Boldness, the missing policy dimension

At the heart of this government is a paradox: it has set a bold target and a strategy that calls for boldness but it makes a virtue of “incremental” policy, the very antithesis of boldness.

The target is 4 per cent a year growth in gross domestic product (GDP). That is better put as 2.5 per cent a year growth in GDP per capita, which takes out the impact of migration and workforce changes.

A big net inflow of migrants helped lift GDP in the mid-1990s and a net outflow of migrants in the late 1990s helped constrain growth then. In the past year there has again been a big inflow, as kiwis cash up and come home and foreigners renew interest, which has helped growth to the current 4 per cent.

Hitting 2.5 per cent per capita is a big step up on the 1990s average of 1.7 per cent, which was a big step up (thanks largely to Rogernomics) from the 1970s and 1980s average of 0.8 per cent. To get to a sustained 2.5 per cent figure, productivity will have to double.

That is a tall order for a developed economy. The sorts of productivity leaps the developing economies of Asia got when peasants leave the paddy fields for electronics factories are not available to New Zealand. Put our “peasants” into factories and their productivity will likely drop, particularly if they are of the new young breed that is transforming dairying.

Cullen — who declined to be interviewed before this article’s deadline — is acutely aware of this barrier. He has been careful to dampen expectations of hitting the target quickly. It will be a long haul, he says.

He usually adds that there is no quick fix, no magic bullet to lift productivity.

Even education, a key part of the government’s strategy, is not an elixir. The huge increase in participation in tertiary education in Britain, for example, has not lifted productivity dramatically. A growing body of opinion worries it might have perverse effects because the huge surge in students has cut spending per student and quality is threatened. Much the same has happened here.

As Business Roundtable executive director Roger Kerr observed drily in a speech last week: “[Just] because some of a thing is good, it doesn’t follow that more of it must be even better.”

With no magic bullet in his armoury, Cullen’s policy is to push ahead on a wide front of modest initiatives. He has little political choice, at least as he and his colleagues see it. The public is weary, and wary, of dramatic policy shifts. Elections through the 1990s and again in 2002 demonstrated that.

But the codename for the policy line implies something quite different. The “innovation strategy” implies boldness. A timid or cautious person does not innovate.

A senior minister, taxed with this paradox, retorted that it was not up to the government to do the bold things that amount to innovation. That was business’s domain, he said.

Which is more or less true. It is business that must do the innovating and business that must exploit it. That’s broadly how it works in the United States, which has long been the leading innovator and the leading economy.

It is not entirely true, however.

The government is the main researcher. It could be very bold and dramatically increase resources for research. Its record and its forward track: increases, yes, but no drama.

Does it really think indigenous biotechnology can be a beacon for an economic revolution? Yes. Then is it mobilising large resources? Is its approach to cutting-edge genetic modification technology daring? No and no.

But turn this around. If Pete Hodgson were to put another half a billion dollars into biotechnology, where would he get it from? Health? Political suicide. The budget surplus? That way lie deficits if the international economy stays slow. The super fund, which on 5-6 per cent returns instead of the projected 9 percent, looks likely to be underfunded anyway?

So there is a case for not being bold. Not much of business would agree with it. But it wins elections. And possession of the Treasury benches is nine-tenths of the law in the political game.

But even if it is business’s job, not the government’s, to be bold, the policy environment logically should be set to encourage business boldness.

The government’s case rests on its wide range of targeted business assistance, notably for startups and joint ventures and some investment and exporting. There has been some worthy, low-key work to focus the bureaucracy on business’s priority needs. And Cullen has worked hard to build a national consensus, which is worth at least something in the pursuit of higher growth.

But Cullen is also acutely aware that that consensus must encourage, not stall, change. Having soothed voters, his job now is to convince them they must, as individuals, embrace lifelong change.

And a good deal of the government’s programme, particularly in tax, the workplace, environmental law and resource law, makes doing business harder or less profitable — not as much as some of the shriller business complaints would have you believe, but enough to make a difference. In a business utopia the government would reverse direction boldly. It won’t, of course.

Enter United Future. Deputy leader Gordon Copeland calls it a free-enterprise party. Leader Peter Dunne says workplace safety legislation, set to become law by Christmas, is “the lunatic fringe of lawmaking”. United Future aims to inject some business-friendliness into government policy.

United Future’s leverage is limited by the fact that Labour can call on the Greens to push through bills United Future disagrees with, so the workplace safety bill will go through, as will the Local Government Bill, another business bugbear. Helen Clark, with an eye on the long term, is careful to insist her ministers are solicitous of the Greens.

Nevertheless, United Future has precedence over the Greens in consultation. It has an influence just by being constantly in the loop. Judith Tizard, speaking on the Motor Vehicle Sales Bill last week, welcomed improvements as a result of Paul Adams’ experience as a car salesman.

Moreover, this is not the same government as last term’s, which included the left wing of the Alliance. Moreover, it is one which is determined to do what it takes (short of abandoning the anti-nuclear policy) to get freer world trade and bilateral free trade deals. And it is one which grasps the importance of business hugely better than three years ago.

That is good politics. The challenge for the next three years, secure in office, is to go beyond good politics to innovative economics. But that requires boldness.