The New Zombie economy

Growing unevenly and permanently lagging behind. Is that the Kiwi way? And is the underlying economic model unjust and unsustainable anyway?

Note for readers: Thank you to those who’ve followed, subscribed, pledged paid subscriptions, made comments and/or just enjoyed reading Politics Happens – since January 2023, and, only for the time being, un-pay-walled. Your support has kept this going.

BTW, I was interviewed by Chelsea Daniels about social cohesion and the Covid-19 Inquiry for The NZ Herald’s podcast The Front Page. You can listen to that on iHeart Radio or Apple Podcasts. I cut through some of the received wisdom about “the team of five million” and about handling differences of opinions (from around 9’30” into the episode).

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Is the system “broken”, “rigged”, or “ruining the planet”?

Such angry or despairing comments about politics, government and the economy are heard, for diverse reasons, from the left, right and centre. And when people decry “the system”, they’re referring, more or less, to:

a capitalist market economy regulated and taxed by a representative government for control of which political parties compete in periodic elections while being sniped at by independent media.

If you’re one of those who say that this system really is broken, rigged and/or ruining the planet, then you may be on to something. For a generation now passed, a single “breadwinner” income used to suffice (albeit modestly) to support a nuclear family, whereas now two parents working overtime may well struggle. And humans collectively are consuming natural resources and polluting the planet at rates that are verifiably unsustainable – a looming existential crisis that the world has been warned about since at least 1972 (in the Limits to Growth report) and that most people have resolutely refused to take seriously ever since.

Click here for a five minute video with the UK’s Jo Swinson asking why economies aren’t delivering for people, and what could be done about it.

The people who are least likely to accept that there’s a problem with “the system” are those earning the most and wielding the most power. For instance, when I asked finance minister Nicola Willis (for North & South) whether the current economic model is basically unjust, she batted that ball away: “No,” she said firmly. “What we have is an economy that has boundless potential.”

Why, then, are so many people not enjoying that boundless potential? Is it their own fault?

The institutional means by which a few people gain dominant public voices through media and government are not trusted by most ordinary folk nowadays. See, for instance, the global Edelman trust surveys. And, according to Pew Research, dissatisfaction with “democracy” prevails across developed countries – in part, I argue, because representative systems aren’t really all that democratic. People don’t like what they see happening, and they feel powerless to change it.

Furthermore, Pew Research says that perceived economic conditions correlate with confidence in the political system: “Countries where large shares of the public say the economy is in good shape also tend to have large shares who are satisfied with their democracy.”

It was James Carville, as an adviser to President Bill Clinton, who coined the saying – now a cliché – “It’s the economy, stupid!”

But what if it’s the economy itself that’s stupid?

In real terms, New Zealanders’ economic output has grown significantly on average over the last century. Among the reasons why many Kiwis may not feel like things are getting better, however, is that more people work more hours to achieve a higher standard of living and to meet new social norms – while others are unemployed or underemployed. New technologies save some forms of labour (eliminating doing laundry by hand, for instance), but they also contribute to the pressure to work harder in a more competitive economy. Kids never used to demand expensive smartphones – because the latter didn’t exist. Those kinds of stresses are also experienced, however, by working- and middle-class Americans, in a much richer economy.

Inequality

Another reason why many people haven’t enjoyed the benefits of a growing economy is that the proceeds are unevenly distributed. The gap between New Zealand’s rich and poor, especially income inequality, rose rapidly in the late 80s and early 90s. This has been exacerbated by the rate of home ownership declining from a high of 73.8 percent in 1991 to 64.5 in 2018 – although there was a slight uptick in 2023 to 66 percent.

Recent data from the Treasury suggest that income inequality has declined a bit lately – which may surprise some readers. And Stats NZ reported in 2022 that “the top 10 percent of New Zealand households continues to hold approximately 50 percent of New Zealand’s total household net worth – as they did in 2015”.

Inequality isn’t as high in NZ as in some other developed countries, but it’s well above the “least unequal” of the world’s rich OECD members. As Colin Campbell-Hunt has shown, the New Zealand government could do more to reduce inequality, given the examples set by others.

Recent economic news isn’t all bad though: inflation came back down to 2.5 percent and Westpac predicts 2.7 percent growth this year, which should come as a welcome break for the Luxon government.

Getting back to the above graph, however, if we take Denmark as a fine example of a relatively egalitarian and prosperous country, similar to New Zealand in size, or if we compare with Australia, we see an underlying problem:

The NZ economy has been lagging behind for half a century.

Following the global oil shock and recession of the early 70s, NZ fell out of step and never caught up again. It suffered from nine years of Muldoon (1975–84) and then twelve years of disruptive deregulation, privatisation and downsizing (aka neoliberal reforms).

New Zealand could be permanently falling behind now, as Uruguay and Argentina did from the early twentieth century. It would be unrealistic to expect NZ to sprint ahead from behind in the way that Singapore has done, but at present there is no politically serious aspiration or plan to get NZ back into the race. And hence it probably won’t. National’s 2023 election slogan (“Back on track”) was hardly aiming high.

Whether it’s National or Labour in charge, they’ve been running a New Zombie economy, limping along mindlessly with a chronic productivity problem, comparable arguably with Mexico, Greece or Portugal.

Kiwis debate back and forth over taxes, transfers, wages, prices and interest rates – when they take a break from arguing over what happened in 1840. Public services seem always to be under-funded, inaccessible and unaffordable, and infrastructure isn’t up to the task, as if this were an age of acute scarcity. There’s little progress and not enough opportunity, and so a net migration loss across the Tasman of 30,000 people last year is one unfortunate result.

The present government is aiming to reduce barriers to foreign direct investment. New Zealand also needs more investment in research and development, and the government has shifted the Marsden Fund away from humanities and social sciences (regrettably for some academics) and towards areas that it deems to have greater economic impact.

A Treasury paper says, however: “It is not clear that New Zealand businesses have the managerial capability to leverage the benefits from recent technologies, with some evidence to suggest that managerial capability is lower than in other OECD countries” (see page 22). So pull your socks up, management!

Those who are ecologically and socially minded, on the other hand, may want to interject, saying that GDP doesn’t measure genuine wellbeing, and that other human and environmental factors need to be taken into account. To address that, I wrote a piece on the Green Growth/De-Growth debate for North & South in 2023, a draft of which I’ve updated and copied below.

Or click here for a six minute video of researcher Maja Göpel making a case for an economic model focussed on ecological resilience, social justice and wellbeing.

And yet it could get worse

A minority investing in second-hand houses while enjoying Mr Luxon’s promised tax-breaks won’t pull the country out of its Zombie mindset of actively supporting poorly performing indebted businesses that lack long-term viability. Indeed, enthusiasm for landlording is a big part of the problem.

Looking at the Auckland CBD towers, the “big business” brands with the naming rights are almost all in banking, insurance and gambling – all punting on other people’s money. And, in case you’d forgotten, the house always wins.

The new-wave AI economy will further fleece New Zealanders through fees and subscriptions to big tech companies mainly based in California, such as Uber, Netflix and Google, plus giants we probably haven’t heard of yet. Facebook and Google have siphoned advertising revenues away from the NZ media industry, causing closures of whole news outlets and loss of hundreds of jobs.

In return, the good stuff that the rest of the world may want to buy from NZ could be reduced to tinier niches. Protein-rich foods and fruit and vegetables will be produced closer to the places where the consumers live. Advanced AI (with vertical urban-based horticulture and lab-grown proteins) could reduce demand for NZ’s prime exports such as grass-fed beef. Rural land could then decline in price and, in a worst-case scenario, bankrupted farmers would walk away. Maybe, in their stead, native forests would regenerate!

That wasn’t meant as a prediction. It’s just a reminder that this small trading nation needs to think hard about how it earns a living in future. There won’t be one way to do that, the answers won’t come from government departments, nor from charismatic political leaders. And it’s unrealistic to expect political consensus about anything, let alone the formation of “a team of five million”, in the era of X and Tik Tok.

Do they know where they’re going?

The NZ government has finally released an AI strategy document. Their vision for NZ is about adoption of AI, rather than first-mover innovation for which NZ lacks the capital, scale and expertise. That’s realistic enough, but it’s essential to get on top of this AI wave, rather than lag further behind. People would use AI for greater productivity, it’s hoped, rather than see it only as a path to redundancy. The government wants to ensure a stable regulatory environment for business to use AI, and to reduce barriers. They mention problems such as copyright infringement by large language models, and the need for human supervision of AI in administrative processes. (Note: I use AI at times for background research, but the text you’re reading is my own messy invention.)

The coalition government doesn’t want to regulate AI, apparently assuming that current legal protections should largely suffice. But there are known risks arising from it, let alone as-yet unknown ones, and it may actually be helpful for businesses and for consumers to have greater confidence that there are guardrails and legal remedies around misuse of AI. Because machine learning is akin to a black box, an AI-generated “decision” isn’t accountable, even if it blocks someone’s employment or their access to finance. (For more on this, read the article by Andrew Lensen.)

A “broken” system of government hasn’t been able to fix chronic social and economic problems – and so its efforts to prepare for the future may not be very effective either. The AI Strategy document shows some good examples of businesses adopting AI, but there’s not a lot of substance in it. More thought needs to go into the ways in which AI will transform public administration – hopefully for the better, so that we don’t end up in a total surveillance state.

And anyway, how does an already broken system of government fix itself? It can be done. But history teaches us to be cautious. Rash or violent change can lead to something as bad as, or worse than, what people were enduring before.

Yes, there is a systemic problem – or an inextricable tangle of political, social, environmental and economic problems. But there’s no political consensus about how to define the problems, let alone how to solve them. Political parties make proposals to get us out of this mess, only to be contested by opponents who aren’t interested in any meeting of minds. Plenty of experts and academics, moreover, write books about “what we should do” (often forgetting to specify who “we” are), but they’re read, I suspect, mainly by those who are mentally prepared to agree with them.

It’s most improbable that political leaders will get a whole society to agree on one set of values and priorities. But what unites many people across the political spectrum, according to a report by the Tony Blair Institute, is concern about the cost of living and “a growing belief that economic progress for them and their children is unlikely”. Hence they’re seeking “honesty, competence and effective reform”.

Following our formative “impressionable” years – when our core political beliefs develop – opinions tend to stabilise, but they can change, as gradual or sudden changes occur around us (Neundorf & Smets, 2015). For example, opinion has shifted across the board in favour of (or at least accepting of) same-sex marriage. The last decade, however, has seen a combination of disruptive changes (such as new media, populism, pandemic) accompanied by political polarisation. Gender transition has emerged as a highly divisive issue.

The political climate has changed – getting stormier. Impulsive, norm-breaking leadership styles have proven to be electorally successful in some cases, notably Trump – but certainly not in all cases: let’s not forget the thrashing that Dutton received from Albanese. And, in any case, commerce thrives more on economic stability and predictable regulation, so “disruption” isn’t all it’s cracked up to be.

New Zealand’s economy is recovering from Covid-19, but, if the past is anything to go by, mediocrity will probably prevail. If readers know better than I how to navigate through this rough weather, they’re welcome to leave a comment.

If anyone’s asking “What’s your solution?” then the answer is: “I’m working on it”.

PS: The Green Growth vs De-Growth Debate

Perhaps the biggest issue now facing all governments is how to balance ecological sustainability and economic security.

There’s been an unhealthy relationship between states and the fossil fuel industry, a lot of which is owned by states. States gain revenues from fossil fuel production and consumption, and they subsidise the industry to keep prices low. Globally, fossil fuel subsidies outweigh those for renewable energy. So governments may look more like a part of the problem of global warming than a source of the solutions. But woe betide the government that lets fuel prices rise, even if it’s to reduce carbon emissions, as that can lead to protest and to electoral defeat.

Governments, including New Zealand’s, are addicted to economic growth for fiscal reasons, despite any shift of focus towards wellbeing. That’s highlighted by the negative press that even the recent shallow recession has caused.

But many people are now arguing for radical change in economic thinking. A shift from economic efficiency and growth to human sufficiency and wellbeing is needed, it’s argued, along with a more just distribution of wealth. The wealthy can cut their consumption and enjoy better wellbeing. They’d have to go without super-yachts, but they’d be happier, it’s argued. They’d reduce their anxiety about gaining things no one really needs, and collectively we could reduce the inequality that causes social unrest.

We must stop ruining the planet and learn to live a better quality of life, in reciprocity with our environments, with other species and with one another – the rich with less unnecessary stuff and the poor with a fair share of essentials. If we don’t make these changes, it’s said, then radical change will be forced on us anyway by natural disasters.

There are two main alternative ‘green’ economic models.

The Green New Deal relies on new investment in energy efficiency and clean renewables. The renewables industry is innovative and creates employment, and the state would support workers and communities affected by downsizing in fossil fuels. But it requires overcoming powerful vested interests.

Renewables present opportunities for investors, however, and innovation could boost economic growth while reducing carbon emissions. We’d get more economic goods for less environmental bads, or green growth, by ‘decoupling’ growth from its ecological impacts. We’d use less energy and other resources per unit of economic output, while cleaner energy sources would emit less pollution.

The ambitious aim is ‘absolute decoupling’: using less of the planet’s limited natural resources while improving wellbeing for all.

Critics of ‘green growth’ argue, however, that decoupling isn’t going to happen. Cleaner technologies may generate more goods without carbon emissions, but may also lead to increased consumption of other natural resources. Carbon emissions aren’t our only ecological problem. And new technologies such as nuclear fission could be used to extract resources and ruin the ecosystem more efficiently.

The more radical model is degrowth: abandoning economic growth and reducing material and energy usage to levels that balance with the planet’s capacities to supply resources and absorb waste and pollution. We should forget about economic growth altogether and think of wellbeing, or thriving, as ‘renegade economist’ Kate Raworth puts it, within the limits that the planet can sustain.

Many degrowth theorists call for participatory democracy through people’s assemblies and referendums. They want to dismantle state hierarchies and return control of resources to the people. They would redirect industry and reduce consumption to meet basic human needs.

This assumes people would democratically choose this pathway. But would the wealthy and those who aspire to wealth happily agree to curtail their lifestyles and ambitions? Or would a degrowth policy need to be imposed by a dictator? Degrowth calls for a stronger state to reduce inequality and eradicate poverty. But how would states address poverty when economies and budgets are cut? Moreover, degrowth needs a global commitment, but it can’t guarantee that the necessary international agreement would work. Some states would evade the regulations and take advantage of their competitors’ self-imposed penury.

The global bonanza produced by burning oil, gas and coal has enabled exponential population growth and higher living standards, but the results are socially unjust and harming the planet’s ecosystems. More people consuming more resources per person isn’t viable if we want to avoid further ecological disasters. But present policy-making is premised on – if not addicted to – unsustainable growth. Degrowth doesn’t look achievable, however, as an alternative, and it may exacerbate global poverty rather than achieve just distribution of wealth. Green growth may be less unpalatable but, unless it can achieve decoupling, it may be promising too little too late.

Updated draft for August 2023 issue of North & South.