When Alan Gibbs was developing his rural land bordering muddy, tidal Kaipara Harbour he wanted the river that flowed through the paddocks to be blue. Just a few kilometres from New Zealand’s last majestic stand of kauri, he ordered up trees that might resemble a plantation in colonial Virginia. Near one of the last habitats of the kiwi, Gibbs envisaged giraffes and zebras. When he’s not struggling to impose an alien landscape on Northland, Gibbs is usually travelling: to places like Afghanistan, Cuba or North Korea, his choices dictated by his obsessive need to be confrontational, to collect evidence to confirm his ultra-conservative political views. Gibbs, it seems, is always restless, never quite at home.

We hear about mansions he’s built in Auckland, and how he’s moved to bigger places in order to hang his growing art collection and how he specified that the walls be thick enough to stop a bullet. Is Gibbs a likely assassination target? Or are other needs in play? Much of the book is devoted to Gibbs’ long efforts to build a car that doubles as a boat. Every few years there’ll be a spasm of publicity as Gibbs launches his craft into water like the Thames where you can splash up some media. If you recognise the name, this might be why. It’s a fun hobby no doubt for a man with piles of money, but does it make him worthy of a big biography? Is the claim credible that roaring into a river in his boat is “an outsized achievement” that has given the world a way to “extend human freedom”? To make sense of the hype, you need to know that Gibbs was a key player in the Rogernomic assault on the New Zealand economy. As an insight into the ideology and motivations of that era, “Serious Fun” (a title which refers only in part to Gibbs’ boating) is instructive.

This is his biographer’s fourth book, and his fourth about Gibbs. Paul Goldsmith has previously published lives of Gibbs’ dad, once apparently a  businessman in Christchurch who moaned that Sid Holland’s repressive 1949-57 National government was “worse (that is, more progressive) than Labour”, a bloke whose grave happened to be on Gibbs’ land - and John Banks. Banksie? It helps to bear in mind that Goldsmith is the National list MP who stood aside as National’s Epsom candidate so that Banks could get into Parliament as ACT’s sole MP.

Rightwards Ho!

Gibbs and Goldsmith seem to have one joint ambition: to turn NZ’s politics sharply to the Right. Their publishing enterprises aim to do that by building a sort of personality cult around Gibbs, with lesser roles devoted to the likes of Don Brash, the former Leader of both National and ACT; and former ACT Leader Rodney Hide. So even as it’s issued the book is dated. According to Goldsmith, Gibbs spent years evolving his thought, having been a bit of a radical in his younger days. In this he is honouring the wishes of his subject, who follows the obligatory self-image of old guys with reactionary views and lots of money. They like to establish that their younger selves weren’t boringly old before their time. They want us to know they were live wires, but now that they’ve matured, they’ve grown beyond youthful enthusiasms. The favoured epithet here is that Gibbs, always daring, always creative, had a “hippie” side, though in a radio interview about his book, Gibbs went one better, saying he was once a “Communist”. 

That’s an unusual aspiration for the typical ambitious student politician, which Goldsmith’s account allows us to see Gibbs as being. One incident he omits from Gibbs’ career at Canterbury University’s student council was the time Gibbs took it upon himself to invite a certain Eric Butler to speak. Butler was the head honcho of the League of Rights, Australian fascists, in which capacity he was wont to mutter darkly about an “alleged” Holocaust, a misunderstood Hitler, and how the Russian Revolution was financed by rich American Jews. Butler liked to organise fronts like the Australian Ladies In Line Against Communism. For a hippie Communist, Gibbs’ choice of speaker was unusual.

Milking The System

Although the book’s blurb starts with the claim that it is about “a man who in his twenties dared to take on the cosy club of import licence-holders who controlled the New Zealand car industry”, the account of Gibbs’ actual start in business is content to admit that he was prepared to play by the existing rules within the existing economy. This might have been “corrupt and inefficient”, but he was going to make it “work for him”. Blessed with an ability to define language and invent reality to suit himself; Gibbs has always found it easy to pastiche opposing views. We read that in his student days Gibbs could “remember thinking, ‘why should you pay for bread; why shouldn’t it just be free? And why shouldn’t money be given out according to need?’’ It sounded so fair’”. This cartoonish nonsense is presented as what the youthful idealist picked up from that old “Lefty”, his economics lecturer, Wolfgang Rosenberg*. From his businessman father, Gibbs learned another lesson: “He had the money and I wanted to find a way of getting some of my own without having to work as hard, like every other socialist on Earth”. *Murray Horton’s obituary of Wolfgang Rosenberg is in Watchdog 114, May 2007, http://www.converge.org.nz/watchdog/14/04.htm. Ed.

This latter observation points to why Gibbs has been unable to invent for himself the favoured persona of the ultra-rich. He can’t portray himself as a poor boy who has made good. He might live in mansions now, but life with mum and dad wasn’t exactly lived in a log cabin either. So he goes the other, name-dropping way, telling us how he got a start in business through his family connection to the then Prime Minister, Keith Holyoake. Gibbs’ first choice of a job would have been with Slater Walker Securities in Sydney, a company praised by Goldsmith as a “fashionable corporate raider”. Ten years after its start, this UK-based company was being investigated for corruption in one country and going bankrupt in all its countries. That’s the trouble with fashions. By definition, they go out of fashion.

Slater Walker was a forerunner of the parasitic neo-liberal finance outfits of recent years, exemplified in the career of Mitt Romney, the defeated 2012 Republican US Presidential candidate, who made hundreds of millions of dollars by buying up stressed companies, breaking them into component parts, firing workers to make them attractive to raiders, while getting public relations experts to tout them to (temporary) higher prices, when they could be sold. In his centrepiece chapter, “The Big One: 1989-1993”, Goldsmith recalls in loving, sycophantic detail how Gibbs made his hundreds of millions when the New Zealand government went into Mitt Romney mode in its first frenzy of flogging off State assets. Gibbs and his mates, the very rich and white but not so fay “merchant bankers” Fay and Richwhite, were allowed to place themselves between the owners of the phones, NZ taxpayers, and the buyers, foreign corporates, and thereby become very rich. The richest local, by all accounts, is Graeme Hart, who did the same thing with the Government Printing Office (see my review below of “The Price Of Offshore Revisited” for a look at how this pattern has played out across the world).   

Historians might not agree with Goldsmith’s breathless account of Gibbs’ supposedly brilliant negotiations. Even in his own version, in which he intends to let us know that Gibbs can do no wrong, he remarks that the Americans who Gibbs was supposedly outwitting didn’t like “friendly abuse”. Joshing, intended as irony, is a favoured style in NZ business circles, but Americans typically don’t do irony. We’re given an example. Gibbs let the Yanks know that he was not pleased that they “didn’t have the guts to take on Russia” during the 1962 Cuba missile crisis. Gibbs hadn’t matured from his pro-nuke student days.

But when it came to making a buck Gibbs has been a trend leader, learning from Slater Walker how not to pay for what he wanted. He’d asked: “And why shouldn’t money be given out according to need?” and he needed many millions. He’d wanted to “find a way of getting some of my own without having to work as hard, like every other socialist on Earth” and he got Telecom as some of his own. Gibbs, Fay and Richwhite like every other socialist on Earth? That’s one big idea that might need revision. One difference between Gibbs’ “socialist” villains and the fences of formerly public property is that not many solo mothers or civil servants are billionaires. 

And being like every other person, even if the clods weren’t socialists, would be a dismaying prospect to Gibbs. After the shock and awe of the great man’s display of wealth, the next thing that Goldsmith would hear - inevitably - has been the fevered speculation as to whether the sculpture park is evidence that its owner is  “mad or genius”?. That’s the fate of visionaries, who have to bear the pain of being way ahead of us. Exemplars of the mindset are the Enron fraudsters, who needed others to know that they were “the smartest guys in the room”. Enron was a US energy corporation which collapsed in 2001. See Jeremy’s review of the documentary “Enron: The Smartest Guys In The Room”, in Watchdog 111, April 2006 http://www.converge.org.nz/watchdog/11/10.htm  Ed.

Everything here is ... derivative. Great brains, if they’re in alpha males, typically draw on some faux intellectual-sounding notion to explain their unique gifts. Always these notions are crude, and usually, as here, they’re simply wrong. Goldsmith offers up the old chestnut of how the Gibbses of the world are “predators”, the winners in a game of “natural selection”, hunting down the lesser life forms which have passed their use-by date. In this, as with all their clichéd prejudices, Goldsmith and Gibbs (who are best seen as one life form) are themselves hopelessly past it. Social Darwinism, the self-justifying hope of some late Victorian bullies, has been discredited for more than a century.

For Gibbs it makes more sense to rely on his own intuitions and call it science. He finds it axiomatic that he’s right about everything, because if you’re smarter, you know stuff that others don’t, but because evolution has created lots of morons who don’t fall into line with Gibbs’ ideas, it’s been “infuriatingly difficult” to put them right. A characteristic detail Goldsmith includes, from the middle of a long quotation about how all taxation is “coercive” and all “tyrants were politicians” (Gibbs is never nuanced) comes - to the uninitiated - a non-sequitur: “...And, as a result, by nature, humans remain very resistant to easy conversion to anything, so the schoolteachers of the nation failed to drop their long-held views lightly and our peak rating was 2% (sic)”. In this formulation, “schoolteachers” is a generic term of abuse for all that’s dumb in NZ. It’s an insight that must have been passed on to the Key government.

Faithful Disciple Of Obscure Ideological Gurus

In the ACT sub-culture, as defined by ACTers, it’s all about brains, and brains are measured by your familiarity with a few sacred texts that the clods haven’t read. When Gibbs met Rodney Hide, he knew he’d found a treasure, because Hide had “read more Hayek than anyone else I knew”. Former National Finance Minister Ruth Richardson is asked to contribute so she knows it’s wise to offer up a quote about the economy in which she makes a reference to Edmund Burke, an 18th Century British politician. Burke is a favourite because he has street cred with highbrows, but once you get past Burke and the ACT favourite icon, Friedrich von Hayek, an economist, the pickings are thin. The obligatory Ayn Rand** gets a mention. Being possibly the nuttiest of all the ACT gurus, Rand is cited as the authority for one of the misunderstood geniuses to have rejected Gibbs’ “Hayekian compromise”. *Friedrich von Hayek (1899-1992), a reactionary economist who opposed the Welfare State and championed market forces. **Ayn Rand (1905-82) was a philosopher and writer who expounded extreme individualism and laissez-faire capitalism Ed.

The concentration on a few minor writers from past eras suggests again that Gibbs has never moved from his student days. The names on display, with the extremist purity and irrelevance of what they say, were standard fare with the tiny group of Rightwing student politicians in the post-war years. Their older selves drop the names of Burke or Rand because they haven’t picked up anything better in the last 50 years. What has changed over the last half century is the growing influence of the Republican Right in America, with its loony Christian fundamentalists - think Ned Flanders from The Simpsons - professing to base their lives, that’s everything they do all day, on what they imagine Jesus might recommend. There’s a lapel pin they don, WWJD, ‘What Would Jesus Do’, which signals this intent. It’s a style that that’s not likely to catch on in NZ and you’d think it was far removed from neo-liberal ACT, which, as every Goldsmith page claims, bases itself on being rational. But such is Hayek’s doctrinal authority that we’re informed that when Gibbs wakes up of a morning, his  “brain starving” as he ponders life’s mysteries, his starting point as a means of solving them is “what would Hayek have thought”. Sentences start with “Hayek explains...”. Gibbs’ licence plate, the ones called vanity plates, reads “HAYEK”. Hayek is the way and the truth and the Right.

Goldsmith and Gibbs’ persistent cry, so dominant as to be at least implicitly behind every tale in this narrative, is that Gibbs has a huge brain, that he is driven by a curiosity and an ability to question received wisdom with an originality and energy that leaves all he encounters dizzy with admiration. When he isn’t confounding in conversation, he’s reading. Or so we’re told every few pages. Yet beyond the inevitable Hayek, whose name is dropped constantly, whose ideas are analysed? None. This, surely, is a curious omission. Hayek’s few writings deal not at all with the contemporary world or with specific economic policy. In any policy discussion of the type that Gibbs favours, Hayek, the coiner of a few aphorisms about his take on Europe in the early 20th Century, would have nothing to say that isn’t being said by the likes of the US Republican Congress. In this book, purportedly to do with Gibbs’ dismissal of almost all that has followed Hayek, not one economist is mentioned. Not one politician is cited. No government is discussed. There is nothing about the big questions of the day.

It’s All About Money

When he’s not despairing about the stupidities of politicians and economists, Gibbs is said to spend his days pondering the big questions, like “what’s it all about? Who are we?”, but here too we’re given nothing. Not one philosopher, not one writer or scientist or social critic, appears. The suspicion arises that, beyond daily journalism, Gibbs doesn’t really read at all. Neither are we favoured with Gibbs’ explanation as to what we should do to correct our many faults. We’ve heard the generic rhetoric, we’ve picked up the dismissive, arrogant tone, the content of which amounts to “People dumb and bad; Gibbs brilliant and good”, so we don’t need to have the message reinforced on every page. What we needed was some examples. Without them, no-one reading this book could finish it with a changed mind. Gibbs says he wants an argument, as he likes nothing more than the chance to disabuse the ignorant, but there’s nothing to dispute because, beyond the clichéd generalisations, he doesn’t say anything. There is only one passage in the book about specific policy. 

The one exception, remarks made during an interview in 2006, merits being quoted in its entirety: “I think global warming is the best possible thing for mankind. Its effect will be mainly in the Northern Hemisphere from 50 degrees north and all those countries are freezing, miserable dumps most of the year. There’s no clear evidence that cyclones are caused by global warming, the Earth’s temperature is always changing. Is it good or bad, who knows? But I can’t see why anyone who lives in the cold parts of the Earth wouldn’t see high temperatures as better... I’ve always said that New Zealand would be best if it was dragged north halfway to Fiji. Even the most radical projections of global warming wouldn’t get New Zealand warm enough”.

In winter, especially for Southern Men and Women, we often remark that the country needs to be towed towards the Sun. It’s a standard New Zealand joke. Gibbs, however, is serious, though the sentiment he’s expressing is so astonishingly stupid that it’s possibly a provocation, a “wind up”, a bit of his “serious fun”. But if this is in fact sophomoric humour, why bother? Gibbs wants to discredit the fact of climate change because a sustainable planet would - at last - compromise the ability of corporations to treat the planet as a disposable resource, this version of denialism being standard fare with Rightwing extremists. So although Goldsmith might have given the impression that one paragraph near the end of a 366 page account of ‘the life and times of Alan Gibbs’ might be about the “times” part, it’s really all about Alan Gibbs. 

And Alan Gibbs, as this most fawning of hagiographies repeatedly emphasises, is all about money. When Telecom was flogged off, naive champions of the new agenda liked to gush about new efficiencies in the phone business that privatisation had released. It’s significant that here not one sentence makes such a claim. We’re supposed to admire Gibbs’ raids on the common wealth because he did so well out of it. He made enough dough to commission sculptures and boats. It wasn’t about the country. So here at least Goldsmith and Gibbs are honest.

Goldsmith sets his introduction at Gibbs’ Northland property. The first lines read: “’What’s it made of?’ I heard an art dealer ask a businessman standing behind him as they gazed at the extraordinary new sculpture by Anish Kapoor at Gibbs Farm. ‘The businessman laughed. ‘Money’, he said...’” Normally, when art is the topic, this would presage some distancing comment. Not here, where vulgarity is celebrated. Whenever Goldsmith wants to impress us, he skites that the sculpture at Kaipara was “introducing something that was entirely new to New Zealand”. Gibbs was commissioning “an artwork that has aroused considerable international interest”. 

It’s all hyperbole. Look, Mum, no hands, says the small boy trying out his new bike. Look upon my works, ye mighty, says Alan Gibbs, and despair. Goldsmith and Gibbs listen in to speculations about the cost of the art. They revel in the “awe, bewilderment, pleasure and blustering dismissals” the sculptures evoke. The “blustering dismissals” are wishful thinking. Gibbs wants to shock his philistine business colleagues with his avant garde flair. You can imagine, in a better world, how a perfect day might be ... spent at The Farm, where, having been towed offshore of Fiji, it is sunny all day, every day, the river flows lyrically blue, giraffes and zebras gambol through the Virginian woods, and Rodney Hide, garbed perhaps as a Roman senator, declaims from “On Conciliation With The Colonies” by Edmund Burke. In a neighbouring copse Don Brash holds a seminar on newly discovered texts from Ludwig von Mises*. Beside a vast sculpture, the most expensive ever to have been commissioned, a fresh supply of Americans and socialists have been helicoptered in so that they might listen spellbound as Gibbs Himself, a volume of Hayek in hand, offers up friendly abuse. *Ludwig von Mises (1881-1973), like Hayek, was a member of the Austrian School of economics. Ed

Standard Tory Fare

Owen Glenn, with his determinedly Kiwi choice of mates, wouldn’t make the guest list. “Making A Difference”, a title even more banal than Goldsmith’s, indicates that Glenn’s autobiography will be the sort of standard self-justification that tycoons like to put out. Glenn includes endorsements from the likes of the Warriors league team and the Mad Butcher, so in this respect he’s not at all like the poseur Gibbs. Rather than get a flunky to do it, he touts himself, and does so in the traditionally direct way of the self-made man. He’s also one up on Gibbs in having contributed to the productive economy, making his fortune from shipping freight. Though there’s only a brief, sanitised account on how he did it. 

Glenn, too, has been in the news as the intended provider of funds to Winston Peters and Helen Clark prior to the 2008 election, donations which in both cases were unappreciated (Labour was voted out and New Zealand First was swept out of Parliament to spend three years in the wilderness, before returning at the 2011 election. Ed.). He has to touch on these embarrassments here, alleging that he likes to spread his benevolence, as though politics was akin to supporting a junior league side. More realistically, when Glenn sketches his political views on specific and topical issues (which the lofty Gibbs does not condescend to do) they’re standard National Party fare. 

In other ways he resembles Gibbs, travelling the world as though to “find himself” and ground himself intellectually. Both books ultimately have the same rationale: they’re tools for self-promotion. Glenn, with his direct endorsements, does so with a harmless naiveté, and he doesn’t mind revealing some idiosyncrasies which a more calculating personality would conceal. Of course, unlike Gibbs, he can try to fashion a poor boy made good myth, but for him too it’s a stretch, his family background being average.

The Price Of Offshore Revisited
by James H Henry, Tax Justice Network, 2012

We all know that people do deals under the table or that they don’t report every source of income. James S Henry is interested in how much money is hidden from the authorities, but he’s not thinking about the mums and dads who fudge their returns, because, on a global scale, the tax cheating of householders and small business is comparatively inconsequential. Henry’s focus is on the world’s multi-millionaires. His first point is that there are so many ways the very rich can hide their money that no-one can reliably make even a rough guess as to how much income goes unreported. He’s come up with what he thinks is the closest likely figure. The world’s untaxed private finance amounts to between $US21 and $32 trillion, stashed in about 80 “offshore” secrecy jurisdictions. That’s just the cash. Not included in the estimate, as they’re even harder to assess, are assets like real estate, gold and yachts.

Henry used to be a consultant economist with one of the big financial firms and his Tax Justice Network is regarded as authoritative. He’s checked the available data for some 139 countries. This pamphlet is short (46 pages), accessible - and alarming. Banks have been an always “eager” and often “aggressive and illegal” facilitator of the evasions, with the world’s 50 biggest banks managing over $US12 trillion of the total in furtive cross-border investment for private clients. As the daily news constantly reminds us, many of the countries involved are regarded as “debtor” countries, officially strapped for cash, forced to sell off their public assets and “restructure” their societies. It’s routinely said that they’re “living beyond their means”. Etcetera. Henry says this is “misleading”. That’s putting it mildly:

Banks Help Hide The Taxdodging Trillions

Since the 1970s private banks have helped “private elites” within indebted countries to accumulate “$US7.3 to $9.3 trillion of unrecorded offshore wealth (by 2010) as conservatively estimated, even while many of their public sectors were borrowing themselves into bankruptcy...These same source countries had aggregate gross external debt of $US4.08 trillion in 2010. However, once we subtract these countries’ foreign reserves, most of which are invested in First World securities, their aggregate net external debts were minus $US2.8 trillion in 2010....So in total, by way of the offshore system, these supposedly indebted ‘source countries’ - including all developing countries - are not debtors at all: they are net lenders, to the tune of $US10.1 to $13.1 trillion at end-2010”.

This means that “once we fully account for capital outflows and the lost stream of future earnings on the associated offshore investments, foreign direct and equity investment flows are almost entirely offset - even for some of the world’s largest recipients of foreign investment”. In 2005 the top 50 banks held $US5.4 trillion. In December, 2010, after the crash, they held $US12.06 trillion. Henry remarks that all the big banks were “too big to fail”. The moral hazard of this, essentially a blackmailing of society, combined with the fervour of their catering to the Offshore crowd, resulted in the global economy becoming too irresponsible to succeed. 

The rationale behind money flows around the world - whatever its form, orthodox opinion calls it “investment” - is that money moves from the rich world to the poor world, benefitting one and all. Henry’s research says otherwise. Money is leaking the opposite way, from the poor world to the rich. Henry attempts a definition of the fluid concept. The “offshore” economy, he suggests, involves “nominal, hyper-portable, multi-jurisdictional, often quite temporary locations of networks of legal and quasi-legal entities and arrangements ... often in indifference or outright defiance of the interests and laws of multiple nation states”. Offshore live “citizens of a brave new virtual country”.

Henry identifies three main sources of the resulting “unrecorded capital flows and stocks. One key source is underreported capital flows that have been secreted offshore and invested abroad beyond the reach of domestic tax authorities... Among the possible motives (for doing this) are speculation, asset protection (including protection against political risks and illegality), money laundering, income tax evasion..., export subsidy fraud, avoidance of import duties (and) corruption....Another key source is under-taxed corporate profits and royalties that have been parked offshore in low-tax havens by way of rigged pricing schemes.... A third source is a myriad of illicit activities in the global underground economy - corruption, fraud, insider trading, drug trafficking, ‘blood diamonds’ and innumerable other for-profit crimes”.

Henry’s calculations, which are close to an independent estimate from Credit Suisse, are that the super rich - defined by Credit Suisse as individuals with a net worth of at least $US50 million (but most have a lot more) - constitute .001% of the world’s population, or 90,000 people - about the number who live in Dunedin, say. The next 51% of global wealth is owned by 8.4 million persons - 0.14% of the world’s population. As well as being the world’s biggest economy, the US is its most characteristic, the talisman of the global neo-liberal disorder. So when (in “Inequality: You Don’t Know The Half Of It”, available on-line) Henry records an American trend to extremes of wealth and inequality that echoes his thesis, we know we’re not looking at just a random correlation. Since 1980, the year when Ronald Reagan became President and inspired a generation of Rogernomes, the rich have got richer and richer, and the very rich have got very much richer. Over those 30 years the richest 1% of Americans has on average more than doubled their wealth. The top 0.1% - that’s one in every 1,000 people - are more than three times richer. And the top 0.01 % - that’s one in every 10,000 people are ... yes, they’re more than four times richer.

“American Exceptionalism”

You can see why the lunatic fringe of the Republican Party is given to (selective) Biblical quotation, along the lines of: “To him that hath shall be given, and the more he hath, the more he shall be given”. This they see as something they call “American Exceptionalism”, a phrase that was echoing round the August 2012 Convention that launched Mitt Romney’s unsuccessful Presidential campaign. The idea is that through some combination of God’s blessing, the Constitution, American genius, the US Army or the Dallas Cowboys (some) Americans are destined to rule the roost. We’ve all seen the movie. 

It ends in disappointment - or would, if the audience wasn’t suspending its disbelief. Faith-based systems always have to crank up the dream machines when the evidence isn’t looking good, and in contemporary America the evidence is bleak. It used to be a uniting, and sustaining, myth that America was the land of opportunity, and, compared to the tired old Corruptions of Europe, so it was, and not so long ago either. But not now. Which, in the perverse way of such matters, is why we can expect to hear ever louder the protestations of the faithful. In reality, Americans are now less likely than their European counterparts to move on up. The “bottom” 90% of Americans - all those, that is, who aren’t in the highest decile of wealth - are actually worse off than they were in 1980, down 4.8% in terms of buying power. For the middle classes it’s become a struggle. For the poor, the American dream is a nightmare.

The fairy tale that is American Exceptionalism says that the usual bumps and scrapes that life’s journey offers ordinary mortals can be escaped on America’s yellow brick road, where virtue is permanently rewarded. In reality the US economy can’t get out of the hole that George Bush dug for it, which is why Romney and his Tea Party backers had to see and hear and speak no evil. Is the extremist wing of modern American capitalism exceptional? Yes, if it’s compared to the consensus governments of the mid-20th Century. No, if it’s compared to the 21st Century Offshore crowd of oil sheiks, drug barons and Russian oligarchs. 

A hundred years ago a previous growth spurt of American capitalism was known as the age of the robber barons. Men like Ford and Rockefeller and Carnegie became immensely rich through business practices that no-one denies were ruthless and nasty. But they differed from the Offshore crowd in one important respect: they produced things that people needed, like cars and oil and railways. They greased the wheels of the 20th Century economy. Offshore wealth is inert. It’s solely parasitic and unproductive. The fact of its being hidden, in itself, means it creates no jobs. It’s not invested. Unlike the robber barons, who were often admired by local mayors and bankers, Offshore money is typically the proceeds of crime or inheritance.

NZ: Looting Done By Privatisers & Finance Companies

Or, as in New Zealand (where the small population limited the plunder to the hundreds of millions rather than the typical overseas windfall of tens of billions) it was the loot garnered from shock therapy privatisations - themselves a sort of amalgam of crime and inheritance (for a look at a Kiwi oligarch, see my review above of Alan Gibbs’ “Serious Fun”). NZ’s more recent exposure to the fast money crowd came through all the failed finance companies. Commenting on KPMG and Hanover and its 16,500 investors who are owed about $NZ465 million, a conservative columnist remarked on ‘how little [the accounting profession] can be trusted to put high standards above craven self-interest” (Chalkie, Press, 15/8/12).Yet throughout the decades leading up to and out of the crash, the Big Four accounting firms have been accepted by Organisation for Economic Cooperation and Development (OECD) governments as worthy designers of public policy. Like Hanover, with its repeated claim of being a “prudent” money manager, they are fond of entirely false self-description. Henry knows; he used to work for McKinley. 

The 99% of the world’s population who live on the mainland know that the Offshore economy can’t go on. Simple arithmetic suggests that at the present accelerating rate of inequality, an absurd theoretical extreme would eventually arise when all of the world’s wealth was controlled by a tiny oligarchy which had nothing left to consume. It’s the stuff of dystopian sci fi. As far as we can now guess, prolonged recession, marked by declining public services and widespread unemployment, looks like the best we can hope for.

Stealing From Children Of Poor Countries

Social and economic collapse is at least as likely, because ultimately the OECD countries rely on the 90% being able to buy things, something that’s becoming increasingly harder for more people. The neo-liberal assertion that incentives for the rich would create more wealth for all has proved close to being the opposite of what has occurred. Henry sketches some of the reasons why inequality in fact was the cause of slower growth and instability, the over-arching reason being that neo-liberalism diverted resources from production to speculation, thus blowing up the financial bubble. The global financial crisis and the Offshore parasites are two symptoms of one malaise 

If Henry and his team were to produce a full analysis of the Offshore vandals they’d be doing us a favour. The Tax Justice Network has shown us that the failures of neo-liberalism are deeper and more immoral than critics have so far shown. The “free trading” project promised a global exchange of mutually beneficial goods and services. It promised a rising tide of prosperity as the developing world caught the First World. It has delivered inefficiency, inequality, theft, waste, crime and corruption. And it’s stopping the international community from eliminating disease and ignorance. $US30,000,000,000,000 is no small change. That’s how much has been plundered from society in just this one scam. Individuals around the world typically pay around 30% in income tax on their legitimate earnings. On top of that they pay rates, goods and services tax and - in most OECD countries - they pay death duties and capital gains taxes as well. According to the United Nations, providing clean drinking water and education for all the world’s children would cost $US10 billion. The Offshore parasites could fund that if they upped the tax on their ill-gotten gains from $0% to 0.21%.

World Investment Report 2012
United Nations Conference On Trade And Development (UNCTAD), New York and Geneva, 2012

The annual report of the United Nations on global investment patterns has good news for New Zealand, in that we’re not top of the pops this year. The bad news is that this is because we haven’t got much left to flog off. The ten “top hosts” in 2011 for foreign investment were, in order, China, the US, India, Indonesia, Brazil, Australia, the UK, Germany and Russia. That company does a lot to explain John Key’s recent travel choices. The “top economies”, the leaders of the “attraction index”, were Hong Kong, Belgium, Singapore, Luxembourg, Ireland, Chile, Kazakhstan, Mongolia, Turkmenistan, Lebanon and Congo. Congo? As the United Nations Conference On Trade And Development (UNCTAD) admits, you can be popular for good reasons or bad, and for small countries one big deal - a mine in Africa, say - can distort the percentages. These lists record various trends, some of them benign, and they shouldn’t be taken too seriously.

Most of 2012’s report on global trends in trade is more statistically serious than these hit parade numbers. And more pedantic. Bureaucracies and governments like to talk in politically correct platitudes, saying as little as possible, and nowhere more so than at the United Nations. UNCTAD puts out annual reports on trade agreements in the name of all its member states, so the language is always going to be tortuous. For specialists in the field the myriads of charts, tables and graphs will be informative. For the generalist, the best hope is to interpret the general trends.

The opening statements give you the flavour: “Against a backdrop of continued economic uncertainty, turmoil in financial markets and slow growth, countries worldwide continued to liberalise and promote foreign investment. At the same time, regulatory activities with regard to Foreign Direct Investment (FDI) continued”. This possibly means nothing. On the one hand, there seems to be an endorsement of business as usual, which means neo-liberal deregulation; on the other hand, there might need to be some “regulatory activities”, which might imply that the “promoting” isn’t such a good idea, especially as the uncertainty, turmoil and slow growth was the result of the said promotion. Not that UNCTAD would say so.

You Have To Read Between The Lines

Because UNCTAD is reporting in the wake of the global meltdown, some direct judgements had to be made. So we’re told that “cross-border investment policy is made in a political and economic context that, at the global and regional levels, has been buffeted in recent years by a series of crises in finance, food security and the environment, and that faces persistent global imbalances and social challenges, especially with regard to poverty alleviation”. This almost sounds like a critique of neo-liberalism, but UNCTAD is always bloodless. Bad things happen as though by forces of nature. In fact the crises and imbalances and poverty are the face of neo-liberalism. There’s a herd of elephants in the room which we’re not meant to see.

This helps to explain why the text veers between the informative, the banal, the misleading, the incomplete and the false. Take the four assertions which follow the introduction. “Economic weight”, it’s said, is shifting “from developed countries to emerging markets”, a reference presumably to China and India. Nothing is said though - here or elsewhere - about the huge transfers of wealth going the other way, from the emerging world to developed countries, as outlined by the Tax Justice Network (see my review above of “The Price Of Offshore Revisited” by James Henry, which is showing us the real world of de-development, the existence of which officialdom cannot admit to).

A claim is made that recent times have “boosted the role of governments”, a generalisation that is repeated often in the report, but never with any real exposition. Governments have not in reality been boosted at all, if that is taken to mean a boost in their authority. Neo-liberal orthodoxy has removed much of the ability of states to control their economies. Possibly UNCTAD is referring to the ubiquitous European politicians and White House officials meeting about the various crises. That’s not the same thing as wrestling back the power to shape events.

No Mention Of Undemocratic Canterbury’s Farting, Crapping Cows

UNCTAD continues with an appeal to “international coordination”. Again, it’s hard to disagree with the cosy implication of global cooperation, but if “free traders” continue to interpret matters, the “coordination” will continue to be the rule of the market.  When UNCTAD does manage specifics it is to make the commendable suggestion that “social and environmental concerns (are) taking centre stage, (putting) ... inclusive and sustainable development goals on the same footing as economic growth”. That would indeed be nice, but where they see this kinder, gentler world isn’t explained. It wouldn’t be NZ, with the reform of the Local Government Act, in which “social and environmental” concerns are precisely what are to be eliminated as aims of local councils. Similarly (as is now publicly documented) the continued removal of local democracy in Canterbury, the home of taxation without representation, was motivated by the very desire to deny “inclusive and sustainable development goals” so that the Plains can be given over to agribusiness and its farting, crapping cows.

Another clause of Key’s Local Government Act 2002 Amendment Bill (which passed its Third and final Reading in Parliament in November 2012) mandates councils putting in new infrastructure to choose the cheapest alternative. UNCTAD tells us the trend is in the opposite direction: “Expectations of governments’ promotion efforts have become higher as they increasingly focus on the quality - and not only on the quantity - of investment” (emphasis in original). Reassurance continues. As they look out the window in New York the boffins see that “new social and environmental regulations are being introduced or existing rules reinforced”. They should come on down to the Stockton Plateau or the Hurunui or Manawatu Valleys to see how their touted “sustainability” plays out in 100% pure NZ. UNCTAD further reports that 2012 is seeing a greater government role in beginning to check climate change. John Key, Chief Executive Officer of NZ Inc., says: “Get lost, we’re withdrawing from our Kyoto commitment”.

National Hostile To Long Term Planning For Clean Green NZ

At last a specific question is posed. Will “green” (the inverted commas are UNCTAD’s) economics be seen as protectionist by the “free traders”? UNCTAD notes that there is now “no internationally accepted definition of ‘investment protectionism’”. It adds an ominous footnote. The Group of 20 (G20), that’s the 20 major world economies, has asked UNCTAD to look at this. UNCTAD is signalling that the heat is going on to strip any environmental clauses from “free trade” deals like the Trans- Pacific Partnership Agreement (TPPA).

So while UNCTAD is happy to chat about a “new generation” of policies which are all about “sustainable-development friendly aspects of international investment agreements”, NZ is resiling from any such ideals. If there is one theme that binds the National government’s policies it is hostility to long-term planning for a clean green country. To confirm this point UNCTAD lists the year’s international investment agreements, ticking off their many “green” aspects. There’s one protocol between NZ and Australia which does not include three such typical clauses. Our governments left out:

“explicit recognition that parties should not relax health, safety or environmental standards to attract investment;

“exceptions for the protection of human, animal or plant life or health; or the conservation of exhaustible natural resources,

and “exclusion of sovereign debt obligations from the range of assets protected by the treaty”.

If you skipped the last 51 words, please go back. Pay attention. Look at them again. There’ll be a test tomorrow.

TPPA Will Lock In Transnational Corporate Rule

The TPPA is briefly discussed. The present participants are Australia, Brunei, Chile, Malaysia, NZ, Peru, Singapore, the US and Vietnam. Canada and Mexico have been invited. Japan is said to be ‘interested’. So it’s still almost accurate to call it a Pacific affair, but the geography isn’t the point. No-one should believe that the TPPA is about anything other than tying one and all to the USA and its ideological allies. With that in mind, it’s noteworthy that the TPPA is “expected to include a fully fledged investment chapter with high standards for investment liberalisation and protection - an issue that has sparked some controversy among investment stakeholders”.

These books have been reviewed together because collectively they provide the best overview I could find of the global financial crisis (GFC) and our economic prospects in the aftermath.

Extreme Money

This book is a difficult read, and large too (447 pages), but gives the most comprehensive insiders view of the global economy today. Das is an Australian-based economic consultant who has worked for large corporations, and it shows. His American-focused story runs something like this: A wave of leveraged buyouts began in the 1980s. The buyer acquires a company with solid cashflows, largely funding their purchase with debt, then restructures the company to provide a cash stream which pays off their purchase. The new owners were financial specialists, able to reduce tax liabilities but without the skills to improve the company’s operations. The result was less productive and less innovative companies.

The next big shift was the rise of financial investment, and consequent decline in productive investment. Once the free market story had been sold to the political class, merchant banks were free to develop a range of new “products” which generated higher fees for them, higher profits for investors (in the short term), and sucked investment away from companies which actually made things. First up were the now-infamous mortgage bonds, home debts packaged into large bundles and on-sold to investors. This was largely an American phenomenon; their merchant bankers had no qualms about hiding the risk of default beneath glib jargon - even though American homeowners can walk away from a non-performing loan without liability for any gap between debt and house value. The fees generated a boom in bank and hedge fund profits, and the only way to keep the fees coming was to package more higher-risk loans. The boom and bust cycle had commenced.

In the 2000s hedge fund profits started to slide. They had grown too large, with a declining pool of new mortgages and candidate companies for buyouts. Again, more financial products were developed, ramping up the fund’s leverage, their risk and liabilities. Debt was cheap as the global economy slowed, so funds were borrowed to speculate (“hedge”) against future commodity and currency prices, and the share prices of companies. Just as the cycle was topping out in 2006, banks convinced themselves that they needed a part of the higher leverage and fees, creating their own hedge funds and buying shares in existing funds – then suddenly the party was over.

Global finance closed up shop in 2007 and sought government bailouts. The final play in the deregulation game turned out to have a new role for government, pouring nations’ funds into banks so that bad investments could live to undermine us another day. A historic opportunity to forcibly write down these toxic assets was lost, and so began the current era where capital’s bad debts became “sovereign debt”. Now whole countries are in hoc to the World Bank and other proponents of austerity (read “debt repayment). This is a very brief summary of an important book, and you will learn a lot more if you read the whole text. Also see Jeremy Agar’s review of Satyajit Das’ earlier book “Traders, Guns And Money”, in Watchdog 116, December 2007, online at http://www.converge.org.nz/watchdog/16/08.htm. Ed.

The Big Short

“The Big Short” is a more intimate story of how the subprime mortgage market worked, and a small number of investors who saw the crash coming and bet against it. One of the new financial strategies was called long-short, where the investor buys something they expect to go up, and shorts (agrees to buy at a future date) something they expect to go down. Credit default swaps (CDS) were developed as the down-side investment in mortgage bonds. If mortgage default rates exceeded a threshold, the price of a CDS would rise. Conceived as yet another financial product to generate fees, they came back to bite hedge funds in the crash.

One of the illustrative personal stories follows Michael Burry, the obsessive head of a small and principled hedge fund which first made its name in the difficult field of “value investing”. Difficult, because value investing involves that rare skill among investors, quality analysis to pick companies with low stock valuations, but improving business prospects. Burry had graduated as a doctor, but didn’t feel comfortable in the job. While working 16 hour shifts as an intern at Stanford Hospital, he developed a blog of share picks between 1 and 3 in the morning which attracted readers from the big funds.

He quit to start a small fund called Scion Capital, and made 55% in 2001 while the Standard & Poor’s (S&P) 500 index fell 12%. In early 2005 he set out to bet $US1.9 billion against the subprime market, paying annual premiums of 8% against his belief that these swaps would be worth much more when the prices for dodgy loan packages collapsed. He just held on by invoking a clause not to return funds to his investors, whose nerves had frayed nerves and wanted to exit. Doubling their capital in 2007, he got no thanks for proving them wrong. See also Jeremy Agar’s review of Michael Lewis’ more recent book “Boomerang” in Watchdog 129, April 2012  http://www.converge.org.nz/watchdog/29/13.htm, and Bill Rosenberg’s review of Lewis’ classic “Liar’s Poker”, in Watchdog 70, August 1992, http://www.historicalwatchdog.blogspot.co.nz/2009/12/foreign-control-watchdog-august-1992.html. Ed

23 Things They Don’t Tell You About Capitalism

“23 Things” could probably have been reduced to a much more punchy “10 things” but that said, this might well be the most readable economics book ever, providing a short and cheerful summary of what’s wrong with 21st Century capitalism.  Here’s my pick for a “Top 5” based on the book.

1. Free markets aren’t efficient: Shareholders care more for short term returns than the long term future of companies. “Shareholder value maximisation” took hold in the 1980s, with corporate managers receiving incentive payments to maximise returns to shareholders. As the percentage of profits transferred to shareholders rose from 40 to 60%, jobs were cut, real wages fell, and re-investment shrank. Next profits were diverted into share buybacks in England and America, to further inflate the stakes of managers and shareholders. The economies of these countries have lost competitive advantage, which is no small thing.

2. Inflation targets have not made the world more stable: Economists’ fixation on policies to constrain inflation has gone hand in hand with a lower priority for employment and growth, and a high priority for capital mobility. The main beneficiaries of these policies are the holders of financial assets. Fixed rates of return require stable interest rates for profit; labour flexibility makes takeovers and restructuring easier; financial investment gains advantage over fixed assets as it is more mobile. Following financial deregulation in the late 1980s, the profit rate of French financial firms overtook non-financials, rising from 5 to 10% in 2001.

In the US financial profits became so attractive that many manufacturing companies essentially turned themselves into financial companies. After 2000 General Electric, General Motors and Ford were making most of their profits from the financial arm – until 2007. Studies have shown that inflation rates below 9%, and perhaps higher, have no relationship with economic growth, while a 1999 study for the Joseph Rowntree Foundation found that the share of countries in banking crises is very closely related to the mobility of international capital. Economic growth in rich countries, where inflation was tamed, fell from 3.2% in the 1960s to 1.4 % in 1990-2009.

3. We do not live in a post-industrial age: Talking up our growing service industries merely hides the fact that rich countries no longer produce much of anything, a fact their debt-funded financial profits can no longer hide. Britain, for example, produced 46% of world trade in 1870, and manufacturing still provided 35% of employment in the early 1970s. Today it is 10%. Productivity gains are harder to achieve in the people-oriented services sector, and there’s little market for exports, so this puts downward pressure on the currency. A lower dollar means imports cost more and the standard of living decreases. Even in the US, the trade in high-end knowledge based services amounts to only 1% of Gross Domestic Product (GDP), nowhere near enough to balance its manufacturing trade deficit which is 4% of GDP. It seems it’s time for rich countries to get used to being poorer.

4. Wealth doesn’t trickle down: Despite rising inequality since the 1980s, investment as a ratio of national output has fallen in all Group of 7 (G7) countries, and most developing countries. Income inequality in America, already the highest in the rich world, rose further, with the top 1% of earners increasing their share of total national income from 10 to 23% between 1979 and 2006. Social mobility is also higher in countries with stronger government and access to minimum income education and healthcare. International studies show Scandinavian countries have higher social mobility than the UK, which in turn is higher than the US.

5. Free markets hurt poor countries: Contrary to current theoretical orthodoxy, the performance of developing countries under State-led development was better than in the later period of more market reform. African growth rates collapsed in the 1980s under the structural adjustment programmes of the World Bank and International Monetary Fund. Industries withered under competition, export policies led to overproduction and price collapses, government spending on infrastructure declined. Thirty years of free market policies produced an average annual growth rate in sub-Saharan Africa of 0.2%.

State-led growth is how rich countries got rich: With very few exceptions, all of today’s rich countries, including Britain and the US, became rich through policies they advise against for the developed world – protection, subsidies, State-owned enterprises and State support for business – “do as I say, not as I did, so I can stay rich”. The final chapter, on how to reform the world economy, concludes a) economies need active governments and regulation, b) investment needs to shift from finance to building productive industries, c) the world economic system needs to shift in favour of developing nations.

This is a tall order in today’s short term world. We’d need to build a very different movement, one powerful enough to change governments’ agendas – some new form of high profile civic forums perhaps, not just another round of protests and occupations. To get an honest view of modern capitalist economics, buy this book. Highly recommended. Also see Jeremy Agar’s review of Ha-Joon Chang’s earlier book “Bad Samaritans: The Myth Of Free Trade And The Secret History Of Capitalism”, in Watchdog 120, May 2009, http://www.converge.org.nz/watchdog/20/08.htm Ed.

Is China Buying The World?

You’ll only have half the story of the global economy if you only read about the West though. Nolan’s little gem will interest regular supporters of CAFCA as its full of hard facts drawn from a unique UK survey of global big business conducted annually in 2007, 2008 and 2009 He starts by outlining the new phase of capitalist globalisation after the 1970s, involving privatisations, liberalisation of international trade and capital flows, and opening up the former Communist “planned” economies. Large firms built global production and supply systems. By the early 2000s a handful of giant firms occupied over 50% of the global market. Exports as a share of global GDP have increased from 20 to 29% over last two decades; the proportion of GDP attributable to foreign affiliates of transnational firms rose even faster, from 27 to 52%, so that a majority of world production is now produced offshore.

In 1990 China’s GDP was just 1.6% of the world total; in 2008 its share was 7.1%. On “purchasing power parity” dollars China’s gross national income is already 54% of the US (World Bank, 2010). On the other hand, China’s Gini coefficient of income distribution has risen from 0.28 in the early 1980s to 0.48 in 2008, similar to the less than admirable inequality in America (the Gini coefficient is commonly used as a measure of inequality of income or wealth. Ed.).China’s expanding need for food and resources has made an important contribution to GDP growth in Africa and Latin America, where its no-nonsense concentration on infrastructure projects rather than foreign-contract “aid” has opened doors. In 2009-10 the Financial Times estimated that the China Development Bank and China Export-Import Bank loaned over $US110 billion to developing country governments and companies, more than the total of loans made by the World Bank in the same period.

However, in answer to the book’s title and question, the answer is a clear. Western governments have vetoed numerous attempts by Chinese State and private companies to make overseas purchases, and China has a large and persistent deficit in foreign direct investment (FDI), $US243 billion in 2009 (United Nations Conference on Trade And Development [UNCTAD]. 2009). Unable to make large investments overseas, China has been forced to exchange cheap loans for resources like oil, which does not develop its own productive sector.

On the incoming side the US, by far the largest contributor to global outwards FDI (27% in 2009), had an estimated $US100 billion of FDI in China (China Business Council), accounting for 28% of China’s overall industrial production. Inward foreign direct investment to China in 2009 is still a relatively small part of the global picture, less than one-third that of Latin America and the Caribbean. China does have the largest foreign exchange reserves, $US3, 200 billion in June 2011, but on a per capita basis this is below that of the other Asian powerhouse economies.

These reserves are also small in relation to total funds managed by the West. A total of $US62 trillion was held by the top 500 asset managers in 2009; for comparison, world GDP was $US58.3 trillion in 2008 (World Bank, 2011). Quoting Nolan, “we are inside ‘them’, but ‘they’ are not inside ‘us”. Nolan also notes that China was deeply sceptical of financial deregulation, pursuing a conservative domestic regulatory regime despite criticism from the West before being proved right in 2007. There is a lot more scepticism about the West in China post-GFC.

The End Of Cheap China

It sometimes seems that everything is made in China today, but Rein argues that the end of China’s extreme annual growth rates is near. Having pulled nearly all of China’s skilled workforce into its factories, wages and worker mobility are on the rise. Most firms in his consultancy’s annual survey had annual staff turnover rates above 30%, and 21 of China’s 31 provinces raised the minimum wage by 22% in 2011 in response to labour shortages. Many companies were having to consider shifting low-skill production to cheaper countries like Vietnam and Indonesia.

After the 1960s  & 70s’ Cultural Revolution, one of the foundation changes to encourage profit-based production was to increase gender equality and draw women into the workforce, even though men dominate business management, central and local government in China. Wages for many women are now higher than men, because in China’s tight labour market women’s skills and work ethic were being rewarded in the market. Housing in China suffers from similar problems to the West – too much top end housing built as stimulus spending, too little affordable workers housing. Rein also expects China’s growing wealth to have an upward impact on global food prices, a sobering thought as the West heads into a difficult future.

Maonomics

The last in this set of reviews is a very different book. Napoleoni is an economist and a unique thinker. Her published work began with an analysis of the funding behind Italian terrorism and she went on to analyse the global “rogue economy” in all its forms, notably the major shift of illegal business out of the US and into Europe and Russia after the post-9/11 financial controls were enforced in the US. In this book she outlines the staggering pace of social change which produced “Cheap China”. After Mao’s 1976 death, Deng Xiaoping dismantled inefficient State-owned companies to set the stage for private profit enterprises. After a first phase allowing farmers to sell part of their crop and reduced restrictions on labour mobility, between 1998 and 2005 110 million State employees were reduced to 64 million, while private employees increased by 25 million.

In 1997 I saw what the Asian crisis looked like while travelling through Singapore, Malaysia and Indonesia – towns of half-finished buildings and the forced return of migrant labourers. I can’t begin to imagine the human implications of 56 million lost jobs, and only 25 million new ones. Napoleoni fills in a lot of this story, as industrial employers from Taiwan and Singapore moved into China to exploit the Communist labour they despised. A lot of it’s not pretty, a reminder of the last industrial dark age in England.

There’s a lot more in this unique book: financial neo-liberalism as predator; globalisation and crime; the rise of Islamic finance; the relationship of China with developing countries, the green transformation of China; and notably, the role China might play in the next stage of our global world. Here are two illustrative quotes: “We’ve seen how crises are confronted: cutting rates so that the banks and financial companies who created the crises are not swept away. This is no passive State simply leaving the market be, but rather an active institution in the service of Western capital… Deregulation offered other countries, like China, unimaginable opportunities. But no one noticed what was happening until 2007, when the recession began”. Again, recommended reading.