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    Essential Information on an Essential Issue

    Letter No.54

    31 January, 1997

    Futurework Co-ordinator Sally Lerner calls for a serious look at new mechanisms to allocate work and distribute income.

    All eyes over the last month have been on the high NZ Dollar, and its crippling effects on the farming sector, and manufacturing exporters. The Council of Trade Unions reports that while dairy, fishing, wool and fruit exporters can't easily just relocate to an easier economic climate ... manufacturers can, and are.

    While the value of the dollar has started to ease this week, manufacturing companies who, in recent months, have announced cuts, closures or relocations to Australia include Holeproof, Arnotts Biscuits, Thornton Hall, Cedenco, Bluebird Foods, Ford, Toyota, Helene Curtis, SC Johnson Wax, Reckitt and Coleman, Coroma Industries and Corfu Jeans.

  • The high dollar has been squeezing the trading margins of exporters, and is also limiting their ability to upgrade, increase their productivity and develop their international competitiveness. A report by Kriegsman Research commissioned by the Wellington Manufacturers Association estimates that "about 65% of all exports are currently produced at a profitability below break-even point" so that "about 85,000 manufacturing workplaces are marginal ..."

    Kriegsman Research says that the danger is not that these jobs will disappear overnight, but that the manufacturers will refocus on cost-cutting and away from expansion, research and development and international competitiveness.

    Source -- New Zealand Herald 30 January 1997 "Productivity cannot be lifted unless dollar comes down" by Peter Harris of the Council of Trade Unions.

    Why is the dollar high ? Overseas investors are pouring their money into NZ to take advantage of our very high interest rates, and the investment opportunities they see in a strong and growing economy. Because they make their investments in NZ dollars, the demand for the NZ dollar increases, and so does their price -- the exchange rate. The reason we have such high interest rates is because the Reserve Bank is using them as its main tool to get inflation down.

  • How can the dollar come down ? The government could intervene in the foreign exchange market by selling NZ dollars to try and lower their price. The problem here is that the government is such a small player in the huge global foreign exchange market, which can easily ignore or negate its efforts. And any losses the government makes in such an intervention would have to be borne by the taxpayer.

    The government could also change the tax rules on foreign investment to try and restrict the flow of overseas money. The trouble is it wasn't all that long ago that it loosened the rules to encourage more overseas investment.

  • The Manufacturers Federation suggests that if the government cuts its own spending, reducing inflation, then interest rates will come down and the dollar will follow. The Federation says that the increased government spending -- $1.2 billion in the coalition agreement -- will hurt all exporters, damage long-term growth and soon lead to job losses.

    CTU economist Peter Harris disagrees. He says the NZ dollar has been appreciating since 1991-92, over which time government spending has fallen as a percentage of GDP from 39.3% to 35% last year. Harris: "There is no reason to suggest that another round of belt-tightening will take the pressure off the dollar ..."

    On the high dollar and jobs.

    "The simple fact is that we have a currency whose value is established in the international marketplace as with the US dollar, the British pound, the German mark, the Australian dollar and the Japanese yen. I'm not sure how you are supposed to intervene ... Would you please explain that?"
    -- Prime Minister Jim Bolger, on acknowledging that the high dollar was causing harm to the export sector.

    "We accept that an efficient industry can lift its game to accommodate the level of the dollar, but there is a limit to how much you can increase performance ...
    "We think the dollar's value is higher by 10% to 15% than the economic fundamentals justify. And without some change we are expecting it to go higher."
    -- Neville Martin, Dairy Board spokesman.

    "Guys like Don Brash don't understand that people without the strength to withstand movements in the dollar are going to have problems ... and a lot of them employ people."
    -- David Anderson, managing director of the seafood company Sanford Ltd

    "If you say it often enough, the idea you bring down the exchange rate by reducing government expenditure becomes the received wisdom ... The only thing that will bring down the exchange rate now is the announcement by the Reserve Bank that it is loosening monetary settings ..."
    -- Peter Harris, Economist with the Council of Trade Unions

    "If the Reserve Bank intervened in the foreign exchange market, it would be laughed at by the world financial markets because it has nowhere near the size of reserves you would need to back up that sort of intervention..."
    -- Tony Alexander, Bank of NZ economist

    "What we've had in the past fifteen years is a bunch of new right policies which overseas investors adore. Therefore they bring their money here, and this tends to over-value the exchange rate. A reversal of new right policies would have the most lasting effect on the real exchange rate ..."
    -- John Lepper, Integrated Economic Services

    Sources -- The Independent 24 January 1997 "Economists tell Winston how to do his job" by Bob Edlin; New Zealand Herald 22 January 1997 "Hopes for cut in dollar now rest on Brash" by Patricia Herbert; New Zealand Herald 21 January 1997 "High dollar drives firms to Australia" by Nick Smith; New Zealand Herald 23 January 1997 "NZ dollar tipped to go higher" by Glenys Christian; Sunday Star-Times 26 January 1997 "A beginners' guide to the kiwi dollar"

    The Auckland City Council predicts higher unemployment in Auckland this year as the labour force expands and economic growth remains moderate. The council's strategic development group suggests that the slow-down of the national economy has finally filtered through to the Auckland region. Also, since the region is the favoured destination of most immigrants, the combined effect of continued population and labour force growth will outrun the local economy's potential to provide employment. Growth in the Auckland region will depend on a number of factors -- including the easing of exchange rates with Australia, which will lift the stress on the exporting sector.
    Source -- The Dominion 18 January 1997 "Unemployment to rise in Auckland -- report", and 29 January 1997 "Second survey tips rise in unemployed" by NZPA

    Social Welfare says that some fundamental changes are needed in the provision of welfare benefits if real inroads are going to be made into the growing "levels of dependence" on the State. In it's post-election briefing papers to the new Minister, Social Welfare points out that the rate of benefit dependence among working age people has doubled since 1985. And the numbers on welfare benefits are continuing to increase despite employment growth.

    The department outlined several options it wants the coalition government to consider. These include :
    -- scrapping the system in which marital or de facto partners have their benefits abated if the other earns more money, since this acts as a disincentive to work;
    -- negotiating with iwi and other groups to manage the income support of their members within a fixed budget;
    --introducing a two-tiered benefit system, with the first tier being an insurance-type scheme where benefits are earnings-related and time limited, and the second tier is a tightly target income-related system similar to the current scheme;
    -- an expansion of the 'work test' -- making sure that beneficiaries are available for work; and
    -- an expansion of benefits able to be paid to those in work.

    One surprise in the Social Welfare recommendations is that it wants the government to consider a universal basic income scheme, under which every adult receives a "modest" benefit sufficient to cover basic needs. It says such a scheme can reduce high abatement rates and accommodate casual or part-time employment. The briefing does warn, however, that such schemes are costly and "can discourage people from working or earning more".

    Social Welfare: "A variant that targets those with part-time work capacity or with irregular or unpredictable earnings, but avoids the cost of a universal scheme might be feasible. An optional basic income with a lower rate of payment and a rate of tax that is around or marginally above the top general tax rate could be made available to a defined group such as sole parents. This approach is worth exploring ..."

    Source -- Dominion 23 January 1997 "Welfare idea for tribes to control benefits" by Simon Kilroy; Christchurch Press 27 January 1997 "Major benefit change mooted" and "Strategic Directions" Ministerial briefing papers 1997 Dept of Social Welfare.

    The Alliance has further "developed" their position on the proposed work-for-the-dole scheme, saying that its compulsory nature will make it unfeasible. Rod Donald: "It can't be compulsory ... What we are suggesting is they start with people who actually want to participate in the programme. And I don't think its fair to make a programme available only to long-term unemployed. We also want to provide opportunities for school-leavers ..."

    Donald says that the scheme may displace existing workers, and also put participants out of pocket for work-related expenses. He says the scheme should cover expenses such as transport, clothing and union fees.

    Source -- New Zealand Herald 25 January 1997 "Greens back away from work for the dole" by Audrey Young.

    Meanwhile, lining up to see Employment Minister Peter McCardle is the new executive officer of the Te Araroa Trust, Alison Henry. The three year-old trust has made little progress on its vision to create a tourism walkway stretching from Cape Reinga to the Bluff -- partly because of lack of money and staff at the Department of Conservation.

    Henry hopes that McCardle will consider the walkway a worthy example of a job scheme for the unemployed. She says there are plenty of people who would offer to build the tracks for no pay ... but the new occupational safety and health regulations made it almost impossible to harness such free labour because of the danger of accidents. She sees the Te Araroa (the long pathway) idea as being much better for the country than casinos and golf courses, as it would put the tourist dollar back into many small communities.

    Source -- New Zealand Herald 29 January 1997 "Cape to Bluff walkway still their dream" by Geoff Minchin

    University lecturer Diana Bloor says that School leavers in NZ risk ending up on the scrapheap unless schools provide better career counselling. She told an international careers conference in Wellington that if students finished school without clear career, education or training goals, they risked drifting into unemployment or dead-end jobs. She says that compared to Australian counterparts, NZ secondary school students knew little about the world of work and had greater difficulty making career-related choices. Bloor says that university students who drifted onto courses without firm career goals would probably drop out before courses were completed. Her recommendation: career counselling should be given greater emphasis in school curriculums and should be included from an earlier age.
    Source -- The Dominion 24 January 1997 "Better career advice urged"

    Former US Labor Secretary Robert Reich left his job earlier this month, but "couldn't resist a last word'' on the growing gap between rich and poor. In his farewell speech he spoke of the Clinton administration's ``unfinished agenda" of addressing the widening inequality in America. Reich presented statistics indicating that between 1979 to 1995, the poorest fifth of American families saw their incomes drop 9 percent, while the wealthiest fifth enjoyed a 26 percent increase.

    At the core of Reich's speech was an attack on the argument that a growing economy will lift all boats -- and that all American workers will prosper. Reich : ``Some deny that inequality is rising. Simply said, they are wrong. They view widening inequality as a byproduct of structural changes in our economy - most notably technological advances and global economic integration, both of which tend to reward the best-educated and penalise those with the poorest education and skills. The same phenomenon is occurring the world over, they say. Nothing can be done about it.''

    Reich argues that ``denial, resignation and silence'' will only worsen a trend that has accelerated since the late 1970s. ``We are not merely an economy, but also a culture. It has never been economics alone that defines America. If we choose, as a culture, to push back against the economic forces that would otherwise divide us, it is within our power to do so.''

  • Reich spoke of the disintegration of the ``implicit social compact that gave force to the simple proposition that American prosperity could include almost everyone''. Under the compact it was believed that everyone should get access to education; that the safety net of Social Security, welfare and other programs was needed to guard against misfortune that might befall anyone; and that as companies did better, so should workers.

    Reich: "In recent years, all three provisions of the social compact have been breaking down. `Profitable companies now routinely downsize. The very idea of a common risk pool is now under assault. But there should be no doubt that, unchecked, the disintegration of the social compact threatens the stability and the moral authority of this nation ...''

    Robert Reich had been expected by many to return to Harvard, but that's not the case. Instead, he will establish the "Center on Jobs" at Brandeis University, in Massachusetts.

  • see also about Robert Reich.

  • Source -- New York Times , January 9, 1997 "Labor Secretary Reich Offers "Last Word" On U.S. Social Policy " by David E. Sanger and Washington Post January 9, 1997 "Reich: Bridge Rich-Poor Gap " by Kevin Galvin

    Unemployment in Germany has surged to its highest level since World War II, triggering warnings from economists and German politicians that Europe's most severe jobs crisis since the 1930s could trigger a fresh outbreak of strikes and social turmoil. In the western part of the country, onerous taxes have depressed investments and slowed the introduction of modern technology. In the east, the infusion of $700 billion in transfers from the west has replaced a decaying communist infrastructure but has failed to generate jobs. In some of the more desolate regions, half of the active population is out of work.

    Germany has some of the highest labor costs and most expensive social programs in the world, which some commentators believe has dragged down its competitiveness in the global economy. German Chancellor Helmut Kohl is putting his hopes on weakening the strength of the German mark. This, he hopes, will boost exports and help the government achieve its goal of cutting unemployment in half by the end of the decade. Some politicians and economists are predicting that unless Germany's inflation-conscious central bank softens its reluctance to cut interest rates further to stimulate the economy, the country's social consensus could snap. German union leaders have been contemplating a massive round of strikes to press their demands for more jobs, shorter working hours and secure pensions.

    Source -- The Washington Post Foreign Service January 10 1997 "German Jobless at Post-WWII High" By William Drozdiak.

    "All too often, the teaching of economics has been devoted to destroying the slight traces of creative freedom that may have survived secondary school. Lapping up premises considered to be neutral from an ethical point of view, economics students are enveigled into losing their faith in objectives and replacing it with faith in explanations.

    "Technocrat economists prefer to shrug off any commitment to social harmony, worrying exclusively about the balance of the economic system, whatever its consequences for man and society ..."
    -- Cristonam Buarque, The End of Economics?

    Conference. The 4th Australian National conference on Unemployment will be held this year at the University of South Australia from 18-20 June 1997 with the theme of "Economic Promise and Political Will". From the conference brochure --

    "Unemployment has been part of our lives for the past 20 years. It has generated volumes of research and masses of statistics as well as confident assurances from each incoming government that they will solve it, but no change is in sight. On the contrary, unemployment has become entrenched in some socioeconomic strata and regions and has now become inter-generational.

    "It is not just an Australian problem; it has become the feature of most 'free market' economies. Most research and suggested solutions have come from economists but the economic promise has not been fulfilled. It is now more than ever evident that the solution to unemployment will depend on political will of governments. Fresh ideas and new courses of action are certainly warranted..."

    Contact: 4th National Conference on Unemployment c/- Social Policy Research Group, University of South Australia, Magill Campus, St Bernards Rd, Magill, South Australia 5072.
    email --

    Source -- brochure from 4th National Conference on Unemployment

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