The economy’s role in Election 2014 – an interview with business analyst Rod Oram
by Gordon Campbell
Trust, credibility and economic nous. The economy will be central to next year’s election campaign. Like our America’s Cup campaign, will the government’s record of economic management be smiled on by the electorate, as a good enough effort against the odds ? At his September 16 press conference, Prime Minister John Key made it clear that he intends to run next year on an economic record whereby New Zealand has emerged from the Global Financial Crisis and the Christchurch earthquakes and the Pike River disaster with growth rates better than most other countries in the OECD, and with a surplus in sight.
Business commentator Rod Oram is noticeably underwhelmed by this argument, and especially by the government’s invocation of the Christchurch earthquakes. As he told Werewolf, The government may be ‘cock a hoop’ that our growth is better than most OPECD countries. “Its double that of most OECD countries. But if there hadn’t been an earthquakes in Christchurch the growth would be half that rate, and we’d be looking awfully average, and very much like those other OECD countries.” Oddly enough, the earthquakes turn up on both sides of the government’s political ledger. When it suits, the earthquakes are depicted as the government’s burden. Yet the re-build also regularly gets cited as one of the few bright spots in the domestic economy, to a degree that makes one wonder how the government would have fared without it. As Werewolf suggested to Oram, the earthquakes work hard for this government, don’t they ? “ Yes, they do. And you have to net the earthquakes out of that growth picture. But secondly, you also have to be really critical of the government about the complete lack of vision for re-building Christchurch. Gerry Brownlee, in his foreword to the document laying out the central city development talks about how the government was rising to the challenge of building a 21st century city.” Now that, Oram says, is complete nonsense.
How so ? “Other people around the world are building zero-energy homes in far harsher climates than we have. What’s going on in Christchurch is re-building to New Zealand’s very poor building standards and energy efficiency standards. That is very much the sort of leadership the government is not offering. So we’ve got this $40 billion investment in Christchurch – and it is sub-optimal vision and technology with no new economic model to underpin the city. All that the Canterbury Development Corporation has done is revisit its pre-earthquake economic strategy – it says that that it has looked at them through the earthquake lens – but I don’t see much change. I don’t see how on earth the Christchurch economy is suddenly, somehow, going to be more vibrant than it was pre-earthquake.”
The earthquakes, he concludes, could be a fine economic stimulus – the equivalent of what governments elsewhere have used to kickstart their recovery from the GFC, and to innovate. “If we were using that $40 billion of capital that’s going into Christchurch to build a true 21st century city, and a true 21st century economy in that region…then, that would be great. But the government isn’t doing that. This money is being very seriously squandered. “
Incremental change, if there needs to be change at all. Challenges treated as risks, rather than opportunities. So goes Christchurch, and so goes the rest of the country. In fact, the current good news of economic growth may not even be enough to carry the government through until Election Day, 2014. Like the Reserve Bank, Oram expects the growth figures to begin to taper off again in the second half of 2014. The RB expects growth to peak at 2.7 per cent in the year ending next March, then fall to 2 per cent in 2015 and 1.1 per cent in 2016. Beyond the short-term political factors, the lack of a wider policy vision and sense of direction that is refelcted in those dismal figures raise more enduring concerns for him.
For one thing, he begins, the rate of economic growth is simply not fast enough to turn around the very weak trade balance or the very large current account deficit. “Its nowhere near fast enough to deliver the goal of lifting exports to [the declared target] of 40 % of GDP by 2025. It is indeed faster growth than most other developed countries, but most other developed countries are coming from a worse shock to their economy than we had. And because those other economies have had to wrestle with a much bigger impact from the GFC, I would argue they are going to come out of this period more changed – and more competitive than we will. Then, if you look out further, you won’t find anyone in the dairy industry who believes [in another declared target] that New Zealand can double its dairy exports by 2025. Because they just can’t do the volume.”
Oram cited his concerns about the immediate prospects for the New Zealand economy – and his misgivings about aspects of the government’s Business Growth Agenda in a recent column in the Sunday Star -Times. In that column, his reading of Treasury’s medium term outlook was considerably less than stellar :
GDP estimates were cut by about 0.5 percentage points a year for the four years to 2017; and government revenues will be almost $8 billion lower over four years. Our dollar will remain high and our exports lacklustre so our current account deficit will increase from 4.5 per cent of GDP in the March 2012 year to 6.5 per cent in 2017; and New Zealand’s net international investment position (ie, what we owe the rest of the world) worsens from 71.9 per cent of GDP to 83.6 per cent. We will remain one of the most indebted of developed countries. This is our slowest recovery from a recession in more than 50 years. We share some common causes with other low growth countries: we are burdened by high debt, although ours belongs to households not the Government; cuts in government spending have reduced demand; and the Government tinkers with the economy rather than reforms it.
While finding merit in some elements of the BGI and in government policy, their scope strikes him as essentially limited. As his SST column indicated they were simply “not bold enough to shift the economy to a higher growth track.” Yet that analysis, Werewolf indicated, sounded like a prescription for more of the same policies, more intensely pursued – which is much the same argument that the likes of Rodney Hide used to run.
“No, I’m not doing a Rodney Hide there. I think exports being pushed as a percentage of GDP is an extremely good idea, but the government’s Business Growth Agenda won’t deliver that. There are useful things in the BGI. NZ Trade and Enterprise is more focussed than its ever been before. But it has no sustainability function in there.” No sense of the related environmental issues can be found in NZ T& E’s strategy, he continues – “Even though of all the developed countries we are the most dependent on our natural environment for earning our living. Similarly, it shut down its clean technology function. Similarly it shut down efforts to attract foreign direct investment. Fundamentally, the government doesn’t understand the limits and the restrictions on the sectors that it is pushing now. And it doesn’t get what’s happening in terms of the global economy, in terms of where the great opportunities lie. And so it remains very much geared around making incremental changes to what we’re already doing….” That, he says, is the “fundamental problem” he has with the current government. “It is a profoundly conservative government. It is not in the least bit progressive. “
Luckily for the Key government though, it is blessed with a profoundly conservative business sector and electorate as well. Both of which appear to cling – as to a security blanket – to the centre right’s alleged capacity to manage the economy ? “Absolutely.” Those conservative inclinations (ie the politics of low expectations) are the bedrock on which the campaign battles on the economy are likely to be pitched next year. Even if the majority of voters don’t feel particularly prosperous or very secure in their jobs – or in many cases, feel unable to find a job at all – the government will be mounting a case that they should be feeling relieved about this situation, all things considered. At the same time, much effort will be put into trying to scare the business sector and wider community about what risks might ensue, if voters ever chose to loosen their grip on the government’s steadying hand.
“[Cunliffe] has got to take on the government on its strength, which is the economy. And if [Labour] don’t do that, they will not win “ – political scientist Jon Johansen, RNZ Sunday, September 30
When academics can say baldly that the economy is National’s strength – not its perceived strength , but its strength – then the scale of the problem facing the Opposition is pretty obvious. Mediocrity – and the low demands that it breeds – has taken on a re-assuring familiarity. New Zealand is not alone is treating the centre-right as the fount of economic credibility. The belief that the centre-right is a better manager of the economy is one of the most durable myths of modern politics, all available evidence to the contrary. The zeal for de-regulation that triggered the Global Financial Crisis for example, has been matched only by the failure of the politics of austerity that have succeeded it.
Even so, there seems to have been no political fallout for the centre right’s palpable failures abroad – or for the under performance of the New Zealand economy under its stewardship here at home. The policies of more austerity, more demand suppression, and reductions in labour costs still tend to be treated as default settings, and as the only credible economic path. It is what the Australian economist John Quiggin likes to call “ zombie economics” – whereby the dead policies of neo-liberalism continue to walk the earth. When it comes to the management of the economy the myth of competency endures , Werewolf suggested to Oram – whether it be in Australia under John Howard and Tony Abbott, in the US under the Republicans, in Britain under David Cameron and here under John Key. In his view, does the record of economic performance support the perception ? The research on this point, Oram replies is not something that he has at hand. “But if you look at the UK and the United States, the same in Canada, in Australia and New Zealand as well..the recent great growth periods have generally been under the centre left governments of the time. That’s not just a recent phenomenon. I was much more familiar with that as a phenomenon in the UK. Centre right politicians of course, try to turn that around the other way, and they will say that centre left governments just benefitted from the booms that were going on, and then they got to go in and clean up the mess. But I think that is a bit disingenuous.”
Despite Key’s claims to the contrary at his September 16 press conference, precious little of New Zealand’s recent record of mediocrity can be blamed on the GFC and on difficult global conditions. Far from being a problem, economic growth and demand from China and Australia was pretty robust during and after the GFC. If anything, the Keynesian stimulus policies pursued in those countries – and in the US – kept this country ticking over throughout a period when most of New Zealand’s economic problems were entirely self-inflicted, via government policies of austerity that did little but dampen demand. (Commodity prices too, have been at, or near, record highs throughout the period in question.) In that respect, the political question should not be how well the Key government has steered the ship safely to port through economic hard times – but how it managed to make such heavy weather of the reasonably favourable conditions among our main trading partners. Despite the promise by Finance Minister Bill English to “ re-balance” the New Zealand economy from its dependence on relatively low value agriculture commodities, that dependency has – if anything – increased on his watch, and with deliberate policy encouragement.
Regardless….the devising of a credible policy alternative current economic settings will be a challenge for the new Labour leadership – if only because in New Zealand, no credible options are believed to exist. Over the past 30 years, the sense that There Is No Alternative has become as ingrained in the national psyche as egalitarianism ever was in the past. Oram, who describes himself as a fiscal conservative – excessive personal and national debt bothers him a great deal – also believes himself to be progressive on those aspects of policy that any genuinely progressive economic strategy will need to encompass. “I have a progressive view of the world when it comes down to economic values, performance, technology, the way we farm – they all have to change if the world is to become a more enduring place. Trying to give the New Zealand iteration of that really comes down to just identifying where our strengths lie, and where the opportunities lie in those areas.”
It doesn’t faze him that this might attract the negative stereotype of being a bloke engaged in picking winners. “Any business that is going to stand any chance of survival is trying to pick trends. I’m talking about picking trends, more than picking winners.” Look, he says by way of example, when he was was born in 1950, the population of the world was 2.4 billion – which is merely the sum total of the people in China and India in the world of today. Other countries, in his experience, are already hard at work preparing for a world of 2050 where the global population will be 9 billion people.
Not here, though. “Major companies overseas are planning for those realities now, because – in planning terms – 2050 is just around the corner. Intense analysis and scrutiny of what that world will require is going on in the rest of the world. Yet it is virtually absent in New Zealand. This government is particularly shocking in that respect. Gerry Brownlee thought electric cars were a complete joke until he had a ride in a Tesla. Now he thinks they’re wonderful. Seriously, that’s the level of curiosity that this government displays towards these issues.”