I am half way through reading a new book by Jane Kelsey, Professor of Law at Auckland University, The FIRE Economy. It is fantastic and a must-read for all New Zealanders.
FIRE is an acronym for what New Zealand and the global economy has been built on since about 1975 and stands for Finance - Insurance - Real Estate.
Neoliberal - adjective: 1. Relating to or denoting a modified form of liberalism tending to favour free-market capitalism.
Professor Kelsey talks about how the introduction, 40 years ago, of a “neoliberal” orthodoxy has brought instability to our economy, is socially inequitable and has empowered the few. However, it remains remarkably resilient, even resurgent, in NZ and abroad. The result she calls the “financialisation” of our economy - focussing on making money out of money but not producing anything. As the star of finance has risen, the industrial sector has declined. I was always taught at University when I studied economics that a free-market, neoliberal economy has flaws and creates an unstable economy that is frequently punctuated by recessions and global financial meltdowns, many of which I have witnessed in my teens while observing the economy since 1975.
There are a number of themes in the book, one of which she calls the “normalisation” of debt in New Zealand whereby people now feel justified in borrowing money for something intangible like taking a holiday. The trend seems to be to borrow to sustain a certain lifestyle. Our tertiary students are being dragged into this situation through student loans which guarantees that future generations will be tied to a significant debt at the start of their working lives. This exposes people to the risk of financial failure should there be another recession and will have a serious adverse effect on the Government should people lose their jobs and students be forced to default on their loans.
There has been a huge increase, since 2000, in private debt (you and me) rather than public debt (Government).
She explains how NZ has earned the reputation for being the “Wild West” in international financial circles due to our Government’s “hands-off” approach to regulating the finance industry to safe-guard ordinary investors. It talks about the devastation caused by the massive loss of wealth by ordinary New Zealanders as a result of “trusting” policies making the collapse of a number of “cowboy” finance companies in New Zealand virtually inevitable. The very people advising Government on how to regulate the finance industry are the same people who operate within the industry and stand to gain the most!
Anyway, I’m up to the part where she talks about what we could possibly to do to fix it. I’ll keep you posted - or you could just buy the book. Published by Bridget Williams Books Ltd with the New Zealand Law Foundation.
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By Dean Dalton DBA
Director, DaltonPlan® Business Action Planning Limited