The government after 2002

Speech to Importers Institute conference, 11 October 2001

It’s tempting in the light of this week’s coup activity to start with the small picture whither Bill English and the National party. But actually Bill is a good reason to start with the big picture, for reasons I will explain later.

The big question is who will set the tone for the 2000s. That may sound a trifle odd, if you believe (as many of you in this room probably do) that Labour will lead the next government, by the end of which we will be halfway through the decade. But it is actually still an open question.

Let’s quickly scan the past half-century.

In 1949 National ejected Labour after 14 years of welfare state-building. Sir Sidney Holland’s government inherited a society that had formed a deep consensus in favour of security no surprise after a decade and a-half of economic depression and world war. Holland softened the welfare state a bit, added the word “freedom” to the political lexicon but not said too loudly and governed according to a basically leftwing compass, with some moderate liberal and conservative notions thrown in. National dominated governments for the next 50 years.

For at least the first 15 of those years National was on the right side of history. In those days to be on the right side of history, a party had to accept the basic arguments of social democracy. This National did but it added some welcome liberalism, which put it more in tune with the majority than the hardline social democrats of the Labour party.

In the mid-1960s came the first indicators of change to come. There was a “values” revolution a demand by the secure kids of the security-obsessed generation to let it all hang out. This new generation was as obsessed with “freedom” as its parents were with “security”. I know: I was part of it. In the mid-1980s the “freedom” generation got into power in business, the bureaucracy and government and wrought a policy revolution. This second revolution was intensified because it coincided with this country’s attainment at last of independence by which I mean the 1980s were the decade when it found its “voice” in writing, plays, films, dance, all the arts and broke free from its colonial history.

“Security” in any case wouldn’t work any more. The economy went sour after 1965 the terms of trade dropped by a third. The economic policy settings devised in the 1940s wouldn’t work in a drastically changed world. Sir Robert Muldoon’s desperate last fling of the “security” dice in the early 1980s lost heavily and brought the country and his party down with him.

In any case the tide of political argument had changed. Now neoliberalism what we know as Rogernomics was the rage and it reached these shores in the early 1980s. To be successful in the last quarter of the last 50 years of last century, a governing party had to be pro-market. Once National adapted under the urging of Ruth Richardson, it had the inside running.

But also, just as in the 1940s there was a surfeit of “security” which National corrected with a dose of “freedom” to its great advantage over the next 20 years, in the 1990s there was a surfeit of “freedom” crying out for a dash or two of “security”. National in office did not supply that. It was able to stay in office through the 1990s mainly because Labour had wrecked itself running a revolution and, as history shows over and over again, most revolutions consume the revolutionaries. The majority of voters wanted to soften Rogernomics but couldn’t work out how to do that in 1993 and 1996. National stayed in office by default and Winston Peters’ betrayal of his voters.

In 1999, an alternative government emerged that promised that dash of “security”. But Labour, as the principal in that government, also knew well that as time passed and the “security” generation faded in numbers and the “freedom” generation grew in numbers, that voters were not looking for a wholesale overthrow of the policy settings. They wanted a stop to “extremism” as a mode of decision-making but not a counter-revolution.

So what have we got now? We have a government that has delivered exactly that “correction” or “rebalancing”. Just as National in office pulled the policy marker a bit back in from the extreme left to where Labour had moved it, Labour in office has pulled the policy marker a bit back in from the extreme right to where National (following Sir Roger Douglas) had moved it. Labour is for the moment nicely in tune with the people, as National was in the 1950s.

Moreover, just as National could in the 1950s point to the future with its promise of cautious liberalism, Labour has the Greens and, young people tell us, the green paradigm of small, local and pure (suitably adjusted to mainstream tastes) is the way of the future. Labour may well be on the right side of history.

So right at this moment we have a beautiful mirror image of that pivotal point in the mid-twentieth century. And if the mirror is faithful, you would draw the conclusion that Helen Clark is at the opening of a glorious age of political domination for Labour. She just has to govern cautiously and pragmatically and she sets up her party as the “normal” party of government, embeds Labour “language” as the language of the next 20 years.

She has the right credentials. Daughter of conservative small-farming parents, father a National party office-holder, imbued from an early age with conservative values of thrift and hard work, from which gave Ms Clark gets her personal discipline and her determination to balance the budget. She is not an economic dry but she is a fiscal dry.

Ms Clark is also liberal. She learnt that at school in Auckland, then at university there which at the time was a hotbed of leftism. But liberalism is not a betrayal of her upbringing: she had a throwback gene from the Liberal voting of her parents’ parents generation.

Note that I say “liberal” and not “left”. The leftism cast Ms Clark acquired at university was in foreign affairs and defence, a virus caught in the latter stages of the Vietnam war, which the “freedom” generation mostly opposed. She will not shift her foreign and defence policy: they are burned too deep into her early political soul. There are also some other positions she has taken too firmly to change lightly: state provision of health and education care, for example.

But she is not hardline left. She is essentially pragmatic.

Watch her in action.

o “Closing the gaps” was liquidated in short order this time last year when it became clear it was losing middle New Zealand votes. (It was kept on life support for Maori audiences, however.)

o There is still deep inside her a residual anti-Americanism, from her central American coffee plantation days. That translates nowadays into a rather moderate, sotto voce, “the Americans are not always right”. So she was, as National and ACT claimed, initially hesitant about too forthright a commitment to the American retaliation in the wake of the 12 September attacks. But she very quickly rectified that: on 17 September she offered troops to the United States and turned out to have been one of the first country leaders to do so. Since then she has hardened the rhetoric. That’s what middle New Zealand wants.

Ms Clark is keenly attentive to the electorate. That does not mean she is poll-driven, as Richard Prebble claims. But it does mean she is highly sensitive to the possibility she might get offside with mainstream opinion. And when she senses she is getting offside, she quickly readjusts.

Why? After all, Labour governments since 1949 have a record of doing what they have convinced themselves is right and going smartly out of office. Ms Clark is determined to change that. She wants three terms so that people get used to having a Labour government around and think of it as “normal”.

She also might thereby get to embed Labour values as the reference point in political argument. That is what National did after 1950. That’s the prize she is after.

What are her chances?

o First factor: She has an excellent chance of getting a second term at least.

A little over a year out the left (Labour, Alliance and the Greens) is running about 16 points ahead of the right (National, ACT and Future United). [New Zealand First doesn’t fit and in any case will struggle to get seats in the next Parliament because National, being on a rise, should be able to knock Winston Peters out in Tauranga.]

Ms Clark is an authoritative leader who tells it straight (or appears to). Voters like authoritative leaders. She is accessible to the media, which ensures her views are known to the media and more likely to get run.

She is backed by a number of able ministers, enough to run a competent cabinet. (That, by the way, says nothing about the policies, just about the capability.)

It is also, however, true that part of her and the government’s high approval ratings is the firm economy. As that wanes so will the poll ratings. But she has a big cushion.

If there is a cataclysm in the economy as a result of an intensification of the international economic downturn because of the 12 September attacks, that might change the story. But this is a first-term government and so has a good chance of getting the benefit of the doubt.

If there is a security cataclysm, war and mayhem, she and her government are much more vulnerable. The risk is that her values as a member of a generation politicised by anti-Americanism in the Vietnam war era are seen to be out of step with mainstream values on defence of the realm. But even then she might well pull it off; underneath the left exterior is a tough cookie who might prove to be a warrior queen if she got in a scrap. Peter Fraser, her nearest match as a Prime Minister, went to prison for opposing the First World War but proved a tough wartime Prime Minister in the Second World War, then introduced peacetime conscription in the Cold War. We’ve seen just a hint of that in the past week.

o Second factor: Ms Clark’s chances of a third term cannot yet be accurately gauged. But against her chances in 2005 have to be weighed (1) the unravelling of the health and education systems, already under intensifying financial stress, unless she can get the economy sizzling, (2) the possibility her government is dependent on a larger and bolder contingent of Greens, who are definitely not mainstream and (3) the possibility of economic or other upheavals we cannot predict from this distance.

o Third factor: The mirror image with the early 1950s is in fact not as clear as it seems at first glance.

The 1950s were a time of economic prosperity. So far the 2000s have been prosperous, which, as I said before, is part of the reason for the government’s high poll ratings. But there are many dark clouds. Turbulent economic times are not the best times to try to set up steady-state political rule. Even National had to concede three years time out after a dip in the economy in the mid-1950s.

“Security” is a stronger force for political stability than “freedom”. Ms Clark is instinctively an operational conservative that is, she operates incrementally and with caution which is the right style for political stability. But, as I say later, she has yet to define what it is she will conservatively administer.

We don’t have a two-party system. In the 1951 election 99.8% of voters ticked either Labour or National. In the 1999 election only 67% did. Prime Ministers are mostly going to have to work with diverse groupings of support, at times uncomfortably diverse. This may well cause real difficulties in a second term for Ms Clark, as I will say later on.

That diversity of parties reflects a much more diverse society than in the 1950s and 1960s. Women were seen and not heard back then. So were Maori. There were fewer immigrants. The environment was not an issue. Nearly everybody was in families and gays didn’t flaunt their rights. It was much easier to develop a national consensus in the homogeneous society of the 1950s than in the diverse and fractionated society of the 2000s.

On the other hand, MMP might actually dampen the impact of mood swings on the stability of governments by moving votes within the governing grouping rather than across the divide. Thus, whoever gets in control might be able to stay there longer than under the old two-party system. [Though just to complicate matters, it is distinctly possible voters will fine the MMP system down to four and maybe three parties, with a distinctly pre-MMP look.]

o The fourth factor is Bill English.

Bill English’s great strength is that he is not the 1990s. That might sound odd, given that he was a minister for half the decade and finished up Treasurer. But the point is that he came into Parliament in 1990, after the great battle for the soul of the National party had been won by the free-marketers against the protectionists.

He and the “brat pack”, which now have No 1 and 2 positions, are around 40, lived little of their adult lives under Muldoon and are forward-looking. In the 1990s they were impatient with the re-runs of the 1980s battles by their elders.

Jenny Shipley was stuck in that 1990s mould. So by and large is Ms Clark. The 1999 election was about continuing or undoing a little of the 1990s, not about forging new policies for the 2000s.

What will Mr English bring to the National party? What you might loosely call “modern conservatism”: keep the welfare state but sharpen it up; continue with modest economic reform, results-based, not ideologically-driven. If he can project that to voters, he might well over time win the battle for the language of the 1990s.

Will he? We can’t know yet. He has a certain charm and he is instinctively a middle New Zealander. But he lacks the hunger that Ms Clark has. He seems to owe more to two strong matriarchal women, his mother Nora and his wife Mary, than to a burning inner drive. He can be indirect and difficult to read. He has not exactly put an agenda up in lights, as Sir Robert Muldoon did, pitching to ditch Sir John Marshall in 1974.

Mr English’s critics say there is no agenda, just elegant thinking that doesn’t reach the finality of hard policy and, in the critics’ favour, it must be said that Mr English has woven some beautiful high-level thoughts about the economy but, despite being finance spokesman, not distilled them into policy. Will he do any better as leader?

Those who believe in him say that now he is fully out from behind Mrs Shipley’s wide shadow, we will see the true English, the incisive thinker, the projector of a forward path. In their favour is the lack of a clear forward path from the government. But note that he didn’t blossom as Treasurer once he got out from behind Bill Birch in 1999.

I don’t know which English we are going to see. I have long been an admirer of his. But over the past two years I have doubted my earlier judgment If I have to guess, I would marginally side with his backers. But I would make that guess unwillingly and wanting a hedging bet.

One hopeful sign for National is that Mr English has rumbled some of Ms Clark’s tender spots mainly to do with her values. He hasn’t scored any hits yet but these are early days.

Which brings us back to what a second-term Labour-led government might mean to you.

o First factor: Labour will almost certainly have more seats than now (49) in a re-elected government.

o Second factor: the Alliance will almost certainly have fewer seats than now (10) in a re-elected government.

Put those two factors together and it may mean a repeat of the present minority Labour-Alliance government, but with Labour dominant. Labour’s greater dominance, which it would exert, would intensify tensions within the Alliance which might even split. But few if any MPs would leave, so the Alliance would become in effect as it more or less is now a left wing of Labour.

Labour, by the way, will keep its coalition with the Alliance going into a second-term government. It will not trade the Alliance off against the Greens, even if coalition with the Greens were to give a Labour-led government a majority.

o The Greens are highly likely to have more seats than now (seven). They have played skilfully to their main niche constituencies, the young, the deep environmentalists, the anti-GM brigade, the anti-free-trade true believers.

They will be the No 2 party on the left (though they are a special sort of left). They will probably seek to enter coalition, though that debate has yet to be held inside the party. But Labour will not want them in coalition unless it becomes inescapable. This would especially be so if, as is most likely, the Greens sought control over two or three portfolios, outside collective cabinet responsibility.

The Greens are also unpredictable in how they play the parliamentary game. They have so far been very helpful to Labour and played the model supporting party. But if the “wrong” answer is given on GM later this month or on some issue in the future Greens could withdraw their support on confidence motions and the budget, even at the cost of ceding power to a less-friendly National-led government.

o New Zealand First might make it back on the strength of a revived “angry” vote, in the event of an economic squeeze or trouble over migrants. It might even get 5%, which is above its 1999 score of 4.3%, though more likely is that Winston Peters hangs on in Tauranga. Against him doing that is the near-certainty that National’s electorate vote in Tauranga will rise though that may not be sufficient if Margaret Wilson fails to hold the Labour electorate vote.

My guess is that New Zealand First won’t be in the next Parliament. That means that if a second-term Labour-led government is dependent on the Greens, it won’t be able to turn to New Zealand First when the Greens break ranks. In that event, it would need National, ACT or Future United votes and National and ACT votes would be forthcoming only when they could not be withheld, such as on free-trade agreements.

o National is almost certain to have more seats than now (39). It is likely to benefit from a reasonably good new intake to add to the reasonably good new intake in 1999. By 2005 it should be developing into a strong opposition. I expect that Bill English will still be leader in 2005. Watch Simon Power as an up-and-comer.

o Peter Dunne will win his seat but Future United will win no more than that. Will he then fold into National? Hard to say. Does it matter? Only at the margin.

o ACT is an enigma. It is likely to get over the 5% threshold. But Richard Prebble’s and Rodney Hide’s populism repels the Rogergnomes and Stephen Franks’ Rogergnomic propensities are anathema to the sorts who might go for the populism. (Franks, by the way, is the pick of the new MPs in Parliament.)

ACT would go into coalition with, or at least support, a National government if it won in 2002. But will ACT make it in 2005? That is one of the long-range imponderables that might decide whether Ms Clark gets a third term. National would rather have some other party, maybe a mild Christian party, as its ally but blew that chance by not making sure the Christian Democrats got a seat in 1996.

What is my best guess at this point? A Labour-Alliance minority government that is more dependent on a larger Green party than it is now, because Winston Peters will not be providing an escape route.

Assuming a second-term Labour-led government, what can you expect?

First, let me say I am beginning to detect a shift in business attitude. Since the “forums” charm offensive that began a year ago, there has been something of an accommodation between business and the government, what you might call some benefit of the doubt.

Some of what the government is doing to stimulate research and development has won applause. There is also great respect for Ms Clark’s toughness and intellect.

But there are now some complaints that ministers, including Ms Clark, are no longer listening. And, with no prospect of microeconomic reform, there are concerns about competitiveness.

The safest bet is that you are going to get a continuation of present policies either with a stronger green flavour if the government is significantly dependent on the Greens or with less constraint if the government has a majority. What are the main components, as they affect business?

o Free trade: the government will pursue a multilateral round through the WTO, multilateral reduction of import barriers through APEC and bilateral deals.

o Balanced budgets but with temporary deficits during downturns (relying on the automatic stabilisers).

o Probably but not certainly a cut in corporate tax if the economy goes well enough or if international pressure gets intense enough. Not much else on the tax front except simplification.

o Energy conservation/efficiency, pollution and waste reduction, reduction of greenhouse gases (with, probably, a carbon tax) and a friendly regime for protesters.

o A willingness to re-regulate where markets are see as not working to consumers’ advantage but a wariness of too much regulation. The “high tide” of re-regulation has been reached, says Paul Swain. Some movement on compliance but the how much not known until December (don’t hold your breath). No movement on parallel importing, but action on piracy.

o Not much microeconomic reform and still no asset sales, but wth more flexibility for SOEs to invest and divest.

o Instead of microeconomic reform, a heavy focus on policies and initiatives that will advance the “knowledge society”: research, facilitative assistance for regional plans and business development, pitches for foreign investment and assistance through bureaucratic hoops, partnerships with business, upskilling and more immigration coupled with the “diaspora” project.

o Some toying with “social entrepreneurs” and partnerships with local government and voluntary agencies as a way of getting more and better bangs for government bucks in social policy.

o Attempts to respond to Maori demands for more autonomy under the Treaty of Waitangi.

o A power of general competence for local government.

o The guiding principle is the “triple bottom line”, paying equal attention to economic, social and environmental issues with an overlay of strong beliefs that “clean and green” is the main economic competitive advantage and that social integration (education, health, welfare) is vital to strong economic performance.

But there is an outside possibility it might be different if Helen Ms Clark gets enough leeway from her leftwing allies. This is the curious case of the inverted government.

Most governments get the first two years of their first term to make any mark and from then on the most they can hope for is incremental change. This government spent its first two years rebalancing the 1990s policies. So if it is to strike out in new directions, it will have to do that in the first two years of its second term.

Ms Clark is seeking a policy direction that will build economic strength and embed Labour as the progenitor of a policy line that is the base for political contest that is, define Labour ground as the ground on which elections are fought (as National did in the 1950s) and make Labour a, perhaps the, “normal party of government”.

An important ingredient in this is to move the debate on from the pro-Rogernomics v anti-Rogernomics litany of the 1990s. This has partly been achieved but Ms Clark still lapses into fighting the old wars. Her need is to transcend that debate. The public does seem to have moved on, accepting the market economy but wanting modest modifications.

Ms Clark is listening to a widely disparate range of people, including many in business and some innovative ideas in social policy. Listening does not mean agreeing but she is very quick on the uptake. This could prompt her to enterprising and even daring policy initiatives in 2003-04, despite her innate cautious, conservative style of government.

But at this stage that is only conjecture. The safer bet is on caution. And that might just give Bill English his opening.