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Drawing on economics, political theory and constitutional thinking, Ganesh, an independent economist and former Chair of the Productivity Commission, challenged the assumption that underpins how economic news is presented to us: that economics can be separated from politics and power. He argued that economic systems are not neutral or self-directing but are shaped by the rules, values and objectives that democratic societies can, and should, choose for themselves.
Exploring ideas ranging from the social contract and property rights to Te Tiriti o Waitangi, collective stewardship and the role of future generations, Ganesh encouraged participants to think critically about who writes the rules that govern economic activity, whose interests those rules serve, and what kind of society we want to build.
As Ganesh observed, “The economy is not a living being. It doesn’t bleed. We want economic activity that is aligned to our ethics.”
We’ve actually got to have a new economic model, which recognises that the economy will continue, irrespective of the model [and] the rules that we write. We just want to exert our power and right, dare I say, responsibility, to write the rules that we want rather than what a small subset of the community would prefer.
In addition to providing a primer on economic systems and their underlying assumptions, Ganesh outlined his vision for an economic system that balances prosperity, democracy, collective responsibility and the goal of being “a good ancestor” for future generations.
Trust Democracy would like to sincerely thank Ganesh Ahirao for sharing his thoroughly engaging presentation and clear explanations with our members and guests.
Further information about the AGM is available at:
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Transcript
Anyway, e ngā iwi, e ngā mana, e ngā reo, e rau rangatira mā, tēnā koutou, tēnā koutou, kia ora koutou katoa.
I wish to pay my respects to your tūpuna, my tūpuna, and our tūpuna who have come here from lands far away, some more recent than others, to settle this land, pass it on to us to work this land, and it’s up for us to look after this place and pass it on to whoever may follow us.
My name is Ganesh, first-generation-born New Zealander here in Pōneke and acknowledge Māori as tāngata whenua of Aotearoa.
It’s an interesting time, as some would say, in terms of, I would say, the development of Aotearoa. We are a… some would argue a young nation, others would argue relatively old nation, depending upon when you want to start from year 0 or not. But we are a nation in flux in terms of not quite knowing where the next step might lie, and that’s whether you look at it from an economic perspective, or dare I say, political perspective, or something that’s close to my heart, and no doubt close to your hearts, our constitutional structures about how we make decisions going forward. So as said, my topic here is the ‘Triple Alliance’, and hopefully I can share my screen and things will function … he says, hopefully that shares my screen, and you can all see my slide, which is the start, and I just have to move things out of the way, and we can progress.
As I said, the ‘Triple Alliance: Economics, Politics and Power’ – and I make no apologies that I look at this from an economist’s perspective, and so it’s about economics. But you will hopefully gather from my perspective that economics is much broader than what some of the mainstream, or some of the regular, you know, I don’t want to call them mainstream, but some of the more regular daily commentators might think of as economics. I suppose, spoiler alert: from my perspective, economics is way more than financials. And so just bear that in mind as I plow through the presentation and just see where we go to.
Right up from the start, it is an economics perspective, but, sadly, many economists like to keep politics out of it, like the sports. If you’re old enough like me, you would have grown up through the 1970s and 1980s where the message for all of us was to keep politics out of sport because of course we needed to play rugby with South Africa back in those dark ages, but it’s almost there all the time, and we’ve got to keep politics out of economics, because somehow economics is separate. I’m not of that view, but actually I’d preface it by saying, irrespective of whatever politics you have, there will always be an economy. And there will always be an economic system, and we’ve got to sort out what that might mean. And I will go into a politics, which, from my perspective as an economist, revolves around this concept of the social contract, which I’m sure many of you will be familiar with, but I want to look at how that is going to or has evolved, and how it is likely or may evolve even further into something that will strengthen Aotearoa as we move into the future.
And then, of course, in amongst all that, in that conversation, is about power, and, closing it off, about that intersection between economics, politics, and power. So we’ll hopefully follow that sort of process or that sort of agenda and then see where we’re headed in terms of the conversations.
Now, very brief economics lesson, just to give you a bit of context where I’m coming from. Economics is very much, irrespective of politics or power, and irrespective of whereabouts you might have learned economics, and obviously in other parts of the world you wouldn’t have had these three esteemed gentlemen – my apologies for the lack of diversity, but that’s what it was a few hundred, oh, a hundred if not more so years ago. But hopefully I’ll introduce the diversity a bit later as we progress towards the… today, but the economics, wherever you learn it from, will have these words called ‘the allocation of scarce resources’. And it is about that, it’s about that word resources. It’s fundamental, it should be in the DNA of all economists because if there are no scarce resources, if scarce resources are not scarce, there is no reason for economics. It is our raison d’etre, it’s our reason for being that, because resources are scarce, we’ve got to decide how to allocate them and it’s that decision-making and allocation mechanism that is very much at the heart of economics.
So it’s that allocation, and whether you talk about these three gentlemen or others, you always come back to those core questions about the allocation of those resources. And then the question mark, and you need to get this under your belt: what are we talking about when we talk about resources? And I am not talking about financials, okay? So throw away your dollars and cents, and you throw away your… leave your baggage at the door. I’m talking about fundamentally things that you can touch and feel and see outside of those, you know, those notes and coins.
And the conventional economic model, whether you’ve learned it from Marx or Adam Smith or John Maynard Keynes or anybody else, it’s… the conventional model is centered on these two boxes, inputs and outputs. It’s centred on the production process. That’s the way economists … the economic system or economists will approach it right from the very beginning. We want to produce stuff, which is called outputs, and the fundamental economic question was: how do you produce that stuff? Well, we need inputs to produce those outputs. What are those inputs called? There’s lots of terms for that. You can call them inputs, you can call them resources, you can call them productive resources. All of those things are interchangeable. The question mark is: how defined do we want to go in our conversation?
Right up front, irrespective of what part of the world you might be coming to, we do like to split them into two separate chunks of resources. One we call resource inputs, which is a whole lot of … a combination of a whole lot of stuff, and I’ve mentioned a few in that box, and that other one called labour inputs, which you and me call people and workers. And those two things. You could identify in the mathematics that I did way back in the 1970s when I first did economics, they would be signaled or signified in the equation as a K for resource allocation, resource inputs (a) as in capital, we can’t use C for lots of other reasons, so we use K for capital and we use L for labour inputs. So that’s K and L, and you’ll be surprised that later on we’ll be talking about the distinction between capital and labour is at the heart of it. But somehow we combine them up into inputs and we produce stuff. That’s the process that is the heart of economics, and I haven’t entered into dollars and cents or money or financials at all.
The key thing, couple of key things, the measure of that outputs, the stuff we want the system to produce, we call value. That’s the system has value because it produces outputs. That value is in quotes because I’m not going to assign it a dollar value at the moment. Dollars is irrelevant to my model. It is defined as value, the measure of output. That is the value we get out of the system. How good are we in turning those inputs, those resources, into stuff? Outputs – that’s value.
The next question then is, how is that value shared between capital owners and labour owners? And depending upon the systems in place, all of that value somehow, according to that dotted line, somehow is shared between the owners of that capital resource and the owners of the labour resource. You’ll call them workers and other people will call the other side capitalists, or workers or capitalists, or whatever you want to call them. But that’s the system and we can argue about the division of that value – it’s not dollars and cents yet but that division of that value. The value is derived by what we produce, and then it is divided up between the inputs that are used to produce them, the workers and the other productive resources. That’s the key to the system. It’s really quite simple.
In amongst all of that, some of that value, well, all of that value gets recirculated back into, as consumers, we put on – take off our worker hat and put on our consumer hat, or take off our capitalist hat and put on our consumer hat. We want the stuff that the thing produces, and we therefore demand some of those outputs. That’s the mechanism that makes the thing function. It can function without financials and money. The only thing it has to have is this bottom left corner, those resources. It’s got to have labour, and it’s got to have that other box of resources, which I’ve shorthand labelled capital.
Two things about this picture that I might not go into in much more detail later on, but you do need to capture. The main thing we’re interested in the outputs, as an economist’s perspective, is that we believe, by assumption, which is fine, well, not really but never mind, short end, by assumption we believe more outputs, we produce more stuff, is going to link ourselves to better living standards or well-being or whatever you want to call it. That green box and that green circle and that arrow towards it is a pure assumption. It might have worked a while ago. We can assume we produce more stuff and it gets us better off. That’s great. Many of us are querying that assumption now. So if we query that assumption, we’re getting to the heart of it. Why are we so worried about how much we produce or the stuff? That’s a question mark.
The other assumption, sort of, that we have in the system is that green box in the left-hand side where we assume that the owners of the resources use some of that value to actually maintain those resources or improve them. And that’s also a little bit of an assumption and a little bit of a question mark, but somewhere in there we’ve got to allow for resources to be looked after. Sadly, in my system, we don’t have anything to ensure that the workers are looked after, but that’s beside the point, because they just look after themselves, we think.
Anyway, just out of that mechanism, the two things that I want to focus on is that division of value between the owners of resources, sorry, the resource input, the owners of capital, and the owners of labour. And that’s at the heart of the system that we want to talk about.
Just going down those systems … sorry, that just making clearer the … whoopsie – I’ve just lost my notes trying to grab them back. No, just go forward. Okay, no, that’s not right. One forward, one back. Right. The main thing about these resources, and I said there are different words for them, well, some we call them factors of production, which is a really clever way of saying we couldn’t define these factors, whether it’s capital or labour. We could define and disaggregate them, or divide them even further into more detail, and I’ve added an extra one in here, by the way, which is sort of getting us a little bit up to date, because as I said, we had capital and we had labour. That was this textbook that I sort of learned from. But for New Zealand, the textbook I learned from, it wasn’t the original textbook, we had a chapter in the end which the Prof added in, which we called ‘land’ because way back then we were effectively an agricultural economy. So we needed to acknowledge that not just that we needed capital and labour, we also needed land to produce stuff. We weren’t allowed to call it land because we couldn’t give it a capital L in the equation because the L was already labour. So we called it capital N, but it was always land. The interpretation now to make even natural resources is probably convenient, but I also think pretty relevant. So I have three factors of production in mind in my model. For example, but we can break them down even further, if you like, depending on how many equations you want, etc, etc.
But it’s still sort of land or natural resources, physical resources, which we could call capital – the network infrastructure, the buildings, the technology and all of that other stuff – and then, of course, the people, the workforce. All of those things, again, we can think about how value is divided up amongst them, but the moment you introduce natural resources, there’s a question mark in my model, which I need to develop a bit further: who are the owners of the natural resources that determine the land… that determine… that… that… that can get the value that is associated with those natural resources that are used. And again, it’s a bit of a question mark that we need to develop a bit further because we sort of, I think of land as just whoever owns a title to a land, well there’s a question mark there anyway. But we’ll get to that in a second.
The economic activity that, in the system, as I say in terms of that diagram I just had before, a couple of questions, or three questions that I’ve got there. The first two are very important in terms of deciding how we’re going to use this set of resources, because it’s constrained. Don’t forget, scarce resources. What to produce? I’ll just assume we’re just going to produce a box of stuff. We don’t have to give it a name, whatever it might be. We used to call them widgets. We’ve got to decide what to produce, and arguably that depends on what consumers want. We’ve got to decide how to produce it, what resources to use, how much capital, how much labour to use. And then the when to produce is a little bit of a by-the-by, but we’ll worry about that later.
The economic system we adopt could answer both of those. You know, if you’ve got a system like Adam Smith suggested, well, the market mechanism should help you address each of those equations… each of those questions. What to produce will be defined by what consumers demand, as per the assumption that consumers will maximise their own happiness, well-being, or economists called it utility. That’s simple. How to produce it? Well, that’ll be determined by firms who will mix labour and capital to maximise their own profits. And it’s all very simple, and a lot of assumptions about the market, and in particular, no individual consumer, no individual firm, no individual worker, no individual resource owner had any power within that market mechanism, and that’s a critical assumption. That word power does come up. And it’s down the bottom that I’ve got, critically, who decides these questions, the what to produce and the how to produce, is sadly left unsaid by many. textbooks, I would argue, and dare I say, by many economic students and thereafter economists later on, because it’s not addressed explicitly, it’s just left vague. Well, the market will deliver it, will decide for us, and, obviously, with that assumption that nobody has power over the market.
In amongst all of that scene set, there are critical, as I flagged earlier, critical things. Don’t conflate economy with business. Don’t conflate economics with finance. It’s not got to do with that. The economy, or economic activity, is critically understood, or should be, as not being a living being – it doesn’t have rules, it doesn’t have ethics, it has no moral compass, and it has no objective. Our economy or our economic system, depending upon what system you choose, may or may not have rules, but it doesn’t have to. May or may not have an objective, but it doesn’t have to. That is given to us by the society, the community, the businesses, the workers, or whoever is maybe powerful enough to make the decisions that I made before. So the economy is an inanimate construct. It’s that picture that I had in the earlier … the mechanism by which we decide what to produce and how to produce it is not given by the economy, it is decided by us in terms of designing that economic system that we choose to adopt. Do we choose to adopt a one that Adam Smith says, or do we choose to adopt one that Karl Marx says, which says that the value is being hoarded by the capitalist as they have all power and we should adjust that to provide it to workers who are, in his argument, the root source of all value. Or do we choose to implement an economic system like John Maynard Keynes said? Well, irrespective of how we divide up the value, there’s always going to be insufficient value to enable the consumers to consume that whatever is produced. So we need a government in there to increase the value available to everybody to consume the stuff that we produce. One of those three options are equally valid, equally relevant, depending upon the rules or the objectives or the moral compass we may, or may not, wish to give our economy.
So enter into that the question of the decision-making process, enter into that the politics of the mechanism. And I sort of frame it again, unapologetically from an economic perspective – so somebody who’s way more political than me can tell me where I’ve gone wrong – but I’m very primitive, and I go to the social contract, because that, to me, is very much about the power, systems, mechanisms that we may or may not choose to adopt, and how it relates to the economy, or the economics. So, I’ll go back to the, you know, the primitive origins of the social contract, very much in the context of the individual surrendering some rights to gain or
acknowledge that it has or may get some benefit from being part of the collective, exchanging rights for protection from the state.
And don’t forget, way back in that, it’s very much slanted by the, what I call the landed gentry, very much slanted by the protection of private property rights. And so that original social contract very much devised to enable the state to protect those private property owners, effectively those people who owned land, who were worried about losing that land to either the marauding hordes or the invading armies. So, we have this sort of social contract that says, yes, yeah, the kings and queens can levy some taxes, but as long as you protect me from those marauding hordes. Very much focused on the owners of property and the rights that those owners believe they had. There was no acknowledgement or there’s no recognition here that the owners of other resources might have rights or might have property that they also wish to protect. But at least that’s where I start from. It is also a way of not just enabling individuals to get benefits from the protection of the state, but also ensuring that the state didn’t get too powerful, to provide limits to that state function, because we didn’t want the states to get all-powerful, because it was the individuals and their property rights that had most of the power we actually wanted to protect, if we wanted that social contract.
Just pushing forward that modern day development, I would say started from the landed gentry, but then recognition that actually there’s more property owners than just the people who own land. There’s the capitalists who own machinery and equipment and all of that sort of stuff. And we move more towards that agreement, not just between the landed gentry and the kings and queens, forget about the serfs and all of that, into something more about the government and the governed, recognising that there were rights to non-property owners. And there are rights in terms of collective rights, just rather than just individual rights. And even more progressing further, the recognition that actually we might all benefit if we all played by the same rules, if we all abided by the laws and the regulations, and dare I say, the ethics that we might want to impose on the economic activity. And so, therefore, we might actually want a state that, yes, it policed but sort of self-policing in terms of ruling by consent, rather than having to enforce stuff, so we didn’t have to put a hold on a resource and effort into imposing penalties or sanctions.
That’s how I would interpret the social contract. Translate that and the politics of the day into the economics, it effectively established some rules for acceptable economic activity. So in the original social contract, there were only rules around protection of the land, there were no rules around what sort of labour you could use on the land, and you were quite willing… you could use slave labour if you like, that’s fine as long as you’re willing to pay value, as long as the slave labour was willing to turn up for the value that would be sent back to the slave. But that was the mechanism back then.
Now, we have a, you could argue, a development of society / community that said, well, I didn’t quite like those rules, they’re a bit skewed in one direction. Let’s have some more rules that gives our economic activity a bit more guided by the ethics or the moral compass of the day, which said, no, slave labour’s not quite what we agree with. And actually, by the way, child labour’s not that good. We want to screw the scrum, or skew the scrum, a little bit further towards recognising the rights of more of the actors in that economic system. So let’s have some minimum wage and or safe employment conditions in terms of rights of labour, alongside the rights of property owners. And you can go even further in terms of, arguably, rights to access to health and education. That just explores even further the … or the role and function of the state and are we prepared to go beyond just the protection of property as the function of the state?
And we recognise, you know, in our … I suppose, in our political discourse, whereabouts that social contract might lie in terms of how much we want the state to do, how much we want the state just to stay in terms of its lane, in terms of protecting the rights of the property owners, or dare I say, the resource owners, whether they be capitalists or the labour resource. But they’re also, let’s push forward and say, recognise that there are actually externalities, in the economic jargon, in terms of the activities of the individuals actually create either external benefits or external costs that we might want to impose on that economic activity and make sure the rules and the guidelines reflect the true value that we want.
Going towards, then, the power mechanism, though, you have quite clearly in that conversation I just went through the shift in power from the original social contract, which was very much laden with the power of the landed gentry, or the power of those original property … of the resource owners that had land and maybe some factories, to something that was arguably a bit more evenly spread, you could argue, between the owners of labour and capital.
Now, of course, I think pushing forward, I would argue the key thing in there is power, depending upon who’s got it and which one’s got it, is you do actually have an ability to distort, I would argue, the social contract of the day towards your version of the world, and that’s what happened in the past. You could argue now, we’ve actually probably got a new player in the mechanism because my system only had labour and capital. You could argue now that actually the power within the social contract, whether we’re calling in the USA or in Aotearoa, it’s not just labour and capital. You’ve now got something, what we call corporates, or indeed mega-corporates, which are not quite the same as the capital owners, the capital resource owners, or the labour owners. And it’s critical in Aotearoa because our economy is different from the English economy, where all this came from, and it’s something that I don’t think we’ve recognised, well, the economics we get taught is not recognised, because the capital owners in Aotearoa don’t have a parallel here, because in Aotearoa, most of our capital is owned by what we call SMEs, small-to-medium enterprises – family businesses or small businesses, you know, employing less than 4 or 5 people. They’re not really the big capital resource owners that are envisaged in one of my first diagrams. So you have this mix between a capitalist and a labour. You actually haven’t got many capitalists in that true sense of the term in the economy operating in Aotearoa outside of the few big ones. So that argument about the dichotomy or the scrap between capital and labour to scrap over the share of value doesn’t quite fit, because you’ve got many capitalists who are actually supplying their own labour. So they’re, in terms of the family farm, or the family construction business, or whatever it might be. So that picture or that model doesn’t quite work.
Throw in that mix, this particular place, the distortion of the social contract when you have what I would call those mega corporates, and you have a potential for a social contract into the future, I would argue, that could go way back towards another end of the spectrum, which is that not quite the owners of the land, not quite the landed gentry, but an equivalent social contract, which is driven or distorted by the power of the mega corporates.
Again, what does that mean here in Aotearoa? Irrespective of the mega corporates, we still have this inherent tension in the social contract between individual and collective property that we still haven’t quite worked out. And very relevant in Aotearoa when we introduce something that I haven’t quite mentioned yet, which is Māori land and Māori resources and resources owned by Māori and corporations, which are growing, or not growing, becoming more and more relevant to our economy now and, dare I say, into the future. Collective property, what do we mean by collective property as opposed to individual property? Does it matter how the property was acquired in the first place? Depends on the ethics or the moral compass we want to adopt. You know, the economy couldn’t care less, it doesn’t got one of those. Individual and collective rights aligned with property or not property. And then what do we have to do between those property rights and externalities? I own a piece of land, I should be able to do whatever I like, irrespective of the externalities. You know, if the land leaches nitrates into the local drinking water, well, that’s not my problem, that’s somebody else’s drinking water. And we can all think of other examples of that. Apologies if that’s offensive to some, because I just picked that one off my head, but I can do other ones.
There’s tensions between those, but there’s also tensions between the rights and responsibilities. Social contract in the past has always focused on protecting individual rights, or dare you even say individual collective rights. What about the flip side of those? Are there any responsibilities that go alongside those rights?
My original economic system doesn’t really care. But we might, especially if we start talking about collective property, we, dare I say, the ownership of collective property isn’t actually all about rights, it is about responsibility, it is about being kaitiaki of those assets or of those resources rather than a right to use. You have a right to use, arguably, but you’ve got an obligation or a responsibility to look after. You don’t have a right to buy and sell if it’s collective, collectively owned Māori land that you have guardianship responsibility? How does we feature that into our social contract? It’s something that I think we need to capture or discuss openly. Sadly, I think we’re going backwards because of the Regulatory Standards Act, which is very much, and you can argue the politics around it, but is very much an interpretation and a perspective on both the economy and economic activity, and the social contract back towards something like the landed gentry, where only individual rights matter and only individual property owners matter. And the rights are – they have no responsibility, they only have rights – they should be able to buy and sell, etc, etc. It is a very narrow and, dare I say, way out of date economic system that they’re trying to impose. Very much around the state should only have regulatory powers as long as those powers are to protect that property, as opposed to protect the collective property, or indeed regulate to restore some balance or some different social contract that others may favour. So … and I’ve written about that, if you like, under … in my Substack columns as well. But, I mean, the Regulatory Standards Act, irrespective of all the shenanigans around it, needs to be recognised in the context of the economic mechanism that it assumes. It really is by assumption that the narrow view of economics and individual rights and individual property is what will drive us towards a good outcome from an economic perspective.
So going back, you know, that Regulatory Standards Act really does believe that all of those decisions about what to produce, how to produce it, and what resources to use, and dare I say, the rules under which we operate the economic activity, should be driven by the people who own those resources, full stop, just the individuals. Whereas … and so that’s very much that left-hand picture of the world, that landed gentry. Power subsumes politics and subsumes economics. And that power very much resides from the property owner’s perspective. Whereas a world, which I think we were traveling towards and I’ve dashed a line sort of heading back the other way, which is, yes, power overlaps economics, and yes, it overlaps politics, and so do the other three. But somewhere in there, we have some sort of balance, in particular in terms of who writes the rules. Who writes the ethics or the moral compass for our economic activity? That’s critical, because those rules then determine the answers to what do we produce, and how do we produce it? What resources? Is it good enough to use more and more land for urban density or urban sprawl rather than using more and more land for food production and so on.
So all of those things, the rules, presuppose that we have an objective for an economy. And I think that’s the huge missing element in the social contract, whether it’s written or not, or the market mechanism or the Regulatory Standards Act, or any strategy that we have in terms of our economic policy, we haven’t got an objective. If we’ve got an objective, we can then write the rules and the moral compass and the ethics that is consistent with that objective. At the moment, unwritten objective, we’re just interested producing more and more widgets. We’ve got some rules around how you’re allowed to produce them. You’re not allowed to use child labour to produce them, but you can use cheap labour if you like, if you can get away with it and cheap women. We’ve passed the law, we’ve abolished pay equity, so we can go down that route. But, still not sure what the objective is, just produce more widgets. Not sure, sort of assumes we might be better off, but I’m not comfortable with that assumption.
This is my objective, and I’m happy to argue about it, but it’s a different scheme of things. What if our objective wasn’t in the output box of that very first diagram, but was more around those two input boxes, the two resource factors, whether it be the owners, whether it be the capitalists or the capital resources or the labor resources, and I would add, if I had room in the diagram, the natural resources. If we focused on those natural resources and actually forget about the owners, but look at our role as guardians of those resources, I come to this sort of objective, which would then give me a whole set of different rules around what do we produce, and how we produce it, and what are the ethics around what we have to produce. And again, I’ve written about it.
I would, coming very close to the end, add that I am not totally alone in my thoughts. There are many, many other thoughts in terms of new economic models that go way beyond the ‘we have to just produce more stuff and we don’t care how we use the resources’. Here’s a selection. There’s a little bit of diversity, a lot more diversity in here than there was in the previous one. It’s not so much … it is commonalities, is about giving the economy, our economic activity, an objective that’s more than just producing more and more stuff. But it is also about how we use our resources, whether it’s … So the objective, Mariana Mazzucato around a mission, or Mānuka Hēnare around an economy of mana, or whether it’s how we use our resources like Kate Raworth and the dounut economy, or the circular economy, regenerative agriculture, all those sorts of things. So we can give the economy or economic activity some different objectives. It won’t collapse the economy, because don’t forget, there will always be an economy. It’s not a living being, it doesn’t bleed, it won’t die. It will just look different, because it should look different if we’re choosing something different to head for.
This is my way of turning all of that into something that’s useful for our… that I would argue is a blueprint for Aotearoa and looking ahead. We’ve got to start with Te Tiriti and He Whakaputanga. We’ve got to think about sovereignty as separate from governance, and both … the two founding documents alongside that unwritten social contract that was sort of brought here by the colonisers. Together, we bring that together into some sort of governance authority. Governance authority, that is the authority of government, not the, not sovereignty, but of government to manage economic activity, and dare I say, even govern economic activity, subject to the objective, which was in the previous slide, which I’ll just put in shorthand as being a good ancestor. It all depends on that purpose. The purpose is being a good ancestor. I’ve got my economics in the bottom, I’ve got my resource… productive resources is one of the pillars, but the other resource is the social floor, and that represents the ethics of economic activity. No, you cannot use labour if you’re not paying them a reasonable wage. And by the way, you can’t keep on economic activity if you can’t feed your people. It depends, we can have to have an argument about what do we want to put in that social floor. But again, that’s part of the democratic process, I suppose, but that’s part of updating our social contract, our understanding of what we expect government and what we expect our economy to deliver for us. And all of that’s on my Substack, if you want to.
Lastly, though, I do find it curious that I can go down here, because I would say I’m supported by the Financial Times, but when the Financial Times start talking about radical reforms, and this was a quote from the 2020 Financial Times editorial, UK newspaper, business newspaper, I find it quite heartening that they recognise the system’s broken.
And I also… just take a bit of ironic departure in terms of that subtitle about radical reforms to forge a society that will work for all. Now, the way it went for all is a huge step for the Financial Times. It’s a huge step for any social contract that didn’t care about all, only cared about the landed gentry. But I do find it ironic that they mention a society when the Financial Times was one of the biggest flag wavers for Margaret Thatcher when she said, remember, ‘there is no such thing as society’. And I find it rather curious now that the Financial Times actually admits that there is a society. So anyway, I’ve spoken for way too long. My apologies, but hopefully you found that useful.
I’ll leave that with you, and happy to take Q and A. Nō reira. Thank you.
Questions and Answers
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Question 1: Should social and economic capital be included alongside natural, physical and human resources in economic models?
Question 2: Does the New Zealand mainstream and social media have the power to influence the general public and politics?
Well, the first one’s easy – social and cultural capital? More than happy to add that into my resource kete. I think I had in one of my bottom bullet points – I didn’t cover it off – in one of the slides where that strength of social cohesion is seen as now, in some arguments, as a factor of production. The strength of the social capital which then generates some form of social cohesion, and the stronger that is, it actually is a factor of production in terms of enabling an economy to deliver better. So absolutely, and I would add one of those pictures right at the end, in terms of all those different models, one of those models was the Treasury Living Standards Framework, which has been developing for about the last 15, if not more, years. It’s still on their website, thankfully, even though they’re not allowed to talk about it for the last couple of years – but that’s beside the point. It has developed quite considerably, and in particular, they have, they’ve identified four types of capital, which is very similar to mine, but they had natural capital, physical capital, human capital, but also something called social cohesion, which is pretty close to social capital. Huge argument in the run-up to that about cultural capital. Et cetera, et cetera.
Cutting to the chase, they’ve – Treasury – finally conceded and did allow culture to be there not as a capital but as something encompassing all elements of those four capitals I have. So yes, however you define it, very definitely has value. Cultural capital, social capital, and dare I say, in there must be the value of social cohesion that we derive, I would argue, from our original, well, at least Te Tiriti and He Whakaputanga, and if we ignore that, then we risk losing the value of that social capital. So I’m more than happy to add those in.
I would add that the problem with the Living Standards Framework, and dare I say, the previous ministers heading down the well-being economy, is it got kneecapped into measurement and this idea that we’ve got to measure everything, and in particular, you can’t measure well-being. How do you measure social capital? I would argue it’s not important to measure it. It’s important to know whether it’s good or bad, or whether it’s getting worse or getting better. And I think we don’t need numbers to know whether it’s getting worse or getting better, but we can use indicators if you like, but we don’t want to get caught up in the having to measure everything.
The power of social… yeah!
There’s always been a power of media, and that’s, I suppose, information. Information, knowledge, technology, all of those things, they can be used for good or bad, and obviously there’s an element of power involved in both of them. I think the key thing is the access to platforms to have that power. Some people have more platforms than others. Some have … what’s the word? – louder voices than others. Yes, it’s important. Yes, it can influence the power-making mechanism, or the decision-making mechanism, and actually, I would argue, in terms of the resource stat… the Regulatory Standards Act is an example where I don’t think many understood that this was literally taking the social contract back to something like the land gentry. I’m not saying it’s all the way back, but in that direction, and that was, I would argue, fueled in part by a reasonable degree of misinformation through social media, but a reasonable degree of power being flexed by certain groups, in particular those who saw themselves as advantaged by that shift or that narrowing of the role of government. So, yes, media and the flow of information is powerful in today’s world. It’s something we have to acknowledge absolutely.
Question 3: Doesn’t conventional economics just favour the rich and powerful?
I absolutely do have politics in the middle of economics, without any apology whatsoever. What you’re talking about is a screwing of the social contract and a rewriting of the rules to serve a particular subset of our community. I would argue, you get past that by rewriting the rules, reclaiming the social contract for us, for the community, not just capitalists, not just labourers, not just business owners, not just mega corporates, but recognizing there is a large number of communities and different groups and interests that should have a voice and power to rewrite those rules to provide the economy with some moral obligations and objective.
But we can’t do that through the current system that we’ve got, agreed? Because we’ve got a power imbalance considerably, and that’s what I was trying to bring out. That power is being used to shift that social contract back the other way.
[Questioner] I guess my question is, how do you address that imbalance?
I’m just a mere economist. I’m here. I’ve written about it and I’ve put it on Substack. I’ve given you alternatives, which bring out the importance of power and I’d welcome you to not only read those but to build on those, develop your own alternatives. It’s got to be more than just saying that what the current lot are doing are all bad, because the current lot are doing pretty much the same as the previous and the one before them. We’ve actually got to have a new economic model, which recognises that the economy will continue, irrespective of the model, the rules that we write. We just want to exert our power and right, dare I say responsibility, to write the rules that we want rather than what a small subset of the community would prefer.
Question 4: How is the market model able to value intergenerational challenges?
Question 5: If intergenerational challenges are valued, is there ever going to be the political appetite to implement solutions?
Well, I think it’s, well, it’s a combination of all three, whether it’s economic, political or power. We’ve got to (a) understand that the economy on its own won’t deliver, because, as I say, it doesn’t have any ethics, doesn’t have any morals, it doesn’t care. So, it’s got to be the politics which write the rules for the economic activity that we believe is acceptable. So, literally, the politics has got to write the rules that say this sort of behaviour or this activity is not allowed, full stop, this other activity is. You wrap that up into the ‘why’. Well, the why is: this is the objective for the economic system that we want. And you can say the objective is way beyond producing more and more stuff. It’s got to do so, whether it’s intergenerational, whether it’s resource, whether it’s building resilience, or driving productivity, or whatever it might be. Give it a clear objective, and then write the rules that are consistent with it.
And as you say, as you say, by more in favour, absolutely in favour of, and indeed was one of the recommendations in a Productivity Commission report we wrote a few years ago, which is very much making an explicit statement that has the future generations as a decision maker at the table. We had… we’ve factored that in in terms of a commission for … a commissioner of future generations or a future generations commissioner, which has a role to be the voice of the next generation. And we’d only accept that if we accept that the government or our economic system has to have a role that has an objective that goes beyond the here and now, which means, yes, we’ve got to either have a voice at the decision-making table. You can do it through some financials in terms of discounting and having incentives to invest for the future. But to be honest, I think that’s only going to be, I won’t say trivial, but marginal. In amongst all of it, you’ve got to accept that the property that we own doesn’t give us a right to exploit, because that property we own, we only own for a blink of an eyelid in our total stream of history. We have… we actually own it, in that sense, as a guardian for future generations, so recognising that what we do with our planet actually is not our own decision, is not our own right, we have a responsibility to look after it. And again, it’s writing that into… that’s what I call the social contract, or if you want to, the rules under which we accept certain economic behaviour, but not others.
Question 6: What are the likely impacts of climate change, the rise of mega multinationals companies, and the collapse of unions?
Question 7: Does the Labour Party’s Finance Spokesperson, Barbara Edmonds, listen to your views?
I talk to Barbara about this, and I’ve talked to other politicians about this, so that’s all fine. I do have a voice, and I’m privileged to have that platform. Whether it gets through is for others to determine, but I think, yes, climate change, yes, megacorporations, the impact on the economy, I think that’s the – I have a frustration with that phrase ‘impact on the economy’ – it will impact on economic activity, yes. The question is, what are the rules that we are going to write to either mitigate that impact or to – what’s the word? – substitute different economic activity. So, if climate change says, we cannot do this anymore, it’s up to us to think of something clever to say, but we can do this other thing, which may or may not be any better, which hopefully will be less resource intensive, etc, etc. And so it’s a matter of what drives the impact on economic activity of any of those things is the rules under which we operate or those guidelines or those ethics that we want to impose. And so we could do that with megacorporations. We can say, fine, you can do all your megacorporation stuff if you like, but these are the rules, full stop. And if you don’t like them, you can go somewhere else. Bye.