Winners and Losers
-- Gains and Losses
by Susan St John

Susan St John is a senior lecturer in economics at the University of Auckland.

INTRODUCTION

HOW DOES ONE CHARACTERISE the winners and the losers in New Zealand in the mid-1990s? There is extraordinary wealth at one end of the spectrum and, despite the economic recovery there is evidence of high and growing poverty at the other.

Apparently, increased redistribution from the rich by the state has been ruled out, decreasing the chance of dignity of poor families by expanding the need for private charity. As Stevan Eldred-Grigg remarks cynically in his book that describes the pathology of the wealthy: Philanthropy when committed by the rich....tends, as always, to be conditional on repayment in the form of deference [n]. The gulf between rich and poor cannot all be blamed on new right policies and certainly not on the institutional reforms alone, dramatic as these have been. Many goods and services now require only a fraction of the labour input than was the case ten years ago and the process is continuing relentlessly. Undeniably, like the Industrial Revolution, the technological revolution is profoundly painful for individuals caught in its vortex.

Technology is of course of itself, amoral and left to run its course could destroy us. In theory it should release resources to provide a better standard of living for everyone. To harness it to this end however requires new ways of thinking about work, about how individuals get access to the now, abundant goods, and about how redundant labour can be redirected to other worthwhile activity. It requires for example that we talk about a new ethic of distribution that moves beyond puritanism and private charity, and a new way of thinking about collective means of financing welfare enhancing non-market activity.

Unfortunately, pure market ideology inhibits this new thinking and thus slows the necessary transition to a different kind of economy; one might describe as social capitalism. Why? Because the New Right philosophy is reactionary, patriarchal, anachronistic and savage.

THE NEW RIGHT VISION

The new right objectives can be found in the vision expressed in National government's The Next Three Years towards 2010, and in the Department of Social Welfare's document 'From Welfare to Well Being'.

Essentially they are:
a stronger economy
stronger families
social cohesion

To be achieved by:
wider choice and market forces
self reliance and family responsibility
independence from the state

Through policies of:
lower taxes and benefits,
incentives to be in paid work,
privatisation of ownership and funding,
an economic framework that relies on monetary policy to
restrain demand
and lower inflation.

The story of the infiltration of the new right vision in NZ has been told at a number of levels: Alistair Barry's 'Someone Else's Country' documents the way the power elite in Treasury gained control and promulgated their economic theories on a protesting, but ultimately powerless citizenry. The asset sales, the State Services Act, the Employment Contracts Act, the role of the business elite, the speculation, and the political deception are depressingly recalled.

Barry's documentary is strangely silent however on social policy agenda implemented since the early 1990s. Of course part of this agenda was rejected by an angry electorate, but the rest has been put in place bit by bit. The impact of these policies constitutes the second level at which the story is being told. In writing this paper I was appalled to find the extent of the documentation of hardship going back over the last five years [n]. It has all had so little visible effect on political priorities. For and excellent up-to-date summary of this material, I recommend the NZCCSS poverty kit produced for the United Nation's year for the Eradication of Poverty 1996 [n]. The story is now beginning to be told at a third level, and Anne Else's book False Economy [n] is a brilliant example of this, going from anecdotal evidence towards an analysis of the implications for the economy in its totality. It is a complex story. Using narrative rather than the language of economics she explains the interplay of unpaid and paid work and how, New Right policies are systematically unravelling the vast web of caring and unpaid work crucial to the successful functioning of the market economy.

The results are a materialistic, low trust, high transaction cost economy, ragmented and bitter families, and an apathetic and resigned nation. The odd burst of rebellion typified by actions of the students in Otago or the teachers strike, leave participants exhausted by the fight. The New Right dominance has also fostered a disturbingly anti-intellectualism in which slogans and denigration substitute for careful policy analysis. Furthermore by appropriating the language of the left, The new right has reduced effective opposition.

Thus a recent Business Roundtable report [n] prepared by the stereotypical overseas expert from Canberra, considers whether continuing the current direction of economic policy in New Zealand- ' down the free market track' will be detrimental to 'social cohesion'. By aligning free market policies with growth and asserting that the increased social ills in many industrialised countries over the past 30 years have not been associated with rapid growth, it is argued, in a huge tautological leap that as growth is usually associated with fewer problems of personal security and New Right policies produce growth, free market policies produce social cohesion. These policies of course have very little redistributive role for the state:

"Continuation down the free-market track will strengthen the basis for widespread opportunity and a high degree of personal security through growth of the economy. It will also strengthen social cohesion by restoring family responsibilities, respect for the property of others and a return to the tradition of philanthropy.'

Apart from corrupting a perfectly good liberal term like social cohesion ,the term 'redistribute' is used selectively and pejoratively as only applying from rich to the poor. The author is utterly blinkered to the extensive redistribution to the rich through regressive changes to the tax system since 1986, no capital gains tax, no death duties, and the erosion of the insurance role of the state. Naturally there is no mention of the rampant corporate greed, if not fraud, of the late 1980s and the impact that has had on social cohesion, as understood by the left, as the sorry tale has been uncovered.

UNDERSTANDING THE NEW RIGHT

Why has the opposition to new right policies been so ineffectual? George Lakoff in his recent book Moral Politics (1996) [n] has social liberals do not engage when they talk to conservatives. Social liberals do not understand the new right, finding their position inconsistent to the point of being irrational if not hypocritical. Thus a social liberal smiles at the portrayal of Duncan in the just finished TV Montana theatre series The Politician's Wife. As the Minister of Family Values, Duncan seeks to undermine the child benefit, uses bad language, ridicules women, has incredible peccadillos and ignores the needs of his own family.

But most of the new right are not like this, just as most of the liberal left are not infallibly politically correct, or have obnoxious children, smoke pot or are confused about their gender.

So how is it that conservatives fail to see the suffering that results from their policies? For example, the manager of the Social Policy Agency claims in the July 1996 journal that 'Welfare dependence in one of the most pressing social policy issues of our time' [n]. What? Bigger than child poverty? How can this be?

Lakoff suggests that the answer to the question, 'when your baby cries, do you pick it up?' may hold the answer to this puzzle. He suggests that our different views stem from the different metaphors that we have about the family and this flows on to how we see the state.

Both social liberals and the new right would benefit from an understanding of the conservative imagery. Theirs is the metaphor of the stern parent, from which stems notions of self reliance, the stiff upper lip, and just deserts for wrong doing. It is moral behaviour to stand on your own two feet, namely to be independent of state support. The conservative family has a man at the head, women in a serving role, and children in their place. Policy must be designed to punish and dole out rewards for good behaviour. There is an undercurrent of fear from the child's perspective. The state is the punishing father, not to be enjoyed but to separate from as soon as possible. The liberal picture on the other hand stresses the nurturing parent from which flows the moral imperative to produce happy empathetic children,

Listen to the strategic statement in From Welfare to Wellbeing:

'Positive income support enables people to transform dependency into contribution' [n]

Positive income support translated means income support that is as miserable and as stigmatising as possible to provide the incentive (ie the stick) to leave the benefit system. Contribution means work at a job -any job- no matter how demoralising, or how much it contributes to growing waste and pollution, or whether it means that children must be neglected or brought up by others.

The work ethic alone defines access to output. There is little recognition of the impact of technology. Those whose jobs are systematically destroyed are to be punished for their indolence. Even to the point of cutting income specifically for their children!!!!

Indeed the recently introduced Independent Family Tax Credit (IFTC) epitomises the New Right way of looking at the world. It is the crudest of labour market policies, and the triumph of ideology over plain common sense. Instead of properly adjusting the Family Support payment for all children, this new payment, which by July 1997 will be $15 a week per child, is to be paid on the basis of the moral behaviour of the parents, defined to be 'independence from the state'. I am deeply concerned that this policy, introduced without consultation, marks the thin end of the wedge of giving benefits to those in work rather than those without, and signals a further deterioration in the quality of social policy.

I have analysed the IFTC elsewhere for its socially reactive characteristics [n]. It will impact most unfairly on the lives of children and their caregivers when misfortune strikes. In addition its administration will be extremely complicated as the list of exclusions is high and families can cycle in and out of eligibility. A proper work incentive would ensure that all workers, including part time workers could keep more of the gross income from each additional hour worked regardless of whether they had children, or how many children they had. An increase in the low income earners' rebate would achieve this and be much simpler and fairer.

In responding to the attack on the IFTC Bill Birch, in locus parentis, said that beneficiaries 'need and deserve' such an incentive. He also rebutted concerns about the complexity of administration claiming that data sharing between IRD, Income support and ACC would make instantaneous adjustments possible, and that any possible overpayments could be written off by the IRD in cases of hardship. He thus expresses, not just stern parent admonitions, but also a touching faith in his departments' efficiency and charity.

THE 30/30/40 SOCIETY

Economist and New Right critic Will Hutton [n] has identified the UK as the 30/30/40 society. The bottom 30% are economically inactive, marginalised and steadily losing the ability to even subsist.

The middle 30% are the newly insecure. In a world of reduced employee protection, pressure for profits at the expense of wages, casualisation of work, their hold on a reasonable standard of living from work is at best tenuous.. Incomes are more volatile and the workforce more as the insurance role of the welfare state deteriorates. In the UK, owner occupied housing is increasingly failing to offer a buffer.

' For 45 years the average British household steadily grew more wealthy on the back of the great house price boom: but the fall in house prices in real terms over the nineties caused the most savage reversal in personal wealth since the war. The operation of the housing market with more than a million home owners having mortgages that exceed the value of their house (negative equity) and every mortgagee paying higher real interest rates to own an asset that is falling in value, is now a source of insecurity in its own right'

There is potential for this to happen here, especially in Auckland as the speculation cools and the economy slows. Another feature of the unplanned market driven 1990s economy is the vast expansion the retail sector. A surfeit of shops force lower prices and combined with high rentals results in a rapid recycling of vendors. Hours for retail workers are long, arduous and boring and increasingly underpaid. As well in the banking sector, apparent overbranching is colliding with technology making many of the newly up-skilled workers superfluous.

ARE THERE ANY WINNERS?

Will Hutton talks of the fortunate 40% which covers those with secure housing who gained from the appreciation in housing and are not affected by the downturn in prices. They tend to have tenured work covered by collective contracts. A further division of this group into 30/10 in New Zealand might reveal how the fortunes of the top ten percent have soared in comparison with the others. We are now aware of the munificent remuneration packages of upwards of a million dollars in the top echelon of earners, and the capital and other gains that have accrued to some. But there can be a poverty in having too much, and there is little evidence to suggest that beyond a certain figure of income and wealth the rich are any happier than the poor.

They are certainly not immune from the impact of a lack of mental health services and suicide, nor increased crime. Statistics on suicide for young male adults are the highest in the industrialised world; 10 times higher than in Greece, four times higher than in Sweden or Japan twice as high as in Hungary or Ireland. New Zealand is outranked only by Russia and Lithuania!

We all know instances of the very rich whose lives are a total misery. Currently, making money, always a feverish activity in Auckland is having its usual toll as the property market subsides, taking fortunes, friendships and reputations down with it.

The wealthy too, are ultimately dependent on the health of the economy. Far from the economic reforms producing a well functioning and efficient economy, the signs are that investment flows are as inappropriate as they ever were. The overinvestment in housing and retail sectors has been at the expense of other investment especially in the public domain, but increasingly in the export sector. One's impression standing in the midst of Newmarket in Auckland is that we must be the wealthiest nation on earth to afford such an extravagant array of shopping opportunities. But a rational society would not be expanding discretionary shopping while underinvesting in the health of the population. Nor is this a lifestyle that we have earned from our export earnings and import savings.

It seems to have escaped the attention of the New Right, but the market forces they embrace, no longer operate as they are suppose to. At the top end there is no scarcity on which rational economic behaviour depends . Whether one pays $2 or $4 for a loaf of bread, $100 or $200 for a night at the opera, $1000 or $2000 for an operation or a car repair is irrelevant. The rich have what they want and are either well insured or just price insensitive. Another well-off professional group, in their 40s and 50s whose experience is vital to New Zealand are increasingly disenchanted with the managerialism spawned by the economic and structural reforms. Underpinned by substantial assets, they do not have to work. The carrots and sticks of market forces do not work for them and if, as I suspect we see a lot of early retirement among doctors, dentists, conservationists and others it will be a serious loss. Yet another highly skilled but sometimes asset poor group are denied adequate remuneration from the state as their monopoly employer. For them the choice is demoralisation or the uncertainty of the private sector.

Market forces do not work well at the lower end either if it is true that the invisible hand works to allocate resources efficiently. The affluence of the favoured 40% is supported by labour at the lower end who are not paid enough to even subsist. Sir Robert Jones [n] has an indisputable point when he claims that the price mechanism is indeed being stymied by control over the exchange rate. Cheap goods from the Warehouse are small compensation for low income earners when they are accompanied by a loss of jobs and structural upheaval in the tradeables sector.

THE NEW RIGHT AND THE ROLE OF THE STATE

Consistent with the drive to getting rid of the state as the nurturing parent the new right lack a rationale for almost any collective provision at the state level. Thus accident compensation and superannuation can be talked of as 'benefits' and the recipients 'dependants' as is the case for the IFTC.

There is no rationale for giving goods in kind. Unfortunately redistribution of cash is also seen as bad. Cash distribution is preferred however because it allows another New Right tenet to be espoused: that of fairness. Strict parents treat all 'failed' siblings exactly the same, while those that can stand on their own two feet must do so. Thus in housing, all with the same housing need must be treated exactly the same with need measured by a few crude indicators, of region, family income, cash wealth, and numbers of household members. These indicators allow 'targeting' an important part of fairness, so that benefits are 'only for the poor'.

There are two consequences of this approach: First, the existing cash amount is supposed to be spread thinly among all low income families which means few will have sufficient. This produces havoc for the housing and welfare agencies who formerly could help the few that fell through the cracks, by concentrating on them. Now they are overloaded with customers. all of whom are short to some degree and all of whom have problems that are a time consuming and resource intensive.

Second, the fetish with targeting ensures that the poor can never escape. The scenario goes like this:

Cut the benefits to create a gap between beneficiaries and those in work. This allows wages at the lower end to fall. Create a situation where people cannot survive on a benefit, but if they earn extra income they are hit with high abatement rates. React to the outrage from the charities who are swamped with requests for food by a vast expansion of add on benefits such as the special benefit, special, needs grants and the accommodation supplement. Employ an army of administrators to make sure that no one gets any more than they deserve. Now react to the work incentive issue by allowing beneficiaries to earn more money while on a benefit. Count that extra income in the income test for the special benefit and for the accommodation supplement so that they are little or no better off, continue to deny them proper adjustment to Family support for their children and then blame them for not taking the opportunities offered by the free market reforms. Make it impossible for the poor to save, by reducing the accommodation and special benefits for assets as well as income. Thus ensure that if any of the poor do manage to become home owners they will own a large, high interest mortgage and thus be exposed to the possibility of negative equity.

There are geographical aspects as well. A recent Australian study [n] of census data describes a dramatic widening in inequality between rich and poor neighbourhoods, between 1976 and 1991. The data, if we had it, is likely to show geographical inequality to be even worse in New Zealand as Australia so far has not had the extreme new right social policies.

The data show that the economic distance between Australians from different part of the city has widened to an extraordinary degree. An individual's view of the world is heavily conditioned by friends, neighbours and the home street. Consequently. as inequality grows across neighbourhoods, it may not be recognition as quickly by all Australians as it should be, we suggest that it may be increasingly true to say that one half of Australia does not know how the other half lives and that this is not a good thing [Gregory] p1

HOW TO CREATE WINNERS NOT LOSERS

Geographical inequalities are cruelly reinforcing. Pockets of high unemployment, crime, and poor housing discourage local investment, and encourage migration out by brighter pupils to schools elsewhere. Transport costs can reinforce barriers to jobs for the unemployed. Bad housing encourages urban blight, decay and demoralisation. new Right policies that put emphasis on local solutions and financing can be disastrous for poor areas.

The New Right policies of low tax and small government once enacted are unfortunately difficult to reverse. They must be challenged at the outset by using the framework of the legislation already in place.

Thus it might be pointed out that the IFTC offends the spirit of the Human Rights Act by discriminating against the children of retired parents, against disabled parents and student parents.

We now have a Crown balance sheet which has been a welcome achievement in transparency. It ignores some critical however. We can insist that the balance sheet shows the accumulated expertise of skilled public sector employees, be they doctors, DOC employees, policy analysts, teachers so that we can see any loss of expertise and institutional memory which might mean we are doomed to repeat the mistakes of the past.

We can use the Crown balance sheet to focus on the state's infrastructure rather than on net debt. We can point out the absurdity that the larger are student loans the better our net debt position. We can argue that proceeds from the forestry cutting rights are not income. They should not be used to provide more health and education spending or sustain the tax cuts. They do not improve NZ's net indebtedness to the rest of the world, so that claims of New Zealand debt reduction can be exposed. We can insist that along with the Crown accounts a balance sheet for NZ is presented.

We can also insist that the Fiscal Responsibility Act and the Reserve Bank Act is balanced by a Social Responsibility Act. Unless we do so, we will not know why we want fiscal stability and low inflation. We can express outrage that the recent fiasco which led to the termination of even a preliminary discussion of the SRA because some people find it all too hard.

We should reject utterly the assumption that everyone who gets anything from the state is a dependent. Wealthy household will receive up to $90 from the tax cuts, are they beneficiaries of the state also? The term dependence is creeping into ACC and is all too common with NZ superannuation. If we do not insist on a change in the language we will find cannot consider the use of the state for any collective provision even when it would provide the most rationale and cost effective solution.

It is time now to make the technological and structural revolution work for us rather than accepting the dogma that there must be losers. Making it work for us requires intelligence and co-operative planning- another word for government and collective decision making.

Anne Else in her book tells us something so self evident it is embarrassing. We might insist that it is recited before every policy committee and meeting of Treasury:

"Without families and communities, the economy means nothing. It has no life of its own. Its only purpose is to enable us to live, to care for one another and to raise our children to take our place. If we lose the power to do that, no matter how fast the GDP rises or how much the budget surplus grows, we will have no future worth working for." p 159.

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NOTES
Eldred-Grigg, Steven. (1996) The Rich: A New Zealand History. Auckland, Penguin
There are many articles such as , Nicola (1990) Children of the Poor. Metro. February 1990, Jesson, Bruce. (1991) The Poor Side of Town. Metro. August 1991 p.58. and numerous reports since 1990 by church agencies, housing groups, and women's organisations.
NZCCSS (1996) Poverty in New Zealand NZCCSS Wellington
Else, Anne (1996) False Economy: New Zealanders face the conflict between paid and unpaid work. New Zealand, Tandem Press.
Bates Winton (1996) The links between Economic growth and Social Cohesion New Zealand Business Roundtable Wellington
Lakoff G 91996) Moral Politics What Conservatives know that Liberal don't, University of Chicago press USA
Social Policy Agency Social Policy Journal July 1996 [n] Department of Social Welfare ( 1996) 3rd edition From welfare to well-being Bringing the threads to gather DSW Wellington
St John S 'New Tax Credit Ignores the Children of the Poor' NZ Herald 12th July 1996
Hutton, Will. (1996) The State We're In. London, Vintage.
Jones R ( 1996) Prosperity Denied How the Reserve Bank Harms New Zealand Canterbury University Press 1996
Gregory, R and Hunter B (1995) 'The Macro Economy and the Growth of Ghettos and Urban Poverty in Australia Discussion papers No 325 ANU Canberra

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