Building An Alternative Future

This address was given by Professor Jane Kelsey, University of Auckland, at the New Zealand Sea of Faith Conference on 26 November 1999. For a detailed analysis of this argument see J. Kelsey, Reclaiming the Future. New Zealand and the Global Economy , Bridget Williams Books, Wellington, 1999.

Thank you for the opportunity to speak to this conference. I don't plan to focus on the depressing stories and damning statistics that illustrate the hardships which too many New Zealanders face every day. We know those too well, and if we don't we should. Instead I want to be positive. This is a time for action. A time to identify the positive choices for our future and to face the challenge of how we make that happen.

The starting place this week has to be the pending election. In a country not renowned for exciting political campaigns, this must be one of the most lack-lustre. Despite the economic and social malaise afflicting the country, parties that are supposedly promoting alternatives have become incredibly cautious. In part, the policy inertia reflects a concern not to scare the markets – an ill-founded caution in my view. But it also reflects the broader inertia of the voting public. Faced with a prolonged period of turmoil, New Zealanders have been reduced to a state of grumbling acquiescence. For some this reflects the struggle just to survive. For others, it is a sense of having lost control of decisions that affect our lives. Many of those who are doing okay, but who in the past had some sense of responsibility for those who are not, have become individualised, desensitised and complacent, concerned to look after their own interests, with little time left for anyone else.

And, harsh as it may sound, the hardship of increased poverty and inequality has allowed other key issues, which are often more threatening and uncomfortable to deal with, to slip off the social justice agenda – notably the Treaty of Waitangi, decolonisation, power sharing and gender inequity. Those, such as the churches, who were in the forefront of battles seeking justice for Maori and women twenty years ago are invisible and virtually silent now, allowing the likes of Richard Prebble to make political capital out of law and order and attack the Treaty with virtual impunity.

Those committed to positive change therefore have to address our own failings, and not simply lay the blame on those who devised and benefited from the imposition of a profit-first, people-last free market regime.

New Zealanders have been sucked into believing that there really are no alternatives. A large element of this is built upon the myth of economic globalisation - that the emergence of global free markets is some linear process that is irreversible and inevitable; that states have been rendered relatively powerless; and that culture, community relations, and localised identity are now largely irrelevant. It suits the advocates and beneficiaries of global free markets to have us believe their propaganda. But their claims are vastly overstated.

True, there is a vast array of economic interests who seek to dominate how countries and peoples run their lives – the combination of transnational corporations, financiers and governments of rich countries that dominate inter-governmental forums like the WTO, IMF and World Bank, and pose as the authorised voices of the international economy. They gave us the so-called Washington Consensus—a creation of the elite in Washington who agreed among themselves that neo-liberal structural adjustment was the only solution for everyone, everywhere (except the US) and, despite the lack of empirical evidence in support, elevated it to the status of economic truth. Now that policy agenda has so visibly failed, they are talking about a post-Washington consensus—a more pragmatic variation on the theme.

But, despite claims that current levels of global economic integration are unprecedented, statistics on foreign investment, international trade and immigration are comparable to the last major phase of global capitalist expansion, the laissez-faire era of the late 19th and early 20th centuries. Clearly, there are new elements and new manifestations, especially in technology. But the telegraph was also a revolutionary technology that heralded dramatic new opportunities and challenges to what prevailed. Globalisation was portrayed as inevitable, irresistible and irreversible then too. But it collapsed under the weight of depression and the Wall Street crash, social movements who demanded equity, and (sometimes unhealthy) forms of nationalism. Over time, Keynesian welfarism centred around a national economy and centralised state was born.

Nor are most countries tearing down their barriers, as the globalisers claim. While regulations have been eased in most OECD countries, that process has been pragmatic and in many countries the state has grown. Despite attempts to portray New Zealand as leading the world through unilateral liberalisation, we are increasingly seen as an enigma and contrasted to the new success stories of more interventionist strategies in Finland and Ireland - even the National government has begun seeking models for New Zealand from offshore!

So OECD countries do have considerable choice about how far and in what ways they expose themselves to global forces. In this process, the state is far from powerless. It is the vehicle to deregulate - and to re-regulate. Sensible governments weigh up the balance between markets, social wellbeing and political cohesion. Ideologically-driven or ill-advised governments, as in New Zealand, have sought instead to de-link economic theory from social and political reality, and to lock in those changes through dismantling and privatising the state infrastructure, deepening the country's dependence on foreign capital, privatisation, creating an ideologically driven policy machine and entering into binding international economic agreements. Even then, we have seen the unthinkable become possible again - as recent moves to regulate electricity prices and restrict Telecom's monopoly show.

The mythology also assumes, with evangelical conviction, that the globalisation process is inevitable and cannot be derailed. Yet, the apostles of globalisation are finding the sailing is anything but smooth. The systemic breakdown evidenced most dramatically by the Asian meltdown is replicated in other less spectacular failures of self-regulating markets throughout the world. Many poor countries are rejecting demands for extension of trade and investment liberalisation at this weekend's agenda setting talks in Seattle on the WTO. Popular movements are challenging the democratic deficit in the operation of international economic institutions such as the IMF, World Bank and WTO, and of domestic governments which run roughshod over participatory processes when implementing liberalisation programmes. With a sense of déjà vu, the devastating consequences of global free markets are making them politically and socially unsustainable. For indigenous peoples there is an even stronger continuity as econmic globalisation provides a new variant of an old colonisation process. Significantly, the beneficiaries of the last wave of colonisation by countries, such as Tauiwi in Aotearoa, now share the same experience of dispossession, alienation and disempowerment as we find ourselves the victims of the second wave of globalisation, this time by international capital. The combination of these factors means that globalisation is getting wobbly. Their only answer is to peddle their free market bicycle faster towards the precipice.

This is no surprise to anyone with a sense of history, social analysis or politics. As the philosophical foundation for human society, the free market model is fundamentally flawed. The economy is not some self-regulating market-place detached from the society in which it operates. Pretending that people's lives can be reconstructed to fit the free market model creates practical problems for the productive economy, and social costs that become unacceptable. As Karl Polanyi's brilliant history of the last Great Transformation shows us, when people are faced with governance by the market they will demand an effective voice in the decisions that affect them, and new forms of intervention, regulation and support emerge that re-embed economic policy in social life. [K. Polanyi, The Great Transformation: The Political and Economic Origins of our Times, Beacon Press, Boston, 1957]

In the past couple of years there have been signs that New Zealanders may be moving beyond the phase of grumbling acquiescence to demand something different. This possibility has have been resisted by those in business, politics, the public service, academia and the media who have an economic interest in, and/or an ideological commitment to, the free market agenda. They reassert the inherent validity of their economic model, and blame the failures on a refusal to 'finish the business'. But their voices no longer have the traction they once did.

The New Zealand model of a self-regulating economy and society has become politically untenable. There has not been and will not be any economic miracle. The state cannot permanently abdicate its responsibility for the country's economic and social well-being by leaving those outcomes to be determined by competitive markets. Just as governments are the vehicles through which deregulation is pursued, they also retain the authority to reassert some control.

But demands for a new direction have been largely unsystematic and unorganised. The free market revolution began in 1984 with a clear blueprint and a committed team of politicians, officials and private players who shared some common goals. Today, there is no alternative template, no coherent vision of the kind of society in which people want to live, or the kind of state they wish to empower.

So how do we move forward differently? New Zealand can not simply go back to what existed prior to 1984, even if people want to. Society has changed; the new generation of 'children of the market' has known nothing else. Agriculture, industry and services have been restructured to reflect the free market economy. The capacity and functions of the state have been fundamentally altered. Unions have been gutted and marginalised. Different groups have become empowered, and there are new communities of poor and dispossessed. Maori have reasserted their role in political and economic life, variously supporting aspects of deregulation, suffering disproportionately from its impacts, and continuing to confront Pakeha (or non-Maori) society with its failure to redress the wrongs of the colonial past.

Some women have been benefited from new opportunities, status and income; there is more flexibility and opportunity for paid work. There is also greater stress and fewer choices to escape from abuse and poverty. The social reality of families and communities has changed. Women are expected to perform more unpaid labour. At the same time, women's increased workforce participation in multiple jobs, while fewer men are employed fulltime, is changing the power relations and dynamics in families in ways that are rarely understood. Children of the future are variously condemned to lives of poverty and intermittent employment; to potential prosperity, underpinned by such high levels of debt that their self-interest is likely to drive them offshore; and an elite who will be successful and wealthy players on the global stage.

For me, the starting point is to rebuild our economy to serve our social and communal needs. Our primary goal should be to reconnect New Zealand business to New Zealanders' lives, reflecting concern for jobs, local communities and social well-being. It is important to remember that in this country, as most others, the mass of economic activity still centres on small businesses that are locally based and serve the local market. Some 90 percent of businesses employ ten people or less. They remain deeply integrated with their local and national communities. In a study of the importance of national boundaries, Canadian economist John Helliwell suggested that the economic linkages within nations is much stronger than those between them. He concluded that 'as long as national institutions, populations, trust, and tastes differ as much as they do . . . transaction costs will remain much lower within than among national economies, even in the absence of any border taxes or regulations affecting the movements of goods and services.' [How Much Do National Borders Matter?, Brookings Institution, Washington, 1998, p.122.] Economist Tim Hazledine comments on the economic value of cultural and social cohesion:

Belatedly economists are coming to appreciate the value of the 'social capital', the empathy and sympathy found in relationships between people (including relationships within geographically defined communities such as countries, towns and neighbourhoods, and the cultural communities of kinship, class, hapu and iwi) and also in the broader sense of shared attitudes and goals. Neither democratic government nor 'free' markets can thrive without these relationships.

The emergence of New Zealand Businesses for Social Responsibility reflects this shift in economic thinking. Some, like Hugh Fletcher, suggest adapting the traditional role of New Zealand industrial capital to the more integrated international economy; others, like Tim Hazledine, urge us to reduce the dependence of business on the international economy to focus more on domestic markets and communities. Either approach would require a significant rethinking of existing economic policy, and a realistic assessment of the extent to which any such shift was possible, given the pressures of the global economy and the economic and legal barriers set in place to prevent New Zealand changing tack.

Doing so will be difficult, but far from impossible. The architects of New Zealand's experiment set out to ensure the changes they made were difficult, preferably impossible, to undo. It was frighteningly easy for them to implement those policies, as they followed and partly wrote the international manual for structural adjustment programmes. Consolidating such changes is always more difficult. The theories talk about stabilising expectations and convincing key players that changes cannot be reversed at the discretion of an individual or party. That is most likely to happen where governments have created tacit or explicit alliances between politicians, technocratic elites, and those gaining from the policy change who act as a 'fire alarms' if a new government or bureaucracy looks like changing course. The restructured government bureaucracy appoints like-minded individuals to maintain control over policy advice and implementation, and marginalise external pressure groups.

Alongside this is a process they refer to as 'social learning'.. Leaders, interest groups, party elites and attentive publics impose boundaries on the range of alternatives open for debate. Citizens and firms are encouraged to lower their expectations and make individual, non-political adjustments to their more difficult circumstances. This may involve families sending more of their members into the workforce, selecting which children should receive costly education, and reducing consumption. Even if opposition develops and people become politicised, their demands are more likely to be directed at the government in power than at the system as a whole.

To the proponents of structural adjustment, neutralising popular opposition stops short of requiring popular endorsement. Mere acquiescence is enough – a belief that there are no real alternatives. In sum, the new regime will survive if it enjoys the active support of major political parties, the bureaucracy and private élites; if it appears to respond to popular concerns; and if the likely sources of opposition are co-opted, pacified or diffused.

To accompany these political dimensions, the policies and laws through which change has been implemented were designed to provide a bulwark against a hostile future government. The 'fundamentals' of the New Zealand experiment – a deregulated labour market, a minimalist government, a strict monetarist policy, the liberalisation of trade, investment and markets, and fiscal restraint – were an ideologically coherent package premised on unfettered market forces and a limited state. Each 'fundamental' was backed by legislation to implement and maintain that policy. Yet none of this legislation is entrenched; it can all still be changed by a simple majority of Parliament.

A number of binding international economic agreements, notably for New Zealand CER and the WTO, also aim to lock these policies in. They are technically much more difficult to change than fetters imposed by domestic legislation and can attract crippling sanctions for governments that try. But the terms of those agreements are often opaque and a government has more scope to invoke legitimate exceptions or limit its new commitments than is generally admitted.

The other barrier to changing the rules, at home or internationally, is the threat to investor confidence. The fear of how foreign investors or local vested interests might respond to changes in domestic law or policy has become a major impediment to change, even when a government has a strong popular mandate to do so. The deep penetration of international capital into New Zealand's economy and the economy's exposure to international markets have heightened this 'fear factor'.. This was quite deliberate. For reasons I give in my new book, the risk of economic calamity is seriously overstated. Indeed, many economists now admit that the serious deficit in the balance of payments and dangerous level of foreign debt, caused in part by an ongoing net investment deficit, is a more likely catalyst for investors to withdraw.

In the past couple of years we have seen the beginnings of a backlash against New Zealand's free market revolution. New Zealanders are moving beyond a grumbling acquiescence and saying no. Let me give some examples. Moves to eliminate tariffs on clothing and textiles brought together local mayors, unions and small manufacturers in 1998 to defend their towns and their industry in a campaign that enjoyed widespread public sympathy. At the same time, dairy farmers and fruit-growers, supported by the local communities, took to the streets as well as the political lobbies to defend their statutory producer boards against deregulation.

In 1999 sheep farmers protested against the hypocrisy of the US over free trade, while pig farmers sought temporary protection from subsidised international competition. Even strong free market supporters, such as Michael Barnett from the Auckland Chamber of Commerce urged the government in June 1999 to adopt a more middle-of-the-road approach: 'By promoting a free-trade economy, we bared our soul to the world. But the reality is that while we went down the road first, the rest of the world is slower and this is turning to a disadvantage for New Zealand'.

In 1997 and 1998, negotiations for a Multilateral Agreement on Investment at the OECD, which would have given foreign investors powerful new rights, met concerted opposition from such diverse quarters as Maori, Grey Power, radio talkback callers, city councils and Local Government New Zealand. The government was forced to release an unprecedented amount of information and eventually to endorse a moratorium, before negotiations on the agreement broke down completely.

The Royal New Zealand College of General Practitioners objected to Australian authorities deciding whether New Zealanders should know if their food is genetically modified. Coromandel Watchdog forced mining companies to accept some responsibility for their tailings dams, while the government proposed legislation (but failed to introduce) to require those companies to meet the cost of the hazards they created. Regulation that was deemed unthinkable two years ago became government policy. Commercial and public criticism succeeded in forcing the government to concede the need for price regulation of the electricity industry and more rigorous constraints on the abuse of market power and natural monopolies.

In parallel, Maori asserted their tino rangatiratanga (self-determination) in ways that reflected their common experience of colonisation and class, although strategies and objectives varied among the nationalists, entrepreneurs and pragmatists. They achieved mixed success. Iwi and Maori nationalists insisted on a constitutional voice in both domestic governance and international policy arenas. They forced the government to hold nation-wide hui on the MAI, which caused real problems for government and negotiators, but more selective dialogue on APEC had no apparent impact on the government's position.

Attempts to defend indigenous knowledge and natural resources from becoming the intellectual property of transnationals enjoyed wide-ranging Maori support, but with minimal results; Maori objections to genetic engineering on cultural grounds had more potential allies, and hence prospect of success. Maori with large land-holdings campaigned actively but unsuccessfully alongside the Business Roundtable for deregulation of the producer and marketing boards, although the voice of Maori small farmers was not heard. Maori workers and their local communities were part of the broad alliance that failed to stop the removal of tariffs on motor vehicles, but won a reprieve for textiles, clothing and footwear.

These challenges from such diverse groups of New Zealanders were mostly ad hoc attempts to defend the status quo—the belated drawing of a line in the sand—although some proposed positive alternatives. They drew together pragmatic and shifting coalitions of business people, unions, farmers, local communities, the elderly and Maori—reflecting a residue of the historic compromises of the Keynesian welfare state, combined with Maori aspirations for economic survival and self-determination. Such a backlash is not unique to New Zealand.

The major political parties responded by moderating their positions in the name of the 'knowledge economy', while maintaining a basic free trade and investment line. Given the sustained call now from many quarters for a new economic direction that is unlikely to be enough. What the country desperately needs is a well-grounded debate on how to restore a link between economic policy and New Zealanders' economic needs, social values and cultural identities. There will be no consensus on what these are; but some understanding can be reached through a vigorously contested debate. This debate must take into account the lessons of history. We should not romanticise the past, but carefully assess the benefits and pitfalls of the compromise between national capital, paid (mainly male) and unpaid (mainly women) workers that underpinned the Keynesian welfare state.

It must also address the place of Maori in the national economy. That requires debate amongst Maori over the economic development model they wish to pursue: one where traditional values bind together people's economic, spiritual, social and political life; or self-determination sourced in entrepreneurial activities, with the proceeds distributed to tribal and/or urban beneficiaries through cash, services or cultural development programmes. It equally requires non-Maori to reflect on ways that the future might address long-standing Maori grievances over resources and power, and locate points of common interest and values, as well as difference.

A forward-looking debate provides the opportunity for a more sophisticated approach to the concept of economic wellbeing, which currently focuses on GDP and its simplistic treatment of activities such as growing organic apples and creating a toxic waste dump as equally valuable in the country's economy. Unpaid work, ecological sustainability, and social impact are significant features of the real economic life of any country, as many economists of the future are beginning to recognise. New Zealand's context, and its responsibility to poorer countries in the vicinity of the South Pacific, and in other parts of the world, would inevitably form another part of such a debate.

So there is a window of opportunity. It is not a matter of going back, although some of what has been done will need to be undone. Our challenge is how to move forward differently.