Massey University Albany takes on the New Economy

The following is the text of a speech given (on 22 July) at a forum hosted by the School of Social and Cultural Studies on the topic of Albany's designation as the university's centre for innovation and the new economy.


Just as Massey University launched its glossy new strategic plan, and locked its Albany franchise into a brave new ‘new economy’ re-branding, the real (or the unreal) economy became a train-wreck in the worst Crash ever – or, to be more precise, the worst since the close of World War II. Was this just bad timing? Or, more helpfully, what could possibly be meant, in July 2009, by that now-ironic phrase ‘new economy’?

The fact is that no-one can really imagine what ‘the new economy’ will look like after the full implications of the present catastrophe have played out. The Crash was previously unimaginable, and so its consequences remain unimaginable. Despite the focus on ‘toxic debt’ composed largely of so-called ‘sub-prime’ mortgages in the US, there is not yet even full agreement on the underlying causes of the Recession (with capital R). Neither is there yet any certainty about whether the worst effects of the catastrophe are behind us. We don’t know yet if the Recession has bottomed out. Worse still, we don’t know yet if the widely predicted Recovery (let’s use another capital R) will come, or when it will come, or what the world will look like when and if it does come. It could turn out that, today, to expect a Recovery based on the past’s business-as-usual assumptions is the darkest form of narcissistic disavowal since Neville Chamberlain said ‘peace for our time’. But I’m not making any predictions.

Let’s recall instead some past predictions about ‘new economies’ – because new economies come and new economies go. In the heady days of supply-side economics, ushered in under Reagan and Thatcher in the 1980s, the present catastrophe and the subsequent public-policy responses were unthinkable. Instead, New Zealand was to be a financially liberalized ‘Switzerland of the South Pacific’, doing trades while Wall St and the City of London were asleep, and populated by self-reliant market-players saving for their own retirements. In the even headier days of third-way knowledge-economy discourse, the present catastrophe and the new economic-policy emergency responses were equally unthinkable. New Zealand’s economic productivity boom was to be fuelled by educated brains and innovative software, not milk. And universities were to be ‘key players’ in all that. Remember those days? They weren’t that long ago.

Instead, what do we see now? New Zealand is now high on the world’s sick-list of debtor nations, not far behind bankrupted Iceland, and probably in the top half of the OECD on the current-account deficit league-table. We’ve been copying our American cousins: living beyond our means, and relying on Asian savers. The only problem is that, even while things may have been disastrous in the US, New Zealand doesn’t have anything like the US’s productive potential, nor the hegemonic power of the US dollar, to back up its unsustainable lifestyle habits.

The new economy will be one that will have to live with the consequences of an underlying imbalance between excess Asian capital and the environmentally and economically unsustainable western (especially American) consumer life-styles that it supported. The pay-off for Americans – and, from the crumbs off the table, for New Zealanders too – has been the enjoyment of cheap throw-away products that emerge from Chinese factories with Dickensian working conditions. (For further reading on this imbalance, see the article by Skidelsky.) Wearing cheap T-shirts made in China, each one of which requires at least 500 litres of water to produce, we can blob out in front of the TV and wish for the brands that we cannot afford, imagining an out-of-reach form of happiness. Once that T-shirt fades, just throw it away and buy another. The next morning, go back to the office, wearing suits made in China, to foreclose some more mortgages or to sell some more insurance policies.

Looking to Obama (he who can do no wrong) and the policy responses of the leaders of the free world, what can we now expect? Traditional Madisonian economic liberties, supposedly protected by the US Constitution, have been suspended while the Obama administration takes on emergency powers. Miscreant bankers are bailed out, if only because they’re too big (but not too crooked) to be allowed to fail, so-called ‘toxic debts’ generated on Wall St become tax-payer-owned liabilities, and the US Federal government is now the major shareholder in GM, from which commanding position it can dictate what GM produces. Similar nationalizations have been performed on the other side of the Atlantic. Sir Robert Muldoon would have been laughing inimitably (and lop-sidedly), were he alive to see this.

So, what has been the response of the New Zealand government to this new economy? ‘Duck and cover’ would perhaps be the best epithet for it. Much as the instincts of the National Party, and its allies in ACT, would love to privatize everything that moves, there’s just no spare capital around now to take much more exposure to New Zealand’s ailing and obese economy. Even plans to introduce competitive provision of workers’ compensation have had to be shelved due to sick balance sheets and a lack of meaningful credit in the insurance industry.

National has made some gestures towards job protection (with the 9 day fortnight) and to create work by planning a new cycle-way, which no doubt is already described as ‘iconic’, but has shrunk from a national route to a mere ‘patchwork’ in the Prime Minister’s imagination. But the employment effects of these measures are easily out-weighed by the numbers of people being sacked from the public service, let alone the hundreds of other redundancies occurring weekly in the private sector.

May’s Budget provided little inspiration, and certainly no obvious policy pathway to lead us out of this new economic crisis. But, then, what could we have expected? Because New Zealand is so indebted, it is imperative that the government minimize its borrowing – and borrow it must, because the tax-cuts have locked Mr English into budget deficits for many years to come – and this means he must tightly rein in public spending. In the meantime, we are expected to wait optimistically for the Big Recovery. And we are expected to assume that the new economy that is about to emerge will largely be like the old economy before the Crash – even though the governments of the world’s leading powers are now doing the previously unthinkable in reaction to the biggest global destruction of wealth ever seen. Given, then, New Zealand’s tortoise-like ‘duck and cover’ policy, perhaps this is where Massey Albany could come into the game, offering courses for redundant public servants, re-educating them in the new realities of the new economy and its fiscal implications. I reckon that the MPP will have no trouble accommodating them all. And I assure you that we’re up to the challenge!

Whatever the ‘new economy’ turns out to be like, the signs are that it may become a more centrally regulated economy, a conservative economy based more on saving than consumption, a new economy of rising unemployment and poverty, and possibly even an authoritarian economy based upon the new dominance of Chinese production and capital accumulation. Given the present recession in New Zealand, plus an unacceptably high current-account deficit, an inevitable feature of the new economy domestically is a reduced standard of living and poorer public services.