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On low wages, high profits, and what needs to change

December 13th, 2022

Erica Stanford told Kim Hill on RNZ this morning that “traditionally we have lower wages.”

Traditionally, then, Kiwis are being exploited. The idea that New Zealand is a “low-wage economy” has been doing the rounds for so long that it’s just accepted now, it’s just understood as an inevitable part of life in Aotearoa. But it really, really shouldn’t.

New Zealand is not an inevitably poor country. Our GDP is the 51st largest in the world, but with our small population, we have the 22nd highest per-capita GDP. That puts us behind Australia, yes, but on a par with the UK, not far behind Finland, a country we’re frequently compared to, and significantly ahead of Italy, or Taiwan, or Japan. The wealth is there. But it’s not everywhere, not in New Zealand.

The problem, of course, is that wealth has a gravitational attraction to itself. The wealthy will always get wealthy, as their money attracts more money. Christopher Luxon, who wants to reduce income tax for the higher-paid, trousered a rather generous $4.4 million in his last year as CEO of Air New Zealand. That’s not a low wage; it’s also a couple of hundred thousand more than he was making the previous year. And his successor, Greg Foran, left a job with Walmart that flung twenty million dollars a year at him, and I feel it’s safe to assume he’ll not be taking too massive a pay cut to come and run an airline. Again, not the lowest of low wages. My boss, Peter Winder, the CE of Te Pūkenga, must be feeling quite hideously cash-strapped in comparison, but his $600K or more a year, while poverty-level compared to other chief executives across Aotearoa, is, again, not quite what I’d consider “low wages.”

“Low wages” is what folk on minimum wage get—$21.20 an hour. And that’s if you’re an adult—the “starting out” rate is four dollars less. And it’s significantly less than the living wage for New Zealand—$22.10. That’s a low wage. That’s the minimum folk can live on, can survive on. Nobody gets rich on that kind of money.

So yes, we have a low-wage economy. And it’s kept that way by design. As long as we cling to the nonsense that you have to pay in the millions to attract “the best,” whatever that might mean, we see the money gravitating to the top. We need to get rid of this obnoxious concept. We’re being asked to accept that if Air New Zealand didn’t pay in the several millions, they would not find a competent chief executive, and this is offensive when professionals in most public-sector industries are told that they get whatever the employer reckons it can find for them, and if they don’t like it, they can leave (and, in my experience, many folk are starting to, by the way…).

And it’s not just wages that are low. Prices are rising, and in some cases for the wrong reasons. Let’s go back to Air New Zealand, because they’re emblematic of what’s wrong. There was a time, not long ago, when we owned Air NZ. We did—Kiwis, New Zealanders, ordinary people. Since 2001, it was a nationalised company. And it was making decent money, with profits in the hundreds of millions a year. But in 2013, as part of the National Party’s selling of the family silver, the government sold much of its holding for the equivalent of a couple of years’ profit—short-term gain for long-term loss. And now what used to be a government asset and a public service is now just another corporation driven by generating maximum profit for those fortunate enough to be able to afford shares in it. It has an effective duopoly with JetStar, and exploits this to charge quite extraordinary fares for its major routes. These fares don’t simply reflect operational costs; they are driven by demand which is inevitable in a long, narrow country with no viable rail links between major centres. Once again, the money leaves the pockets of the low-waged and gravitates to the rich. I guess that’s what Greg Foran is getting his millions for. But what should be a public service—for many, air travel is public transport, at least for inter-city travel—is just another way to get money from the less well-off. Operational costs alone don’t justify return fares nudging a thousand dollars; only the need to extract every last drop of profit can account for that. And when we live in a low-wage economy, that just means the wages are effectively even lower.

Air New Zealand isn’t the only offender here. The electricity market similarly keeps people’s effective wages low—Meridian, Genesis and Mercury are each 49% private-owned, again inserting a profit-extracting layer to ensure that money moves from consumers to shareholders who have done literally nothing to earn that money. What’s particularly galling here is that the large majority of the electricity generated in New Zealand is, effectively, free—it comes from sustainable sources like hydro-electric or geothermal generation. Yes, maintenance is required in order to keep plant running smoothly, but no fuel is required to keep the winds blowing, the rivers running, the magma heating up the water under Te-Ika-a-Māui. And yet we pay perhaps double per kilowatt-hour compared to where I used to live, in Florida, and comparable prices to consumers in Japan.

The same is true across other sectors, supermarkets among the worst offenders. The Commerce Commission reckons Countdown and Foodstuffs, another effective duopoly, are making around $430 million in excess profits each year. It’s bad enough that we’re a low-wage economy; what really hurts is that what little we do make is being squeezed further and further, just so that our wages can gravitate back to where, apparently, it needs to be—in the pockets of the already very wealthy.

I don’t know how we change this short of a revolution, but a good start would be to stop accepting “we’re a low-wage economy” just with a shrug of the shoulders and a feeling that this is just the way the universe is. No, it’s not. It’s this way through design and through many years of government ensuring that profit has to be extracted and siphoned off to those wealthy enough to have a healthy share portfolio. Yes, your wages are low. Yes, somebody else is keeping them low. Don’t forget that.

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