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Essential Information on an Essential Issue
18 June, 1998
The Unfolding ECONOMIC CRISIS. What should New Zealand do?
- THE UNFOLDING ECONOMIC CRISIS
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,
- WHAT'S HAPPENING TO ETSA?
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
- WORKFARE WILL DEPRESS WAGES
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"
- ADCOSS PLEDGE AGAINST WORKFARE
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
- MORE ON UPPER HUTT TRUST
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"
- JOBS GATHERING POSTPONED
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
- SOCIAL AUDITING
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
- JOBS AND THE CANNIBIS MARKET
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.
- BLACK AND WHITE EU ECONOMIES
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"
- ROBERT REICH IN NZ
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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