• Life in Opposition Is Not So Easy

    General elections are significant events with many ramifications.  They not only determine (in most cases) which party will form the government – they also set the political agenda for both winners and losers over the three years until the next election.

    Particularly in cases where the government changes, that agenda will be dominated by the new challenges created for the major parties by the changed role they must take up.

    For the winners, especially if they have been out of government for some time, there will be a host of new challenges.  As Labour is discovering in the wake of their 2017 success, they must take over the government of the country without a core of experienced former ministers.

    As I know from my own former political experience, being in opposition is a very different matter from shouldering the responsibilities of government.  In opposition, you can pick and choose your issues – and the choice is usually an easy one; you can head straight for those issues where the government is under pressure or where public opinion is demanding new answers to high-profile problems.  There is less need than there is in government to have an answer to every question.

    In government, however, everything you do, or fail to do, is rightly assumed to be on behalf of the government.  You cannot say, if caught out doing or saying something that you would rather keep out of the public domain, “that’s my business”.

    Jacinda Ardern has had an uncomfortable few weeks largely because of mistakes made by one or two ministers who are enjoying their new status but who have not realised that new standards of responsibility are also expected.   The good news for her is that the passage of time, and growing experience of what is required, should remedy these failings – and Jacinda herself will no doubt learn lessons as to the best way of dealing with ministers who fall short.

    But the change of role is not just a problem for Labour.  The transition for National – in their case from government to opposition – is, if anything, even more difficult.  They have suddenly lost the status that comes with calling the shots and being in charge, and they have lost not just the perks of office (such as the chauffeur-driven limousines) but more importantly the advice and support of usually highly competent civil servants.

    They need to rely much more on their own judgments as to what points to make and how a particular issue is likely to develop.  They have to work much harder to set the agenda – journalists no longer hang on their every word.  And they have to strike that difficult balance between holding the government to account and seeming to be perpetual nit-pickers and nay-sayers – all the while trying to persuade the voters, with an eye on the next election, that they could do so much better a job next time.

    And, as in the case of National at present, they might also have to bear the burden of skeletons in their cupboard coming to light, as issues and problems that had previously been buried far away from the public gaze get an airing.

    There is a further problem for National.  A general election defeat, leading to the loss of the government benches, can often mean that a number of long-serving members will call it a day, finding little reason to stick around in opposition.  And so it has proved with National this time.

    With the departure of Bill English and Steven Joyce (Jonathan Coleman may not count for this purpose), National has lost a good deal of experience and ballast. It is not just Labour that needs to re-build in terms of experience.

    As they face up to the twin challenges of being an effective opposition and getting fighting fit to contest the next election, National are suddenly looking somewhat lightweight.  It is not just the loss of their heavyweights but the fact that Simon Bridges has yet to make much of an impression – let alone a favourable one – that leaves them looking a little short of fire power.

    New governments usually find it easy to grow into the role – it’s not so easy for recently defeated oppositions.

    Bryan Gould

    14 April 2018

  • Mr Micawber ifs Not A Good Guide When It Comes to Public Finances

    It was Charles Dickens’ Mr Micawber who famously defined the principles of successful economic management, when he said “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

    Most people, with experience of running their own household accounts, will nod in agreement.  But while Mr Micawber no doubt got it right for individuals and households, he may not have been so percipient when it comes to public finances.  A government’s role in managing the country’s economy is very different from running your own affairs.

    We have had until recently a government whose most important goal was, it seems, to run a “surplus”, and most people would no doubt again agree that a surplus has to be preferable to a deficit.  But, as we are beginning to find out, a surplus is not all unalloyed benefit.

    The surplus we are talking about, first of all, is not the country’s surplus (that is quite a different matter – the country has been in deficit from one year to the next over a long period) but the government’s, and whether there is a surplus or a deficit in the government’s finances will impact rather differently from what one may expect on the lives of most citizens.

    If the government is in surplus, it is really just another way of saying that it takes more from us in taxation than it spends on public services – it takes spending power away from us, in other words, but doesn’t make good the loss to the economy as a whole by increasing its own spending to compensate.  The result – from the viewpoint of the economy rather than the government is not necessarily benign – we are likely to have a smaller economy and a lower level of economic activity than would otherwise be the case.

    There is also, of course, a potential downside if the government runs a deficit.  It will then in all likelihood have to borrow in order to finance the shortfall, and that will come at a cost, assuming that someone can be found who is willing to lend – though this will not normally be a problem since lenders like lending to governments (often at low rates) because their credit is good.  Borrowing – so often frowned upon – is a perfectly sensible policy option if the outcome is a more vibrant economy and it is even more sensible if the borrowing is for capital rather than current expenditure – something many of us are familiar with when we borrow on mortgage to buy a house.

    So, we might conclude that elevating the achievement of a government surplus so that it is the government’s primary goal may not have quite so much going for it as we might have thought – and we haven’t even begun to look at the other side of the equation, which is the price we pay when the government does not spend the money it takes in.

    The government’s accounts, in other words, are laid out like any other accounts.  There are two columns – Mr Micawber’s income and expenditure.   It follows that a surplus can be achieved either by taxing more than is needed or by spending less than is needed.

    The problem for a government that seeks to achieve a surplus by cutting pubic spending is that there is a cost to such cuts, as we are beginning to find out.  Right across the board – from health care (rotting hospital buildings and all) through to underfunded schools and underpaid public servants such as nurses – the country is worse off and less able to function efficiently.  A properly run economy will need both the public and private sectors working together in unison – each accepting the responsibility that is properly theirs.

    A surplus might please the ideologues and be seen as the badge of good government, but even Mr Micawber might see that we will all be better off if we use all our resources – whether in public or private hands – to the best effect.  A surplus is of little use as figures in a balance sheet if the price we pay is that essential services are run down.

    Bryan Gould

    4 April 2018

     

  • What Matters to our “National” Airline – Profits or Customers?

    Reports that Air New Zealand have been charging Kiwis twice as much for domestic flights out of Auckland as they charge Australians will come as no surprise to those in the provinces who are sadly all too familiar with the priority accorded by our supposedly “national carrier” to chasing the dollar rather than meeting its “national” responsibilities.

    There was a time when Whakatane and other regional centres had the benefit of several flights a day to and from Auckland.  But a year or two ago, those flights were ended.  It wasn’t that they had not been well patronised; the 20-seater planes were almost always full, so the service comfortably paid its way.

    The problem was that filling a 20-seater was not as profitable as filling a 50-seater, and there was not enough demand to warrant using the larger plane.  So, the service was cancelled, leaving Whakatane and other similarly placed towns in rural New Zealand deprived of an essential service.

    In the case of Whakatane, a small private operator, Air Chathams, stepped into the breach, and – within its limitations – has made a creditable job of running the replacement service.  But, far from welcoming this development, Air New Zealand showed no willingness to cooperate with the new provider so as to minimise the loss to its former customers.

    Those customers are left with a number of irritations.  There is, for example, no joint booking, so that – to travel from Whakatane to Wellington, a passenger must book first a flight to Auckland with Air Chathams and then make a separate booking with Air New Zealand for the flight from Auckland to Welliington.

    There has been little attempt (from Air New Zealand, at least) to co-ordinate timetables to ensure that connecting flights are scheduled appropriately.  And, for passengers who have taken the trouble to join Air New Zealand’s Koru Club, a passenger returning from Wellington and arriving in Auckland (and perhaps having to wait for the Air Chathams flight to Whakatane) will find that access to the Koru Lounge is barred because the passenger does not have a ticket for an onward Air New Zealand flight.

    All this is, sadly, evidence of Air New Zealand’s cavalier attitude to claiming the privilege of being regarded as our “national” carrier (though they are quick to expect loyalty from Kiwis when it comes to international travel).  How and why did this sad state of affairs arise?

    Air New Zealand is of course owned by the government and the annual profit they returned to their principal shareholder was no doubt of great value to a government that was obsessed with showing its financial accounts in a favourable light.   That is why it was not enough that the Whakatane service should show a profit – the profit had to be a humungous profit, so that it earned plaudits from the Minister of Finance and therefore bonuses for the senior executives.

    Since a full 20-seater plane, while financially viable, is not as profitable as a 50-seater – and services of this kind dragged down the average profit on capital employed – the Whakatane service (however valuable it was to Air New Zealand’s customers), and others like it, had to go – a classic case of profits being put ahead of the customers’ interests.

    The consequences of these decisions are far-reaching.  A town like Whakatane becomes a less attractive place to live and work in the absence of a fully functioning air travel service.  As Shane Jones, the Minister overseeing the new Provincial Growth Fund, has pointed out, the withdrawal of services from regional centres across the country runs counter to the policy direction the new government wishes to take.  If matters remain as they are, the handicap represented by the Air New Zealand withdrawal of services will remain and will hamper the regions in their drive to build their local economies.

    Fortunately, the remedy lies in the Minister’s hands.  He can, as the representative of Air New Zealand’s principal shareholder, make it clear that a bumper profit is not the only criterion of success that the government wishes to see.  He can instruct that the airline must pay more attention to other goals, and particularly to ensuring that our “national” carrier is national at home as well as abroad, so that significant parts of the country are not marooned as a result of being denied the services that are essential to their prosperity and well-being.

    Bryan Gould

    20 March 2018

  • New Zealand Must Grow Up In Trade Matters

    New Zealand’s involvement with the rest of the world, in trading and economic terms more generally, has always been atypical.  For the first century or more of European settlement, the country developed as an economic appendage of Britain.  Virtually all of our trade took place with Britain; they took almost all of our primary production, in return for which we offered preferential access for British manufactured goods.

    But that cosy pattern, which meant that we did not have to worry too much about trade agreements and markets, was disrupted dramatically by two major developments in the 1970s and 1980s.  First, Britain joined what was then the Common Market, and was accordingly obliged to play its part in reducing what was popularly called the “butter mountain” by buying expensive and otherwise unsaleable food in preference to our own more efficient production.  Secondly, and just as importantly (though with much less fanfare and public concern), Margaret Thatcher and Ronald Reagan agreed to remove exchange controls – a move which suddenly meant that the owners of capital could roam the world, looking for the best investment opportunities (which often meant the lowest labour costs or the most accommodating regimes concerning tax, labour laws, and health and safety requirements).

    New Zealand suddenly found itself not only bereft of markets for its main exports but also a target for multinational corporations looking for safe investments and easy profits.  Much of our recent history in, and attitudes towards, international trade and economics is attributable to these two shocks to our system.

    As luck would have it, these changes in the international context took place at the same time as a domestic economic revolution was under way.  “Rogernomics” not only swept away subsidies and elevated the unfettered market to an unchallengeable status at home; it took the same “free market” ideology into the international sphere.  The counterpart to the “free market” domestically was “free trade” internationally.

    So, we took with us, as we looked for markets to replace those we had lost, a commitment to aggressively dismantling tariffs – and, in order to show our ideological commitment to the principles of free trade and free markets, for which we were receiving plaudits from right-wing commentators around the world, we proceeded to remove unilaterally our own tariffs and protections for our own industries without bothering in many cases to get anything in return.  This naïvete – there is no other word for it – was to cost us dearly.

    It colours still our attitude to free trade.  In the absence of the managed trade we enjoyed as an economic colony of Britain, and unable to find a suitable replacement for that cosy arrangement, we became obsessed with the need to reach trade agreements with all and sundry.  The signing of each new deal was represented as a return to nirvana; the emphasis was always on the boost each new deal would supposedly mean to our exports and economic growth, with virtually no account taken of what free access to our market for powerful competitors would mean for domestic production.

    The excessive value we placed on new markets led us to count our chickens before they were hatched and to treat as achieved realities what might only be distant prospects.  “Free trade” agreements were sold to the general public by listing, long before they had materialised, the supposedly long lists of manifold benefits to our exporters that would be delivered. The recent TPP negotiations, for example, were constantly justified by the confident and repeated expectation that a TPP agreement would provide us with tariff-free access to the US market for dairy produce.

    Such a prize would certainly have been worth a good deal, but our naïve optimism on this score should surely never have survived the repeatedly stated determination of the American dairy industry to resist any such concession.  As it happens, that mirage has been swept away in case, at least for the time being, by Donal Trump’s decision to have nothing to do with a TPP.

    None of this means that we should turn our backs on free trade.  The case for free trade in principle is as strong as ever.  As Adam Smith and David Ricardo argued, it is free trade that allows each economy to concentrate on what it does best, that encourages weaker and smaller economies to trade successfully with stronger ones, that means that there is a constant stimulus to greater efficiency and innovation, and that develops economic bonds between countries which support the general comity of nations.

    But, as always, arguments in principle need to be tempered by what is known or foreseen as to practical realities and consequences.  Free trade between a stronger and a weaker economy can all too often mean that the stronger simply reinforces its advantage while the weaker slips further behind.  All depends on the stage of development of the economies concerned.

    Most of the world’s economies have at some stage in their development recognised that some protection for their own domestic industries is needed.  Japan is a case in point.  In the course of re-building Japanese industry following their disastrous defeat in the Second World War, Japan did not hesitate to use tariffs and other non-tariff protections (such as an under-valued yen) to give their industry the chance to build its strength.  It was only once they could be sure that Japanese industry was big and strong enough to be internationally competitive that they became enthusiasts for and practitioners of free trade.

    In New Zealand, however, we have blithely ignored such reasoning.  We have rejected any notion that we might not be a fully developed and internationally competitive economy and have wilfully saddled ourselves over long periods with an over-valued currency.  If we insist on committing to free trade for ideological reasons, we should at least have enough sense to give some weight to the foreseeable and adverse practical consequences.

    Our naïvete in these matters has become even more evident when we have attempted to negotiate trade agreements, and have discovered that our premature and unilateral disarmament in matters of protection has meant that we have literally nothing to offer in return for the improved access to other markets that we seek.  Trade partners that already have free access to our market see no need to offer us concessions in return for concessions we have already granted to them.

    Nor does it stop there.  With the development of the global economy – the direct consequence of the free movement of capital engineered by the Thatcher/Reagan ending of exchange controls – we have discovered that our economic relations with other economies are not limited simply to matters of trade.  In such a global economy, the price we are asked to pay for trade (and, more particularly, investment) can extend well into the domestic policies we wish to apply.

    A good illustration of this point was the demand made by Warner Bros that, if we wanted them to make films in New Zealand, we would have to change our labour laws, so that the people they employed were not to be regarded as employees with all the rights and protections provided under our law to employees, including the right to belong to a union, but should be treated instead as independent contractors, negotiating individually with the US film company.  To the great shame of our then government, the law was changed to suit Warner Bros.

    We can see the same demonstration of the imbalance of power between our government and foreign corporations displayed on a much wider canvas.  There was much celebration when a free trade agreement with China was signed, and there is no doubt that improved access to the Chinese market is of considerable benefit to our exporters.

    But we have been very slow – and reluctant – to recognise that our economic relationship with China looks somewhat different when seen from China rather than from New Zealand.  For the Chinese, quite self-consciously on the way to becoming a global super-power, merely being able to buy our production is not enough.  A true super-power, they feel, must be able to guarantee access to the products it needs.  It should not have to rely on doing trade deals, or bidding in auctions – what is needed is not the power to buy a product produced by someone else, but the power to own and control the means and process of production itself.

    So, the Chinese interest in us is not that they want to be able to line up and compete with other customers to negotiate purchase arrangements for our dairy products.  Rather, they want to acquire and control the production itself.  Hence, we see the Chinese interest in purchases of dairy farms, the construction or purchase of dairy factories and the marketing by Chinese agents of dairy products made in New Zealand directly into the Chinese market.  Their purpose is not to develop a trading partner, but, in effect, to incorporate the New Zealand economy (and particularly the dairy industry) into the Chinese economy.

    It is not just the Chinese government that has this goal in mind.  Chinese companies doing business abroad invariably act as arms or agents of the Chinese government.  Virtually all business deals with Chinese companies will be, in effect, made with the Chinese state.  None of this means that we should avoid doing business with China but it does mean that we should be aware of what really is at stake.

    A further example of how extensive are the obligations we undertake when we negotiate what may appear to be a simple trade deal is the Trans Pacific Partnership.  That Agreement has long masqueraded as a “free trade” deal but, under it, foreign companies can insist, to the point of forcing our government to change the law in New Zealand, that they should have a “level playing field”, by which is meant that we must ensure that their profitability and successful operation is not adversely affected by any legislation we pass.

    So, for example, an attempt to restrict the sale of cigarettes or to make the business less profitable could land our government in court, before a specially constituted tribunal.  The government would be similarly open to attack if it used its power to negotiate agreements with foreign suppliers that would reduce their profitability.  So, Pharmac’s ability to use its monopsonistic purchasing power to hold down the cost of imported pharmaceuticals could be litigated by foreign pharmaceutical companies before those same tribunals.

    The current government claims to have restricted the range of these provisions in the TPP so that they are not such a threat to our sovereignty and democracy, but only time and practical experience will tell us if that is so.  Even setting aside the specific provisions of a TPP, however, there is no doubt that – for a small economy – getting into bed with powerful foreign corporations is fraught with danger, and almost inevitably raises the possibility of a loss of our power to decide important matters for ourselves.  Those corporations almost invariably want more than the goods themselves; they want to guarantee that they have the rights and protections that are properly available only by decision of our government.

    Without selling ourselves unnecessarily short, it is surely prudent to recognise that – in making trade deals with larger entities – we are a minnow getting into a global tankful of sharks.  If we are to survive and prosper, we need to be much more hard-headed and understand exactly what we are up against.  We need a much tougher approach than we have seen so far if we are to avoid being bought and sold by those who see us as fair game.  If we are not careful, by the time we wake up, it will be too late, and – for the sake of “free trade”, we will have sold our unique productive capacity and assets to foreign owners and with them the power to ensure that the benefits they produce come to New Zealand, rather than to those foreign owners.

    Bryan Gould

    22 February 2018

     

     

     

  • The Candidates’ Dilemma

    As the contenders for the leadership of the National party line up at the starting gate, they are each faced with a dilemma that confronts anyone seeking the leadership of a political party in a democracy.

    This is because – for them – the leadership of their party is presumably not an end in itself, but is merely a stepping stone to the ultimate goal of becoming Prime Minister.  The contenders are embarking, in other words, on a two-stage process that requires them to win two elections in succession and to do so by gaining support from two quite separate and very different electorates.

    The first contest demands that they should convince their own party members and activists that they are the candidate best able to represent and remain faithful to the party’s central values and goals and to sell those values and goals to the wider public; while the second contest will be about  persuading the (largely non-political) wider electorate that they are not so preoccupied with the party battle that they lack the breadth of vision and understanding that will equip them to tackle and resolve society’s wider problems.

    The difficulty is this.  Those whose vote will decide the party leadership are just a very particular sub-set of the wider public; they will tend to be the party warriors, intent on winning the party battle, attaching great importance to ideological issues and requiring evidence that the fight will be carried to the enemy.  They will be looking for proof of single-mindedness, aggression and the strength never to back down.  Politics is, after all, a tough business and it demands the capacity to give, and take, some pretty rough treatment – and I say this with feeling, as someone who stood unsuccessfully in 1992 for the leadership of the British Labour Party.

    But even those voters whose votes decide the leadership (as well as the candidates themselves) will have to have half an eye on the electoral contest yet to come at general election time.  What would be the point of demonstrating to the party faithful all that they might wish in terms of strength and toughness and ideological purity, if it is achieved at the price of alienating those whose support will ultimately decide who wins a general election?

    The contenders, in other words, are fighting two separate battles.  The first is to win the support of their own party’s “attack dogs” – but following immediately, and spilling over from that exercise, is the battle for the support of the uncommitted voters in the wider public.

    That is the dilemma that now faces the contenders, particularly the two who seem most likely to emerge as the front-runners, Judith Collins and Simon Bridges.  It is a dilemma that is, for both of them, extremely difficult to resolve.

    Judith Collins exemplifies the point.  She is reported as opining that the National party has moved “too far to the left,” a view calculated to appeal to the National party’s conservatives and ideologues.  Her problem is that while it may appeal to party members who want to see a tougher line – the party’s “red necks” perhaps – it may not play so well with those voters who are not so committed.

    It is, of course, a view that fits well with her carefully cultivated image as a tough operator –remember her role as mentor to Cameron Slater and how she seemed positively to relish the soubriquet of “Crusher” Collins.  But even those party members who would welcome that kind of aggressive approach might pause to wonder whether the floating voter will be attracted or repelled.

    Simon Bridges is another instance.  His reputation largely rests, for good or ill, on his aggressive performances in various television studios.  Many of his supporters will welcome and celebrate his “take no prisoners” approach but what will be seen by some as strength will seem to others to be combativeness for its own sake.

    In either case, sweetness and light would certainly be in short supply – and the lesson of our current politics is that our voters want to be led by people they like.  John Key cannot be resurrected (I think) but some of his famous affability might not go amiss.

    Bryan Gould

    17 February 2018