Just Left

Flat tax ruled out

I'm pleased to see (Stuff) that John Key has ruled out the adoption of a flat income tax in New Zealand.

Flat taxes are a nirvana of the fringe right. They increase the income of high income earners and decrease that of low income earners compared with a progressive income tax system - in other words, they make life harder for people on struggle street and easier for people who already have it easy.

The supposed economic benefits may be there in theory, but in practice the progress of an economy is about much more than the structure of its income tax system. New Zealand's economy has been held back by being treated as a branch economy by foreign investors, by low wages that have come in part from weak unions and a de-regulated labour market, by a lack of public and private investment in science and innovation, by a lack of market penetration by our largest firms in foreign countries, and by a monetary policy regime that just doesn't deliver a reasonable real exchange rate position for export growth.

Anybody who thinks that a regressive change to the tax system will fix those problems needs their heads read. It's reassuring that the Prime Minister is not one of those people.

Jordan

Referendum it is(n't?): National isn't listening.

Labour Leader Phil Goff is reported calling for a referendum on the proposals for reform of Auckland local government. His media release on the subject is here.

The National-ACT government now faces a simple choice: will it let Aucklanders have their say, or not?

If the answer is no, then National isn't listening. 

I had some sympathy with the Royal Commission drafting simple legislation that didn't include the consultation processes that are already in the law, because it had consulted on what it was proposing.

National tore up the Commission's report. It is proposing a new model that has had no consultation at all. Aucklanders deserve real input into that, and if the model stands as proposed by the Government, then we need the chance to vote it down.

National-ACT are already sending signals that they don't want a referendum. What are they scared of? The people making a decision?

Pretty strange thing for listening politicians to do, isn't it. Oh, wait - they aren't listening after all...

Softening us up...

The coverage this morning (Stuff, Herald) that forms part of the pre-Budget PR activity by the government should be putting all progressive New Zealanders on alert.

There is no question that the economic situation is serious; no question that the Budget deficit is going to be very large; and no question that because of the decisions of households and firms over many years, New Zealand's net international position is highly indebted and restricts greatly the opportunity for government to borrow.

Those things are all true. 

So is this:

"You can't cut your way out of a recession."

Thus spake Alistair Darling, the Chancellor in the UK, in the run up to this morning's British budget. He is right. You can only grow your way out of a recession. Cuts - to public spending in particular - will make the problem worse, not better. If the government uses this Budget to make cuts to public spending, then it will deepen the recession and create higher unemployment.

What should they do?

• change the tax cuts just given from benefiting the highest income earners, to benefiting the lowest income earners - and probably don't give major new tax cuts in future.
• Invest some money in making sure that there are job and training opportunities available for those who do get laid off during the recession. 
• Focus on economic growth and, if required, tax increases to stabilise and then reduce the Budget deficit once growth resumes - not before. 
• Protect and promote the public services that people need during the downturn, rather than cutting them. 

Most important is the focus on growth. Cutting spending during a recession will worsen the recession and increase the permanent loss of income, the permanent damage of unemployment, and slow down the resumption of growth. It should not be the approach taken. If the international funding constraint means that the Budget deficit really does have to be reduced, that has to be done in ways that do not affect public services or flows to households. Public sector investment is the obvious one to squeeze in such a situation.

  
What I fear is more likely is a Black Budget, which will follow National's traditional agenda of cutting the state and offloading costs onto individuals - especially those with the lowest incomes. So look out for higher tertiary tuition fees, "adjustments" to state housing rentals, cuts to community and voluntary sector funding, further sackings of public servants, constraints on school operating grants, reduced funding levels for Health Boards compared with plans, and so on.

I also expect that National will cast Labour as the villain of the piece, blaming us for the recession in defiance of the obvious effects of the financial crisis. They will simultaneously deny Labour any credit for the low levels of public debt and prudent investments that were made in the course of the past nine years. That is what governments always do, fair and accurate or not, but it's still moderately irritating.

Finally. Someone on the radio this morning mentioned possible privatisations to help finance the deficit. That is just dumb. Selling assets to meet a short term budget deficit is madness. You borrow or you tax. You do not sell out the future.

The Withering of the Private, and the Growth of the State

In the 1990s, Simon Upton and Michael Cullen had consecutive essays in NZ Books. Simon’s piece was called the Withering of the State, if memory serves, and was a classical liberal defence of private over public. Michael’s was a moderate and sensible 90s social democratic response, which avoided the flummery and triangulations of “Third Way” rhetoric and practice to an admirable extent.

Those two essays, more than ten years old, came to mind as I was recalling an argument with a mate in Sydney about the state government’s attempts to privatise the electricity generation system. The argument was that massive new investment would be needed in generation assets, and that the state’s budget could not cope with the demands. Far better to privatise that problem and leave it to the market. 

I am not an instinctive privatiser, and didn’t really buy the argument that privatising the assets would save anyone anything much. The investment would still need to be found, and the citizens of New South Wales would still need to pay the cost. The question was which would be cheaper in the long run, and government credit often is so long as the companies involved are not badly run.

The reason, in turn, that I was recalling that conversation was an essay by John Quiggin about the social democratic response to the financial crisis. He makes the case, very briefly, that the collapse of financial liberalism as a governing project means a new opportunity for social democracy as the most rational way of managing the risks created for people, families and communities by capitalism. 

In particular, he sees a permanent, larger role for government in both managing a more restricted financial sector, and in providing more human services to drive employment and to meet the demands of the public for higher quality public services.

The relationship between these rather disparate points of interest is simply this. The global financial crisis has kicked the stuffing out of the idea that the market is always right and that government is always the problem. 

That argument was never true and never reasonable, but it was the orthodoxy. Now though the fact that it wasn’t true is too hard for the public to ignore. The prophets of the past have been seen for what they are, and their influence over the shape of things to come is at an end.

Now that we can sustain a healthier and more nuanced debate about the relative strengths and weaknesses of the public and private sector, we should be able to build a global economy – and one in New Zealand – that is less susceptible to a repeat performance. Additionally, it should be an economy that is more in line with social democratic aspirations about a more equal and fairer society.

In those nuanced debates, one of the interesting ones is: how do you finance infrastructure through private involvement (telecoms, electricity, sometimes roading, sometimes water, sometimes ports, sometimes airports) when the massive flows of private sector investment capital that have provided so many of them are starting to dry up?

I recall attending a conference organised by NZCID in Auckland last year, where there were several bank economists (of all people!) who were arguing in a sense that the financial crisis had shifted the relative costs in favour of public investment, and against private investment in such goods. Governments’ cost of capital advantage had increased as the risk-aversion spread further through the system.

Now I beg to suggest that that risk aversion is going to be a long term change, and that we are not going to again see such a ready supply of global capital to finance investment. The state is going to have to play a greater role, whether it is in the New South Wales energy market, or whether it is in New Zealand (and Australia’s) new broadband networks, or in other areas of infrastructure.

So far from the withering of the state that Don Brash, Ruth Richardson, Roger Douglas and co wanted to see, and which Simon Upton wrote of so eloquently, we will instead see a withering of the private. The state is on the move, its relevance more clear and more vital in a day to day sense than in the quiet and easy years of recent times.

A final thought. The New Zealand Labour Party needs to take serious looks at these issues as it develops its programme for the 2011 election. The liberal straight-jacket that was part of Labour’s economic agenda in the 2000s has broken up, and times have changed. 

Will Labour change with the times? If so, how? (I suggest yes, and carefully.) National has clearly changed. It is too early to know what into: what is clear though is that the worst excesses of the liberal fundamentalism of the 90s are being carefully painted out. We will not know really until next year’s Budget whether that is an act or whether it is the real thing, but either way Labour will still need to change. An interesting project for the next three years.

Making oneself think, and repeating the point

Blaise Drinkwater has a new blog, on which one of his posts was an analysis of my Tuesday post on National's value-less government. Blaise is a smart guy: his blog ought to be well worth reading.  He links to a post I did in 2004, which talked about the role of pragmatism in politics.

Re-reading that post, what strikes me is that over four years and a bit, my views have not changed much. In that typology, I still define myself as a Group 2. My post on Tuesday defined the fifth National government, to date, as being Group 3.

I also don't usually talk about the audience for posts I write but in this case I'll make an exception. As a centre-left activist I have heard too much complacency for my liking: too many people saying "National will revert to type, don't worry."

They are wrong, those people, and I want my fellow lefties to consider the opposite extreme: that National might stand for nothing.

There is a good tactical reason for this: National would be hardest to beat if indeed it would do anything, and indeed stood for nothing. My view is that they are closer to that (than principled extremism) than they have been for some time, and that that is why they did well in the election and why they will be hard to beat.

What the left needs to do is have a project and a campaign that can take on the Nats and beat them in 2011 no matter how hard that is. The complacency of "revert to type" thinking makes inventing and running that campaign harder, not easier.

It is far better, after all, to overestimate your opponents and to think them hard to beat, than to do the opposite. 

That's why I wrote the post: as a wake up to some of the left readers here.

The strange thing, which I alluded to yesterday, is that instead the people it has got going are on the other side of politics. From the tenor of their critique, they reacted more to the slightly over-puffed rhetoric and swipes more to the substance.

Question is: where's the left? Do you lot agree with my view, of steely pointless pragmatism? Or do you think there is a Douglas ghost ready to ooze out? Or some combination? Or another answer altogether?

Is That It?

Matt Hooton and Laila Harre were bemoaning the lack of a narrative for the new government on the radio on Monday.

Here's my narrative: 

IS THAT IT?

It applies to two things today:

Resource Management Act

National's proposed changes to the RMA should be held up to the test that Nick Smith set for himself on the radio this morning. He said their aim was to not change the decisions that get made under our planning law, but instead to simply speed up the process. 

That's fine for me: efficiency should be improved whenever it can be, and public services (of which planning is vaguely a part) should always be aiming to become more user-friendly.  National's steps away from their earlier daft promise to re-write Part II of the Act also help with hoping that Smith might be right, and that this is not a gutting of the Act.

But: is that it? I thought the RMA was "fundamentally flawed" and "a handbreak on growth". If that sort of rhetoric is true, surely the whole thing should be abolished and the market allowed to rule, as ACT would like?

SME Package

While Kevin Rudd throws $43bn at the recession, John Key's government proposes a few tweaks and bells and whistles that will make some marginal differences here. I have not looked in detail at his proposed changes, but the overall summary in the media seems to be, "that's nice but why can't you do more?"

What we know already is that Labour's last Budget provides the real foundation for the injections of spending power and investment the country needs to keep the worst of the crisis at bay. It is not Mr Key's fault that there is little he needs to do.

But: he needs to say so. He needs to come out and say: "Look. Labour's last budget did most of the heavy lifting in responding to this financial crisis. The spending increases and tax cuts were very big, and they are working with the RBNZ's interest rate cuts to do all that government can really do at this point."  If he doesn't say that, then I and others are entitled to ask: "Is that it?" For if he won't acknowledge that then he must have more up his sleeve.

None of which is to say there may not be need for higher debt and more spending, or that the government hasn't planned what it might do. Labour's May 08 Budget was written in a different context to today. We have plenty of room to move in terms of public debt if we need to -- so long as people will keep lending to us, that is.

Red Tories? New Wall Street Model?

I caught an interesting article "Rise of the Red Tories" in the February 2009 issue of Prospect,  which is a reasonably thoughtful UK current affairs magazine. Red Tory politics has a long history in Canada, being the only political project that has ever generated sustainable centre-right governments in that country. It also has a tradition in the UK where it is normally described more as Disraeli-style "One Nation" conservatism.

Red Tories share the neo-liberal distaste of the State as a concept, deeming it alienating and irrelevant to most people, unable to allow the diversity most people want. Radically different to neo-liberals though is their distaste of the concept of deregulated markets everywhere. They seek instead to build mutuality and organic social structures that rely neither on the State or the Market.

There is an apposite quote from Edmond Burke that helps explain why that is their focus:

"To love the little platoon we belong to in society is the first principle of public affections. It is the first link in the series by which we proceed towards a love to our country and to mankind." 

I think this is a fascinating lense into the debates that are happening in the centre-right all over the anglosphere. They know the neo-liberal project is dead: they do not believe in innate human equality and the project to build a more just society. Red Tory politics are an obviously attractive position.

On the other hand, the great anglosphere conservative parties have largely purged their "wets" or Red Tories, perhaps less here in NZ than elsewhere. They are now coalitions of neo-liberals and social conservatives: Red Tory thinking is hard to insert and does not inspire either of those big groups.  In Australia, in the USA and a bit in Britain, it's hard to see work. Canada's conservative government has reacted to its recent parliamentary difficulties by going directly back to the Red Tory politics that defined the Progressive Conservatives in the 1980s - politics which gave rise, ironically, to the hard right conservatism of the prairies and the West which led to the new Conservative Party that has now sold out it's very reason for being in order to hold onto power.

Anyhow, I am interested to see what people in NZ think of how this thinking applies here. Is John Key a "Red Tory"? Discuss.

Also worth a read is a piece from the New Left Review called "Crisis in the Heartland" which suggests a different analysis of the current financial crisis gripping the world. As the NLR describes it:

"Against mainstream accounts, Peter Gowan argues that the origins of the global financial crisis lie in the dynamics of the New Wall Street System that has emerged since the 1980s. Contours of the Atlantic model, and implications—geopolitical, ideological, economic—of its blow-out."

Certainly worth a read. The New Left Review has a very different perspective to most of what you will be reading in New Zealand, both in the media and in more specialist publications. It's a point of view that does deserve to be heard, I think.

Also thoughtful if from a more orthodox point of view was the speech the RBNZ Governor gave in Canterbury last week. You can see a PDF here.

The point I would make is that this is an historic, unparalleled, bizarre and deeply serious crisis. It extends all over the world and through the real and financial economies. None of us should presume to have a clear understanding of its causes and how to fix it, not least because it is not finished yet. Instead, we should be thinking hard and considering as many different points of view as we can, while the crisis evolves and hopefully winds to a close.

Only by so doing can we rebuild afterwards in a way that limits the likelihood of a repeat disaster. That's something worth taking seriously.

What comes next?

So, we know now that the intellectual ascendency of the "Markets are Always Right" point of view in public life has come to a shuddering halt. 

We also know and have known for a long time that any vision that saw the abolition of markets and their replacement by some kind of planned society and economy could not work.

The most interesting question is what comes next. In principle, a restoration of what some IR scholars would called embedded liberalism may return to the scene on the global stage: far stronger international regulation of world economic flows both in trade and of capital, and better institutional backing to prevent the emergence of large debt or asset bubbles.

At the domestic level, there will be public calls for less risk to be worn by members of the public, and more shouldered by the community - especially during the sharp recession that is looming across the developed world. Those calls are reasonable, for at their heart is a simple argument: that working together we can provide a level of security and comfort for all of us, no matter what the global economy throws our way.

This marks a major opening for social democratic politics. Not the old politics of smokestack social democracy, but a continuation and development of what the Clark government was trying to do: combine a greater measure of economic security and development with proper care for the environment and a fairer, more just society.

Those things do appeal to the punters when you talk about them. If people come to the issues in a non partisan light, they end up on the same side unless they have direct economic interests at stake that are tied to the status quo. 

What are the implications for domestic politics? 

I would not put it past the National Party to clothe itself in the rags of social democracy. National doesn't believe in a fairer society but it knows that most Kiwis do, and since its major reason for existence is to win elections, it would not find it too much to bear to adopt a sort of vaguely liberal, vaguely conservative, vaguely sensible policy framework. The problem is that National activists, many of their backers, and their allies in ACT reject that approach entirely. They want the return of the 1980s/90s liberal experiment, because their thinking is stuck in the past. 

For Labour the challenge is relevance. We have the advantage of actually believing in a balanced approach, and an ideology that is relevant for the times. To overcome incumbency of a first term government requires much more than that, though: it calls on us to critique justly, to argue hard and to show not only that we are relevant, but that our vision of a different society is the one New Zealand needs.

For ACT, it means an ongoing decent into irrelevance. And for the Greens it poses the hardest challenge of all, given Labour has no choice but to bring Green politics further and further into the heart of its manifesto. If we don't, we will fail the test of delivering the policy the country needs. If the Greens buy that, they become more marginal. If they fight on issues like closing trade, being anti-science, etc, they will simply limit their constituency.

It's a very interesting background for the debates of the next couple of years. Every honest person in politics knows we cannot do things the same way, because of the financial crisis and the challenge of global warming. The contest will be about who can deal with those things best.

President Barack Obama

Like many others, I was up at around 5.20am this morning Auckland time to watch the inauguration of my generation.

You expect a good speech from Obama and you are never disappointed. It was not the sort of mushy high-blown rhetoric that some other presidents have used; and you also get the sense that he is not reading words so much as expressing what he thinks and what he intends to do.

I know that all speeches are meant to be like that, of course, but trust me: most don't even come close.

My favourite passages:

We remain a young nation, but in the words of Scripture, the time has come to set aside childish things. The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free, and all deserve a chance to pursue their full measure of happiness.

This is the President who can renew the social contract in America, and who in so doing can combine it with the sort of environmental stewardship that secures the future of human life on earth. He is not talking about a small project, this man.

Another:

[T]hose values on which our success depends, honesty and hard work, courage and fair play, tolerance and curiosity, loyalty and patriotism - these things are old.

These things are true. They have been the quiet force of progress throughout our history.

What is demanded then is a return to these truths. What is required of us now is a new era of responsibility - a recognition, on the part of every American, that we have duties to ourselves, our nation and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task.

This is a wonderful statement of the idea at the core of progressive left politics: that there is more to life than the self, and that what happens to all of us together matters as well.

It is a speech that stands with the best, and watching it this morning was something I can never forget. If anyone in politics or public life ever thought that the ability to speak to the moment, to persuade and inspire, just didn't matter, then surely the whole trajectory of Barack Obama from his 2004 Convention speech to this morning's Inauguration speech is all that you can need to think again.

If you missed it and want to see it, find it online. You'll find the time well spent.

Out one pocket, in the other

So the front page of this morning's Herald offers voters a stark choice. National would like to take $50 a week out of your pocket for road tolls, instead of funding them from general taxes.

Their income tax cuts would, in other words, be literally a case of into one pocket and out the other.

The policy has already been wound-back a bit by Bill English this morning, but Williamson has credibility on this. He was working on privatising the whole roading system last time he held a Ministerial warrant. There is, I suppose, no particular reason to think he has changed his mind - which is why his party's leadership will now try to apply a snow job to cover up yet another hard edge.

The fact remains: National wants drivers to pay at least $50 a week to drive around Auckland - on top of petrol tax.

There was also discussion over the weekend about the desire - for no apparent reason - to use high-cost private finance to build school and hospital premises.

Such creeping privatisation - roads, hospitals, schools - is a way of gifting funds to the private sector out of the public. The only time a PPP is even worth thinking about is when the funds involved are enough to incentivise the private investor to take risk seriously, and when a capable state agency has the ability to monitor and enforce a contract that works in the public interest.

So far, that only looks like happening with the Waterview connection in the Auckland motorway network, and if it can deliver good value to the public, then it should be done.

To impose your ideological model on other aspects of the public estate only shows one thing about National: that they remain committed to transferring resources out of the control of the public, and into the control of the private interests they exist to represent.