The price of milk. Given the mono-cultural nature of their activity, New Zealand dairy farmers may well have thought that they had no chickens to come home to roost – unfortunately for them, it is their government that has been poultry farming and whose chickens will soon be finding perches distributed across the New Zealand economy. With the global glut of dairy products resulting in a rapid fall in the pay out on milk solids from $8.40kg in 2013-14 to $3.85kg in 2015-16, all New Zealand dairy farmers will make a substantial loss this coming year.
And other ventures. I arrived in New Zealand in 1985. This was the time of the rush into angora goats, nectarines and nashi pears, to be followed by emus and ostriches, alpacas and other such innovative ventures. All were brought to market before the markets for them existed and their advocates were duly crushed when those markets failed to materialise. To a newcomer to the commodity production game, it seemed as though whenever someone caught a fish on one side of the boat, the whole fishing expedition would rush to that side and in so doing, cause the whole boat to almost capsize.
However and fortunately, not all new sectors failed. Wine, Kiwi fruit, mussel farming and dairy are (or, in the case of dairy, were) still in success mode. How long this will remain so is a point of conjecture. Bertold Brecht had a famous quote in one of his plays “The one who is laughing, is the only one who hasn’t yet heard the bad news.”
The pace of change. When I first went into business in England in 1974, my bank manager demanded a business plan for the next ten years. Last week, I attended a business seminar organised by the Bank of New Zealand and was told that any entrepreneur or CEO, who tries to make a business plan reaching out beyond the next three years, is wasting his time. The speed of economic and technical change is now so fast that forecasting the future in business is well-nigh impossible. Survival is a matter of luck and keeping open as many options as possible. Building a business based on long term investment in a single commodity, would seem to be at the riskier end of the scale – ask the Americans who invested in their recent fracking bonanza! Click: Fracking woes.
In the past week, the CEO of Landcorp, a New Zealand state owned enterprise tasked with managing the nation’s rural real estate, was interviewed on TV News. Apparently, oblivious to the pace of change (or of the contribution to that change that will be made by large-scale replacement of carbon-sink trees with methane-factory cows) he proudly announced his organisation’s forward thinking. Landcorp is basing its decision to destroy thousands of hectares of forest and replace them with dairy farms on the basis of a forty-year plan! Click: Landcorp conversions.
Currently operating 140 farms with over 800,000 dairy cows (which, at today’s prices, are each making a loss) the government-owned juggernaut drives forward in the confident belief that the global market’s price for milk solids will have improved by 2065. Given the likelihood that, several decades before then, Landcorp’s cows will have all died from the heat exhaustion they had helped generate, this might not be such a silly forecast as it might appear at first sight.
Export/Import ‘balance.’ The New Zealand economy, with 97% of all businesses having less than twenty employees and being classified as ‘Small and Medium Enterprises,” is overwhelmingly based on SMEs; Click: SME statistics. In New Zealand, these businesses are typically undercapitalised, heavily leveraged, have an unsurprisingly high attrition rate and have to adapt themselves as best they can to a depressingly small domestic market.
Given the restricted size of the market, manufacturers find it hard to base their growth on economies of scale. Unprotected by tariffs, their margins are continuously eroded by imported goods produced by companies with enormous domestic markets and benefiting from matching economies of scale. Consequently, the New Zealand economy has come to rely on the import of goods and services, paid for through the export of commodities and the import of tourists. The top three commodity exports, meat, dairy and timber, accounted for over $25 billion of the total of $51 billion in exports in 2014. Tourism brought in an additional $10 billion. (Tourism, though now booming, is perhaps a twilight industry. Other than for the 1% or so of the global population, who are extremely wealthy, given its remote location and the number of air-miles involved, New Zealand’s tourist industry is likely to become increasingly vulnerable as the rest of the world adopts concrete measures to counter rapid climate change.)
Reliance on an economy skewed towards commodities, as the dairy farmers are now learning, (as too, the owners of its exotic forests Click: Forest report. ) leaves New Zealand standing naked in the global slave market, incredibly exposed as a taker of whatever price is on offer. Reliance, such as New Zealand’s, for the retention of a position among the world’s advanced economies on the export of commodities, is not a sustainable position to occupy. New Zealanders have been shockingly let down by successive governments, which, over the past thirty or so years, have chosen the free trade and unfettered financial market ideology of the neo-liberal school of economics over common sense. Click: Neo-liberalism
Economic ideology. It stands to reason that an economic ideology, which has sprung from the major economies, which earn much of their living from the exploitation of weaker economies, is designed to better fit the predator than its prey. Opting to abandon all trade and financial protection and to make the New Zealand market-place the level playing field onto which all those economies occupying the surrounding high ground could roll their boulders, does, in retrospect, look like an act of foolish naiveté.
So desperate has the current New Zealand government become, that it is now reduced to paying bribes to Saudi Arabia to buy NZ sheep Click: The Last Roast. and to falsifying export documents to classify the forty-metre trunks of ten thousand year-old kauri trees, mined from a wetlands at enormous environmental cost, as mere ‘stumps.’ Click: Kauri export. What a shame New Zealand’s leaders haven’t yet worked out how to commodify grandmothers!
Turning turtle. One has only to look at the recent examples of Greece and the Ukraine to see how the system works. A poor country is misguided enough to accumulate too much debt. The financial institutions of the rich countries insist on the selling off of the indebted nation’s state assets to private investors. Once the unfortunate turtle is on its back, a feeding frenzy follows. Orchestrated by the Goldman Sachs old-boys’ club and their ilk, Click: Goldman Sachs influence. those two unhappy countries will now become totally impoverished and will find that the bootlaces of productive capacity, by which they might have been able to pull themselves up and redeem their situation, have been cut up and sold off on Wall Street. The only difference that I can see between Greece and the Ukraine, on the one hand, and New Zealand on the other, is that New Zealand has not waited to be pressured, but has appointed a former Wall Street hatchet man as comprador Prime Minister, to voluntarily open the gates of its fragile democracy to the slavering hordes of looters and pillagers gathered outside the walls.
This is the slippery slope on which New Zealand now finds itself. To sell its commodities in order to keep afloat, it pursues free trade agreements. Capital flows are an essential aspect of such agreements. The Neo-liberal priesthood argue that there should be no controls on foreign purchases of New Zealand assets. Not only have New Zealand governments gone out of their way to make state-owned utilities, infrastructure, banks and other financial institutions (and even its prisons) available for overseas ownership, they have also opened up to foreign ownership the production of the commodities on which the economy has come to depend. Of course it is a two way trade, New Zealanders can buy assets in for instance, the USA, as easily as the USA can buy assets in New Zealand. However, the winner of this Monopoly game will of be whichever party entered the game with the most purchasing power – and the loser, whichever had the least!
A significant proportion of New Zealand’s aquaculture, forestry, mining , and viticulture production capacity has already passed into foreign ownership. (Marlborough has NZ’s largest area under vines and has the same pattern of foreign ownership as the rest of the country, with over 70% of all New Zealand wine being produced under offshore ownership.) Click: Marlborough Wines. The capital to purchase and operate these facilities comes from overseas, while the interest payments and the profits are repatriated overseas.
However, the true situation is far worse than that. Let us look at the dairy industry as an example of what can happen right across the board when productive capacity passes from the hands of those whose family and livelihoods are entirely bound up in the well-being of New Zealand and into the hands of individuals and institutions offshore.
NZ Dairy Industry. The New Zealand dairy industry discovers a seemingly lucrative and inexhaustible market offshore for a simple product – dried milk powder. The more it makes, the more it feels it can sell. The government sees 8% of the nation’s GDP and more than 30% of its export earnings coming from this one source and encourages Fonterra, a farmers’ cooperative that dominates the processing sector, to expand its production to the maximum amount that New Zealand’s top soil can sustain. Click: NZ Dairy.
The main market is China. So as not to offend its esteemed customers, at their request, the NZ government allows Chinese based buyers to come into New Zealand, buy dairy farms and establish their own processing plants to compete with Fonterra. Click: Synlait. This movement, up till now, has been on a modest scale. However, as the new Chinese companies have better access to the Chinese market than any New Zealand company selling identical commodities could hope for, it may not be long before the Chinese owned milk powder producers are able to out-compete the New Zealanders and, given the extremely light regulatory environment ordained by neo-liberal orthodoxy, a trickle of foreign purchases of NZ dairy farms becomes an unregulated flood.
I am not for a second arguing that what follows was a cunningly calculated piece of Chinese chicanery. It was in fact, a series of market fluctuations of the kind to which far too lightly regulated neo-liberal economics are particularly prone. The world had a diary product bubble. Two years ago the New Zealand Dairy farmer was getting $8.40 or so for a kilo of milk solids: this year’s pay-out by Fonterra will see a drop of 54%. With the average farmer’s break-even hovering around $5.70, the huge profit margin of previous years encouraged farmers to over extend themselves; to take on more debt and expand production. No doubt the market will recover, at least to a certain extent, but who in the right mind would gamble on long term commitment of large sums of capital to a market that has demonstrated its potential for such extreme volatility?
Now, those who over-extended and have no diversification in a business that is solely reliant on Fonterra’s ability to sell milk solids, may well be forced to sell their farms. No doubt, many of such sales will go to Chinese buyers who can make more money out of New Zealand produced milk powder than can New Zealanders. New Zealand residents will receive wages, while the profits of their labours will be expatriated.
NZ forestry. In the case of the dairy industry, New Zealand is fairly fortunate in that milk’s high water content ensures that at least the basic process of drying has to be carried out and serviced by New Zealanders, who are thereby gainfully employed. On the other hand, the forestry industry, is even more vulnerable. New Zealand’s raw logs are largely exported for processing overseas. The local growers have no significant productive capacity available for on-processing and so are forced to export unprocessed logs. As the New Zealanders were unable to accumulate profit, forest owners sold out to foreign interests, who had access to the processing facilities and the markets for timber products. The foreign owners were then able to manipulate the going price of New Zealand logs to ensure the majority of the profits in the production chain went offshore. The remaining New Zealand owners therefore, unable to set the price, make even less money and could more easily be induced to sell out their forest interests to offshore competitors. Click: NZ Forest owners. The first two companies listed remain in New Zealand ownership, then follows: Rayonier Deutsche (German owned) Hancock (Canadian owned) Earnshaw (Malaysian owned) Weyerhaeuser (Canadian owned) Juken (Japanese owned.) I didn’t bother to search further down the list.
I’ll give two further examples of the ugly plants that line the garden path down which New Zealanders are being led by the governments they elect. At the end of my road in rural Marlborough, a farmer, whose family had been farming the land since the first settler days, came to retire and sell his property. His lifelong hobby, had been to plant a selection of walnut trees, collected from across New Zealand, in order to see which cultivar was best suited to local growing conditions. Walnut trees are slow growing. His findings were more likely to have provided a commercial benefit to his grandchildren than to himself. The plantation occupied about two or so acres of land. The farm was bought by an overseas wine conglomerate, which immediately bulldozed the trees and planted vines. A lifetimes’ research and with it the possibility for future diversification, were lost overnight. Marlborough is short of walnut trees but is not short of grape vines.
In yesterday’s issue of the Marlborough Express, the front page was occupied by an article on Forestry. Currently, each district council is responsible for the enforcement of the Resource Management Act (RMA) a leading piece of New Zealand legislation designed to protect the environment. New Zealand has a wide variety of different soils, topography and climatic conditions. From the principle of subsidiarity, it would certainly follow that local councils have a far greater awareness of regional variations than does central government. “The Ministry of Primary Industry wants to roll out a National environmental Standard for plantation forestry that will replace each Council’s district plan on how they manage forestry. The Government says it will reduce “unwarranted variations” that forestry companies faced between district plans across the country.” Marlborough has several uniquely vulnerable environments. For the corporate depredations to be allowed to go ahead on the central government’s say-so, without any form of local input into the use of natural resources consenting process, will not only provoke environmental disasters but will also testify to the hold that large and often foreign owned corporations have over New Zealand’s National Party government. We are back to commodifying grandmothers!
Getting the government the voters deserve. They say electorates deserve the governments they get. If the intent of legislation is continuously concealed from them, if they are deliberately lied to or misled, it is not the public that is to blame, but the politicians, who hold democracy in contempt. Over time, bad political decisions accumulate and leave room for even worse decisions to be made with impunity by the leadership elites that follow. These in turn, become ever more contemptuous and ignoring of those who either protest in vain, or silently let them get away with it.
Prophets of doomed profits. Actually, the situation in which New Zealanders now find themselves is far worse than it appears on the surface. The Global Financial Crisis (GFC) of 2008, was brought on by the unregulated activities of the USA’s financial institutions and ignorant politicians’ blind adherence to neo-liberal theories designed to let loose the dogs of unrestrained laissez-faire capitalism. After the GFC broke to widespread global panic, there was a window of several months in which the big financial institutions were begging the US government to bail them out. There was a fleeting moment of opportunity to actually regulate their activities. That opportunity was not taken.
Now, the Goldman Sachs of this world are once again in the saddle – and unsurprisingly, the world is headed for another GFC – this time probably with bells on. Click: Doug Casey. At the moment, the blogosphere is unusually full of the prognostications of such merchants of gloom. I quote this particular one, as I know him, having once had him and his then current girl-friend as my guests at a Marlborough Wine Festival several years ago. Not necessarily a loveable person, but certainly one very well aware as to how best to make Jack OK. Exposed as it is, NZ will suffer enormously should there be a repeat of the GFC.
I have heard it said by political commentators in the NZ media that the National Party would welcome another such global financial disaster, as it would so terrify the electorate that they would vote back into power a party led by a man of ‘demonstrated financial expertise,’ rather than risk going with an unknown leader. Sadly, they could be right in their low estimation of the NZ electorate’s level of political awareness. New Zealanders need to be alerted to the fact that John Key’s particular variety of economic ‘expertise,’ combined with his political ideology (best revealed in his role as future ACT leader, Don Brash’s running-mate in the 2005 election and as exposed in Nicky Hager’s ‘The Hollow Men”) is precisely what will have made the country so extremely vulnerable to any such repeat of the last financial crisis. Should such disaster occur, there would be no one more inclined to reinforce it than NZ’s current leadership.
FIRE (Finance, Insurance, Real Estate.) I have just started reading ‘Fire’ by Jane Kelsey, Professor of Law at Auckland University. Click: FIRE. In this book, Jane deals with the question of the flaws and risks inherent in New Zealand’s present economy, in far greater detail and from a position of far greater learning, than anything I could aspire to. As I am not yet half way through the book I still don’t know the extent to which her views and mine will overlap. However, from my reading so far, I would think that we are both agreed on one thing and that is that the ‘TINA’ (There Is No Alternative’) so frequently proffered by NZ politicians as either excuse, or marching-tune, is either unnecessarily defeatist or deliberately deceitful.
There is no denying that New Zealand has now got itself up an alley lined with debt, which has already grown too tight for a quick Uey. Instead our government must first slow down on its current direction. Then stop, and while trying not to draw too much attention to itself from the other global practitioners of neo-liberalism, gently start to reverse out of the cul-de-sac it has entered.
Action? I am a lay person with no claim to an expertise in economics. However, I have been responsible for sundry business start-ups, which between them have experienced just about every set-back that a small business can encounter. (The two main ventures, being SLS established in England in 1974 and still going strong https://www.slsyork.co.uk/ – and currently, The Prenzel Distilling Company, which started in a Marlborough garage in 1989 https://prenzel.com/ and is still trading, despite repeated sledgehammer blows from uninformed and misdirected government legislation.)
From my reading of the situation, the country, after years of misdirection, is facing a crisis that could become existential. Successive governments, fixated on neo-liberal theory, have been progressively abandoning their responsibilities to their electorate by privatising the state’s duties to society. Civil servants, who were answerable to the nation, have been replaced with contracts to private consultants and commercial public-private ‘partnerships,’ in which privacy clauses ensure that the public is kept out of the picture and so can bring no opinion to bear.
Diverting public attention into a shopping expedition for a new national flag, or drumming up patriotic enthusiasm through remembrance of those killed in past wars, may temporarily deflect the heat of public dissatisfaction away from its political leadership, but does nothing to resolve the dire problem the nation now faces.
The most urgent need is to not sign the TPP, nor enter into any additional sovereignty limiting agreements, which further restrict the nation’s room for manoeuvre. Furthermore, NZ should not sell off any more of its means of primary production into overseas control. New Zealand, and other countries in like situation, needs to take time out from the melee of daily political argument and find time for some tranquil reflection. The nation would be well served by a working group/think tank consisting of academics, business and social leaders, independent of any government or political party affiliation. This should be tasked to analyse the present situation and suggest possible strategies to extricate New Zealand from its strait.
Among the alternatives to be considered, would be diversification away from investment in both the extraction of ever increasing quantities of commodities and away from sterile financial shuffling. Policies could be devised to encourage increased foreign earnings through innovative manufacturing and a certain safety net of autarchy through relearning the skills involved and the manufacture of basic goods. Laissez-faire,’ let the market take its natural course,’ political leadership will not do the job. The government needs to actively encourage science at universities, spend money on such measures as paying small innovative companies the cost of registering their patents and seek out ways of rewarding New Zealanders, who invest their time and money in manufacturing in this country. The NZ superannuation fund needs to be brought home to invest in New Zealand industry, rather than in the manufacture of chemical weapons in Israel! Imaginative measures need to be taken to discourage the investment in housing and instead, to divert New Zealanders savings into productive manufacturing that ultimately will provide the profits for investment in housing – etc., etc. There is no shortage of alternative policies to the one currently being followed with Cyclopean zeal.
More important than any of the above, is the need to awaken the New Zealand public to the jeopardy they are now in and to prepare them for what might well soon appear to be a war economy with the commensurate sacrifices, communal solidarity and individual belt tightening that that may involve. Almost certainly, if no precautionary measures are taken and no matter what politicians seeking re-election might say; she’ll not be right.
Not only does neo-liberalism adversely affect New Zealand and the other smaller economies and nations it is in the process of devouring, it also is coming back to bite its instigators Click: Mello on Neo-liberalism.
Here is an argument that market worship and its separation from other ethical codes is responsible for the rapid rise in fundamentalism among the followers of other religions. If the post neo-liberal society, which will surely come about, is going to consist of something other than different schools of warring religious fanatics, more thought and consequent action needs to go into the provision of a just global society. If there is one thing that humans, as advanced social animals, cannot long abide, it is perceived injustice – such as that which the neo-liberal societies of the western world are manufacturing on a massive scale. The three Rs: we have increasing Realisation: we have increasing Revulsion: we now need a carefully determined and vigorously implemented Reaction. Click: Death of ethics.
And could the UK be one of the first to move towards the post-neo-liberal society? Click: UK’s Corbyn challenge.