Kiwis Come Home to Roost for SNP Growth Report
I HAVE a New Zealand friend staying this Christmas. They were something big in the NZ civil service for a long time, on the welfare and insurance side of things. It has been heartrending hearing my friend tell angrily of the destruction of New Zealand’s once universal and egalitarian social welfare system under the ideological hammer-blows of neo-liberalism.
Today a stunning 40,000 folk in NZ – individuals and whole families – are officially homeless, left to sleep literally in doorways or even forced to live in cars. In fact, NZ has the highest homeless rate in the entire group of OECD industrial countries, despite having a population of only five million. An estimated one per cent of the country has no permanent place to live.
Readers will remember that New Zealand’s economy is one of the models cited for emulation in Andrew Wilson’s “Sustainable” Growth Report for the SNP. Current NZ GDP growth is a zippy 2.8 per cent, with 3.8 per cent predicated for 2019. (That compared to 1.5 per cent in Scotland.)
But heck: if boosting GDP growth simply puts up house prices and dumps 40,000 people into the street, then there’s something deeply wrong with your economic model, Andrew.
Of course, Andrew will argue that once you have economic growth you can do good things with the proceeds. This is moonshine. The form an economy takes determines the distribution of income, the way workers are exploited and the type of goods available. New Zealand’s “economic miracle” is based on tourism and exporting food products to the rich Chinese middle class.
Result: 300,000 Kiwi children living below the poverty line and a profusion of local food banks. NZ children are going to bed hungry because the food the country produces is exported, so agribusiness can make a profit. The one follows from the other.
Meanwhile, SNP Deputy Leader Keith Brown promises to bring a new version of the Growth Report to the party’s spring conference. This sounds suspiciously like conference will be presented with a “take it” or “leave it” proposition.
December has been marked by massive turbulence in US and global stock markets. After reaching a peak in late September, both the US S&P 500 and the Dow Jones Industrial Average crashed by nearly a fifth, while the tech-heavy Nasdaq shed even more value. There has been a wee recovery since Christmas but essentially we are entering a bear market in 2019, driven by trade wars and rising interest rates.
Predicting market crashes is a mug’s game. We might see The Donald brow-beat the Fed, the US central bank, into reversing or freezing interest rises. We might see a temporary truce in the US-Chinese trade conflict. But the inevitable can’t be put off indefinitely.
Competition forces capitalist investors to invest too much and produce too much for the market. Eventually there is more to buy than consumers can digest, even with liberal credit. But once interest rates normalise, the credit carousel shudders to a halt, and unsold goods pile up. We are nearing that point in the global economy.
One bellwether is the housing market. The US housing market is already decelerating and will flatline in 2019. In the UK, in the past two years, house sale activity has declined, led by London. For the record, only Scotland is bucking the trend, with average house prices at their highest ever level. The average house price in Scotland is now £184,569 – up 5.5 per cent year-on-year.
SEEING THE HIGH TECH LIGHT
The abrupt closure of US high tech Kaiam’s manufacturing plant in Livingston remains a mystery worthy of Agatha Christie. This privately-owned maker of optical widgets for big server farms swallowed £850,000 of Scottish taxpayer’s cash in 2014 – a grant to relocate production from China. Why it made commercial sense to shift from China (with its massive economies of scale) to Scotland was never explained, unless it was the Scottish Enterprise bribe.
Kaiam makes so-called Photonic Integrated Circuits (PICs) which enable various other techy bits to be linked up. The market for PICs is booming and expected to surge by a quarter in the next few years. So what’s the problem? First, Kaiam is a small player in a big market dominated by big, cash-rich sharks like Infinera (funded by Goldman Sachs), Mellanox, Luxtera, Finisar (an Apple partner), NeoPhotonics, and Broadcom. Second, the sector is being driven by huge research investments in the US and Asia, and there is no way Kaiam can compete.
Last year, Kaimam accepted a big cash injection from Compound Photonics (CP) of Newton Aycliffe, with CP becoming a “substantial shareholder”. Possibly Kaiam was short of cash in an industry that burns R&D money. Kaiam’s units are air-freighted to California for incorporation into stuff made by the big MACOM company, which leaves it vulnerable to being replaced by other suppliers.
Lesson to new Scottish National Investment Bank: it’s always worth taking a punt, so it’s no disgrace if an investment goes sour. But please – PLEASE! – in future will you take an equity stake and not just offer grants.