Louise Humpage: Local beginnings to a global solution

Indonesia police clash with workers of mining giant Freeport-McMoran during a protest in Timika. Photo / AP

Thanks to both Dame Anne Salmond and Dr Paul Moon for focusing the nation's attention on the wider economic context that shapes our lives. Now that the Rugby World Cup is over and our general election is looming, we need to have more such debate about where New Zealand is headed as a country and, just as importantly, where it has been.

Moon disputes Salmond's view that the policies and philosophies promoted by successive governments are not working, arguing that "most concede that the rating downgrade was the result of a succession of crises that have afflicted the global economy". He is absolutely right that New Zealand's circumstances are shaped by what happens globally but the current crises are arguably the result of policies that most countries, including ours, have adopted over the past three decades.

The infamous Washington Consensus of the late 1990s saw an economic formula developed as a means for dealing with developing and defaulting nations facing debt crises become the global norm. This formula has seen tight fiscal discipline, deregulation of trade and the labour market and the corporatisation and privatisation of key government sectors, much of which is now in foreign ownership.

Most importantly when trying to understand current financial crises, the Washington Consensus encouraged the liberalisation of financial markets, the opening of capital markets and the removal of barriers to foreign direct investment.

This 'hands-off' approach has provided a climate where financial institutions have been able to adopt the kind of risky lending practices that almost brought the United States of America to its knees but where the governments of nation-states have been virtually powerless to intervene.

Moon asks for examples of specific policies: New Zealand's extreme and rapid adoption of the Washington Consensus formula means, as Moon points out, that our governments have limited control over its economic direction. When New Zealand was negotiating a free trade deal with China recently, someone pointed out to me that talk of "free trade" was focused on the Chinese side, because New Zealand abolished virtually all of its trade barriers two decades ago.

While this deregulation meant the price of many goods dropped dramatically, it cost of New Zealand jobs and of rising housing and encouraged greater consumption, leading to personal debt levels which, according to the Reserve Bank, have risen six-fold in dollars terms since 1991. Although the 2008 financial crisis saw some people tighten their belts, New Zealanders today spend around 147% of their incomes. Attempts to place rather modest legislative constraints upon credit lenders have been unsuccessful but ultimately only tinker with the edges of the broader global economic agendas that shape our lives.

They would certainly do little to address income inequality, which the evidence overwhelmingly shows rose significantly in countries who have adopted such an agenda. Moon tries to make a distinction between absolute and relative poverty to argue that being poor in New Zealand isn't too bad, but research that income inequality has an impact across society, not just amongst those who are poor. This includes poorer health and educational outcomes, higher rates of gambling, violence, smoking, drug and alcohol abuse, transience and crime and poorer levels of trust and belonging. We should all be worried.

Moon complains that Salmond does not provide alternative solutions, ignoring her focus on the types of values that we might want to keep in our sight when considering alternatives. She notes, for example, that we should care about inequality, our environment, our children. This is a valuable contribution because, as Moon suggests, a return to past policies may not be the solution. There is no point calling for greater government intervention in regulating financial markets in New Zealand until the very dominance of such markets has been challenged. Certainly, as the Occupy Wall Street demonstrations around the world have highlighted, this is a global problem that needs a global solution. But even global solutions have to start somewhere, so why not tell our MPs when they come calling over the coming weeks what kind of world we want to live in?

* Dr Louise Humpage, is senior lecturer in the Department of Sociology, University of Auckland