Baba O’Reily and his Forty Thieves

ali-baba1Last week, the Government suggested that the salaries of MPs and senior public servants should be frozen.  Arguing that salary increases needed to be kept at a minimum in the face of the deepening economic recession, Prime Minister John Key stated that he would be writing to the Higher Salaries Commission requesting a nil increase.  It didn’t take a master genius to figure out what was going to occur next.  Fresh from their own ‘generous’ fiscal sacrifice, suggestions then came from the Government that salary increases for public employees should also be deferred. 

This week it is the turn of those who receive the minimum wage to sacrifice, with Business New Zealand’s Phil (Baba) O’Reily arguing that the wage should not be increased and that workers should receive tax cuts instead.  For the ill-informed, ‘Baba’ is the CEO of Business New Zealand and the ‘in’ person to be seen with for the ‘out and about’ fashionable fiscal Reactionary.  Recently arrived, via time machine from the late 1920s, Phil spends a lot of his time bemoaning the rights of workers, the role of Government and suggesting ways and means by which the same workers and Governments can subsidise business.  (Subsidy is not a dirty word for the Right, when it suits their purposes).

And, that is exactly what Baba O’Reily and Business New Zealand is seriously suggesting, that low income workers should subsidise business through not receiving a wage increase. The cost of any tax cut would be borne by the Government and the public. It would doubtless impact on the Government’s deficit and its ability to fund services.  (Hence, less services, a larger deficit, all of which brings the inevitable demand from Right wing groups such as Act and Business New Zealand to cut the deficit by privatising Government assets).  

The rationale for this solution is because Baba and the National led Government see the fiscal problem as being caused by wages and the like, instead of being caused by credit crunches, bank failures and industry collapses caused by the free market policies and direction that they (Baba, ACT and co) have promoted and implemented over the past decades.  Indeed, Baba is actually on record as saying that the free market has nothing to do with the current economic crisis. 

Baba argues that increasing wages would mean that business would fire workers.  However, not increasing workers wages would almost certainly have the same effect.  Such a policy would reduce effective demand in a stalled economy, increasing and prolonging the recession.  In a nod to New Zealand’s recent history, one only needs to look at what reducing wages and social spending in the early 1990s, through Benefit Cuts and the Employment Contracts Act did to the New Zealand economy.  Wiping nearly a billion dollars from the domestic economy, it set New Zealand back for the remainder of the decade.  Any recovery in the late 1990s was swiftly derailed by the 1997 Economic Crisis, which swept through the New Zealand economy like the proverbial knife through soft butter. 

New Zealand is a low wage economy (a point conceded ironically by Business New Zealand).  Despite, the fact that the minimum wage increased 72% under the Labour led Government from 1999 – 2008, it has to be remembered that National only increased the minimum wage by 40% during its tenure in Office (1990 – 1999).  The minimum wage in New Zealand is lower in real terms than its counterparts in Western Europe.  Further, wages and benefits had been cut during the 1990s, leaving people worse off.  Despite the past 9 years, this country’s wage and salary rates remain lamentable compared to other developed nations.  Further, costs continue to increase, even if wages and salaries don’t.  The effect of rising costs on a fixed income would be to pitch low and middle income earners into further debt and hopelessness.

One of the solutions to the current economic quagmire is to actually increase wages and salaries, thereby starving off some of the worse effects of the recession domestically.

Writing during the Great Depression, when the policies suggested by O’Reily were in vogue and having the effect of prolonging economic and social despair, the British Economist John Maynard Keynes wrote that the time had come for every reactionary and social conservative to push their agenda with lamentable effects. In all likelihood, Baba had probably left the 1920s in his time machine prior to Keynes’s comments

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