The Global Economic Crisis, Free Trade Agreements & Privatisation

- Murray Horton

You don’t need me to tell you that the world is in a once in a century economic crisis right now. As capitalism (which is usually misleadingly labelled as “democracy”) was declared the winner of the nearly 50 year long Cold War, and capitalist triumphalism was the dominant theme of the past two decades, along with American unilateralism, this means that what we are experiencing is a genuine, full blown crisis of capitalism. I should say at the outset that, unfortunately, I do not share the view that this means “the death of capitalism”. It has survived and mutated into new forms throughout all its previous great and small crises, including the 1930s’Depression, which is the only precedent for what we’re experiencing now. It won’t die unless something kills it. As my old mate Chairman Mao said: “If you don’t hit it, it won’t fall”. But that’s a whole different subject from what we’re discussing today. I do hope, for all our sakes, that this crisis does not mutate into fascism and world war as the last one did (but there are worrying signs in some particularly stressed parts of the world).

The consensus seems to be that the full force of the tsunami hasn’t yet reached our distant shores and the worst is still to come, that NZ is maybe 12 months behind the rest of the world. It is easy to deny that what has happened in the much bigger and quite different economies of, say, the US and Britain, won’t be replicated here. After all, our banks did not get into the outright criminality of subprime mortgages, nor do we have crippling imperialist wars to finance, such as those in Iraq and Afghanistan. So, it is instructive to consider what has happened to a comparable country, namely Ireland, once known as the Celtic Tiger. Ireland has a similar size population, used to rely on agriculture as its mainstay, has always exported people as we do (except on a considerably greater scale), and had systemic high unemployment. The cure for all of this was supposed to be foreign investment, with all sorts of inducements offered to the transnational corporations (TNCs), particularly those in the manufacturing end of the high tech electronic industry, to get them to set up shop. For a while there things were rosy indeed and the country boomed, particularly the housing market (does that sound familiar?). Ireland was regularly cited as a model for NZ, an example of a country that had moved to a “new, smart” economy. But now the TNCs like computer giant Dell are quitting Ireland for cheaper labour locations such as Poland.

To quote Time (6/4/09): “The good times owed much to the arrival of foreign-owned companies like Dell – such firms account for almost 90% of Irish exports and more than two thirds of the country’s business research and development – so the scaling down of a flagship investor is a real blow. It’s not the only one. After more than a decade of rampant growth, Ireland now looks anaemic. A burst property bubble has landed the country in a deep recession. The economy could shrink as much as 6.5% this year, with unemployment set to reach 12%. Irish banks – massively exposed to property – look wobbly, and as tax receipts dwindle, public finances are in a mess”. The parallel is not exact, of course – foreign investors in NZ have tended not to actually set up very much by way of manufacturing plants here, and NZ manufacturers have headed for the cheaper labour of anywhere from Fiji to China to Mexico and Thailand (in the case of Fisher and Paykel) in the past two decades. So NZ manufacturing was already buggered before this latest crisis came along. But there is enough commonality there to sound a very loud warning to NZ. If you put all your eggs in the basket marked “foreign investment”, prepare to be left with just a mess of broken eggs.

What the major capitalist countries are doing is throwing unimaginably huge sums of money at the problem in an attempt to “save capitalism” (or, at least, to save the skins of their respective ruling classes who got them into the mess in the first place). Some more excitable commentators have described this as socialism. No such luck, it is simply State capitalism on an enormous scale. But, whatever it is called, it represents a fundamentally different species of capitalism to the completely laissez faire variety that has been globally running amok for the past 30 odd years. The more perceptive of the capitalist leaders have recognised that things can not simply proceed as they did before, or else this whole scenario will be repeated. In short, something has to change.

I should stress that this is not the consensus view by any means – for many of the “masters of the universe” currently down on their luck, all that they want is the American or European or whichever taxpayers to dig them out of the hole they have dug themselves into, so that they can go straight back to doing things exactly how they were doing them before. In other words, they want to exactly repeat the behaviour which brought about this whole mess in the first place. The closest analogy is of a drug addict begging his family to give him the means to buy more drugs so that he can carry on with his destructive addiction. The jury is still very much out on whether these mind boggling bailouts in the US and elsewhere will actually “save capitalism” or just briefly prolong the lifespan of the dominant, extremely dysfunctional version of it, namely finance capital.

But nothing has changed as far as good old New Zealand is concerned. I’ve already said that there is a tsunami coming but our Government is running full tilt towards it, transfixed by the big, shiny wave. While the rest of the capitalist world is now full of born again Keynesians (and Marx is being studied again as the most insightful critic of capitalism). But National and Act, and their strangely silent Maori Party partner, are still living in the recent past, where the patron saints were Adam Smith, Friedrich von Hayek and Milton Friedman, not to mention Roger Douglas. They are behaving as if nothing has happened or, even worse, that nothing is going to happen.

Bill English’s first Budget did not repeat Ruth Richardson’s monumental 1991 blunder of bashing the poor and slashing benefits (which have never recovered the lost ground) but it also didn’t do anything much to prepare the country for the turbulence ahead. I don’t care about the tax cuts being scrapped, I congratulate National for doing so. But by stopping the Government’s annual contribution to the Super Fund for ten years sends a clear message that universal old age pensions will be under serious threat in the not too distant future. English said that there is no point investing taxpayers’ money into the bottomless pit that currently constitutes the global markets. Correct, so why not do what should have done in the first place when Michael Cullen set up that Fund and invest it into NZ instead. There is no shortage of infrastructure, health and education projects that could be built or improved with a decent infusion of cash. I’m a cyclist but I really don’t see the building of a national cycleway as the Government’s top priority in its economic stimulus package. Come on, boys, you can do better than that.

A distinguishing characteristic of this denial of reality is the Government’s continued fixation on foreign “investment” as the answer to all questions. It got elected as “Labour Lite” (actually Labour was pretty much “Labour Lite” in the first place) but has decided that the already considerably liberalised Overseas Investment Act, which came into force only as recently as 2005 (Michael Cullen’s legacy) is “too tough” on the poor old TNCs and needs to be eased up even further. Bill English has announced a review of the Act, to be completed by the end of June, with new legislation ready by later this year. As the review has not yet been completed, we don’t know the details, but from what we’ve seen of the review’s terms of reference, you can bet dollars to doughnuts that it will call for the door to be thrown wide open or, even better, ripped off the hinges. Tories are fond of calling for “locking them up and throwing away the key” in relation to crime; in the case of foreign investment, they call for unlocking the door and throwing away the key so that it can’t be locked again. I see this obsession with foreign investment (what they like to call “an open economy”) as being like a cargo cult, with the Government of the day (and it is a bipartisan obsession, with Labour equally as guilty) frantically cutting landing strips in the jungle and awaiting the arrival of the big shiny planes that will come out of the sky and bring all the cargo that will solve all our problems.

Two other broken down old nags make up this trifecta of losers – privatisation and “free trade”. New Zealand is a heavy backer of both. Privatisation is a very touchy subject for Tory strategists because the New Zealand people have had so much negative experience of it, and don’t want any more of it. It was given free rein here in the 80s and 90s and was a bloody disaster. Key got elected by promising not to privatise any State assets during his first term, including the likes of Kiwi Rail which was only renationalised by Labour in its last few months in power. This election promise is one which will stick in the throat of the National and Act ideologues and they will be working overtime to think up ways to privatise things without actually calling it privatisation. Hence the talk of “opening up ACC to competition” (which will come from the global insurance TNCs – the mates of AIG, the US insurance giant which has come to personify everything that is wrong with the global financial sector) rather than baldly announcing that ACC is to be flogged off. Hence the death by a thousand cuts of TVNZ. To give just the most recent example – if you want to watch the 2011 Rugby World Cup in its entirety, you’ll need to pay for Sky TV, it won’t all be on free to air. So, TVNZ loses more and more of the prizes and its demise becomes a self-fulfilling prophecy as viewers feel compelled to switch to Sky. Then the Government will be able to self righteously wring its hands and say that it has no alternative but to sell TVNZ, for a bargain price. Hence the new fashion of Public Private Partnerships in sectors such as roads and other infrastructure, with these PPPs (first championed by Labour) being seen as a more acceptable alternative to outright privatisation, with the added benefit for the TNCs that they don’t have to shoulder all the cost and the risk. Hence the sudden push for private prisons to be allowed back as a “solution” to the problem of soaring rates of imprisonment (and isn’t that making a big difference to the crime rate? But that’s another story).

“Free” trade is an absolute item of faith for both National and Labour, who use it to look at the world down the wrong end of the telescope. Jane Kelsey has described the bipartisan approach as being “what is good for Fonterra is good for New Zealand”, meaning there is an absolute obsession with opening up global markets for NZ agricultural products, with no concern whatsoever for the disastrous impacts of the reciprocal opening of the NZ economy (nor for the truly catastrophic effects that “free” trade has on the poor countries who comprise the majority of the world’s people – but that’s a separate subject). New Zealand, who gifted Mike Moore to the world as one of its Directors General, has been monomaniacal in its drive to get the Doha Round of the World Trade Organisation wrapped up. But, despite our best efforts, the talks are hopelessly stalled. Why? Because other countries, including the very biggest capitalist ones, are not as keen as us to jump off the cliff, trusting only in “the market” to ensure a safe landing. All of those other countries quite unashamedly have their own national interests to be protected. And that has only become more apparent as both the US and European countries have reaffirmed their support for subsidies for their farmers, leaving NZ out on a limb impotently hissing furiously about how could they do this to us, we had jumped over the cliff of free trade on the promise that our erstwhile friends would jump over with us and surprise, surprise, they’re still on the cliff top waving us goodbye and asking us if it hurts yet. What’s that old saying about look before you leap?

Both National and Labour governments have worked tirelessly to sign NZ up to free trade agreements, any free trade agreements. If the multilateral WTO talks are bogged down, then NZ hares off after other regional or bilateral agreements with anyone who will have us. It’s worth listing what trade agreements NZ is already in:
Closer Economic Relations with Australia;
multilateral agreements with the Association of South East Asian Nations; the Pacific Agreement on Closer Economic Relations (with various Pacific countries); the Pacific Four (P4) Agreement with Singapore, Chile and Brunei;
bilateral Free Trade Agreements with China, Singapore and Thailand;
and bilateral investment agreements with Hong Kong and China.

In addition, the following Free Trade Agreements are currently under negotiation by the NZ government:
An expanded P4, now called the Transpacific, involving the US, Singapore, Brunei, Chile, Australia, Peru and perhaps Vietnam and others;
South Korea;
Hong Kong;
Gulf States;
and India.

New Zealand is nothing if not persistent. The proposed Hong Kong Free Trade Agreement stalled in 2002, under Labour, and the restart of negotiations was only announced this year. Of those currently under negotiation the most important is the Transpacific, because its announcement in the final few months of the Labour government was heralded as the means to secure the Holy Grail of a Free Trade Agreement with the US. Fortunately, the Obama Administration has put a fly in the ointment by announcing the indefinite suspension of negotiations while it conducts a review of the trade policy it inherited from George Bush. This doesn’t mean that the deal is off, just that it’s on hold for the meantime, much to the disappointment of both National and Labour.

It is important to realise that these agreements, both current and those under negotiation, are not just about trade. They contain major provisions locking in a heavily tilted playing field for the TNCs. For example, under NZ’s Free Trade Agreement with China any further opening of foreign investment cannot be rolled back by future NZ governments as it applies to Chinese investors without the consent of the Chinese government. Similar provisions apply in the other actual or potential Free Trade Agreements. It is called the National Treatment provision, meaning that companies from the other country must be treated the same as NZ companies, otherwise they can claim that they are being discriminated against and seek legal redress.

And these free trade and foreign investment agreements have major consequences at the local government level, where the TNCs eagerly anticipate fresh rich pickings, in the areas like water, roads and the whole range of local government services. Christchurch used to have a very progressive policy on this. You may remember, from the late 90s, the successful campaign to stop the Multilateral Agreement on Investment (MAI) which was a global attempt to throw open the world’s economies to the TNCs in one king hit. CAFCA was one of the organisations which lobbied the Christchurch City Council to be aware of the serious implications for it should the MAI come into effect. The Council, to its great credit, adopted a policy against the MAI and went further, by deciding to alert other local bodies to it. It unanimously passed a five part resolution not only opposing the MAI but setting out a progressive policy on foreign investment. That resolution was quietly revoked, without any publicity on May 28th, on the grounds that it is “obsolete”. The present Council (which distinguished itself in its previous term by trying to flog off the Lyttelton Port Company to a Hong Kong TNC) is undoing all the good work that its predecessors have done on this issue, work which deservedly gave Christchurch the national reputation as having the most progressive local government in the country. The Council, within the past decade, also adopted resolutions opposing specific Free Trade Agreements such as that proposed with Hong Kong (which has just been revived this year). Will they also now be quietly shelved as “obsolete”?

Who is driving this whole agenda? Obviously the ideologues in both National and Act (the latter is very much the tail wagging the dog), plus their allies in Labour. Treasury, which was sidelined to some degree under Labour, is back in the driving seat –its officials are conducting the review of the Overseas Investment Act. Treasury makes no secret that it supports no legal differentiation between foreign and NZ companies and that is what it recommended to the Labour government the last time the Act was reviewed – Labour was not prepared to go that far, because of opposition from within its own caucus and from its own voters. As we have recently seen, the Organisation for Economic Cooperation and Development (OECD, the rich countries’ club of which NZ is a member) has issued a diktat to NZ urging, among many other things, wholesale privatisation, State asset sales, slashing public services and liberalising the foreign investment law. This is richly ironic coming from the mouthpiece of the richest capitalist economies which are themselves doing just the opposite, namely drastically increasing the role of the State (or, at least, taxpayers’ money) in the failed private sector. Obviously the OECD ideologues are as hopelessly out of touch with reality as their NZ counterparts.

The agenda is also being driven by interested parties such as major NZ law firm Chapman Tripp, which makes a nice living out of acting for foreign investors. It called for a major review of the Act to sort out what it calls the “muddle”. The Government’s terms of reference for the review bear a strong resemblance to Chapman Tripp’s recommendations. Property Council NZ, which represents big time developers and lawyers who act for foreign land buyers, is happy to declare that it started lobbying the new Government as soon as it came to power. It has set up what it calls a Technical Reference Group to assist the Government’s review. And it is driven by foreign investors themselves, such as a gentleman called Farhad Vladi who buys and sells islands around the world (including in NZ) for his super rich clients. He told the media recently that the current law is unfair to, and too tough on, foreign investors. And finally it is driven by the transnational corporate media which campaigned tirelessly to get National back into power and which all too often parrots the party line that “NZ needs to further open up our economy”.

The consequences of all this for ordinary New Zealanders are pretty self evident. I used to be a “real” worker myself, so I’ll speak about where I used to work, namely the Railways. I was made redundant in 1991, just before the former Employment Contracts Act came into force. But I was there, indeed I was a union official, right through the period of “rationalising, restructuring and corporatisation”, all of which led to massive unemployment (including myself). That Act, which was part of the last National government’s drive to “make NZ attractive to foreign investors”, slashed pay and eliminated conditions for all NZ workers and disempowered the great majority of them by deunionising them. The disastrous privatisation of the Railways that followed in 1993, lasting until 2008, led to further mass unemployment and in the case of the criminally negligent TranzRail, deaths and injuries to both its workers and the public. There are very good reasons why TranzRail won three of the first six Roger Awards for the Worst Transnational Corporation Operating in Aotearoa/New Zealand. It was a text book example of what happens when a State asset is privatised. Telecom is the other big one, but there are plenty more. A policy of untrammelled foreign investment, free trade and privatisation is extremely bad for ordinary people, for workers, the working poor and beneficiaries because that policy is a major contributor to what is known as the race to the bottom, to the lowest common denominator.

And finally, we need to dispel some of the pernicious myths peddled by these cultists about foreign “investment” as the One True Path to the Promised Land.

• It doesn’t bring in “much needed money”. Quite the opposite, it sucks money out of the country. In the decade 1997-2006 transnational corporations made $50 billion profits in NZ. Only 32% of that was reinvested here; meaning that 2/3 of that enormous sum left the country. That is itself is a major cause of NZ’s Current Account Deficit (the Balance of Payments) being so high.

• It doesn’t provide “much needed jobs”. Foreign companies only employ 19% of the NZ workforce, despite owning a disproportionately large chunk of the economy. 81% work for NZ employers. And those very same foreign companies significantly add to the unemployment total, having made tens of thousands of NZ workers jobless in the decades in which we’ve had a “liberalised” foreign investment regime.

• It does nothing to improve NZ’s foreign debt problem. This is one area highlighted by the OECD report and it is nonsense. In 1984, when Rogernomics started, NZ’s gross total private and public foreign debt was $16 billion. By December 2008, it was $248 billion, the vast majority of that held by the corporate sector, not the Government, and totaling 137% of gross domestic product (GDP). So, despite all those numerous State asset sales, the foreign debt has just kept on soaring.

Continuing to follow these discredited policies is a recipe for disaster, even on capitalist terms. They lead only to a dead end and in the process it will be ordinary New Zealanders who will get badly hurt. It is what has happened in the past, it is happening now and blind adherence to this mumbo jumbo will only make it worse.

ENDS

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