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ELECTION 2011 - "it’s the economy, stupid"

As predicted, the biggest issue of the 2011 Election campaign is the economy. And the major question on people’s minds is which party is better placed to run the economy and protect us from the sort of disasters that we can see playing out in the Euro-zone.

Greece, Italy, Spain – Europe’s problems just keep on growing, and it is hard to see when or how it will all be brought back under control. And while New Zealand is in a stronger position than those faltering economies, we should not ignore the warning we received from the ratings agencies Standard and Poor’s and Fitch, which both issued a one-notch downgrade to our credit rating in September. The drop from AA+ to AA was our first credit downgrade in 13 years. It puts us on par with Kuwait and Abu Dhabi, behind the USA on AA+ and Australia on AAA, but ahead of Japan on AA-.

As we consider our election choices it is worth reflecting on the reasons for the downgrade, so we can better assess whether the various parties political agendas will strengthen our economy or make the situation worse.

In essence both ratings agencies were concerned about New Zealand’s debt levels. To be fair, household debt has been falling over recent times as families have been lowering borrowings and spending less. But they remain concerned about growing government debt - especially once the impact of the Christchurch earthquake is factored in.

There are no excuses for the rioting and hooliganism that took place in Britain in recent weeks. It was criminal and cowardly behaviour – the worst form of opportunism by (mostly) young delinquents. That the government has made a commitment to the British public that the rioters will face the full force of the law is as it should be. The tragedy is that the initial response to the crisis by the Police was so inadequate that rampaging mobs were able to create widespread mayhem and death.

What is particularly unfortunate is that the potential for such a breakdown of civilised behaviour in Britain had been well recognised. Just last month, the UK Secretary of State for Work and Pensions and this week’s NZCPR Guest Commentator, the Rt Hon Iain Duncan Smith, was in New Zealand at the invitation of the Maxim Institute to outline his government’s plans for curbing social breakdown. He explained that Britain was in the grip of a “culture of recklessness and irresponsibility” caused by the welfare system:

“This culture of recklessness has contributed to the deprivation and breakdown we see across swathes of our society today. Pockets of worklessness and dependency, often persisting through generations of the same family. More than 4 million people on out of work benefits, many for 10 years or more. One of the highest levels of unsecured personal debt in Western Europe. The highest teenage pregnancy rates in Western Europe. Over a million children growing up in households with parents who are addicted to drugs or alcohol. And the worst thing of all: this was before the recession had even started. We had an entrenched culture of social breakdown even while the economy was growing.” You can read the full speech here>>>.

Britain’s riots are a consequence of the abject failure of the welfare state. For decades, social welfare had incentivised the breakdown of the family, driving fathers out of their homes and creating dysfunction on a massive scale. This toxic mix of unconditional welfare and intergenerational dependency had spawned a dangerous entitlement culture where actions have no consequences and there is no longer a need to take personal responsibility. As a result of misguided public policy, there are now large numbers of people on the margins of society with no stake in their future and nothing to lose. At some stage this time bomb was bound to go off and it was always going to be the law abiding who paid the price.

In his speech Iain explained that through the Centre for Social Justice - the think tank that he founded after stepping down as Leader of the Conservative Party in 2003 - in-depth research identified that the main factors contributing to Britain’s social crisis were family breakdown, poor education, excessive debt, drug and alcohol addiction, and welfare dependency and worklessness. In particular they found that young people growing up in broken homes are 75 percent more likely to fail at school, 70 percent more likely to become addicted to drugs, and 50 percent more likely to have an alcohol problem. In addition a massive 70 percent of all young offenders caught up in the criminal justice system were from single parent families. They estimated that the cost to Britain of this widespread social breakdown was around £100 billion a year – that’s £100 billion a year spent treating the symptoms of social breakdown, not the cause.

What is deeply worrying about the developments in the UK is that the situation we face here in New Zealand is so very similar. Over the last 30 or more years, we too have had welfare policies that have encouraged the breakdown of the traditional family unit and driven dads out of their children’s lives. Communities of second and third generation mother-only families can be found around the country where no-one works for a living, where education is undervalued, and where booze, drugs, abuse, gangs and criminality are part of everyday life. The children born into these underclass families have little hope of living happy and successful lives – unless a helping hand is given to them by someone from outside of their immediate family.

The tragedy is that no politician has had the courage or character to step in and reform the welfare system sufficiently to change the incentives that allows an underclass to flourish. This is not rocket science; it is simply a case where policy that was designed to help the most vulnerable people in society is now causing them harm.

Back in 2007 in a speech The Kiwi Way, it looked as though the Leader of the National Party, John Key, was prepared to make the necessary changes: “There are streets in our country where helplessness has become ingrained. There are streets of people who believe they are locked out of everyday life. The worst are home to families that have been jobless for more than one generation; home to families destroyed by alcohol and P addiction; home to families where there's nothing more to read than a pizza flyer; home to families who send their kids to school with empty stomachs and empty lunch-boxes… These are tough problems – very tough problems. But I have no intention of being a Prime Minister who tackles only the easy and convenient issues. I don't pretend I've got all the solutions. But I can tell you that dealing with the problems of our growing underclass is a priority for National, both in opposition and in government.”

Once in government National established the Welfare Working Group, which has provided a comprehensive set of options for dealing with the country’s entrenched intergenerational welfare dependency problem. Whether John Key will honour his promise to curb the growth of the underclass remains to be seen.

At the present time there are 328,000 people receiving a social welfare benefit. That’s 10 percent of the working age population. Almost three quarters have been on a benefit for a year or more. Some 20 percent have been dependent on a benefit for 10 years or more. With more than 222,000 children being brought up in benefit dependent homes, welfare is costing the country around $20 million a day.

National used last weekend’s party conference to announce that the first of their welfare reform election policies would target teenagers. Some 1,600 teenagers under the age of 18 are either on the Independent Youth Benefit (which is paid to teenagers who claim that their relationship with their parents has broken down) or are teen parents. Evidence shows that a third of the women who are currently on the Domestic Purposes Benefit became parents as teenagers. In addition, there are up to 13,500 16 and 17 year olds who are not in education, training, or work, and unless something is done, 90 percent of these young people are expected to end up on welfare as soon as they turn 18.

The plan National announced would require that all teenagers leaving school are engaged in further education, training or work. This would also apply to teen parents once their baby is a year old. In order to ensure that they do not waste their benefit money on booze and drugs, a scheme similar to the Australian practice of benefit quarantining (developed to deal with alcohol and drug addiction in outback aboriginal settlements) would be introduced. It would enable benefit money to be managed so that essentials like power, rent, and food are paid first, with the balance left over for discretionary spending.

When considering youth unemployment, what should be promoted more widely are success stories from communities around New Zealand that have sorted the problem out for themselves - without the need for more punitive interventions. The township of Otorohanga is a case in point. It proudly states on its website that it has had “zero registered unemployment (under 25 years old) since November 2006”! They explain that they have reduced benefit dependency amongst all age groups by 93 percent since 2005, and that they have a vibrant community with minimal graffiti, vandalism or crime. Essentially, they developed programmes in the town to provide targeted training for the range of jobs that are available in the district, so that young people are assured of future employment if they undertake the training. In other words, by working in a coordinated way, the school, training providers, and employers have been able to ensure school leavers have a pathway to a good job and a bright future.[1] They have done what our central government politicians have not been able to do.

While ensuring that young people have the skills and discipline to take on employment is critical, so too is ensuring that jobs are available. That’s why National’s reticence to look at re-introducing a youth wage is so surprising – especially since they opposed its abolition in 2007. Youth wages are not about giving young people a pay cut as the unions like to claim, but about giving them the opportunity to take on an entry-level job at a price employers can afford. There is a big difference between being able to afford to pay a young unskilled worker $13 an hour and the youth wage rate of $10.40 an hour. But for the young person, getting $416 a week for their first job is much better than being stuck on $150 on the dole.

It has been estimated that as many as 16,000 jobs have been lost because of the abolition of the youth wage – jobs that the country cannot afford to lose. According to the Department of Labour as at the end of June, 62,300 young people between the ages of 15 and 24 were not in employment, education or training. While National appears to have been frightened off re-introducing a youth wage by the threat of bad publicity from the unions and the welfare lobby, until they do so we will know that they are not really committed to giving young people the best possible chance to get their foot on the employment ladder.

In his speech at the party conference, John Key indicated that the teenage policy was the first of a series of welfare reform initiatives. With the images of Britain’s rioting and hooliganism fresh in our memory, for the sake of our future we must hope that he will step up to fulfil his promise to end the growth of the underclass.

Meanwhile in the UK, Prime Minister David Cameron appears determined to get to the heart of their problems and address the breakdown of the family that has, more than anything else, contributed to their social crisis – we’ll leave the last word to him:

"Let me start with families. The question people asked over and over again last week was ‘where are the parents? Why aren’t they keeping the rioting kids indoors?’ Tragically that’s been followed in some cases by judges rightly lamenting: “why don’t the parents even turn up when their children are in court?” Well, join the dots and you have a clear idea about why some of these young people were behaving so terribly. Either there was no one at home, they didn’t much care or they’d lost control.

“Families matter. I don’t doubt that many of the rioters out last week have no father at home. Perhaps they come from one of the neighbourhoods where it’s standard for children to have a mum and not a dad… …where it’s normal for young men to grow up without a male role model, looking to the streets for their father figures, filled up with rage and anger. So if we want to have any hope of mending our broken society, family and parenting is where we’ve got to start. So: from here on I want a family test applied to all domestic policy. If it hurts families, if it undermines commitment, if it tramples over the values that keeps people together, or stops families from being together, then we shouldn’t do it… This has got to be right at the top of our priority list."[2]

Five years ago, the United Nations Special Rapporteur on the Rights of Indigenous People, Rodolfo Stavenhagen, visited New Zealand to consult with Maori. In the report he subsequently produced, he urged the then Labour Government to recognise Maori rights to self determination. In particular, he recommended that the government support the UN Declaration on the Rights of Indigenous Peoples, that they repeal Crown ownership of the foreshore and seabed, and that they undertake a constitutional review in order to entrench the Treaty of Waitangi.

As could be expected, the report was enthusiastically embraced by the Maori Party. It was dismissed by the Labour Government and the National Party stated that it “should be thrown in a rubbish bin”.

In an apparent complete turn-around, the National Party has now invited the UN’s special rapporteur to come back to New Zealand in July. This is no doubt part of a public conditioning exercise designed to convince New Zealanders that repealing Crown ownership of the foreshore and seabed in favour of Maori ownership is a good move.

NZCPR columnist Mike Butler picks up on this theme in his insightful blog “Framing the race debate” on Breaking Views: “With the Maori Party in government, the scene has been set and the actors are in place to cement a radical racial shift, or so the radicals believe, so that a separate Ngapuhi state, a Tuhoe nation, and tribal ownership of the foreshore and seabed, and the subsequent flow of oil, gas, and mineral royalties, would simply be the next step.”

“…long term worklessness is one of the greatest risks to health in our society. It is more dangerous than most dangerous jobs in the construction industry or working on an oil rig in the North Sea, and too often we not only fail to protect our patients from long term worklessness, we sometimes actually push them into it inadvertently…”       – Professor Gordon Waddell

Last week the Royal Australasian College of Physicians released a report which strongly affirmed something we all know - that work is good for us. The report, Realising the Health Benefits of Work, was prepared by occupational physicians who see first hand the adverse impact that long term welfare dependency can have on individuals, families and communities: “We see marriages end, breadwinners become reliant on pensions and mental health problems like depression and anxiety develop. Rubbing salt in the wound, extended time off work often sees a worsening rather than an improvement in the symptoms and conditions it is supposed to ameliorate.”

The report is very clear on the fact that long term unemployment is harmful to physical and mental health wellbeing.

The report is very clear on the fact that long term unemployment is harmful to physical and mental health wellbeing. It is associated with a range of poor health outcomes, which include significantly increased rates of sickness, death and suicide. Prolonged parental unemployment has also been found to have profound detrimental consequences for children. These include higher rates of chronic illnesses, anxiety and depression, aggressive or delinquent behaviour, substance abuse, as well as an increased likelihood that one day they will suffer long-term unemployment themselves.

It can be argued that the announced referendum on MMP, to be held in conjunction with the 2011 general election, is one of the most important constitutional reforms undertaken by any New Zealand Government. Yet, while there is “lofty” talk about the need for public consultation – “We want to ensure that everyone has the opportunity to have their say on this significant constitutional issue” – it is clear that the government is not serious about public input. The consultation process that has been chosen involves nothing more than the standard public submissions to a Select Committee. As we have already seen from this government’s farcical submission process regarding the emissions trading legislation, not only is there little chance that such submissions will have any effect, submitters are likely to be denied the opportunity to make their submission in person. This scant intended public consultation process is in spite of a well established convention that whenever constitutional reform is undertaken, widespread public involvement is encouraged. The Cabinet Manual states it clearly - with regard to changes in our constitutional arrangements, “It is important for a process of change to involve a sound process, public education, proper consultation with affected parties, public buy-in and plenty of time.” What this means is that unless we demand to be properly consulted over the structure of our electoral system - which is fundamental to the constitutional arrangements of the country - National again intends to snub the rights of people to have a meaningful say. So what is the Government proposing for this crucial review of MMP? The process goes something like this.

New Zealand is a beautiful place with boundless opportunity. So I won’t accept that the bottom third of the OECD for average income is where we rightfully belong. I simply won’t believe we have to put up with losing 80,000 of our people every year to other parts of the world. I am horrified that the gap between our wages and those in Australia are now wider than they have been in our history – at more than 35%. How can we hope to hold on to our young people, the educated, the talented, the motivated, if on the Monday you can earn $50,000 for doing one job and on the Friday earn $80,000 by simply moving across the ditch? If we stay on the same growth course and speed, by 2030 the gap between wages here and wages in Australia will have risen to over 60%. We have a plan to steer New Zealand on a course to a more prosperous future. And we need to get to work on that plan straight away. - John Key, “National’s Blueprint for Change”, January 2008.

I am horrified that the gap between our wages and those in Australia are now wider than they have been in our history – at more than 35%.

An extraordinary debate has been raging over the last week about what is probably the most important question of the decade: do we as a nation want a more prosperous future, or are we prepared to accept the continuing decline in living standards? This is the critical issue that is at the heart of the discussion over the report of the 2025 Taskforce which was released last Monday.