The recently infamous “I’m the CEO/ Your job is the Prime Minister” exchange between Christopher Luxon and Tova O’Brien should be a defining moment in Luxon’s downward trajectory as the leader of the nation. As has often been said, the job description for the two jobs could hardly be more different.
A PM’s job is supposed to entail fostering wellbeing and equal opportunity for everyone, while striving to ensure that no-one gets left behind. That is nothing like the KPI for a CEO, whose job is to consistently deliver profits to a few shareholders, while using every legal means to trample over everyone else. To state the obvious, a country is not a business, and people are not units of capital. Only a CEO would think otherwise.
At the time, Luxon and O’Brien had been discussing who has been dictating the recent policy responses of the government. In the context of the Iran War fuel crisis, Luxon self-identification as a CEO is particularly alarming. Among other things, the fuel crisis has exposed the limits of managerialism – the unambitious, steady as it goes, business as usual, “is that all right with everyone” approach. As Shane Jones said recently, Luxon is a “collegial guy.”
Unfortunately, that “don’t rock the boat” style is not a good thing when the boat is already rocking. Agree with them or not, but Helen Clark, John Key and Jacinda Ardern were leaders able – by instinct as much as on principle – to do what was called for in difficult times, while taking most of the public along with them.
Luxon seems to be bereft of (a) the decision-making skills and (b) the communication skills called for by the current crisis. Here for example, is Luxon in Tuesday’s NZ Herald :
…..In yesterday’s update, Prime Minister Christopher Luxon said the Government wanted additional security and would be “more assertive…should the situation deteriorate in two months’ time, we want to put ourselves in that place right here, right now and say we’ve done everything we possibly can,” Luxon said, referring to it as an “and, and, and” approach.
But but, but…plainly, Luxon’s government is not doing everything it possibly could, right here, right now. Quite the opposite. Other countries are making timely and temporary decisions. e.g. they’re making public transport free. They’re encouraging people to work from home. They are sharply reducing the use of the government’s fleet of vehicles. They’re calling in the country’s 20 largest corporates and giving them a fortnight to identify ways to cut their fuel use. They’re also cutting fuel excise taxes, and heavy vehicle road user charges.
It is not as if these are novel ideas. At last count, Australia, Spain, Sweden, Portugal, Brazil, India and Vietnam have all cut petrol taxes and/or road user charges to minimise the impact of rising petrol prices on motorists, and on the transport costs that are rippling on through the economy to household incomes.
True, not without controversy. The economic orthodoxy is wringing its hands that any and all socially equitable moves to cushion costs by cutting taxes will only feed the inflationary fires, and bring forward the next round of interest rate hikes needed to dampen down those fires. This is a new found concern that they never expressed about the socially inequitable tax cuts that National enacted as soon it gained power. Funny that.
True, any relief gained from the fuel excise tax cuts may soon be wiped out by even further spikes in the price of oil. By the same token, doing nothing to ease the pain will make the impact even worse. On RNZ this morning, Finance Minister Nicola Willis warned against cutting the road user charges that she explained, go into paying for road repairs and road maintenance. Apparently, she seemed willing to let the ballooning price of diesel put more firms in danger of going under because throwing them a small lifeline might mean there could be a few more potholes on the road in future.
Here’s an idea. The unexpected spike in oil prices must be gifting the government with an unforeseen boost to its GST revenues. Why not use those windfall GST profits to offset the cost of foregoing the petrol excise tax for a couple of months? In fact, walk that one back a bit. How exactly is the government planning to spend its windfall GST profits from those sky high petrol sales?
The silver linings playbook
In other ways this crisis is coming as welcome news for the coalition government. Inflation is rising? Blame Trump. (Don’t mention that inflation was already above the Reserve Bank’s target band last December.) Faltering growth ? Blame Trump. Bet on it. Those ever elusive green shoots of recovery that eagle eyed optimists were touting in January are about to be painted as a Lost El Dorado of riches for all…that alas, has now gone begging , thanks entirely to Donald Trump and to other forces beyond the government’s control.
Seamlessly, the Luxon administration will soon shift the messaging about all the failures of its first term in office from Blame Labour to Blame Trump. The war in Iran offers a bi-partisan Get Out of Jail Fail Free Card. Luxon looks like a hopeless party leader/Prime Minister? Blame Trump. Because Luxon and his team were about to deliver a BIG BEAUTIFUL RECOVERY the likes of which we have never seen before. They said it couldn’t be done. The fake news were saying it couldn’t be done.
Let’s blame Trump for spoiling everything, for everybody. It’s a message of unity to a divided country that’s in virtual free fall.
Goodbye growth, hello stagflation
Economic growth, which was (at best) only anaemic and spottily distributed in January, is now an endangered species. Economists are whispering behind their hands about the prospect of “stagflation” i.e. the ugly combination of high inflation, high unemployment, and slow to non-existent economic growth. The condition can be chronic. Japan, stagflation’s poster child, suffered from it for a decade or more.
Firms are continuing to collapse at rates not seen here for a decade or more. Some of that is due to the poor levels of economic demand, some of it due to foreclosures triggered by IRD, which is pushing office premises and equipment onto the market at fire-sale prices, in yet another gift by this government to property speculators.
Meanwhile, the unemployment rate is running at its highest rate in nearly eleven years. For those lucky enough to still have jobs, wage growth has stalled well behind the inflation rate. Looking ahead, income from wages is being forecast to keep on moving backwards, relative to prices:
The Treasury in its half-year update in December reckoned real wage growth by that measure would be negative in the current year, and then rise — assuming an optimistic CPI inflation rate of 2 per cent — by just 0.5, 0.6 and 0.7 per cent a year in the out years. Throw in some bracket creep on the tax side and higher KiwiSaver contributions, and the Treasury’s outlook for wage-earners’ real disposable income growth was basically zero.
Already our prices services, construction, manufactured goods and food are sky high, as Reserve Bank chief economist Paul Conway pointed out in a recent speech :
New Zealand is an expensive country, with prices for many products well above the OECD average. Some products – including construction services, household utilities, and some food items – are among the most expensive in the OECD. Before 2020, the purchasing power of wages in New Zealand grew faster than the OECD average, supported by strong employment growth and favourable terms of trade. Today, while wage purchasing power is around average across all 38 OECD members countries, it is about 20% below the average of the more advanced OECD economies that we typically compare ourselves to.
In short, New Zealand was going backwards well before the US launched its illegal and unnecessary war in the Middle East. With good reason, the vast majority of New Zealanders loathe and despise Donald Trump. But he is not the sole reason – or the main reason – for the failures of the coalition government and its predecessors.
Over the course of the past three years, our standard of living has gotten worse. At some point, the Luxon government has to stop blaming external forces – Labour, Trump, Māori, climate change etc – for the state of the nation, and for its own inability to improve it.
Footnote: Even as the CEO of Air New Zealand, Luxon’s experience was remarkably well cushioned from the realities of crisis and meaningful competition. (Luxon ran the airline in boom times for international travel in particular.) Crucially and like several other major New Zealand corporates, Air New Zealand has always enjoyed a neo-monopoly position in its market. (Currently Air NZ has 86% of market share.) Point being: it isn’t hard to do well when you’re the very big dog in a highly uncompetitive market.
During the market reforms of the 1980s, New Zealand repeatedly turned state monopolies into private monopolies and then lionised the alleged managerial genius of the likes of Roderick Deane at Telecom. We should not make the same mistake of lionising the business genius of the current PM. To repeat: it’s not hard to succeed when the field of competition is skewed so heavily in your favour.
But the end result – as Paul Conway says in the speech linked to above – is a failure of competition that has structural causes. This has lead (inevitably) to a subsequent failure of productivity, as the incumbents defer investment and milk their privilege for the prime benefit of their shareholders.
Yet regardless…we elect into high parliamentary office these kind of corporate chieftains “because they know how to run a business”. Then we wonder why they don’t take anti-trust action against the banks, the supermarkets and the power companies and break up the market strangleholds through which they continue to stifle any chance of genuine competition.