The FIRE Economy: New Zealand's Reckoning

by Jane Kelsey

The FIRE economy – built on finance, insurance and real estate – is now the world’s principal source of wealth creation. Its rise has transformed our political, economic and social landscapes, supported by a neoliberal regime that celebrates markets, profit and risk. From rising inequality and ballooning household debt to a global financial crisis and fiscal austerity, the neoliberal ‘orthodoxy’ has brought instability and empowered the few. Yet it remains remarkably resilient, even resurgent, in New Zealand and abroad.

In 1995 Jane Kelsey set out a groundbreaking account of the neoliberal revolution in The New Zealand Experiment. Now she marshals an exceptional range of evidence to show how this transfer of wealth and power has been systematically embedded over three decades.

Today organisations and commentators once at the vanguard of neoliberal reform, including the IMF and Financial Times journalist Martin Wolf, are warning the current model is unsustainable. A post-neoliberal era beckons. In The FIRE Economy Kelsey identifies the risks posed by FIRE and the barriers embedded neoliberalism presents to a progressive, post-neoliberal transformation – and urges us to act. This is a book New Zealand cannot afford to ignore.

Genres: Nonfiction, Activism

559 pages, Kindle Edition

First published July 20, 2015

Reviews

[Malcolm · Rating 5 out of 5]

When the global story of neo-liberal states is told, it is often a story from the centre, of Thatcher and Reagan, of the Mont Pèlerin Society and its think tanks spawned around the world and the Chicago School and the slow fertilisation of a world view that allowed a neo-liberal model to be able to be presented as the solution in moments of crisis (Philip Mirowski tells this story brilliantly). This is a story of power and dominance, of the political shifts that marked and aligned with intellectual shifts in global financial institutions that were a sign of the transition from dominance by manufacturing capital to finance capital. It is also in political terms at least a story of imperfect neo-liberalism, of monetarism and Freidmanite economics tainted and constrained by pragmatic politics and power on the ground in both the UK and the USA. There is another story to tell, one of how the neo-liberal world could be and what it looks like in its purer forms – and this is a story of Chile and New Zealand.

Naomi Klein puts Chile where it should be at the centre of her analysis in The Shock Doctrine as a pioneer of the model, but all too often (and understandably, given its size and marginality) most discussing neo-liberalism put New Zealand…. nowhere, or in the intermittent parentheses, minor illustrative asides or footnotes. Not so, Jane Kelsey – New Zealand law professor and one of the sharpest and most insightful analysts of neo-liberalism, its form and impacts that we have. Her 1997 book The New Zealand Experiment (also known as Economic Fundamentalism: A World Model For Structural Adjustment) remains one of the best analyses of both the neo-liberal model and the revolutionary transformation of both the state and the economy essential to the unfettered financialisation it allowed. Twenty years later, it should be required reading for those of us concerned about the shape and form of the late capitalist economy and state.

Now, in The FIRE Economy, she has a sequel in the form of a detailed and alarming analysis of the structure of the New Zealand state and of the public policy that has shaped and is shaped by it. This is not the usual discussion of the economic injustices and inequalities required by and resulting from an approach to economic policy making that prioritises financial acquisition and growth, creates global relations premised on the free flow of capital and treats citizens as investors as prey – although all of those things are here. This is an exploration of the institutions of the state, of policy and politics and of a corporate financial sector that has not only become the dominant force in a small state economy, but that has become embedded in the architecture of the state – Kelsey sees it as embedded neoliberalism, riffing off a widely held notion during the previous Keynesian era of embedded liberalism. The second half of the book shows just how neo-liberalism is embedded, and what we might be able to do about that.

The first two chapters as a discussion of the FIRE (finance, insurance & real estate) economy in global terms, highlighting many of the ways it is justified and especially since the 2008 financial crisis, challenged even from within global financial institutions such as the IMF and World Bank. This is then followed by a discussion of the New Zealand FIRE economy, its extent and effects. These opening chapters are data rich but unlike many economic discussions, Kelsey the lawyer (and here public policy analyst) cuts through the gobbledegook of technocratic, managerialist claims to show the (small p) politics of this economic approach and model, highlighting the dangers of inequality where the poor pay the price of the excesses of the rich, of excessive dependence on a single economic sector, especially when it is as erratic, unstable and rapacious as the FIRE sectors, and (party) political consensus that has grown around this sector. It is quite dense but it is well worth it.

Kelsey is no conspiracy theorist: this is a detailed exploration of a political project designed to wed New Zealand to finance capital, and yet it is peppered with notions of contempt for democracy, a ‘secret state’ and the notion that politicians need to be ‘managed’ so they do not waver in their commitment to the project – because as she (and analysts such as Klein and Mirowski) have shown over the years building a neo-liberal order is a long term project. The ways in which this project has succeeded in embedding the model in the New Zealand state is then the subject of the second part of the book. In this, for instance, she shows how risk-tolerant regulation has been built into financial management – and how even in the wake of the 2008 crisis this approach has been defended and extended. She does not elaborate, but notes, the comparisons, but arguably we are seeing similar approaches continuing in much of the advanced capitalist world, certainly in the UK and USA as well as across much of the EU (including France under Macron). She is, however, very strong on the international regulatory framework (as a long-term critic of agreements such as the Trans-Pacific Partnership and the went-nowhere Multilateral Agreement on Investment), and presents a measured assessment of their limitations on action and change.

Alongside this policy meta-narrative she highlights what she calls the central pillars of New Zealand’s neo-liberal orthodoxy including an exclusive focus on monetary policy and reification of inflation as a measure of economic health (although usually part of a discourse focussed on prices and living standards, the real problem with inflation is that it devalues capital): New Zealand is not unique in this approach. Other aspects include the over-inflation of the significance of public sector debt and spending, and the embedding for competitive contractual relationships between government and the public service. The key issue here, and what makes this analysis distinct among many of the critical discussions, is that this is an exploration of the state, its structures and institutions that embed the model in approaches to the New Zealand economy. Unlike many other discussions this is neither a specific policy-based critique nor an analysis of specific ideological aspects (there are plenty of these), although as she notes (in a methodological note on p 267) the pattern of publication on these issues has shifted from ‘why’ to ‘how to’ – that is critique is now a smaller portion of the literature. This is precisely the kind of structural analysis we need elsewhere.

Kelsey is not just an academic critic, however, but here performs the important role of the public intellectual with a concluding chapter about what can be done. This is a pragmatic approach – she rejects the rhetorical rejection of all that is capitalist as unachievable at present – grounded in lessons to be learned from others’ experiences and she draws heavily on post-crash developments in Ireland and Iceland to suggest six pre-requisites for transformation (I am quoting here from p237):
1. The emergence of a new socially just economic model
2. Momentum around an alternative ideological orthodoxy and ethical platform
3. Rethinking and constructing an active and democratically accountable state
4. Dismantling and reframing the policy and regulatory paradigm
5. The political will to embark on radical change, and
6. Popular demand – backed by a sense of urgency – for transformation.
Lots of this is not very ‘sexy’, but as Kelsey notes the extent and depth of the neo-liberal revolution and its embeddedness means that she makes a compelling case that these are all essential.

For many, it may seem that this is a discussion of ‘a small country far away about which we know little’ (except that blatantly false 100% Pure marketing slogan), but the purity of New Zealand’s neo-liberal model and the dangers it poses, at least to is citizens, means that it provides the rest of us with a case against which we can read what ‘might be’ if we don’t act to reel in and redirect one dangerous strand of current public policy. This makes it essential reading for making sense of the now and exploring what might be.

[Katie Potato · Rating 4 out of 5]

Jane Kelsey was writing about Investor State Dispute systems before it was cool 😎