A tectonic shift in the political faultline

Jim Anderton was the first senior MP to take seriously the balance of payments problem. Most economists at the time – this was four or five years ago – dismissed his concern as cranky but now they and most other MPs have joined him.

Mr Anderton’s early concern was sharpened by his opposition to opening up the economy.

This dramatically increased what economists call “import penetration”, imports’ share of goods sold. Large numbers of jobs disappeared, exports couldn’t keep up and now we have a trade deficit.

We also have a huge deficit in investment income flows because foreigners have bought large slices of our economy and they earn many times more in profits here than our companies’ paltry overseas investments earn. This worsens when companies shift their head offices overseas, as Brierleys has done and at least three large companies are thinking of doing.

Concern about imports’ impact on jobs led Labour last year to promise to freeze tariffs for five years at “year 2000 levels”. That was taken by many to mean – partly on what they understood Michael Cullen to be saying – that tariffs would be frozen at July 1, the last step in the current five-year phasedown.

On July 1 clothing and footwear tariffs would have been cut by 4 per cent (to 15 per cent), carpets 2 per cent to 15 per cent, tyres 1.5 per cent to 10 per cent along with most other automotive componentry and all other tariffs by up to 2 per cent (to 5 per cent). But the government has decided “year 2000” means now.

The National government’s plans for zero tariff by 2001 for all except clothing, footwear and carpets (zero by 2006) were, of course, out the window whatever point in 2000 the cabinet chose. But the commitment to zero tariff across the board by 2010, agreed in APEC, has not been overturned.

The freeze sounds impressive. But actually it is scarcely more than cosmetic. Only around 4 per cent by value of all imports carry any duty. Most companies have been preparing for zero tariff and there are few jobs left that the freeze will save. Conversely, there is very little passed-up benefit in what economists call “consumer welfare” – consumers’ gains from lower prices.

The Alliance wanted a much bolder step: a 5 per cent tariff across the board plus a freeze on items with higher tariffs. But this would have run afoul of the World Trade Organisation, which Labour supports, and of the free trade agreement with Australia whence many of our imports come – so the Alliance exempted Australia.

In government the Alliance has accepted that Labour policy will prevail.

This illustrates a point of political geology.

A faultline opened up in the late 1980s as the Labour government wrenched open the economy. Initially the faultline was between Labour’s leadership and its backbench MPs and rank and file. Mr Anderton, then an MP, went into exile to form the NewLabour party, now the Alliance.

By 1996 Labour’s rank and file had largely acquiesced, partly because Helen Clark and Michael Cullen planed the sharper edges off the open-economy policy. The faultline by then was between Labour and the Alliance (including the Greens).

In office the Alliance leadership has largely conceded the open economy question. Mr Anderton’s comments on the tariff issue, touted by one newspaper as an Alliance win, were honeyed, in keeping with his practice since taking office. Matt Robson, who passed up a safe Labour seat to go with Mr Anderton in 1989, is working chummily with Phil Goff.

The open-economy faultline is now somewhere within the Alliance. The usual identifier is Laila Harré, who made some fierce comments before Christmas and fought her corner hard on the Employment Relations Bill, though some in the Alliance argue she is now settling into government constructively (Labour for its part respects her mind and ability). The Greens are the repository of vestigial opposition to the open economy.

There are still many points of difference between the Alliance and Labour. But most are differences of degree rather than of fundamental political positioning. After the great tectonic shift by Labour to the open economy the earth has settled. The tariff freeze is a tiny tremor by comparison.