Kuslan Sugathapala: Return to economic decency long overdue

Almost every social indicator - prison numbers, gangs, housing affordability, youth suicides, and unemployment - deteriorated sharply after 1985. Photo / Dean Purcell

Opinion

OPINION

"What we have had is not reform but revolution. A wrenching of our economic lives fundamentally, away from decency."

So wrote Tim Hazledine, Auckland University professor of economics, 24 years ago in his book, "Taking New Zealand Seriously. The Economics of Decency".

His words still resonate as timid ineffective actions or even harsher policies from successive governments meant problems created then are still with us. In many cases, even worsened.

Rogernomics was rushed and driven by ideology. Primacy was given to the big business. There was no emphasis on competition, enabling a few to capture markets – monopolies, duopolies and monopoly-like industries. The Commerce Commission lacked teeth, allowing superprofits in many sectors. We sold off state assets cheaply at the bottom of a recession.

Ruth Richardson's Mother of All Budgets slashed benefits by up to 25 per cent, making life even more difficult for the poor. The state housing selloff and change to market rents led to the horrendous housing crisis we are enduring. The Employment Contracts Act decimated the unions and the bargaining power of employees, leading to a significant drop in labour's share of the income pie.

For society, it has been a disaster; for the poor calamitous. Poverty rates nearly doubled; inequalities widened. Almost every social indicator – prison numbers, gangs, housing affordability, youth suicides, and unemployment have deteriorated sharply since 1985. You can pretty much draw a line – before and after.

While social problems were perhaps predictable, the reforms have also failed in their promise of growing the economy. According to the Productivity Commission, our productivity growth is below other developed countries in the OECD and comparative countries like Australia and Canada. Our GDP per capita has been lower than 75 per cent of the top half of OECD (which excludes Eastern Europe and countries like Mexico) for the past 30 years. Quarterly GDP growth numbers mask the sluggish growth when adjusted for inflation and the increase in population. We are working longer hours even to get there. The Productivity Commission says the least skilled people with the fewest social and economic resources suffer most when an economy underperforms.

Problems hitting the headlines in the past year alone highlighted the shockingly high prices we pay for items that take a big chunk of our pay packets, such as petrol and food. The housing problem is taking the gloss off New Zealand's reputation as an attractive place to live.

Hazledine states, "Full employment is essential to the survival of civil society. It is the right and duty of all adults to participate in the economic process on terms of decent wages and conditions. Why do we now apparently need a massive reserve of unemployed (and another small army of underpaid employees) to keep the economy functioning when once we didn't?"

Kiwis didn't suddenly decide to be lazy in 1985. Economic policies made citizens unemployed, ostensibly to keep inflation under control and the labour market functioning. Almost 40,000 youth are unemployed at any given time. The call from Christopher Luxon for more support to get the young into employment is a step in the right direction. School leavers, immigrants and older unemployed need help to get into work or training.

However, our employers have become used to recruiting from overseas rather than training youths. A garage owner said he hires a mechanic from overseas every year. A restaurant in my neighbourhood is advertising for wait staff with a notice "experience essential". Seriously, when we are desperate for employees? We must identify where the real problem is.

"Capitalism works best when firms choose to or, if necessary, are required to take account of the wider interests of the community. Networks and natural monopolies should be explicitly regulated." Hazledine again, with Economics 101 – markets should be competitive and regulated if natural monopolies make more sense; industries like rail or fibre networks

"It is disturbing to have major investments and employment decisions that affect New Zealanders being made by foreigners and foreign-owned firms; because they do not and cannot have our interests at heart. They are attracted here by cheap labour and favourable tax regimes."

Nothing quite illustrates this as non-payment of corporate taxes by multinational and Australian corporations.

A Herald investigation in 2016 found that 20 multinationals with $10 billion in revenue paid only $1.8 million in company tax. The loss in tax revenues was conservatively estimated at $500 million, based on taxes paid in their home countries. It will be much higher as these companies use tax havens and loopholes to avoid paying their fair share of tax in their home countries as well. These are traditional bricks-and-mortar companies, not the internet giants. Will Microsoft and Amazon, which are planning significant investments here, pay their fair share of taxes?

Perhaps no other country is so foreign-owned except for tax haven-like nations. An analysis by the Herald showed multinationals among the top two-hundred companies accounted for 30 per cent of our GDP. They dominate many business sectors, even making inroads into mundane industries such as funeral services.

Why do we need even more foreign investment unless they are in areas where we lack local expertise? Driving out local businesses is the last thing we need.

Hazledine argues for making more of what we need locally, generating more higher-paid jobs and less free trade.

The EU fiercely shelters its agriculture, and the US is not keen on any more Free Trade Agreements. The Covid-19 crisis showed us the fragility of supply chains and the need for resilience that only local manufacturing can deliver. New Zealand followed free trade more enthusiastically than most countries over the past 40 years. We exported higher-paying manufacturing jobs and replaced them with lower-paid, less productive service sector jobs in hospitality, tourism, retail etc. Services now comprise 70 per cent of our economy.

Kushlan Sugathapala. Photo / Supplied

We are underinvesting in research and development, a key area for increasing productivity. Our R&D spending has increased under this Labour Government but is still only 60 per cent of the OECD average. As measured by PISA scores, education standards are slipping. The long-term trend since 2000 shows declines between 4 per cent and 7 per cent across the three subjects.

"Wake up, pinch yourselves: the revolution has failed," Hazledine wrote. "The economists and politicians who don't see this are simply in a state of denial. Just about everyone can earn themselves a comfortable living if we get the processes right."

The call is more urgent than ever. The brand of capitalism we follow has failed. Protests from a generation left behind are rocking countries worldwide in a worrying turn towards populism and dictatorships, prompting some to say we have "a recession of democracy".

A crisis is often the catalyst for change. New Zealand has an opportunity now to get ahead of a situation that can worsen; orderly transitioning to a fairer, wealthier society.

• Kushlan Sugathapala is a researcher and writer on social justice issues.