Eat your cake and grow it too

Now we have the government’s manifesto for a second term. That manifesto is: “Eat your cake and grow it, too.”

The innovation strategy announced to Parliament yesterday rejects any suggestion that hard choices are needed between social and environmental spending and economic policy if growth targets are to be met. All three will proceed in parallel.

This is to be expected from parties rooted in social policy, though the package argues that a healthy and well-housed society is also critical to economic growth: “Nations that have allowed crime, poverty, pollution or habitat destruction to spiral, inevitably find that economic development suffers.. the workforce must be healthy to be productive.”

But this government has also elevated economic policy to the first rank because without faster growth, connected into the global economy, its social and environmental goals will not be met. “A growing economy is the best guarantee of social security.”

And for growth, it says, we must pursue and apply lashings of knowledge.

Measure the package against four criteria.

* Is it coherent? Yes, as far as can be divined in a pressure-cooked read. (The government yet again dumped masses of material at very short notice. This precludes serious analysis.)

But we have yet to see how “precautionary” genetic modification policy will mesh with its focus on biotechnology as an “enabling sector”.

* Is it realistic? Yes, in being adamant that without embracing globalisation, future prospects are dim. “Capital and labour are mobile. Unless we improve our relativity in world rankings, they will increasingly concentrate elsewhere.”

And yes, in eschewing big-bang solutions in favour of smaller, tightly focused ones.

* Has it paid attention to the private sector? Yes, by bringing in private sector analysts (though it responds to only parts of the talent report) and its recognition that business grows the economy, not bureaucrats.

But no, in baldly asserting that the regulatory environment has enhanced international competitiveness.

* Will it pull the public? The rhetoric is easy to grasp in broad brush and likely to resonate with a public that in 1999 demanded Rogernomics be modified.

Economic theorists will say ordinary folk focus on short-term social and individual effects at a cost to long-run national economic benefits. But performance is also likely to be suboptimal if public support is lacking.

* Will it make an economic difference? We can’t tell. Critical policy decisions have yet to be made, not least on taxing foreign investors.

And policy already announced is buried in taskforces and a tangle of programmes, most of which are still new. So implementation hasn’t got far — and in any case will be slow and uneven, partly because of money constraints but also because the bureaucracy does not yet have the human capital.

And in any case government activity is not business activity. There is little of the latter to measure yet and so nothing to tell us whether the package will more than offset the net cost to business competitiveness of the changes in the regulatory and tax environment — and Kyoto to come.

What’s all this in aid of? Getting long-run GDP per head growth up to 2.5 per cent, Finance Minister Michael Cullen said yesterday. That’s one and a-half times the 1990s rate and three times the 1970s-80s rate. Dr Cullen told us he wants that 2.5 per cent within five years but that needs productivity growth to double, which is a very big ask.

The aim is the top half of the OECD from No 21 now. At 2.5 per cent that would take 20 to 30 years. Don’t hold your breath.

[For background to the government’s thinking see “Innovating with the private sector”, 7 February.