The Dim-Post

January 6, 2012

The fourth way?

Filed under: history,policy — danylmc @ 6:54 am

Trevor Mallard excerpts this announcement about the UK Labour Party rethinking their approach to welfare:

Labour is calling for a radical rethink of the welfare state, arguing that the benefits system has betrayed its founding principles and “skewed social behaviour”.In a significant redrawing of Labour’s position on welfare, the shadow work and pensions secretary, Liam Byrne, on Tuesday argues that the ballooning of the system has provided support that is unearned, and mislaid the original ideal of providing help to those that contribute.

Heralding a series of speeches over the next few months designed to mark out new territory for Labour, Byrne claims the party must recast the welfare state to meet the original intentions of its founder, William Beveridge.

I read a few chapters about Beveridge in a history of modern Europe a few years back, so I consider myself something of an expert on the subject. And yes, we have moved away from the original intention of Beveridge’s approach to social welfare – which was a full employment policy. His vision of the welfare state was that everybody got a job, there would be minimum unemployment while people transitioned between jobs, so you could afford a generous welfare system to support that tiny number of people.

The way governments did this – both in the UK and here in New Zealand – was that the state owned various labour intensive industries and hired people that weren’t employed in the private sector. Both countries stuck with that model until the 1980s when Thatcher came to power in the UK and Douglas and Lange corporatised and/or sold the NZ government owned forestries and the rail-roads, and all the surplus workers were sacked, which destroyed many of the country’s provincial economies overnight.

Part of the justification for these actions were the economic arguments that full employment policies aren’t a good thing. They lead to market distortions, they can be inflationary, they decrease labour market motility. A healthy economy has a fluctuating employment rate responding to economic conditions.

And these might all be true – but the reality is that scrapping the ‘full employment’ half of Beveridge’s welfare platform led to massive unemployment, both here and in the UK – that’s when the welfare system first came under criticism for being unaffordable. The party that reneged on the social contract around employment and welfare was the state, not the workers.

Anyway, for a while the new consensus was that we need a certain degree of unemployment so we need an unemployment benefit, because it isn’t fair to run an economy which benefits from unemployment but consigns the actual unemployed to lives of starvation and abject misery.

There are two problems with this arrangement. The first is that the unemployment created by Douglas/Thatcher wasn’t temporary or transitional – it was structural. The unemployed people in the regions most effected by their policies didn’t retrain or move – because there weren’t any jobs to move for, and this unemployment became inter-generational, with associated social problems – and the economy didn’t get the benefits of having a pool of unemployed workers, it just got the cost.

That’s the second problem. How do you pay for the welfare state? Most centre-left parties – including the New Zealand Labour Party under Clark and Cullen – adopted ‘the Third Way’, a term popularised by Tony Blair. The idea here is that the wealth creation from a deregulated free market economy provides enough tax revenue to fund a generous welfare state.

The problem with that is that unregulated free market economies are prone to catastrophic collapse (or, if you prefer, ‘creative destruction’): when this happens the state needs to step in and prevent the destruction of key industries like banking and finance, its revenues decline dramatically, and at the same time the cost of the welfare system rises sharply. The government can’t borrow to stimulate its way out of a recession because it’s already borrowing to prop up the financial system and meet its current welfare spending commitments.

Realistically I doubt UK Labour’s concern about welfare is driven by any of these considerations – their problem with the welfare system is that the Conservative Party ‘owns’ the issue of welfare, and that the UK public is just as excited by beneficiary bashing as the New Zealand public, so they want to inoculate themselves against being perceived as ‘soft on welfare’.

Personally I think the full employment policy might be worth a re-think. It upsets economists so it would probably be good for the economy – but it is hard to think of a nation-wide, mostly rural industry the government could run that would provide a good return to the taxpayers.


  1. “…but it is hard to think of a nation-wide, mostly rural industry the government could run that would provide a good return to the taxpayers.”

    Dairying seems to make a reasonable return. Simply nationalise the farms, replace fences with the presently unemployed, and there is your solution.

    Comment by Grassed Up — January 6, 2012 @ 7:26 am

  2. I’d suggest conservation work. We have ( historically and recently ) introduced species that have devastated native flora and fauna, as well as existing industries – such as kiwifruit and honey. Any mitigation work would be decades-long and would be a mixture of semi-skilled labour input combined with technological/biological solutions.

    The other effort could be devoted to solving the carbon-cost of transport of people and goods to and from NZ. That probably requires higher skill levels than most unemployed, but would be a superior national strategic investment than many of the other technology funds. New Zealand will be one of the most affected nations so, unlike high technology manufacturing, we can’t wait for innovative solutions from other nations.

    The renewed forests and wildlife would be a tourist attraction, and the related recreational and environmental industries would also benefit. Tourists can also provide overseas funds.

    Comment by Bruce Hamilton — January 6, 2012 @ 8:57 am

  3. “…And yes, we have moved away from the original intention of Beveridge’s approach to social welfare…”

    Firstly, New Zealand never adopted the Beveridge Report, so I am not sure where the “we” comes from. The New Zealand welfare state was underpinned by the “applied christianity” of Nash, Savage and Nordmeyer and a generally held belief that in an under populated, bountiful “better Britain” no one should go hungry or without a job, education and healthcare. Our provincialism and anti-intellectualism precludes any real philosophical bite to our policy making. National’s primary reason for being established was to oppose and dismantle anything Labour did. The generally fuzzy philosophical underpinnings of our welfare state is why it – and the Labour Party – proved so vulnerable to the onslaught of the new Thatcherite/Reaganite political fad in the 1980s and 90s.

    Secondly, the comment “…mislaid the original ideal of providing help to those that contribute…” is simply poisonous. Mallard is an idiot if he thinks posting that will stimulate some sort of helpful debate. Contribute? What does that even mean? Is a solo Mum on the DPB bringing up a future taxpayer “contributing?” Is a someone who forfeited their retirement to bring up foster children “contributing” according to Liam Byrne? If so, how do we measure that and reward it? Alternatively, if a generationally unemployed family in Murapara is not “contributing” is that their fault or the states? And what does Byrne propose we do about it anyway? Let them starve as the undesirable and undeserving poor? The use of the word “contribute” is deliberately loaded – to my mind, “contribute” means a narrow definition of the word entirely in the terms and interests of the capitalist class. “Contribute” means something that can be economically measured and that contributes to the profits of the capitalist elite. If we adopt such a narrow definition it is an excuse for no welfare state at all and a recipe for a return to a Hogarthian society. If we adopt a very broad definition, we are simply redefining the current situation. Liam Byrne’s public musings are quite useless as anything except a political positioning statement.

    People with jobs have no idea how awful unemployment is. As the saying goes, the trouble with poverty is it takes up all your time. Being poor means having nothing to do. Worse, although you are excluded from a society obsessed with consumption you can see that consumption every day on your T.V. Unemployment, and therefore poverty, is the slow cooker of humiliation and loss of dignity. I think the most important government policy is employment. And that is not some wishy-washy statement that the market will provide from an arrogant Tory arsehole who thinks he or she can justify their drawing a fat ministerial salary by making a virtue of being lazy and giving excuses and justifications for doing nothing.It means an active employment policy, an active regional development policy and some proper capital works projects. Import substitution and controls may be a dirty word, but it seems to me that that is surely the key to sustainability and more local employment. Does it really do Kiwi workers, mother nature and the planet any good to make beer in Nicaragua and then ship it all the way to N.Z. to sell for 19.99 a dozen at Foodtown? Does outsourcing all our journalism to Sydney churnalists improve employment here?

    Unlike the United Kingdom, we are relatively underpopulated and undeveloped land. Some “easy wins” still exist in good infrastructure projects that will provide jobs and stimulate the economy. And I don’t mean John Key’s focus group driven middle class fantasy wank fest of a bike trail. Some big hydro schemes still remain to be built. Energy projects like tidal power can and should be developed by the state. And we need more people. The trouble is, New Zealanders don’t really want to many Chinese, Koreans and other South East Asians and our government and political elites don’t want to admit that, so we limp along in political denial about the reality of the immigration debate in New Zealand, and just get Winston Peters instead. Let’s have a Royal Commission on population and get our dirty laundry out there and slay some political sacred cows with some hard questions. Can a welfare state survive in a society with high immigration? Or is it solely the preserve of societies with homogeneous values? Let’s find out who we want, where we want them from, how big a population we think is sustainable and how many more we want and then let’s get them. With more people high speed train services would become economically viable in the upper North Island at least, and we could employ people to build such lines.

    The problems around employment are eminently solvable. It just requires our political parties and business elites and media to do what seems to be the hardest thing of all – actually think and try and do their bloody jobs, instead of being anally conservative or parroting the latest crackpot idea de jour from the United States or reporting on which C list celebrity is in court on minor drugs charges.

    Comment by Sanctuary — January 6, 2012 @ 8:59 am

  4. You do realize it was welfare itself, along with minimum wage and other labour regulations, that made unemployment structural?

    Why do you want people in the provinces to remain in the provinces? Hundreds of thousands of jobs have been created in Auckland since the 80’s, and this is likely to continue.

    Comment by Swan — January 6, 2012 @ 9:06 am

  5. Cycle lanes. Lots and lots of cycle lanes.

    Comment by gazzaj — January 6, 2012 @ 9:13 am

  6. It is not often that I agree with Sanctuary but I have to say on this subject he seems to be on the money except for this
    “The problems around employment are eminently solvable”

    I don’t think it is easy but that is no reason not to try

    Comment by Raymond A Francis — January 6, 2012 @ 9:17 am

  7. I think it could be very good for Labour if they promoted a policy of full employment. It would be a significant point of difference to National and a vote winner. They could make it policy to use NZ labour were possible like building trains here rather than overseas and provide incentives to businesses that wanted to create jobs, like faster resourse consents and tax breaks. Make it all part of a grand policy called ‘Building a better New Zealand’ or some other phrase the media can endlessly repeat. 

    Comment by Ieuan — January 6, 2012 @ 9:17 am

  8. The UK does seem to have a genuine problem in that the gap between what you can get on welfare and what you can earn full time on minimum wage isn’t large enough for minimum wage work to be worth the hassle. This is probably a problem with their wage structure or possibly the economy generally, rather than welfare as such, though. Anyway, that doesn’t seem to be such a problem here.

    Short version: not everything they do in the UK is of relevance to NZ.

    Comment by helenalex — January 6, 2012 @ 9:18 am

  9. So whats the difference in cost for the government between having 10,000 unskilled, unproductive “workers” on the payroll of NZ Railways or on the dole?

    Quite a lot if you were a manufacturer that relied on NZR to move goods around – the costs of that labour dead weight falls unfairly on you. Personally, I’m quite happy to fund social welfare out of general taxation, at least the cost is spread across a wider pool of donors. Evenif you could find a “nation-wide, mostly rural industry the government could run that would provide a good return to the taxpayers once you force that industry to employ 50,000 unproductive, unmotivated workers, I’m pretty sure it will no longer be a solvent business.

    The real problem with the “third way” approach is that we allow politicians to control our fiscal situation. Had western governments managed their economies more prudently in the good times, the bad times wouldn’t be quite so hard to navigate. I recall in the mid/late 90s when there was considerable debate around the fact that NZ’s net govt debt was projected to head to zero, there would be no government debt on issue which would create some difficulty for corporate borrowers and investors. But the projected decline to zero debt by 2003 never happened. Give Winston the treasurers job and then elect a labour govt – problem solved.

    Very few countries have a term unlimited unemployment benefit – aside from UK, Australia, NZ and basket cases like Greece (EUR450 per week + 10% more for every dependent!) – even in left wing poster boys like Sweden you have to have had a job before you can be regarded as unemployed and the benefit declines over time.

    Comment by nadir — January 6, 2012 @ 9:28 am

  10. i’m not sure that any analysis of the 80’s reforms that leaves out the two main reasons that NZ was finding it more and more difficult to maintain govt sponsered sheltered workshops on such a scale is all that helpful.

    our exclusion from the EEC and the oil shooks undermined our economy and we still suffer from that via the borrowing we still do to maintian even our current standard of living.

    going back to large scale govt run employment schemes might be a good idea but there are some downsides such as taking resources from export sectors where we get that money to pay for hospital supplies etc.

    Comment by NeilM — January 6, 2012 @ 9:39 am

  11. Sanctuary, you assume that everyone wants more people in NZ. You’re wrong. I would rather have fewer. I don’t care what race they are, I’d like them to leave.

    Comment by MozInOz — January 6, 2012 @ 9:52 am

  12. “…Sanctuary, you assume that everyone wants more people in NZ…”

    No I don’t. I said lets have a proper no-holds-barred Royal Commission and find out what people really think.

    Comment by Sanctuary — January 6, 2012 @ 10:15 am

  13. “…I think it could be very good for Labour if they promoted a policy of full employment…”

    I am nowadays cynical about this. Do you really think such a policy would generate much interest or gather that many votes? Vacuous nonsense in the form of feeding easy stories to create a media managed celebrity cult around John Key is what generates airtime at 6pm. We already have hundreds of thousands of the unemployed, under-employed and the working poor. There is exactly zero real interest in the main mass media outlets in discussing this seriously. TV reports on celebrity trivia, middle class human interest stories, crime and sport. They simply won’t report on anything as downbeat and hard to take as unemployment and the poor.

    After all. someone might change channel if they did that!

    Comment by Sanctuary — January 6, 2012 @ 10:24 am

  14. “…but it is hard to think of a nation-wide, mostly rural industry the government could run that would provide a good return to the taxpayers.”

    Get them to build a giant pyramid to be a tourist attraction.

    Comment by Will Truth — January 6, 2012 @ 10:37 am

  15. Love that Nicaraguan lager, Sanctuary. Yum!

    Also, good luck with the large hydro-schemes. There is more chance of a nuclear reactor being built in Hagley Park.

    Your economic reasoning is up to its usual standard, Danyl. You omitted the primary motivator for change in the 80s. It wasn’t the set of rationales you dreamed up. And it wasn’t primarily political. As long as the underlying economy was moving along we could have carried on with our other policy frameworks such as import protection and government entities employing more people than they could justify on strict utility grounds. As long as they enjoyed widespread support. The key problem was that each of those policies imposed a cumulative cost on everyone else and in particular our export industries at a time when they were suffering from lower demand and lower returns. Our ability to accommodate those policies within our incomes was diminishing drastically. The major changes of the 80s and 90s were generated by the decline of agriculture and the sheepmeat and wool industries in particular. The dramatic drops in sheep numbers combined with the high fixed costs, lack of flexibility and poor hygiene of the old freezing works were a toxic combination. The closure of those works had a far greater individual and collective impact than any changes to government policy which were, in any event, a reaction to them. And it wasn’t just in the provincial cities and towns. Otahuhu in South Auckland had what was probably the largest collection of freezing works and meat related industry in the country. Their earlier success had allowed us to afford protection and the delegation of our telecommunications industry to the Post Office, force anyone wanting to ship goods onto the Railways and generate a Forest Service utterly unrelated to any demand for the forests they grew. Contributing factors to the falling export incomes for agriculture included the entry of the UK into the EEC and the stricter hygiene standards imposed by the latter. In any event, the result was a downwards spiral that eventually resulted in us subsidising our main export industries and rendering down unwanted and subsidised sheep carcases originally destined for export. Hard to maintain policies when their economic underpinning is collapsing. Enter, Roger Douglas and the extremely naive David Lange.

    Comment by Tinakori — January 6, 2012 @ 10:58 am

  16. Telephone Sex calls exported to other English speaking nations.

    We might even get a return from the new broadband investments and from the new cable Pacific Fibre is building!

    Comment by kyotolaw — January 6, 2012 @ 11:01 am

  17. We did actually have Third Way in our political system for a long time in this country – Social Credit, which actually stepped back just one tiny bit from capitalist thinking and argued that unemployment is not only structural, that it’s the desirable end goal for humanity, practically the only purpose there could ever have been for continual building of industry. A goal of full employment was something they believed to be disastrous because it was unsustainable, since one thing humans continually do when involved in industry is increase output. Our basic needs have actually been catered for long ago, so our economic system is predicated around creating needs where none really exist, and the only way to really make that happen is to deny people the basic needs, to force them into create this excessive output. This is mostly done by debt slavery, and the inflation that debt causes.

    Which is quite an interesting analysis of the NZ situation. Most people’s highest life cost is housing, despite the fact that the houses already all exist. There is actually very little need to build new houses for people, but for some reason, the actual right to live in one, or at least a good one, is something most people spend half of their time working for. The next highest cost is food, despite the fact that we live in a nation that has an incredibly high food output, the needs of the population have been supplied many, many times over on that score, and yet we still do have people unable to afford it, wondering if they can get enough, cutting costs on it to pay rent, etc. We have to pay a surprising amount to get water, considering the stuff falls from the sky. Another anomaly is that one of our biggest costs is electricity, despite the fact that that also quite literally falls from the sky for us, we don’t even have to buy energy from abroad (except for fossil energy, and that one is only because we won’t mine it, not because we can’t mine it).

    But things that are the end result of the gigantic industrial complex we have built, complex beyond belief, totally impossible for our nation to make on it’s own, are really cheap. Because we don’t really need them, they have to compete fiercely to keep their costs down, and provide neverending new features. At making things like this, capitalism has excelled. People work for almost nothing to make us our cars and smartphones. I can buy for $2000 a car that would have killed even the wickedest, most expensive supercar from the 80s on practically every feature you can imagine, apart from “showing how much money I must have”.

    This production is the only possible way that high employment can be maintained, since the natural tendency of production is to improve and improve, requiring less and less people to do more and more. The consumer outcome of this is fantastic – cheap goods in superabundance and massive variety, but the economic outcome is constantly making people unemployed, so that they actually couldn’t afford to buy the things that they make, and have far greater concerns pretty soon, like rent and groceries.

    Social Credit had quite a distinct belief system to Marxism, despite essentially having a socialist outlook on the rights of all people to the fruits of labour. They simply didn’t agree that being a Worker was the ultimate destiny for humanity, that everyone should be one, and have full employment. They believed that was an idea that led to massive strife, pitted worker against boss, nation against nation, that it a call for full employment was a call for war.

    Another outcome of it is that every human activity is commercialized, something that they did not see as obviously good. Artists are expected, if they want to make art for quite a lot of their time, to make art that people will buy, for enough money to keep the artist alive, and supplied with a materials and a place to work. It’s small wonder that we have so few really original artists – only a small class of people (the idle rich) could possibly afford to do it. Most “artists” are making advertising or designing things to be profited from. This is a massive waste of human potential. The same goes for writers – who hasn’t noticed how shitty journalism has become over the last 20 years? What serious writer hasn’t faced the fact that their chosen business is hardly likely to give them a living, forcing them to have another job as well, or to write hack all day long, the kind of shit we get in our newspapers and magazines now?

    I don’t know enough economics to see if their actual solutions made sense. But it would be very interesting to hear from any classically trained economist who knows how to model such things whether their ideas really were viable. This might be a big ask, because my understanding is that their economics changes some quite fundamental pieces of the banking system, which might render almost all of the classical training useless. I just don’t know.

    From what I can tell, they had 3 main ideas. Firstly, that issuing debt should not be a private matter, which could generate enormous profits for banks, but highly controlled or even totally owned by the government. Secondly, that inflation can and should be controlled mostly through money supply – that the state would print money to keep inflation high enough to stimulate growth. Thirdly, that this printed money would not be distributed via banks, but directly to citizens, who would mostly spend it. I think they believed this should be unconditional money, an acknowledgement that every citizen inherits equally the massive capital of the world that was created by past generations, and should share equally in the profits from it.

    I don’t think they were against private property at all, or private ownership of production, even on a massive scale, nor were they against the existence of an uber-wealthy capitalist class. They simply thought that the entire system would work much better if the basic provision of the ability to live came from society as a whole, so people were free to work at whatever they wanted, rather than forced to work just to survive. They believed that people would probably opt to work for large organizations and small alike, depending on their interests, and because most people want *more* than basic survival (I think they had a fairly generous idea of what that meant), and to get that they had to earn it. But if they didn’t want more (and I there are plenty of people who don’t) then they shouldn’t be forced to make excess production, just to get food and shelter, heating and healthcare, sanitation and clean water, schooling for their kids.

    Interesting ideas, at least. If we’re looking for something that breaks the communist vs capitalist false dichotomy, it’s worth considering.

    Comment by Ben Wilson — January 6, 2012 @ 11:29 am

  18. A lot of this strikes me as wrong:

    Did NZ (or the UK for that matter) really have nationwide high rates of structural unemployment during the years of healthy economic performance from 1999 until 2007? Feel free to double check the data but my recollection was low unemployment and very low levels of long term unemployment (i.e. most of our unemployed were people in temporary job search). This hardly sounds like structural unemployment or a structural social problem (except in some rural areas, where I agree there was an issue).

    And while unemployment is up now, both in the UK and NZ, this is cyclical (as it was during the Thatcher/Douglas years) and the result of global events and perhaps bad macro policies by the governments in question. The current situation tells us nothing about the impact of unemployment benefits on unemployment or about the ultimate long term sustainability of the unemployment benefit system.

    It is true that our overall system of benefits may be unsustainable at current levels of taxation but the issue here is to do with pensions and sickness benefits, issues which stem from our ageing population, and which have little to do with levels of unemployment.

    As someone else suggested, the UK Labour party’s positions sound like politics, not social policy.

    I love the way political elites mess up economic policy and then blame the unemployed for the consequences…

    Comment by terence — January 6, 2012 @ 11:55 am

  19. Cannabis? Oh wait, they’re growing plenty of that in the regions already.

    Comment by Ethan Tucker — January 6, 2012 @ 12:16 pm

  20. Social Credit was known for being the “funny money” party, along with an association with some rather distasteful racists. In NZ, the party tried to downplay any racial undertones. The funny money and anti-semitism labels migrated from Alberta, which had a long sequence of Social Credit governments.

    In the 1970s, with a very active MP – Bruce Beetham, and later also Gary Knapp, the party de-emphasized the funny money approach, and focused on NZ growth and social equality. The party’s success probably had little to do with policies, and more to do with the candidates having “nice” personalities. SC votes peaked for the next decade. However, many voters were casual/protest types, and would drift between similar minor parties.

    Social Credit’s later parliamentary deal with Muldoon made casual supporters flee, and the party’s subsequent absence from Parliament led to a lingering death.

    Comment by Bruce Hamilton — January 6, 2012 @ 12:26 pm

  21. very low levels of long term unemployment

    Really? It was about 4% at the lowest, 5-6% for most of that time. Which is all very well if you were employed, but it wasn’t any more fun being unemployed during that time. A very telling statistic is that Maori unemployment, which was always around twice general unemployment, started to trend up again after 2005, despite the overall rate continuing to decline. Maori were being left behind, by Labour. Mana was the only party at the last election to seriously propose real full employment, although the Greens moved somewhat in that direction with their policy.

    Having been unemployed much of the last few years (despite a masters from a top Australian university and wide range of experience), my own views on the subject have hardened. It isn’t good for anyone; it’s a net deadweight loss. My view is that we can afford to run very low (~2%) rates which approximate to flux, and afford a slightly higher (~1%-1.5% more) inflation rate. The upside is more production in the economy, less social spending and all the attendant costs, and a far greater level of social cohesion. Some inflation is good anyway, because it encourages investment away from things like housing speculation.

    Comment by George D — January 6, 2012 @ 12:37 pm

  22. Hi there George,

    Really? It was about 4% at the lowest, 5-6% for most of that time.

    That’s the unemployment rate. But long term unemployment (periods longer than 6 months I think is the definition) was IIRC much lower, which suggests to me that: (a) unemployment wasn’t structural during this period of time; (b) a major issue (given that it’s long term unemployment which is the major social harm); (c) caused by people taking advantage of our welfare system.

    I agree with you that we should prioritise slightly higher inflation and tolerate lower unemployment though. And I definitely agree that unemployment is not a good thing. But I do think though it’s important to accurately describe its type, and diagnose its causes. That way we can come up with the best policies for keeping it lower. FWIW, I can see the case for SOEs as unemployment mops, but I’m not sure it’s the best tool for the trade.

    Re Maori unemployment rates. That’s an interesting point. I wonder if the divergent trends stem from:

    (a) Higher rural unemployment more generally (in which case maybe there is a role for SOEs as employers of last resort in rural areas.)
    (b) active discrimination against Maori job seekers. In which case the issue is one for legal not economic policy, I would imagine.
    (c) Lower levels of education amongst Maori in a workforce where jobs increasingly require educated staff, in which case I guess the ultimate issue is one to be tackled by our education system.

    Interestingly, if we had time and the data (which will be somewhere) we could test all this and see which was the case. I’d be intrigued to know.

    Comment by terence — January 6, 2012 @ 12:53 pm

  23. @George D – the key part is “long term” in what terence said.

    See the 2008 Social Report (c/o MSD, as an example) – while we could argue the merits of the methodology etc of the report the figures shown are that in 2007 3.6% of the population were unemployed (by the definition provided), and of those in this group that were surveyed 17% said their duration on unemployment was for six months or more (or the equivalent of 0.612% of the whole working age population) – bearing in mind that six months is hardly ‘long-term’ in a fairly well-employed economy. I’d say that’s a pretty good record personally – and while the thrust of what you’re saying about unemployed being depressing is quite so, it’s best not to slip into hyperbloe in the absence of (relative) fact.


    This, again, reinforces that the Welfare Reform group are really making this ‘long-term unemployment’ stuff up, though perpectives like yours (though grounded in real experience as a some-time unemployed person) show that it has gained prominence as part of everyone’s daya to day view in this area – which is a shame. Instead we should be looking a working the system to find employement for those at-risk groups – as you’ve already mentioned – that are over-represented on the negative side of the ledger.

    Comment by Pete — January 6, 2012 @ 1:08 pm

  24. Terence, that again is unemployment defined by collection of the benefit; real unemployment rates both short and long term are higher, although how much so is disputed. Anecdotally the regions have rates well above any reported ones. This is in part because punitive policy designed to push most off benefits has been successful. Nevermind that there are no jobs to push to, or that the jobs and skills don’t match the applicants. The system is antiquated and simplistic, the adult child of the Richardson reforms – though it had a Labour foster parent during the 2000s the DNA didn’t change at all.

    I’m glad to be having this conversation, although dismayed at the circumstances. I’ve personally exported my unemployment, at least temporarily. One less for the books.

    Comment by George D — January 6, 2012 @ 1:14 pm

  25. Though I do agree that I missed the ‘long term’ in Terence’s statement.

    Comment by George D — January 6, 2012 @ 1:20 pm

  26. “Anecdotally the regions have rates well above any reported ones.”

    This is because many people think their region is particularly hard hit, so they assume their unemployment rate must be higher than the national average, and anecdotally relate this.

    Comment by Hugh — January 6, 2012 @ 1:39 pm

  27. @Bruce Hamilton, I’d say they also had a lot of success mostly from the absence of other major candidates, there was no Greens or NZ First, which seem likely to be the directions it split to, roughly along the “funny money”/racism divide. They were a protest vote for many.

    The racial undertones was very problematic, probably the worst part of the theory was that it came from a fundamentalist christian who looked to the bible for the deepest core of the philosophy, from which anti-semitism has flowed for thousands of years (despite Jesus actually being Jewish, oh the irony). A sign of the times in which it was born, I think.

    The monetary policy, however, doesn’t actually require that crap. So far as I can tell, it was not ever tried, not even in Alberta – the GG and the Supreme court prevented it from ever happening. I’ve read some old die hards on the net saying that the reason the USA seems to be slowly recovering at the moment is down to quantitative easing, effectively something Socred would have probably agreed with as a pale imitation of their actual theory.

    It’s definitely a discussion worth having, the idea that printing money and distributing it via welfare could stimulate spending enough to keep the economy going through down times. It’s one answer to the Keynes Liquidity Trap.

    Comment by Ben Wilson — January 6, 2012 @ 1:39 pm

  28. “The problem with that is that unregulated free market economies are prone to catastrophic collapse (or, if you prefer, ‘creative destruction’)”
    I sometimes think that you may know a little about economics, but then you make comments like that. It is analogous to:
    “The problem with that is that humans are prone to death (or, if you prefer `tooth decay’)”.
    How does a fall of a few percentage points of GDP equate to “catastrophic collapse of an economy”?
    “Creative Destruction” is what happens when the market share for electronic wordprocessors begins to rival that of mechanical typewriters and so the employment prospects for typewriter repairpersons begins to look bleak.
    You still fail to understand that the INDUSTRY which (nearly) collapsed was the American banking industry, which is NOT an unregulated free market:
    ”The Mortgage industry of the United States is a major financial sector. The federal government created several programs, or government sponsored entities, to foster mortgage lending, construction and encourage home ownership. These programs include the Government National Mortgage Association (known as Ginnie Mae), the Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac).”
    And here (ignore the video) for a list of states that allow (I.e. regulate) only non-recourse loans. Another list shows states that allow (i.e. regulate) only simple foreclosure (non-recourse) without resort to judicial action. Some states only allow (i.e. regulate) “one action” against a borrower.
    Home lending is usually secured by the home and the land it sits on. There is no end of regulation around homes (esp their construction) and land use. Give the “unregulated” and “free-market” tags a rest or you risk looking less intelligent than you undoubtedly are.

    Comment by Clunking Fist — January 6, 2012 @ 1:57 pm

  29. Question: some people move to other countries for jobs (or maybe just for better jobs), so what stops people moving from one region to another in search of a job? (I’ll grant that I’d rather move to Melbourne or London for work than Auckland.)

    Comment by Clunking Fist — January 6, 2012 @ 2:07 pm

  30. Hi again George,

    Just quickly: I agree that real rates of unemployment are higher than benefit numbers would suggest, although I’m not sure they’re so much higher that it justify calling the Labour years in NZ anything other than years of low long-term unemployment and pretty low unemployment all round.

    One thing worth noting, of course, is that benefits can’t possibly cause the unemployment of those not receiving such benefits; and so the argument made by the UK Labour Politician above can only be made using numbers of those on the unemployment benefit alone. And so I think it’s a very poor case he’s making (and I imagine you agree?).



    Comment by terence — January 6, 2012 @ 2:30 pm

  31. RE Nicaragua: There are good non-poser reasons to drink imported artisanal ales, but not pale lagers, for which freshness is paramount.

    Oh sorry I thought we were talking about the Beverage Report.

    (srsly though if you’re a lager fan that can afford the premium, drink Emersons, who make a world-class pilsner)

    (also there seems to be no political will to get unemployment back down to its “structural” level, let alone for full employment)

    Comment by bradluen — January 6, 2012 @ 2:41 pm

  32. This is interesting because I have been reading a lot on full employment policy recently and there are quite a few economists who promote this, most prominently Prof Bill Mitchell from the University of Newcastle in Oz. He also points to what George was mentioning earlier that 5 percent unemployment is still too high and harmful to the economy.

    Comment by K2 — January 6, 2012 @ 2:55 pm

  33. CF. People will relocate if they will gain an advantage, however in many areas of NZ there are no jobs that would provide an advantage. Selling your home, leaving family and friends, pulling kids from schools, leaving local pubs, etc. is always a major drama, so there have to be long term benefits. It’s not like OE for young people.

    It’s possible that NZ’s jobs market in the 21st century is homogeneous, so there is minimal benefit in moving around the NI or SI, as many semi-skilled ( experienced rather than qualified ) jobs are of similar longevity, status, and remuneration. Internet-based job sites, such as Seek, now allow employers and employees to easily identify regional and individual skill wage differences and adjust remuneration accordingly, leading to homogeneous employment conditions.

    Better to move to somewhere that appears to offer many opportunities over important timescales, especially if children are involved. The diaspora ( Pakeha and Maori ) suggest that NZ is not the place to be for many people who want to work and progress in life. Why be a loser in NZ when you may be a winner in Australia – with many more opportunities?.

    Comment by Bruce Hamilton — January 6, 2012 @ 3:08 pm

  34. “There are good non-poser reasons to drink imported artisanal ales, but not pale lagers, for which freshness is paramount.”

    This is the opposite of true. The lagering process takes about three months, whereas an ale (both American style pale ales and English Real Ale) should be drank within 45 days of production. The noble hops used in lager have very subtle flavours and the top-fermenting lager yeast works at lower temperatures for longer periods, whereas the aromatic hop flavours of the ales dissipate very quickly.

    Additionally, I’m not aware of any beer that is imported from Nicaragua to New Zealand, but it’s kind of beside the point, as brewing is an industry that does not contribute much to employment — very few people are needed to run even a very large brewery. Where they do stimulate economic activity is through the production of brewing equipment. It’s is a very capital intensive industry, and someone has to make those brewhouses. But making brewhouses is, unfortunately, not going to contribute to full employment in New Zealand.

    Comment by Jake — January 6, 2012 @ 4:40 pm

  35. We are in agreement on Emerson’s Pilsener, however.

    Comment by Jake — January 6, 2012 @ 4:43 pm

  36. Hmmm, whenever I’ve had e.g. Steinlager outside NZ it’s always seemed much worse (not that it’s super-great under the best of circumstances, but you know what I mean). Maybe it’s a storage thing?

    (also yeah there are few ales that aren’t best consumed immediately, though I left a Chimay Blue around for a year once and that turned out pretty delicious)

    Comment by bradluen — January 6, 2012 @ 5:48 pm

  37. It’s likely that they got too warm at some point and developed cardboard flavours. I bought a six pack of Coopers in Pittsburgh last year that was like that. It was pretty obvious that it had been shunted from cargo ship to warehouse over the course of maybe a year. Any beer that is stored for too long will go bad, but ales have a much shorter shelf life. Beer just doesn’t travel all that well. The high alcohol content of your Chimay Blue is probably what kept it alive — barley wines (beers with alcohol contents in the low teens) can be aged like wine, as the alcohol contributes to stability. But apart from that, the best tasting beer is the one you drink at the brewery.

    Comment by Jake — January 6, 2012 @ 6:19 pm

  38. @Bruce H & Ben W: after Social Credit self-destructed, many of its members threw in their lot with NZ First – among them Bruce Sheppard (of Shareholders Association fame) and Terry Heffernan. Not quite liberal, and not quite conservative either.

    Auckland is nominally NZ’s national champion, but in practice it’s perceived as poaching from the rest of the country, especially after the decline of regional development and the ascendancy of fiscal globalisation. On the other extreme, a lot of aircraft and military factories in America are propped up by state-level pork barrel politics, which has been cited as a factor in NASA cost overruns.

    Other factors to consider are the investment void left by DFC’s liquidation, the property speculation money-go-round (the Baker vs Straker stoush once again comes to mind), the mechanisation of industries that used to be done by hand, and the rise of Rovian/Crosbyite culture war politics. Also, it’s unrealistic to expect laid-off meat workers and car assemblers to instantly become Java coders, in spite of what the Paula Bennetts of this world lecture to us.

    Whatever happens, to raise the barbed wires and concrete walls won’t be a security measure, but an admission of defeat. It’s already happened in places like Jo’burg and La Paz.

    Comment by DeepRed — January 6, 2012 @ 9:50 pm

  39. Interesting video via this Naked Capitalism post expressing similar sentiments about whether we should be aiming for higher employment.

    Comment by JJW — January 7, 2012 @ 4:54 am

  40. State-owned forestry ventures worked well in the seventies and early eighties. They employed a significant amount of people, a lot of people that would have struggled to gain employment in the private sector. They paid a generous amount of redundancy pay when they sacked people, and it was an equal opportunity employer.

    In my blog I talk a lot about the benefits of forestry, the need for equality in terms of indigenous rights, the urgency for eliminating poverty and reducing the gap between the rich and the poor, the need to look at subsidizing the dairy industry, and National’s head in the sand when it comes to doing much about the problem with superannuation.

    Comment by Daniel Lang — January 7, 2012 @ 11:53 am

  41. My initial response to this is that it is an attempt to be seen to be getting back to a ‘grass-roots’ Labour mentality. That is, appeal to the unreconstructed ‘working class’ who have an embedded vein of conservatism within them. Clearly the ‘New’ Labour approach (read ‘social engineering, ‘Helengrad’ whatever you like) failed to connect with them and they deserted Labour as a result. So an appeal to their sense of fair-play, will be promoted as the ostensible reason for this new angle.

    However, regardless of the splendid and insightful analysis of those contributing here, I predict that this new policy will translate (with a proven thug like Mallard at the wheel) is good old-fashioned beneficiaries bashing through the media as ‘Back to grassroots Labour’ shamelessly try to out-tory the tories, and victimise the needy as collateral damage.

    It will play out as an idealogical pissing contest as each side seeks to visibly ‘reassess’ the present system so that it may win votes from the ‘hardworking kiwis’ who are continually asked to stump up the cash to finance it.

    Comment by Eric Blair — January 7, 2012 @ 1:42 pm

  42. >Also, it’s unrealistic to expect laid-off meat workers and car assemblers to instantly become Java coders, in spite of what the Paula Bennetts of this world lecture to us.

    Speaking from personal experience, it’s not even an easy road for laid-off C++ programmers to become Java coders, and two more similar computer languages would be hard to find.

    Comment by Ben Wilson — January 7, 2012 @ 6:24 pm

  43. The argument is not that we should accept a higher unemployment rate in a free economy. In fact the argument is that it is chiefly government interference that causes structural unemployment, that so-called “full employment” policies do not achieve what they set out to, and that, to quote Mises, “there prevails on a free labor market a tendency toward full employment”. You may disagree that that is the case, but the argument that free market advocates are accepting of a higher rate of unemployment is a straw man. The empirical evidence is that economic freedom substantially reduces the rate of unemployment (see Chapter 5: Economic Freedom and Unemployment from the 2010 Economic Freedom of the World Annual Report

    Comment by Quoth the Raven — January 9, 2012 @ 1:36 pm

  44. I should also add to my last comment that it is also the thinking that the piecemeal social engineering and central planning of social democracy increases economic instability. For instance that financial regulation actually increases systematic risk (see Maymin and Maymin Any Regulation of Risk Increases Risk ) and that central banking is a form of central planning which increases macroeconomic instability (for empirical evidence see Selgin, and White, Has the Fed Been a Failure?).

    Comment by Quoth the Raven — January 10, 2012 @ 12:42 pm

  45. Jaysus, QTR, you come here quoting studies and facts n shit like it will make some difference. You’re talking [here with] people who basically judge themselves and each other based on intentions, not on results.

    Comment by Clunking Fist — January 10, 2012 @ 1:36 pm

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