An Open Letter To Michael Cullen Re: The IMF
An Open Letter To Michael Cullen Re: The IMF
From Stephen Tindall- the woman
Dear Dr Cullen
There is a rumour circulating that the Labour Caucus has invited economists from the International Monetary Fund, to New Zealand.
One can only assume the IMF economists have been invited under the preconception that they will endorse your current economic policies, which after-all are a blue-print of that which the IMF has prescribed to hundreds of other nations throughout the world in exchange for desperately needed funding.
Why you are seeking their approval is perhaps a conundrum for those who falsely believe your economic policies differ to those of National and ACT - two parties who are flagrantly open in regard to their obeisance with the IMF prescriptions. But to others, it merely reinforces our belief that the current Labour government is fundamentally no different than its predecessors.
Even the Federal Reserve does not adhere to the IMF's advice. The IMF economists felt, for instance, that inflation would start rising in the United States as soon as unemployment fell below 6%. On the other hand, the Council of Economic Advisors thought otherwise. They were right and the IMF was wrong: when unemployment in the United States fell to below 4%, inflation did not increase. Based on their faulty analysis of the US economy, the IMF economists came up with a misguided policy prescription: raise interest rates. The Federal Reserve paid no attention to the IMF recommendations.
Other countries have not been able to ignore it so easily. However New Zealand can afford to ignore the IMF, as to the best of my knowledge, we have never owed them money nor allegiance.
In their original conception at Bretton Woods after WW11, the IMF - a public institution funded by taxpayers - and the World Bank, were created in the recognition that markets often did not work well - that they could result in massive unemployment and might fail to make needed funds available to countries to help them restore their economies. Sadly, during the 1980s Thatcher/Reagan era, there was a dramatic change within these two institutions when they became the new missionaries that preached free market neo-liberal ideology, thus overturning the underlying premise upon which the IMF and the World Bank were founded.
Unlike developing countries, New Zealand was not forced to take large doses of the IMF's bitter pills. Nonetheless, your previous Labour government with Roger Douglas as the Minister of Finance, did so voluntarily. Apparently, plane loads of American officials preaching their Washington Consensus ideologies, arrived en masse in Wellington and convinced Douglas and his colleagues that free market policies would do wonders for New Zealanders.
We were all told at the time that we would have to tighten our belts while we confronted the initial pains for the promised gains. These turned out to be empty promises and many of us are still feeling that pain.
We saw privatisation of state funded assets that were sold at fire-sale prices to off shore and local corporate interests - only to be eventually locally headed by the loudest and most vocal supporters for the privatisation of these assets in the first place - the majority of whom were members of the Business Round Table. They are of course keen supporters for the IMF and everything it stands for - including the sinister "structural unemployment" which ensures them of a cheap labour force.
We watched in the 1980's as those IMF policies liberalised financial markets and capital markets in order to serve the interests of those entities moving money around the planet in pursuit of the highest interest rates and most favourable exchange rates.
We witnessed the elimination of barriers to trade, resulting in the mass exodus of manufacturing jobs to China and what is now the mass outsourcing of IT jobs to India. Many of these jobs were replaced with student loans and the unemployment benefit.
We also watched our well paid jobs being replaced by low paid, part-time service sector jobs which have grown as a percentage of the workforce from 5.3% in 1983 to 29.7% in 2003. Many of these part-time workers (though the Ministry of Social Development cannot tell me exactly how many) are receiving employment benefits and accommodation supplements from WINZ because the wages and number of hours on offer are not sufficient to survive upon.
We saw the national average wage increase from $4.86 per hour in 1979 to $8.89 per hour in 2003, while for the same period, the average house price increased from $35,126 to $195,000. The result is, that while in 1979 with interest rates at 10.86%, the interest payments alone for the average NZ worker were 10.83% of their weekly wage. Now, the weekly interest payments for the average worker to purchase the average house accounts for 79% of their weekly wage. I repeat, Dr Cullen, 79% of their weekly wage and that does not include the principal. And therein lies our problem.
Of course, the lending institutions are laughing all the way to their overseas corporate banks, as the rise and rise of our property prices translates to the rise and rise of their dividends.
No doubt when they come to New Zealand, this will be on the minds of the IMF economists who are merely puppets for the global financial corporations and can hardly be expected to criticise our national $74.2 billion (and growing) household sector debt to their overseas masters.
While your salary and position may immunise you from this reality, Dr Cullen - thousands of families have been sickened by it and our exhausted social services are now having to act as the ambulance at the bottom of the cliff.
Sooner rather than later, those cheap consumer goods from China will not be able to continue to pacify the masses into a false sense of complacency and well being.
Nor will those cheap imported goods be able to mask the true level of inflation.
While our previous Governor of the Reserve Banks tenure and $435,000 annual salary was dependent upon maintaining an inflation rate that did not exceed 2%, between June 1999 and June 2002, Dr Brash and Treasury officials "modified" the content and weightings of the Consumer Price Index (CPI) which, as you know, is the main measure of inflation.
In an effort to hide the real rise in inflation, the cost of sections (ie land) was removed completely from the CPI. Rapidly rising costs such as rent, cigarettes, childcare, new housing and education had their CPI weightings lowered at a time when they should have been increased. At the same time, the weighting of cheap imported goods from China such as footwear, clothing and household appliances have been increased when they should have been decreased - afterall aren't we supposed to be spending less on these products, rather than more? This manipulation of the CPI can at best be described as flawed and at worst be described as fraud.
While I have been told by an employee at the Reserve Bank that the removal of the cost of land from the CPI has been practised by central banks in other countries as well as New Zealand, but recognised as an anomaly that may require correcting, I will not hold my breath until such time as they correct it. Why would these neo-liberal bankers correct it? After-all, if the price of land was included in the CPI, it would only expose the myth that free markets control inflation, when in fact they do not.
Basically, Dr Cullen, it is not going to take much longer for middle New Zealand to start questioning how the official rate of inflation has remained "stable" while their biggest expense (land) has risen exponentially.
It won't take long either, for our students to realise that they too have been hoodwinked. As you know, we have a steady stream of graduating students who have been told under the guise of a so-called "knowledge wave" that their increased knowledge and huge student debt will result in well paid New Zealand jobs - jobs that will pay well enough to enable them to fulfil every kiwis dream - that is to own their own home.
However the sector reporting the most notable increase (11.5%) in full time equivalent employees in the year to February 2003 was the real estate industry and I dare say that this figure has grown even more since then. But unfortunately for our graduating students, this industry does not require tertiary qualifications, nor much more knowledge beyond factoring in a sizeable commission for the agent.
Nevertheless and albeit miraculously, there are still 255,000 fulltime workers employed in New Zealand's 20,921 manufacturing businesses. Therefore, Dr Cullen, I wish to remind you that your governments greatest PAYE revenue is sourced from its manufacturers - not by real estate agents and people making capital gains in the housing sector.
Which begs the following questions. Why does this government continue to reduce tariffs and choose not to utilise the same defensive measures for our manufacturers, as do the governments of our trading partners? And why is this government not taking pragmatic and interventionist steps to stem the growing tide of investment in the non-productive and non-revenue-gathering housing market?
While I think I know the answer, I would rather hear it from you, Dr Cullen.
All in all, the reality makes complete and utter nonsense of the IMF neo-liberal economists and their policies and for that reason I cannot fathom why you have invited them here at the expense of the average New Zealand worker.
If you see their policies as a success, Dr Cullen, then let's have less of it.
But please don't go down in history as yet another Minister of Finance who took his hands off the economic wheel while focusing instead on scoring political points against his opponents, by making witty but facetious remarks in the debating chamber.
I urge you, on behalf of the average worker and our children, to take command Dr Cullen. Place your hands firmly on the wheel, steer our ship to shark infested waters, order those IMF economists to walk the plank and then steer our ship safely home again to our island paradise where no-one should be jobless nor live in poverty.
Stephen Tindall-the woman
Founder of MADENZ.
PO Box 4580. Mt Maunganui