The ridiculousness of Don Brash on immigration and low productivity growth

Posted: August 26, 2015 by Admin in capitalist crisis, Capitalist ideology, Economics, Limits of capitalism, Marxism, New Zealand economy, New Zealand history, New Zealand politics, Open Borders/Immigration Controls
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Brash: an historical oddity

by Phil Duncan

Immigration is a hot topic in this country again.  It seems to surface as a big issue whenever a party is in the doldrums – either NZ First or, most recently, Labour.  Immigrants, especially when they come from Asia, make easy scapegoats for populists who have no intention of challenging the way the system works.

In recent years, however, people on the economic right have been pretty relaxed about the issue.  Labour was, until years of poor electoral and opinion poll performances led to their recent anti-Chinese outburst,  National still is.

However, on Q&A on Sunday, former National Party leader Don Brash, who also served briefly as leader of the ACT party, and before politics was governor of the Reserve Bank, took up the cudgels against what he considers to be overly high levels of population inflow (in fact, this inflow includes many NZers returning home from abroad).

Brash has a rather idiosyncratic, not to say, eccentric view of why population inflow is a ‘problem’.  According to him, it holds down productivity and helps weaken the NZ economy.  Brash’s thinking on this is interesting beyond personal eccentricity, however, because it tells us something about the bankruptcy of bourgeois economic ‘analysis’ and also something about how capitalist ideology works.

According to Brash, the ‘new right’ economic reforms of the 1984-1993 decade, reforms which made the NZ economy much more open and free market, should have solved the country’s economic woes and lifted productivity.  Yet, as he noted, the economy has one of the poorest performances in the OECD when it comes to productivity growth.  So there must be some other form of interference that is holding back increases in productivity.  Since there is currently a record high of population inflow, he thinks there must be a connection.

Firstly, someone needs to explain to this guy, who recently served as head of the Productivity Commission, that two things happening at the same time does not mean one is causal of the other.  Especially when productivity growth has been low here for several decades, regardless of the levels of population inflow.

You may as well explain low productivity growth here as the consequence of global warming, or of sunspots, or of the Treaty of Waitangi, or whatever. . .

It’s a sign of the poverty of bourgeois economics that this non-explanation is the best that Brash can do.

Now we come to capitalist ideology.

According to Brash the market reforms should have worked.   But why?  This is simply an assumption.  And it’s an assumption that is not fact-based, but ideologically-based.  If you accept the view of a market economy that Brash does, then sure, the reforms really should have worked.  Making the market more open and competitive really should have made the NZ economy more dynamic and raised productivity growth.

But now look at what actually happened and why what happened is the logical result of the very kind of ‘open’ and ‘free market’ economy that Brash is ideologically attached to.

There are, as we have noted in a number of pieces on this blog and in earlier print articles, two ways to increase productivity.  One is to expand investment in plant, machinery, technology, research and development.  This produces relative surplus-value.

However over time, this has the effect of dragging down the rate of profit, eventually to a point where the economy starts to seize up.  This is what happened in NZ in the 1970s and early 1980s; by 1984 the economy was in an altogether parlous state.  Keynesian ‘solutions’ had not only not worked, they had made things worse.

This opened the way for ‘new right’ or ‘neo-liberal’ economic theory and reforms.  These reforms included cutting state spending – because it is funded out of surplus-value, thereby reducing the total amount of value that can be converted into profit – commodifying much of the state sector (some of it being privatised, while other parts were turned into capitalist companies owned by the state), slashing jobs, wages and conditions.

In this situation, the other means of increasing productivity became important – namely, making workers work longer, harder, faster.  This produces absolute surplus-value.

This form will produce some productivity gains in the short-term, but workers can only work so long, so hard, so fast, before they tire out and so these kinds of productivity gains are fairly limited.

What happened in NZ was that the defeat of the working class, codified in the Employment Contracts Act of 1991, encouraged many employers to use the second form of increasing productivity and intensifying exploitation.

In many other OECD countries, the working class was not defeated to the same extent as in NZ and the capitalists did not resort to relying on expanding absolute surplus-value to the extent they relied on this course here.

Labour productivity, Australia and New Zealand; the above chart appears in Phil Teece, “In pursuit of the flexible workplace”, Australian Library Journal, vol 50, no 4.  The Employment Contracts Act encouraged NZ capitalists to make workers work harder and longer rather than invest in new technology and machines to make workers more productive.  This lifted profits in the short term but undermined NZ capital’s global competitiveness in the longer term

Labour productivity, Australia and New Zealand; the above chart appears in Phil Teece, “In pursuit of the flexible workplace”, Australian Library Journal, vol 50, no 4. The Employment Contracts Act encouraged NZ capitalists to make workers work harder and longer rather than invest in new technology and machines to make workers more productive. This lifted profits in the short term but undermined NZ capital’s global competitiveness in the longer term

For instance, if you compare productivity growth between Australia and New Zealand from the 1980s onwards, you find it was pretty even between the two countries until the early 1990s, when the rate of growth in NZ began falling very noticeably behind Australia.  This is because NZ capitalist rates of investment in PME and R&D were very low by OECD standards.

Another important trend that occurs when the rate of profit falls in the productive sphere of the economy – the part of the economy where new, expanded, value is actually produced – is that investment flows into the artificial economy, where profit rates are higher for a while.  The artificial economy balloons, with bigger profits and bigger investments.  Since this grows out of proportion to the real economy, the balloon eventually bursts, resulting in massive debts and further starving the real economy of investment.

In New Zealand, the clogging up of the productive economy and lagging profit rates therein has sent large chunks of investment into the artificial economy, for instance property-buying and speculation.  Other chunks of investment have gone overseas, seeking more fertile fields of investment.  Plus a section of NZ capitalists have engaged in big spend-ups on luxury goods.

It has, therefore, actually been the success of the reforms Brash favoured, in terms of inflicting defeat on the working class and freeing up the market, which has undermined productivity growth.

In some parts of the world, layers of bourgeois economists – and sections of capitalists themselves – have begun to face up to these effects.  Here, too, a move away from neo-liberalism began following 1993 and there are hardly any economic figures of any note here now who remain champions of ‘new right’ or ‘neo-liberal’ economics.  Brash is an old curio.  Indeed, his nonsense about how high the levels of immigration how and the supposedly negative impact they have on productivity growth were easily dismissed by Shamubeel Eaqub, the bright new star of NZ ‘mainstream’ economics.

But Brash, in his own odd way, does reflect the inability of capitalists to understand the workings of the very system they are blindly addicted to,  Surface appearances are the basis of their outlook and their ‘solutions’.  Meanwhile, however, it is the working class that pays the price of the crises that this clapped-out system is producing more and more regularly.

Further reading:

How capitalism works – and doesn’t work

The productivity trap – heads they win, tails we lose

Two articles on wages, prices and crisis

 

 

 

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