NZ’s attachment to the State

I have written, rewritten, changed the angle on this post multiple times over the past week and have just today reduced this particular post from the 4,200-word monster it was to something more digestible.

Recent political events indicate how attached to the apparatus of State we are here in NZ. When I began writing this blog just over a year ago, many people accused me of being a ‘statist’. They were right. I genuinely believed that we required the State to regulate both the economy and our social systems because I considered the only alternative was a corporate/multinational controlled society. My initial concerns derived from my strong opposition to neoliberalism (NL) and my limited understanding of how economies work.[1]

I imagine that the ingrained fear of the ‘free market’ is responsible for the general attachment to the State. The fear is probably well founded, given the concept of the free market we have differs significantly from the free market advocated by classical liberalism (CL). Under NL, the ruling elite have an advantage over the masses because they control the policy making of the State (I explain one angle of this later in this post). NL diverges from CL at this point, because the free market was supposed to be free from State intervention. As Michael Hudson points out, ‘Today’s neo-liberals say a free market is free for predators. It’s free for monopolists, free for land speculators, free for bankers to extract as much income from wages and industry as possible’.[2] I’m not here defending CL, merely pointing out that the NL conception has created this State attachment, that perhaps a free market under CL conditions wouldn’t have. Noam Chomsky argues that Adam Smith advocated [free] markets only on the grounds that under perfect liberty [free markets] would lead to perfect equality’.[3] But my concern is that a great disservice has been done to the concept of the ‘market’ itself, as if markets are inherently evil and designed to privilege the few.

The dominant theory is that the State is necessary for regulating the market to ensure that the least advantaged members of our society are not made worse off by the privileged few under the NL framework. Parties on the Left most often espouse this view, but it sits awkwardly with the Labour Party given that they implemented this system during the Fourth Labour Government. Additionally, as highlighted by Giovanni Tiso in his latest post, The leader vanishes, the Labour Party still considers that [Labour] ‘took difficult and long overdue decisions necessary for the modernisation of the New Zealand Economy’.[4] Clearly, an endorsement of the neoliberal project, yet in his bid for leadership, David Cunliffe asserts that he will increase taxes for the rich, and even touted the ‘socialist’ card.[5] So I am somewhat confused as to Labour’s true position.

As I mentioned above, I believed that we needed the welfare state[6] to overcome the existing structural inequalities in NZ. However, exposure to further information highlighted the flaws of the welfare state, specifically, that if the State are the arbiter of human rights and freedoms, then we are vulnerable to the same authoritarianism that we are currently experiencing under this National led government.

Sebastian AB writes on C4SS blog that what the state is capable of giving, it is also capable of taking away – by force.[7] The GCSB Act is the most current or at least, the most publicly discussed example of the seizure of human rights and freedoms (i.e. privacy) from individuals.

In my view, NZ’s political framework appears to be an amalgamation of the welfare state (WS) and NL. and the tension between these two ideologies has (arguably) created the worst possible outcomes for everyone. NL underpins all the policy decisions made in NZ, and policies targeted at improving outcomes for individuals and families (welfarism) are developed and implemented within this framework. Despite any perceived improvements under Labour or National, the changes have had no substantive impact on social or economic equality.

I was disturbed about the aggressive pronouncement (by Cunliffe, but also advocated by other left wing parties) of increasing income taxes for the rich, because it reaffirmed that our left is devoid of new ideas and are rehashing stale policies from the state socialist handbook.

Labour, Greens and Mana (LGM) argue that increasing taxes on high-income earners means that such earners will contribute their fair share to society. I appreciate and endorse the sentiment – we don’t want to leave our least advantaged members struggling to survive.

But what are the consequences of increasing income taxes for high-earners?

Those who pay proportionately more in taxes receive benefits from the State in the form of policy privileging their interests, otherwise the government risk being ousted by those with the most capital. The effect is the same as crony capitalism. This interventionism causes the deprivation that LGM insists their policies protect against.

Taxation is a huge reason that income inequality exists, and income tax is actually a relatively modern concept. Some critics even question the constitutional legality of taxing personal income, given its denouncement in the Magna Carta.[8]

In NZ, we use a progressive taxation scheme, i.e. a tax system that takes a larger percentage from high-income earners than it does from low-income earners.[9] LGM simply want to increase the percentage further for higher income earners, and some parties have even called for reducing the percentage to low income earners.

Problem – when those who earn high incomes become subject to a heavier tax burden, they seek increases in their net income to counter the loss through taxation. The obvious result is that low income earners lose out so that businesses can retain those high earners – these are typically academically qualified professionals who have the ability to negotiate their wages in their favour. This creates job losses/reductions in the lower echelons of business. When jobs become scarce in the lower echelons of the business, the workers compete for the available jobs and workers tend to accept less than the true value of their labour. In addition, they are often forced into beneficiary queues, state housing, state education and state healthcare systems and must conform to the criteria of those State schemes to even receive or become entitled to assistance thereby limiting their individual autonomy. Moreover, low income earners become the subjects of government data collection, further infringing their rights to privacy.

We will continue to play cat and mouse with income taxes as the rich are pitted against the poor. History tells us who wins. Our taxes effectively pay the ruling elite to tell us what we can and cannot do.  In fact, this is neoliberalism 101. The statocracy have convinced us that without the State, the market will plunge us into the deepest pits of inequality we have ever known.

As a nation, we have been indoctrinated to view State intervention as an indicator of a compassionate government, resulting in an unhealthy attachment to the State apparatus through propaganda used to obtain support to implement unpopular policy – usually policy that intends to limit human rights and freedoms for the economic advantages of the ruling elite.

I consider myself left because I still believe that socialism is preferable to capitalism, because in my view, profit over people is never justifiable and hierarchies are inextricably linked to capitalism where bosses control and exploit rather than emancipate workers. But I am not a socialist who thinks the State can resolve structural inequalities and is necessary towards that end. I can appreciate the pragmatic arguments for the State, but I doubt that we would be thrust into an Arab Spring like revolution in rejecting the State in an attempt to minimise its control over our lives.


[1] I admit that I am still a novice when it comes to economics and do not even pretend to hold any kind of expertise on the topic.

[3] Noam Chomsky on Libertarian Socialism via YouTube http://www.youtube.com/watch?v=yxbeyn2xMQE at (1:07)

[4] Giovanni Tiso, “The leader vanishes” on Bat Bean Beam available online at: http://bat-bean-beam.blogspot.co.nz/2013/08/the-leader-vanishes.html

[5] See Colin Espiners article David Cunliffe is Labours top dog available online at: http://www.stuff.co.nz/national/blogs/bull-dust/9092256/David-Cunliffe-is-Labours-top-dog

[6] “A welfare state is a concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those unable to avail themselves of the minimal provisions for a good life… The welfare state is funded through redistributionist taxation and is often referred to as a type of “mixed economy”. Such taxation usually includes a larger income tax for people with higher incomes, called a progressive tax. This helps to reduce the income gap between the rich and poor” Wikipedia available online at: http://en.wikipedia.org/wiki/Welfare_state

[7] Sebastian AB on C4SS “Taking power with or without Chris Hedges” available online at: http://c4ss.org/content/20440

[8] H/t Mark Hubbard’s blog (dedicated to tax issues) Life behind the Iron Drape available online at: http://lifebehindtheirondrape.blogspot.co.nz/  see also Ian Wisharts Income Tax: 1297 law holds key to challenge in Investigate (June 2000) available online at: http://www.investigatemagazine.com/june00tax.htm

[9] Progressive Tax, Investopedia available online at:

http://www.investopedia.com/terms/p/progressivetax.asp

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2 comments

  1. “So I am somewhat confused as to Labour’s true position.”

    There are two explanations here, a cynical one and a nice one.

    The cynical one is that Phil Goff, who was in cabinet in the fourth Labour government, is still in caucuse, commanding respect, and the nice words about necessary reforms are bullshit, put there for the sake of compromise and respect for our elders.

    The nice one is that while the particular reforms we got have played out badly, something did need to be done in 1984. Import restrictions were creating their own class of oligopolist while reducing the quality of life for ordinary citizens, subsidies for farmers were enriching them at the cost of other citizens and were unsustainable to boot, blah blah.

    At the Young Labour summer school this year I heard Brian Easton review that period and posit that it was a moment where social democracy failed to present a clear alternative: it *could* have, but the neolibs had the intellectual energy and horsepower at that time. There is an alternative history where more modest changes were made and we ended up like the Scandinavian states. See http://www.eastonbh.ac.nz/2013/01/economics-for-new-zealand-social-democrats/

    I admire the way you’re working your own thinking out in writing here. I should try and do the same.

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    1. Thanks! I had a little read of Easton’s piece, it was really enjoyable. I admit I’ve focussed on my rejection of NL without acknowledging the circumstances or the alternatives available at that time! Both of which (as you suggest) are equally as important to the discussion.

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