New Zealand's Underarm Banker: It bears recalling that the “independence” of the Reserve Bank Governor was for decades held up by neoliberal capitalists as the most compelling justification for passing the Reserve Bank Act. Interesting, is it not, how the ruling class’s support for the Bank’s independence lasted no longer than its Governor’s first attempt to regulate (albeit modesty) the behaviour of Australasian capital?
I’M BEGINNING to suspect that Reserve Bank Governor, Adrian
Orr, is, at heart, a revolutionary. The decision of the Reserve Bank of New
Zealand to nearly double the “Big Four” Australian banks capital requirements –
from 10.5 to 18 percent – has deeply shocked financial communities on both
sides of the Tasman. What Orr has triggered in the minds of the Australian
bankers is a truly fateful question: “At what point does our involvement in the
New Zealand finance sector become unprofitable?” It’s a question fraught with
potentially revolutionary implications for New Zealand’s economic sovereignty.
The reaction from the Right confirms the boldness of Orr’s
move. The consensus among those opposed to the Reserve Banks’s decision is that
it will make it harder for the Australians to perform to their shareholders’
expectations. In other words, Orr stands accused of reducing the Australian
banks’ profitability. New Zealanders are being warned that they will have to
endure higher interest rates on their borrowing, and lower rates for their
savings, as a consequence of Orr’s actions. National’s Finance Spokesperson,
Paul Goldsmith, is predicting a substantial hit to the country’s growth
prospects:
“The two primary effects of today’s decision will be higher
borrowing costs than would otherwise have been the case and businesses and
farmers will find it harder to access the funds they need to grow.”
The NZ Initiative (the successor organisation to the dark
knights of Business Roundtable) echoes Goldsmith’s fear:
“The RBNZ’s decision to increase the capital banks are
required to hold will have adverse effects for borrowers and the wider economy.
The effects are likely to be felt most acutely by high loan-to-value borrowers,
the rural sector and small-to-medium-sized enterprises.”
Exposed in these statements, however, is a reality which
both authors would undoubtedly prefer to keep hidden from New Zealanders.
Namely, the degree to which we have become slaves to the financial power of Australia.
Not only that, but how little – if anything – our ruling class is prepared to
do to defend (let alone rebuild) New Zealand’s economic sovereignty.
A party calling itself “National” might have been expected
to applaud the Reserve Bank Governor’s decision to protect New Zealand
depositors from the worst effects of a catastrophic financial collapse.
Instead, we have its finance spokesperson chiding the Bank for daring to twist
the Kangaroo’s tail. Meanwhile, the front organisation for the country’s biggest
capitalists mutters darkly about the need to curb the Reserve Bank’s powers.
It bears recalling that the “independence” of the Reserve
Bank Governor was for decades held up by these same neoliberal capitalists as
the most compelling justification for passing the Reserve Bank Act.
Interesting, is it not, how the ruling class’s support for the Bank’s
independence lasted no longer than its Governor’s first attempt to regulate
(albeit modesty) the behaviour of Australasian capital?
For those few adherents of “democratic socialism” (still the
official ideology of the NZ Labour Party BTW) who continue to soldier-on, the
reaction of big capital is extremely instructive. It points the way to how the
Australian banks might one day be “persuaded” to relinquish their dominant
position in New Zealand.
Way back in the early-1990s, when Jim Anderton’s Alliance
was considerably more popular than the Labour Party, I remember being contacted
by one of the Alliance’s policy activists with an intriguing question. He wanted
to know, in practical terms, how one might go about re-nationalising privatised
public enterprises without the legally required compensation payments
bankrupting the nation.
Whew! That was a poser! Where to begin? Why not with a
country that had already confronted and solved the problem? How did the largest
surviving communist state – the People’s Republic of China – deal with/to the
private sector? The answer proved to be both remarkably shrewd and surprisingly
simple.
What the new communist government of China did, in the early
1950s, was to pass a law requiring all existing capitalist businesses above a
certain size to make the Chinese state a 25 percent shareholder in the
enterprise. Naturally, such a large shareholding would also entitle the state
to be represented on the enterprise’s board of directors. As the years passed
and the new regime consolidated itself, the legislation was amended constantly.
Year by year, the state’s shareholding in the enterprise was increased – along
with the number of its directors.
Unsurprisingly, the value of these enterprises’ shares
plummeted. Seeing which way the wind was blowing, all those Chinese capitalists
with a lick of sense offered-up their business’s remaining shares to the state.
The latter generously agreed to take these off their hands – albeit for a
handful of cents on the dollar. In this way, China’s largest capitalist
enterprises were legally, peacefully – and cheaply – acquired by the state. As
an added bonus, most of the by-now-former capitalists took what was left of
their money and ran – to Taiwan, Singapore and the United States.
So, that was how you did it. By deploying the state’s
legislative and administrative powers against the entrenched economic power of
private enterprise. Far from sending in the revolutionary guards to seize, in
the name of the people - and without compensation – the banks, insurance
companies, department stores and factories, a democratic-socialist
government would send in … its lawyer.
Like the ruthless, clear-eyed hero of the television series McMafia,
the state’s representative will patiently explain to the people who used to be
in charge, the new rules of the game:
“From now on” he’ll quietly inform the Chairman and his CEO,
“your bank will be obliged to meet a capital requirement of 18 percent. In two
years’ time that will rise to 25 percent. Three years after that the Reserve
Bank’s CR will be 33 percent.”
“But that will ruin us!”, the Chairman and the CEO of the
Aussie bank will wail. “We will have nothing to offer our shareholders.”
“With respect to that”, the young, clear-eyed lawyer will
respond, with just the flicker of a smile, “the Minister of Finance has
authorised me to make you the following offer …”
This essay was originally posted on The Daily Blog
of Friday, 6 December 2019.
