Politicians' cold turkeys are coming to roost

Tuesday, 12 October 2021

'Lumpy' supply chain - Ports of Auckland faces troubling times (Video from December 2020)

OPINION: Governments who saw an opportunity to go cold turkey on the things they wanted to get rid of are now getting a rude awakening right across the world.

Going “cold turkey” is the painful process of weaning yourself off something you’re addicted to, by suddenly depriving yourself of it.

With Covid-19, border closures forced us into a lot of these things. However, if we are really honest about it, big segments of society have also always wanted to get rid of our reliance on some of them things, even before Covid-19. Here I’m talking about sectors like export education and tourism, which were always political targets.

When Matt Blackwell, head of fixed income, currencies and commodities at investment banking firm Jarden, wakes up every morning, he watches how all these various cold turkeys are coming through globally on a market index colloquially known as the “fear index”.

Matt Blackwell says he starts his day looking at the VIX, an index of market volatility.

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The Chicago Board Options Exchange volatility index(VIX) measures how much people are paying for options, a financial instrument which helps firms guard against unexpected price changes.

The index usually spikes when there is a great shock to the system because people radically re-assess their prospects (you might know this process by its more familiar term: extreme panic).

The higher the VIX, the more panicked people are. So it’s not surprising it experienced a huge spike in those early days of the pandemic.

Boris Johnson has defended those scenes of long queues at petrol stations, he says businesses should be adapting faster.

Things quietened down shortly after, but it has started ticking up again as the days have worn on, and as those new days have brought with them new, wholly unexpected, headlines: the surprise re-emergence of inflation, a boat stuck in the Suez canal, Chinese property firms collapsing, and Britain not hiring enough truck drivers.

“The risks are not around events you expect or know, it’s the unexpected,” Blackwell said.

A lot of these new unexpected risks are coming through not just because of the pandemic, but because the pandemic has forced people to go cold turkey on things that were once linchpins of the global economy.

These have caused ever more unpredictable flow-on effects, because the suddenness of change has made it harder to patch up problems or smooth things over.

Sometimes countries have been forced to go cold turkey, but other decisions have been purely political choices.

Unexpected events, like the stranding of the Ever Given, have led to much wider supply chain issues.

Last week, British Prime Minister Boris Johnson was busy doubling down in defence of mega-queues at petrol stations, blaming the unimaginable scenes taking place in his country on immigrants – not the immigrants who were flooding into the country, but the ones who weren’t.

Johnson largely blames businesses for the predicament his country is in, reciting a roll call of complaints he has always had around wages and productivity.

He blames executives for not paying high enough wages to truck drivers, or realising the days of low-wage migrant labour are at an end. This is something Johnson always seems to have wanted; the pandemic just gave him the opportunity to make it happen.

While the collective action needed for the pandemic has required a strong government response, it has also given politicians the power to follow through on ideas they have always had, at breakneck speed.

There is something appealing about going cold turkey. Pure abstinence carries with it a kind of religious satisfaction from having instantly purged yourself of a problem. However, whether it be alcohol or migrant labour, going completely cold turkey on something almost always leads to a relapse.

Politicians often don’t want to deal with the logical consequences either. If you want businesses to be more productive by hiring fewer migrant labourers, then you must also be prepared to put up with them going out of business.

Which makes a pandemic not as tempting a time to go cold turkey as you might have thought it would be.

Businesses open and close during times of boom and bust, but in a recessionary environment those that fail are generally not replaced by new ones.

These kinds of after-effects eventually cause politicians to backtrack on many of these cold turkey initiatives. When they do, it often makes you wonder why they bothered with them in the first place.

Over these past few months we’ve experienced the tail-end of this relapse effect. In the space of 18 months we have gone from locking out migrants to trying to get them to stay for longer.

You only have to look at Wellington’s perennially delayed transport project Transmission Gully to see just how pointless it all is.

We locked out Transmission Gully’s workforce from returning at the beginning of the pandemic; now we’re offering those same workers border exemptions.

As tempting as it is to go cold turkey on things, sometimes slow, steady, and considered still wins the race.