Finance minister Grant Robertson speaks during Covid-19 financial response package announcement at Parliament on March 17. Photo / Hagen Hopkins, Getty Images
Finance minister Grant Robertson speaks during Covid-19 financial response package announcement at Parliament on March 17. Photo / Hagen Hopkins, Getty Images
COMMENT
The worst of the health side of this crisis is, hopefully, though not for certain, behind us. Many of us are now turning to other looming questions. How secure are our jobs? Are our livelihoods in trouble? How well has the economic rescue package of this Government been designed?
After the Global Financial Crisis in 2008, big banks got rescued in London and New York, even though many of their staff had personally built small, and large, fortunes. A view existed that a lot of this money had been made on the back of unethical behaviour. The Attorney General of New York spoke of a "shocking betrayal of trust". Outrage grew over the US Government's trillion-dollar aid package that had been stitched together, under pressure, in a rush.
The catch-cry became that Wall Street was saved but Main Street was left to drown.
Financiers had looted the public purse. The wealthy had privatised gains, yet socialised losses. Feelings grew among many low-income workers that a highly educated and sophisticated elite had rigged the system.
Doubt was thrown on the entire legitimacy of free markets. A backlash ensued. Populist political leaders rose to power in several countries.
Learning from this lesson, the Covid-19 economic rescue package in NZ should be designed with an ethos of dispensing aid at "grass-roots" level. It should take a "bottom up", not "top down", approach. The time has come for "trickle up", not "trickle down", economics.
However, our Government's package is veering wildly off such a course. When the wage subsidy scheme was first announced on March 17, it was aimed at helping those who were not rich or powerful. There was a cap of $150,000 on how much a single business could receive. This particular feature made it small potatoes to the big players.
Over the next six days, the NZ Stock Exchange 50 Index, which captures the value of our biggest 50 companies, fell 10 per cent. But big business was not to be outdone by the little snappers. The deck chairs were re-jigged, super-fast. The wage subsidy scheme got "modified".
On March 23, the cap was removed. Big business could start making big claims, big time.
The cost of the scheme suddenly blew out by $4 billion. Three of the biggest law firms in Auckland alone quickly grabbed $6 million out of the pot.
As a result, a huge part of this public subsidy now goes to firms labelled by the Ministry of Social Development as "large". These outfits have even been able to get up-front payouts for a full 12 weeks of wages, even though the level 4 lockown lasted just over one month.
Not surprisingly, one of the sharpest rises ever in NZ stock market history took place after March 23, the exact date when the cap was lifted. Over the next month, the NZX 50 index rose over 20 per cent. As small business busted, big business boomed. The "big company" index now sits higher than one year ago.
As the history of botched bailout packages repeats itself, misinformation is rife.
A dubious claim is doing the rounds. Namely that the public funds which large businesses have received are simply there to pass on to workers, and workers alone.
But that's not the full story. Those funds are also supporting the share prices of big companies and the pay of their senior executives. Had public money not been gifted to such firms, in many cases their workers would still have been retained. Wages could still have been paid, but instead out of profits and cuts to remuneration of bosses and partners. Even should these kinds of funding lines have failed, big business had other ways to support workers, like borrowing or stock issues. Such avenues are not open to many small enterprises.
Robert MacCulloch. Photo / supplied
In some sectors, it has even been illegal for small businesses, like fruit sellers, to operate, handing the large supermarket chains free rein.
Ironically, many bosses have supported the view that NZ has been a rock star economy. Big business has had 10 stellar years to make money and set aside funds for a rainy day. But when workers peeked into the cupboard, it was bare.
Not enough there, we were told, to even get through the lockdown days.
How can things be made right? Public aid transferred to big organisations should be returned. Even Harvard University is doing so in America. If large Kiwi firms won't do so voluntarily, clawbacks should be enforced by law. The proceeds should be redirected to strengthen our healthcare system, support small business and provide greater relief directly to workers who have lost their jobs.
The owners and top brass in our big firms rocked the past decade. Now their star may be about to fall. Even if due to an Act of God, it's time to face the music. Should a feeling of a betrayal of trust grow, then calls for more regulation and taxation of business will also grow. Populism will rise. History repeats.
• Robert MacCulloch is the Matthew S. Abel Professor of Macro-economics at the University of Auckland.
