Ardern: transformation now or a pivot towards transformation in the future?

Our country was not “forever changed” on 15 March. Jacinda Ardern’s assured skill, instincts and empathy kept the nation on course.

But can she generate the innovative policy that will be necessary to keep that nation intact through the turbulent 2020s. Or is she a pivot between two eras, not the architect of a new era – as Norman Kirk was a pivot between the 1940s-60s orthodoxies and the revolutionary 1980s? read more

Digging “wellbeing” out of Steven Joyce’s fiscal hole

Colin James on the upcoming fiscal update and budget policy statement, Otago Daily Times, 11 December 2018

On Thursday Grant Robertson will get in the ring for his latest wrestling bout with Steven Joyce’s $11.7 billion hole. And he will polish up his “wellbeing” a bit more.

The wrestling will be in the half-yearly economic and fiscal update (HYEFU). The polishing will be in his Budget Policy Statement (BPS).

Joyce divined his hole in Labour’s fiscal numbers in last year’s election campaign.

Independent economists could not find it. Labour ministers say they have since found it — in Joyce’s under-resourcing of the likes of hospitals and schools, conservation, justice and social housing.

That is a legacy of Sir Bill English’s “more with less” demands of government agencies (ministries, departments and Crown entities) even while celebrating high immigration which piled more pressure on housing and services.

But wait, there’s more — or, rather, less. In the current round of allocations for the 2019 budget, agency chiefs have been telling ministers (and me) of cutoffs in what was thought to be “baseline” funding — that is, ongoing funding, maintained year-to-year.

This includes programmes that did have a cutoff date and so funding only up to that date but which have not been completed and/or have become embedded in agencies’ workload and staffing and so in effect, core activities.

The cabinet thinks some of these are “critical”, Robertson says, instancing work on sexual and domestic violence, a priority for both major parties, funded for only two years.

In addition, the coalition cabinet has made heavy demands on agencies for new or reshaped policies. Over the past year chief executives have told ministers (and me) they don’t have the “capability” in staff numbers and quality to meet those demands.

Result: ministers have been asked to look for programmes they could drop, so the “critical” ones can be funded. Ironically, that echoes Sir Bill’s demands in his early years as Finance Minister.

And all this has to be fitted round Shane Jones’s 1970s-type bountiful beneficence to the provinces. Is there looming a few years from now a rerun of the collapse of Matai Industries, a 1972-5 Labour government regional development initiative?

Then there is Robertson’s need for a cushion against a possible convulsion in the disturbed global economy, which serious northern hemisphere commentators increasingly worry about. While our economy is still fairly strong — attested to by none other than Simon Bridges (whose leadership test will come in the barbecue season next month) — Robertson’s cushion may suddenly be needed.

So the cabinet has felt bound to resist strikes by teachers, nurses, midwives and others, for whom “more with less” turned into work overload on constrained pay.

That’s the fiscal side of Thursday. The BPS will aim to flesh out a bit more Robertson’s drive to gear future budgets to “wellbeing”, not just fiscal and economic management.

Last Tuesday the Treasury unveiled an interactive “dashboard”, a first-blush scorecard of how we are doing on 12 measures covering, in addition to how materially well off we are, our societal, civic, educational and personal welfare and the state of the natural environment and resources.

The aim is to widen the policy yardstick far beyond the decades-long primacy given to GDP, the production of goods and services.

Robertson wants success measured against “outcomes”. Sir Bill used to talk about this but mostly pursued narrow “targets”. Genuine outcomes are complex, crossing portfolio and even generational boundaries. They need new funding and governance instruments.

Robertson’s top priorities — mental health, with a youth focus, child welfare, Maori and Pasifika and the transformation to what are expected to be very different economic and work arrangements in the 2020s — cannot be fitted into the current hierarchical “silos” commanded by chief executives.

So ministers and agency chiefs are now supposed to take collective responsibility for work on each priority, not just leave it to a lead minister and agency.

Robertson talks of funding outcome-oriented action through a single allocation. The consultation document for revised public service legislation suggests four mechanisms for agency chiefs to work together, including “boards” of chiefs.

Reports vary on how well ministers and agency chiefs are actually operating collectively. Politics is a tournament of rivalry. The 1988 reform embedded agency chiefs’ authority in their fiefdoms.

So Thursday’s BPS will be “work in progress”, with up to a decade of refinement ahead to make “wellbeing” convincingly credible, then translatable into effective action.

Moreover, the government’s actions on the ground so far depict it as one more of alleviation than the aspiration “wellbeing” implies. Robertson aside, the word doesn’t yet pepper most ministers’ speeches and statements.

Only when they talk up “wellbeing” ad nauseam might voters start to think it is more than a word in the clouds.

Meantime, there is Joyce’s hole.

A brittle world, not too unlike 1918

Colin James on the international scene at armistice day 1918 Otago Daily Times, 6 November 2018

Sunday is the centenary of Armistice Day — the end of fighting in the “war to end all wars”, which turned out to be only an instalment.

By the eleventh hour of the eleventh day of the eleventh month of 1918 16 million had died in the war and 20 million were physically and mentally maimed, many seriously.

Three empires, the Austro-Hungarian, German and Russian, had also died and the Ottoman empire went in 1920. A fifth, the British, never recovered from its wounds. Neither side “won”.

Crippling reparations against Germany and global economic depression after a cocksure United States crashed its hyperinflated sharemarket tipped Germany fascist and warlike. The next war instalment from 1939 was far more devastating.

After that came the cold war between United States-led liberal democracies and totalitarian Russia. Russia lost.

A post-1945 international order of growing economic interdependence among liberal democracies included Germany. Technology and trade lifted billions out of poverty, most spectacularly in China which chose economic development over ideology. Democracy gained ground globally.

That has reversed. Freedom House reported 2017 was the twelfth consecutive year of “decline in global freedom” and democracy.

Populism, “illiberalism” and autocracy have spread as hyperglobalisation has enriched the already rich in democracies and as multitudes fear for their personal status and national identity.

Germany’s Europe-stabilising politics are fragmenting, dramatically so in two recent state elections. Brazil elected a president who extols violence.

The (Dis-)United Kingdom voted to leave Europe. Tomorrow’s election in the (Dis-)United States won’t return it to political health. Its presidential advisers tote their trade war with China as a new “cold war”.

A once-again ideological, autocratic China aggressively stakes territorial claims, entraps poor nations in “loans” for infrastructure and recruits overseas Chinese to influence politics, universities and other institutions in countries like ours.

The Middle East is deeply riven. Outside powers meddle there.

The global order is as brittle as in 1914 — and 1918.

And the global economy is seriously unbalanced, not least by a 75% rise in debt since 2007. Growing numbers of sober commentators fear — some forecast — a shock far worse than in 2007-08.

How does New Zealand navigate this? Can we avoid a “Thucydides trap” between two superpowers, the conundrum for small states when Athens and Sparta fought in the fifth century BC.

New Zealand, Australia and Japan fret over China’s push into the South Pacific. Some expect China to announce a free trade agreement with Papua New Guinea at the APEC summit next week, with Fiji also in its sights. It is seeking military bases in Papua New Guinea and Vanuatu.

Jacinda Ardern came to the job of responding to this “chaotic” world, as she terms it, citing Russia in particular, with experience in Helen Clark’s office and as International Union of Socialist Youth president, which bequeathed her a wide range of foreign contacts she now draws on, many at high level.

Her approach: be strategic, based on values, for example, human rights, a rules-based order, free trade (she very early took a firm pro-TPP stance in cabinet) but also be nimble, applying “craftsmanship” to diplomacy.

Brook Barrington, who heads her Department of Prime Minister and Cabinet from February, initiated a (limited, some say) strategic rethink as Secretary of Foreign Affairs.

Ardern draws also on the incisive intellect of chief trade negotiator Vangelis Vitalis who talked of the “Thucydides trap” long before eminent thinkers elsewhere.

Her strategic guide is to reassert foreign policy independence from all powers and not back off criticising China on the South China Sea (as the defence strategy did in July) and its oppression of the Uighurs and Donald Trump’s trade “nonsense” and human rights breaches — but equally to look for ways to work together, as with the United States in Antarctica and in monitoring North Korea sanctions and with China in the proposed Regional Comprehensive Economic Partnership.

The Pacific reset in May was a first strategic step, talking up real engagement and cooperation with island states and working with the likes of Japan to build resilience so those states need China less for help (and debt).

Ardern and Winston Peters have had differences, notably on Russia, but broadly agree.

But is this the transformation she has promised for policy generally?

Some say the Pacific reset could have gone further, for example, setting up a development bank, as Australian Labor leader Bill Shorten has flagged.

In her party conference speech on Sunday foreign affairs came up just once: calling Grant Robertson’s fiscal caution “insurance” in a “volatile international situation”.

Down the track she might have cause to reflect on the transformative 1914-18 war and transform foreign policy nimbly into a front-of-mind matter.

A first anniversary. Will there be a fourth?

The first Jacinda-Winston-James anniversary is almost here. Will there be a fourth anniversary?

Jacinda Ardern is 38, James Shaw 45, Grant Robertson 46. They have much to look ahead to. Winston Peters is 73. He has much to look back on and an respectable retirement to look out for.

Shaw’s Greens are to Ardern’s left. Peters’ New Zealand First is to her (populist) right. Each has heft — Labour is much the biggest but it needs the votes of both to outgun National.

New Zealand First has to walk atop a narrow fence: be distinctive and visibly influential to stay above 5% in 2020 (if there is no rescue through an electorate seat deal) but not so distinctive as to fuel commentary (as in August-September) that Peters is driving the bus — off the road. Disunity kills governments.

The Greens look more sure of 5% but are on a boardwalk through a wetland: between compromise and purity, between governmental grown-up-ness (limited wins) and political adolescence (keeping ideals — and impotence — intact).

Green MPs have mostly opted for grown-up-ness, not least by swallowing Peters’ putrid waka jumping rat. But Marama Davidson’s election as co-leader indicates most party members lean to adolescence.

At least as testing for Ardern are drop-the-ball Labour ministers — Clare Curran, Meka Whaitiri — and fumblers.

Kelvin Davis (reminder: Labour’s deputy leader) has to get post-settlement Crown-Maori relations right if there is not to be another Maori party. On marae he is said to have won over opponents to new thinking. But in general forums he is often fuzzy.

David Clark has the intellect and inner strength to repair the health system when through his multiple reviews but so far often sounds more the preacher he trained to be than on-top manager.

Add in public differences, mainly between New Zealand First (think Shane Jones) and Labour ministers — examples: three-strikes abolition, workplace law. By August-September the authority a government claims and needs was looking ragged. Political management was wobbly. Ardern felt a need to do two major “reset” speeches.

A different Clark (Helen) — whose out-of-place lofty observations on how to govern have infuriated some in the Beehive — would have set chief of staff and enforcer Heather Simpson to work with and on them. Ardern chief of staff Mike Munro is not a stick-wielder.

But Clark (Helen) didn’t have to ride Ardern’s three-headed beast. Detail needs to be cleared through cabinet. Answers to questions on issues not yet cleared can look, in feverish media reporting, like fissures when they are work in progress.

There are tensions, miscues and mistakes. But there are within parties, as Simon Bridges (yet to live up to his potential) could tell you. The issue is how well and consistently tensions are resolved.

Fixing political management took Sir John Key and chief of staff Wayne Eagleson a year or so.

Can Ardern? She and Peters have mutual respect, even liking, despite wide divergences in age, mentality and policy disposition. Shaw is cooperative.

And Ardern can be firm (as Neve will find in her terrible twos). One hardened MP told me a ticking off from her during last year’s campaign outdid any from Clark (Helen). Meka Whaitiri can be in no doubt.

Ardern’s approval ratings are still stratospheric — not (so far at least) showing symptoms of a Justin Trudeau/Emmanuel Macron change-leader-gone-sour plunge. The right-track/wrong-track reading is still very positive. And there is a half-dozen of strong ministers.

But words are not deeds. She needs in her second year to turn the myriad reviews and consultations (examples: climate change, mental health, tax) into actions people can see, feel and want.

Mostly so far the government has been filling potholes Sir John left. Forward-pointing actions are appearing but there is not yet real momentum. And to be convincing in 2020 the government needs a wraparound theme.

For that go to Ardern mate Robertson, her real deputy. He is getting on top of finance, the recent Mood of the Boardroom survey recognised and some officials say. He has (so far) faced down striking nurses and teachers (who seem, puzzlingly, to want National austerity back in 2020).

More important is his attempt to reframe government action as promoting much wider “wellbeing” than material stuff and as relevant for the 2020s. His speeches, including recently on the arts’ contribution to wellbeing, do that well.

Climate change, on which there is a fair chance of cross-party agreement from regular meetings between Shaw and National’s Todd Muller, fits. So does much of the social programme.

But “wellbeing” is a hard story to get across to the media, let alone voters. To bed it in — with testable numbers — Ardern needs a second term. And for that she needs a strong story, especially if there is a global financial or other catastrophe. She hopes to have that story by early 2020.

Will she? Will there be a fourth anniversary? Answer that in 23 months.

Some ways to change the constitution or not

The Greens will vote for New Zealand First’s waka-jumping bill. That’s coalition government, co-leader Marama Davidson said: swallow a dead rat to get the organic carrot-cake the Greens signed up for.

Winston Peters wants to stop defections. Defectors from his party kept Jenny Shipley’s government afloat in 1998 after she fired him. An Alliance MP also defected, prompting a short-lived waka-jumping law in 2001. In the 2011-14 Parliament New Zealand First kicked MP Brendan Horan out of the party but he stayed on as an independent.

The waka-jumping bill presumes voters elect parties. The pre-MMP presumption was that voters elected MPs who happened to be in parties but could switch if they chose.

So in effect the waka-jumping bill adjusts the constitution (badly) — not the Constitution Act but one of the many other elements of the broad, small-c constitution that moderates society and regulates politics.

A positive adjustment would be to enact the Electoral Commission’s 2012 report required when in 2011 voters reconfirmed MMP.

The then Justice Minister Judith Collins parked it. Proper process would have been to get a bill drafted off the report for Parliament to decide, as Andrew Little scathingly alluded to in Parliament last Thursday.

The commission wanted to end the “waiver”, by which a party winning an electorate seat gets seats proportional to its party vote even if it falls under the 5% threshold.

Winston Peters in 1999 held Tauranga and brought in four other MPs. The Key-English government in 2008 got ACT five seats by giving it Epsom.

The Electoral Commission proposed to compensate for ending the “waiver” by cutting the party vote threshold to 4%.

This would almost ensure New Zealand First and the Greens survive the 2020 election. Peters wants to keep 5%, even though his party fell to just over 4% after both its previous coalition ventures.

There is another twist. Nearly 2% of the 7% who voted New Zealand First in 2017 told pollsters they preferred Peters going with National. Might they not think Peters waka-jumped by going with Labour?

All this assumes Parliament is what our democracy is about. Actually, democracy is about the people.

The Australasian Study of Parliament Group conference this month worried about declining trust in Parliaments “in a post-truth world”.

One option discussed was to develop and expand randomly selected representative “citizens juries” to inform and influence policy decision-making.

Why stop there? Modern technology enables “crowd” solving of technical matters, fund-raising and organisation. The Council of Trade Unions, for example, is starting to use its “crowd” to build its policy and legislation submission cases.

Some commentators are exploring the potential to use “crowd” techniques to feed into law-making — in effect, to make “citizens juries” vastly broader (and semi-official?). That might activate younger people, many of whom don’t bother to vote for oldster (over-35) MPs.

Policy involves far more complex judgments than fixing a bit of software or organising some money or action. So at the very least it would need years of refinement and development.

That takes us to “localism”, Local Government New Zealand’s push for a bigger role for councils and more sources of funding. Ours is the world’s most centralised democracy. Bringing more government to points closer to the people would be serious constitutional change.

And councils, being local, could be the place to trial “crowd” engagement in decisions.

If the “crowd” gets more involved, what is the public service’s place?

A discussion paper is due soon on the push by State Services Commissioner Peter Hughes and minister Chris Hipkins to update the public service, 30 years after the last big reform.

They want legislation, now being drafted, to set out purpose, principles and values for the state sector and rename it the public service, implying serving the public, not just ministers — a much-needed small-c constitutional reform.

The discussion paper also sets out four ways to break down the “silo” walls between departments and get unified, seamless pursuit of the complex “outcomes” Grant Robertson wants. There is a Crown-Maori section and an intergenerational dimension.

Chief executives have pushed back. They say rushing change risks a half-baked outcome.

A number also say they don’t have the capability to do the policy innovation work the cabinet wants. (Note: “capability”, which is not the same as “numbers”.)

That’s not the only edgy matter. Is free speech a core element of our constitution? Some freedom-lovers stumped up loads of cash so two Muslim-baiters could speak here.

Freedom is just being free from any constraint. The real democratic issue is liberty for all to live a full life. That implies for each citizen a responsibility for the liberty of others. Unconstrained vitriol can curtail the liberty of those attacked.

Liberty is the core of our constitution. Does the waka-jumping bill fit?

A trade deal for some or for all

Negotiations for a free trade agreement (FTA) with the European Union (EU) formally kick off on Thursday when EU Trade Commissioner Cecilia Malmström drops in. Who benefits?

Talks are expected to take up to two years. They come after a long wait near bottom of the EU’s list while it did a range of other deals — a low rank shared with Australia, which is simultaneously, but not jointly, negotiating with the EU.

Why is the EU bothering now, when it has to deal with grumpy Britain’s messy exit and Donald Trump’s spiteful protectionism?

One: the liberal trading order, a bulwark of the democratic-capitalist system and of the European project needs reinforcing if 1930s-type chaos is to be avoided. We are an outpost of that order.

Two: New Zealand is linked into east Asia, the star economic growth region in which Europe needs more presence. It has done deals with Japan (still to be ratified), Singapore, South Korea and Vietnam.

Three: a New Zealand FTA should be relatively straightforward, both sides think.

Even the trade-shy Greens have said they might be onside because Europe — at least its western half — projects environment- and climate-friendliness.

Jacinda Ardern made a point of this (alleged) congruence, among others, to French President Emmanuel Macron in April in a pitch insiders say tipped Macron over the line to green-light the FTA talks.

Ardern is also said to have taken a strong line in cabinet back in October to commit to a rules-based international trading order as critical to the economy and to New Zealand’s good-global-citizen standing — and for credibility as a seeker of FTAs, notably the EU one.

That required fancy footwork to finesse Labour’s opposition to the original Trans-Pacific Partnership talks: some plausible gestures from the other countries and some innovative rewording.

Partly thanks to some theatrics by Canadian Prime Minister Justin Trudeau, that is what Trade Minister David Parker and chief trade negotiator Vangelis Vitalis got in what became the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

Among changes were reduced intellectual property restrictions, side agreements from Australia, Brunei, Malaysia, Peru and Vietnam not to use the controversial investor-state arbitration mechanism and agreement with Canada and Chile to curtail its use and all but Singapore looking the other way on Labour’s ban on foreigners buying land.

The CPTPP looks likely to be ratified by early 2019 by the six countries needed for it to come into force. Colombia wants in. Colombia, Chile, Mexico and Peru form the Pacific Alliance with which Parker is also talking up an FTA.

Investor-state arbitration is unlikely to be a bother in the EU deal. Its 2017 FTA with Canada proposed an international investment court of professional judges in place of individual country arbitration. That would suit New Zealand.

But the EU is said to want protections for copyright and patents similar to, or possibly greater than, those the United States won in the original TPP. Software copyright could constrain small high-tech companies here and longer-lasting drug patents could impose higher costs on Pharmac.

Access for lamb is knotty. The EU is the largest importer of New Zealand lamb and takes two-thirds of high-value chilled lamb. Access is tariff-free under a quota protected by World Trade Organisation rules.

But in their Brexit talks Britain and the EU have proposed dividing that quota rigidly: Britain 45% and the reduced EU 55%. Any excess could face 50% tariffs — unless Brexit results in a Britain-EU customs union. Malmström will be pushed on this.

Some context: overall exports to the EU (excluding Britain) are a third of those to China. Talks to upgrade the China FTA have recently been reactivated.

But bigger than China for Parker and Co is the need to build public support for trade deals, which Tim Groser’s high-handed TPP negotiating style eroded.

Parker has since April been touting around the country a revised trade agenda he describes as “progressive and inclusive”. It proritises multilateral FTAs, with plurilateral FTAs (such as CPTPP and the proposed China-backed Regional Comprehensive Economic Partnership) second best.

Parker is clear: trade brings benefits and more trade bigger benefits. But the benefits are unequally distributed. For many it brings cuts in jobs and incomes. This is a big factor in the disturbed politics of northern hemisphere democracies. Here it fuelled opposition to the TPP.

So Parker wants to ensure trade “works for all” through a range of economic policy and education initiatives and by involving a range of ministers and officials, not just trade specialists.

FTAs must, he says, preserve “the right of governments to regulate in the public interest, including for national land markets, inward investment, taxation of multinational businesses and public services”.

The EU agrees. So Parker might get a deal that looks like “trade for (nearly?) all”.

“Licence to govern”. And a path ahead

Occasional article on the budget for the Otago Daily Times 17 May 2018

A government’s first budget sets its tone and path. The title is “Foundations for the Future” and Jacinda Ardern has billed it as “transformative”. Grand words. Does the budget live up to them?

Union and Labour party critics, some highly placed, say it is “too orthodox” to generate the “transformation of our society and economy” Grant Robertson trumpeted to the media in the pre-release budget lockup.

Their point: spending hovers around 28% of GDP, where Bill English got it to. Why not 30%? Government net debt is down to 21%, far below other advanced economies’.

The National party has joined in with accusations that phasing brightline promises like doctors’ visit subsidies and more police are “broken promises”.

Out of the other side of National’s mouth finance spokesperson Amy Adams has in effect attacked Robertson’s left critics by alleging his slower net debt track down to 20% of GDP (2022 instead of 2020) will burden future generations.

Robertson in the media lockup: fiscal discipline is something ministers “owe to future generations”.

The discipline is in the “fiscal responsibility rules” agreed with the Greens in March 2017 to tell business and other doubters they would be careful, creditable and creditworthy. If Robertson is to get the more “productive” economy he wants he needs business to keep investing and hiring.

A senior minister phrases this as “a licence to govern”. That “licence” also needs the three coalition partners lined up. Ardern insists ministers negotiated full consensus on the whole budget.

Recently — and in the budget — Robertson has added another reason to be “prudent”: to weather shocks like earthquakes or global political or economic convulsions such as those which skewed English’s early budgets.

In fact, Robertson has one already: the mycoplasma bovis cow epidemic, costed at $85 million so far but maybe many times that.

The International Monetary Fund last month worried that global debt tripled between 2001 and 2016 to a record $US164 trillion and is 40% higher than 10 years ago. Others point to a rapid rise in “shadow banking” and corporate debt.

Here household debt is a towering 168% of disposable income.

A big shock would require higher spending (cash for those who lose jobs or worse) from lower revenue and so more borrowing. If interest rates also rose, that would bump fiscal costs and hit stretched mortgage-holders. So, Robertson says in the budget, the fiscal trajectory must not put pressure on monetary policy.

The “licence to govern” also directs the government to what Ardern calls “pragmatic idealism”: a “just transition” to the different economy, not a radical upheaval like that of the 1980s which split the Labour party three ways.

In this budget there is more pragmatism than transition. The great bulk of the additional spending financed by cutting National’s tax cuts and stronger revenue over the past six month is committed to plugging operational and infrastructure holes ministers say they have found in health, education, housing, other social assistance, foreign affairs capability and defence.

Even in environment and climate change policy the budget’s tone is more making up for what National didn’t do than bold new steps into a green future, though there is James Shaw’s $100 million green investment fund and preliminary work on a climate commission and more can be expected in future budgets.

Likewise, the tax working group has yet to demonstrate it will do a first-principles review that at times in opposition Robertson seemed to edge towards. Likewise, his “future of work forum” with Business New Zealand and the Council of Trade Unions has a big, long job ahead if it is to truly prepare for the 2020s different work environment.

And the budget’s trumpeted research and development 2027 ambition of 2% of GDP (including business investment) will still leave New Zealand below the 2.38% OECD average and far below five of the six small advanced economies New Zealand compares itself with. Will that “future-proof the economy”, as Robertson claims in the budget?

So is this “Foundations for the Future” budget just foundations or does it chart a forward a path?

Yes, if you look hard, on page 8 of its fiscal strategy report. That points towards a “wellbeing” budget in 2019. Behind-scenes the Treasury is hard at work on this.

The idea is a range of indicators reaching across portfolios, monitored by cabinet committees, measuring if natural, social and human capital are rising or falling and so account in future budgets not just for economic output but for how well the environment and people’s lives are.

Ardern has taken one small step with her child poverty reduction target in the Public Finance Act. But it is a long path, probably stretching well into a second term, if she can get one.

One budget does not a government make.

Transformation, transition or what? The government at six months

Occasional article for the Otago Daily Times 24 April 2018

Jacinda Ardern’s Speech from the Throne in November promised a “government of transformation”. After six months in power, it looks more like a government of transition — to the post-baby-boom generations. But is that all?

The last transformational government was Labour’s in 1984-90: an independent foreign policy, a start towards biculturalism, renovated environmental and constitutional law and a market economy open to an economically globalising world — and, abruptly, a much more unequal society, a tax system favouring the well-off and an electorate so angry it changed the electoral system, for the better.

Ardern insists her transformation will avert the 1980s damage and insecurities. Also, she said in Berlin last week, it is not just a transition to younger generations but a “just transition” to the 2020s when technology will kill many jobs.

Is she on course?

First, substandard political management: ministers’ slips and skids (Clare Curran, Shane Jones, Eugenie Sage), and off-script support parties (Russia, Air New Zealand) plus a broken promise on fuel tax. Too much of this will in time leach public goodwill.

Second: support parties’ travails. Polls put New Zealand First well below the 5% cutoff point. The Greens’ score is steady but Marama Davidson’s big win in the co-leader vote deepens their green-red schism and leaves James Shaw as minority co-leader. It also leaves space for a blue-green alternative if National’s BlueGreens ginger group, meeting this Saturday, can push National there.

But, third, Ardern is still in superstar territory, close to Sir John Key’s peak, and cutting it last week with foreign leaders and media (Time, Le Figaro). Very wide majorities say the country is on the right track. (Ignore business grumping. That is usual under Labour rule even when profits are strong, as they are.)

So Ardern and Grant Robertson have time and space to build the authority that some think they do not yet project.

Next month’s budget provides a platform. It will restate the fiscal parameters and will devote large sums to begin to address funding gaps after Bill English’s “more with less” turned to “less” last term, particularly for health, housing and infrastructure.

Critics say Robertson is exaggerating, echoing all new cabinets’ “discovery” of a “fiscal crisis”. Actually, Robertson talked up the “crisis” pre-election.

But fixing shortfalls is not transformation — or even transition.

Neither, so far, are the dozens — or scores, depending what you count — of reviews, working groups, strategies and so on. They open issues up rather than open up “bold” (another Ardern word) new vistas. For example, the education review reads more like adjustments to the 2010s than anticipation of the 2020s “gig”, “sharing”, robotised and artificial-intelligence economy.

So, too, for the tax working group. Its terms of reference — and Sir Michael Cullen’s 2000s “third way” background — rule out some big matters, including a real land tax and fixing the mess of tax, rebates, allowances and phase-outs at the bottom end.

They skirt around wealth, the core factor in embedded inequalities through the privilege it confers via untaxed inheritances. Likewise, the distortions that drive people to invest savings in houses and the attack on disposable income a high GST imposes on those at the bottom.

So, fixit, not transformation.

But what if Sir Michael’s report next year lists those gaps and suggests a “phase 2” deeper rework of our 1980s tax system to gear it to the 2020s?

A tax “phase 2” could point to a transformational second term, if Ardern, Robertson and Co really mean it.

Also transformational would be real policies that step on to the path to net-zero-carbon emissions by 2050. The ban on new offshore oil and gas exploration (Ardern calls it a step along her “just transition”) is gesture, not transformation, since pumping could go on for decades.

Climate Minister Shaw has started slowly. Only now does he have an interim committee foreshadowing his Climate Change Commission.

But the commission’s work plus other climate initiatives (throw in also a possible first-principles rewrite of the ailing, 28-year-old Resource Management Act) might later this term start to look like pointers towards transformation in a second term — matching younger generations’ ideals.

Still bigger is Robertson’s ambition to make “wellbeing” the core of economic policy. The Treasury, which welcomed him on to this track, is a long way from producing firm numbers. But if it can be made to work, wellbeing economics would amount to a “government of transformation” in future framing and assessment of the outcomes of policies and programmes.

Not least, it would focus on children’s very early acquisition of non-cognitive skills with which to navigate the 2020s and beyond and contribute to the economy and society.

So it may be too early to rule out transformation. Radicalism these days, as English said, can be incremental.

How well off are we really? The Treasury wants to know

The Treasury will today [Tuesday 20 March] take another step down its “wellbeing economics” track. On that road Grant Robertson is signposting a “wellbeing budget” in 2019.

The event is the Treasury’s four-yearly investment statement. Up to now it has essentially been a balance sheet of the government’s financial and physical assets and liabilities. Today’s will flag an extension.

The statement’s title is He Puna Hao Patiki. By stating the title in te reo, as it did for its 2016 long-term fiscal projection, He Tirohanga Mokopuna, the Treasury is symbolically recognising there is more to the economy than assumed by ascetic market-liberal doctrines, which ignore te ao Maori.

In He Tirohanga Mokopuna the Treasury said that while material living conditions improve people’s wellbeing, “there are also other dimensions of wellbeing. Broadening the framework of our long-term thinking requires a multi-disciplinary approach to economic, social and environmental policies.”

He Puna Hao Patiki will state the Treasury’s objective as investing for wellbeing. It will include a section on its aim to put the nation’s natural, social and human capital alongside the government’s financial/physical capital.

The theory is that if those stocks of capital are rising, wellbeing is improving and vice-versa. That takes economic assessment far beyond gross domestic product (GDP), which in the digital era misses an increasing amount of productive activity besides not measuring unpaid production such as raising children and voluntary work.

The Treasury aired its “four-capitals” wellbeing project in November at a half-day symposium of academics, economists and policy wonks.

Bill English and Steven Joyce (rest their political souls) had not been converts but also had not told the Treasury to stop.

In fact, wellbeing economics meshes with English’s “social investment”, aimed at measurable positive outcomes for those thought most in need. To that end, the Treasury’s CBAx (cost-benefit-plus) tool requires departments making budget bids to define, with evidence tested by their external science advisers, the real change the “investment” will generate in people’s lives.

Wellbeing economics fits comfortably into Robertson’s and Jacinda Ardern’s thinking and enables them to pick up and widen social investment. It fits Greens’ “ecological economics” which measures whether natural capital stocks are rising or falling.

Hence Robertson’s designation of the 2019 budget as the “wellbeing budget”.

A pointer toward that is Ardern’s bill in Parliament requiring the Treasury under the Public Finance Act to include measures of child poverty. Robertson and Ardern intend to take the Public Finance Act much wider — when the Treasury can do the measurements.

That is a tall order.

The Treasury got its child poverty impact assessments wrong in December. Can it tell us the real value of natural resources and ecosystems, whether that stock of capital is improving or worsening and how intergenerationally resilient is? Or the real value of social capital (including social connections, attitudes and norms, institutions and trust) and human capital (including skills, knowledge and physical and mental health)?

In fact, today’s investment statement will not attempt that. It follows three high-level discussion papers in February on what has been done offshore — including, most notably, the Organisation for Economic Cooperation and Development’s (OECD) better living index which takes snapshots of wellbeing — and what might be done here.

But there are large data gaps. So, no numbers today.

Still, the Treasury is assembling data on “sub-domains” — component parts of the three additional capitals.

It is developing the methodology in papers for Robertson aimed at the 2019 budget — though honing the numbers to be as useful in policy development as traditional financial numbers is likely to take years.

If it can be done, that is. Sceptics include a senior economic journalist who sniffs that the Treasury may as well try to measure “metaphysical capital”.

But there is growing international interest and activity in this wider approach to economic and fiscal management. For example, the World Bank recently published a global assessment of countries’ natural and human capital.

But wait, there’s more.

Next Monday initial findings will go live of an international collaboration assessing human rights hosted by Wellington-based think-tank Motu Economic and Public Policy Research.

Co-founded and led by former Reserve Bank, OECD and Treasury official Anne-Marie Brook, who has academic credentials in psychology as well as economics, the project brings together political and civil rights with economic and social rights.

The 13-nation study includes developing and developed countries. Unsurprisingly, New Zealand rates high — well ahead of, for example, Australia.

That’s wellbeing from another angle. GDP counts — but it misses a lot of what matters. A gap the Treasury wants to fill.