Scorched earth

Jane Kelsey (59) is professor of law at the University of Auckland, social commentator and author...
Jane Kelsey (59) is professor of law at the University of Auckland, social commentator and author of The Fire Economy, in which she calls for urgent action to develop a socially progressive alternative to the neoliberal economic model. Photo by Dean...

Trade ministers from 12 countries have been working feverishly to further entrench an economic system that Prof Jane Kelsey says puts us at risk of social, political and financial crisis. Bruce Munro talks to neoliberalism's New Zealand arch-nemesis about trade deals, the urgent need to find an alternative model and whether Kiwis have the wherewithal to lead the charge.

It is not unusual to be trying to calculate time zone differences when emailing or telephoning Prof Jane Kelsey.

For the past five years, the authoritative critic of globalisation has relentlessly tailed trade ministers and negotiators to all corners of the globe as they have crafted the secretive Trans-Pacific Partnership Agreement (TPPA).

She wanted to be in Hawaii to witness what was being touted as the probable successful conclusion of the TPPA, the first of three mega free-trade deals that proponents hail as heralding a significant boost to jobs and export growth, but that Prof Kelsey warns will only make it harder to escape a dysfunctional and fragile global economic system headed for further crises.

Instead, she was in Auckland, desperately trying to get a last-minute judicial review aimed at forcing the Government to tell New Zealanders the T's and C's of the deal it was poised to sign on their behalf.

She was also busy promoting her new book The Fire Economy, drawing attention to our precarious future, and getting ready for university lectures.

''I start teaching again next week ... I've got classes every day. So I just have to follow it from here and rely on my mates up there [in Hawaii],'' the University of Auckland law professor says.

New Zealand is in a state of denial, Prof Kelsey says on the telephone from her home in Mt Wellington, southeast of Auckland's city centre.

We think we have come through the global financial crisis (GFC) relatively unscathed. But we fail to see our vulnerability to its ongoing, rumbling aftershocks, she says.

''The global economy imploded in 2008 and confirmed a stark reality. Entire nations and billions of people are captives of an unstable and amoral economic system powered by finance, insurance and real estate: Fire. New Zealand included.''

For a moment, it looked as if there would be radical transformation, she says.

Calls to rein in rogue financial institutions and practices, and refocus domestic economies on people with real jobs making real products appeared to be being heeded.

The United States and the United Kingdom nationalised bankrupt banks and industries and bolstered their economies with debt-funded stimulus packages.

But when the collapse had been halted, they returned to the neoliberal orthodoxy that had caused it.

In New Zealand, the risk factors are all still present, she says.

Ours is an economy without depth, built on a growing mountain of debt, fuelled by cheap credit.

As Prof Kelsey puts it in the early pages of The Fire Economy, ''What is most troubling is that countries' entire economies now rely on a kind of pyramid scheme: borrowed money is now used to make more money, boost consumption and sustain people's standards of living.

''Without some fundamental changes, New Zealand risks sleepwalking into a social, economic and political catastrophe. No-one knows how or when it might happen.''

Changing course is easier said than done, Prof Kelsey admits.

Even if the public wakes up, it will discover it is being held by an economic system that has been tightening its grip for more than three decades.

New Zealand's deregulating, privatising, in-the-market-we-trust economic tsunami called Rogernomics, also known by its global moniker, neoliberalism, has been digging in since 1984.

That is why free-trade agreements like the TPPA are so important to those for and against them, Prof Kelsey says.

''This deal is not about trade, it's minimally about trade. As they [proponents] themselves describe it, it's about putting disciplines on government which go further behind the border than any previous agreements.''

It is about embedding the neoliberal approach through international regulations.

''That means constraining governments' regulatory sovereignty. Whether it is our investment rules, whether it's the pharmaceuticals, what our patenting regime should be, or how we make decisions about buying meds, or our investment rules, or how we run our state-owned enterprises, or how we do our government procurement, all of that is handcuffing government for the future, and making the rules enforceable by foreign states and, to a large extent, by foreign investors through offshore judicial processes that are outside our constitutional framework.

''Just as Greece has found with the euro zone, they are happy to sacrifice you for the sake of maintaining the regime. That's a huge risk we face.''

The irony is that the tentacles are tightening even as the octopus is dying.

Prof Kelsey believes that at its core, neoliberalism is in decline.

She cites several examples of neoliberal stalwarts who, in light of the GFC, are now questioning the fundamentals of their ideology.

• Chief among them is the International Monetary Fund (IMF), which has been neoliberalism's powerful enforcer, demanding that debt-ridden countries privatise, deregulate, cut social spending and open their borders to investment and competition in order to get loans.

''The IMF is really interesting because it has been having a really robust internal debate,'' she says.

Its research division has been prodding at fundamental pillars of the structure, even while those who conduct state-of-the-economy surveys of countries continue to use the old model.

''The IMF, which was the vanguard of pushing the neoliberal agenda further, is now saying, `It hasn't worked, we can't keep forcing countries into suicidal policies'.''

The radical critique Prof Kelsey has been positing for more than two decades is no longer so radical; not because what she is saying has changed, but because the orthodoxy is now asking some of the same questions.

But if the old king is unstable and fragile, clutching his orb with dagger drawn, it is also true that the heir is not yet apparent.

Prof Kelsey argues that neoliberalism's replacement should not be a return to earlier economic models but a new, socially progressive system that puts people at the heart of the equation.

''A new economic model that replaces financialisation with one that gives primacy to the social role of economies and exchanges,'' she writes in a later chapter titled ''Transformation''.

Waking people to what is going on and sparking a debate about what to do about it, is the whole purpose of The Fire Economy, she says.

That discussion has to happen now, before crisis arrives, so that we know and choose the change we want rather than having a knee-jerk reaction.

We need to think more deeply, Prof Kelsey says.

''Around the real estate debate, for example. We need to move past the simplistic 'this is about racism', or even 'this is about foreign Chinese investors', to 'this is actually about an economy where people see the only way to get rich is through speculating in the property market', and 'what does that mean for our productive economy?'.''

What is the realistic chance of that happening, however, when New Zealanders prefer talking television celebrities and sports results to discussing politics and world affairs?

''Yes,'' Prof Kelsey says, ''and that dumbing-down is part of what neoliberalism does. It atomises, it isolates, it makes people think they can't actually change things. And people are trying to deal with their daily realities.''

She does not believe politicians will take the lead in fomenting debate.

''They are so captive of polls and focus groups and the centre vote, that none of them are going to take risks.''

She is also concerned about the dampening effect of softer television current affairs programming and the potential dilution of universities' legislated role as the conscience and critic of society with the roll-out of smaller, more government-heavy university councils.

''We are going to have to fight for those spaces. Independent media like you guys become really important and need to be supported.''

Her fear is that nothing will change until things go pear-shaped.

''We are in a cocoon. We are in a state of denial. And that's a really hard one to break through without a crisis. But, please, do we have to have a crisis?

''Because it is not fair that the most vulnerable are the ones who are going to suffer. The safety nets have already been stripped away, and that is going to make it worse.

''That's why I'm saying, please, can't we have the discussion now?''

Given Prof Kelsey's reading of the situation, she has a surprising level of hope.

''I go back to the fact that we are a small country, and we have a history of people taking leading roles in important debates. It happened in the past, and it can happen again. We just need people who are brave enough to do it. So, I'm optimistic. And I'm optimistic because I don't think we have a choice.''

It is today's youth who buoy her positivity and fire her determination.

''I am worried about the next generation. Our generation was the lucky one. There's a responsibility for those of us who can speak to create a sense that things can be different for the next generation, and to give them the confidence and the space to take that conversation where they want it to go." 

''Identifying the barriers and obstacles, and then starting to think through the nuts and bolts stuff; that's something I think I can contribute to. But then younger ones, including my policies class next week, are going to have to work out what kind of future they want and play a role in shaping it.''

 


Signs of Fire: Indications a crisis is looming

• Our economy relies in large part on a kind of pyramid scheme: borrowed money is used to make more money, boost consumption and sustain people's living standards.

• We are deeply embedded in the global financial system, making us vulnerable to international economic shocks.

• We have a shallow economy that depends on Fire (finance, insurance and real estate), farming, post-earthquake reconstruction and immigration.

• Periods of sustained growth in the 2000s have been fuelled by cheap credit. As a consequence, households, farmers and the country sit on a growing mountain of debt.

• Trading in property has become the main source of easy wealth, creating repeated property bubbles.

• Increasing inequality is leading to greater global social unrest.

 


Neo-what? Understanding neoliberalism

• Neoliberalism is the phrase used to describe radical, laissez-faire capitalism.

• It evolved in the 1970s and 1980s and was given expression in major economic reforms in many countries, including in New Zealand from 1984 onwards.

• Its supporters advocate smaller government, fewer controls and greater private sector involvement in the economy and society.

• Neoliberal policies favour privatisation, deregulation, free trade and reductions in government spending.

• It is an approach to income distribution which trusts the forces of supply and demand to ensure capital and labour get paid what they are worth.

• Neoliberalism birthed and protects what Prof Jane Kelsey calls the Fire Economy; a fundamental shift in global capitalism in which finance, insurance and real estate have replaced industry as the drivers of wealth creation in affluent countries.

 


TPPA: What it is likely to deliver

• One of the most ambitious free trade agreements ever attempted, it is expected to increase trade and investment between participating countries.

• Increased influence of the private sector. It has been negotiated in secret by 12 countries - Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, United States, Singapore and Vietnam - although business interests have had opportunity to have input into draft texts.

• Economic growth. It has been estimated that in 2025, the agreement will give NZ GDP growth of anywhere between 0.01% and 0.9% ($23 million to $3 billion).

• More frequent cases of foreign companies suing governments for millions of dollars in damages, claiming that new laws and regulations (for example, a ban on fracking, smoking-control laws, or a cap on electricity prices) have seriously undermined their ability to make their expected profit.

• Medicines will become more expensive as big pharmaceutical companies gain more influence over Pharmac and restrictions are placed on accessing generic medicines. For example, for the seven most expensive biologics (a new class of super-expensive drugs), every year of delay in getting the less expensive versions would cost New Zealand $25 million to $50 million.

• A more deeply embedded global neoliberal regime.

 


Fire economy: people's voice

1 Should the Government sign a deal that could allow overseas companies to sue it for decisions it makes that undermine their profits?

2 Do you think people's wellbeing is at the heart of the Government's economic strategy?

3 Why do New Zealanders prefer to talk about TV shows and sports rather than discuss politics and world affairs?

 

Saba Patel (19), of North Dunedin

1. No, I don't think they should, because it is quite risky. Things can easily go wrong.

2. I don't have a strong opinion on that. They [the Government] certainly think they know what they are doing.

3. It depends on the crowd. My group of friends do talk about those things.

 

Liz Malthus (74), of Ravensbourne, Dunedin

1. They shouldn't sign until the public of New Zealand is fully conversant with the details.

2. No they don't. Everyone should have a liveable wage, and food shouldn't have GST on it.

3. I think a lot of that is because it's an alternative to the pain they are experiencing.

 

Jenny Munro (58), of City Rise, Dunedin

1. Absolutely not. And I'm very concerned about all the secrecy there is over the TPPA.

2. Sadly, I would have to say no.

3. Because it means people don't have to think critically about important global issues.

 

Felix Lucas (19), of North Dunedin

1. I didn't know that sort of thing could happen.

2. I'm not sure for myself. I know from conversations with older people that they feel the Government is just looking out for itself and helping the rich get richer.

3. It's mainly because the way politics and politicians are presented, it appears to be a joke. And I don't think we're a very serious country; we'd just prefer to have lighthearted conversations.

 

Graham Gibson (30) and daughter Arden (3), of Sawyers Bay

1. That's not right. They shouldn't be able to do that for the benefit of companies.

2. Yes and no. They must be doing something right because we're not whingeing about everything. But there are more things they should be doing around housing, renewables and poverty. And most of them could be easily fixed.

3. I don't know why we don't worry about it so much. We're so far away, perhaps we think we don't have to worry about what's going on.


 

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