The Treasury gets the intervention message

Unpublished NZ Herald article by Colin James

Get used to it: the 1990s have gone. That is Treasury Secretary Alan Bollard’s parting shot as he heads for the Reserve Bank. Now the Treasury backs “proactive” government intervention in the economy.

Being “open for business”, relying on market signals and a level playing field, is no longer enough, the Treasury said in its traditional post-election briefing to the re-elected government.

In the 1980s the Treasury set the line for other departments. The market was game, set and match. Treasury alumni were despatched to run other departments, even in social services. Former Treasury Deputy Secretary Howard Fancy still heads the Education Ministry.

No ministry took up the doctrine more devotedly than the Ministry of Commerce, in charge of regulatory policy. It became the driest of the dry.

Now, remodelled as Jim Anderton’s proactive Ministry of Economic Development (MED), the regulators have turned developers. That ministry’s post-election briefing extols the current policy settings as “more conducive to growth”. And the Treasury is echoing some of that tone.

Hear this: “The overall objective of government regulation of business activities is to reflect a balance of economic, social and environmental objectives.” That sounds suspiciously like “triple-bottom-line”, the bane of 1990s marketeers.

And the government needs to go out and root for foreign capital, not expect capitalists to discover our wonderland for themselves. The government “may also have a role in encouraging global connectedness” in getting foreign business.

To doctrinal purists of the 1980s-90s this is heresy — and from the department that was guardian of the faith. But, wait, there’s more: “Labour market regulation and institutions are fundamentally sound.”

You can see Michael Cullen’s enthusiasm to have Bollard into the Reserve Bank. He has been tickled pink by the way Bollard has widened the Treasury’s purview.

He broadened the research programme to look at deeper social and cultural implications for and of economic policy. Especially important has been the attempt to distil the special implications of being a small economy, distant from capital and markets.

Other departments, notably the MED, have picked up the theme in their briefings.

The theme is that investors, buyers and those with skills don’t flock to a small and distant economy just because the policy settings are market-driven. You have to go get them.

But Bollard is no latter-day Bill Sutch or Bryan Philpott, itching for a hyperactive government. Bollard is an orthodox economist. Nor is he just a skilful political animal, tacking to the political wind.

In Labour that wind used to blow from the Rhineland. In the mid-1990s Cullen used to extol Germany’s “Rhenish model”. With Germany wallowing, you don’t hear much from him about that model any more. Still less the Swedish model, after Sweden’s plunge to the mid-teens on the OECD league table.

So where is the orthodox Bollard to be found in this briefing? In a pertinent and only thinly veiled warning about the welter of extra workforce regulation promised for this term. And in a wary caution about just which “proactive” government interventions are justified (not many, you are likely to conclude).

“There are limits to what governments can achieve. We need to be cautious and realistic about the role of government policy in altering the path of per capita income,” the briefing says.

And you fill find orthodox fiscal manager in the strong pitch made for better prioritisation, evaluation and culling of government programmes to get value for taxpayers’ money.

But the tone is markedly different from briefings of the 1990s Treasury. And, with Labour’s easy win on July 27, there is no way back. The government is back in the economy to stay.