Good economics or good politics? Business in the Brash v Clark era

Speech by Colin James to the Employers and Manufacturers (Northern), 5 November 2003

You saw the pictures last week of Helen Clark in army battledress. How can Don Brash compete against that? Television images of the Supreme Commander reviewing her troops in troubled parts of the Middle East are enough to make strong men quiver.

Of course, we all know Clark killed the fighter wing. She was a major architect of the anti-nuclear policy in the 1980s. She opposed the United States war in Vietnam in the 1960s and invasion of Iraq this year. But I have always been sure that if this country got into a scrap she would be a modern-day Boadicea, knives flashing on the chariot wheels. It is a little known fact that she enjoys talking tanks with generals. She would be an interesting wartime Prime Minister. As it is, she has to make do with George Bush’s War on Terror.

One message from this is: don’t get in her way. Helen Clark is as tough as they come in politics.

The second message is: don’t typecast her. You don’t often see peaceniks in flak jackets.

The third message is: she goes and sees for herself.

Clark travels tirelessly. She goes to a very wide range of functions and places, meets a wide cross-section of people. She calls it her focus group � the whole country. Sure, people are highly selective in what they tell a Prime Minister, too deferential for her and their good. So she doesn’t get to hear what you or I would. But she does get to hear a great deal. And she takes it in � often she will scribble a note to herself. And then she rings her ministers to pass on what she has heard and get them on to it. Clark is the first Prime Minister to run her cabinet by phone. She has two mobile phones and she spends a lot of time on them: to ministers, officials, journalists, acquaintances who might put a slant on some issue before the government. She is not a prisoner of the cabinet paper.

She also has stamina. She is fit. She chose mountain climbing and alpine cross-country skiing as her sports.

That is the person Don Brash is up against.

Now let’s register an important point about these two: their roots are different from their current political positioning. Clark, don’t forget, was brought up on a farm, in conservative Waikato, of conservative parents. She acquired her love of foreign policy and her leftist slant at school and Auckland University; the social democratic angle on social policy was an adjunct; the PC dimension added by contact with the feminist movement of the 1970s.

Brash was brought up in a “christian socialist” household, to use his phrase. His father was a social-liberal clergyman who he says had huge influence on him. At university he dutifully imbibed the protectionist economics of Wolfgang Rosenberg. Only when he did his PhD did he discover the market. He honed his respect for the market in the private sector and then when he ran monetary policy. The “christian” dimension — spelt these days with a small c — endures in a genuine concern for those who miss out. But the means he now proposes to rectify that are anything but socialist. These days he is a classical liberal to his core: the individual’s first call is the individual or the immediate family, not the state or the community.

Now note this about Clark: the farm girl have been peeping through her prime minister-ship. She is fiscally conservative: don’t spend it until you’re sure you’ve got it. She respects middle New Zealand, knows she needs its vote to stay Prime Minister. She pays attention to the unions, of course � that is unavoidable for any Labour leader who wants to hold party and government together. She is politically correct: the Prostitution Bill, the Civil Union Bill (same-sex marriages) to come. And she leans leftwards on foreign policy and quite a lot of social policy. But that is all tempered by a cautious management style: sahe is establishing a mildly reforming small-c conservative government, a bit left of centre. She is pragmatic more than she is doctrinaire. The farm girl is distinctly discernible.

But with Don Brash the childhood socialism is not discernible. There is undeniable compassion. He radiates decency. But if we go looking for the young Presbyterian Brash we are more likely to see it in his rectitude — and his expectation of rectitude in others — than in any belief in the power of the state to do good. Brash lives out his university-days conversion more wholly than Clark does hers.

The question is: will the younger Brash emerge through here and there, as the younger Clark has? Will that younger Brash add some centrist tendencies to the modern-day Brash’s strong market economics? Or will he maroon himself with ACT, divorced from middle New Zealand?

The defining characteristic of the National party at its most successful in the 1950s and 1960s was liberal-conservatism — mildly reforming conservatism, slightly right of centre. That is the mirror image of what Clark by and large has been putting in place. What Don Brash offers is the opposite. He offers radicalism and the National party has never been at ease with radicalism.

Nor, frankly, has the country. It had a bout of radicalism in the late 1980s and early 1990s. And after a revolution the people want consolidation. That is what Clark is giving them.

OK, right now you are having trouble seeing Clark as liberal-conservative. You see the workplace regulation, the RMA, the tax increases, the green Land Transport Management Bill, the imposts on business, the loss of Privy Council appeals, what looks like too ready response to Maori demands. You see an anti-business government, a government that at most treats business as means to an end — and the end, for this government as for all social democratic governments, is to redistribute resources to the less well off. In short, judging by your press releases, you see a government of the left. You yearn for Brash because he promises to reverse all that.

But imagine yourself at the Council of Trade Unions conference last month or the Labour party this weekend. Or at a gathering of Child Poverty Action. Or Madge, stripping for a GM-free New Zealand. Or pot smokers. Or the Friends of Ahmed Zaoui. Or nurses striking for a pay rise. If you could perform this stupendous feat of mental contortion, you would see a rightwing Prime Minister who spends too much time cuddling up to business, George Bush and worse. Clark is doing a skilful balancing act. That is the essence of modestly reforming small-c conservative government. It is, in short, liberal-conservative.

This balancing act — plus good economic times — have delivered Clark and Labour durably high poll ratings. Labour has been sitting around 44% average in the polls. Overall the four parties in or supporting the government have been totalling 56%. The parties opposing the govern-ment have been totalling around 41%. That is a 15-point gap. In June-July the opposition parties gained about 5% off the government parties but till October had made no more gains. National had actually slid to around 24% average, barely above its disastrous 2002 election score. It was shedding support to ACT and New Zealand First when Don Brash struck.

The initial response to Brash’s election was to lift National to 30% in the Sunday Star Times poll — exactly the number I suggested in my Herald column last Tuesday. But, compared with the pre-coup poll averages most of that came from New Zealand First and ACT.

And that is Brash’s challenge: not just to shuffle the votes on the right but to win votes off Labour. That means taking Labour on in middle New Zealand.

Brash has one quality which does appeal to middle New Zealand. He has personal authority. He has command. He is determined and not easily deflected or discouraged. He is clear in what he says. In those personal attributes he is the match, or near-match, of Helen Clark. Authority can win votes even when the policy doesn’t. (Forget, by the way, this stuff about age; that counts only if someone looks decrepit or boyish. Brash is not decrepit, even if he doesn’t go mountain climbing in his spare time. Bill English looked boyish.)

But when middle New Zealand looks at and listens to what this commanding, authoritative figure is proposing, will it see reason to shift across the divide?

Brash’s reason for being in politics and his reason for knifing Bill English last week is to get the economics right. He is a lot less concerned with getting the politics right. He is a living example of Ruth Richardson’s maxim: “Good economics is good politics.” That is all very noble but there is one snag: economics is slow, politics is quick. Get the politics wrong and the economics doesn’t happen.

Clark understands this, which is why she goes cautiously about Labour’s agenda: a bit here, a bit there, don’t frighten the horses. If you want an example, take the republic. Clark wants a republic. So does most of her cabinet (Michael Cullen is a prominent exception). But she was rudely awakened to the political pitfalls in pushing republicanism by a conference in 2000 which I ran to explore all of the issues arising out of our current constitutional arrangements: the politics that played around and inside that conference aroused high passions. Clark backed off. There will be no republic in her time unless that time is very long. There was some silly talk by Richard Prebble and some others who should know better that the abolition of Privy Council appeals was a step on the road to a “socialist republic of Aotearoa”. Piffle. The republic is bad politics. It stirs emotions for no great gain. By the sort of calculation Helen Clark makes in running her government, that makes it a non-starter.

So with the foreshore/seabed. The Appeal Court’s decision cut support out of Labour, as I noted earlier. And Clark has an extraordinarily difficult balancing act to avoid a split with traditional Maoridom while keeping middle New Zealand reassured it can loll on the beach and fish off the rocks. But the bottom line is the beach, not the Maori vote. That limits National’s room for political gain, as Bill English found.

So what can Brash do? Learn some politics. Already by last Thursday, in an interview I did with him for the Business Herald, he was easing back on the economic policy throttle. His conviction about what is needed hasn’t changed. But now that he is in charge, he is getting an inkling of the constraints.

Not least, these constraints are within his own party. For example, he has made much in his speeches since before entering Parliament that education is a vital component of eco-nomic policy. He wants far more flexibility and choice as a means of improving educa-tion. He has even said — though not since becoming leader — that he doesn’t care who owns the schools. We are not going to hear that from Bill English, as Brash’s shadow education minister. In health English passed up the opportunity to drive through major change and give GP groups, backed by insurance companies, much more incentive to keep people well and out of hospital — in short, to semi-privatise the system. I can’t see him being radical in education.

And I have real doubts that when the politics gets to the sharp end the National party will rise to the challenge Brash set it at its conference in July: to hold government spending to no more than the rate of growth in the population and the rate of inflation. That sounds gentle but it would cut spending by 5% of GDP over 10 years on his cal-culation. That means a great deal of superannuation and health would have to be funded by individuals instead of the state. That is hard politics.

The question you need to ask yourselves is how much of Brash’s economics will survive the politics. I don’t know the answer. It is far too early to tell. The less that survives, the less he will sound the deliverer business immediately welcomed him as last week. The more that survives, the less he will be able to loosen Labour’s grip on middle New Zealand.

What might change that? Dissension within Labour or between it and its support parties (though even then, when the Greens and Labour are at odds, votes flow between Labour and the Greens rather than across the Labour-National divide). Or a real dustup with Maori. Or an initiative that gets really offside with middle New Zealand (as the methane levy did with farmers). Or too much hubris in the cabinet. Or a sharp economic downturn, precipitated, for example, by subsidence of the consumer debt bubble in the United States before jobs pick up enough to take up the slack. Or a big red bus meeting Helen Clark — and winning.

Without some-such event, it is hard to see why large numbers of voters would change sides before the 2005 election. And even then, it is hard to see, on current evidence — and I emphasise current evidence — how Brash could assemble a durable coalition in that election.

United Future will almost certainly be smaller after 2005 than it is now but it would still be highly likely to be critical to formation of a National-led government. And United Future is so far sticking to its line that it will change sides only if the electorate clearly indicates it wants a National-led government. Also, though there is much in Labour’s economic, tax and regulatory policy it disagrees with, it is also wary of Brash-type economic policies, especially as they would impact on social assistance, on which it is closer to Labour than National. So, unless United Future changes its criteria, Brash would need to beat Labour to get it on board. (By the way, United Future cannot force the government now into anything, as some think: if it joins the three parties of the right, that makes up a total of only 57 seats — not a majority.)

ACT, of course, would join a Brash coalition — you can now expect National and ACT to accelerate and deepen their courtship, which I reckon will include an electorate seat reserved for ACT. But ACT is extremely unlikely to win enough seats on its own to get Brash into a stable government. Even National plus ACT plus United Future is likely to struggle to 61 seats on current evidence. That puts Winston Peters in the frame. New Zealand First is at odds with Brash on economics. (What would be the point in him compromising on economics, given that that is the reason he is in politics?) New Zealand First is also at odds with National, ACT and United Future on immigration.

This says nothing about 2008. By 2008 Brash would be more a politician and less an economist. If he wants to stick around and the party wants him to (my answer to both is yes, if he gets a creditable result in 2005 but not otherwise), the picture is likely to be different. And if Brash isn’t there my pick is John Key, who is the fastest-developing rookie MP I can recall in more than 30 years of watching: bright, an impressive business track record, a charmer, a listener and a voracious learner of what works and what doesn’t in politics.

Whoever is leader, the National team will be stronger. By 2008 it will have had three stronger intakes of new MPs than Labour’s intakes and a stronger front bench. And on current evidence the odds are that post-2005 a Labour-led government would depend on the Greens for a majority which would make it less centrist than now, which would open up room for National. That doesn’t guarantee a post-2008 National-led government. But you should by then be confident one will be on the way sometime.

And let me be clear: the choice is between a Labour-led government and a National-led one. National has never been in danger of losing its major-party status. Its roots go too deep in this society.

In the meantime, business must make the best of a Labour-led government. That means probably five years. And that means:

* government spending’s share of the economy will stay about where it is (and grow a bit if the economy slows);

* the government’s role a owner and regulator is likely to continue to expand, particularly in networks and utilities and to harmonise with Australia;

* the green tinge will deepen, though there are limits, as the GM argument shows; trans-port and energy are the big areas of Green influence, though transport “demand manage-ment” and tolling can be developed as economic instruments and might be in the second bill due in December;

* labour laws will continue to be tightened, though I think the bulk of that is nearly through, once the Employment Relations Amendment Bill, due by Christmas, is through the House; expect to be pushed into helping employees into super schemes;

* there will be more levies, fees and other imposts; against that there will be token at-tempts to cut small business compliance costs.

So business has a choice: emigrate; hibernate and put investment in the freezer; or make the best of it.

I think both sides have missed cues over the past four years.

For its part, the government has failed to grasp — or, at least, to acknowledge — that lifting the growth rate far enough to climb back up the OECD table requires more, not less, leeway for business. This is a paradox, because Labour does know that it needs faster economic growth to achieve its goal of a more equitable society and a nicer environment. It learnt that in 2000. But Labour can’t put its social and environmental goals on hold while the economy gets up to speed. That would undermine its core vote. So it sees building the economy and building a society in the image it wants as parallel enterprises, not sequential. And don’t be mistaken: if this was a first-world economy, it would be putting more emphasis on social and environmental matters and not much on the economy.

From where I sit, I don’t think business lobbies have fully grasped this. There is a pervasive presumption in the tone of most business statements that what business sees as good for business is automatically good for New Zealand and a mixture of puzzlement and outrage that the government operates as if this is not so. There is also a constant underlying assertion that New Zealand is a worse place to do business than Australia when in fact the picture is mixed: unions are stronger, there is a heavy superannuation impost and the top personal tax rate is higher.

There is another dimension: public ignorance of and contempt for business and its vital role in wealth creation. Helen Clark was judged the country’s top businesswoman in a poll a couple of months back. In another poll I commissioned, health was judged the sector most likely to create wealth.

So the starting point for business is not railing at the government, which is water off a tin roof. It is changing attitudes to business. Don Brash made that one of his eight goals in his conference speech. But in the interview I did for the Business Herald he said it would take him three terms in government to do that. Business and the country don’t have that long. So business needs to become hugely more inventive and strategic in its public relations. Perhaps is a small step in that direction.

Business did take a strategic approach to the economic debate back in the 1980s — led initially by Federated Farmers, then the Business Roundtable, with manufacturers a dis-tant last. Special pleading gave way to arguments for an efficient economic policy envi-ronment. That smoothed Roger Douglas’s path. But now business acts as if that argu-ment has been won for all time: that it does not need to lift its sights above the bottom line. That is not strategy. It is myopia. If you ran your business that way, you would go bust.

Let’s imagine you do change public attitudes. Then business will have a stronger case to put to this government for more business-friendly policies and the government might feel the public would like that and respond. In the present environment business’s case just sounds to the public, such of it as listens, as special pleading: rich guys wanting to get richer.

It’s worse than that: it sounds like constant whingeing. After a while, people stop lis-tening to whingers. Business complaints are fully understandable: the policy environ-ment is harder than five years ago. There is good cause to whinge. But it shuts ears.

So, while you are changing attitudes, which will take a good long while, how do you deal with the government and position yourselves in the public debate?

You won’t get tax cuts. You are going to get tougher labour laws and environmental pro-tection will stay a high priority. There will be progressively more regulation, more nig-gling fees, levies, tolls and the like. Put simply, there are battles you can’t win.

What can you win? Margaret Wilson identified the angle a couple of weeks back when she told the Council of Trade Unions conference her labour laws are intended to lift pro-ductivity. She wants a high-wage economy. So does the rest of the cabinet. So did the Labour party when it was founded in 1916.

I’m not expert in public relations. But it seems to me that if business lobbies talked less about ways to cut business costs and more about ways to raise business revenue, minis-ters might listen more. If business came up with Labour-friendly ways to improve the general policy environment, ministers might not go offensively defensive, as the Prime Minister did in February at the Knowledge Wave conference, which thought it was trying to help. Who knows what might happen then?

But that might just embed Labour in office. Perhaps you would rather gamble on Don Brash and get what you want without all the effort it takes to be strategic. Only, within this gamble is another: that his economics survives the politics of getting to the top. Politics is a slippery business.