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  • rmacculloch

PM Hipkins has declared himself on economics: vested interests and lobby groups win the day

It would probably be fair to say that most decent, serious economists, if asked to comment on the various policies of the Kiwi Labour Party, would argue strongly against the return to 20th century compulsory sector-wide industrial union bargaining that has been put into law. Why? The main effect will be higher unemployment.


On the other hand, most would argue in favor of a well-designed unemployment insurance (UI) scheme, especially one with 6 months duration, which is regarded as short. After all, even the US has this kind of scheme, and it was increased in generosity by the Republicans during the pandemic. Unemployment insurance enjoys bi-partisan support in America.


So what now is official Labour policy under new PM Hipkins? To do the opposite of what my profession would regard as social welfare enhancing policies: Hipkins has kept the (bad) compulsory union legislation and dumped the (good) UI scheme that the party proposed a few years ago (or at least put it on ice).


How can one explain his actions? The oldest, worst story of all: vested interests & lobbying. Union bosses wanted Labour's compulsory bargaining legislation and business bosses wanted the UI scheme dropped.


Who is the loser? You are - the consumer and tax-payer. You will be left paying higher prices as labour markets become distorted by unions and firms pass on costs, and you will be less well insured should you become unemployed through no fault of your own.


Even that bastion of right-wing, free-market economics, namely the University of Chicago, now argues that better UI enhances technological progress. It means firms can more easily introduce labour saving technologies - since it makes workers in shrinking industries feel less threatened about job loss. It means they can leave with time to search for good new jobs in expanding industries, whilst still receiving a high proportion of their previous wages.


So Hipkins has revealed himself in my opinion to be a politician driven by short-term gain, willing to cave into lobby groups to avoid trouble and maintain power. In this sense, I just can't see what makes him an interesting or insightful leader on economic matters.


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