Tuesday, February 7, 2012

Taking back the public interest

This was drafted last year before the doo-doo hit the fan at our place and everything came to a grinding halt. Last week Treasury has released its Briefing to the Minister exhorting the government to implement more of the same intellectually sterile policies that have failed ordinary New Zealanders for about the last 30 years, so Spider and I thought it was time to dust this off. We'll make a couple of brief comments on the Treasury Briefing sometime in the next few days.


A 2010 paper by Richard Walker (Richard Walker, 2010, The Golden State Adrift, New Left Review, 66 November-December 2010) considered California as the state that led the way for neoliberal economic restructuring, the subsequent running down of its social and physical infrastructure, and its most recent phase as the epicentre of the real estate meltdown and Great Recession in the US.
Although California differs from New Zealand in a number of key respects, the picture Walker paints shows broad parallels between California and New Zealand's experience under neoliberal economic governance. We also see commonalities between New Zealand under a business-friendly National government and California's in/ability to both pull itself out of the economic mire and revitalise its democracy.
For the sake of brevity, this essay will focus on two aspects of these parallels: the shift in the economic base to a service economy; and New Zealand's changing demographics and the challenge it presents for politics as usual.

Out with the old

Walker describes California as the “bridgehead" for neoliberalism, and indeed California provided an early glimpse of the damage neoliberalism was to do to living standards and economic security across the OECD: fewer public services, stagnant real incomes for low- and middle-income earners, the rolling back of social security, and increased income inequality.
If California was the bridgehead for neoliberalism, New Zealand was the country most enthusiastic about using its citizens as cannon fodder in a globalised class war that has eroded their ability to earn a decent living and be better off than their parents. The economic restructuring that seriously got under way in 1984 under the 4th Labour government gave New Zealand the dubious honour of the fastest rising income inequality in the developed world.
This was - and remains - the one economic indicator in which New Zealand is the OECD's star performer.
Since 1984 the New Zealand economy, along with most other OECD countries, has been restructured to free the flow of capital, particularly financial capital. A key outcome of this has been that manufacturing has moved offshore to cheaper labour markets. In response the government has tried to compete with low-wage countries by removing labour market protections to force the workforce to be more ‘flexible’, and backing this up with cuts to the social safety net – the so-called ‘race to the bottom’. This has meant static real wages for most middle- and low-income workers, and a slump in the incomes of those receiving social security. While real wages rose in the 2000s it is now clear that this was achieved almost solely on easy credit. In the protracted ‘correction’ that has followed, the ‘austerity' mantra has been used to launch a further assault on employment conditions and the social safety net supposed to protect people from adversity.

The death of manufacturing and the rise of the casualised workforce

A key part of New Zealand's macroeconomic restructuring was the lowering of trade barriers, including the abolition of most tariffs and the scrapping of the import licencing system that had been in place since the late 1930s. This was supposed to make local manufacturers more ‘efficient'.  ‘Sunset industries' that could not compete with the flood of cheap imports would die, while the newly flexible labour force would find jobs in the more efficient and competitive economy. The removal of tariffs and import restrictions decimated the manufacturing sector. To help fill the gap left in household incomes more women moved into the workforce (a trend already under way and not exclusively due to falling household incomes), with the labour force participation rates for married/living as married women rising from 56% in 1987 to 68% now.
This economic shift represents a profound change in New Zealanders’ employment pattern and the nature of that employment.  This has attracted little attention yet has an impact on people's ability to obtain and keep secure, decently paid employment in the 21st century. Since 1989 the percentage of gross domestic product (GDP) accounted for by manufacturing has fallen from 16% to 10%. In the same period the share of GDP accounted for by the service sector has risen from 21% to 29%. All other sectors have remained relatively constant, with the exception of services. As full-time jobs have been lost in manufacturing, they have been replaced by service sector jobs. In fact this masks a deeper change. Service sector jobs are more likely to be part-time, and because service sector jobs pay less, the service sector is now employing a greater proportion of the workforce than indicated by its increased share of national output. Women make up the majority of part-time workers, a fact that has long-term economic implications for them in the event that saving for retirement becomes compulsory.
This can be seen by considering the number and type of jobs in the economy. In 1989 one in four full-time jobs was in manufacturing. In 2011 that figure had fallen to less than one in six. Over the same period, the proportion of full time jobs in the economy as a whole had fallen from 78% to 70%. In other words full time jobs in manufacturing are being replaced by part-time work in, predominantly, education, training and healthcare. As for primary industries (farming, mining fishing, forestry), their share of employment has been static throughout the period. With so few services based in rural areas, it is no wonder that much of the younger working aged population in rural areas has left to live elsewhere.
It is perhaps timely to reflect what these changes might mean as the government embarks on yet another economic restructuring in favour of financial capital, including changes to reduce worker protections and probable cuts to welfare. The 2011 budget forecast the creation of 170,000 jobs between 2011-2015. Yet there have been only two four-year periods since 1989 (as far back as the records go) where 170,000 jobs or more have been created in the economy, and that is the four years to March 1997 and March 1998. This was a period when the economy was coming off the very low base of the 1991-92 recession, and growth was driven largely by Auckland's apartment boom and the spending of new immigrants. Moreover, there is an important caveat to this apparently rosy picture, and that is that in both of those periods only 55% of the jobs created were full-time. More sobering is that in the four-year period ending March 2011 the economy created a slim 4,500 jobs, of which only 12% were full time. So the forecast of 170,000 new jobs over the next four years, with its implied promise that they will be full-time jobs that will soak up the majority of the unemployed is optimistic, and arguably mischievous. Add to this the fact that the government is gearing up for welfare reforms that will undoubtedly cut payments and eligibility (as signalled by Treasury's 2012 Briefing to the Incoming Ministers), and New Zealand's slow rate of full-time job creation starts to look like a social catastrophe in the making.

Uneven impact of the casualised labour market

A similar story pertains across the OECD, although New Zealand with its more masculine version of neo-liberalism stands out as a weak economic performer. One factor New Zealand has in common with other countries is that the outcome of labour market casualisation and cutbacks to social assistance have led to a widening income gap and increased poverty. This increased poverty has not, however, been evenly distributed across the population, with Maori and Pasifika, and young people having higher than average rates of unemployment; poverty disproportionately falls on sole parent, Maori and Pasifika families with children; and the casualised, part-time, low-paid workforce is predominantly brown/female/older. New Zealand's population growth rates are above the OECD average, but the greatest proportion of that growth is within low-income Maori and Pasifika families, to the extent that by 2026 Statistics New Zealand mid-range population projections predict that 37% of the population will be of Maori, Asian or Pasifika descent. And this population will be much younger than the greying baby boomers they will be supporting. By 2031 one in five New Zealanders will be aged 65 or over, and this young, brown population will be crucial in providing the economic base on which they will depend.

Towards the toll-booth economy

And it is here that we see the potential for a great unraveling. New Zealand's economic policies of the last 30 years have mostly benefited its white, property-owning, ageing population – arguably a proxy for the financial capital that now dominates economic policymaking. New Zealand has no death duty, no taxes on property, and social services for the young have been cut back, to be replaced by what economist Michael Hudson describes as a toll-booth economy which disadvantages those on low incomes. Recent changes include eliminating duty on gifts to tax-avoiding trusts, and a flattening of the tax structure, further disadvantaging low-income earners. These policies have been designed by, and benefit, the predominantly white gerontocracy that dominates New Zealand politics. There is nothing that suggests policymakers recognise that the future workforce is the group that has been most disadvantaged by changes in the employment market and inadequate social support. Focused as they have been on relieving the burden of those at the top of the income scale, our democratic institutions have not only failed to account for New Zealand’s changing demography, but its radically changed sociospatial and cultural landscape as well. It cannot be in the public interest to ignore these shifts for the benefit of a handful of the well-heeled. And it reflects poorly on our democracy when the wellbeing of citizens is put to one side in favour of an economic system designed to benefit the few. Yet this is exactly what is happening.
The deep structural shift that has taken place in New Zealand has been accompanied by a seeming unspoken consensus among the political elite and its mostly compliant media that considerations of the wider public interest are off the agenda for discussion. But the continued reconfiguration of the state as an agent of business rather than a representative of the people means that the public interest must be put back on the table. The twin assaults on labour and those dependent on social assistance affects almost all of us – our families, our neighbours and friends – individually and collectively. Resisting the narrow interests that shut so many people out of politics will require efforts across sectors - unions, beneficiaries, churches and organisations with an interest in improving the lot of the insecure majority. The public interest is theirs to take back.

All data from Statistics New Zealand Infoshare.