Gordon Campbell on blaming the Greeks, and on David Cunliffe

By all measures, the Greek election result was a relatively good outcome for the global economy, in that pro-austerity parties now seem able to form a government. Regardless, Prime Minister John Key yesterday cited the Greek elections and the European debt crisis as the main reason why his government might not now be able to get the economy back into surplus after all by 2014/15, as previously announced. “We are not going to get to the surplus in [2014-15] come hell or high water.” If doing so was going to drag the economy back into recession, Key explained, this would not be worth it.

In reality, the death knell for the government’s surplus target had already been sounded last week by Reserve Bank Governor Alan Bollard who told Parliament’s finance and expenditure committee the bad news:

The Government will not return to surplus until two years after Treasury’s 2014-15 estimated timeframe, according to Reserve Bank Governor Alan Bollard…
In response to a question from Labour MP David Parker, Bollard agreed the delayed return to surplus would see government debt about $10 billion higher than currently forecast.

No doubt the situation with respect to Greece, Spain and Italy is bad and may get worse, with flow on effects for China and Australia, which have kept this country’s head above water throughout the Global Financial Crisis. Still, the situation underlines just how little in the way of an effective economic plan to lift productivity and growth the current government has in train, beyond its cutbacks to government jobs and spending. One way or another, external forces entirely dictate our fate.

Leaving aside external shocks, Scoop asked Key, what signs in the domestic economy would he take as indicating that his government should start easing back on its surplus timetable? “We’d look at a range of things,’ Key replied. “Ultimately, employment numbers, business confidence, GDP growth; we’ve got a number of things.” Some indicators, he said, like unemployment numbers and youth employment were currently moving in the right direction, downwards. “But the confidence level of business is a little lower than it was a few months ago. Because they’re looking at Europe and they’re very uncertain what it all means.”

Expect to hear a lot along similar lines over the next two years. The bad things in the New Zealand economy will be blamed entirely on external shocks and their impact on our fragile business confidence, while all the good things will be attributed to you know who.

Cunliffe World, Revisited
In a parallel universe, David Cunliffe would be Labour Party leader, and it would be him going around the country making effective speeches sticking it to the government over its lack of long term planning, and abysmal short term political management. Hold on. In fact, it is David Cunliffe who is currently doing a better job of making Labour look like a credible alternative government. His speech in late April to the party faithful in Grey Lynn is here, while the more recent speech, to a Kensington Swan Insolvency function is here.

In the Kensington Swan speech, Cunliffe picked up an interesting theme. One of the myths of New Zealand politics is that government is inherently inefficient, and the private sector inherently efficient. Dream on. After 25 years of market supremacy what – if anything – has the private sector created, beyond opportunities to feather its own nest from buying and selling public assets, and extracting monopoly rents from them? Along the way, it has mis-managed some public assets into being bailed out by the state and/or asset stripped them into the ground and…don’t talk about finance companies and stock market crashes and the Global Financial Crisis. Cunliffe makes the same point in a more creative fashion:

If the last Great Depression provides some chilling lessons of what went wrong, it also provides hope for what can be done better. Much of New Zealand’s response to the Depression in the 1930s and early 40s is still working for us:

• Around 50% of the state houses still around now were built in the 1930s and 1940s
• Around 40% of all schools still in use were built in this era
• Almost all the North Island dams, and the same of the pylons and substations
• Thousands of rural bridges
• Most of Auckland’s water supply dams and systems
• The core of the Crown Research Agencies, in the form of the DSIR
• Around half of New Zealand’s still-existing hospitals,
• The great North Island pine forests, and
• Most of our government departments now existing were formed, all in that era

In other words, in infrastructural terms, we are still running – increasingly on empty – from that prior era of state-stimulated creativity. Such a dominant role for the state, as Cunliffe points out, need not crowd out private capital. In the past, the dominant role played by the state actually provided the private sector with opportunities:

In the 1960s, business and the public sector continued this partnership with the great Kinleith Mill near Taupo, and New Zealand Steel at Glenbrook. Private capital was making money at the same time as the public sector achieved its policy goals.

Probably it should be obvious, in a tiny country of four million situated far from global markets, that the state needs to take a major role in partnership with the private sector to create wealth. Yet for 25 years, the myth of the go-it-alone private sector and the alleged inherent efficiencies of the market have dominated our political and economic discourse, even though most sectors of our economy are too small to allow for effective competition. Right now, Cunliffe is saying this more coherently than his leader, and appears to be moving leftwards in the process. Yet his stance is also still being safely coded and couched in Labour history and nostalgia, and thus consistent with the party’s traditional perception of itself. The real test will come when Cunliffe needs to formulate substantive policies of re-distribution and an appropriate regulatory framework for the current economy, beyond the settings that Labour took into the last election.

Which raises a related point. In the parallel universe where Cunliffe was in fact the leader of the Labour Party, would he still be giving the kind of speeches he is giving now? Well, as Communications Minister in the Clark government, he did lead the charge to try and force Telecom out of its 19th century robber baron phase. Even so, the pressure on Labour to take bland, centrist positions in order to present itself as a non-scary alternative government is considerable.

It is a strategy where most of the heavy work of denting the government’s credibility is being outsourced to the Greens and New Zealand First – who will still be expected to accept junior status in the centre left government they will have largely made possible. For now though, Cunliffe is making the left wing noises from within what is, in most respects, a very conservative party. A more unlikely candidate for the role would be hard to imagine – but at least someone on the Labour front bench is staking out that territory.