In recent weeks the Prime Minister of New Zealand, John Key, has flagged an end to the country’s recession. A National Bank of New Zealand business survey has also outlined a return to positive growth after the nation recorded negative growth since the first quarter of 2008. Does this mean the worst is now over?
While the economic shocks to New Zealand have not been as severe as in other advanced capitalist countries, there is no doubt that the crisis has started to affect the lives of many working people. Official unemployment is at a ten year high of 6 %. In June, the Reserve Bank of New Zealand predicted the jobless rate could rise to as high as 7.2 % by the middle of 2010. With many firms still looking to shed staff, even this figure could be an understatement.
The New Zealand economy is largely dependent on global trade and it is for this reason that it has been hit hard by the downturn. The World Trade Organisation (WTO) estimates that global trade will contract by a massive 10 % this year – the biggest fall since World War Two.
Most serious analysts agree that this is the most serious crisis to hit the world economy in 80 years. In fact, even the International Monetary Fund has stated that “The world economy is entering a major downturn in the face of the most dangerous financial shock in mature financial markets since the 1930s”.
Capitalist economists like Barry Eichengreen and Kevin O’Rourke point out that world industrial production continues to track closely to the 1930s fall and that world stock markets are still following paths far below the ones they followed during the Great Depression.
They note that the US continues to see industrial output fall approximately in line with what happened in the 1929 crisis and that Japan’s industrial output is much lower than at the equivalent stage in the Great Depression.
In April, Eichengreen and O’Rourke stated that “globally we are tracking or doing even worse than the Great Depression, whether the matrix is industrial production, exports or equity valuations.”
The main economic difference between the 1930s crash and the crisis today is the ruling class response. Terrified of the possibility of a deep depression and all the possible social and political consequences, ruling classes around the world reacted by acting quickly, especially after the Bush administration let Lehman Brothers collapse.
Trillions of dollars have been pumped into economies around the world to keep them afloat. There has also been a turn towards more state intervention to save the system. While not solving the underlying causes, these measures have, for now, acted to temper the decline, at least in most of the main imperialist countries.
There is a real possibility that after the immediate effect of the different stimulus packages there will be a further downturn or a “double dip” recession. Given that most countries are now deep in debt there will be limits as to how much they can intervene a second time around.
The total amount spent by the New Zealand government is about $500 million NZ dollars. Government debt is expected to balloon to nearly 40 % of GDP by 2013 as a result of the money outlaid. The bill for this debt will be sent to future generations of workers.
Some countries have been forced to nationalise, in a state capitalist manner, banks or failing companies while others like New Zealand, have resorted to stimulus packages that include investment in infrastructure projects like schools, bridges and homes.
While the stimulus package has had some effect in slowing the process, it will not be able to solve the fundamental problem: the lack of demand and the lack of profitable markets. If New Zealand is to dig out of recession the question for capitalism is from which sector of the economy will this new demand come?
Market opportunities inside New Zealand are limited by the country’s small population and consumer spending has fallen sharply over the past year as workers remain cautious about the future. Despite a long period of aggressive interest rate cuts, consumer borrowing is down 3 % on a year ago. With rising unemployment and high levels of household debt it is unlikely that workers are about to go out on a spending spree anytime soon.
The manufacturing sector in New Zealand is small and only accounts for about 14 % of GDP. However, the government is hoping that the food manufacturing sector and agriculture will be able to provide the economy with a boost from an increase in exports.
New Zealand’s main trading partners are Australia, the US, the EU and China. The Australian market is the destination of 19 % of New Zealand’s exports. Because the New Zealand dollar has surged in recent months exports are now much more expensive. Even if the dollar does drop in the near future the question is to what extent consumers in these countries will be able to purchase New Zealand goods given the global downturn?
The markets in the US and the EU are in serious decline and there is no prospect of a quick recovery. The introduction of export subsidies by the EU and the US could also have serious implications for the New Zealand economy. While Australia has managed to stay out of technical recession in the current quarter, its overall position is quite weak and consumer spending down. It is likely that Australia will follow the rest of the world into recession sooner rather than later.
China is also reliant on consumer demand in the US and EU. With these countries in decline it is forcing thousands of Chinese factories to close and throwing millions of workers on the scrap heap. Rising unemployment and cuts to the income of the middle class means that it is unlikely that Chinese consumers can drag New Zealand out of recession.
Ruling class no clear strategy
The reality is that the New Zealand ruling class has no clear strategy to climb out of this crisis. They are trying to make workers pay for the crisis through job losses, reduced hours and cuts. The main problem they face is that while they need to increase demand they are actually reducing demand by attacking jobs. This is one of the reasons why any return to growth is likely to be weak and short lived.
Given that capitalism is an unplanned system it is impossible to predict the future with any precision. We can say with some certainty however that the impact of this crisis will take on a drawn out character. Even when there is an economic upturn, it will be weak and high levels of unemployment and poor growth will persist for some time. The last world boom relied on debt to extend the market. There is no sign of ‘normal’ bank lending returning any time soon. In short, there is more bad news to come.
This does not mean that the system is about to collapse. The reason that John Key and the capitalists are so optimistic about the future is because no mass alternative has been posed. The impact of the collapse of Stalinism and the move to the right in the Labour Party has meant that there is a political vacuum to the left of Labour. This has resonated in the trade unions and at this stage most are not showing any sign of fighting back.
It is for this reason that an independent working class analysis of the economy is so important. Economic developments are the driving force behind changes that lead to an increase in class struggle. They are important because of the effect that they have on material conditions and on consciousness. For this reason a ‘wait and see’ approach will not suffice. Workers need to be fully aware of developments in order to be able to respond quickly.
The attacks on jobs and living standards are bound to provoke a reaction from working people in New Zealand at a certain point. While an economic crisis can have a temporary “stunning” effect on some workers, in the coming period we can expect an increase in defensive battles as workers try desperately to hold on to what they have. Even when there is a slight return to growth this could mean an increase in struggle as workers attempt to claw back some of what has been lost during the recession.
Despite the lack of organised opposition, the situation for capitalism in New Zealand is quite weak and unstable. The system is incapable of providing working families with a decent future. When workers begin to realise that there will be no return to past ‘good times’ this will further contribute to the instability that exists.
It is important that workers are prepared for the unfolding situation and that the workers’ movement outlines a strategy to ensure that working class people are not made to pay for a crisis that they did not create.