Bryan Gould

Bryan Gould, CNZM, writes an occasional column on current events

Bryan Gould: Plight of jobless makes us all poorer

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Change of tack needed to stimulate the economy.

Without changes in employment policy, we face the prospect of national decline. Photo / Thinkstock
Without changes in employment policy, we face the prospect of national decline. Photo / Thinkstock

Last Thursday's jobless figures - the worst in 13 years - show that the four years since the global financial crisis plunged the world into recession have seen New Zealand unemployment get worse, not better.

And, as is always the case in a recession, the official figures inevitably understate the numbers of those seeking work. In a more buoyant economy, improved employment prospects would bring many of those resigned to being out of work back into the jobs market.

In the wake of the grim news about factory closures and lay-offs over recent months, the figures were only to be expected. Indeed, the warnings about a crisis in manufacturing have been coming thick and fast, and from all quarters.

There was, though, one person, it seems, who was blindsided by the bad news. The Prime Minister, we were told by the television news, was "taken by surprise".

The only explanation for this is that John Key has paid little attention to the unemployment issue over the past four years, despite its destructive impact both on individuals and their families, and on society as a whole.

Over that period, I and others have warned that the policies being followed would inevitably see unemployment rise. This was consistent with the low priority given by the Government to the problem - apart from an ineffectual "Jobs Summit" in the Government's opening months, unemployment has been left to look after itself. But that neglect has been anything other than benign. The Government has deliberately put in place policies to restrict benefits and cut their value, and to slash wages at the bottom end of the scale, so as to force those without work back into a non-existent jobs market.

The object has been to make people compete for the few low-paid jobs available by offering to work for lower and lower wages, so that there is downward pressure on the whole wages structure. There, in a nutshell, is the Government's strategy for dealing with unemployment - don't bother about creating more jobs by getting the economy moving again, but force down wages in the hope that people will price themselves back into work.

Even if this strategy were to work in its own limited terms, lower wages would mean less purchasing power and lower demand. How would this help to get the economy moving?

The Government has reinforced its strategy by cutting public spending and throwing public servants out of work, adding to the competition for the dwindling number of jobs. This leaves the obvious question - where is the increased demand needed to create more jobs to come from if the Government, instead of stimulating economic activity, contributes to closing the economy down?

Are they unaware that the International Monetary Fund, taking fright at last at what austerity is doing in Europe, has published a new assessment of the powerful multiplier effect of cuts in government spending on the level of economic activity? Even the Government's supposed central goal - eliminating its deficit by 2014/15 - is made much more difficult if high unemployment and a flat economy generate an equally flat tax revenue.

What is really depressing, however, about our plight is that even if by some miracle the economy were to get moving again, we would have done nothing to re-balance the economy towards saving, investment and exports and away from consumption and imports.

We are about to start another familiar and vicious circle - an overheated Auckland domestic property market, fuelled by unrestrained lending by banks whose sole concern is easy profits, leading to higher interest rates, producing an overvalued exchange rate that prices our production out of international markets and cuts our margins, so we are forced to borrow more from overseas and sell our remaining assets to foreign owners. Little wonder that those fortunate enough to have money to spare see domestic housing as the only sensible investment and making and selling things into international markets as a game for mugs.

The chances of breaking out of this destructive cycle seem slimmer than ever. The new Governor of the Reserve Bank has wasted no time in abjuring the hints of greater flexibility issued by his predecessor and instead has nailed his colours to the mast of an orthodoxy that has been doing its destructive worst for three decades. We see not a scintilla of new thinking from either the Government or the Reserve Bank; surprisingly the only hint of the need for a new approach now comes from the Treasury.

Planet Key is apparently a sunlit place of leisure and fun. The real world, at least the part of it for which John Key has some responsibility, is a much harsher place. The plight of the unemployed makes us all poorer.

Without changes in policy, we face the grim prospect of national decline, despite the advantages we enjoy of political stability, an educated workforce, a supportive context in which to do business, and access to growing markets for the premium products we are uniquely expert at producing. Sadly, that is all outweighed by the mistakes our leaders are determined to go on making.


Bryan Gould, former vice-chancellor of Waikato University, was previously a British Labour MP.

- NZ Herald

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