An economy that works for everyone
26 May 2010
People are the heart of the real economy. People work to produce the goods and services, innovate, save and invest. And it is for people that the economy should work to provide our needs. It should enable us to create better lives in terms of our welfare and happiness as individuals, community and wider society.
But the New Zealand economy has failed to do this in crucial ways.
Workers are not receiving the benefits of economic growth in their wages.
Poverty is blighting a society that produces enough for everyone but fails to share it fairly.
The economy is failing to thrive and is badly unbalanced.
The ever more visible limits to the Earth’s resources and the misuse of our natural resources highlighted by global climate change are unsustainable.
And the economy fails to make best use of the skills and experience of its workforce by excluding most of them from meaningful participation in the decisions that shape their work, industry and economy.
Capitalism has never been fair nor cared for the environment. But under the neoliberal policies followed in New Zealand for the last quarter of a century not only have these conditions got worse but the policies have failed in their own terms.
Those policies are rooted in the idea that less government is better government and that “the market” if left to itself will lead to faster economic growth and better outcomes for society. New Zealand has had slower growth rates and has failed to keep up with the rest of the world.
The policies have enriched a small number of people, and have accelerated the migration of New Zealanders overseas. The economy has growing imbalances of household and international debt, of investment based on speculation rather than production, and of interest and exchange rates at levels that worsen rather than resolve these problems.
Those policies are rooted in the idea that less government is better government and that “the market” if left to itself will lead to faster economic growth and better outcomes for society. New Zealand has had slower growth rates and has failed to keep up with the rest of the world.
The policies have enriched a small number of people, and have accelerated the migration of New Zealanders overseas. The economy has growing imbalances of household and international debt, of investment based on speculation rather than production, and of interest and exchange rates at levels that worsen rather than resolve these problems.
New Zealand is unfortunately not unique. Neoliberalism has failed internationally. The Global Financial Crisis which has damaged the lives of hundreds of millions of blameless workers, farmers, beneficiaries, and retired people around the world is but the latest example of the instability, recklessness, waste and enormous imbalances of power and wealth neoliberalism has cultivated. Economic growth rates have been lower in the neoliberal decades internationally. Many countries that have ignored neoliberal advice have prospered and those that adopted it enthusiastically have been the worst hit.
New Zealand escaped the worst of the crisis more by good luck than good management. Such crisis have hurt New Zealand before and will do so again, and meanwhile the inequities and failure of the policies continue to hold back New Zealand’s economic and social development day by day.
The background paper created in the development of this Alternative Economic Strategy documents these trends. It is appended to this document.
We do not believe these unsustainable and unconscionable trends are necessary, nor do they reflect what is good in New Zealand. New Zealanders believe deeply in the “fair go”, and in recent years have shown our increasing willingness to acknowledge Māori history, culture, and rights and address their grievances. We care about our environment, and have a growing sense of national identity and independence. We have had among the highest participation rates of voters in elections. We pride ourselves on being innovators both technically and socially. We were the first to give women the right to vote and early adopters of an effective welfare state.
Economic growth, growth in real wages, unemployment and distribution of the benefits of the economy’s production have all been markedly better in the past, particularly between the end of the Second World War and the 1970s. For many years, New Zealand was one of the highest income countries in the world, and one of the most attractive countries to live in. We look back not to glorify those years. They were far from perfect with social intolerance, suppressed Māori grievances, and inequality for women. But they do show that New Zealand can do much better economically.
Indeed, the world economy did much better during those years, with international financial crises relatively rare and faster economic growth. International agreements to regulate capital movements and peg exchange rates, and which allowed a variety of strategies for economic development were effective in supporting development which focused on production rather than financial manipulation.
It was the growth of a finance sector far beyond the needs of the real economy that encouraged and inspired neoliberal ideology, along with the powerful economic forces of corporate globalisation which demanded the increasing deregulation and undermining of the social functions of government which have been so damaging. They said “leave us alone and the world will be a better place”. In fact the financial sector enriched itself at the expense of the rest of the economy, taking absurd risks, too often behaving unethically and even criminally, harming hundreds of millions of hard working people and causing huge damage to the real economy which blameless workers will be left to pay for in lost income and taxes. In addition, deregulated corporate globalisation has replaced well paid secure jobs with vulnerable low paid jobs.
In New Zealand these policies
• stripped away collective employment and union rights so that workers’ wages have fallen behind their increasing productivity and workers are increasingly forced into vulnerable temporary or contractor jobs;
• privatised swathes of services and assets whose new owners neglected infrastructure such as rail, failed to create new infrastructure such as broadband, and ignored needed services such as community banking;
• slashed benefits to poverty levels, especially affecting children;
• hamstrung social and economic use of the monetary system by limiting regulation to the control of inflation through interest rates, hindering development of the real economy;
• grew banks that accelerated New Zealand’s international indebtedness and the housing price bubble, and a non-banking sector riddled with instability and fraud; and
• entered international trade and investment agreements which removed much of our ability to manage our international economic relationships and made many of these actions difficult or impossible to reverse.
Despite the propaganda, New Zealand’s economic growth and international competitiveness have stagnated.
This Strategy is a response to these failed policies.
Principles to stand by
We need to measure our own policies and those of others against principles that can stand the test of time.
Fairness includes reducing the high and damaging levels of inequality that neoliberalism has encouraged; working to ensure women, Māori and Pacific peoples are no longer disadvantaged in New Zealand; and valuing a diversity of cultures, ethnicity, and sexual orientation, which add a richness of viewpoints and experience to society.
Participation includes an active voice in our workplaces and industries, ensuring workers’ knowledge and skills help develop productive and dignified work; an active voice in our society beyond one vote every three years; and active recognition of the partnership between Māori and the Crown founded in Te Tiriti o Waitangi.
Society can and should shield individuals from the worst of booms and slumps, and assist them through difficult times in their lives. A spirit of collectivism and solidarity is important for a stable society. The State plays an irreplaceable role in setting policies, stabilising the economy in times of crisis, providing security of income to individuals, and providing universal services. Security includes security of employment and full employment; security of income when we suffer misfortune, and when we have children or retire; and the role of unions in maintaining incomes, protecting jobs and advocating for better social conditions.
d. Improving living standards
Improving living standards is about incomes, but it is also about reducing inequality, ensuring no-one has to live in poverty, and the many non-wage aspects of living which are essential to our quality of life. These include the social wage – the services, benefits and assurances provide by the state; leisure; and the quality of our environment.
Sustainability is meeting the needs of the present without compromising the ability of future generations to meet their needs. It includes the environment – avoiding and reversing pollution, long term damage such as climate change, and over-consumption of finite resources; the economy – reversing high international liabilities, raising sufficient revenue in the medium term to pay for quality government services, sufficient investment for the economy to replace itself and develop, and incomes high enough to avoid skills and population loss; and society and culture – valuing our own history, media, languages, music, drama, literature and sports which make people feel they belong here.
These principles apply not only for our own country, but also in how we work internationally. Inter-governmental organisations and legal structures are too often designed to suit the commercial interests of international corporations. Greater economic, social and cultural interaction between peoples is to be welcomed. But it needs to be fair, recognising that people come first, that many international interests require cooperation rather than competition, and that individual nations and peoples need to maintain the power (sovereignty) to determine the rules and priorities required for their welfare and development.
Where we want to go
We seek a coherent alternative to current policy principles and institutional structures which will improve the position of working people and New Zealand. As we described elsewhere in this document, current economic policies and principles have demonstrably failed. A new approach is needed which learns the harsh lessons of not just the financial and economic crisis, but the trend of economic events that led to that calamity. We also need to learn from New Zealand’s recent history and the unsustainable degradation of the environment. We want policies which work together to strengthen each other and are sustainable, not only from the point of view of government finances, but also because they create and nourish a healthy economy, a healthy society and a healthy environment.
Our vision of the economy is unashamedly people-centred. People are who the economy is for, and people are who make the economy work. They are the “real” economy. For this reason, we believe a new foundation must be built on three pillars:
1. Sustainable economic development
2. Decent work and a good life
3. Voice: real participation in decisions in the workplace, economy and community
Below we highlight principles and list policies that move us towards these objectives. These are soundly based on international research and experience, and the union movement’s own long experience of representing workers and their families, and of advancing productivity in the New Zealand workplace. They build on work the CTU has done over a period of years, summarised in the Appendix from our publication “Te Huarahi mo nga Kaimahi”.
Sustainable economic development
Growth is the engine that drives capitalist economies – indeed we don’t know if capitalism can survive without growth. But sustainable economic development explicitly takes account of a broad range of side effects of economic activity (externalities). An economic return still matters. But so does the quality of the environment, indigenous culture, a functioning society and strong communities. And we need to be taking into account the increasingly apparent limits to resources which mean that growth in its current form is not indefinitely sustainable.
Our aims for working people can only occur if there are healthy firms and public services to provide decent work, good wages, and high quality products and services. Many New Zealand firms struggle to survive, let alone thrive, in the open economy. We need economic development that encourages new businesses and gives existing business a better chance; which encourages regional development and alternative forms of development such as those built on cooperatives; which encourages wealth creation through productive investment with good, viable jobs, and discourages financial manipulation; which stabilises the exchange rate and allows interest rates to be set to suit New Zealand’s needs; and which aligns our international economic relationships with our economic development objectives.
The market economy will provide many of these outcomes, but by no means all, and in many areas, it will obstruct healthy development. The market is a tool to be used appropriately, not a master or a mantra. Capitalism is brutal but innovative and our aim is to retain and spread the benefits of innovation while policing its brutality. The excesses of the financial sector, asset-stripping corporations and destructive environmental practices need to be reined in. The government has many important roles, including regulating the economy, to providing, redistributing income, and stabilisinig the economy in difficult times. It needs to be adequately funded through a progressive taxation system to carry out those roles.
One area in which a market economy demonstrably fails without government intervention is in sustainably maintaining a healthy environment. The dangers to the environment through climate change now make it clear that an economy cannot be sustainable without a sustainable approach to our environment, nationally and internationally. Sustainability requires polluters to remedy or pay the cost of their effects on the environment. It needs to be a consideration in everything the economy does. Market mechanisms can help with this but are unlikely to be sufficient. At the same time we must recognise the practicality of transition to this more realistic world and ensure that people who can least afford the change, including many working people, are helped through it.
We recognise we are pushing the limits of what the world’s environment can stand. Improving living standards will increasingly need to be from doing things differently – more efficiently and fairly – rather than simply producing more.
Higher productivity will help. This demands that our firms and government agencies make full use of the skills and experience of their employees through their genuine engagement in their workplaces. It requires constant attention to raising skill and education levels in our workplaces and community. Productivity will not rise if firms rely on low wages (as they have in the past) and neglect investment in existing and new technology and in the skills and commitment workers can use to get the most out of it.
The following policies address primarily these factors but also assist and complement the other pillars.
The economy is not out of trouble. There are still great uncertainties internationally, and even though GDP has started to rise again, unemployment is forecast to remain high for two to three years. Continued government stimulus continues to be needed. The CTU has over the past two years made a long list of suggestions for immediate actions which would also have longer term benefits which included regional and major national infrastructure spending, investment in education and health, tourism projects and promotion, support for iwi initiatives such as housing, further investment in home insulation and clean heating, and rail projects identified by Kiwi Rail.
We need to look more actively at how we want the economy and society to look as we come out of recession. This would be a good time to expand productivity initiatives based on successful experience. In particular the government should support broadening across industries and workplaces of tripartite productivity good practice projects which have been underway for some years.
There may still need to be support for firms which are struggling now but which have viability past the present crisis. This could include
• Boosting the 9 day fortnight to include higher wage support for the half day out of work (currently only the minimum wage), and funding training as part of the package.
• Bridging funding based on criteria below. This could be in the form of provision of or guarantee for commercial loans, or funds from the Reserve Bank at low interest rates.
• Expansion of youth opportunities and community employment schemes.
A strategic approach is required for sustainable longer term economic development. This could include priority being given to
• Sectors, broadly defined (e.g. ICT, high level processing of agricultural products, developing environmental products and services)
• Cross-sectoral themes (e.g. environmentally beneficial, high productivity)
• National and regional Infrastructure Plans
Support for industries
We have seen firms failing to get past their promising start, and those that do are too often taken over by international firms which have little interest in their continued development in New Zealand. Many currently successful New Zealand firms have benefited from long term government support or special status in their early stages. Subject to a set of criteria we should consider support through
• tax credits
• the injection of funds through purchase of shares
• development finance
• The sectors and cross-sectoral themes selected for strategic priority
• Environmental sustainability of production, such as energy efficiency and use of renewable energies;
• Development of new products and services which are environmentally beneficial
• Research and development (further detail below)
This support should not be open-ended or unconditional. It should be based on performance, and temporary. Its criteria, processes and actions should be transparent and both firms and government agencies should held accountable for the outcomes. But at the same time it should recognise that firm development is not a short term process of steady growth. Assistance must be sufficiently patient to take into account the fluctuations of markets and external forces.
Criteria for government assistance of firms would include
• Consistency with national priorities
• Viability of the firm
• Employment is created in New Zealand
• The firm is party to an industry standard employment agreement where it exists
• There is a commitment to principles of skills development and fair remuneration throughout the firm.
• The proposal has realistic export or import-substitution potential
• The firm is actively developing its productivity
• There is active worker participation in productivity initiatives and production
• Criteria as for “responsible contractors” to the government
A recurring problem for firms is gaining critical size to compete internationally with imports and when exporting. We should review competition rules to ensure they are consistent with
• building firms to a critical size which enables them to compete internationally
• support for development of networks and clusters of firms to overcome constraints of their individual sizes
• infrastructure which is more efficient with small number of (including single) units and therefore are better a regulated industry
• cooperation between New Zealand companies that aim to improve economic development and export opportunities such as ports negotiating with the large international shipping companies
• but also having effective powers to break up cartels and ensure firms do not otherwise get into dominant market positions and are effectively regulated where that is unavoidable.
Other support could include the following
• Support and develop the Buy Kiwi Made programme
• Use government purchasing power (see below)
• Availability of development finance (see below)
Infrastructure to support economic development is an acknowledged area of need. This includes both new infrastructure, and reform of currently underperforming facilities. Aspects for development include
• A long term government funded and operated programme based on a National Infrastructure Plan
• Support for regional Infrastructural Plans consistent with the national plan and economic development strategy
• Review of competition rules as above
* A national physical telecommunications network owned either by central government or by regional local government owned providers (similar to the successful electric power boards before the 1990s reforms) to provide free broadband infrastructure, with recognised right to access in all parts of New Zealand. This could include Telecom’s current physical network to allow a more efficient transition from its old copper network to fibre, and the continued use of copper if and where it provides similar speeds to fibre. However the purchase of this network should be at a price that recognises the imminent obsolescence of significant parts of it and Telecom’s failure to maintain and develop it in the national interest.
* Start to buy back the electricity system by taking a controlling stake in Contact Energy and Trustpower and regulate in order to optimise it for a combination of security of supply, low cost, and reduction of environmental impacts. This could be funded through long term Kiwi bonds. It should also enable households and businesses to sell surplus power to the network.
* Strategies for Ports and for Shipping to ensure best use of our ports, survival of a New Zealand coastal shipping services, and efficient transport to international markets
* Development of public transport in cities, including both bus and rail, and encouraging development of local suppliers of equipment (such as Canterbury’s DesignLine bus manufacturing and KiwiRail’s Hillside and Woburn workshops.
* A “human infrastructure” fund to provide long term funding certainty to tertiary education and workplace training with encouragement for private contributions
* Sufficient capacity in the core public service to provide quality and timely analysis and advice.
* Continued full government ownership of state owned enterprises.
Innovation, Research and Development
Research and development can both encourage innovation and development of firms and support the capability of our research institutions and researchers. It should not be limited to commercialisable R&D, but should include it. Policies should support Research and Development
• in firms by a choice of funding through buying shares in the firm or part state ownership of intellectual property created, or through tax credits
• by research and development funds for technology and services which assist national priorities and themes
• through Crown Research Institutes, with encouragement for collaborative clustering of firms sharing development and commercialisation
• by reviewing intellectual property laws and institutional rules to encourage
o new forms of Intellectual Property ownership similar to “open source” software, “creative commons” licensing and the practical application of publicly funded research by our universities and CRIs, in order to enable sharing by firms and extracting the widest benefit from them rather than conferring limited monopolies.
o sharing of ownership by the researchers who create new concepts
• Improve the utilisation of our public research capability by moving most government funding of research to centres of excellence (formal or part of existing institutions) and capability funds such as PBRF and CRI core funding, away from contestable funds. Centres of excellence to have a requirement to collaborate with all New Zealand experts and users in the field.
Gaining from new technology
These economic development policies will encourage firms to invest in new equipment and processes and to engage in research and development.
Industry collective agreements and standards should combine realistic wage setting with the elimination of wage reductions as a competitive strategy within sectors. This keeps the focus on raising productivity through investment and gives workers confidence they will see its results in their wages.
Increasing worker participation should be recognised as an essential part of good management practice such as in developing productivity, making the most of new technology, and in making changes in the workplace. Good management practice should be developed and disseminated through programmes of mentoring and training through employer organisations.
A Productivity Commission can play a useful role if it focuses on identifying and spreading good practice, rather than an unproductive obsession with taxes, deregulation and compliance costs. It will
• Be based on a social partnership approach, including union (and wider) representation in its governance
• Have as its objectives facilitating policy development, practical activities and research which boost productivity on a sustained basis
• Be independent, but second officials from other departments
• Take an analytical and research role on productivity issues and trends
• Build links with academics through commissioned work and more formally
• Focus on the modernisation process through infrastructure investment, sustainability and identifying ways to maximise multifactor productivity in workplaces
• Sponsor a High Performance Work Initiative which supports practical productivity projects
• Share information on and adapt a range of productivity tools and models
• Run inclusive events/workshops on productivity and have educational tools and other information on its website
• Produce an annual report on productivity
Education and Skill development
Early childhood education is an effective basis for future educational achievement. We should build a national network of high quality local publicly owned early childhood education centres with increased support to ensure that it is responsive to Maori, Pasefika and migrant children, and meeting a target of 100 percent of qualified teachers.
Schools must be resourced to at least keep up with rising costs, including salaries, provide continuing professional development to staff to enable them to provide the most effective educational environment for children and young adults as they develop, and to provide the capital to develop their facilities without being forced to rely on private operators. Pathways to tertiary education and between tertiary education providers should be simplified.
Tertiary education will benefit from the human capital fund above. Funding should take into account the greatly varied scale, context and expectations of the different public institutions, and should be much less driven by learner numbers. It should recognise the local and international demand for tertiary education staff and the often scarce skills they bring. Tertiary education should be available to all who have a reasonable likelihood of benefiting from the courses they enrol in. Lower fees should be available to students who are willing to be subject to a bond which requires them to take certain types of work in New Zealand for a certain number of years. Apprenticeships should be encouraged and industry training provision should be conditional on employers in those industries recognising the acquired skills in their workers’ pay scales.
The private sector should be reviewed to fully understand its contribution with a view to encouraging public good rather than private profit provision of tertiary provision.
Life-long learning and skill development should be supported through funding of fees and allowances for one year for every five in the workforce or child care. Education could be workplace based, or through an educational institution. Employer support for skill development should be encouraged by regarding spending on skills and education as an asset acquisition which can be written off over five years.
Education can support the development of environmental sustainability through special funding for apprenticeships and programmes in industries and subject areas that are environmentally sustainable or that support sustainability. Funding categories in tertiary institutions should be reviewed with a view to reducing fees in such subject areas, as well as other areas in which skill shortages exist or are anticipated.
The government and its enterprises are a major part of the economy, and can assist development through purchasing policies which look beyond the narrow criterion of value for money for the purchasing agency. The economic analysis showing the very positive national impact of building the rolling stock for the Auckland commuter rail system shows how beneficial this could be. We should use government and SOE procurement to develop local industry by policies including
• Ensuring all tenders are framed to make them feasible for New Zealand produced goods and services wherever possible
• Preference to New Zealand produced goods and services within a 10 percent price difference
• On the basis of economic impact studies,
* Providing equity capital to firms to enable them to tender competitively or
* Commissioning products in sufficient numbers
where that would give them sufficient experience and scale to bid for future work or diversify into related markets, particularly export markets.
• Support Māori economic development including the role of tribal and Māori urban authorities in securing a sustainable base for Māori.
• Reject involvement in forms of privatisation such as public-private partnerships.
• Ongoing support for Treaty settlements.
* capacity building and training around settlements
* consider ways to ensure the benefits reach Māori workers.
• Support Māori co-operatives such as in the seafood industry (see also the section on this subject)
Encourage greater migration of permanent skilled immigrants but require employers to
• Satisfy criteria for a “good employer”, including being a party to an industry standard employment agreement where it exists and making a commitment to principles of fair remuneration throughout the firm.
• Contribute to increasing skill levels of New Zealand residents
• Satisfy tests for priority employment of New Zealand residents etc.
Temporary immigration for employment should be very limited, subject to strict skill shortage tests, good employer requirements, commitment to training New Zealanders for the roles where appropriate, and be subject to specialised bilateral agreements with source countries.
Regional economic development is important to make the best use of our resources, assist disadvantaged regions, and nurture new ideas. Central government can support local government in its development of local industry and services such as through industry clusters and use of local government procurement to assist local industry. Many of the above policies could be applied at the local government level with or without central government support.
New Zealand has a long history of very successful producer (such as farmer) cooperatives, mutual societies and other community owned service providers such as trustee savings banks. In 2007, the combined turnover of cooperatives and mutuals was over $27 billion, according to the New Zealand Cooperatives Association. Producer cooperatives should continue to be encouraged. Worker cooperatives are comparatively rare however. Worker cooperatives have the potential to maximise worker participation. Cooperatives which employ only their owners, and are owned only by their employees can be encouraged by taxing the cooperative at the individual employee/owners’ tax rates, suspensory loans to aid at start-up and for the introduction of new technology, and cooperative incubator support like the business incubator model.
The financial system needs to support economic development. But in the wake of the Global Financial Crisis and the recent experience of the behaviour of our own financial institutions there is much needed to be done to return the financial system to stability and to its role supporting economic development rather than following its own anti-social interests.
Financial stability and responsibility
While the Australian and New Zealand banking system emerged comparatively unscathed from the Global Financial Crisis, we are not convinced that was due to the quality of its institutions or its regulation. In addition, the behaviour of the financial sector in past years has given numerous causes for concern. The following issues need to be addressed.
The dependence of New Zealand on the Big Four Australian owned banks which account for 90 percent of the assets of the banking sector raises major policy issues if one or more of them should become illiquid (as nearly happened in the crisis) or fail, or if one or more of them should threaten the governmental with some form of capital strike (as mining companies are threatening in Australia over the proposed resource tax) if they do not like government policies. These are issues of systemic stability. We propose the following.
Closer oversight over all financial institutions, the degree of oversight in proportion to their use of leverage and systemic significance (“Too Big to Fail”) including
• Legislation to ensure the separation of traditional commercial banking (deposit taking and lending) and investment banking
• Sufficient capitalisation, rigorously enforced
• Control executive, shareholder and other financial intermediary remuneration to prevent the excesses we have seen overseas
• Removal of excess profits through a FAT tax (Financial Activities Tax) similar to that proposed by the International Monetary Fund, levied on the sum of the profits and high-level remuneration of financial institutions
• Requirement for regulatory approval for financial services which are of high risk (whether sourced from New Zealand or abroad)
• Significantly reduce reliance on foreign funding, for example through prudential and liquidity regulations
• Strict controls on off balance sheet and shadow banking
• Availability and limits of bailout provisions and deposit guarantees clearly defined in statute, funded through a levy on banks based on institution’s riskiness and contributions to systemic risk, by measures such as size, interconnectedness and substitutability, as proposed by the International Monetary Fund
• Thorough review of the regulation of non-bank financial institutions
Reduce the vulnerability of the New Zealand financial sector to the Big Four and overseas ownership by measures including:
• scaling up Kiwibank to a comparable size to the big four banks and able to function in a crisis if the other banks are disabled as a result of their international connections, through
* recapitalisation, through a combination of government equity and some form of long-term or perpetual securities (like the recent successful issue) which the New Zealand Super Fund could find attractive
* moving the Government accounts from Westpac to Kiwibank
• reviewing the national payments systems with a view to ensuring they can continue in the absence of any of the Big Four, by putting in place the appropriate computer systems and expertise, to be run by the Reserve Bank or Kiwibank
• reviewing and planning for responses to similar (or greater) financial crises to the current one, including ensuring authorities such as the Reserve Bank have sufficient powers
• banning offshore outsourcing of infrastructure
Increase the transparency and accountability of the finance sector such as
• provisions like those in Australia which require charges to be related to real costs
• stronger consumer protection such as through a Financial Consumer Agency
• recognising the dependence of the financial sector on government and public support, and the importance of the sector to the economy, making institutions designated “Too Big to Fail” subject to Social Responsibility requirements including
* social partnership involvement in governance,
* responsible lending practices to individuals,
* support for economic development objectives,
* responsible customer and staffing practices including an end to overseas outsourcing
* end to tax avoidance and evasion
• Encouraging the expansion of what has proved to be responsible banking such as trustee banks, mutuals and cooperatives.
Provision of finance for economic development
New Zealand industry suffers from the lack of suitable finance for development. Funding could come from
• A government owned development finance agency with social partnership governance raising funds from direct government contributions, investment from other government investment funds (such as ACC and the New Zealand Superannuation Fund) and privately subscribed bonds. This would provide both development funding (including venture capital and “patient funding” during further development phases) and an investment vehicle to increase local equity in New Zealand firms
• Long term Kiwi bonds for infrastructure, which may be attractive for superannuation purposes
• Encouraging greater proportion of the New Zealand Superannuation Fund to be invested locally by use of partial government guarantees to the Fund on investment consistent with the economic development strategy
• Encouragement for private (e.g. Kiwisaver) superannuation funds to invest locally through a 10 percent reduction on tax paid by a fund on income from New Zealand investments, to be reviewed after five years.
• Encouraging domestic savings and their investment in economic development through changes in housing policies, and further expansion of the Kiwisaver scheme (see below).
Monetary policy and the exchange rate
The single focus of monetary policy on consumer prices and the use of interest rates as the predominant tool to control inflation has damaging effects on economic development by frequently forcing up interest rates beyond rates that make new projects feasible, and raising the exchange rate by attracting foreign funds to profit from the higher rates. Monetary policy can be an important tool in economic development and stabilising the economy. It needs to return to that vital role, while maintaining the control of inflation as one of its objectives. However the exchange rate will remain a problem while there are no controls on capital movements.
We should review both the Reserve Bank Act and the Financial Responsibility provisions of the Public Finance Act to support the following policies:
* Ensure the Reserve Bank has sufficient powers to take action on the exchange rate and international capital flows
* Give the Reserve Bank an active role in stabilising the exchange rate through management of international capital flows and currency controls, seeking cooperation and agreements with other nations.
* Peg the exchange rate to increase its stability
* Broaden the terms of reference for monetary policy beyond inflation to include employment, living standards, the exchange rate and other matters.
* Reduce the reliance of monetary policy on interest rates for example by direct control of the money supply, capitalisation ratios, and liquidity regulations
* Consider other monetary policy mechanisms such as empowering the Reserve Bank to increase or reduce a small slice of superannuation contributions. It would work as follows, once compulsory employer superannuation contributions have reached 6 percent:
• A 2 percent compulsory worker superannuation contribution
• In order to tighten monetary conditions, the Reserve Bank could require an increase of up to a further 1 percent compulsory contribution (that is, no more than 3 percent in total), the proceeds of which would go into a special Holding Fund, in which each individual’s contributions were identified.
• When monetary conditions are relaxed, the Holding Fund contributions are released back to the contributors, giving each the option of taking it as cash or adding it to their superannuation funds.
* Increase the powers of the Reserve Bank Board of Directors, and widen community representation on it
International economic relationships
We need to reduce our vulnerability to international financial crises, and demands of overseas investors, often expressed through credit rating agencies. There is international support for some of the policies we need. Others we need to take unilaterally and build international support for while not taking any further steps which worsen the situation.
New Zealand should support international moves to increase international financial regulation
* Clamp down on the ‘shadow’ financial economy
* End tax and regulatory havens and create new international taxation mechanisms;
* Ensure fair and sustainable access to international finance for developing countries;
* A small financial transactions tax (“Tobin tax”) to discourage speculative financial market transactions which can cause volatility in the exchange rate and create instability in the financial system.
* Support recommendations of the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System.
We should manage international capital movements to and from New Zealand including
* Bank borrowing from overseas (see section on financial stability)
* Volumes of overseas borrowing;
* Capital movements out of the country, with emergency provision for times of crisis;
* End-use of overseas borrowing such as to give preference to trade and foreign currency-earning investment;
* Minimum maturities (terms) of overseas borrowing, and matching of maturities between borrowing and lending.
* A managed exchange rate
With regard to trade and investment agreements, we should make no further concessions with regard to financial services, investment, intellectual property, measures that constrain our ability to protect the environment, or services, including health and education, with implications for public regulation or provision or New Zealand’s economic, social or cultural development. Any arrangements regarding the movement of people for work should be specific and separate agreements. We should work with others to undo constraints such as those which heighten the risk of financial crises.
We seek a “new internationalism” which recognises that many important factors require cooperation rather than a market approach. These include including peace (e.g. nuclear disarmament), human rights, climate change, food security, public health, the financial system and trade regulation and supervision. For New Zealand this would include
• Trade and investment agreements whose rules are founded on the need to regulate and to recognise national economic development strategies and the role of the public sector, rather than founded on concepts of market access and deregulation
• International agreement on control of capital movements
• Controls on foreign direct investment to enable selection of beneficial investment and enforce corporate responsibility, allow developing firms to survive in New Zealand, protect strategic assets and prevent asset stripping such as through leveraged buyout and private equity investors.
• Democratisation, transparency and accountability of global institutions currently dominated by US and EU
• Greater role for UN and UNCTAD in international economic and financial policy making to balance social with commercial imperatives
• Consideration of the recommendations of the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System such as a Global Reserve System and a Global Economic Coordination Council (“At a level equivalent with the General Assembly and the Security Council, such a Global Economic Council should meet annually at the Heads of State and Government level to assess developments and provide leadership in economic, social and ecologic issues... Representation would be based on the constituency system, and designed to ensure that all continents and all major economies are represented”)
• Build our relationship with Australia, and South Pacific nations based on these principles, plus:
* Caution in any further integration with Australia without considering social consequences, need for EU-like fiscal transfers, implications for wider relationships and our own independence
* Respect the development aspirations of Pacific nations, and the inequality of power relationships between Australia and New Zealand on the one hand and the other nations on the other.
• Build on existing international union links, global union federations, and Codes of Conduct and International Framework Agreements between global union federations and transnational corporations, to create trans-national union collaboration in campaigns and organisational development, and where possible and appropriate international collective employment agreements.
• Work towards trans-Tasman employment agreements with a growing base of conditions common to both countries.
Role of the state
The state plays an important role in regulating markets, including for example electricity, telecommunications, and the financial sector. It also has an important role, particularly in a vulnerable open economy, in stabilising the economy both through action in times of crisis and in creating automatic stabilisers through the social welfare system.
It remains the best owner of parts of the economy, for example infrastructure where large economies of scale which imply monopoly or oligopoly is most efficient, or to provide competition (e.g. banking)
These assets have multiple functions, the balance of which will differ in each case. They include
• Preventing excess profits in important services which are a monopoly or are otherwise less than fully competitive.
• Ensuring essential services are provided equitably and affordably
• Providing security of services
• Social solidarity mechanisms such as ACC
• Providing services in the public interest which the private sector is unlikely to provide
• Providing additional income to the government
For public organisations, the form of management, accountability and financial accounting should recognise that public services have different objectives and may have different organisational structures from private sector organisations. There should be sufficient capacity in the core public service to provide quality and timely analysis and advice. At the same time there are themes in common with other workplaces: sustainable services, productive workplaces, worker participation.
Public services should meet the needs of citizens, and provide value for money (“public value”). This requires an openness to discuss these matters with citizens, and to listen to what they say. It will work best when the voice of workers is valued in a high-trust public service workplace.
Because of its size and ability to tax and borrow, the state is best placed to provide security that is not otherwise available to individuals, with a welfare system based on reducing inequality, and ensuring dignity rather than a safety net (see above).
Government procurement can also be used to encourage economic development, as described above.
Responsible contracting policies can also speed up adoption of good practices, by requiring for example,
• The firm is party to an industry standard employment agreement where it exists and there is a commitment to principles of skills development and fair remuneration throughout the firm.
• The firm has a process to achieve pay equity for its women workers
• There is active worker participation in production
• The firm is working towards its production and work processes being environmentally sustainable
It is essential that the state is sufficiently resourced to carry out its functions and carry out its important redistributive role. Taxation can also encourage and provide support for productive investment and for other positive directions society determines.
Progressive income taxes are important sources of income and play a central part in redistribution, lessening income inequality, which becomes increasingly important in the context of resource-limited economic growth.
Income tax: Create either a tax-free band and/or a tax rebate for those on incomes under $35,000. The income tax scales should be augmented by a 38 percent rate on income more than approximately twice the average wage ($100,000) and a 45 percent rate on income more than approximately three times the average wage ($150,000).
Reduce GST to 12.5 percent and progressively replaced it with other forms of taxation including asset taxes (see below), the international Financial Transaction Tax and the FAT tax explained above, and taxes or increased royalties on commercial use of resources.
Polluters should face taxes on their emissions, including greenhouse gas emissions (see Climate Change below), with the aim of them paying the costs of all significant “externalities” (side effects such as pollution and global warming). However this should be done in a way that ensures people on lower incomes do not end up paying an unfair share of the burden.
We should investigate improvements to the welfare system through the tax system including at least partially replacing Working for Families with a tax free threshold on personal income, like in Australia. See also Social Security below.
Address tax avoidance through
• Sufficient resources to IRD to track down evasion
• Ensuring that Trusts other than Charitable Trusts cannot be used for tax avoidance
• Changes to the company tax regime
• Return the company income tax rate to 30 percent
• Investigate income taxation of closely held companies to make it difficult to use them for tax avoidance and to provide tax relief for struggling local owners of small firms (for example for such firms, tax income to individual resident shareholders at their personal tax rate)
• Apply thin capitalisation rules to overseas owned companies with a debt threshold at 50 percent.
• Consider ceasing tax deductibility of interest on related party borrowing.
• Taxes on commercial use of resources and on externalities as described above
• Tax on excess profits as the result of market dominance
Additional sources of revenue should include
• End deductibility of rental property losses against personal income.
• A capital gains tax or a “Risk Free Rate of Return” tax on assets, subject to equity considerations: that is they should be designed to be progressive, aimed primarily at investors, exempting a household’s primary occupied home.
To build a more resilient and sustainable economy the economic development policies above are consistent with actions such as
• Green Investment Funds which have tax breaks conditional on them investing in environmentally beneficial technologies or services
• Promotion of new investment in low carbon technologies.
• Research and Development funds for green technology and services such as manufacturing capacity for wind and wave turbines, solar energy, bio-fuel from waste, geothermal energy, reducing carbon emissions in fossil fuel energy generation.
• Encouraging use of local products and services
• Education and training in the skills required for anything from installing insulation and clean heating in homes through to energy analysis and the design of new buildings and energy generation plants.
• Development of public transport services
• Renewable energy and energy efficiency projects.
• Designing and building low cost, low environmental impact housing
• Green retrofitting of commercial buildings.
• Green conditions in collective employment agreements such as encouragement to walk, cycle or take public transport to work.
There is considerable evidence that emissions of greenhouse gases are a cause of harmful climate change. The risks of doing nothing could be catastrophic. Therefore we support a price on emissions so that a clear signal is sent to emitters. However this needs to be strengthened with a major programme to transform the economy.
It should include allocation of credits or other forms of protection for firms that are “competitiveness at risk” and facing a price for emissions. This should be monitored to ensure this assistance is not misallocated or too generous, or there is insufficient change of behaviour. In addition, a more comprehensive approach is required including the following:
• Support for workers displaced by changes due to climate change policies as described below under Security of Employment
• Major investment in skills for a low carbon economy.
• Provision for assistance when a whole community is affected by climate change
• Mitigation measures on poverty (for example, from an increase in electricity prices), incomes, equity and gender equality
• Participation by workers in the approaches taken to climate change in workplaces – for example by Union Climate Network Delegates
• Union involvement in decision making on such changes at all levels, from national policy-making, to regional and industry change, to involvement in local negotiations, such as those surrounding environmentally-triggered plant closures.
• Research and information freely available
Public services and public sector leadership at all levels of government must be at the heart of the global response to climate change. Public involvement in technology transfer in the utilities sector, for example, should be encouraged and financially supported. Public procurement contracts should include specifications for labour and environmental sustainability standards.
Countries tend to evaluate their progress by increases in measured output – usually by GDP per person. It is widely acknowledged that this is a poor measure of wellbeing and progress. For example it counts money spent on building a prison or cleaning up an oil spill as if it were as beneficial as building a new school or paying the wages of workers in a factory. Crime and environmental degradation can make GDP look better, and no account is taken of the loss of asset values when we mine minerals or damage an ecosystem or the benefits of leisure and public assets like parks and beaches. It takes no account of the value of unpaid work in homes or voluntary organisations. Nor does GDP measure the changes to most aspects of the nation’s wealth other than those in the market economy and government. It ignores depletion of resources such as oil and minerals which reduce the country’s wealth while it increases that of the new owners, and ignores damage or improvement to the country’s natural wealth including its environment such as pollution or clean-up of rivers and its “human capital” in the skills, knowledge and experience of its people.
There are better indexes being developed to measure progress which discount “bads” and take into account wider indicators of social, economic and environmental wellbeing, and a broader view of wealth. Examples include indexes being developed by the Commission on the Measurement of Economic Performance and Social Progress initiated by the French President and headed by Joseph Stiglitz and Amartya Sen; Statistics New Zealand’s new regular reports Measuring New Zealand’s Progress Using a Sustainable Development Approach; Marilyn Waring’s General Progress Indicator; and the Canadian Genuine Progress Index.
One or more of these indexes should be adopted to use alongside GDP to guide national decision making and priorities.
Decent work and a good life
The economy must pay good wages and salaries. We can have sustainable economic development only if we stop losing many of our most able people. Good wages also mean people have the money to buy goods produced in New Zealand so we have a strong domestic economy as well as trying to export more. Sustainable growth in workers’ incomes is based on two essentials: higher productivity, a focus of sustainable economic development; and passing on the gains into higher wages and salaries.
Good wages are a matter of being fair as well as being good for the economy. Working people have not received a fair share of the growth in the economy over the last two decades. Workers will make a commitment to their work if they see the results benefiting them and the community, and their jobs being rewarding in human as well as financial terms. We know from New Zealand’s experience over the last two decades that the benefits of higher productivity will be passed on into higher wages and salaries only if there are effective unions and supportive employment legislation.
There are wider benefits. The creation of collectively based employment agreements negotiated by effective unions creates “automatic stabilisers” which during a recession such as the current one ensures that wages don’t crash, reducing demand and worsening the crisis.
Business says it needs certainty, but people do even more so. Full employment and security of employment and income are critical, but there are benefits if security is combined with sufficient flexibility to allow firms to adapt to changing circumstances. People also need to be confident that if they lose their jobs, suffer ill health, injury or relationship break-ups, and when they retire, that they can maintain a dignified existence. They need to be able to afford good quality housing and other essentials of life.
A healthy society in which we can live a good life does not have high levels of inequality. Inequality leads to inferior physical and mental health, educational achievement, crime levels, and social mobility, which in turn create real economic costs. A healthy society respects and rewards people regardless of their gender, culture or ethnicity so that all can make a contribution to society making full use of their abilities.
The Union Change programme being developed by the CTU will:
• extend union coverage and collective bargaining to the widest possible group of workers
• introduce a rights-based framework regarding coverage by collective agreements, participation in unions and workers’ voice in their workplace and industry about the way work is organised and their place in it
• create mechanisms for national and industry level standards setting
• create a broader union movement including forms of organisation that allow workers to easily associate and participate.
• Develop a formal proposal for a more structured approach to social partnership. This could include considering the desirability of establishing a Living Standards Review Authority reporting to a National Tripartite Social/Economic Council. Every three years it would review standards of living, social and tax policy, price levels and increases, and productivity changes. It would hear submissions from the NZCTU and Business NZ, and initiate tripartite discussions and make recommendations and agreements on measures to address equitable distribution of incomes.
With unemployment is forecast to remain high for two to three years, further government action is needed, including
• Action some of the large range of possible initiatives which would both have long term benefits for the economy and quickly create jobs which the CTU put forward for the Job Summit (see above for examples). See also Housing, below.
• Improved support for people who do become unemployed including support in career advice, applying for jobs, adding to their skills and education, and assisting with relocation if they wish.
• For those unemployed over 13 weeks, an entitlement to a Skills Investment Fund Booster package that adds to the normal level of the Skills Investment Fund support to take to new employment and provides access to individually tailored skills audits.
• Full employment a central objective of government policy.
• Adopt a policy of “Flexicurity” which provides security of employment along with sufficient flexibility to allow firms to adapt to changing circumstances.
• Provision for security of employment would be funded partly from compulsory experience- and size-rated employer levies and partly from general taxation, underwritten by government including:
* Maintenance of 90 percent of prior income during unemployment for up to 12 months, conditional on commitment by the worker to acquiring new skills if necessary, and job searching.
* Active labour market policies to provide support to find new jobs and assistance in moving to another region if necessary.
* Financial and practical support for acquiring new skills and qualifications.
* Tripartite design, governance and implementation of the programme.
* Normal unemployment benefits to apply after 12 months if still unemployed.
Review adequacy of other benefits to eliminate poverty, with the aim of tying their base rates to a proportion of the average wage. See also under Taxation above.
Return ACC to a social compensation scheme funded on a “pay as you go” basis through levies and taxation.
• The Reserve Bank to provide low interest funding for new housing conforming with green and good health conditions (insulation, heating standards etc) through
* Banks on condition of pass on of interest rates
* Housing New Zealand for state housing
* Local government for low cost rental housing
• Extend insulation, clean heating programmes for existing homes
• Increase provision of state housing
Housing is both an essential part of our health and standard of living and a central factor in New Zealand’s lack of funding for productive investment. We need to assure people of access long term to low cost, quality housing while encouraging savings to be invested in other areas. The tax policies we propose will help.
Conduct a strategic assessment of major housing need in order to create a National Housing Strategy and within that strategy, support development of quality lower cost housing and assist those wishing to rent by
• Expanding Housing New Zealand’s available housing stock by 20 percent
• Developing local strategies between national and local government and HNZC to respond to housing bottlenecks in key areas such as Auckland, Queenstown, and the north of the South Island
• Reviewing potential land for housing within metropolitan urban limits, some of which may have been deliberately withheld from development (“landbanked”) to raise its price in the medium or long term, with a view to requiring the development of some or all of that land to meet local affordability challenges
• Encouraging “inclusionary zoning” that requires developers to include to make provision for affordable housing in developments, or levy developers where they do not wish to do so, to provide a fund for affordable housing.
• Requiring each local council to insist on an affordable quota of houses in its area, some of which it provides directly.
• Supporting high density development in urban areas
• Reforming tenancy laws to give greater security to tenants
• Sponsoring designs for low cost, green and healthy owner-occupied housing.
• Expanding the Healthy Housing programme and assess all new housing initiatives on the basis of their health and environmental impacts
• Housing New Zealand housing stock to reflect changing demographic patterns in New Zealand, providing low cost communal and supported housing that better reflects the multi-cultural needs of those that inhabit its homes.
• Enforcing current rules taxing capital gains made by property speculators to discourage housing price bubbles.
• Capital gains or asset taxes as described under Taxation.
• Ensuring that there are sufficient skilled workers available to build and maintain housing through a higher level of investment in industry training in this sector as it comes out of recession.
Increase affordability of housing by
• Phasing out accommodation supplements (worth over $1 billion a year), which effectively act as a landlord subsidy and thus encourage higher rents, in favour of assistance with home loans for low income families and public rental and third sector housing programmes.
• Subsidising home lending in tailored programmes for targeted groups including low income households, key workers whose recruitment and retention is affected by housing difficulties, women, Māori, and Pacific people and other financially disadvantaged groups. Each may benefit from a different programme.
• Greater support for housing on Māori land by lowering individual income requirements and considering assistance for community housing initiatives
• Expanding shared equity schemes in which the government or a private entity takes a share in the house which is returned when the house is sold as a proportion of the sale price.
• Improving the subsidies for Kiwisaver withdrawals for home purchase
• Restricting sales of residential property to permanent residents and New Zealand citizens only.
Maintain New Zealand Superannuation supported by a New Zealand Superannuation Fund to which contributions should be resumed as soon as practicable.
This should be augmented by a Kiwisaver scheme which is enhanced both to increase saving and to include people unable to provide for their own retirement. Because the majority of Kiwisaver fund clients are workers, governance of funds should include union representation. Enhancements:
• Compulsory employer contributions of 6 percent phased in over 4 years
• Compulsory employee contribution 2 percent
• Government top-up 2 percent
• Address equity issues: Inquiry into addressing equity issues, such as those resulting from lower pay rates and lifetime incomes of women with view to beneficiaries and non-working parents receiving government contribution in lieu of employer
Reducing inequality is a theme in the above policies. Other means to reduce inequality will be sought, and reduction of inequality will be a criterion in the evaluation of new policies.
Our policies for more effective unions, industry agreements providing benefits beyond union members, workplaces that value worker participation, and more generous unemployment and social security benefits are all important in reducing inequality in both income and power.
An additional measure would be to introduce progressive electricity prices, entitling every household to a certain amount of electricity at a lower cost than additional units.
• Give workers the right to require a Pay and Employment Equity assessment in workplaces. Apply the tools and policy developed over the last decade to advancing Pay and Employment Equity in both public and private sector employment.
• Extend the paid parental leave entitlements to 52 weeks for the eligible parent; ring-fence paid paternity/ partner levels of 4 weeks; and increase payment levels for the eligible parent to 66% of the average weekly earnings while on parental leave.
• Extend the flexible working arrangements legislation to enable all workers the right to request such arrangements
• Increase the minimum wage to $16.87 per hour, and continue to maintain it at 66 percent of the average wage. This both increases demand (important during a recession) and reduces inequalities.
- Voice: real participation in decisions in the workplace, economy and community
One vote every three years does not make a healthy democratic society. The issues that confront society are much more complex and changing. Indeed General Elections are bringing less effective public debate and less real change. The workplace is currently a democracy-free zone. We must find ways to increase public participation in the issues of the day and for workers in their workplaces. Effective unions are an important part of that.
Sustainable economic development, decent work and a good life for everyone does not arise through a utopian vision. It requires constant trade-offs in the real world of markets, governments and the pressures and opportunities of globalisation. Hugely disparate outcomes arise because of unequal power. Part of this is about resources. But voice is a means of influence.
The changes that we advocate here should not be seen as a blueprint but part of a process of the continuous rethinking of society that is required in rapidly changing circumstances. That can only be done if there is a political process that gives voice to the many different objectives that co-exist in our society rather than allow the process to be dominated, as it is at the moment, by powerful economic interests and media controlled by them. In many ways, the process is as important as the objectives because there will be no endpoint: society will continue to develop and must find ways to do so which produce acceptable compromises.
Central and local government should require a process of consultation with social partners (unions and business) and other affected groups in all policy development and legislation. Key bodies representing these groups should be funded to enable effective involvement in consultation.
Public services should be designed to meet the needs and values of citizens by consulting with them and the public service workers who implement them.
Given high levels of labour market participation, the workplace should be seen as a location for active citizenship. All enterprises of 20 or more workers should provide access to community organisations to hold lunch-time (or other appropriate time) sessions to consult on local issues. This should include an opportunity for local councils to consult.
We should create increased room for diversity and depth in the media through
• Encouragement of trust-owned “public service” newspapers and other media in which all profits are reinvested in the publication, like the Scott Trust which owns the Guardian and Observer in the U.K.
• Funding for investigative print journalism through the equivalent of “New Zealand On Air” funding.
Increasing worker participation is recognised as an important part of good management practice. There is an economic rationale for this: maximising productivity requires that employers make full use of the skills and experience of their employees. This comes through the active and willing participation of workers in their workplace. In addition, the changes in work that are accelerated by international competition and new technologies will be made more quickly and effectively if workers have a say in their workplace and skills development.
Firm, industry and national participative structures would sustain worker participation:
1. Representative structures for participation at workplace level which broaden and deepen employer-union engagement.
2. Industry Sector Councils which encourage and participate in sharing of good practice around productivity, skills development, industry development initiatives, and creating networks of firms
3. These could also feed into the National Tripartite Social/Economic Council described above.
The value of having unions alongside good management practices in workplace organisation (such as in productivity initiatives) should be recognised through a requirement to involve unions throughout processes of change in workplaces, workplace structures, and development of new skills.
Health and safety representatives and learning representatives should be supported with a major expansion of current initiatives.
Other options for worker participation should also be considered including worker representation on boards and on-line consultation forums for workers and management.