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Salient. Official Newspaper of Victoria University of Wellington Students Association. Vol 40 No. 17. July 18 1977

Crisis Prolongs Student Hardship

page 2

Crisis Prolongs Student Hardship

On Thursday 7 July, it was announced that there had been a 4.8% increase in the Consumers' Price Index for the June quarter, which made for an annual increase of slightly in excess of 14%. The only government spokesman who was prepared to comment, the Minister of Trade and Industry, Lance Adams-Schneider, expressed some minor disappointment, but confidently claimed that, by the end of next year, the annual rate of inflation would be down to 10%. All of this hardly conforms to the many and various statements made by the National Party spokesmen (particularly the present Prime Minister) during the last election campaign, about such things as "cutting inflation to the bone".

The rate of inflation, however, is only one of the economic problems that the country is up against. There is a huge balance of payments deficit, which the New Zealand Institute of Economic Research has said is more likely to increase than decrease. And there are a whole complex of problems relating to the levels of unemployment and economic growth. The combination of all these factors leads one to the conclusion that New Zealand is in a state of economic crisis.

The Scope of the Crisis:

The effects of the continuing inflation should be obvious enough to students. People are continually being hit with rises in the prices of everything from groceries to bus fares and tickets to the movies. Students living in hostels will have noted the dramatic increases in the cost of their accommodation, while those in flats will, in many cases, have noticed increases in their rents.

Some people suggest that we could quite happily live with 10% inflation on a continuing basis, year after year, so long as every thing such as prices and wages all increased at the same rate. Perhaps we could, if inflation did work in such an equitable way, but, unfortunately, inflation does not work like that. Continuing inflation would be to the advantage of those who set the prices and wages, and would therefore be to the disadvantage of the wage-earners, to the disadvantage of those who are primarily consumers, and to the disadvantage of those who are in receipt of a fixed allowance, which is only increased after the inflation has taken place, such as students. What such continuing inflation would mean would be that the rich would get richer and the poor would get poorer.

The balance of payments deficit is another symptom of the crisis. The effect of it is to cause the government to have to borrow heavily overseas, which means that we are acquiring huge bills for interest payments, with which we will be saddled for many years to come. Yet, in its latest report, the Monetary and Economic Council suggested that this borrowing would have to continue for some years to come if there were not to be major disruptions to economic stability.

Drawing of a tall mand and a short man

The cause of this balance of payments deficit is the dependence that the New Zealand economy has on the continued importation of a number of basic items, which are paid for by our exporting a very small range of primary products. It was for reasons such as this that the Monetary and Economic Council suggested that New Zealand's economic structure resembled in many ways that of a typical third world country. Our dependence for our economic survival on the continued exporting of meat, wool and dairy products to the developed countries of the Northern hemisphere, so that we become little more than an adjunct to their agricultural production, makes us dependent on these countries, and makes us poor.

The problem of unemployment may not appear to be particularly severe, if it is measured as the total of registered unemployed and people on special work, but that does not reveal the true extent of unemployment. Figures in the latest report of the Monetary and Economic Council show a substantial drop in the number of people participating in the labour force, and when the effect of the substantial net emigration is added, there must clearly have been a substantial reduction in the availability of employment. Therefore, by next summer, students may find it rather difficult to get the jobs they need to supplement their bursaries.

Likewise, a reduced level of economic growth may not appear as a problem in the short term — in fact, some people might regard it as a desirable objective. Unfortunately, however, under our present economic system, static economic states, such as zero economic growth, will not persist, and the likely result will be for the mass of the people to become poorer. Some of these crisis trends are already becoming evident in the building industry, and this can serve as a good illustration of the effects of the current crisis.

A change in migration flows from a net inflow of 30,000 people in 1974, to the current situation of net outflows has substantially reduced the rate of population increase, which has meant that, in turn, there is a much lower demand for housing. This, combined with government measures to reduce the availability of finance for building in an attempt to restrain inflation, combined further with the effect of inflation in raising the rate of interest on borrowed money, has served to drastically reduce the level of activity in the building industry, so that resources are rapidly becoming underutilised, consequently, skilled building workers are leaving the country in droves, and when the economy, and therefore the building industry, picks up again, there will be a shortage of labour and other resources, which will tend to cause a new round of inflationary impulses.

Some Causes of the Crisis:

The causes of the present economic crisis are far from easy to analyse, but it is possible to make a few suggestions as to factors which are relevant.

As well as being a symptom of the economic crisis, the balance of payments deficit is, in a number of ways, a cause. Therefore, the factors which cause the balance of payments deficit are important causes of the economic crisis, although they may be factors peculiar to the New Zealand case.

An important cause of the economic crisis in New Zealand is therefore the degree of dependence on imports from which our economy suffers, a dependence which, if looked at from its opposite aspect, is a dependence on export markets tantamount to forcing control on our economy. There is therefore an obvious need for New Zealand's development policies to be based on what the people of this country need, rather than on what we might be able to export.

Drawing of a man jumping on a crisis

The dependence on imports also means that the New Zealand economy is very sensitive to increases in import prices, and there is no doubt that the sharp increases in import prices since 1974 have provided a boost to inflation (for example, import prices rose 34.3% in the year ending June 1975). But to blame all of our inflation on import price increases, however, would be a bad case of buck-passing.

The balance of payments deficit has, of course, had an impact on inflation more directly. This is because the deficit has provided reasons for governments to devalue the currency, and any devaluation will generally have an inflationary effect.

There is one further way in which the balance of payments deficit has contributed to the economic crisis. This is because a balance of payments deficit implies an outflow of money, and this means that there must be a huge contraction in the amount of money circulating within New Zealand. To overcome this, without bringing the country to a standstill, the government has had to run large budget deficits, spending a lot more than it has received in taxation. Such actions naturally tend to stimulate inflation.

The Effects of the Crisis

Despite optimistic statements by the Prime Minister at his weekly press conferences, the impacts of this economic crisis are serious, and the efforts of the government to combat it appear to be funnelled into two main directions. They are trying to reduce their expenditure as far as possible, as part of a process of winding the economy down, and they are trying to stifle dissent within the country, as this dissent is primarily a reaction by people to the various attempts by the government to lower their living standards, and fight for their rights. Thus, despite the various statements in economic jargon the government has largely abandoned the attempt to resolve the present economic crisis by orthodox Keynsianism.

The attempts to reduce government expenditure, as part of the process of winding the economy down, can be evidenced in a number of ways. One clear example, and one which is dear to students' hearts, is in respect of their bursaries. The continuing failure of the government to establish a bursary system which keeps up with the cost of living, year by year, is blamed on the country's economic situation. It has not even been seen as fitting to raise the bursary for 1977, to the level relative to the cost of living that it was, at the time of its introduction, at the beginning of 1976. Students are therefore one group who have been paying for the economic crisis.

Another example is with the recent government proposals to cut back on the domestic purposes benefit. Throughout last year, the government kept on referring to women on domestic purposes benefits who were engaging in de facto relationships, and on the basis of these attacks, managed to successfully depict beneficiaries as bludgers who were in receipt of a benefit form the state to which they should not have been entitled. It is interesting to note that, in its report, the Domestic Purposes Benefit Review Committee could find no evidence of such wide-scale abuse of the benefit, but, despite this, the government's denigration of beneficiaries was successful, with the results that the cutbacks in the benefit were able to be made politically acceptable, Similar policies are also becoming evident with other groups who are on Social Welfare benefits, one such group being young unemployed people.

The example of the domestic purposes benefits shows how the government is using campaigns of abuse to attain economic objectives. This process is taken one step further with their policies ot trying to stifle dissent, dissent by people who wish to protest against cuts in their living standards.

The best example of this is with the relationship between inflation and the new industrial legislation that the government brought in last year. As part of its economic policy to combat the crisis, the government has been attempting to hold down wage increases, so that wage earners will have to pay a greater share of the cost of the crisis. Not unnaturally, the organised trade union movement, throughout last year, increasingly took action against these policies of the government, and the mounting levels of industrial unrest were used as a reason by the government to introduce new laws to restrict the abilities of the trade union movement to work to protect its members (see NZUSA's booklet, "Labour's Leg Irons", available from your students' association). Although this new legislation may not yet have used, its existence is nonetheless a real threat to trade union organisation.

Government attacks on other minority groups, such as the Maori and Polynesian people, can be seen in a similar light. The government's intention is to divert people's attention away from the economic crisis as the cause of their problems.

What can we do about it?

The most important thing, in the present circumstances, is to be aware that New Zealand is in a state of economic crisis, and to understand the effect that this is having on the New Zealand people. In due [unclear: cour economic] situation will improve doubt improve, but the crisis may become a great deal more severe in the meantime.

What we must do, then, is to struggle against our having to pay for the economic crisis, and make the cost of it be borne by those groups which are benefitting from it. The distribution of income and wealth in our society is not fixed as any god-given law, but is a reflection of the ownership and control of the means of production, and thence of state power.

Students should not accept government statements that they cannot have a cost-of-living bursary, on the grounds that it would cost too much in the [unclear: present] economic climate. Rather, we must get out on the streets and fight for one.