Category: Economy

Posted on

Principled, pragmatic or expedient.

For several decades under Labour and National-led governments New Zealand has claimed to have an independent (and sometimes autonomous) foreign policy. This foreign policy independence is said to be gained by having a “principled but pragmatic” approach to international relations: principled when possible, pragmatic when necessary. More recently NZ foreign policy has shifted from traditional diplomacy in which trade was a component part to a trade focused orientation to which all other aspects of diplomatic endeavour are subordinated. Seen as a marriage of belief in Ricardian notions of comparative (and now competitive) advantage with a pragmatic understanding that NZ is dependent on trade for its survival and prosperity, the “trade for trade’s sake” approach continues to reign supreme to this day.

It turns out that foreign policy pragmatism or principle may no longer obtain in certain instances, especially when trade is involved. Take the issue of NZ military-related exports. It has been revealed that NZ firms and (possibly) public agencies export everything from airplane parts to small arms, explosive ordinance, training simulators, muzzle flash suppressors, missile guidance systems and artillery range finders to 41 countries and territories. (The term “possibly” is used here because all of the NZ exporting entities are redacted in the export list made public by MFAT. While some private exporters can be broadly identified by the nature of the items sold, other special license categories make ambiguous the provenance of the equipment in question).

Most of these exports go to NATO members and other liberal democracies, while other recipients are regional partners like Singapore, Malaysia , Australia, Tonga and Indonesia. The bulk of what is exported is what might be considered to be on the soft rather than sharp end of the so-called “kill chain:” items that do not impart lethal force directly but which contribute to the accuracy and lethality of weapons systems that do.

None of this would be controversial if it were not for the fact that some of the recipient countries have checkered human rights records (like Indonesia) while others have outright dismal histories of authoritarianism and military criminality. That includes Saudi Arabia, the United Arab Emirates, Turkey, and the PRC. Saudi Arabia and the UAE lead a coalition of Sunni Arab states that have been credibly accused of committing war crimes and genocide against Houthi populations in Yemen. Saudi Arabia does not recognise the Universal Declaration of Human Rights (the UAE was not party to the UDHR vote) and along with the UAE does not recognise a number of human rights conventions involving women’s rights, labour rights, political and social rights. Malaysia, Singapore and Indonesia also are not party to the UDHR and while not as dismal as the Sunni oligarchies, have subpar records when it comes to adhering to international human rights norms and agreements. NZ exports military training material to the PRC, whose human rights history is known for all the wrong reasons. There are other dubious recipients but the issue is clear. In spite of claiming to be a champion and defender of human rights as a matter of principle, NZ exports military equipment to egregious violators of human rights both at home and abroad.

Some will argue that NATO members and other democracies like Australia also violate the laws of war and human rights in their own territories. There is merit to those arguments. But the difference between Australia, Canada, the UK and US and, say, Saudi Arabia and the UAE when it comes to military conduct in conflict theatres is that war crimes committed by the forces deployed by liberal democracies are exceptions to the rule and are punished (even if initially covered up) rather than systematically encouraged and later denied. Domestically, while systemic racism clearly exists throughout the liberal democratic world, it is no longer genocidal in nature even if in previous eras there was a significant element of that.

Conversely, places like the PRC systemically abuse human rights at home, deny individual and collective rights as a matter of course and treat ethnic and religious minorities as if they were foreign enemies. Turkey has grown increasingly authoritarian under President Erdogan, with its treatment of its Kurdish minority a particularly black mark on its record. The UAE and Saudi Arabia are known for their mistreatment of foreign workers, Shiia Muslims in particular but not exclusively. Jordan and Bahrain, other recipients of NZ strategic license exports, are Western allies but not known for their adherence to human rights conventions.

Even Israel, a supposed liberal democracy and a Western ally that is another recipient of NZ military-related exports, systematically violates the rights of Palestinians inside and outside of its recognised territorial limits, including targeting of civilian populations during times of conflict (in Gaza) and forcibly annexing Palestinian territory (in the West Bank) as part of an expansionist doctrine that seeks to eventually expel Palestinians from what they and Israelis consider to be their homelands. Within Israel, in spite of recent electoral gains by so-called “Arab” (Joint List) parties, Palestinians are more often seen and treated as a subversive fifth column rather than full citizens (Arabs make up around 20 percent of the Israeli population).

Most liberal democracies simply do not act this way. The West may be guilty of many things, particularly during the colonial era and Cold War, but even if flawed most liberal democracies at a minimum pay lip service to the rule of law based on civil liberties and human rights at home and abroad. A fair number of the recipients of NZ strategic exports in recent years make no such pretence.

None of this would matter if NZ had a realist approach to foreign policy that was completely pragmatic in orientation based on national self-interest. Matters of principle would not factor into foreign policy-making and trade relations. But that is not the case. Instead, NZ is a very vocal defender of small state and minority rights in the international community as an extension of its championing of international human rights, international norms and the rule of law. That makes trading with authoritarians somewhat hypocritical and exporting military equipment to murderous regimes downright reprehensible. Especially when done for a buck–that is, for the profit gain of NZ private firms.

To be clear, almost any hunting-related equipment can be converted for dual use military purposes. But there is much more to the NZ export list (released by MFAT to a couple of investigative reporters under OIA requests) than converted hunting equipment. It also is interesting that most of the redactions in the sanitised export list are justified on commercial sensitivity rather than national security grounds. If items were merely dual use conversions from hunting equipment, one would think that there are little commercial sensitivities involved given the global scope of the hunting industry. Nor are end users always identified on the list, which makes MFAT assurances that it knows what is ultimately being done with the exports somewhat disingenuous. Either it knows and does not want to say or it does not know even though it allowed the export license request for those items to be approved.

Consider this example. MFAT approved the sale of a general utility aircraft from a Hamilton-based aerospace company (now bankrupt) to a PRC-based aviation firm in spite of numerous concerns about the end use of that aircraft. A year or so after the sale went through the plane was photographed at an airshow wearing North Korean military livery, sparking an investigation into how international sanctions on North Korea were circumvented in the process (the sanctions violation was considered a first order offence given the military use of the aircraft). In the legal process that followed, which resulted in the conviction and fining of the Hamilton firm for violating the international sanctions regime and NZ strategic export requirements, MFAT admitted that it had no clue as to who the end user might be beyond the PRC firm that, incidentally, owned a half interest in the Hamilton company and controlled its board of directors. In other words, it took the exporter’s word as an article of faith and as a result contributed to an egregious violation of UN sanctions that NZ voted to support. Diplomatically speaking, that tarnished NZ’s reputation because neither principle or pragmatism, much less due diligence, was applied to the sale.

Even training equipment has to be considered in proper context. Artillery range finders used for training purposes (which MFAT claims was the case with Saudi Arabia) are being used to train artillery for war, not fun and games. Saudi artillery is regularly used in the Yemen civil war, so it a stretch to say that exporting equipment that trains troops to be more accurate with their artillery fire is not related to the Yemeni conflict. Likewise, even if small in terms of numbers and monetary value, exporting sidearms and squad weapons to human rights violators ignores the fact that they could be used against domestic populations and foreign civilians as well as foreign adversaries.

Again, none of this would be of concern if NZ did not proclaim itself to have an independent foreign policy based on principle as well as pragmatism. If it was a country powered by a military-industrial complex such as the US, it would all be in a day’s business to export military equipment to assorted nefarious regimes. But not so NZ, which has staked its international reputation on being an agent of honest virtue–a good global citizen, as it often says.

The truth is different. If NZ was truly independent it could resist the pressure to act as a cut-out or front for its allies’ military-related services (say, by not allowing the national airline to serve as a sub-contractor for the reconditioning of Saudi Navy gas turbines usually serviced by US Navy contractors). It could pick and choose about when to be principled and when to be pragmatic when it comes to military-related exports (say, by exporting to NATO or liberal democratic partners only). After all, although clearly lacking any basis in principle, it is really pragmatic for NZ to sell the Saudis and Emiratis military equipment when they are involved in industrial-strength war crimes in pursuit of a genocidal campaign in a neighbouring country? Will the diplomatic benefits of courting such states outweigh the costs of making its rank hypocrisy visible to the rest of the international community?

In a past life I was involved in the decision-making chain involved in US military sales and training, etc. to Latin American countries. The primary criteria for vetting military equipment and training requests was twofold: the nature of the equipment or training requested and the character of the political regime (government) making the request. If the equipment or training was too sensitive or excessively lethal and/or the regime doing the requesting was of dubious disposition, then the request was denied. If the decision was anything other than an outright “no” on the primary grounds, then other criteria was applied: state of trade and diplomatic relations with the requesting state, the geopolitical balance in the (sub) region in which that state was located, the possibility of a domino proliferation impact, the presence of other foreign weapons suppliers as substitutes for US exports, etc. Once all of this was factored in with input from the various elements of the inter-agency consultation process (involving the State Department, CIA, NSC, Treasury, Commerce and other federal agencies with a potential stake in the matter), sometimes after sounding out other countries in the region about their reactions, a recommendation was sent to the White House for approval/denial. If the White House approved the sale/mission, then the recommendation was sent to Congress for approval, something involving several committee votes and then a general vote in both Houses. The process was slow and circuitous but in the end it was comprehensive and transparent.

Although it is possible that there are similarly robust weapons exportation strategic license vetting protocols in place in NZ, that does not seem to be the case. MFAT appears to make the call, perhaps after consultation with DPMC and/or Cabinet. Parliament is not involved in the decision-making process. No public notification is made. In other words, the entire NZ strategic export licensing regime is opaque at best. You can read the official criteria here.

MFAT says that the vetting process is rigorous and that it knows exactly where NZ sourced military equipment winds up. Yet it has only denied one out of 254 special export license requests in the last three years (to the Saudis for mortar stands and fire control (observation tower) equipment, supposedly in response to the Khashoggi murder). If foreign policy principle were involved, one might expect that the approval rate would be somewhat lower for authoritarian-ruled countries. But if pragmatism and trade are the criteria in play, does it make sense to supply murderous regimes with any kill chain components? Or is the fact that the entire decision-making process for granting special export licenses is so opaque that MFAT and the suppliers thought that they would never be found out if it were not for the good work of a couple of intrepid reporters?

More than principle and pragmatism as guideposts for foreign policy, it seems that trade-promoting expediency is the new normal in NZ foreign affairs, something that continues under the Ardern government. But with expediency comes a loss of independence and autonomy as well, because among other reasons, states with their own agendas can use NZ’s trade zealotry as third party cover for transactions they themselves may be reluctant to admit publicly (even the US has suspended weapons sales to Saudi Arabia because of its behaviour in Yemen). Or authoritarians can hold non-military trade relations with NZ hostage to the provision of military equipment. Either way, that makes NZ a foreign policy tool of others rather than an honest broker in international relations and global good citizen.

Just like the fact that NZ’s “clean and green” image is more myth than reality, the foreign policy reality is that at least when it comes to trading in the paraphernalia of death, NZ is unprincipled, hardly pragmatic and dominated by logics of trade expediency rather than a commitment to the upholding international human rights. While it would be too much to expect a National-led government to put principle before trade expediency, that this continues to occur under a Labour-led government (in which the Prime Minister claims that she was unaware of the strategic export recipient list until asked about it by the media) is all the more outrageous given its constant repetition of the “independent, principled but pragmatic” foreign policy mantra.

If NZ is to regain a semblance of integrity in diplomatic circles, its foreign policy decision-making matrix must change away from trade obsessed expediency and towards the principled but pragmatic orientation that grants it the independence that it claims to have. Conversely, if it wants to put trade before everything else, then it might as well fess up and open up the country’s foreign policy to the highest bidder.

Posted on

US capitalists as political saviours.

Having watched and read about the Conference of the Paranoid, Angry and just plain Crazy (CPAC), including the Orange Merkin’s return to the political centre stage, I am more convinced then ever that if US conservatism, and indeed the US itself, is to find its way back to some semblance of stability, it is US capitalists who will have to lead the charge. This may seem odd for a left-leaning blog to say, but the logic underlying the rescue lies in some structural imperatives and some non-structural pathologies.

As has been written before in these pages, the State and Society in the US and places like NZ are capitalist because they depend on a profit-driven system of capital accumulation and distribution for the welfare of capitalists and workers alike. Capitalists invest and pay wages out of profits, so both overall economic and specific wage growth depend on the continuation of the profit-investment cycle. Capitalists borrow from other capitalists in order to grow their businesses, which in turn help expand the web of opportunity (measured in employment and/or higher wages) for wage-earners down the productive chain. In other words, the material welfare of everyone depends on the investment decisions of capitalists.

This is the structural imperative: the State and Society are capitalist because of their material dependence on a system of private accumulation and economic decision-making. Even state capitalist systems abide by the immutable laws of the profit-investment cycle, but in the US (and NZ) the vast majority of decisions about accumulation and distribution ultimately rest with capitalists. So long as capitalists invest and workers produce so that profitability is sustained, current welfare and future growth is safeguarded.

In order to maintain this cycle and encourage capitalists to re-invest in the domestic economy, the State uses tax and social policy to sustain economic growth and otherwise frame the investment “climate” in ways conducive to investor confidence. The ways in which it can do so and the effectiveness of what it does is influenced, when not determined, by the political and social climate of the current moment and the outlook for the future. That is because above all, capitalists want two things in tandem: stability and certainty over time. Socio-economic and political stability lends certainty to the investment environment, which encourages regular rates of investment and return on which to make future decisions on investment and wage-setting. The more this becomes a self-perpetuating cycle, the more a capitalist nation-state grows and prospers, thereby reaffirming the utility of the economic model under specific political conditions.

That is the notion that lies at the heart of classic liberalism: the combination of market-driven economies and democratic political institutions is considered to be the most preferable (or least bad) political-economic model because it places (theoretically at least) a premium on private choice and individual freedom. Within parameters broadly set by a State led and managed by a political bureaucracy, capitalists chose where to invest and workers chose where to work given where investment flows. Or at least that is the general idea.

Here is where the superstructural problem starts for the US. Under Trump, the Republican Party has increasingly become untethered from its pro-business bias and devolved into a national-populist cult of personality. The events of January 6 and sociopathic displays at CPAC–displays not isolated to Trump himself–clearly demonstrate that conservatism in the US is no longer based on pro-market ideologies and an understanding of the structural dependence of the State and Society on Capital. Instead, it is now the fevered product of a hodgepodge of conspiracy theories, religious opportunism, racism, bigotry, prejudice and xenophobia, with many of these inimical to maintaining business growth. Trump is the poster-boy of this collective derangement but the GOP is awash in it far beyond him.

That is bad for business. The threat of irrational political leadership and the distinct and ongoing possibility of civil unrest, including irregular collective violence, undermines the stability-certainty cycle because there is a mutual or co-dependence between the political superstructure and the economic base. Political and social instability can and often does lead to economic instability, something that is bad for all concerned.

Under such conditions overall demand drops, many businesses slow production, workers are laid off and investors hedge, sell and take profits rather than make long-term investment plays. Shorter investment horizons add to market uncertainties, which in the US is compounded by the practices of “shorting” stocks (whereby anticipating further value losses the investor borrows stock and sells it at current market value in anticipation of buying it back a future lower price before the loan expiration date) and stock buy-backs (where companies use profits to buy stocks in the company in order to reduce the number of stocks freely available and thereby squeeze the stock price upwards).

Both of these are forms of speculation rather than productive investment and are a hallmark of the US financial markets. They have also attracted the attention of so-called mom and pop “retail” or “day” traders and semi-organised small investor groups whose goals are individual self-enrichment rather than contributing to industry profitability, job creation, technological innovation or overall economic growth. These speculative practices by small and large investors have a negative impact on investment, employment and wage stability, further undermining popular faith in the economic system and the political edifice that serves and protects it.

The combination of anarchic (and self-serving) financial market behaviour and increasingly anti-business fanaticism in Republican/conservative ranks (think of the constant attacks on the techno-oligarchy for de-platforming extremist speech on social media) has attracted the negative attention of credit rating agencies, where debates about lowering the US government credit rating from AAA (outstanding) to something else, previously unthinkable for the global reserve currency issuer, are now common practice. When combined with the possibility of labour conflicts and industrial slowdowns tied to civil unrest, the rise of deranged demagogic politics within the US political Right is a threat to, literally, business as usual.

It is said that, according to the invisible hand of the market, economic actors are self-interested maximisers of opportunity and that the sum result of their self-interested actions clears the market at the collective level. That may or may not be true. What is true is that the “market” involves political as well as purely economic factors and agents, and when political actors interfere with the the profitability of self-interested maximisers of economic opportunity, then measures must be taken to mitigate or overcome those political obstacles.

For US capitalists the problem is not one of class struggle but about class survival. It is not about class war but about self-preservation. The threat to their status comes not from the working classes radicalised by anti-capitalist ideologies but by self-professed capitalist supporters. Not all supporters of capitalism are capitalists themselves or understand the relationship between capital accumulation and distribution at a macro level, and many do not add value and wealth to society but in fact subtract value and wealth from it (be it in their rent-seeking microeconomic behaviours or other forms of myopic malfeasance). Moreover, US capitalist classes are variegated and often in conflict, with ascendent and descendent class fractions competing for political as well as economic dominance (think high tech versus industrial manufacturing elites).

Trump and his supporters represent a large but descendent segment of the capitalist class constellation, but they are not the only or the dominant faction and are a clear threat to the interests of other (ascendent) capitalist class factions (again, think of the techno-oligarchy). Not all corporate elites in the US favour Trump’s behind-the-wall, low skill, low education, industrial-era blue collar form of economic nationalism, and many see it as a simple wave to the past in the face of (and impediment to) an automated and transnationalised productive future. The political fight is consequently as much more or within the capitalist classes as it is between them and the working/subaltern classes and, however couched in the language of cultural conflict and competing value systems, that fight is microcosmically distilled in the struggles over the direction of the Republican Party.

Let me be clear. This does not mean that anti-Trump capitalist elites are good people or interested in the overall welfare of the nation. People like Jeff Bezos and Elon Musk are as much innovative exploiters of the many as they are creators of wealth and opportunity for some. The entire financial industry is populated by selfish people and greedy logics and is in desperate need of major reform (since the post 2008 crash reforms were cosmetic at best). But the necessity of the situation dictates that these type of people be seen as tactical allies in the fight against neo-fascism at a time when progressive forces do not have the strength to help stem the deterioration of the American Right. In other words, desperate times require desperate measures, and the appeal to anti-Trump capitalists is one such thing. Nothing more.

In some countries, the military serves as the saviour of economic elites under stress. In the US that possibility used to be dismissed as laughable but in recent years became a topic of discussion. Although it continues to be seen as a remote option, the ongoing viability of national-populist sentiment in the Republican Party and emergence of an insurrectionist movement within broader political Right circles keep alive the issue of external intervention in the discussion about how to rescue that side of the political system from itself.

This is why US capitalists have to ride to the rescue of the Republican Party. If they do not do so then others may have to, and it will not be revolutionary workers or the peasantry who will be the ones to step up. Inviting military intervention could be catastrophic to the Nation, assuming for a second that the US military would even consider such a move. Social movements will not have the clout to impress Republicans into reform and change away from what they have become. It is therefore up to capitalists to undertake the task.

The Republican rescue involves tough love. In order to save it, the GOP must be broken from the grasp of the national-populists, cultists, MAGA morons and conspiracy theorists. The best way to do so is with the threat or use of a specific type of capital strike. The corporate elite need to threaten the Republican Party with a complete withdrawal of political funding if Trump and his acolytes are not purged. If that threat is not heeded then the funding should be withdrawn, preferably before the next election cycle begins.

The insurance policy to what otherwise would seem to be a risky strategy is the Democratic Party and Biden administration. For all the talk of socialists and radical Leftists, capitalists know that their bread is buttered by the structural dependence of the State and Society on Capital, and Democrats clearly understand this fact. US capitalists may have a more restrained partner in Democrats and may need to concede more on issues of accumulation versus distribution when they are in power, but at least the Democrats are not led by an irresponsible and utterly self-serving myopic cabal that no longer seems to understand the bread/butter relationship.

One gets the feeling that some of this may already be going on. But to be effective the capitalist political strike against the Republican MAGA wing must be public and comprehensive in scope. Winks, nods and quiet backhanders will not suffice. The move has to be out in the open, at least among the economic and political elites.

If that does not happen or does not work to kick the MAGA morons to the curb, then the possibility of a real capital strike must be considered. It can come in the form of a Wall Street sell-off/downturn manipulated by interests most closely associated with the Republican Party or industry slow-downs in regions where Republican support is strongest (say, places where the fossil fuel industry is dominant). Consumer and advertiser boycotts of and slowdowns in supply chain servicing of privately held companies affiliated with Trump are additional forms of capitalist strike.

Needless to say, however sector-specific any economic downturn will be seen over the short-term as a rebuke of the Biden administration, but if quiet assurances are made as to the real intent of the ploy, then both the administration and the productive sectors involved will survive the moment. After all, the goal is to send a message to the Republican political establishment that business will no longer tolerate the national-populist threat to making money, not to kill off profit-making entirely.

In a weird way, this ploy should come naturally to Corporate America. They sell on the future of a Republican Party dominated by Trump and other national-populists and they buy (short term) on Democrats buttering their bread while they bet long term on non-MAGA Republicans restoring the GOP to its status as preferred political interlocutor. There is risk in this strategy but for the private sector, the US as a society, the political system as a whole and the Republican Party as a political institution, the rewards of embracing it will be well worth the challenge.

After all, capitalism is all about risk-taking under conditions of limited information involving structural and super-structural constraints, so the field is open for private opportunity-taking in the national interest.

Posted on

Church, State and the weight of capitalism.

Arguments by religious folk that they are being discriminated against under the Level 2 pandemic restrictions in NZ, which limit church services to ten people or less when schools, restaurants, malls and other service outlets are allowed to host many more people under voluntary self-distancing protocols, got me to think about whether people understand the rationale behind the government approach as well as the role of religion in society and particularly in a liberal democracy such as NZ. I wrote a tweet outlining my general view and it elicited some contrary responses from people who are either religious and/or dislike the current government. I will not dwell on their responses but I will below string together in fuller scope my side of the discussion.

I began with the first tweet:

“Liberal democracies are secular regimes where church and state are separate and the state treats all religions neutrally and equally while having superordinate authority over material (as opposed to spiritual) issues, including public health. Churches need to respect that.” That began a back and forth with the contrary minded readers, which elicited the following responses from me:

“Stage (sic) 2 is based on opening up commerce, with some social restrictions still in place. Education is critical for commerce in several ways. Services are critical to economic well-being. Religion is a social construct based on belief that is not economically essential. Big diff.

In medicine, the environment, engineering, economics, threat assessment, even political forecasting, among so many other material things, science must and will trump belief. With CV-19 science must prevail over belief. There is nothing “illiberal” about the govt response.”

The last sentence came in response to a commentator’s remark that NZ is an illiberal democracy because of the restriction on religious gatherings, among other things. The author went on to speak of a difference in values between the government and people like him when it comes to family and society. I replied:

“A secular democratic regime can, should and most often does value families and society, and its social policies demonstrate this. The level 2 re-opening is business driven because NZ is a capitalist country, and everyone’s welfare depends on capitalist survival, not churches.

So long as the economic imperatives of a capitalist society remain a paramount concern of govt, then commercial concerns will supersede (much variegated) spiritual ones. Hence the pro-business incrementalism of the govt approach. They respond to structural necessity, not values.”

And that is the bottom line. NZ is a capitalist society. It is a capitalist society because the means of production are mostly in private hands and subject to market-oriented logics, because the relations in and of production reproduce the material hierarchy on which the economic system rests, because it is inserted in a global capitalist system of production, consumption and exchange, and because the social division of labour that emerges out of it reinforces the hierarchical relations between the ultimate producers of wealth and the owners of productive assets in NZ and elsewhere. Most of all, NZ is a capitalist society because the welfare of everyone directly or indirectly depends on the welfare and investment of capitalists–if they do not prosper, no one does.

Regular readers know the I am not a fan of laissez fare capitalism or the various market-driven experiments of the last forty years. Nor am I entirely pleased with how the current government defers to capitalist logics rather than fully embrace the entire policy spectrum involved in well-being budgeting. I am just saying: when it comes to the economic motor of NZ society, it is what it is.

NZ has just faced and continues to be threatened by a deadly global pandemic. The initial government response was a public health campaign marshalled on scientific grounds that was mitigated by an unprecedented economic relief package designed to help people weather the financial storm caused by the disruption of economic activity. Capitalists and workers were included in the relief measures. This response was vetted by a pandemic emergency response committee chaired by the Leader of the Opposition and communicated in daily press conferences by the Prime Minister and Director General of Health, along with other officials. That is far from being the makings of a totalitarian police state that a fair few believe it to be.

Once the lockdown/quarantine phase of the restrictions was lifted (after six weeks), the government announced that its level 3 and 2 approaches were designed to get businesses back to work. This employed a type of pragmatic incrementalism where restrictions on commercial activity were slowly lifted in piecemeal, sectorial and graduated fashion over what is now going on 3 weeks. The government explicitly stated that this was not a social opening and that pre-pandemic social activities that do not have a commercial orientation were very consciously excluded from the stage 3 and 2 re-opening measures.

That is why churches are not allowed to resume pre-pandemic activities, indulging religious services, in the measure that they did before March 23. Note that they can still host church services and other activities but that they must adhere to the “fewer than 10” rule when doing so. No one has restricted their freedom of worship. Only group size when worshipping has been limited, and that is because churches are not considered to be businesses.

If churches want to claim that they are a type of commercial enterprise, then they have reason to feel discriminated against and by all means should air their grievances along those lines. But that might open questions about their tax-free status, real estate holdings, tithing practices and other non-spiritual aspects of their mission. So it is unlikely that we will hear this argument aired in public or as a defence of a church’s right to host large gatherings for religious purposes.

In any case, the “blame” for not including churches in the Level 3 and 2 re-openings is not the fault of government values when it comes to family and society. If anything, blame comes simply from the fact that NZ is a capitalist nation and the bottom line is, well, the bottom line. Spirituality is fine but it does not pay the bills, unless of course it is of the “prosperity doctrine” persuasion where the Lord commands that we should enrich ourselves before all others.

Speaking of which: why the heck was that charlatan fraudster Brian Tamaki and his Destiny Church minions allowed to defy the level 2 restrictions without punitive sanction? Were the police worried about a confrontation with a large crowd? Even if that was the case, if the letter of the public health order cannot be enforced even with enabling legislation conferring extraordinary enforcement powers on the police, what is the point of having them? Or are exceptions to the rule made for bully-boy bigoted loudmouth xenophobic lumpenproletarians posing as preachers?

We might call that a type of reverse discrimination.

Posted on

Thinking of a post-pandemic future.

I was recently invited to participate in an international teleconference on post-pandemic futures. It has a NZ-centric focus but involved distinguished participants from overseas, including former high level government and private sector officials. Discussions were held under Chatham House rules so I cannot get into particulars, but I am writing here as a reflection on what I heard.

Above all, I took away two troubling thoughts. The first is that the discussion was entirely elite-focused, with much talk about trade regimes, supply chain dynamics, attracting foreign direct investment, scientific diplomacy, political leadership characteristics and competition, plus other things of that sort. The second take-away was the nearsightedness of many of the discussants, particularly those representing the private sector. In a nutshell, they just want to get back to business as usual.

I made some remarks that attempted to amplify the context in which we are operating. I will elaborate on them here.

The CV-19 pandemic is an inflection point in a longer trend involving the intertwined crises of national and international governance and models of accumulation. It has exposed the dark contradictions in both. These must be addressed if the world is to emerge a better place. But there is a broader backdrop to this trend that needs to be understood before we get into unpacking its component parts.

The international system is in the midst of a long transition. It has moved from a tight bipolar configuration during the Cold War to a unipolar construct in the 1990s and an emerging multipolar system after 2001. The emerging system is characterised by the interplay between ascendent and descendent great powers, the emergence of non-state actors as key international actors (both irregular and corporate), an erosion of international norms and rules, and the resultant presence of conflict as a systems regulator. The underlying ideological consensus that dominated international relations from the end of World War two until the last decade, that being the notion of a liberal order where the combination of democratic government and market-driven economies was seen as the preferred political-economic construct, has eroded to the point of marginality.

In its wake has re-emerged the concept of realpolitik or power politics, whereby nation-states and other international actors pursue their interests above all things and do so with the resources at their disposal relative to the countervailing powers of others. This does not always mean that might makes right because not all resources are coercive. Some are persuasive, which helps distinguish between so-called “hard” power (coercive, be it economic, military or diplomatic), “soft” power (persuasive), “smart” power (a mixture of both) and “sharp” power (coating coercive intent in a persuasive argument or approach).

Over the last two decades several great powers have emerged or re-emerged, while the lone 1990s superpower, the US, has declined. This is seen in the fact that while superpowers intervene in the international order for systemic reasons, great powers do so for national reasons. One only needs to view the US inability to prevail in regional wars and then turn towards economic nationalism, populist politics and away from support for alliances and international organizations to see its descent. Meanwhile, pretenders to the throne and others have emerged: China, Russia, India, Japan, Germany in the forefront, but other regional contenders also in the mix (Indonesia, Brazil, South Korea, France and the UK, perhaps Iran and Turkey as part of lesser constellations).

The issue is not so much who these specific emerging powers are but the fact that they are moving the international system towards multipolarity. Given its relative decline, there is little that the US can do about this even if it attempts to reverse the trend (assuming that it recognises what is happening). And yet, the contours of the future system will not conform to the specific interests or designs of the emergent powers within it. Much like Adam Smith’s invisible hand of economics, it is the aggregate of power dynamics during the transitional moment that will give precise shape to the global future. A new balance of power will emerge, but it remains unclear as to its exact configuration or stability.

That is the broader backdrop to the global crises of governance and models of accumulation. As macro and micro-cosmic reflections of this larger reality, national, regional and international governmental organisations have been sidelined and/or undermined by a combination of forces. Some are internal, such as the ossification of agencies due to corruption and self-interest. Others are external, such as rapid and sudden migration trends resulting in ideological and racial backlash in recipient countries. Whatever the combination of factors, the crisis of governance is seen throughout liberal democracies as well as many authoritarian regimes (even Singapore!) and international organisations like the EU, WHO, WTO, SEATO, OAU, OAS and UN. Many of these agencies are seen as toothless at best and bastions of patronage, nepotism and corruption at worst. Above all they are mostly seen as (and many are) ineffectual and inefficient in discharging their mandates.

The decline in quality of political governance is paralleled and matched by the increasingly obvious contradictions of the global model of accumulation. Commodity supply chain concentration, hyper-specialisation, just-in-time production, “race-to-the-bottom” wage competition, and other features of the globalisation of production, consumption, supply and exchange have produced increased inequalities and fractures in the world social division of labour. Hyper-concentration of wealth in the so-called “one percenters” has happened on the backs of the global poor, who now extend well into what used to be the middle classes of advanced liberal democracies. Again, the US provides an example with its charity food lines and millions of unemployed (rising to 20 percent of the work force and over 30 million unemployment claims lodged in just three months) as a result of the pandemic. The US situation is particular dire because most private health insurance is tied to employment, so the loss of jobs is measured in both declines in income as well as health coverage.

This is what the pandemic has done. It has exposed in dark relief the ugly side of the global market. It has also glaringly revealed government incompetence and indifference on a global scale. These two pathologies have now combined, and the results are being felt by common people, not elites. This could well be the moment when the Liberal Order dies, killed by a disease whose spread was, in a bitter ironic twist, facilitated by its success.

That is why getting back to “normal” and business as usual by returning to the status quo ante will not work, and where short-term solutions will not suffice. That only staves off the inevitable, which is that the dual crises will continue to compound and deepen as they head towards a circuit-breaking outcome. Phrased differently, it appears that what students of social revolutions call the tension-release model is now well in play: there is a slow build up of accumulated tensions punctuated by episodic outbreaks of disorder or discontent, culminating in a cathartic moment in which the old system is destroyed and a new one–however unclear in its precise contours–begins.

If the root causes are not addressed, the next explosion of mass discontent will be precipitated by any number of calamities, man-made or natural: resource conflicts caused by draught, flooding, famine or competition over access to increasingly precious natural resources like fresh water; mass migrations tied to the above; great power war; civil war; sectarian and irredentist violence; pollution- or climate-caused environmental catastrophes; wide spread urban destruction caused by earthquakes, eruptions, hurricanes, thrones, cyclones or tornados; energy provision failures; and more pandemics. This list is not exhaustive.

It is not as if there has been no warning that things cannot hold. From the 2000 “Battle of Seattle” to the Occupy Wall Street demonstrations later that decade, to the Arab Spring of the early teens to the protests in places like Chile, France and Lebanon last year, there has been a slowly rising tide of resistance to politics and economics as given. The protests are not just about one or the other but are in fact about both: systems of governance and systems of profit and their influence on each other.

The malaise is wide-spread. The US and UK are polarised, India is riven by sectarian tensions, Arab oligarchies remain closed but under increased popular pressure, despotic politics have taken hold in Brazil, Hungary, Eastern Europe, Central Asia, the Philippines and Turkey under electoral guise, sub-national actors challenge sovereignty in a host of Sub-Saharan states and even the seemingly monolithic regimes in China and Russia are riven by internal tensions and political intrigue. The world stands at the brink of a valley of transition where the costs of change are real but the outcome is uncertain.

Returning to normal, at least if it is defined as the way things were before the pandemic hit, is a guarantee that the socioeconomic and political contradictions now laid bare will fester, accumulate and eventually explode. That is an outcome few would want. This is why the post-pandemic moment must be seen as a window of opportunity for comprehensive change rather than a resumption of what once was.

In order to avoid an explosive break with the past, the key to post-pandemic recovery lies in addressing the dual crises of governance and accumulation as the most important priorities even if short term economic and political remedies are offered (say, by removing Trump from office, turning to regional supply chains and re-committing international agencies to a rules-based international order). I cannot offer any specifics, but it seems to me that a move towards sustainable development based on restrained rates of profit and renewable resource extraction is a beginning. Given the resurgence of wildlife in urban and suburban areas and air and water cleansing during the lockdown, climate change mitigation efforts need to be wrapped into larger projects of environmental restoration in which a return to natural balance is given urgent attention.

These involve political reforms in which those who advocate for a return to the previous economic status quo are blocked from doing so. After all, there are many interests vested in the current global market framework and they will do everything in their power to resist and thwart meaningful change that undermines their positions and diminishes their bottom lines. The key is to find a consensus about reforming, if not an alternative to, the system as given, including the reconfiguration of incentive structures in order to promote broad adherence to the shift in the global model of accumulation.

The future will be multipolar. The question is whether it will be stable or unable, sustainable or exploitative, multilateral or parochial, driven by self-interest or concern for the collective good. The overall process of transition to multipolarity is immutable, but the specific features of the future system will be defined for better or worse by human agency. It remains to be seen if the opportunity to recast the world in a better image will be seized.

Given what I heard at the online meeting, I am not sanguine about the prospects of this happening. It is easier to go back to what is known than venture into the unknown. The forces pushing for a return to the status quo are many and powerful. But the pandemic has pulled away the layers of mystification and false consciousness that heretofore obscured the intense exploitation, class cleavages and unrepresentative politics that lie at the root of the modern global edifice/artifice.

It is time for economic and political architectural re-design on a world scale.

Posted on

Living within our means.

Years ago the Argentine sociologist Carlos Weisman wrote a book titled “Living within our Means.” It was a critique of Argentine society that focused on the paradoxical question of why, in a land of plenty, there was so much economic instability, inequality, corruption and political turmoil. His conclusion was basically that natural wealth produced indolence and greed: the vast natural resources in Argentina could be exploited inefficiently and without regard to the future, money was siphoned off of productive sectors into all sorts of nonproductive or money wasting enterprises ill-suited for the economics and demographics of the country, and the surpluses generated by the productive sectors (agriculture and mining in particular) could not only line the pockets of those lucky enough to control the means of production but could also be used to buy off subordinate group consent via State benefit distribution derived from minimal taxation on the export-oriented sectors that generated the bulk of the countries GDP.

His most important observation was that Argentines, so accustomed to an economic system that generated wealth in spite of itself, were living beyond their means. The State sector grew bloated, workers lost sight of the connection between productivity and wages, capitalists hoarded, spent and perfected the arts of tax dodging and capital flight, and politicians used patronage and public goods as a means of currying electoral favour, only to have the military step in from time to time under the pretence of putting things right but in reality only to shift benefits of political control to their civilian allies.

New Zealand is not quite as pathological, but for some time I have seen parallels with Argentina in that it appears that the country has, for at least two decades, been living beyond its means. Think of the so-called export sector.

Traditionally, “export sector” means those business that sell their goods overseas, to foreign clients. In NZ that historically meant agriculture (including cattle and sheep farming) mining, forestry and fishing. More recently, high tech value-added industries like software development have been layered into the export mix. But so too have industries like tourism and foreign language and tertiary education. Yes, tourism and educational services for foreign students are classified as “exports” in NZ even though all of the revenue generated and GDP share provided by these services are domestic in nature. Unlike traditional exports, other than some transportation companies, none of the economic activity associated with either industry is generated from abroad (say, via the sale of goods).

There is something insidious about this. Thriving in a largely unregulated environment, tourism surged. Adventure tourism, adrenaline tourism, hobbit tourism, backpacker and freedom camper tourism, glamour tourism, death tourism (trophy hunting) etc. all exploded even thought the infrastructure required to handle them was insufficient or non-existent. Likewise, dodgy fly by night language schools popped up catering to foreign students as young as high school age, and universities lowered admission standards and course requirements in order to attract unqualified foreigners who were willing to pay enrolment fees up to five times higher than domestic students. It did not matter that these foreign student often wound up as the victims of unscrupulous education “brokers,” local employers, hosts and homestay providers. That was fine because the business owners and senior managers operating these industries were rewarded handsomely for their efforts even if their contributions were not, to be clear, really advancing the productivity of NZ society. Both of these industries saw the foreigner’s dollar as their cash cow and soon became dependent on it. So long as the State got its share of tax revenues, all was hunky dorey as far as the economic-political elite was concerned.

A clear case of a non-traditional “export” that does more harm than good is the cruise line business. These floating Petri dishes used to be pretty scarce in NZ ports but now are now commonplace eyesores from the Bay of Islands to Akaroa and Milford Sound. They are seagoing pollution generators with dodgy labour and hygiene practices that disgorge thousands of clueless leisure lovers onto our shores to watch hokey “cultural” shows, go sight-seeing (including to active volcanoes) on fossil fuel vehicles and buy trinkets and baubles from money-grubbing vendors who otherwise could and should be providing services to their communities. What domestic benefit is derived from them is surprisingly narrow in scope, and yet they continue to come in increasing numbers–at least until CV-19 revealed them for what they are when it comes to public health risks.

Even traditional sectors like fisheries and dairy have come to rely more on export markets than on domestic consumption for their well-being, pushing unsustainable growth, environmental degradation, species destruction and oligopolistic market concentration. Uncoupling commodity pricing from domestic wage levels, some agricultural staples have been priced out of the range of most local consumers while a greater percentage of quotas and production are oriented towards foreign buyers. The situation has become so unbalanced in some sectors that, for example, given a drop in Asian demands due to the CV-19 pandemic, fishermen find it more economical to dump crayfish back into the ocean than sell them in the domestic market. Asian demand for cut wood has dried up, leaving huge surpluses in holding lots that are not being released into the domestic market. The price of many wage goods, consumer non-durables and staples is now set by international markets rather than by local demand, thereby narrowing the range of basic goods purchasable by the average NZ consumer.

In light of this, we might see the arrival of the Coronavirus (CV-19) as a great corrective on the national excess. The first industries to shut down are the ones that really should not have grown so large in the first place: tourism and tertiary education. These have been readily followed by service sectors associated with tourism and foreign students, including accomodation and food service provision.

Now the entire country is poised to “shelter in place.” With the government ordering mandatory closures and shut downs as it ramps up its response, primary and secondary schools have closed and a multitude of service providers have switched to at-home work or temporary closures. Soon a full scale lockdown will be imposed.

Essential industries and core state services continue to operate–transportation, food provision, emergency services, law enforcement, telecommunications, waste disposal, etc. Note that if we strip out the non-essential industries that are now shuttered or curtailed, we have a much smaller overall economic footprint yet a larger State presence within it. That is not necessarily a bad thing.

After years of market-driven logics that among other things pushed the kind of excesses described herein, the State is reassuming its role as macro-manager of the economy and direct provider of public goods and strategic production. Prudent financial management that protected surpluses “for a rainy day” allow the current government to ease the burden of pain inflicted on the working population by CV-19. It can also provide the material basis of an economic re-ordering on grand scale. One can only hope that, thanks to the pandemic, the era of down-sizing and privatisation has been proven to be a false promise when it came to national well-being and prosperity, and that it is replaced with a new economic logic that emphasises the importance of the social relations of production as much as the relations in and control of production itself.

There is one more component to this smaller, “natural” economic footprint: small businesses. The NZ economy runs on small business production and services. From metal working shops to plastics manufacturers, furniture makers and tradespeople, NZ has a middle sector in between the big agro-export corporates and State Owned Enterprises and private-public partnerships. The difference between them and the bloated tourism and tertiary education sectors is that they actually produce things of tangible value that benefit domestic society, not the degree-chasing aspirations or Instagram ambitions of foreigners.

The combination of big exporters, State sector and small businesses, one might say, is the critical component of NZ society. Not tourism, not foreign student education, not bars, restaurants, sports and other forms of mass entertainment. These can be resurrected when the pandemic has passed, but this moment of crisis demonstrates where value is created and preserved in NZ society. And it is not with hedge funds, sports teams, video game arcades, waterfront restaurants with space for tips on their service bills, ski resorts, golf courses or heli-tours.

Needless to say, this is a broad brush depiction of the economy of excess in which we live. There are bound to be fine details that prove the exception to the rule such as it has been depicted here. But the gist is clear: NZ has, as a result of the market-oriented experiment of the last 30 plus years created a entire range of parasitic/opportunist capitalism that contributes relatively little of value to the domestic economy or to the population at large. It is this sector that needs to be excised thanks to the arrival of CV-19.

Calls for self-isolation are getting more forceful as the government ramps up its pandemic threat advisories. This type of quarantine is a form of physical separation based on notions of collective solidarity (and not a form of social distancing, as pundits have called it). People retreat into their homes out a sense of collective responsibility and empathy for others, hoping to weather the worst of the pandemic in order to flatten the curve of its distribution. Here again, the burden of sacrifice is borne by small producers, public servants and waged labour, most of whom do not have access to the type of savings or surpluses that allow the corporates to ride out the storm.

It is these people that deserve government financial relief. Not the corporates or those in the bloated, non-essential and non-productive (in a value-added or material sense) sectors of the economy. Not those in parasitic financial sectors and non-traditional export industries. Not sports leagues and yachties.

In the end the CV-19 pandemic is not only a massive corrective to the world and NZ societies, demonstrating the dark and largely ignored side of the globalisation of production, consumption and exchange. It is more than an economic belt-tightening across the globe. It is a moment for pause and reflection on what living within one’s means really means in practice. For NZ, it means that the time has come to drop the growth is good mantra in certain non-critical sectors of the economy and to refocus energy and resources on those that comprise the economic triad underpinning the good society: “traditional” exporters, small businesses and the State-Owned and public/private enterprises that are the core of the national productive apparatus. This may require major adjustments in all three components, especially in the export sector (to include its very definition), but the moment has arrived thanks to the externality known as Coronavirus.

That result may be a smaller economy than what came before CV-19, but it will be more sustainable, efficient, value-generating and ultimately fairer for NZ society as a whole.

Posted on

Legacy investments versus speculative investments.

Among the arguments about instituting a capital gains tax in NZ (common in many parts of the developed world) is the claim that much property is family residence or inheritance in nature. The argument goes that it is unfair to not differentiate between the sale of a family home, granny flat or holiday residence by middle and working class people and the sale of properties bought by developers and speculators with the intention of “flipping” them for a profit. The first category are long-term, emotionally laden investments whereas the second is simply about making money.

I see merit in the argument for differentiation of property investment categories. In particular, I see a difference between legacy investments and speculative investments. Legacy investments are those where property is bought for family use over time. These can be the main family home but more often are second, smaller flats or holiday homes that are passed on between the generations (think of the archetypical bach or a crib). The emotional as well as financial investment in such places is not based on eventually securing returns but on preserving collective experiences and traditions from generation to generation and giving off-spring the chance to acquire a property stake without the exorbitant financial costs associated with the contemporary real estate market (for example, an equity share in a family bach may help towards securing a first time mortgage loan). It specifically excludes using family members as fronts for speculative purchases (say, of a family farm).

Speculative investments are just that: property investments that are designed to be on-sold in a relatively short period of time in order to secure a positive financial return. Here the intention is to make short-term money off of the buy/sell transaction.

I would suggest that a capital gains tax is appropriate for all speculative investments. They become another cost of playing the real estate flipping game and will eventually be incorporated into the real estate price architecture. On the other hand, I do not think that capital gains tax is appropriate for legacy investments. If a family property is on-sold within blood lines or divided into part ownerships to children and grandchildren, it seems to me that the less financial burden imposed the better for all. People get to keep their properties within the family and share in the collective benefits over time and generational change. That includes rental income from family owned property subject to the requirement that the property must be used by family members for given periods within a specified time frame (this would allow seasonal rentals and other short-term lease arrangements to non-family).

The system would work if there is a legacy declaration made on a property at the time of purchase. Again, this may be less appropriate for a main family home that could likely be on-sold to strangers as the family demographic shifts. There a capital gains tax would apply. But it very much should not apply to properties that families hope to preserve within the bloodlines for posterity. Here on-selling to relatives should not incur capital gains taxes.

On-selling under the legacy clause will require verification of family lineage, and any sale to non-family voids the legacy declaration and makes the sale subject to capital gains tax. Those who try to cheat the system and are caught will be subject to heavy financial penalties in excess of the tax otherwise to be paid.

I am not an economist much less a taxation expert but it seems to me that distinguishing between legacy and speculative investments in the property market strikes a good balance between profiteering and homesteading. I admit to not having thought through all of the implications inherent in this proposed scheme so if any readers want to illuminate me please feel free to do so.

I have no doubt that clever devils will immediately try to game the system and seek out ways to turn legacy homesteading into profit-driven speculation. But with a detailed code of compliance and robust enforcement regime in place, it is possible for this approach to split the fair difference between an all or nothing capital gains tax on property and one that reflects the nuances in property buying preferences. Or perhaps that is simply too much to ask in an ideological climate where the very idea of taxing something other than salaried income, business earnings and consumer purchases and services is considered sacrilegious by the Right.

PS: I have been informed by the smarter adult in my house that this is a silly idea and unworkable. She also points out that trusts already allow for inter-generational transfers of wealth/assets without being subject to tax on the transfer. I am not familiar with trust law and am not going to risk savaging by pointing out that family trusts are something more likely to be created by the well-to-do rather than the middle class, so must accept the scolding and move on. If anyone is familiar with the intricacies of trusts, please feel free to explain.

Posted on

Interest, values, trade and security.

The media frenzy about the NZ-PRC relationship got me to thinking, but as I got to thinking I found myself meandering off of my original train of thought. You see, at first I was pondering the one-sided, hectoring nature of the media coverage, where pro-China shills like the business writers at the Herald and assorted corporate types and National Party flunkies like Tod McClay were allowed to run their mouths about how the relationship with China was headed down the tubes. There was the Kiwi coward resident 34 years in China* who implicitly disparaged Anne Marie Brady by saying that “(i)t’s unhelpful for politicians and a few anti-Chinese professors to feed uncorroborated McCarthyite conspiracies about Chinese spy networks in their countries and targeting anyone who doesn’t share their view.” There was Audrey Young’s reference to “ivory tower” eggheads in her regurgitation of business lobby bullet points. All of this was offered without a single rebuttal.

  • *I am not going to mention this useful fool’s name but it would have been nice if a “journalist” has asked him, given his long residency in China and successful business ventures there, whether he was a dual citizen and/or member of or has ever had any formal contact with the Chinese Communist Party, whether he has ever had to “facilitate” transactions or provide pay-offs to party or local officials and whether he is on any Chinese government payroll as a spokesperson, business “ambassador,” representative, go-between or in any other capacity. I say this because it is unusual for Chinese authorities to allow non-diplomat Westerners to comment on official reactions to PRC-related events in foreign countries even if they are citizens of the country in question.

There were even pro-China academics featured in the media and assorted pundits opining that the Labour-led government needed to pull an about-face and correct things ASAP. There were the usual skeptics about the GCSB rational for advising against using Huawei in the 5G roll-out. One of them, a well known rightwing blogger and pollster, used a 2012 junket to Huawei headquarters paid for by the company to proclaim that all the security concerns were a stich up up of an honest company so that Western telecom firms could gain a competitive advantage. There were the usual shouts of racism from the Chinese language media and wanna-be “influencers.” There was even something that looked suspiciously like a planted fake news article in an English language mainland media outlet that was extensively and uncritically quoted in the Herald that said that Chinese tourists in Aoetaroa complained about being “stabbed in the back” by the Kiwis. I shall leave aside the curious fact that the article only appeared in English and used rather odd quotes to describe the reaction of tourists to a minor diplomatic row involving their home and host countries–a row that had zero effect on them.

It was all so sickly obsequious to the Chinese that my initial thought centred on whether most of NZ’s business and political elites (and their lackeys in the media and academia) were so obsessed by self-enrichment, greed and short term opportunism that they completely lost sight of their moral compasses. After all, China is a one-party authoritarian state that uses mass internment camps to control a restive ethno-religious minority, mass surveillance as a form of social control, violates human rights in systematic fashion, transgresses international norms and laws as a matter of course (such as in the island-building projects in the South China Sea) and uses bribery, corruption, fraud and intellectual property theft as an integral part of its business development models. This would seem inimical to the values of the paragons of virtue extolling the “special relationship” between the PRC and NZ but nooooooo. The Chinese are good for the NZ economy and that is all that matters. It would seem that the trade-oriented business elites and their political puppets are China’s Vichy representatives in Aotearoa.

That sent my thoughts in a more academic direction. I recalled that Marx wrote that the combination of private ownership of the means of production and universal suffrage could not hold because if everyone got an equal vote and only a few were property owners (capitalists), then capitalism would be voted out of existence. He was wrong about that due to the reform-mongering function of the capitalist State, but that got me to thinking that he also wrote that capitalists were incapable of being patriots because profits were made globally and hence their interests were not confined to their countries of origin. People may recall that in the Manifesto he wrote “workers of the world unite!” as a response to capitalism as it entered the Gold Age of imperialism, a topic that Lenin subsequently developed a greater length.

It occurred to me that in the arguments about China we see a NZ variant of this. NZ capitalists and their toadies do not give a darn about democratic values, transparency, norms, a rules based order or the security concerns of Western states. They are in it for the buck and if that means kowtowing to a dictatorship then so be it. Given that NZ business and political elites have kowtowed to the likes of the Saudis, this should not be surprising. In their view if there is money to be made then the less impediments to doing so the better.

The smarter types will show the structural impact of Chinese trade with NZ by citing the usual $27 billion in 2018 bilateral trade figure and 8,700 jobs connected to it. But this trade is mostly in milk powder, tourism and English language and tertiary education (as NZ exports) and consumer non-durables (electronics, light machinery and plastics, mostly) as imports, so it is not as if NZ is going to turn into a high tech artificial intelligence and robotic hub thanks to the Chinese. The bottom line, then, is the bottom line: NZ capitalists by and large will cling to the window of opportunity presented by the opening of the Chinese market even if it confirms our trade dependency on primary goods and agro-exports and even if it means sacrificing NZ’s commitment to principle when it comes to exercising an independent foreign policy.

That was going to be the end of my thought process on the matter. I was going to balance the criticism of China by noting that the US and traditional Western partners have less than stellar records in their foreign relations and spy histories and that the US under Trump is an insane clown posse when it comes to international affairs even if the intelligence and security professionals who staff the 5 Eyes network would not be swayed by the craziness swirling around them and would make assessments about security matters on objective grounds. But then I got to thinking about something I read repeatedly on right-wing political sites: values.

One of the major objections to the Chinese and NZ’s relationship with the PRC appears to be the issue of values, or the fact that we do not share values. People point out the long cultural ties that bind NZ to the UK and Anglophone Commonwealth as well as the US. They point to joint sacrifices in war and peace, common sports, notions of good and bad, proper behaviour, etc. These folk do not want these shared values to be usurped and replaced by Asian values, or at least the Confucian-derived cultural mores that contact with China brings to NZ. The list of fears and concerns is long but the bottom line is that many on the conservative side of the political ledger have real fears of the Chinese “other” that go beyond the “Yellow Peril” of the Cold War.

That prompted a turn in my thought. You see, although I have a fairly idealistic streak and understand the utility of constructivism in international relations practice, I am a realist at heart. And realists are not sappy snowflakes looking for a global group grope. Instead, they focus on two things as the currency of international relations and foreign policy: power and interest. As the saying goes, in an anarchic world or Hobessian state of nature where values are not universally shared and norms are contingent on voluntary acceptance by independent State actors as forms of self-imposed restraint, then what matters is the exercise of power in pursuit of national interest.

That leads me to the following pseudo-syllogism:

States have interests, not friends.

Foreign partnerships are based on interest, not friendship.

Trade and security relationships are therefore interest-based.

They may overlap, complement but should never countervail.

A State’s degree of interest in any matter is self-defined.

Values help define but do not determine interest.

Interest may be influenced by values and values may involve shared cultural mores, norms and history that make for notions of “friendship,” but interest is not reducible to them.

Interest prevails over values when interest and values are at odds.

It is the relationship between values and interest that concerns me now. If I accept that values are only part of the definition of interest, then I must accept that shared values do not necessarily place some forms of interest above others. Nor does the absence of shared values do likewise in the negative. And if that is the case, then the matter of trade versus security must be weighed based on the degree of value-free interest in each and the impact each has on the ability of NZ to wield what limited power it has on the global stage.

The issue is problematic because NZ has long claimed to have a “principled” foreign policy that is based on the values of independence, multilateralism, transparency, non-proliferation, human rights adherence and assorted other good things. I do not believe that NZ actually adheres to these when push comes to shove or even as a foreign policy bottom line, but if virtue signaling in international relations is characterised as lauding the role of “principle” in foreign policy, then NZ is the semaphore of that movement.

To be sure, NZ is a trading nation and is committed in principle to it. Securing a favourable balance of trade that helps GDP growth and distribution is a matter of economic security and must be included in any national security estimates, to include threat assessments. There are as a result practical and principled reasons why the issue of assessing relative interest is so important and why it may favour the trade whores.

Put another way, what are the interests at stake in NZ’s security relationships and what is their worth to the national well-being when juxtaposed against the country’s trade relationships (since security and trade have been uncoupled in the NZ foreign policy perspective)? If the benefits of trade are real and immediate while the benefits of security partnership are more ethereal or hypothetical than real (especially given the actual and opportunity costs involved), interest would dictate that trade should be favoured over security. But what if the benefits of security relations are more like those of insurance policies, in which you only fully realise them when you need them? How do you calculate the pluses/minuses of the trade-security dichotomy over the medium to long-term?

I do not have the answer to this. I have written plenty about the NZ-PRC-US strategic triangle and the unfortunate balancing act NZ has to engage in because of the misguided attempt to trade preferentially with China, on the one hand, and seek security guarantees through partnership with the US, on the other. Either could have worked in isolation or when the two great powers were not in competition, as it seemed when the two-track foreign policy approach was developed and refined in the late 1990s and early 2000s. But those days are long gone. There are ascendent and descendent great powers contesting for dominance in the Western Pacific, and we are just another pawn in their increasingly acerbic game.

So the question now is how do we measure “interest” in our trade and security relationships and which, on balance, should we favour given the centrifugal pull of each on our policy-makers? Do we give up our Western-centric security ties to fully embrace a China-led Asian/non-Western foreign policy orientation? Or do we give up the material benefits of our Asian-focused trade, learn to live within our means and reaffirm our security ties to our “traditional” partners? Is there a middle road or happy medium that can be pursued without suffering the consequences of alienating our partners on either side?

That seems to be the preferred option for the moment. But that assumes that NZ has a choice in the matter and that its behaviour will influence the corresponding behaviours of its larger, contending interlocutors because their respective interests are maintained by our dichotomous foreign policy approach. That is a very tenuous assumption to make because it is also quite possible that in the end it will be a larger partner who, exercising its power over us in its own national interest within a strategic context dominated by great power rivalries, that makes the choice for us.

Posted on

Debunking business “confidence.”

One of the more suspect metrics used to evaluate a government’s economic program is so-called “business confidence.” The premise behind surveys of “business confidence” is that business is the motor force of capitalist economies and business leaders are the most accurate readers of their health. Business confidence in the state of economic affairs is therefore considered an accurate weathervane on prospects for growth and prosperity. The trouble is that the premise is false as well as one-sided.

That is because “business confidence” is a political rather than an economic indicator given by one collective actor in the process of production. In other words, politics frames the way in which economic policy is made and, given that, political context is what gives business “confidence” in economic policy. It simply reflects the attitude of capitalists towards different governments and their approaches to economic matters. This means that there is an inherent bias in any survey of “business confidence,” to wit, business confidence is always higher under right-leaning governments and lower under left-leaning governments, particularly during the early days of a government’s tenure when policy changes and legislative reform are being enacted.

Although business confidence may wax and wane under both government types, the starting point is always lower for left-leaning governments. Left-leaning governments are believed by capitalists to be interested in strengthening worker’s position in production at the expense of employers. Worse yet from a capitalist perspective, left-leaning governments also seek to alter the social relations of production via so-called social engineering projects that empower the working and disadvantaged classes at the expense of entrepreneurs. Business consequently sees the assumption of office by left-leaning governments as a zero-sum game: capitalists lose in the measure that workers gain (for example, by strengthening rights to organise and collectively bargain and pushing tax-funded redistribution schemes).

Conversely, the presumption is that under right-leaning governments business will gain at worker’s expense (say, via deregulation of  collective labour rights and health and safety standards). That is more a measure of expectation than confidence: business expects right-leaning governments to be favourable to their interests because they assume (often rightly so) that left-leaning governments will not be. The reverse is true for workers: they expect less of right-leaning governments than left-leaning ones. The issue for both sides is one of expectations being met. Confidence in government or the lack thereof derives from that.

Savvy business people will cloak their comments about confidence by citing larger macroeconomic factors such as interest rates, fiscal deficits, trade balances, currency market fluctuations, commodity booms and busts, taxation, skill shortages, foreign disruptions such as Brexit, etc. Although these clearly play a backdrop role, the relative confidence of business is often grounded in more mundane things. Consider New Zealand.

In the current NZ moment, business confidence is said to be low. Why is that? ? If the comments of the head of the NZ Employers and Manufacturers Association are anything to go by, not much. In televised remarks made a few days ago, the EMA boss said that the domestic violence leave and longer tea break legislation was an undue burden on businesses’ bottom lines. Think of that: granting short-term paid leave to employees who are the victims of domestic violence and giving workers slightly longer tea breaks somehow is injurious to business confidence. Apparently the notion of worker morale and welfare does not enter into the EMA equation, and therefore it is, in its own eyes, right for it to have less confidence in a government that seeks to address those issues.

The same goes for business complaints about minimum or living wage increases, paid parental leave, the right to organise and strike etc. None of these necessarily interfere with a company’s productivity or profitability.  What they do is make it harder to exploit the inherent vulnerability of workers in the labour process and/or degrade health, safety and environmental standards, thereby diminishing manager and ownership’s ability to secure gross material advantages as a result.

It is hard to believe that issues such as these are the real concerns that erode business confidence in the current government. In reality, business was always going to claim to be less confident once the Labour-led coalition formed a government, with that lack of confidence accentuated once labour market reform measures began to be implemented. It is quite possible that announcing a lack of business confidence in the Labour-led government’s policies is a capitalist way of punishing the coalition for its election victory. Nothing short of complete upholding of National-era labor laws and regulations would have kept business confidence stable, and even then uncertainty about future changes under the Labour-led coalition would likely have seen a drop in business confidence in anticipation of those changes. Here again, the issue is more about expectations than confidence per se.

In that light, the notion of “business confidence” being an indicator of anything other than capitalist hostility to or distrust of left-leaning governments is silly. A fairer measure would be to survey capitalist “expectations” of governments and compare business surveys with those measuring worker expectations. After all, workers are those who actually produce things and provide services, so even if they are not consulted in investment decisions and long-term planning, they are the (increasingly discardable,) human material upon which such (increasingly political) considerations are made. So their expectations are a necessary part of any honest discussion of “confidence” in government policy.

In other words, expectations are the basis upon which sectorial confidence is secured, and if expectations are negative or low, then confidence will follow accordingly.

It is likely that workers have a reverse image perception to business in that regard: they expect more benefits for workers from left-leaning governments than from right-leaning governments. Recent strike activity by public sector unions demonstrates a willingness of those workers to up the ante when dealing with a left-leaning government in a measure not seen under the previous right-leaning crowd. They simply expect more of the Labour-led coalition.

The true measure of confidence in a government is in the relationship between business and labour expectations. Matching up the expectations of business and workers allows determination of the relative confidence each group has in government. A tilt either way will lead to more or less confidence on the part of one or the other. It is in the balance between the satisfaction of expectations where the compromise on sectorial confidence is found.

It would be interesting to see what areas of common concern and agreement emerge from surveys of business and labour leaders. This could provide grounds for cooperative approaches to policy solutions involving those issue-areas.

All of which is to say that the confidence of those who ultimately produce wealth in society is as important as that of those who manage and own productive assets. This confidence is based on their respective expectations of government set against the economic backdrop of the moment. Only by comparing the two can an accurate picture be drawn of how productive groups view the performance of governments on matters of economic import.

Anything short of that is misleading and biased in favour of capital. But then again, perhaps that is the point of business confidence surveys as they are presented today.

Posted on

Unions, Parties and the decision to strike.

For the bulk of my academic career I worked on issues of regime change and interest group intermediation, with a particular interest in Latin America. I wrote a couple of books (one co-authored) about state-labour relations in several South American countries and a fair number of articles that included discussion of how labour engaged in collective action under different regime types. The comparative study of state-labour relations remains an abiding interest of mine.

One of the axioms of comparative democratic labour relations is that unions will engage in more cooperative labour relations strategies and therefore strike less under Left governments than they will under Right governments. The presumption is that since Left governments are working class based or supported, and because they are sympathetic to working class concerns in their policy platforms, there is less incentive for unions to take strong collective action against them, particularly with respect to strikes and  other forms of labour service withdrawal. This is especially so because such direct action could undermine the Left government in question and leave it vulnerable at the next election.

Because unions presumably prefer to have Left governments over Right governments in office, resorting to labour service withdrawals would be a counterproductive union political strategy over the medium term even if economically productive over the short term. That is true of public sector strikes in particular (since strikes, even when focused on economic issues, are inherently political when they involve the state as employer), but private sector strikes are also seen as electorally injurious to Left governments (after all, if a Left government cannot “control” unions then what is the point of having them?).

In terms of so-called political strikes as well as economic strikes, Labour governments are generally thought to offer a better prospect for labour peace.

Conversely, unions supposedly dislike Right governments and therefore engage in more confrontational approaches to labour relations, particularly if there perceive that there has been a rollback of union legal and economic gains under those or previous Right governments. Both economically and politically, unions have reason to adopt more militant strategies under Right governments.

The subtleties embedded in this dichotomy are found in the strategies of public sector versus private sector unions against a backdrop of relative union density and the legal frameworks governing wage-setting. This assumes that union leaders and members share the same ideological orientation and that union leaders accurately transmit the material demands of the rank and file during negotiations with the State and employers (i.e. the principal/agent relationship is tight and coordinated). At that point employer characteristics at the level of the firm as well as productive sector come into play, set against a backdrop of relative business sectorial organisation (both as producers and employers) and the labour relations framework operative at the time. A collective action and strategic interaction is framed by macroeconomic conditions and government budgets, with sectorial growth and Treasury surpluses being determinants of the latitude for negotiation in any particular instance.

For the last three decades all of this occurs in the context of the globalisation of production, consumption and exchange under market-oriented macroeconomic policies developed and implemented by public sector technocrats that seek to outsource public sector service provision and downsize the legal authority and managerial and regulatory functions of the State as part of government mandated, market-oriented ideological agendas.

In the era of market-oriented economic reform, changes in labour relations’ legal frameworks have tended to favour employers and business associations over labour unions under both Left and Right democratic governments, with the degree of favouritism seen in the approaches towards collective bargaining adopted by each. Overall, although Left governments have mitigated much market-oriented labour reform while Right governments have sought to accentuate and exploit them in order to weaken the labour movement and atomise working class representation and collective strength, the trend has seen a weakening of union power across the democratic capitalist world as measured in union density, membership numbers and the collective rights and legal authority governing working class representation in production. This has been acutely felt in the private sector where individual worker rights and contracts predominate over collective rights and representation. With their relative collective strength, public sector unions remain as the diminished core of most contemporary labour movements in capitalist democracies.

A key factor in determining the propensity to strike is wage-setting institutions. Generally speaking, the more centralised the bargaining nexus and more monopolistic the bargaining agents doing the negotiating, the more likely that unions will prosper in their demands without having to resort to strikes. In contrast, the more decentralised the bargaining forum and the more disparate the bargaining agents, the more likely it is that employers will have the upper hand in bilateral negotiations with employees, thereby increasing the possibility of strikes. For example, tripartite (labour, state, capital) wage boards governing wage negotiations in specific economic sectors tend to push compromises that trade incremental wage gains for productivity, job security and reinvestment guarantees. Conversely, enterprise level bargaining between employers and various employee bargaining agents tends to fix or depress wage bills in exchange for non-wage guarantees. In New Zealand collective bargaining is more closely based on the latter model rather than the former and yet overall strike levels have remained low.

The way in which the union movement is incorporated and inserted in the political system matters in this regard. The form of initial incorporation (that is, the way in which unions are initially integrated into the national political system), may be more of historical rather than practical import for well-established unions created in the previous century and whose insertion in the political system today was consolidated some time ago. But initial incorporation matters much to recently organised contemporary unions without long political histories. That is because the terms of their political incorporation and subsequent political insertion in the political system are still being determined and sometimes disputed, including by older or more established unions as well as the State and employers. These may not echo or even resemble the conflicts surrounding initial labour incorporation and political insertion in the past, but they nevertheless condition the way these newer collective agents are allowed to exercise economic and political representation in the present context.

There are three main forms of labour political insertion. In some liberal democracies organised labour is inserted in the political system in Left party dominant fashion, e.g., the party dominates the union in both leadership selection as well as member political affiliation. In other liberal democracies unions dominate or control the party, with union representatives holding key Party positions down to grassroots organising and regularly running for office. In still others unions are independent of Left political parties although nominally sympathetic to them, with union leaders and members displaying a broader range of party affiliations than under the first two types. In illiberal democracies so-called “yellow” unions (factory or business unions and “professional associations”) exist that are independent or affiliate with Right parties. In the main these are not considered to be authentic representatives of working class collective interests because they are created by or at the behest of employers in lieu of them.

This brings up the subject at hand. There currently is the possibility of nurses, public servants and teacher’s strikes in the next few weeks. Conservative commentators have claimed that this is to take advantage of the Labour-led coalition’s “weakness” and to seize the moment of opportunity provided by Labour’s unwillingness to confront the unions in question. That runs against the conventional wisdom about Left governments and unions. So the question is: why are the nurses, public sector and post-primary teacher’s unions threatening to strike?

One answer may lie in that all of these collective agents are public sector unions that are independent of the Labour Party and its coalition partners. Membership density is high but the sociological demographic in each is changing, with younger members being more ethnically diverse and less identified with the traditional class structures of the industrial era (since those under 30 are of the post-industrial, post-modern age). This may have led to a rejigging of agent/principal relations within the respective unions that might make them more prone to challenge the labour relations orthodoxies of the past, to include being more cooperative when Left governments are in power.

Another answer may lie in the fact that Labour, for all of its “progressive” policy pronouncements and initiatives, still clings to market-driven logics of production that, even when cushioned along the margins, reinforce the collective bargaining dominance of capitalists. Seen in labour legislation and the role of national labour administration as an interlocutor between labour and capital, this includes cost-cutting managerial rationales in the public sector, where modern Taylorist principles have been borrowed from the private sector and applied to public sector service provision.

That bureaucratic orientation could be partially due to the fact that most Labour leaders are career politicians with few backgrounds “grounded” in the realities of working class activism, and/or because the party’s focus has recently concentrated more on identity rather than class politics. This has caused Labour to accept market logics in principle and market-oriented solutions to employment relations in fact. The NZ Labour Party is less a working class party than a coalition of post-industrial causes joined by antipathy to conservative (read: Anglo-Saxon Christian capitalist heterosexual and patriarchal) mores. Seeing the situation in this light could well disincline nurses, teachers and bureaucrats from continuing to toe the “cooperative” line, especially if the union demographic traits outlined above prove to be correct.

It is worth noting that the long-established unions affiliated with the Labour Party have not uttered a peep about strikes, to include not offering solidarity with the nurses and teachers. Newly created unions like UNITE in the private sector have engaged in strikes regularly against private employers under the previous Right government and are supportive of the action. But in general the union movement in New Zealand has remained out of the conflict between the State (as manager and employer via the civil service, DHBs and Education Ministry) and the nurses, bureaucrats and teachers unions.

Another question is why did these unions (or most others, for that matter) not strike regularly when the National government was in office? Was it a matter of contracts being in force? Or was it the limits placed on strike action both legally and practically? On the face of it, it seems odd that civil servants, nurses, teachers and other productive groups would wait to strike until Labour was in office if they were out of contract towards the end of the National government. Did they think that striking in an election year would lessen Labour’s chances of winning a plurality and forming a government or, put more appropriately, strengthen National’s arguments that they needed to continue to hold a tight reign on labour market dynamics less the economy lose momentum? This is true for private sector unions but particularly so in the case of public sector unions. Or are the conservative commentators correct and non-Left party affiliated public sector unions simply more willing to exploit Labour’s perceived “weakness” on collective bargaining matters?

If so, then the Labour-led coalition has a problem that is more political than economic.

I am still working through the logics at play because I do not know the internal dynamics of the unions in question nor the Labour-led government’s strategy for handling the strike threat. But if any readers would like to join the discussion and illuminate me on the details of each position, that would be welcome.

Posted on

From failure, opportunity comes.

When President Trump signed the executive order withdrawing the US signature from the Trans Pacific Partnership Agreement (TTPA), he signed the death warrant of that multinational trade deal in its present form. The US was the core member of the TPPA and held the dominant negotiating position within it, so the decade-in-the-making, laboriously undertaken and vexing complex compact that was agreed to by the other eleven signatories is now all but null and void.

There are options, however, for the TPPA that may allow it to survive and thrive in light of Trump’s unilateral abrogation.

First, the other eleven member states can put the agreement into hibernation, wait for the 2020 US presidential election and hope that a more trade-oriented president succeeds Trump.

Second, they can hope that the Republican congressional leadership will force Trump to reverse his decision sometime between now and 2020. That would only occur if Trump is weakened by some failure and the GOP sensed that it could re-assert its traditional pro-trade stance at his expense. The Democrats would welcome the move for opportunistic partisan reasons even if some of its leading figures such as Bernie Sanders also oppose the TPPA and applauded Trump’s decision to pull plug on it.

Third, the members could look to themselves and re-draw an agreement that is less US-centric. Many of the provisions insisted on by the US could be reconsidered and even dropped in exchange for increased preferences for the interests of previously junior TPPA partners.

Fourth, the remaining TPPA partners could look to fill the void left by the US with another large market economy. The one that springs immediately to mind is China. That is where things get interesting, and where opportunity may lie.

China is already party to the ASEAN-China Free Trade Agreement (ACFTA) that established a regional free trade area that is the largest in terms of population and third largest in term of trade volume and nominal GDP. Some of the ACFTA signatories are also parties to the TPPA (Brunei, Malaysia, Singapore, Vietnam). This agreement is considered to be a “true” free trade agreement in the Ricardian sense because it reduces tariffs across 7,881 product categories to zero percent, with the result being that tariffs on ASEAN goods sold to China fell to 0.1 percent and those of China sold in ASEAN to 0.1 percent in the year the agreement went into force (2010)

The non-US TPPA members could opt to negotiate an agreement with ACTFA as one course of action. That may be difficult given that the TPPA is not a “genuine” FTA as much as it is an investor guarantee agreement (IGA) in which market regulations are altered to attract foreign investors and these are protected from legal liability in the event of disputes with the host state. What is not included in the TPPA are across-the-board reductions to zero tariff, and in fact many domestic industries remain protected or subsidised throughout the TPPA membership as part of the horse trading undertaken during negotiations over its central tenets. But it may be possible to reconcile the two trade deals in an effort to create a new super trade bloc on neo-Ricardian grounds.

Another option might be to invite China to the table. It has the second largest market in the world and is continues to grow at a sustained and rapid pace in spite of the vicissitudes of the world economy over the last two decades. It is making the transition from export platform to a mixed domestic mass consumption/value-added export model, and it has previously expressed interest in joining the TPPA. The US blocked consideration of China’s membership because it saw the TPPA as the economic equivalent of the military “pivot to Asia” announced by the Obama administration, that is, as a hedge against Chinese economic, diplomatic and military influence in the Western Pacific Rim in what amounts to a new Containment Policy in the Asia-Pacific.

With the US gone, China has an opening and the remaining TPPA members have an opportunity. The TPPA will have to be renegotiated, but it is likely that the non-negotiable provisions insisted by the US will not be supported by the Chinese and can be dropped in the effort to entice their interest. In turn, China might have to accept something less than blanket reductions in uniform tariffs and agree to a tariff reduction regime that is more segmented and scaled in orientation and gradual and incremental in application (i.e. more product or industry specific and phased in over a longer period of time). That is clearly within the realm of possibility, as is Chinese agreement to other TPPA provisions stripped of their US-centric orientation.

China has already signalled its intentions in this regard. President Xi used this year’s Davos Forum to preach the virtues of free trade and global commerce, arguing against protectionism as an impediment to international understanding and exchange. China has proposed the creation of a Regional Comprehensive Economic Partnership (RCEP) along the lines mentioned above with regard to an ACTFA-TPPA merger but with the provision that the US be excluded. There are many details to be ironed out but the groundwork has been laid for that to happen.

What makes the turn to a China-included trade bloc a potentially win-win proposition for remaining TPPA signatories is that the key provisions demanded by the US–changes in market regulations and preferential market entry clauses for US business interests (including changes in patent and copyright protection) and imposition of limited liability clauses in the event US businesses are sued by local governments–were those that were most resisted by domestic audiences in several TPPA member countries. Removing them not only allows the agreement to be free of those constraints but also diffuses a source of domestic opposition in countries where such things matter.

One thing TPPA states should think carefully about, especially small states like New Zealand, is the invitation to negotiate bi-lateral trade deals with the US instead of the TPPA (something just announced by the Trump administration). The historical record shows that large asymmetries in market size favour the larger over the smaller partner in bilateral trade agreements. This is due to economies of scale, market dominance, and economic and geopolitical influence derived from market size advantages. The recent track record of bilateral deals between the US and smaller states reinforces this fact. Australia, South Korea, Chile, Colombia and the Central American nations plus Dominican Republic grouped in the CAFTA scheme all have bilateral FTAs with the US. In all instances the majority benefits accrued to US-based companies and industries and the benefits accrued in the partner states were limited to specific export markets (mostly in primary goods), with little flow-on, trickle down or developmental effects in the broader national economies.

So rather than “jump on a plane” to sign a bilateral deal with the US, as one wag put it, smaller states such as New Zealand need to think hard whether the bilateral alternative with the US is more long-term beneficial than a multilateral agreement, especially when it has shown that under a certain type of administration the US is willing to renege on its commitments even if they are multilateral rather than bilateral in nature. With the Trump administration also set to review and replace the tripartite North American Free Trade Agreement with Canada and Mexico (NAFTA), it is clear that honoring commitments and maintaining continuity in trade policy is not, even if just for the short term, on the US agenda.

When one widens the lens on what the Trump administration is doing in terms of its threats to withdraw from various bi-and multinational defense agreements unless the partner states “pay more” for US protection, it becomes clear that the US is not, at least for now, a reliable international partner.

The reason is that the new US attitude to trade is part of a larger phenomenon. The neo-isolationist protectionism embedded in the “America First” approach adopted by the Trump administration has ended, however temporarily, over 50 years of bipartisan consensus in the US political elite on the merits of international engagement. Be it in trade, foreign aid or collective defense, the US policy elite, both public and private, have embraced globalisation as a means of projecting US power, influence and values world-wide. That era has come to end for the time being, and so long as Trump is successful in pursing his “America First” strategy it will continue to be so.

That may or may not make America Great Again but it could well have a negative impact on those who seek mutual benefit by engaging with it. They will be asked to do more, pay more and offer more concessions in order to be granted US favour.

In the absence of an alternative, that is an unenviable position to be in. But if alternatives are available, then the current moment in US politics provides a window of opportunity to countries that have found themselves marginalised by Trump’s policy directives. The re-orientation of TPPA is one such opportunity because, if for no other reason, a US return to the TPPA fold in the post-Trump era will see it with much less leverage than it had up until now. Add to that the possibility of increased benefits via a renegotiated deal with the remaining and possibly new partners, and the downside of the US withdrawal seems acceptable.

From a smaller nation perspective, that is a good thing.