The horror stories keep coming but – even
so – it is doubtful whether we have yet grasped in New Zealand the scale and seriousness of what is happening in the
global economy, and how greatly we will be affected by it. We know that others
are in deep trouble but we see ourselves so far as transfixed spectators rather than actors (or victims) in the drama.
We may not remain in that comfort zone for long. As the world enters recession, and the markets for our goods are decimated, we will
feel the pain. And, although our financial system seems unscathed for the moment,
the price we will inevitably pay for being one of the world’s most indebted countries is waiting just round the corner. As foreign investors take their money home, and as our banks have to re-negotiate
the credit arrangements on which they rely, stand by for a succession of damaging body blows to the already fragile underpinnings
of our economy.
There is little sign yet that our political and
business leaders have grasped the dreadful vulnerability of our position. The
cool reception given to the thoughtful paper issued last week by Mark Weldon and David Skilling – with Peter Dunne expressing
concern about the impact on the government’s deficit, as though that was the foremost of our worries – shows that
we do not yet recognise the imperatives that have driven governments around the world to take steps that would have been unthinkable
just a couple of months ago.
There is of course room for considerable discussion
about the precise recommendations of the Weldon/Skilling paper. But it does at
least represent the first awareness of the scale of the problem and of the need for new thinking. Even more interestingly, it points the way to a post-meltdown future where the world will (hopefully) never
be the same again.
The paper is notable mainly for its (perhaps unconscious)
willingness to slaughter some sacred cows to which we have been solemnly assured for nearly three decades “there is
no alternative”. Governments must be kept well away from the main
levers of economic policy? No. As
the paper now asserts (and as even George Bush agrees), government action is essential.
Monetary policy is all that matters? No.
The paper says that fiscal policy is now the most important weapon in the armoury.
Bankers should be entrusted with the important decisions in our economy? No. As is apparent to everyone, banks worldwide have failed us and must in many cases
be taken into public ownership. “Free” markets must be left unregulated
and will always produce the best results? No.
The market has failed and created a catastrophe. All that matters is the
bottom line? No. The goals of economic activity are wider than profit for a few.
The truth is, in other words, that if we are to
survive the crisis in reasonable shape, we must now abandon the nostrums that have proved so self-destructive. We need governments to acknowledge their responsibilities, to take a major role in the rescuing of our
economy, to use a much wider range of policy instruments, and to treat markets as hugely valuable servants but dangerous masters.
We should be in a better position than most to recognise
this, since we have given those nostrums a longer and more comprehensive trial than anyone else. While the great super-tankers and luxury liners of the big economies have plied their trade on the great
ocean of the global economy, and amassed large fortunes until they suddenly sprang a leak and began to sink, our tiny craft
has been waterlogged for years. For us, the dogma of the unregulated “free”
market has not led so much to sudden collapse as to long decline.
We now have the chance, if our leaders have the
necessary wit and imagination, not only to change direction in order to escape the worst of the world recession in the short
term, but to set a new course which will produce in the medium term a better balanced economy in a world where markets are
no longer regarded as infallible.
The lesson of this crisis is that unregulated markets
lead to economic disaster and – even more importantly – that they are incompatible with democracy. If markets are always right and must not be challenged, the result is not only economic meltdown but government
by a handful of greedy oligarchs rather than by elected representatives.
The whole point of democracy is that it ensures
that political power will be used to offset the otherwise overwhelming economic power of the big market players. If democratic governments do not, will not or cannot exercise that power to protect their electorates,
the course is then set inevitably not only for the crisis we now face but also for the abuses and failures that disfigured
our economies in the years preceding the crisis.
Shouldn’t our politicians be called to account? Shouldn’t these issues be what our general election is all about?
12 October 2008