Scoop Election 08: edited by Gordon Campbell

Gordon Campbell on National’s shambolically popular style of government, plus the Israeli election

February 20th, 2009


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Much as he’d dislike the comparison, Bill English is being almost Bolgeresque in the non- ideological approach he’s taken to running the economy. Ruth Richardson, he isn’t. Corporate bailouts and four day working weeks are sitting up there alongside the old time religion of RMA changes and tax cuts … almost anything seems to be on the table. For this first 100 days or so at least, its national whiteboard time.

Besides not ruling out state bailouts for certain ‘iconic’ New Zealand firms – in order to save them from failure or foreign take-over – Key and English also seem willing to entertain the logical conclusion of that idea. Namely, that a bailout of last resort involves an ownership stake, and not just a handout disguised as bridging capital. So, if taxpayers stump up the money, they can be reasonably assured they will get in return a stake in the firms that are receiving government help – such that, when those firms are restored to financial health, the taxpayer can ultimately reap a profit when the stake is sold. Some people might call it nationalizing parts of the private sector. On every count, it seems fair and reasonable.

Not that it may happen very often, English stresses, if at all. Yet ideologically, the openness puts some welcome daylight between the government and its deeply unattractive friends in the Act Party, who tend to regard this sort of pragmatism as heresy. To the ideologues, firms should be left to live or die by the market rules, whatever the social and economic consequences.

It reminds me a little of the problem faced by Simon de Mountfort once his siege of the city of Beziers ended in 1209. The people inside the city included good Catholics and Cathar heretics alike, so how should he treat the inhabitants? ‘Kill them all,’ said the Papal Legate, who was clearly an early believer in the policy of the state not trying to pick winners : “God will know His own. “

That’s the modern dilemma. Good firms may perish in this crisis alongside the scoundrels, and there are some economic conditions for which ‘slash taxes and regulations’ is not a useful remedy. The Bush administration did both, and it made the global meltdown possible. Unfortunately, the only Plan B the Act Party seem to have for the subsequent economic crisis is ‘ Let them all die.’
Well, should governments be acting to bail out New Zealand firms who have been put at risk through no fault of their own by the global credit crunch ? IMHO, they can hardly afford not to. Of course, some would argue that the state would never be able to function as a good bank manager, even if it is only a bank of last resort. In reality though, the state does not have a hard act to follow. The private sector geniuses who have been running the financial system, as Paul Krugman recently pointed out, have managed to lose trillions of dollars in the space of a few short years. The state can hardly do worse.

Now, something must be done to shore up the financial system. The chaos after Lehman Brothers failed showed that letting major financial institutions collapse can be very bad for the economy’s health.

On the side, Obama has done some posturing about pay packages and bonuses for rogue firms, while ignoring the issue of ownership – which as I’ve indicated, is something that Bill English and John Key seem to have no trouble with, presumably on the sound principle that if you pay for part of something, you deserve to own part of that something. Krugman again :

So banks need more capital. In normal times, banks raise capital by selling stock to private investors, who receive a share in the bank’s ownership in return. You might think, then, that if banks currently can’t or won’t raise enough capital from private investors, the government should do what a private investor would: provide capital in return for partial ownership…If taxpayers are footing the bill for rescuing the banks, [ or, in New Zealand, saving the likes of Fisher and Paykel ] why shouldn’t they get ownership, at least until private buyers can be found? …We can’t afford to squander money giving huge windfalls to banks and their executives, merely to preserve the illusion of private ownership.

Some firms also can’t be left to fail, at the market’s whim. Letting Lehman Brothers fail was the final rock that triggered the global rock slide last year. Tellingly, English mentioned Lehman Bothers in passing at his appearance before the finance and expenditure select committee this week. The situation is a bit like global warming : longer term, the cost of inaction is higher than the short term cost of trying to avert a catastrophe.

But wait… there’s more in the Key/English lucky dip ! Four day working weeks – which was yesterday’s idea du jour – is not a new concept. According to this USA Today report from last August one sixth of all cities in the United States with populations over 25,000 already have a four day working week option, with Utah leading the nation in making the four day week mandatory for state employees. Most of the national savings are estimated to be in energy costs – which obviously would not be so substantial if, as early media reports suggest:

‘On the fifth day, the staff would work on community projects, with the Government picking up the tab, or go into government-sponsored training.

the version being touted for New Zealand envisages community service or training programmes on Fridays, sponsored by government. A three day weekend, partly subsidized by government ? If this was truly affordable, Key would be our own Hugo Chavez, and get re-elected for life. It isn’t. Still, as Alec Baldwin says in one episode of the TV comedy 30 Rock, there are no bad ideas in brainstorming.

Overall, the Key style of government has been like one of those old Westerns, where the sheriff forms a posse and it rides off in all directions at once. Highly energetic and shambolic during the pre Christmas in particular, the Key posse has also been part lynch mob at times. It inherited the three strikes criminal sentencing bill from Act. Too bad that, as Attorney-General Chris Finlayson has reported to the House, the core of the ‘three strikes’ bill is inconsistent with both the Bill of Rights Act and the Crimes Act, because of the vastly disproportionate sentences it would create for essentially the same offence.

The tonal strategy of this government remains a pretty interesting subject. To its right, Act looks more crazy and shrill by the day, with David Garrett more than filling the huge gap left by Gordon Copeland. On the other front, David Cunliffe and Phil Goff are daily seeming more like the brainy policy swots they really are, ticking the government off for its lack of strict criteria and policy rules as if these were mortal sins. At the select committee the other day, Cunliffe made a meal of English not handing in his homework on the latest unemployment and debt stats. It was highly intelligent points scoring – but it also underlined that Labour seems quite bereft of a hearts and minds approach at this juncture.

Right now, making it up as you go along – while settling the scores you promised on the election trail – is winning the tonal strategy battle hands down for the government. Who would have thought that when Key got elected, governing could seem like such mad fun? Of course, the downside of Key and English being off-the-graph pragmatic is that there is no coherent plan to get New Zealand through the crisis. It’s a seat of the pants, stimulus on the cheap approach – certainly relative to the big bang response of Obama, Kevin Rudd, Gordon Brown, Germany, and almost every other developed country.

That’s mainly because in his job as Finance Minister, English has some longer run problems to consider. He bared some of them during his appearance before the finance and expenditure select committee. In the next three years he needs to raise $40 billion on world markets – otherwise, we become the Iceland of the South Pacific – and raising that sum would be a challenge at the best of times.

Given current conditions and the size of our current account deficit, English needs to keep the stimulus package and debt levels firmly under control. It is quite a gamble. Do little enough to be seen as politically responsible –- while hoping and praying that the money being lavished by other countries will restore global markets to health in time, before we get hit too hard, or for too long. It could look like genius in a year’s time, or it could look like the height of irresponsibility.

***

Israeli elections

Since polling day on February 10, the elections in Israel haven’t had very much local coverage. While the destruction that was rained on Gaza did help Tzipi Livni’s Kadima party to win a single seat more than Benjamin Netanyahu’s Likud party, the centre right bloc ( Likud, the Yisraeli Beituni party led by the extreme rightist/racist Avigdor Lieberman, and a handful of ultra-Orthodox religious parties) did end up winning significantly more seats than the left. On that basic logic, Netanyahu should be more able to form a government.

More likely, but not a sure thing. On Wednesday this week, the Knesset blocs began their pitches to President Shimon Peres as to who could form a government. First up, as befits the leader of the party winning most seats, was Livni. As columnist Yossi Verter explained in the liberal Haaretz newspaper, Livni hasn’t really got a coalition. Not with Lieberman, because her other partners on the centre left would not wear him. And not without him either, because arguably, Netanyahu won’t join a centrist government without having Lieberman and the religious parties along as ballast and protection.

Yet as Verter says, Netanyahu’s options are also pretty grim. A dogmatic, ultra Orthodox coalition ? The public, and even some Likud voters, may well find that hard to stomach. A Likud – Kadima – Labor coalition on the other hand, would leave Netanyahu highly vulnerable to his two centre left partners. Given the numbers, even a Likud – Kadima – Yisraeli Beitunu arrangement might be being safer for him initially, but it could still be toppled anytime down the track by Livni.

Netanyahu may still have hopes of a split occurring within Kadima, with some of its members ( ie, Livni’s known rivals within her party) coming across to him. So far though, no luck. As Verter explains in this mind twisting summation :

Netanyahu is afraid to invite Kadima without being in the company of his partners to the right, and he is afraid to be left with only his partners to the right. He believes everything will change when he gets the president’s nod – [to form a government ]- when after a secret meeting with Livni they will forge a fine government.

If that’s the end game, one of Livni’s conditions is widely expected to be that any grand coalition must agree to a rotating leadership, on perhaps an annual basis. Whichever final configuration wins out in Israel, some observers further afield remain deeply skeptical. On Wednesday, just as Livni was having her first formal consultations with Peres Arab League secretary-general Amr Moussa was telling Syrian television that the differences between the players were only illusory anyway since : “Livni did not advance the peace process at all and she has excelled at foot-dragging without making decisions,”

The Arab League chief accused Israel of talking peace, while at the same time actively working to expand settlements and ‘create new facts on the ground’ that ultimately aim to change the region’s demographics.

“Perhaps a right-wing government led by Benjamin Netanyahu will say ‘no’ to our face, as opposed to the sophisticated way of refusal the current government, which calls itself left or center-left, employs,” said Moussa.

Barack Obama is probably making the very same calculation.

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    1. 5 Responses to “Gordon Campbell on National’s shambolically popular style of government, plus the Israeli election”

    2. By Idiot/Savant on Feb 20, 2009 | Reply

      It reminds me a little of the problem faced by Simon de Mountfort once his siege of the city of Beziers ended in 1209. The people inside the city included good Catholics and Cathar heretics alike, so how should he treat the inhabitants? ‘Kill them all,’ said the Papal Legate, who was clearly an early believer in the policy of the state not trying to pick winners : “God will know His own. “

      That wasn’t Simon de Montfort; it was Arnaud Amalric.

    3. By stuart munro on Feb 20, 2009 | Reply

      I think it’s time, given the three decade lapse in growth and infrastructure building, to abandon the phrase “…every other developed country.” Thanks to a generation of bold economic experiments, New Zealand is now poised to use “…every developed country.”

    4. By lyndon on Feb 20, 2009 | Reply

      From Gordon:

      Thanks, Idiot/Savant. I correctly attributed the “Kill them all” quote to the Papal Legate – meaning to indicate that it was his response to Simon de Mountfort’s moral dilemma. There was never any intention to imply that Simon de Mountfort was the Papal Legate.

    5. By Catonz on Feb 20, 2009 | Reply

      How did tax cuts cause the financial crisis?

      The tax cuts have had a small affect on the deficit compared to the doubling of the government budget under bush. But even that would only lead to inflaiton and exchange rate presure.

      The crisis has been caused by a central bank that has kept interest rates too low for too long.

      The world wide housing bubble started after the Fed lowered interest rates to near zero post 9-11. The housing bubble and other asset bubbles were fueled by a debt bubble, and that debt bubble was created by the fed.

      NZ banks greatly increased the % of funds sourced from overseas during the period 2002-2008 as NZ interest rates comparitive to US ones rose, this happened the world over and an increase in US money supply increased liquidity the world over.

      To blame the financial crisis on free market idealolagy is very unfair. Our money supply is not free market!

      Ask yourself this, is a central bank part of a market economy or a controlled economy?

      Any guesses? Planned interest rates are not free market!

    6. By Madeleine on Mar 6, 2009 | Reply

      With regard the 3 strikes bill and surrounding controversy, I think appropriate force for punishment is being confused with defensive force. Given this there is no conflict with the bill and the doctrine of proportionality.
      Three Strikes: Proportion and Protection

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