facilities, I know how seriously they take the risk of product contamination.

Fonterra's senior management know well the risks of this happening, and what could happen when it does. They spend significant resources ensuring everyone - including all employees and contractors - also understands these risks. All of their procedures and processes are designed to eliminate the chances of this happening.

And yet it still happened. I don't see how additional regulation would have prevented this.

Victor said...


An excellent piece, devoid of the wishful thinking that normally characterises articles about our relationship with China.

A further thought is that China's appetite for New Zealand bulk exports may not survive the increasing sophistication and choosiness of our customer base there.

In some senses, our economic relationship with China is similar to the one we used to have with the UK, prior to its entry into the EEC.

But the differences are significant. British consumers of those years often had a natural affection for New Zealand and, moreover, their governments imposed discriminatory tariffs on our European competitors. Neither of these factors apply in China's case.

Anonymouses @ 9.37 and 12.43

Excellent points both!

Mark Hubbard said...

Chris, when you hear reported the next single case of beneficiary fraud, will you be running a post on how we must remove our blinkered devotion to the welfare state.

Or the next case of nuisance legislation that has unintended consequences, will you be writing on how we must remove our blinkered devotion to statism.

You'll be writing a lot of posts.

Fonterra did front up. Unlike politicians who daily waste my money, while destroying my liberty. Fonterra's PR response was less than optimal, yes, and they very nearly paid dearly for it in the market. That's the best correcting device to ensure it won't happen again.

Anonymous said...

For years now governments have been saying that we should have a skilled workforce, and value to our products before we export them, and join the knowledge economy. Still waiting. Government after government pursues short-term expediency of a long-term gains. I think the Chinese government is a self-interested gerontocracy, but it does seem to be about the only government in the world that thinks long-term. I notice the government has just stabbed in the back our world renowned telescope lens producing company, which had millions of dollars worth of contracts which will now go unfulfilled. Yet it's quite happy to subsidise the aluminium smelter. Interesting how some people's jobs seem to be more worthwhile than others. It seems our government is not as free market fundamentalist as many would seem to think. Actually a right-wing government that lived up to its principles would be a refreshing change, even though it would probably put the country further in the poo. Free market economics is pure bullshit anyway. Proper science has shown it doesn't work. :-)

Anonymous said...

Ah – the old beneficiary fraud refrain. Interesting how the right always feels that there are thousands and thousands of people ripping off the state. And of course they're all beneficiaries, rather than dentists. It's a bit like voter fraud in the U.S., where they enact legislation to prevent it yet they can only provide about 3 examples of it.

aj said...

At August 9, 2013 at 12:43 PM...

....'Chinese model applied to economics is not one we should hold up too high. It is based on state capitalism, run by a corrupt regime, that favours those with good connections and pockets full of money...

Hang on, this is New Zealand too by the sound of it....

Anonymous said...

The Yellow Peril crowd and Autistic Randoids came out quick in this thread.

Davo Stevens said...

@Anon 8.48am Right on! The Right are paranoid that their money will be stolen!

My Dad, when I was a littler shaver, said to me that when a Politician points the finger at any group the real problem is diametrically opposite. Point the finger at beneficiaries and the real problem is the fraud at the top.

Back to Fonterra, they just grew out of the old Dairy Board and are often living in the past. Their apology rang hollow to me and I believe so with China.

Botulism bacteria Clostridium botulinum is commonplace in our environment and on our skin. It normally doesn't affect us but will only after certain conditions are met. It is an anaerobic bug that generally survives in canned meat that hasn't been cooked properly. It's spores are thermophilic and can survive boiling water. Heating the food above 140C even momentarily will destroy it.
The issue here is that new-born kids don't have the immunity to fight it off. After the kids reach about 5yrs they have built up that immunity.

Robert Miles said...

The ideas being pursued by the Government and Auckland council seem just an outdate fettish of the NZ left obsession with China and a form of Utopian marxism as the answer since the 1930s and 1940s. The rail scheme is just what they wanted in the 1930s and 1940s unmodified by the real changes in society, interests and employment needs and patterns. Getting closer to China is just what devoted followers of the left like many supposedly ex Maoist absorbed in various Victoria University groups, ( they were always visible at lunch time on campus in 77-78 some wearing sack cloth like Lindy Cassidy. I mainly watched to study the satorial elegance of Simon Wilson- who was held in total contempt by my flatmate.)
In terms of China being the answer and the future. Nonsense. They are even more copyist and less innovative in military industrial and advanced computing systems than Japan. Like the Indian Navy, half the Chinese submarine crews are trained in Russia and the Kilo subs and many of the Chinese cruisers and destroyers are maintained in Russian enclave bases on the China coast were the the vessels, their missiles and torpedoes are maintained by Russian Navy technicians. In some cases the Club missiles intended to be used in Mach 3 low level attack on the USN carriers are even loaded and installed on visits to Russian bases in the arctic,, (this is certainly the case with some Russian allies ). The aircraft carried by Chinese carriers so far are standard Russian Su27-33. While there are great disputes between Russian and China over patent and pay issues and in the Russian view, the Chinese relentlessly seek patent theft and to establish their own design control, some degree of highly level strategic cooperation exists between Russia, China, India and Iran.
In terms of fonterra, I have always been a sceptic because we are hardly the foodbasket of the world our sustainable levels for dairy production having been exceeded long ago and Argentian closer and far richer land being the real food basked for Britain in the 20C wars. Expanding Fonterra really means franchising and fonterra farms in China and Latin America and there's no way we'll maintain control and standards of the franchised farms, marketing and distribution companies. I mean the fact were interest with dairying coop ventures in Latin America with everyone but Argentina just reflects first the left wing bias of the government and MFAT and second its obvious NZ could never keep control of its image and companies in Argentina.

David said...

Wouldn't it be great to hear the leader of the Labour Party (whoever that might be at any time) say the same thing as Xinhua News Agency. That was a very sharply written piece that captured everything in a nutshell and belies the notion amongst most New Zealanders and a lot of New Zealand politicians that China lives in another world to us. There was a momentus touch of arrogance in John Key's reply that they were basically confused over the situation. He seems to believe China will put up with any old shite, while he does everything he can to curry favour with the United States.

Anonymous said...

Yet another ramble from Robert Miles. To be honest, I can't even get the sense of it. It's so confused. A lot of statements without a great deal of analysis. Firstly, very few left-wing people in this country believe in a Marxist utopia. You really have no idea of how left-wing people think. Most of what's called left in New Zealand have accepted the capitalist system, as has the Chinese leadership. None of this leads to Marx's utopia. You really need to read some Marx.
Secondly, yes, China copies stuff, there is no particular cultural problem with this in Chinese society. And yet they are realising that they cannot simply rely on manufacturing crap for ever. The Japanese realised this, and like the Japanese. The Chinese are now beginning to pour money into research and development. As I have pointed out before once this takes off, we're in the shit. But enough of that.
And yet more rambling about Chinese military capabilities. This all reminds me of someone :-). I really urge you again to try doing some of the Massey/NZ Army academic papers. The capabilities of the Chinese navy depend very much on what it wants to do. You would be wise to realise this. They might not be able to project their power very far, or for very long but then they might not need to. And like the Russians, they have a lot of stuff. Some of this is because their stuff breaks down easily, but even so, as Stalin once said "mass has a quality all its own."
Fonterra I won't argue about, I know very little about it, but unlike you I am willing to admit it :-).

Davo Stevens said...

@ Robert Miles: You are right off the mark my friend.
Argentina has a problem with foot and mouth (endemic there) that limits it's produce going into Europe and the US.

Furthermore, there hasn't been a 'Left wing' Govt. here since the 1970's. Norm Kirk was the last left wing Govt.

Clostridium Botulilum bacteria is one of the many bacterias in milk. It normally causes no harm. Check your own milk bottle and get it checked. You will find it in there.
We will weather this storm as we have in the past.

Adrian said...

Any comments from Xinhua will be entirely self (i.e. CCP) serving. In this case: Unregulated free market bad, limited market regulated by strong central government good.