Tuesday, August 05, 2014

Nigel Latta: The new ‘Haves and Have Nots’ – time for Moral Leadership in New Zealand

Nigel Latta outside Sth Auckland loan 'sharks'.
Blog based on Nigel Latta’s documentary http://tvnz.co.nz/nigel_latta/video

As we begin to focus on the upcoming elections Nigel Latta’s TV programme is timely. It is surely time to move away from on the personalities of leaders and to focus on the real issues facing our country.

The programme was a serious attempt to get to the core of inequality in NZ and its consequences for us all.

Once NZ had one of the highest home ownership figures in the world and we didn’t see examples of extreme wealth. Latta is careful to say he is not against people doing well but he was stunned to learn that over the past decades the gap between the rich and poor in NZ has widened more than anywhere in the Western World.

He wondered why this is the case; how did it happen and what are the consequences for us all?

.The recent Quality of Life Survey has reported that 1 in 5 families do not have enough money to live on. Many families have to resort to food banks that were not necessary in the 70s. One in 3 households cannot survive more than a few weeks if they were to lose their jobs.

Yet while there are those struggling to survive there are a relatively smaller number of people
Bernard Hickey
who are now fantastically wealthy.
Bernard Hickey (Financial Adviser) makes the point that during the 2008 global financial crisis (GFC) the people who were rich got richer and now corporate executives live in luxurious style. The trouble is, says Hickey, that the widening gap presents real problems, ‘When you have very unequal societies they tend to be slow growing economies. People with wealth invest in gold, houses and land which do not generate lots of jobs.’

The richest 100 people in NZ have increased their wealth in 12 months by 7 billion – an average increase of 47 million. During the same period the real wage fell by .05 %. We have been told for decades that the money would ‘trickle down’ but, Hickey says, ‘could it be actually flowing the other way?’

Hugh Fletcher (one of New Zealand’s richest men) states bluntly ‘the trickle-down theory doesn’t work.’ ‘All the fruits of the economy has gone to the top and the average income hasn’t gone anywhere in the last 30 years. Fletcher is concerned about the inequality because of its effect on social cohesion; ‘extreme poverty does not bring about cohesion’.

Hickey continues by saying ‘when you have a lot of poor people living in poverty they do things – they upset the apple cart. He says that ‘if you continue to press down and impoverish a group of people they end up living behind barb wire walls. The last time we saw such levels of impoverishment was during the 1930s.’

Traditional advice to those struggling is to get a job, work hard and save but this it seems to Latta is no longer possible. Many poor families have two people currently working but still can’t
Growing underclass
make ends meet. Such families, the programme showed, are able to feed their children properly of give their kid’s simple treats. One job may be at the minimum wage the other cleaning jobs earning $10 an hour working all hours of the night. These families are becoming the working poor. 40% of families with children living in poverty have parents in full employment.

Latta states the obvious (but too often ignored by politicians from the right) ‘research shows strong correlation between poverty and teen pregnancy, drug abuse, suicide, imprisonment and life expectancy’. The biggest impact of inequality is the crucial consequence of the effect it will have for later generations.

Dr Garesh Nana
Dr Garesh Nana (Chief Economist BERL) pointed out that the critical factor for life success is your endowment – what you start out with in life. Some people start well ahead – others well behind and the gap widens. There is no level playing field. The wealthy are able to buy up property while the others become increasingly desperate and those who start with the greatest advantage will eventually dominate all the others. So much for the trickle-down theory!

The bottom 10% adjusted wage rises have risen 13% since 1984 while the top 10% have seen their wages rise by 78% which is 40% faster than those in the middle  who have seen their wages rise by 19%. The rich are getting richer!

Gabriel Makhlouf
Gabriel Makhlouf ( Chief Executive of NZ Treasury) tells us inequality was on the decline but through the 80s the gap has widened due to two causes: the impact of technological changes that ‘have emptied out jobs’; and the impact of globalisation – things can be made cheaper elsewhere due to lower wages.

Bernard Hickey (Financial Consultant) comments that ‘the benefit of globalisation has accrued to those at the top and the costs spread to middle and lower income groups’.’ The real victims of globalisation has been the loss of a large number of jobs- it started in factories and now is being seen in the service industries- legal services, accountancy services, medical services, education services – jobs moving into the cloud and overseas.’

But it is not just overseas, says Hickey, incomes in NZ have also been eroded. In 1989 the hourly rate was $21.83 .If this had kept pace with productivity workers’ wages would have increased by 50% but instead have only risen by 16%.

So, asks Latta, how has society become so unequal (if you haven’t worked it out by now)?

Jane Kelsey
Jane Kelsey (University of Auckland) joked that ‘the government has been snatched by the money men’. ‘The major U-turn began in the mid-80s- this is when inequality took off’. ‘Everything was liberated from the financial to the labour market. As a result we now have more conspicuous wealthy and the reality of poverty more obvious – there are now beggars on the streets’.

Dr Charles Waldegrave and others have stated a campaign for a minimum living wage – defined as enough to supply the family with the basic necessities of life. ‘Research’, he says, ‘shows that with a minimum wage you increase production, increase work happiness, decrease instability’. ‘Such a living wage should be not be compulsory – but an aspirational goal to appeal to the best in people.’ ‘This is an idea that has been picked by such companies as the Warehouse – if they can afford it why not others?’

The world of the elite rich!
The growing wealth of the few has created a demand for extravagant houses particularly in Auckland – a 270% increase in house prices while salaries for workers has risen less than 1%. This means for those not on the property ladder owning a house is a romantic dream. Bernard Hickey comments, ‘for young people in their 20/30s there has been a collapse in home ownership the last decade’. ‘Banks in the last decade have allowed people to borrow more  and more so people can pay more for houses and the demand goes up’. ‘Middle income group borrowing has been encouraged by banks’. ’Those with extra money invested in houses as you avoid paying tax – which further drives up the demand and prices’.

This, Hickey says, ‘ends up with a housing market that is worth 12 times than the stock market and a very serious debt problem’ ‘The moment interest rates rise people will get mortgage debt and be wiped out’.

The 2008 Global Financial Crisis (GFC) ‘was a warning shot across the bows. Says Jane Kelsey, ‘and there will be more and they will affect NZ more deeply than the 2008 crisis’. ‘People cannot continue with a pyramid of debt. People don’t appreciate how indebted the NZ economy is – they would be shocked. It is not public debt it is private debt.’ ‘It is the debt that makes up the gap between real wages and what families have to live on.’

Jane Kelsey’s vision has Nigel Latta worried!

Back to Makhlouf at the Treasury. What are his concerns? The issue of private debt – household debt! There is, he warns, the possibility of the ‘housing bubble bursting’. ‘The surge in our debt is because borrowing has become easier; if the banks won’t loan there are the loan sharks’. Repayment for many is too much for wages to cope with.

 Latta comments that ‘poverty leads to immediate thinking and people fall into debt trap’ – the really poor fall back on pawn shops for cash supply for immediate needs. ‘Things are seriously messed up when good people are paying impossible interest payments to loan sharks’.

Even the idea that education is seen as a basis for a successful life is in doubt Students mount up tremendous debts. University students leave with $50000 loan debts and still have trouble finding jobs. Even students of the middle class are feeling the squeeze – something never experienced by their parents. Fee education is a myth.

So what has changed asks Latta in regard to Government money for public good?

The trouble is that the government gets less tax from companies and from people on a higher income. And lots of people are fiddling their taxes. As a result the government get less tax. Dr Lisa
Dr Lisa Marriet
Marriet (Victoria University of Wellington) tells us that ‘there is a significant amount of undisclosed tax – more than 5 or 6 billion!
‘And’, she says, ‘it is not just local companies and individuals, an enormous amount of tax is avoided by international corporations – Google, Facebook and Apple pay no taxes anywhere!’

We would all be better off if everyone paid their fair share of tax.

Make them pay a fair share!
As Nigel Latta says ‘it seems crazy to me that the tax system has been changed to suit the people with lots of money while the low earning kiwis, young people and students are forced into debt’.

Over the past 25 years most of us have seen little in wage growth while we all have been faced with increased house prices and ballooning debt – which you have to repay while living from day to

day. If you can’t you are in debt trap which some people see as the biggest failing in our current economy.

With regard to wages Bernard Hickey said that ‘Henry Ford quadrupled the wages of his workers so they could afford to buy his cars!’  ‘Our economy will stall if we get to poor to pay for goods.

Nigel Latta: ‘we need some visionary thinkers in business. People prepared to make bold movers that Henry Ford himself would find impressive. Luckily we have such an individual in Derek Handley’.

Derek Handley
Derek Handley is a self-made millionaire - a successful entrepreneur. Handley has joined a group of business visionaries concerned with the role business plays in the role preventing inequality. They are determined to revolutionize the way business leaders operate – they are calling themselves ‘The B Team’. Their mission is to encourage the purpose of business away from short term to long term gains/profits so as to be a driving force for social, environmental and economic benefit.

They want to change the game because of the growing problems and issues facing us. They are asking if business is so powerful why businesses aren’t playing a pivotal role in addressing such important issues that affect us all?

It is an ambitious plan but it has the support of global heavyweights such as Sir Richard Branson. Business has the power to make the world a better place but it needs a ‘Plan B’ –one that concerns itself people, the planet and the economy. There are business leaders in NZ who want to be part of such a movement.

Handley says, ‘We are talking about a total lack of moral leadership in  business leadership’

Handley believes that ‘it would only take a 100 of the top CEOs to change the world. Such people could be the leaders pointing the way to a better future for all.

As Latta comments, ‘up until now it has been profits first – why wouldn’t business leaders change? Why would they care?

 Handley answers by saying, ‘In the long run sustainability will be big business – businesses will need to include social and environmental goals’. Such goals will not only will it make our community better but it will be profitable in the long run. Businesses can help deliver on both.

Even the Treasury is considering measuring aspects well beyond GDP - to measure quality of life. It seems we have focussed too much on financial success for a few and not enough on the quality of life for everyone. Something new we will have yet to discover but to base success on simplistic GDP is so last century and is centred on the Christchurch rebuild and the dairy industry.

We owe’ says Latta, ‘a better life for our children; a dream of a better world for our kids; for them to grow up in a country where everyone has a fair chance of a job; a decent home to live in; and able to feed their kids’. ‘We don’t want a world where we have working people living in debt with the rich living in gated communities afraid of the poor’
‘Addressing the issue of growing inequality’, Latta comments, ‘is a no brainer because ultimately inequality hurts us all’. ‘More and more people are getting disillusioned. New economic thinking is
Beggars in NZ!
required to face up to the reality of growing inequality’

Nigel Latta has timely defined the real issue of the 2014 election – and without a politician in sight!

Political leadership will now be required to go forward

(Apologies for any misinterpretations; check the video yourself – Bruce Hammonds bhammonds@clear.net.nz )

More detailed information available at http://www.union.org.nz/economicbulletin159.


Anonymous said...

Thanks for taking the trouble to share this with us Bruce. As you say an in depth look at an important issue - perhaps the most important issue as we face up to an election. Far more important than comparing leaders personalities!

Bruce Hammonds said...

I think it was worth the effort to record the ideas Latta researched. Better than listening to 'spin' from politicians. His next programmers is on education.

Anonymous said...

Excellent summary of key points. I thought he did a great job, I liked the way he used a range of experts, and managed not to put his personal slant on any comments. I think it made the programme more authentic.

Anonymous said...

That's pretty awesome thanks for the information you shared to us!