Marc My Words… 4 May 2007
Political comment
By
Marc Alexander

A free market or a slave market?

There has been a disturbing trend by some commentators to gently yet persistently advocate an abandonment of free market principles of late. In one sense the spate of manufacturers either relocating their production overseas, or at least threatening to, makes it understandable. The appeal is based not simply on the loss of productive capacity but on jobs lost. Click Clack (manufacturers of polycarbonate beverage-ware) and wool tanner, G.L. Bowron, announced losses of up to 140 jobs. This follows earlier news of factory closures by ice-cream maker Tip Top and carpet maker Feltex. Fisher and Paykel also announced recently that its Auckland washing machine plant would relocate to Thailand with a loss of 350 domestic jobs. New Zealand's largest bedding manufacturer, Sleepyhead, was reported to be reviewing whether to move production overseas with potential cuts of another 500 jobs.

While the cuts may not seem overly dramatic, further job losses was anticipated by Employers and Manufacturers Association manufacturers division manager Bruce Goldsworthy, who suggested that more than 26,000 workers could lose their jobs as businesses which rely on export earnings continue to struggle against a high dollar, and high interest and tax rates. This possibility, it was argued, was most acute amongst export manufacturers which processed raw New Zealand products such as timber and wool, or who relied on a high proportion of domestic content in their products if conditions did not ease.

The doomsday scenarios offered up in these media driven commentaries seem to suggest that a stampede of overwhelming proportions was all but inevitable unless the government does something constructive to help. And therein lies the biggest problem. The Labour government assumes that 'helping' implies more government meddling in the private sector not less. The hitch is that much of the current troubles in our economy is the result of too much government.

It was not so long ago that Treasury berated Labour for its seemingly insatiable spending habits. The prescription advocated an easing of the government burden off the backs of the productive private sector. Policies included lowering the top personal 33 and 39 per cent tax rates; dropping the 33 per cent company rates; amending the obstructive Resource Management Act which impeded development; improve the poor productivity of the public sector; reduce the growth in government spending.

A Treasury briefing stated that, ”there is little information to indicate that New Zealanders are getting more services and better results from the public sector for the large increases in resources provided."

What they are emphasizing, in effect, is these are the very resources that should have been left in the hands of those who created it so as to be used more productively in such things as reinvestment in improved technologies, research, product development, and employee training and upskilling.

Sadly the man charged with the job of preventing the government from pilfering these valuable resources, Michael Cullen, immediately retreated into his ideological cubby hole referring to the Treasury report as an “ideological burp” and promptly rolled out the next phase of middle class welfarism. Sadly perhaps, he is not alone in this kind of muddled thinking.

Some academic types are rushing to pose the question of whether what’s good for economic theory might not paradoxically, be bad for our national interests. While firms hit by our high dollar are hurting and look to shift overseas to take advantage of cheaper labor and lower compliance costs, these advocates now suggest so-called heretical solutions that hark back to the days of protectionism, subsidies, and tariffs. Politically difficult suggestions such as a capital gains tax are also given as part of a package of ideas whose attractiveness is driven by its simplicity and the numbers of kiwis reaching a tipping point over whether or not home ownership will ever be financially viable for them. The problem, I suppose is that both academic and media ‘economists’ see the world through a different set of eyes than do business people who act and react to the rough and tumble of the market.

The argument for a free-trade agreement with China is a case in point. Orthodoxy requires we should pursue it because we assume that such an agreement is part and parcel of what open markets are meant to be. The problem of course, is that China’s economy bears little resemblance to a free market let alone a free society. It is a nation hell-bent on gaining a quick entry into the technological age through whatever state controlled means necessary. Slave and prison work which would be unacceptable anywhere else in the developed world helps prop up the overall low wage economy. Subsidies are rampant, as is the lack of protection for intellectual and technological property rights. It is, in essence, one big gulag dominated by the big brother communists who have substituted whatever ideals they might have once had with state capitalism. China has dragged the people into the new age without the corresponding safeguards of a strong and robust civil society.

Capitalism works best when there are no economic borders, and where nations can evolve from within a truly free private sector. In such circumstances businesses will rise and fall according to their abilities to create, innovate, and meet the needs of a paying public. It is also the architect of a people’s wealth. And just as it is prudent for an individual to buy the best quality at the least price, it must therefore also be equally sensible for businesses to produce to their market advantage. In practical terms that means considering more than the immediate effect on special groups but instead the overall benefit to all.

The problem in China, is that we do not have a society with which we can evolve our industrial capacity to compete with – and it has nothing to do with the dictates of a free and fluid market but due to its very antithesis; the capitalist state entity with its employees defined by citizenship in much the way a slave is defined by his owner. The point is obvious despite requiring continued restatement: state interference within the dynamic of private sector wealth creation may advantage one group in the short term, but will always be at the expense of all other groups in the long. The high dollar may make it politically expedient to 'help out' those industries currently hurt but unless it is in the form of removing past policy distortions (thereby returning closer to the free market model), then it should be avoided for fear of introducing ever more distortions to every other market participant. And as for China? Until they open and embrace a truly free civil and market society, we should avoid their so-called free trade deals like the plague. Taiwan anyone?

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