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    Essential Information on an Essential Issue

    Letter No.80

    18 June, 1998

    The Unfolding ECONOMIC CRISIS. What should New Zealand do?

    Expect much higher unemployment in NZ as a result of the economic slide of recent weeks. With Japan -- our second largest export market -- now officially in a recession, the NZ dollar sliding below US50c to a 12-year low, our stock market sustaining an historic 12-day fall in share prices, our current account deficit now the highest in the OECD, and the National Bank survey of business activity throughout NZ showing little or no growth in our regions it is clear that NZ is in for a rocky economic ride. The shock that NZ is taking from the economic meltdown in Asia is now of similar magnitude to the oil shocks of the 1970s.

    Most economic commentators are now expecting the unemployment rate to go over 8% and probably higher in the near future. The immediate effect of the unfolding economic downturn will be felt in the construction, retail and restaurant industries. This is where marginal businesses will go to the wall and jobs will be lost as the domestic sector settles into tight economic times.

    As a special feature in this issue of The Jobs Letter, we include CTU economist Peter Harris's backgrounder to the unfolding economic crisis.

    Source -- commentary by Vivian Hutchinson, and general media watch,

    So what is happening to ETSA and the TOPS funding? The Budget announcements were unclear as to the actual allocations of money to the Education and Training Support Agency (ETSA) and how the Training Opportunities Programme (TOPS) funding will be allocated under the new super-department.

    For the first time, ETSA is now to receive funding from two Budget sources from `Education' and `Employment'. While the `Education' portion of ETSA's funding was clearly defined in the Budget, the `Employment' portion was contained within a generic figure and not detailed out. This inclarity led to media reports (and our own Budget summary in last Jobs Letter) saying that ETSA's funding has been cut in half. This is incorrect.

  • Basically, TOPS funding is now being administered in two strands, with ETSA "purchasing" training from training providers to meet the needs of two different target groups. The `Education' strand (funding:$65m) is being targeted to serve the needs of school leavers with no or low qualifications. The `Employment' strand (funding:$109m) is to serve the training needs of the clients of the new super-department (i.e. working-age beneficiaries). ETSA is presently negotiating a memorandum of understanding between itself and the Department of Labour for the purchase of TOPS training. They expect this to be signed up early next month.

  • There is a reduction of 13% of the overall TOPS funding ($24m over the next two years). This amount will be handed to the new Regional Employment Commissioners who will have discretion to use it on a range of measures "to achieve employment outcomes for their clients".

  • The figures: ETSA will be funded in 1998/99 for $269.4m, and this will come from the Industry Training Fund $65m, Skill Enhancement $10m, TOPS Education $65m, TOPS Employment $109m and operating funding of $20.4m.
    Source -- Letter from Sarah Morton, Communications Advisor for ETSA, to the Jobs Letter3 June 1998; Programme Update newsletter from Marianne Doczi and Susan Shipley of ETSA Policy June 1998

    Reserve Bank Governor Don Brash believes that the government's community wage plan (see issue 77 of The Jobsletter) will tend to depress wages and therefore reduce inflation. He told Parliament's finance and expenditure committee that while the bank had not done any detailed work on assessing the policy, he believed that in principle it would tend to reduce low incomes or prevent them from rising as people were induced to go out and look for jobs.

  • CTU Economist Peter Harris says that Dr Brash's comments lend weight to critics of the community wage scheme that it will displace work. Harris: "It is not about doing work that wouldn't otherwise be done. If it was, it would not be suppressing wages"
    Source -- The Daily News 28 May 1998 "Work for the dole plan will lower wages, says Brash"

    The Auckland District Council of Social Service ADCOSS is circulating a "pledge" document around community organisations committing "communities with a conscience" in their opposition to the government's workfare proposals. The pledge asks community organisations to commit that they will not take on community wage referrals, nor be a Community Broker Organisation (CBO) for workfare programmes.

    The pledge outlines support for genuine volunteering for beneficiaries and others "where there are no sanctions if a beneficiary declines to take up a position with our organisation." The pledge also endorses employment creation "which is full-time and full waged" as a solution to unemployment, rather than forced work-for-benefit programmes.

    For further details contact ADCOSS, P.O.Box 6817, Wellesley St, Auckland

    Source -- ADCOSS Pledge against Workfare June 1998

    The Upper Hutt Employment Trust (see last issue of The Jobs Letter) has referred irregularities uncovered in an audit to the police, according to the chairwoman Heather Newell. The irregularities concerned the signing of timesheets by former manager Trevor O'Brien, which he says was done in order to streamline the system.

  • Meanwhile, the Upper Hutt Council is balking at ploughing more money into the Trust, especially now that the Trust will be running the government work-for-the-dole scheme. The Council has put about $340,000 into the Trust since it was introduced as a pilot scheme in 1993 by the now Employment Minister Peter McCardle. It has earmarked a further $70,000 in this year's annual plan.

    Councillor Nicola Meek describes the Trust as a "noose around the neck" of the council, and says that since the Trust was now to be run according to Government policy, it should be funded by the government and not the council. Rimutaka Labour MP Paul Swain resigned from the Trust last November because he says it was becoming a work-for-the-dole scheme, which he could no longer support.

    Source -- The Dominion 13 June 1998 "Employment trust calls in police over audit"; Marlborough Express 20 May 1998 "Employment Trust seen as noose around neck"

    The Jobs Gathering conference, planned for Auckland on August 14-16, has been postponed, possibly until later this year. The organising group says that it has found itself in the position of lacking both adequate funding and the time to put the event together well. This gathering was planned to be the next in the series of gatherings which included the Beyond Poverty conference last year, and the Social Responsibility conference held at Massey University in March.

    One of the organisers, Sue Bradford, says she is still committed to creating a conference which will allow people from many different sectors and parts of NZ to come together and look at what is happening with jobs and the future of work in this country. Bradford: "We want to look at how we can get employment and solutions to unemployment back on the economic and social agenda in a real way"

    Source -- letter from Sue Bradford to the Jobs Research Trust

    Scottish consultant John Pearce is due back in NZ next month for more workshops on social auditing. His visit is again being organised by COMMACT Aotearoa, a local chapter of a Commonwealth-wide NGO working for local economic development.

    COMMACT defines social auditing as the process whereby an enterprise can account for its performance as regards to its social objectives and then reports on that performance. John Pearce, who developed the process with the UK New Economics Foundation, will be holding introductory seminars, for groups interested in the concept, in Auckland, New Plymouth, Wellington, Christchurch and Dunedin. Contact Quentin Jukes at COMMACT P.O.Box 423, Auckland 1 phone 09-302-2496.

  • COMMACT is keen to see the social audit process acknowledged as an acceptable form of accountability, as well as providing a regular means for organisations to look at their own performance. It believes that if such a process can be developed here in NZ it has the potential to assist in the development of a funding and contracting environment based on much higher levels of trust than presently exists between community organisations and funding providers.

    Several community organisations in Auckland, Kaitaia and Christchurch are beginning a trial of John Pearce's methods, in a project funded by the Tindall Foundation and Internal Affairs.

    Source -- Common Ground Vol 5 issue 1

    A controversial report by Auckland University on the cannabis industry in Northland claims it is booming and earning at least $700m a year. The report says this means cannabis is earning more than Northland's dairy industry, which in 1994 recorded a turnover of only $396m. The totals are based on amounts of drugs seized by the police, and dozens of interviews with police, DOC officers, farmers and Maori elders.

    The report finds that many rural communities and towns in Northland such as Kaitaia and Kaikohe rely on cannabis money to stay afloat. During tough times, farmers have been known to allow people to grow on their land in exchange for a share of the profits. And, according to Te Puna Kokiri, cannabis is a means of survival for many Maori families fighting poverty.

    "Cannabis Highs and Lows -- Sustaining and Dislocating Rural Communities in Northland" has been produced the Auckland University Geography Department.

    Source -- New Zealand Herald 3 June 1998 "Drug-earning s hit $700m";

  • A major Northland cannabis grower who earns hundreds of thousands of dollars each year from the illegal drug says he learned some of his horticulture skills on a government-funded training course. He told NZPA that cannabis cultivation was his business, and just like any businessman, he had to get as much skill and knowledge to make his business successful. He says the horticulture course improved his growing methods, learning about good fertiliser methods and how to get maximum yields from plants. The man says he personally does not favour cannabis being legalised, or even decriminalised, as it would wipe out his profits within a season.

    Meanwhile, the European Union has recently discovered that it is more than $1,000 billion richer than it thought it was depending on the accuracy of new estimates for the size of Europe's underground, undeclared and unmeasured economy. The European Commission reports that high levels of taxation and regulation have driven Europe to develop a massive black economy, equivalent in size to Britain's gross domestic product, and employing up to 28 million people. By contrast, the official total of the EU's unemployed is 17.5 million. The EU believes that this alternative economy is distorting tax, welfare and financial systems, and is inflating unemployment rates across the continent.

  • The EU commissioned a report on the black market after the EU Jobs Summit in Luxembourg last year. The report estimates that up to one-third of the Greek economy, and up to a quarter of the Italian and Spanish economies, are operating on a strictly cash basis. Britain is estimated to be about average among the 15 EU countries, with a black economy of around 10% but as much as 13% may be off the books.

    Eurostat, the EU's statistical arm, is now working on a new GDP model that will take account of all the plumbers, waiters and cleaning ladies who work strictly for cash, and of the double book-keeping that helps ease Europe's tax burden. The implications of the EU findings are profound. Since almost half the money paid into the EU budget by each member state is based on GDP figures, Greece, Spain and Italy are underpaying by nearly $16 billion a year. And, because EU structural fund payments are calculated in part on local unemployment rates, these countries are receiving more than their fair share from the Community budget.

  • The Commission appears to believe that the thriving underground economy is a rational response to the overtaxed and over-regulated European system. But it also warns of the social costs of the underground boom. The Commission: "The situation is particularly damaging for undeclared workers who are officially `inactive', as they forgo all the benefits derived from working with a formal contract, such as training, a specific career profile, pay rises, ultimately harming their employability and job prospects".
    Source -- The Guardian Weekly 1 June 1998 Europe this week by Martin Walker "Black and white economies divide EU"

    Former US Secretary of Labour Robert Reich has just visited NZ as a guest of the Labour Party. Reich has been brought here to help Labour develop an economic policy that would differentiate it from the National Party. Reich argues that the buoyant US economy is not the picture of success it is touted to be. He notes that some people in the US are doing well, very well. But, adjusted to inflation, 40% of Americans are now earning less than they were in 1989. Reich says that in America, the average working person is finding it almost impossible to make ends meet, and this huge disparity of wealth is creating "a politics of fear and resentment".

    Reich's message is that there is a "third way", a path which combines open-market policies with a government taking an active stance in the economy. The "third way" is based around a strategy of progressive taxation to distribute wealth more equitably, a government aggressively investing in education (especially to encourage lateral and entrepreneurial thinking), and businesses investing in their own labour market training.

    Reich says the "third way" acknowledges the obvious and simple fact that in the long run, people are the key to economic success: "Our long-term strategy must involve active market interventions that seek to widen the circle of prosperity and enable more people to be full participants in a global economy"

    Source -- New Zealand Herald 13 June 1998 "Best of Both worlds: the way to go" by John Roughan

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