johnkey

by Philip Ferguson

Last week, on January 25, prime minister John Key delivered his “State of the Nation” address.  He claimed that, by global standards, the NZ economy is doing quite well and described it as “robust” and largely escaping the kind of meltdowns that have occurred in much of Europe and the economic woes which have beset the American economy.

This “robust” economy, of course, has an official unemployment rate of over 7%, with 25% of those aged 20-65 having no work, and many more working part-time hours that don’t allow them to make ends meet or working substantially more than 40 hours a week to get by.  This is a sharp contrast to, say, the 1960s when there were so few official unemployed that the joke was that the prime minister knew all their names.

Back then, whether you were on the left or right, it was hard to imagine a structural unemployment rate of five, six or seven percent, without a major social revolt occurring.  It is certainly a mark of how Labour and National between them have succeeded in lowering workers’ expectations, while a series of defeats, largely thanks to the misleaderships atop so much of the old union movement, meant many workers simply gave up on fighting back.

Key’s speech promised, “The economy will be front and centre this year”, emphasising that the government would be continuing to work on returning to budget surpluses, develop its multi-billion dollar spend on infrastructural projects, speeding up consents under the Resource Management Act and reforming the welfare system.

Solid foundations?

Key talked about “big opportunities” for economic growth, highlighting trade with the more dynamic economies in Asia, especially China, which is now this country’s second largest trading partner, a boom in construction, centred on the Christchurch rebuild, and greater investment in manufacturing as a flow-on effect.

He claimed that government policies are geared towards “an economy where growth is based on the solid foundations of investment, exports and savings” and spent a chunk of the speech on emphasising the importance of investment in the productive sector.  It’s certainly the case that this would be the ideal development from the standpoint of the general interests of capital but, as we shall see, the prospects for a dynamic economy are nowhere near as good as Key suggests.

Before dealing with the problems of economic stagnation that no government, Labour or National, has been able to overcome since the long postwar economic book came to an end in the early 1970s, let’s look at what Key ‘s initiatives for the achievement of his ideal, dynamic capitalist economy consist of.

The government’s initiatives are listed in six main groupings in its Business Growth Agenda.  These are, as he noted in his speech, “skilled and safe workplaces, infrastructure, natural resources, exports, capital markets and innovation.”

Lashings of state intervention

Key is aware that capitalism simply can’t get by without large lashings of state intervention and assistance.  Thus, for instance, the government is setting up “five new vocational pathways” for careers in the building industry, manufacturing, the primary sector, social services and the service sector.  Four thousand new places will be provided in trades and services academies and 8,700 no fees places for young people studying outside school.  Apprenticeships are to be substantially expanded, will be open to people of all ages and subsidy payments will be increased by $12 million.  The educational content of apprenticeship training will be expanded and the first 10,000 new apprentices will be given $1,000 from the state towards tools and other costs or $2,000 if they’re in priority trades.  (Their employers will get the same amount – can’t leave them out!)

This is a far cry from the old days of the later 1980s and early 1990s when neo-liberal ideologues argued for the state to get rid of apprenticeship training on the ludicrous basis that the market would somehow sort it all out.  All that resulted from letting the market “sort it out” has been a dearth of skilled tradespeople, a gap exposed much more in the wake of the massive damage done by the Canterbury earthquakes and the slowness of the rebuild.

The expansion of state involvement in apprenticeships will, according to Key, lead to 14,000 additional apprenticeships in the next five years.  “the whole idea,” he claimed, “is to kick-start new apprenticeship opportunities ahead of the curve, so that thousands of New Zealanders get to learn a new trade that will last them a lifetime.”  Again, it’s a long way from the neo-liberal argument of 20-30 years ago that no-one should expect a job or a trade for life, but we should all be prepared to go through endless cycles of jobs and occupations in a working life.

Key also announced an expansion of state involvement in infrastructural projects, while “involv(ing) private sector disciplines as much as possible”.  Rather than the ruthless pursuit of a neo-liberal agenda based on the ideological argument that the market can sort out everything, what we have here is commitment to private-public partnerships (PPP) in which the state has the continuous role of providing free lunches for the private sector because the market simply doesn’t function in the way its most ardent champions on the (now old) ‘new right’ claimed.  Key and English also understand the need for state-owned companies – after all, capitalism in New Zealand simply could not have been created and developed without a substantial role by the state.  (See, for instance, State intervention: a handout to capital.)

Not neoliberalism

The ostensibly revolutionary left denounces the Key-English government as “neo-liberals”, substituting outrage for analysis and moralism for Marxism.  To the extent that there is any method in the far left’s approach – as opposed to simple name-calling, in the way that some on the left used to bandy about the term “fascist” and now bandy about terms like “ethnic cleansing” and “genocide” – it is a method which Marxists call impressionism.  What these leftists do is find some bad things National has done and if they coincide even vaguely with what neo-liberal ideologues argued several decades ago when neo-liberalism actually was the dominant form of capitalist economic policy, and if there are more of these types of bad things than things that don’t really fit neo-liberalism, the left impressionists declare that neo-liberalism reigns supreme.  Since many other political people are against neo-liberalism, this also makes the miniscule forces of the left feel part of something bigger.

A Marxist approach is entirely different from this impressionist, arithmetic approach.  Marxism is a revolutionary science.  Its approach to the ideas and policies put forward by the ruling class begins with an examination of the actual process of capital accumulation – the process of profit-making and reinvestment in expanding production.  Capital accumulation is the alpha and omega of the capitalist system.  (As Marx put it, the imperative of capital is “Accumulate! Accumulate! Accumulate!”)  Different economic ideas and policies arise on the basis of how the accumulation process is going.  When capital accumulation runs into problems, as it inevitably does for reasons I’ll look at shortly, the capitalists, who assume their system is natural and (more or less) rational, look to identify what the obstacles to accumulation are and they attempt to remove them.  Since they can hardly grasp that, as Marx noted, at a given stage it is capital itself which becomes the chief barrier to further accumulation, they tend – rather like much of the left – to use an impressionistic method.  The form or appearance of a crisis is perceived as its cause and economic ‘solutions’ by capitalist ideologues and policy-makers are based on this.

So, for instance, if there is a strong trade union movement, they tend to identify that as an obstacle to a new, expanded round of capital accumulation.  And individual capitalists may well directly experience unions applying what such bosses see as “restrictive practices”.  If there is high inflation, their impression – and it too will usually coincide with the experience of individual  capitalists – is that inflation is the problem and they will try to hold down wage rises and restrict the money supply, believing these to cause inflation.  If the problems in the accumulation process coincide with high tax rates for capitalists and their companies, those tax rates will be seen as causal.  If state ownership means that potentially profitable companies are in state hands and operate outside the law of value – ie aren’t run to make and maximise profit – while other parts of the state sector are run at a loss, then the capitalists draw the conclusion that state ownership is the problem and try to privatise and/or commodify the state sector, that is have it run as much as possible on a profit-making basis.

But, regardless of how a slump may appear or whatever immediate form it may take – bank and finance houses crashing, too many goods for too few buyers (‘overproduction’ or ‘under-consumption’), for instance – the underlying cause is the law of the tendency of the rate of profit to fall, something noted by classical bourgeois economists in the early part of the nineteenth century and described by Marx as “the single most important law of modern political economy”.  This is a law, because it is something capitalism simply can’t escape.  Its regular reappearance indicates that capital is the chief obstacle to its own expansion.

What happens is that capitalism requires competition by individual capitalists.  In order to produce more efficiently and expand surplus-value, and keep ahead of the competition, capitalists have to continually invest in new plant, technology, machinery and raw materials (constant capital).  This constant capital grows in proportion to the amount invested in buying workers’ labour-power or ability to work (variable capital).  The organic composition of capital – the ratio of constant to variable capital becomes higher, but all the constant capital can do is reproduce its own value.  It is only the variable capital (ie the capital expended on workers’ labour-power) which can create new, expanded value (surplus-value).  So while the new investments in plant, machinery, technology, raw materials and so on can expand production with the result of more surplus-value being created, thus the rate and mass of surplus-value can increase, this surplus-value has to be measured over an even larger increase in constant capital.  The result is that the rate of profit falls.  (For a more detailed explanation of this, see How capitalism works – and doesn’t work.)

From boom to bust. . . again and again

At some stage the fall in the rate of profit chokes off the accumulation process because, while profits may be high in currency terms, there is simply not enough capital to carry out the next round of massive investment in modernising an economy in order to keep it competitive.  For instance, the postwar boom came to an end soonest in Britain, because it had the oldest industry and the rate of profit had fallen to a level where there was insufficient capital to carry out the levels of massive investment necessary to completely overhaul and modernise British industry with new plant, machinery and technology.

In New Zealand, signs that the postwar boom was coming to an end appeared in 1968, with the nil wage order of that year.  By 1973-74 the boom was definitely over.  Since then there has been nothing like it again.  There have been further booms, for sure, but they have been shorter and smaller and punctuated with downturns.  When the boom ended, governments both Labour and National originally resorted to Keynesian “solutions” like more state intervention, pump-priming (putting more money into the economy) because they believed that such policies had got the capitalist world out of the Great Depression of the 1930s.  But that simply wasn’t true.  Depressions like the 1930s are not only symptoms of the chronically-diseased nature of capitalism, they also purge the system and allow it to resume the accumulation process, albeit at a lower level.  On top of that WW2 allowed one set of capitalists to triumph over another, centralised and concentrated capital on a massive scale, and made production much more efficient.  All of this, of course, was done not by the operations of the market, but by capitalist state planning and over-riding of the market – in wartime the capitalists are never so daft as to trust their future to the free operations of the market!

Actual neoliberalism

Because the falling rate of profit was the underlying factor bringing the postwar boom to an end, the application of demand-side Keynesianism (eg stimulating demand through expanding the supply of money and capital) didn’t work.  Industry and manufacturing continued to stagnate and capitalists attempted to overcome falling profitability by jacking up prices and soaking up the extra funds put into the economy by pump-priming policies.  A new phenomenon, stagflation, appeared – a stagnant real economy accompanied by high inflation.   Keynesian theory was discredited.

The ideologues of a freer market made a comeback.  Their arguments about reining in government expenditure, tightening the money supply (‘monetarists’), selling off parts of the state sector, introducing “user-pays”, crippling the unions and so on, became the new capitalist common-sense.  The key task for any set of capitalist economic policies in the kind of crisis situation that set in with the end of the postwar boom was that, ultimately, they had to defeat the working class, increase the rate of exploitation in order to expand surplus-value and profitability, reduce drains on surplus-value, and open the way to a new round of dynamic capital accumulation.

These ideas and policies became widely known as “neo-liberal” or “new right” economics, but they are better understood as the anti-working class measures necessary to revitalise capitalism.  In New Zealand they were very vigorously pursued by Labour from 1984-1990 and in the first term of the following National government (1990-93).  Pretty much all the obstacles that neo-liberal/new right theory said stood in the way of a dynamic, modern economy were removed.  A big problem arose, however.  No new dynamic economy emerged.  Neo-liberal/new right ideology went into decline and the National government of Jim Bolger began abandoning it, notably dumping finance minister and ideologue of these policies, Ruth Richardson.  While none of the reforms were reversed, the hunt was on for a new set of policies to lift the NZ economy out of the doldrums.  Bolger started talking about the importance of ‘social capital’.  After he was overthrown by Jenny Shipley, who was strongly associated with neo-liberal/new right economics during the three years of Richardson being finance minister – the policies were also known as Ruthanasia and Jennycide – much of the left thought things would pick up where Richardson had left off.

However, Shipley didn’t go back.  Instead, her big idea was the very un-neoliberal and interventionist one of the Code of Social Responsibility.  At the time, Prince Charles was due here and given the revelations of the state of his marriage and that both he and his wife were busy committing adultery, the government decided not to push the kind of hypocritical bourgeois morality that the Code of Social Responsibility was linked with.  Shortly after, Shipley’s coalition partner, Winston First, began to break up and the government basically collapsed.  It was left to Labour to come up with the new ideology and policies to revitalise the economy, and the “Third Way” came into vogue – this involved keeping the neoliberal/new right economic reforms, smoothing off their rough edges, and increasing the role of the state in the economy because the ‘free market’ simply couldn’t do the job.

No dynamism

The economy remained lacking in dynamism, however.  Even with the defeat of the working class in the 1984-1993 period, and the stepping up of the rate of exploitation, NZ capitalists were remarkably reluctant to invest in the production of actual goods and services containing new, expanding value.  They preferred to spend funds on luxury personal goods, export capital and invest in the artificial economy – the economy which doesn’t create new surplus-value but feeds off the surplus-value in the real economy – and, in some cases, simply sit on their funds.

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As we noted in an earlier set of pieces, “slash and burn has its limits. Wages and working class consumption levels were reduced, union organisation was largely destroyed, a chunk of inefficient capital was wiped out and the state sector was dramatically changed. Yet all of this – the ‘Rogernomics revolution’ – failed to usher in a new period of dramatic and sustained growth in the real economy. Instead, the artificial economy expanded to bloated levels and, when it crashed in 1987, became a huge drag on the real/productive economy, which meant NZ’s overall economic performance throughout the 1990s was fairly mundane/sluggish. NZ productivity growth after the Employment Contracts Act fell well behind Australia’s, for instance. Employers here increasingly relied on making workers work longer and harder for relatively less – expanding what Marx called absolute surplus-value. Private capital investment in new plant, machinery, technology and R&D (research and development) remained lower than almost anywhere else in the OECD; it had to be topped up by the government and, even then, total new investment remained fairly low. This meant that real growth did too” (see the pieces on Key-English and capital accumulation, here).

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Continuing problems

National was aware, when they came into power in 2008, that these were problems and Key-English talked about getting to grips with them, in a way Labour hadn’t.  They signaled, for instance, the use of tax changes to discourage investment in real estate and property and push it into manufacturing and industry and other parts of the productive economy.  They set up a task-force on how to increase productivity, beyond simply making workers work harder, faster, longer, the gains of that kind of productivity increase already being pretty exhausted.

But not much has changed, in terms of capital accumulation.

The private sector still has among the lowest rates of investment in plant, machinery, technology in the OECD and similarly low levels of investment in R&D.  It depends on massive assistance from the state to help make up for this.  For instance, most R&D in New Zealand is carried out by the state sector – in universities, crown research institutes and so on.  And Key is promising more – in last week’s speech he declared, “despite tight times, the Government is continuing to put a real priority on science and innovation.  Research funding will be greater this year that it has ever been. . .”  He claims this is because “new ideas are a key driver for a modern economy”.  True enough.  But that doesn’t explain why the government is doing it.  The real reason the government is doing this is because the private sector, clearly won’t . . . or can’t.

(Contracting out by the state also provides life-blood to a chunk of the private sector.  The state provides a continuous series of free lunches to private capital, much of whose “enterprise” is devoted to milking the state coffers.)

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The private sector relies on R&D investment in the public sector (government and higher education)

Key and English are perfectly aware that capital in NZ can’t survive on a ‘free market’ model.  That’s why he’s not a neoliberal and nor is his government.  Been there, done that.  And while it all helped defeat the working class and raise the rate of exploitation, it didn’t reinvigorate the economy.  Capitalism, in its late, degenerative period, needs massive amounts of state involvement.

Indeed, socially-liberal but economically right-wing leading political commentator David Farrar noted last week:

“So when David Shearer claims the Government is ideologically averse to hands on involvement in the economy, I hope someone asks him about the $400 million irrigation fund, the $1.5 billion for ultra-fast broadband, $100m for export assistance, $15m for business capability, $30m for sector and special events, $30m for international growth opportunities, $50m for large budget screen productions, $10m for major events, $12m for venture capital, $10m for primary industry grants, $9m for sustainable farming, $70m for primary growth partnerships, $220m for CRI funding, $178m for high value manufacturing and services research, $106m for biological industries research, $84m for health and society research, $47m for Marsden Fund and so on.

“Anyone who thinks John Key, Bill English and Steven Joyce are neo-liberal hands-off ideologues is somewhat demented. Personally I wish they were a bit more hands off.”

Even then it’s lightly bouncing along the bottom, rather than taking off.  At the end of Key’s speech he repeats the kind of cliché that is now typical of him: “The government’s economy programme is laying the foundations for a stronger economy, sustainable jobs and higher incomes.”  This is precisely what we were told during the ‘Rogernomics/Ruthanasia’ years by both National and Labour.  Two decades after the end of that period, we are still waiting. . .

Moreover, earlier in the speech, Key gives away just how “sustainable” jobs are in the New Zealand economy these days.  Every three months, he reports, between 100,000 and 200,000 jobs disappear.

Indefinite malaise

The number of people with jobs at present is just over 2.2 million.  This means the equivalent of the entire employed population would be losing their jobs every 11-22 quarters.  At best this means that just over every five years the equivalent of the current entire employed labour force would find their jobs gone!  This hardly tallies with the creation of “sustainable jobs”.  In fact, capitalism – even with large dollops of state intervention, state planning and business planning – remains an anarchic system, ruled by the “invisible hand of the market”.  Since the end of the long postwar boom, there has been no sign of any great revitalisation of the system.  What revitalisation has taken place has been at the expense of “sustainable jobs”, living standards and workers’ rights.  The material exhaustion of the system is reproduced at the ideological level.

Capitalists have long since run out of big ideas.  There is no exciting, dynamic new capitalist paradigm.  No new big -ism, unless you count managerialism.   The dominant paradigm today is simply to manage the malaise of contemporary capitalism, make it look like you’re doing something, push back the working class here but try to slightly improve things there, promote private-state partnerships, and do it all with a fake, and increasingly uncertain, smiley face.  Key is the right person for the job – he may not be as dumb as he’s now starting to look, and he’s not the neoliberal ideologue of too many left-wing fantasies, but he sure is a vacuous figure for a vacuous system in vacuous times.

Unfortunately however, without serious opposition from the working class emerging, the malaise can go on indefinitely. . .

See also:

The Mainzeal collapse: leaky homes, leaky loans and a leaky system

The Key-English government in the context of capital accumulation today

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Comments
  1. PhilF says:

    I couldn’t really find a good place to stick this in the article, but I should add that while NZ capitalism is not in especially good shape, it certainly still has wriggle room. Despite what is often claimed by many on the left, a substantial part of the welfare state is still in place – and will necessarily remain so, because it fits the interests of capital in general – and there are enough of the working class able to get by sufficiently not to question anything fundamental about the system. Thus we have the current state of political stasis.

    Phil

  2. Don Franks says:

    Yes, there is a lot of functioning welfare state left, for example in many ( though not all) areas of the health system. This remaining welfare sits alongside growing areas of awful poverty and social decay.
    Where many of the left fall down here – and I frequently have been a culprit myself – is to agitate as if the entire social landscape has become rotten.
    Before reading this article I had not heard the expression “Impressionism” as applied to political agitation, but I think it is apt.

  3. Admin says:

    I’m the main carer for an 85-year-old deaf guy who has had a whole bunch of operations (all free), needs a fair bit of medication (heavily subsidised), does one day a week day care (free) and can access various other kinds of assistance. It’s been a useful reminder to me of just how much of the welfare state remains intact.

    Since the welfare state was originally in no small part about keeping the working class in a fit state to be exploited and since chunks of it have been outsourced in recent years and therefore provide shots in the arm to parts of the private sector, I can’t see any way that a capitalist government will get rid of it. We’ll have to have socialism and a liberated working class, before we see it off.

    Phil

  4. Admin says:

    Impressionism: “Of, relating to, or predicated on impression as opposed to reason or fact.” This is the typical way most of the NZ left operates. Both Marx and Lenin used the term to describe the level at which both individual capitalists and/or sections of the left ‘analysed’ stuff.

    On another issue, it’s interesting to seeing how the manufacturing crisis summit run by Labour, Greens, NZ First and Mana is going. The CEO of Hamilton Jet told the media, when asked what he hoped would come out of it, “a change of government”.

    Ever since the first Labour government, there has been a section of NZ business which prefers Labour. And at some points (1984, 1987 and 1999, 2002, most recently) a majority of capitalists align with Labour.

    Phil

  5. […] Key’s ‘vision’: managing the malaise of New Zealand capitalism […]

  6. John kerr says:

    Good, thought provoking stuff again. I spend a lot of time with people who apply an ‘impressionist’ approach.In fairness, it’s easy too see why they do – they want to be able to hang their hat on something within the mainstream poltical system in order to express their oppostion to what is going on – a point which i think you made when you commented the far left likes to feel part of something bigger.

    Being picky…

    ‘All of this, of course, was done by the operations of the market, but by capitalist state planning and over-riding of the market’

    Phil, I gather there is a typo here – should read ‘was not not done by the operations of the market’?

  7. O'Shay says:

    This is awesome stuff. I’ve been trying to come across in-depth Marxist analysis of contemporary NZ for some time with very little luck. Although there are various Socialist/left-wing commentaries on NZ current situation, there is very little that fits the proper description of a rigorously materialist and critical analysis that can truly be classified as Marxist. The point about Neo-liberalism no longer being the hegemonic ideology within NZ or even the Nats was also interesting and even I often fallen into the trap of labeling the Nats policies as Neo-liberal. But the facts speak for themselves, the Nats are only all to willing to lend a hand to the private sector which is in contradiction to the Neo-liberal philosophy of government staying well away and letting the private sector either triumph or fail on its own accord. Many on the left in NZ obviously label the Nats as Neo-Liberals because of their attacks on the working class, but it would be far more productive for the left to call such attacks what they really are, the logic of Capitalism and stress the importance of Capitals needs to drive down the value of labour.

  8. Phil says:

    We intend to have more in-depth stuff about the New Zealand economy and the dominant ideology of the business class and their political representatives. For instance, Private-Public Partnerships are quite the rage at present in capitalist circles here. I saw Phil O’Reilly, the head of Business NZ, on TV the other morning staunchly advocating these and also arguing that while there was lots of economic activity the state shouldn’t be involved in there are clearly areas where the state is essential.

    I agree with you that folks on the left who bang on about neo-liberalism are mystifying people – even in the days when neo-liberalism was dominant here, the most important thing to focus on was the *necessary* nature of the attacks on workers, from a capitalist standpoint. It may be useful to differentiate between different kinds of capitalist economic ideology and attacks, but the most important thing is to explain that they are, first and foremost, *capitalist* and *necessary to capital*. Otherwise, the focus gets distracted to neo-liberalism or whatever and the logical implication is that the attacks are happening for some ideological reason rather than because of capitalist necessity. The ‘solution’ then becomes getting rid of the neo-liberals from power rather than getting rid of the capitalists from power.

    Phil