Adrian Orr – The Reserve Bank’s Revolutionary Governor?

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.

Racing To The Bottom, Or Chasing Our Tails?

Always Playing Catch-Up: Throughout the 1970s, the purchasing power of the ordinary worker’s pay packet – the only meaningful measure of his or her wealth – was being eaten away every passing year by seemingly inexorable rises in the cost-of-living. Small wonder that New Zealand (and the rest of the Western world) was plagued by strike after strike, as the unions made increasingly desperate – and ultimately futile – efforts to catch-up. Neoliberalism has many faults, but encouraging inflation isn't one of them.

A NEW FRONT has opened up in an old battle. The New Zealand Initiative (NZI) a think tank funded by this country’s largest corporations, has come out swinging against this government’s proposed “Fair Pay Agreements” (FPA).

As the linear descendent of the Business Roundtable, of unhappy memory, this is hardly surprising. For the NZI’s principal funders, preserving the gains of the dramatic changes in employment law which rounded-off New Zealand’s neoliberal revolution remains a high priority.

In the ears of New Zealand’s biggest bosses, the FPAs sound too much like the old “Industrial Awards”, which, for nearly 100 years, underpinned the industrial relations system swept away by the Employment Contracts Act 1991 (ECA).

It has been an article of faith among trade unionists (and the Left generally) that the passage of the ECA led directly to a decisive shift in the balance-of-power in the workplace. Not only between the boss and the union, but also – and more generally – between wage and salary earners and shareholders. The ECA has caused the share of national wealth claimed by the workers to shrink, the Left insists, while growing the share claimed by the capitalists.

All the other arguments advanced by the labour movement: that the employment relationship, as modified by the ECA and its successors, has grown increasingly one-sided and unfair; is based upon this crucial statistic. If the size of the Capitalists’ slice of the national pie has, indeed, grown relative to the workers’ slice, then change is justified. If, however, the slices have remained more-or-less the same, or, if the workers’ slice is growing (albeit very slowly) then the Left’s case for change is weakened – perhaps fatally.

Hence the NZI’s latest offensive: a statistical dagger-thrust at the unions’ key argument that unjust employment laws are keeping the workers poor, weak and exploited. Here’s the point of the dagger:

“[I]t is claimed current labour market settings have seen a decline in the share of New Zealand’s gross domestic product (or “share of the pie”) going to workers. This concern is a myth. The share of GDP going to workers did decline in the late 20th century, but this fall largely occurred in the 1970s and 1980s (at a time when New Zealand had a system of industrial awards similar to the FPA arrangements proposed by the FPA[Working Group]). Since the 1991 reforms, the decline in workers’ share of GDP has been arrested and is now trending upwards.”

Could this possibly be true? Actually, the NZI just might be right.

A week or so ago, while researching another topic entirely, I had cause to refer to my late mother’s amazing collection of Encyclopaedia Britannica yearbooks. In the entry devoted to New Zealand in the year 1977, I read with astonishment that the rate of inflation recorded for 1976 was 15.6 percent. In March of 1977, however, the Wage Hearing Tribunal had awarded wage workers an across-the-board increase of just 6 percent. The unions had asked for 12.8 percent. In other words, the purchasing power of the ordinary worker’s real wage had shrunk by at least 6.8 percent – probably more.

No matter that union membership was compulsory in 1977. No matter that industrial awards mandated a minimum set of wages and conditions across entire occupational groupings. The purchasing power of the ordinary worker’s pay packet – the only meaningful measure of his or her wealth – was being eaten away every passing year by these seemingly inexorable rises in the cost-of-living. Small wonder that New Zealand (and the rest of the Western world) was plagued by strike after strike, as the unions made increasingly desperate – and ultimately futile – efforts to catch-up.

Clearly, there were more ways of killing the poor old worker’s cat than by hitting it over the head with the ECA.

The Council of Trade Unions may be right about the ECA and its workplace bargaining setting off a “race to the bottom”, whereby wages are constantly being suppressed by employers competing aggressively to reduce the size of their wage bill. But, the very same rigors of competitive neoliberal microeconomics are also preventing employers from simply passing on the wage rises secured through collective bargaining into the price of their goods and services.

While neoliberalism holds inflation in check – allowing workers’ real wages to rise – the trade unions will struggle for members – and relevance.

This essay was originally published in The Otago Daily Times and The Greymouth Star of Friday, 12 July 2019.

Neoliberalism: Coming And Going.

The Beneficiary Of Chaos: Television New Zealand’s current affairs flagship, Q+A, interviewed Stephen Jennings, the former Treasury official and New Zealand investment banker who took advantage of the collapse of the Soviet Union to make himself a billionaire.

 

IT WAS A LONG TIME AGO, the late-1970s, possibly, or the very early 1980s. My father and I were watching one of the many current affairs shows then broadcast by the state-owned television network. The guest was a very young Alan Gibbs – at least that’s the way I remember it. If it wasn’t him, then it was someone who looked and sounded very much like him.

 

It was an odd interview. Not in terms of the production itself, but because in those days people espousing the views of businessmen like Alan Gibbs were very few and far between. In New Zealand, at least, the post-war Keynesian settlement still reigned supreme. Lassiez-faire capitalism was something students read about in economic history textbooks. In the 1970s, most responsible intellectuals dismissed unregulated capitalism as a ruthless and highly exploitative form of economic management, long since discarded by civilised nations.

 

That’s what made the interview so memorable. The young businessman (Gibbs?) withstood the interviewer’s rather condescending line of questioning without flinching. Every aspect of the post-war settlement: the welfare state; public ownership; compulsory unionism; import-licencing; guaranteed prices; came under his withering critique. My father and I looked at each other in alarm. We’d never heard anything like it. At the conclusion of the interview, my father turned to me and said: “Men like that are dangerous, son. If they ever gain a serious following in this country they will cause tremendous harm.”

 

It was New Zealand’s first encounter with what we today call “neoliberalism”. Within five years of that interview, however, Keynesianism was on the defensive. Businessmen like Gibbs and his fellow asset strippers were being lionised in the business press. Defenders of the status quo, like Rob Muldoon, were being pilloried. The new economic order, guarded by Margaret Thatcher in the UK, and Ronald Reagan in the USA, had made the world safe of dangerous men. Here in New Zealand – just as my father had predicted – they were all getting ready to inflict tremendous harm.

 

What made me think of this prophetic television encounter from 40 years ago? Unsurprisingly, it was another current-affairs interview.

 

On Sunday’s Q+A (17/7/16) Corin Dann interviewed Stephen Jennings, the former Treasury official and New Zealand investment banker who took advantage of the collapse of the Soviet Union to make himself a billionaire.

 

Jennings’ firm, Renaissance Capital, made five billion dollars buying and selling the property of the Russian people. The new, laissez-faire economy Jennings and his fellow oligarchs constructed on the ruins of the USSR proved to be more than usually dangerous. Perhaps the most dramatic measure of the tremendous harm it inflicted was that, as the Oligarchs and their kleptocrat political allies imposed capitalism on their nation from above, the life expectancy of the Russians actually fell.

 

Today, Jennings oversees a continent-wide property development enterprise constructing massive suburbs on the outskirts of African largest cities. As low-wage economies cascade out of Asia and into the last, great, untapped pool of cheap labour on the planet, Jennings will be there to ensure that their new, middle-class overseers have somewhere suitable to live.

 

Whether Africans prove to be as biddable as Russians remains to be seen. All the signs point to the great wave of globalisation, out of which Jennings extracted his super-profits, as having already broken. As it recedes, the neoliberal doctrine, which for forty years has been used to justify the globalisers’ moral and environmental excesses, is beginning to sound increasingly hollow.

 

Not, of course, to the members of the NZ Initiative (successor organisation to the NZ Business Roundtable) who were happy to provide an audience for Jennings’ unreconstructed neoliberalism. Nor, indeed, to Act’s David Seymour, in whose “Free Press” newsletter Jennings is lauded like a rock-star. But to those of us who have heard enough neoliberal rhetoric over the past 40 years to last several lifetimes, Jennings performance came across as just one more iteration of a policy prescription that has succeeded only in making the world a less equal, less habitable, and less free place in which to live.

 

As Dann concluded his interview with Jennings, it occurred to me that I had been witness to both the beginning and the end of an era. Gibbs and Jennings are neoliberal proselytisers of formidable energy and unwavering certainty. That much, at least, remains unchanged. The difference, of course, is that in that first interview the ideas expressed had yet to be tested in a modern context. In Jennings’s case that is obviously no longer true. The world now knows what happens when capitalism is unbound. Its harm is all around us.

 

My father knew, instinctively, that business leaders like Gibbs and Jennings were dangerous men. Would that he had lived long enough to see the self-serving character of their ideology made obvious to everyone.

 

This essay was originally posted on The Daily Blog of Monday, 18 July 2016.