Speech to the Information Technology Association, 20 November 2003
This country held its own economically between 1992 and 2002. It matched Australia and the United States and the OECD average in per capita growth, despite a two-year drought. It doubled productivity growth between the 1970s/1980s and the 1990s. It lifted elaborately transformed manufactures’ share of exports by 10%.
In short, the 1990s were a good decade for the economy. Why? The answer to that question is at the heart of the short-term political game between Helen Clark and Don Brash.
I’ll come back in a minute to the short game, which is what Bruce Kohn asked me to speak about: politics over the next year. But first, let’s put it in a long-term context.
The long game Helen Clark is playing is to set the political language for the next generation. National dominated governments in the second half of the twentieth century. It beat Labour 38-12 over 50 years. For at least the first 30 to 35 years of that time and again in the last nine, National set the parameters of the political debate. Helen Clark wants to make Labour the usual party of government for the next 25 or 30 years and to consign National to the walk-on parts Labour used to have. That way the political debate would be on Labour’s terms, for or against Labour’s policies, National occasionally making some amendments and Labour deciding how much, if any, of those amendments should remain when Labour returns to power.
For the moment and I emphasis, for the momentHelen Clark is on track to achieve her objective. She has a commanding position in Parliament, able to form a majority both to her left, with the Greens, and to her right, with United Future. Her opponents are fragmented. This is the Scandinavian model and it is one she wants to bed in.
But becoming the usual party of government requires a big shift in mentality for Labour. People join Labour and interest groups back Labour because they see Labour as a vehicle for putting their beliefs into policy and government action. They do not, for the most part, join Labour just to be around or in power.
In the past this has often put Labour activists at odds with the leadership. The leadership has to win and hold the votes of at least 40% of the voters if Labour is to govern certainly if Labour is to govern over any length of time and regardless of the electoral system. Party activists and interest group backers have, almost by definition, narrower views than will appeal to 40%. They have stronger views on most topics than people, for whom politics is a once-every-three-years affair. Consequently, the activists want faster, deeper action on social policy than the leadership can deliver if Labour is to retain 40% of the vote. This tension is pretty much a constant and it has destroyed past Labour governments.
Or, rather, it has been pretty much a constant. Labour under Clark is different in two respects from the short-term Labour governments of the 1949-99.
* First, the most vociferous and hardline “oppositionists” departed for the Alliance in the late 1980s or early 1990s or, now, align with the Greens. Oppositionists those who are prepared to pull the government down rather than settle for 40% compromises are by and large absent from Labour’s own ranks these days. The tension between the leadership and the activists is therefore much lower than in the past.
* Second, Clark has set out determinedly to create a “new conservatism of the left”. That is, the style is conservative, mildly reforming but careful not to frighten the horses of middle New Zealand slightly left of centre, catchphrased “incremental”.
The argument Helen Clark and Michael Cullen use is simple: keep Labour in government and gradually, term by term, it will deliver a Labour agenda. Put another way, it will keep Labour in government and keep alive Labour’s reason for wanting to be in government. The alternative of going hard at reform gets offside with middle New Zealand and National just unpicks the reforms. Clark and Cullen argue that their way will deliver lasting results, even if more slowly.
So far the activists have bought the argument. There is some low-level grizzling but it is not life-threatening to the government. At the Labour party conference earlier this month there were the usual niggles but the unions and interest groups and the activists agreed that No 1 priority is to keep Labour in office.
And there appears to be a spinoff. As Labour is seen as the party of power, those wanting a political career are attracted to it. This is exactly what happened in National’s case as it embedded itself in government half a century ago.
And National itself proved the Clark/Cullen point. In its heyday, National wasn’t afflicted with Labour’s tension. The prime reason most Nationalists have for being in government is to be in government.
But in the late 1970s National lost the plot. Sir Robert Muldoon’s obsession with the “ordinary bloke” in the 1970s and early 1980s, his corporatist style of governing balancing off pressure groups and ruling by decree plus what party members felt were “socialist” tendencies combined to drive the usually pragmatic activists to open revolt after 1979, demanding a return to National’s core values. Then Ruth Richardson’s brief rightwing economic ascendancy from 1990 to 1992 sidetracked National into radicalism the very antithesis of conservatism and split the party: New Zealand First and ACT are permanent reminders of that split. That radicalism also wrecked its standing with voters: National’s votes in the 1990s were 35%, 34% and 31% (followed by last year’s disastrous 21%).
Bill English recognised back in the late 1990s that if National was to be true to its history and regain its established position as the usual party of government, it needed to revert to pre-Muldoon mildly reforming conservatism, geared to winning and keeping the votes of at least 40% of the electorate.
So while English was leader there were two sides playing Clark’s long game, each aiming to be the dominant mildly reforming small-c conservative party: Clark slightly left-of-centre and English slightly right-of-centre.
Don Brash has changed that. Clark is still playing the small-c conservative long game. Brash has come into politics to give effect to belief. The twentieth century roles have been reversed at least for the moment.
One possible explanation for that reversal is that both leaders come from the opposite sides of the political fence from the one they are now on.
* Clark grew up in a conservative farming family. In her style, she reflects that still even though she acquired at university, and still practises, a mildly left-of-centre social democratic policy agenda.
* Brash grew up in a Fabian socialist, or christian socialist, family, wealthy but steeped in belief that the world can be made good by government action Labour’s position. In his style Brash reflects that upbringing though in his university days he swapped christian socialism for classical liberalism (of the ACT sort) and shows no sign of reverting to childhood type.
So you have a peculiar inversion of the twentieth century picture. In a sense, it is exactly what Clark wants: she the manager, close to middle New Zealand; Brash the believer, wanting to stir things up in an electorate which, after the 1980s/90s revolution, wants the quiet life and likes her for that.
Now note another important difference between the two.
* Clark is steeped in politics: Labour Youth 30 years ago, a spell on the hard-as-nails Labour party executive in the late 1970s and early 1980s and entry into Parliament 22 years ago. Politics and the political process are ingrained deep.
* Brash was twice a parliamentary candidate in 1980 and 1981 and he has been around politics as an adviser on tax issues, then a player as Reserve Bank governor from 1988 to 2002. But he has been in parliamentary politics only 16 months and so is making elementary mistakes bordering on farce: agreeing to Nick Smith as deputy leader was a big one, right at the start of his leadership. His ingenuousness is refreshing in a cynical and ruthless business. But if he is to be effective he will need to learn a great deal of politics fast and learn it so that it is in his pores, not just his brain. Doing that while leader is not the best time.
So Clark has this advantage: she knows how politics works; Brash doesn’t. He’ll learn but it will take time probably a lot of time and in the meantime there is a risk Gerry Brownlee will drown him out. For the moment it is amateur’s night in the National party. The professionals are discredited, politically aged or second-rate.
What has Brash got going for him? Quite a lot and not quite enough.
* One: a party which wants to get on. Don Brash will not be white-anted to the degree Bill English was and as were Jenny Shipley before him and Jim Bolger before her and Jim McLay before him. Judging by the mood of the conference in July and its angry reaction to Maurice Williamson’s carping, the party outside Parliament has gone through a turning point. It wants to rebuild. It is sick of faction-fighting. Immediately he was elected leader there were anecdotal reports of people reviving or renewing memberships and donating money.
* Two: authority. Don Brash was a capable and professional manager (according to staff) at the Reserve Bank. He should be able over time to pull the caucus in behind him. Also, he has held high office both in the private and public sector. He has a track record. If voters can see past Brownlee, they will over time see an alternative prime minister in him.
* Three: clarity. Don Brash is not charismatic. Nor is Helen Clark. She has won respect by (mostly) telling it like it is and doing what she says she will. Brash, if anything, is even more direct. This and his authority will reach through the television set into living rooms. As a result, public respect for him is likely to grow among voters over the next year, even among those who do not like his policies though again, this is tempered by the Brownlee phenomenon.
* Four: decency. Don Brash is a genuinely compassionate, thoroughly decent and honourable and well-centred man. Middle-ground voters will connect with that, even if they don’t connect with the policies.
* Five: hubris. Not his, Labour’s. There is almost an obsession on the ninth floor of the Beehive with not being seen to be “arrogant”. It isn’t working. But that has been in part because National has not been a credible contender so, just acting itself has given Labour a superior air. Ironically, if Brash lifts National, Labour may well automatically look less arrogant.
Put all that together and you have developing over the next year more of a contest between Labour and National. National’s task is to look as if it is an alternative government lead-party. By making the party feel better about itself and making its supporters, especially Auckland business, feel better about it Brash has taken an indispensable first step.
But that is only a first step. Don Brash’s and National’s task is to put the Scandinavian model to bed and wake up the German model, which is what MMP was supposed to bring us. This model has two large parties opposing each other and alternating in government, with one or two support parties.
So the indispensable second step Don Brash has to take is to develop policy that can appeal to a wider range of voters than the party faithful and Auckland business. And here is where the doubts start.
First, note Brash’s reason for being in politics. It is not to be Prime Minister; it is to put into effect a programme. Brash wants to do, not be. So compromise will not come easily because that removes the point of politics for him. It is near-impossible to see him working with New Zealand First. And middle New Zealand is uncomfortable with programme politics.
Second, Brash wants to reset the economic policies, and some of the social policies, to make this country richer more quickly than is likely under Labour’s policies. That involves reviving the 1980s/90s policies of Sir Roger Douglas and Ruth Richardson*. That is:
* lighter regulation, particularly in the workplace and vis-a-vis the environment and planning laws; * less government spending as a percentage of GDP; Brash has talked of limiting increases to inflation and population increases, which would reduce spending from 32% to 27% of GDP; this has huge implications for health and superannuation spending, and implies much more private funding of those items;
* less enthusiasm for government business assistance;
* more parental and student choice in education and stricter standards;
* “work first” as the top priority in dealing with welfare recipients; a lift in the qualifying age for superannuation.
In addition, Don Brash has picked up the policies on other issues, on which he has no background, that were being developed by his colleagues. They include:
* no special deals for Maori (which may well lock out most of the Maori vote, without which no longterm government can be formed);
* restoring the alliances with the United States and Australia;
* tough action on crime.
Helen Clark calls Brash’s economics the “failed policies of the 90s”. She is half right. The economic reforms of Douglas and Richardson caused a lot of transitional social damage and they left an inadequate infrastructure. But Clark is also half wrong: the lift in productivity in the 1990s was largely due to the unilateral liberalisation the Douglas/Richardson policies. New Zealand is in fact a textbook example of the wealth-creating spinoff from unilateral liberalisation maybe the pre-eminent example.
Don Brash’s argument essentially boils down to: pick up where Douglas and Richardson left off and we will lift productivity again.
I am not an economist, though it seems to me that the big economic gains from those policies came from the big changes of 1984-92 and there are only marginal gains to be made from pushing on not the second great leap forward Brash believes. But that misses the political point: the policies are associated more in the public mind with social upheaval than with economic success. So the half-right bit of Clark’s mantra is stronger electorally than the half-wrong bit. Whatever the economic argument, the policies did fail politically. That is Brash’s great disability because he must win politically; economic arguments are not enough.
For now, that is. What we don’t know is how an economic slowdown would play electorally.
Such a slowdown is not on the cards in most economists’ forecasts, which assume a global upturn. But it could happen and could be quite savage, if house prices fall or even just stop rising in the United States and/or mortgage payments go up and consumers stop spending, especially if they also start saving to reduce debt or because they fear worse will follow. And if that doesn’t happen in the United States but does happen in Australia (where there are ominous rumblings), that would precipitate a slowdown, though a less savage one.
A mild slowdown shouldn’t be too difficult for the government. A savage slowdown might paradoxically cause voters to reach for the security blanket. And for that Labour is likely to be more credible than a Brash-led National at least over Bruce Kohn’s timeframe of the next 12 months.
What else could upset Clark’s applecart over the next 12 months? If you had asked me 12 months ago, I would have had on my list the Treaty of Waitangi. We were besieged by taniwha.
The taniwha have been tamed for the moment but midyear, predicted by no one, we got the foreshore and seabed.
This could still go horribly wrong for the government. But more likely it will fell its way to a solution which soothes moderate Maori, isolates hardline Maori, and reassures all except hardline non-Maori of reasonable access. It might not be win-win but it will not be lose-lose. I don’t think it is going to turn into the burning issue Bill English thought he could exploit to rescue his leadership.
Aside from the economy and Treaty, we do not seem beset by crises nor can any be foreseen. Of course, a singing economy drowns out a lot of ills and there are plenty of niggles. But not on the face of it enough to lift National to a 40%-plus party at least, not by November 2004 and even, on current available evidence, by September 2005, by when the next election must be held.
Moreover (leaving aside judgment whether the policy is good or bad, which is for you to decide, not me) this is a competent government: it is run very well (in part due to Michael Cullen’s deputy leadership); it is united as I have never seen in a cabinet after four years; it gets the work done; it has so far handled the unexpected more sure-footedly than any government since, perhaps, Sir Keith Holyoake’s in the 1960s. Of course, it makes mistakes and gets things wrong; but less often than other governments of its age. It is a competent government.
And Labour has arithmetic on its side. For Don Brash to form a government in 2005 he has to have the backing of parties totalling 47% in votes. And he will have to do that without counting New Zealand First. If he forms a government that depends on New Zealand First in any way, it will be an unstable government.
But I am getting ahead of myself. Where is Clark taking us over the next 12 months? Some items, in no particular order:
* Some more human rights legislation: notably a Civil Union Bill, due in February, which recognises gay “marriages”. But that is all for this term. Clark doesn’t want to get too far ahead of public opinion.
* Some more workplace legislation. The Holidays Bill will pass before Christmas, with four weeks holiday by 2007. Another bill will protect workers when a business is sold, taken over, merged or contracted out. It will also try to nail down employers who have not been genuinely acting in good faith. It will try to stop freeloading.
* Some more regulation, some of it heavy. A draconian regime is coming in for electricity and a similar backstop regime is planned for gas if the industry doesn’t self-regulate to the government’s satisfaction. As time has passed this government has become increasingly trigger-happy with regulation.
* Modest increases in research and development spending, which will still leave government spending below the OECD average, let alone the private sector.
* More industry plans and regional development plans.
* Responses to the information and communications taskforce report, about which you know a great deal more than I do. Modest progress on the next-generation internet project.
* A very modest start to reshaping tertiary education spending, with tentative emphasis on science, high-tech and skills.
* A massive payout to low-income people, partly through tax credits and cuts and partly through a rationalised benefit system.
* The beginnings of a policy on water allocation, starting with the Waitaki catchment and Project Aqua. This is a very big issue.
* The beginnings of a move towards electronic pricing of traffic movements. A second transport bill is due next year.
* Maybe a cabinet reshuffle, either late in 2004 or early in 2005. Since no ministers have indicated a desire to retire or have lined themselves up for the chop, there are obvious limitations on how far the reshuffle will go.
That’s enough to be going on with. It is a busy government.
In a major speech to the National party conference on 13 July, Don Brash laid out eight goals:
* First, restrain government spending to grow by no more than the rate of inflation and the rate of population growth in other words, restrain government spending to its present level per person, in inflation-adjusted terms. If we could hold government spending at its present level per person in real terms for 10 years, the ratio of government spending to GDP would fall by about 5 percentage points, even before allowing for the faster rate of economic growth which I believe that declining ratio of government spending would make possible. In other words, the ratio of government spending to GDP could well fall by more than 5 percentage points over a decade.
* Second, reduce the company tax rate, and the two top personal tax rates, to 30%, thus encouraging investment and the retention of enterprising people within New Zealand.
* Third, reduce the regulatory burdens on the business sector, most immediately by reforming the Resource Management Act and by making it easier for employers to end an employment relationship (something which would benefit both the business sector and those struggling to get a job).
* Fourth, move quickly to resolve serious problems of road congestion, especially in Auckland and parts of the Bay of Plenty but also in other parts of the country, by ensuring that all road projects which meet appropriate rates of return are built without delay.
* Fifth, review the Crown’s balance sheet with a view to selling government-owned commercial enterprises which no longer need to be owned by the state.
* Sixth, devote additional resources to reduce the risk of a serious disease or pest becoming established in New Zealand.
* Seventh, encourage continued immigration by those who can add to the standard of living of New Zealanders.
* Eighth, encourage a culture in our schools and in our society more generally which values business and business people, and recognises the importance of enterprise.