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

The material below, including the introduction, first appeared on Redline in June 2011 – just as this blog was beginning – although it was written and appeared elsewhere in 2008 and 2009.  Seven-eight years on, it is increasingly acknowledged on the left that the Key government are not hardened neo-liberals with a secret agenda to finish the job begun by Labour and National (‘Rogernomics’ and ‘Ruthanasia’) in the 1984-93 period.  It’s a sad comment on the NZ left that no-one has had the good grace to say, “Hey, you folks were right” – especially those who attacked us for our analysis – but unfortunately chunks of the left here are rather mean-spirited and that’s the way it is until we have a new left.  We’re highlighting these pieces again, however, primarily because of the discussion set off by the recent OECD report.

johnbillFrom before the 2008 election to today, confusion has reigned on the left about the nature of the National government. People involved in this blog have been to the forefront in trying to analyse the government and its actions in the context of the actual process of capital accumulation in New Zealand today – ie analyse the Key-English government from a Marxist point of view – rather than fall into the left’s tendency to simple-minded Nat-bashing. Nat-bashing may have a ‘feelgood’ factor for many but is useless in understanding what is going on and why – and why Labour is no better.

Below are pieces written during the course of the current government, two of which originally appeared in Party Notes, the internal bulletin of the Workers Party. Party Notes used to contain the minutes of the monthly WP steering group meetings and political pieces designed to guide the work of the organisation. The third was written in February 2009 and first appeared in the April 2009 issue of The Spark.

These pieces argued that the government was not about to launch a cut-throat attack to smash the working class, as claimed by much of the left. The reason for this is that the productivity gains to be made by making workers work harder, longer and faster had largely been made and had failed to inject new dynamism into the economy. The key problem for NZ capitalism is the low rate of productivity growth and this was what the ruling class would be trying to address. At the same time, we noted there would be attacks on the public sector because it is still largely financed out of surplus-value and therefore tends to be a partial drain on profits. If the economic situation worsened significantly, moreover, all bets were off.

Over the next couple of weeks, we’ll be putting up more pieces people involved in Redline wrote in the last couple of years on government policy in the context of the real problems faced by the New Zealand economy, and new material on the state of play at present.

The Jobs Summit and how we respond to the Nats’ strategy

Philip Ferguson, March 1, 2009

Misjudging the Nats

Most of the left, both organised groups and the wider milieu of individual leftists, still really believe there is a fundamental difference between Labour and National. While we’ve never argued that they are exactly the same, we’re probably the only people who really believe – and act in accordance with the belief – that they are fundamentally the same. They are liberal bourgeois parties, largely made up of urban, socially-liberal, middle class individuals. Their goal is to manage the capitalist system. Politically they’ve converged around liberal economics and liberal social policy, although both have some more blatantly right-wing social policies around issues like law and order.

For much of the left, however, the Nats remain seen as some backwoods social reactionaries, a la Piggy Muldoon era. And, economically, they are seen as unchanged since the 1990-93 period. An especially crude representation of this view of the Nats was summed up in Socialist Aotearoa’s response to last November’s election: a Nat-Act junta was now in power.

We have always challenged this demonisation of the Nats and done so for three reasons: one is that it always lets Labour off the hook; the second is that it’s just not an accurate analysis of what the National Party is in the twenty-first century. The third reason is that it is devoid of any Marxist analysis of modern NZ capitalist society and the politics that the economic system requires. This brings us to the Nats’ strategy for dealing with the slump and how we deal with the state-employer strategy.

How serious is the recession?

For the left, it’s all very simple: this is the biggest slump since the 1930s, the Nats are evil capitalist hacks who will create mass unemployment to drive down wages and slash workers living conditions and rights in order to revive the system. Yet none of this actually corresponds with reality. It’s possible that this will become the worst slump since the 1930s but, at present, it isn’t – and that is especially the case in NZ. Any comrades who were around when the postwar boom ended, or in the aftermath of the 1987 crash, will have direct experience of worse economic situations, for instance.

Moreover, in NZ, unlike the USA and some other countries, the banking system has held up – not one significant bank has yet gone under and there is no indication that any of them are about to. A layer of finance houses went to the wall, beginning before the current international downturn and there may not be much more to shake out there. It seems the main impact in NZ will be the impact of the global downturn in terms of the shrinking of export markets (real economy), continuing decline of property prices (artificial economy) and possibly a growing reluctance of people to spend money in department stores, car yards, restaurants etc in a more fearful economic environment. While banks may be reluctant to provide credit to businesses, a key priority of the government is to ensure this doesn’t happen and that businesses continue to be able to access credit. While the Nats were not exactly enthusiastic about the establishment of Kiwibank, they’re probably all quite pleased now that Kiwibank exists and that Jim Anderton was there to do the job for capital when a lot of capitalists didn’t recognise it as being in their own best interests to have a state-owned (and therefore pretty secure) bank.

Economic consequences and policy

But surely the downturn means there must be attacks on the working class? This is certainly the case, but there is more than one way to attack the working class. In the 1980s the whole NZ economy faced seizing up – indicative of a more serious crisis than the current one! – and the only way out of that for capital was what might be called the ‘slash and burn’ approach. Chunks of capital had to be let go to the wall, jobs had to be shed on a massive scale, the NZ dollar had to be devalued, potentially profitable chunks of the state assets had to be sold off; other state assets, while remaining in the hands of the state, had to be commodified – ie state services and goods produced to be sold for a profit or at least to break even. This is because the old state sector was a drain on surplus-value – it was underwritten by the surplus-value produced in the private sector.

But 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 research&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.

Limits to slash and burn

Over a period of time, just as Keynesianism became discredited by its inability to solve the problems attendant with the end of the postwar boom, so neoliberalism became discredited by its inability to foster dynamic, sustained growth in the real economy. Thus while Roger Kerr continues to pop up from time to time, most of the smart money, especially in the real economy, have moved beyond neo-liberalism – a trend largely un-noticed by the NZ left.

What has emerged instead is the dominance of some level of understanding of the importance of the real economy and of the limits of slash and burn. Ironically, it’s someone who made his fortune in the artificial economy who is leading National in a clearly non-neoliberal direction, John Key. (In fact, even Brash has been talking over the past year about the importance of investment in the real economy.)

This understanding on the part of business interests and their political front – the government – is a key reason why there was a Jobs Summit. The capitalists, especially the ones who operate primarily in the real economy, and the Nats, actually do want to preserve and expand employment. The left repeating the mantras which were true about the 1984-1993 period simply won’t cut it and will just make those who repeat the mantras look daft.

National Party (and wider capitalist) strategy to deal with what is clearly a serious economic downturn has to be closely analysed by us, using the tools of Marxism.

National’s strategy: what kind of attacks?

One thing we need to note is that attacks on the working class take different forms at different times. There is an attack already being mooted, but it’s a more sophisticated attack than coming to get the working class with a big hatchet. The approach laid out at the Jobs Summit is this: this is a serious economic downturn, the way out of it is for all of us as Kiwis to pull together, to spread and share and bear the pain together, and we’ll get through it. So, instead of simply laying off ten percent of the workforce and cutting the wage bill that way – with all the longer-term drawbacks that represents for capital (and the potential social upheaval and conflict) what they are mooting is the idea of a chunk of the workforce working nine days instead of ten – and, of course, only being paid for those nine days. The state then will then underwrite workers’ upskilling on the tenth day, so workers will get something out of it too. This is both clever politically and, in terms of the interests of capital today (as opposed to their interests in the specific conditions of 1984), clever economically.

It’s clever politically because it brings the population together in an economic crisis, promoting a kind of liberal kiwi nationalism (pulling together, helping your mates, doing the right thing, etc) instead of promoting class differentiation and conflict and therefore makes it far harder for the left to attack. It’s clever economically because it cuts the wage bill while maintaining (and even upskilling) a workforce for the next upturn.

This approach by the capitalists and the Nats also means that they will want to keep the union leaderships on board rather than just totally sideline them, as occurred in 1984-1993 when even the most toady union leaderships got scant reward for their toadiness. The fact that CTU leader Helen Kelly was invited to play such a prominent role in the Jobs Summit, while Roger Kerr was reduced to being a mere workshop participant, indicates whom they see as important and desire to cultivate.

Furthermore, among the 20 key ideas that came out of the Jobs Summit not one involved any further deregulation of the labour market. When a few business figures attempted to raise this issue, they were taken into a private room and told, apparently quite forcefully, that they were out of order in raising this and there was no way the Jobs Summit would discuss for a minute the issue of further deregulation of the jobs market.

(I’m not saying here that the current approach will never change; it may change if the economic situation deteriorates substantially. But collaboration/inclusiveness/shared suffering is the name of the game at present. Basically, we need to recognise this and develop arguments against it, while also avoiding adopting any fixed analysis; instead, we need to keep a very close eye on developments, and continually look at and, where necessary, revise our analysis. In short, a fluid approach.)

The current situation and our tasks

Arguing against the slash and burn policies of the fourth Labour and National governments was straightforward and easy – the arguments didn’t succeed because of the weakness of the far left, widespread illusions about Labour, and the success of the union bureaucracy in stifling resistance/struggles. Arguing against the different form today’s attacks on workers take will be harder. On the positive side, the organisational-political obstacles – a large Labour Party and a large and powerful union bureaucracy which protected Labour and the capitalist system – are far, far weaker. There is also the example of a small, but inspiring union/campaigning alternative in Unite. Also, winning hard arguments represents much more political progress in breaking people from capitalism than winning soft, easy arguments.

We’re clearly in for a complicated and challenging political period. . .

Key tells CTU no major changes to employment law

Daphna Whitmore, November 2009

In the run up to the last general election the Labour Party enthusiasts who hold so many of the top posts of unions were giving dire predictions that a National government would take NZ back to the dark ages as far as workers’ rights were concerned.

The Workers Party, in contrast, didn’t think Labour had ushered in a golden age, nor did we think National were planning on a major attack on unions. What was likely, we said, was that it would be business as usual.

The CTU leaders got to hear that from the horse’s mouth when Key spoke at their conference last week.

Key said that in this term there would be no major changes to industrial legislation. Here’s an excerpt from his speech:

In our first 11 months in office we have progressed two key areas of employment law reform.

The first was the introduction of a 90-day trial period for smaller employers.

I know your unions opposed that law. Well, let me give you my take. I think it’s working. It’s helping to ensure that those on the margins of the workforce, who might otherwise struggle to get a shot at a job, are getting a go.

The Government has also put together a working group to look at how we can make the Holidays Act work better for employers and workers. I’m pleased the CTU is on that working group.

It reports back in December and it’s my hope it will come up with sensible recommendations that will protect workers’ entitlements while making employers’ obligations clearer.

Beyond these two areas the National Party’s election policy outlined some other possible areas for employment law reform. I know you are keen to hear how that work is progressing.

Again, let me be upfront. I understand the Minister of Labour has taken a first look at these issues. The Cabinet is yet to consider any recommendations however. The fact that these issues have not been progressed more rapidly reflects where they sit in the Government’s agenda – they’re not a driving priority.

That’s not to say the Government is ruling out any future changes to employment law. We are a solutions-focused government, so if we can see employment law is causing serious problems for people, we will be prepared to look at it.

When I travel around the country people do raise employment law concerns with me from time to time. The most common problems they point to are with the confusing aspects of the Holidays Act, the lack of flexibility in the rest and meal breaks legislation and the potential abuse and costly nature of personal grievance processes.

The Government has responded to the first, we are responding to the second, and I’m flagging today that the Minister of Labour will take a look at personal grievance processes as well.

Key is a pragmatist and has no big union-busting agenda. Even the 90-day legislation, abhorrent as it is, in practical terms has changed very little. There has not been one case of a 90-day sacking that has been brought to the CTU’s attention to be fought and campaigned against. No doubt the sackings are going on, as they did before. But they are in small un-unionised workplaces that tend to be a law unto themselves.

So far, Key has shown that he is not going to be an easy target for his critics in the union movement.

When Labour-sympathisers at the CTU conference growled at Key about conditions for workers in NZ Key pointed out he’s been the PM for a matter of months in a recession, while Labour governed in better economic times. The problems facing workers have been around a lot longer than this National government, he said.

To really attack Key will require a criticism of the economic system, which also requires a criticism of the Labour government.

Where to for the New Zealand economy?

Philip Ferguson, February 2009

The state of the New Zealand economy today, like that of the global economy, is best understood in the context of the end of the post-WW2 boom (around 1973-74), the onset of a protracted period of capitalist economic crisis and the failure of counter-crisis measures (both Keynesian and neo-liberal) to solve the problems that came to the fore with the end of the boom, let alone open up the road to a new period of dynamic growth on the same kind of level as the postwar boom.

As we noted in last month’s paper, the end of the boom and the onset of a new period of crisis was the result of the working out of the law of the tendency of the rate of profit to fall, a process which is built into capitalism. In New Zealand, the crisis was exacerbated by the loss of traditional markets, dependence on imports such as oil and the use of Keynesian policies to try to escape the crisis. None of these latter factors were causal, but they did make the problems worse.

The entry of Britain into what is now the EU and the dependence on oil are fairly straightforward to understand as factors making things more difficult. But how would Keynesian-type policies deepen the crisis?

They did this is several ways. For instance, the fall in the rate of profit in the productive sphere of the economy led to sluggish productivity and output growth and made capitalists less likely to invest there. In this context, Keynesian pump-priming measures meant that more money was being pumped into the economy without a parallel increase in productivity and output. So prices rose to soak up the extra funds. This brought about stagflation – economic stagnation coupled with inflation – something which was supposed to be impossible under Keynesian economic policies. The other side of this was an expansion in the role of the state sector, through projects such as Muldoon’s ‘Think Big’ scheme and through greater regulation. Since the state sector is financed out of surplus-value produced through the exploitation of workers in the private sector, diverting more surplus-value into underwriting the state sector in the context of an increasingly acute crisis of profitability made that crisis even worse.

The economy increasingly began to seize up. This was the situation when the fourth Labour government arrived in power in 1984. Completely committed to managing capitalism, the Labour politicians sought to overcome the crisis in the only way capitalism can – by driving down the wages and living conditions of workers, by cutting the amount of surplus-value that underwrites the state sector (through a combination of selling off the potentially profitable bits and making as much of the remaining state sector make some kind of profit or break even), by letting chunks of inefficient capital go to the wall and through deregulating large parts of the economy.

In the absence of a fighting trade union movement and an authoritative revolutionary political movement to point the way forward out of the crisis through getting rid of capitalism altogether, the Labour Party and their wealthy business friends largely succeeded in implementing their anti-worker policies. Real wages fell, tens of thousands of workers in both the state and private sector lost their jobs, and capital was ‘rationalised’ through being more concentrated. However, none of these measures led to a new burst of investment in the productive economy – the economic sphere where goods and services involving new value are produced. Instead, massive amounts of capital were invested in the artificial economy through the property market, the share market, currency speculation and other activities which make profits without creating new, expanded value. The result was a frenzy of buying and selling and increases in the paper values of shares, companies, property and so on that bore no relation to their actual value. This huge financial bubble was global and burst in the global crash of October 1987. Half the paper values on the NZ stock market were wiped out literally overnight and a large percentage of the companies on the stock market simply disappeared. An artificial boom turned into a new recession.

When Labour was tossed out of office in 1990, the new National government continued Labour’s ‘new right’ or ‘neo-liberal’ agenda, selling off state assets, deregulating the labour market (through the Employment Contracts Act), making workers work harder and longer for less and, with the 1991 ‘Mother of all Budgets’ cutting the dole, domestic purposes benefit, widows benefit and other state benefits by up to 25 percent. All that this encouraged capitalists as a class to do, however, was to continue to starve the real economy of investment, relying on increasing productivity and output simply by continuing to make workers work harder and longer. The gains in productivity that can be achieved through this approach are quite limited and from the time of the Employment Contracts Act on, productivity increases in New Zealand began to fall well below Australia, not to mention other competitors. The overall NZ economy remained sluggish and certainly no bright new period of dynamic growth on the level of the postwar boom was opened up by the ‘new right’ or ‘neo-liberal’ economic policies pursued with vigour by the two main parties from 1984-1993.

By the mid-1990s Jim Bolger’s National government was casting around for new ideas and began dabbling with the concept of ‘social capital’, recognising that downsizing carries with it the loss of the skills built up over long periods of time by the workers who were being laid off. However, the main ‘big picture’ concept to emerge was the ‘Third Way’, pioneered by the Blairite leadership of the British Labour Party drawing on ideas from sociologist Anthony Giddens and policies of the Clinton administration in the USA, especially ideas associated with Robert Reich, Clinton’s secretary for labour. In the New Zealand context, the ‘Third Way’ meant maintaining most of the neo-liberal reforms, but knocking off some of the rough edges and partly bringing the state back in to try to reinvigorate capitalism since capital was clearly incapable of doing the job alone.

Despite some absurd scare-mongering on the left, along the lines that Act and the Business Roundtable would be calling the shots, the plain fact is that the current National government has little use for these failed policies and policy-makers. The smart money understands that neo-liberalism was good for screwing over the working class but has been a failure in terms of reinvigorating the productive economy and that more of the same is a recipe for New Zealand capitalism falling further behind in the global competitiveness stakes and NZ society itself becoming more fragmented and dysfunctional. National today is far more influenced by post-neo-liberal thinkers such as the New Zealand Institute, an important new think tank founded in 2004. This is evident in a whole number of ways, including the make-up and agenda of the February 28 Jobs Summit called by National.

The document Economy on the Edge: swan dive or belly flop authored by the Institute’s CEO, David Skilling, and the CEO of NZX (the stock exchange), Mark Weldon, provides a good glimpse of the kind of ideas being considered by prime minister John Key, deputy-prime minister and finance minister Bill English and their colleagues. Skilling and Weldon see a significant role for the state sector, albeit much more thoroughly interlocked with the private sector and much more commodified (ie the state sector operating much more as a set of businesses owned by the state or by the state and private share-holders). Skilling and Weldon also point to the need for much more economic planning and offering various incentives to firms, especially NZ firms, in the productive sector. They favour discouraging investment in the artificial economy which has such a mesmerising place in neo-liberal thinking and such a negative impact on the real economy – the productive sphere. Weldon is chairing the Jobs Summit.

After coming to power in 1984 Labour called an Economic Summit with the purpose of pushing a neo-liberal economic agenda, an agenda which involved shedding tens of thousands of jobs. The February 28 summit is much more focussed on how to manage the crisis while retaining jobs and expanding productive employment. This is an agenda more in line with the views of bodies such as the New Zealand Institute and Businesses for Social Responsibility. And whereas conspicuous consumption was the order of the day during the 1984-1993 period, austerity and more modest lifestyles for the rich – at least in public – along with pay freezes for top income-earners, are the new orthodoxy being pushed by National. At the same time the minimum wage has been increased by a further 50 cents an hour, the kind of increase which Labour in more prosperous times had to be pushed into agreeing. Clearly the National-led government is not some simple re-run of either the fourth Labour or fourth National governments, completing the “unfinished business” of the Douglas-Richardson “revolution”.

The strategy being deployed seems to involve cautious use of state intervention and public spending both to limit the recession and its impact on every class in New Zealand society and improve and expand the productive sector of the economy, through greater investment, in order to emerge from the current global financial malaise in a more competitive position. If the government, employers, top union brass and the capitalist media can convince workers to go on accepting lowered horizons and the continuous ups and downs of a system driven by profit rather than human need, they may well not need to attack the working class in anything like the way workers were attacked in the 1984-1993 period.

In that case we would be in for some years of stagnation, sluggishness and relatively-depressed living conditions, before a partial economic recovery – until the next bust. If the global recession deepens significantly, however, the only way that capital could revive itself would be through much more substantial attacks on workers’ pay, conditions, rights and living standards. Either way, this system has little to offer workers. We need to lift our expectations and horizons and say, “If this is as good as it gets, then let’s try some other way of organising society, like using production to meet the human needs of the many instead of creating private profits for the few.”

See also: Key’s ‘vision’: managing the malaise of New Zealand capitalism