Key's investment approach to "social" action

National party conference delegates at last got their teeth into something halfway through John Key’s speech: they whistled, hurrayed and clapped delight at close supervision of youngsters on benefits.

After a day and a-half of dutifully enthusing at ministers’ recitations of their good works, they could, briefly, be themselves, that is, true conservatives, believers in an ordered society and in punishment or correction of those who do not fit. Here those misfits are on expensive benefit rolls. In Britain they more expensively torch, loot and kill.

But National’s greyhairs missed Key’s two deeper points. First, many of those misfits get a bad — disabling — start in life. Second, investment yields better returns than palliatives.

Labour, through rising generation-Y star Jacinda Ardern, and the Greens, through generation-X co-leader Metiria Turei, scoffed that the real issue was a lack of jobs. That ignored that thousands of foreigners are brought in to do low-skill jobs beneficiaries can’t or won’t do because they lack the skill even to turn up for work and stick at it. Labour itself recognised this by starting the temporary work visa system when in government.

From the right Sir Roger Douglas said Key was being soppy. He should lower the minimum wage for youth and then “if given the choice between these feel-good measures and actually having a job, almost all beneficiaries would choose the latter.”

Sir Roger quoted Canterbury University economist Eric Crampton’s estimate that “up to 13,100 young people are out of work as a consequence of the youth wage being abolished” in 2008. Sir Roger, too, seemed oblivious to the temporary visa phenomenon.

Where Key (and Paula Bennett) and his critics agree is that the youth unemployment is in a new phase.

From 1994 to 2008 the gap between 15-19-year-olds’ unemployment rate and that of the over-25s was steady at 11 per cent (give or take 1.5 percentage points). Since 2008 it has climbed over 20 per cent. Even in the fierce post-1990 recession the gap didn’t top 16 per cent.

Something is different this time.

Key discounts (though does not dismiss) the youth wage factor and notes his offsetting policy that employers can hire young workers for 90 days without risking an unfair dismissal claim.

In his speech he pointed to a different factor: “These are kids as young as 16, many of whom have difficult backgrounds.”

This ties back to the Gluckman/Hayne report of June 1 which adduced evidence from the Dunedin longitudinal survey and other studies that a bad start in life correlates with poor capacity to learn, integrate into society and get and keep a job.

Key: “They (the young unemployed) typically come from disadvantaged backgrounds and many have complex and multiple problems” and “little access to positive adult guidance”, such as he had in his state-house time.

Paula Bennett, who was an uneducated teen solo-mother at 17, gave delegates this take: that pregnant teens in focus groups had said people took notice of them and were solicitous for them and for the first time they felt “worth something”.

The lesson: Key and Bennett made good from unpromising starts but to do that requires adult guidance and/or an inner strength.

This recognition has led to another: that “investment” early can save a lot of money later. “It is worth investing money upfront” ($20-$25 million for starters) “to get them on track,” Key said. “If we can reduce the number who go on to a benefit at age 18, we save the government future welfare, justice and health payments”.

That was the most important, but still little noticed, section of the Welfare Working Group’s report. Critically, the Treasury and Bill English agree with it.

Doing an actuarial calculation and figuring the return on early investment in lower costs later makes fiscal and economic sense. English has got alongside Bennett on this. And when English puts his weight into a policy initiative, it usually gets traction. Add Key and it gets over the line.

Now, having applied this approach once can Key, English and Bennett look back down the line where Gluckman/Hayne pointed them? Investing in the very early years of life delivers a much higher return than intervening at age 16.

This was underlined in a report by economic consultancy Infometrics for the Every Child Counts coalition: it estimates the health, benefits, remedial education, crime and productivity cost of bad-start children at 3 per cent of GDP and notes that we come twenty-eighth on the OECD ladder on that, invest about half the OECD average and do it less effectively.

On this Key demurred. He talked of “balance” — politics, not investment. But there are other hints he might eventually get the Infometrics-Gluckman/Hayne message.

If he does, he could profoundly change the approach to “social” policy — which a future Labour-Green government (as distinct from Clark-era Labour) might also adopt. Some National greyhairs might even clap Key for it.

It might be his legacy.

* The original column incorrectly said that Paula Bennett had made the “worth something” comment about herself.