A spectre stalks the mainstream parties this election: American gangster capitalists.
They aren’t a factor for July 27. But beyond election day will the political consensus for the free economy hold?
During the dotcom craze anything went and anything was believed. There was a “new economy”. A philosopher’s stone had been found.
It turns out, as it does after all bubbles, that much of the “new economy” was cheating: Enron, Worldcom, Xerox and even many otherwise staid companies. Bent managers cooked the books, bent brokers talked them up, bent auditors ticked off their accounts, gullible funds managers bought their stock. No one knows any more whom to believe.
Of course, as always after bubbles, the gangsters are exposed. Self-correction is one of the beauties of the capitalist system. But a lot of people get hurt during the correction. That is one of the problems of the capitalist system.
It is a political problem.
The great majority of our MPs believe, since the 1980s bonfire of regulations, that capitalism delivers the fastest and most consumer-sensitive growth of material welfare.
But the system runs on greed — of capitalists hungry for profit, savers hungry for high returns. Mostly, greed checks greed, provided the rules are sound. During bubbles, however, from the seventeenth-century tulip mania on, greed is welcomed because it seems to be generating amazing wealth. Then it gets out of hand.
United States economist Kevin Phillips calculates that, while workers’ wages there roughly doubled (before inflation) in the two decades to 2000, the top 10 chief executives’ average earnings rose 4300 per cent.
Fine, if they had discovered the philosopher’s stone. Middling folk don’t deny high rewards to high achievers. They lionise Jonah Lomu. But now it looks grotesquely excessive — as it always was.
And that invites regulation. When capitalists lose restraint, politicians restrain them.
We don’t have American extremes of income differences. But since the mid-1980s top executives’ pay has grown much faster than that of middling folk. And some of that is reward for lifting profits by firing middling folk.
Of course, executives’ constant push for efficiency is not just good for their companies’ shareholders. It is one of the ways capitalism produces wealth faster than any other system — and middling folk on average win from it over the long term. It is win-win, provided bosses don’t pillage the system.
But if you don’t read economics texts for fun it doesn’t look that way. Sacking workers in a profitable plant to make higher profits looks plain wrong.
So we get complaints such as this from the Council of Trade Unions on June 20: “Huge multinationals like Carter Holt Harvey have to realise that corporate citizenship means more than taking profits out of communities. (They) must adjust to the communities they operate in and the workforces they employ.”
Translated, this means: if companies won’t adjust in that way, the government should make them.
One element in the current government’s popularity is that it has mildly re-regulated business. Voters sought some corrective action in three elections after the 1987 crash of our own crop of Enrons, Worldcoms and Xeroxes. Helen Clark has delivered it.
She has nevertheless left free trade in place and left business very greatly freer than before the 1980s reforms. Though it came in fits and starts, economic growth speeded up in the 1990s. Labour agrees this much with National and ACT: that there is an economic, and so eventually a social, cost to over-regulation.
But what if there are many more stories of capitalists gone bad in the United States and, politicians there, frightened by angry voters, turn the screws on legitimate capitalism? What if other countries’ politicians also take fright?
That is not an issue here for July 27. Anti-free traders and anti-capitalists are on the margin in this election.
But if American consumers lose faith in the system and retreat and our exports get caught in the crossfire, mainstream parties, especially Labour, will find it hard to argue against over-regulating legitimate capitalism. Winston Peters’, Laila Harre’s and the Greens’ warnings will ring true with many people. The spectre looms.