Facing Up to Our Future: Challenges and Choices for New Zealand: a review.
The Democrat Party did not win the US midterm elections. Donald Trump LOST. (Perhaps democracy won.) The Democrats are not a centralised party, and until they have a presidential candidate or President, they have no party leader, nor do they have an agreed policy manifesto.
That is very different from New Zealand political parties where, except during the odd interregnums of a change of leadership, there is always a party leader and during elections each party has a manifesto. The manifestos are odd because under a coalition government, they are not going to be fully implemented. Indeed, even when Labour was a single-party government in 2020-2023 it did not follow its manifesto very closely. I guess what we really choose is some sort of tone – an expectation of how the party will tackle its role in government based on what we think of its leadership and what its manifesto might hint. But tone is not a philosophy.
Politics is haunted by Keynes’ ‘practical men and women, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economists’ – I would add ‘and other defunct intellectuals’. This is particularly true among New Zealanders, who pride themselves of their practicality. There are some exceptions; Michael Cullen, for instance (and some in disciplines which do not touch directly upon economics). But generally, the (economic) commentariat espouses practical policies without, as far as one can judge, any appreciation of their intellectual underpinnings.
So it was with hope I turned to Facing Up to Our Future, published by the Helen Clark Foundation. Clark, it will be recalled, was the Prime Minister of the Labour-led Government between 1999 and 2008. One had assumed that her foundation was somewhere on the political left. This book is not.
As its editor, Peter Davis, states in the introduction:
‘the role of non-partisan think-tanks such as the Grattan Institute that produces the Orange Book in the run-up to elections to each Federal election. It highlights the key issues that are not getting the attention they deserve in short-term politicking. The Helen Clark Foundation, founded in 2019 seeks to fulfil a similar role as an independent public policy think-tank in New Zealand, hence its support for this book.’
That explains why the book’s contributors include a number from the right. Of the five economists, at least two are there. (This is a classification, not a criticism. They are respected members of the economics profession.)
The book’s treatment of the economy – the focus of this column – is odd. The lead article is by an economist who has been out of the country for four years and does not appear to be in touch with developments during the Luxon Government nor the vigorous debate currently going on among economists (which this column tries to convey to general readers). The essay concludes with its only policy recommendation of establishing an independent fiscal institution. (It means a fiscal council or parliamentary budget office; it is unclear how it would relate to the Treasury, which would claim to be already doing that job.) It is typical of how the book is bereft of history, that the proposal seems unaware of the Monetary and Economic Council which had a similar task between 1961 and 1977. (Arguably there have been institutions with similar remits in the half century between.) Its reestablishment, which may be a worthy improvement, is hardly forward-thinking long into the future, as the book promises. (Nor does the book give much consideration to long-term issues like demographic aging, the international economic order increasingly without a hegemon, or the income and wealth distributions.)
Indeed, the book’s view of economics is strange. The editor’s conclusion says:
‘The first section of this book, Economy and Wellbeing, rather than focusing narrowly on GDP, situates economic success within a broader wellbeing framework. ... chapters highlight a central tension: reasonably strong wellbeing outcomes alongside persistent productivity weaknesses and mounting fiscal pressures’.
Excuse me, but are not productivity and fiscal pressures about GDP? As for the claim that the book was progressing the discussion on wellbeing, what it says is trapped in the framework of GDP. Sure, it mentions wider issues, but it does not even progress as far as (unmentioned) Grant Robertson’s wellbeing approach, as clunky as that was – it was a beginning though. (See here and Chapter 2 of here.) Neither does the book mention Labour economic thinkers like Cullen or Craig Renney. Its chapter on market competition, written by a non-economist, does not mention Geoff Bertram.
Illustrative of the intertwining of GDP and wellbeing is the failure to address it in the chapter on healthcare which concludes
‘The fundamentals of the New Zealand healthcare system are in many respects sound, but years of underinvestment and sub-optimal leadership have weakened iis service potential and resilience.’
This does not explain why these outcomes occur. Here is a sketch. Public policy is dominated by an economic framework which focusses on GDP. It is basically short term (and careless of the distributional consequences), so it limits public activity, discourages public investment and encourages outsourcing. The approach suppresses managers whose culture is consistent with the health professionals they are managing. Instead its generic managers must ignore that culture. Healthcare professionals can grumble all they like, but until we resolve this nexus, they will just grumble.
Another chapter, written by a non-economist – it shows – curiously proposes that ‘pressure could be taken off income tax by drawing on such a contributory scheme [i.e. ACC] for health.’ One is not sure what exactly the writer had in mind – especially as ACC is funded by employment levies and most healthcare users are not at the stage of life when they are employed; the writer seems to have some private health insurance system in mind. One of the most universally held conclusions among health economists is that the best funding system for public healthcare is a unified one. Americans are envious that they could not attain this goal for Obamacare. We fought off the neoliberal enthusiasm to privatise healthcare during the health system redisorganisation in the early 1990s. Please, oh please, Helen Clark Foundation, let’s not go there again.
This is not to say every contribution is problematic. An economist would value the chapter on refreshing microeconomic settings by Tim Maloney (it is very much in the GDP framework), while Rod Carr’s summary of his thinking on the energy transition progresses public understanding.
A highlight is Toby Moore’s introduction to the industrial policy issue. While there is a widespread move away from the Washington Consensus ‘hands off’ approach of the state minimising industry support, there is only a creeping towards an agreement as to what should follow. A particular issue is how to avoid the cronyism which we associate with Muldoon, which can descend, as Trump shows, into corruption. Start with this chapter (also here).
Moore’s chapter is distinctive in that it does not rely on references from New Zealand officialdom. Many other chapters are overwhelmed by them. The book might be thought of as an Auckland tribute to Wellington officials. To think, however, that these officials are long-sighted is to underestimate the pressures on them dealing with day-to-day issues (and normal short-sighted politicians).
The wind in Wellington is not just meteorological, but in that turbulence there is a vigorous economic debate (covered in the book only by Moore’s contribution). That is but one example which shows why Wellington voted unlike the rest of the country; Auckland was more complacent.