Colin James speech at NZ Herald lunch 29 November 2002
Michael Cullen presents a coherent and well-honed explanation of the government’s overall economic policy. He is the most lucid Finance Minister of the eight I have dealt with. He convincingly draws links between fiscal and monetary settings, balanced regulatory settings, facilitative interventions, restoration of the infrastructure and development of consensus. Accept Michael’s premises and it is difficult to challenge the logic.
Thus opponents and critics, whether they are in the political or business arenas, must dig deep to upset the policy line. Much of the debate is about policy detail and technique, not the fundamentals. And the debate is unquestionably these days on Labour’s ground — that is to say, the qualified free market. Arguing the pure neoliberal or Rogernomics line these days amounts to not much more than declamation. The same goes for those arguing either for pre-1990s regulation and protection, as the Alliance argued and some unions still argue, or for the small-and-local-is-beautiful school the Greens and their friends favour. That is not to say Cullenomics is right judged by economic criteria — I am not qualified to judge. It is simply to say Cullenomics has the political upper hand for the next three years and maybe the three after that.
The politics of this are the Swedish model. That is a strong, slightly left-of-centre government supported by a party which reaches across the centre and occupies some territory on the right � and on the other side a fragmented picture. If Helen Clark and Peter Dunne can get this to work it brings into prospect the prize of long-run Labour-led governments, punctuated by short-lived, unstable governments of the right. That is the exact reverse of the second half of the twentieth century. Whether Helen and Peter can pull this off I don’t know. I give them a 50-50 chance. Peter has to put a party together and Helen has to balance Greens and Christians. But, whatever the long-run prospects, these next three years are settled and maybe the next six.
Nevertheless, as I suggested in the Herald this morning, there is a paradox at the heart of this policy. It aims at 4 per cent annual growth — which is 2.5 per cent growth per head, which requires productivity growth to be doubled. That is a very tall order and one that is most unlikely to be without bold action by someone. And the policy goes under the rubric of “innovation”, which implies boldness — no timid or cautious person is an innovator.
But Cullenomics is founded on “incremental” change, the antithesis of boldness. Politically it is probably right to be so founded because voters have made it clear for more than a decade — and again in this year’s election — they have had enough of radicalism. But it seems to me to set up a fundamental internal contradiction within this government’s programme: bold aims but cautious policies. And we all know what happens to something that contains fundamental contradictions. At the very least it is rendered static; at worst it disintegrates.
Stasis would not be too bad politically. Sir Keith Holyoake won four elections on the trot in the 1960s preaching incrementalism or, as it was then known, “steady as she goes”. Actually, underneath the calm skim a revolution was going on which burst into full flower in the 1980s — but that is another story. The important point is that “steady as she goes” preceded crisis.
Are we in for the same now? There are some reasons to think not. I shall offer three.
One is that, by comparison with manufactured goods and some services, the terms of trade for food have improved and this improvement might be what economists call “secular” — that is, a long-lasting change of direction.
The second is a stirring in the lower depths, far from the commanding heights of Wellington. If I may utter his name here, Bill English some years ago identified a smarter sort of farmer, younger and more innovative in use of capital, assets and equipment. Anecdotal evidence suggests this breed is spreading. That is good for the food business. And Rod Oram has identified many examples of a smarter middle and senior management in many companies who have taken advantage of the opportunities created by the 1980s and 1990s Rogernomics reforms. These are people and therefore companies who are no longer beset by currency or protection worries. That is good for high-value-added manufacturing and services.
The third flows from that. It is an improvement in the general mood. Sure, we have doomsayers: Winston Peters leveraging fear of Asians; small-g greens foretelling the death of the planet and all living things; prophets of the terminal decline of the All Blacks and national aviation; talkback radio. But in the past couple of years I think the mood has taken a turn for the better.
Some of that is cyclical: the economy is temporarily on a high and for 20 years the mood has swung about with the cycles as if the whole country was manic-depressive. Another ingredient of the current good mood is the politics of lullaby and such politics, while it can last a fair while as the 1960s taught us, does not endure. But blow that froth off the psychological brew and I think underneath there might be the beginnings of a secular change.
I don’t want to overstate it. Pollyanna never brought home the bacon and we have had more than our share of Pollyannas over the past 20 years. And, of course, all bets are off if the Saudi Arabian revolution happens or there is an international trading disaster or deflation in the United States. But there is one logical basis for thinking there may have been a secular change.
That is that after a revolution there is a period of discombobulation as social and economic structures and institutions are rebuilt and people come to terms with the new landscape. And in the 1980s and 1990s we did not just go through an economic policy revolution — we had our independence revolution. That was a deeply disruptive event from which you would expect a considerable period of disorientation. Manic-depressive responses were in order.
But look at our film industry, our yachting, our myriad small high-tech business successes, thriving Maori kapa haka. Maybe we are getting our confidence back. Maybe we are consolidating at last.
If my hunch is right — and I emphasise it is hunch not a piece of cold-eyed analysis — Michael will get his consensus. Not from formal tripartite committees but from the people, individually feeling better about themselves and world. And if he gets his consensus, we might well do a lot better this decade than we expected when we entered it. People who feel good about themselves do better.
This probably would still not be 4 per cent nirvana. In the absence of some deeply changed fundamental economic factors, that probably remains a pipe dream. But it would be a more cheerful place. Which would be good for business.