These are notes prepared as a background for a ‘Pundit’ interview on RNZ Nights with Bryan Crump on 23 January, 2018.

We cannot tell yet whether the Labour-led Government will significantly change economic policy from the one that the previous National Government bequeathed. We can be reasonably certain that any changes will not be as radical as the 1984 Rogernomics policy changes.

Certainly the government will pursue policies favourable to its supporters. That is always true. National has a record of cutting taxes on high incomes at the cost of everyone else. Labour’s record (Rogernomics excepted) is the opposite. Economists know the difference, but they accept that evaluation involves a political value-judgement. There may be little difference in the actual underlying economic model each side uses.

The new government is likely to make more use of public sector supply that the past one. This is a matter of political taste (and favouring one’s supporters). One would like to give a definitive assessment of the relative effectiveness of the two approaches but most of what is available is based on opinion rather than on evidence.

International thinking appears to be rolling back some of the case for private enterprise solutions to public supply. It may have begun with the GFC when financial institutions rushed to the government for bail-outs contradicting their earlier assertions that they were above government involvement.

In mid-January, Carillion, a British multinational construction and services company, went into compulsory liquidation. Given its size (it is the second-biggest construction company in the UK) its collapse is causing havoc because its service contracts – for hospitals and prisons for instance – have to be continued, while it does not make sense to stop construction half way through. The British government will have to step up, especially because it seems that it is virtually Carillion’s only customer. It is a strange private enterprise which is so dependent on the government; in many ways it is just a for-profit government agency which is not subject to public sector disciplines.

Such entities are justified by some because they are said to be more efficient or cheaper than ordinary government provision. They may be cheaper if they can cut workers’ wages but there are an increasing number of examples showing that these Public Private Partnerships (PPPs) very often have proven to be hideously expensive to the government. (Another closely associated acronym is PFI (Private Financing Initiative) in which the borrowing for a public project is done by the private sector and is off the public balance sheet.)

The previous National Government seemed seduced by PPPs – using them for schools, hospitals, roading and in social housing. It was very vague about explaining reasons for its enthusiasm. The only one I could see (aside from helping your mates) was it kept some spending off the books. But that is temporary, for in the longer run there would be increased debt servicing. Promises that spending would be smaller because of greater efficiency are rarely met. The one place where private business seems to do better is in the contractual arrangements sharing the downside risk when a project fails which tend to end up borne by the Crown (recall Think Big/the Major Projects). I do not know if the public service lacks the skills or whether political imperatives trump prudent judgment (there is a well-documented case of the latter in regard to the sale of NZ Steel).

The Key Government was so private-enterprise focussed that it squeezed the funding of the public sector to the point where some had not the resources to enforce their legal responsibilities. You may have been impressed that this government has been dealing with various ongoing rip-offs, such as those involving immigrants and private tertiary education institutions. In fact the policing began under the English Government, albeit gingerly. This may be a parallel of 1935 when some of the more-radical (as it happened) policies of the First Labour Government were presaged by the outgoing Coalition Government (its members melded into the National Party in 1936 when the two parties now in opposition merged).

That private enterprise does not always deliver is well illustrated by the previous government’s failure in the housing market. National’s Ministers of Housing seemed paralysed in the middle of the road by the shining lights of ideology as the speculative boom powered on. Unfortunately it was those in housing need who got run over. The new minister seems to be much more interventionist; whether he has the officials to implement his ambition is yet to be seen.

The new government has announced that its public debt track is higher the National’s. That means it will be borrowing more (and avoiding PPPs and PFIs). Since the additional debt will be serviced by future generations, it is, in effect, shifting the costs away from the current population and towards the unborn. However, if the additional spending is used for investment which benefits future generations they may be pleased to have the burden of the extra borrowing.

In at least two ways the government seems likely to pay greater attention to the future than the Key Government did. (I thought he had a very short time horizon, but Trump is demonstrating an even shorter one.)

First, the government has a strong commitment to children. While people object to child poverty in moral terms, it also compromises children’s development and hence our future.

Second, while the Greens are outside cabinet they are (for the first time) ministers with portfolios, officials and responsibilities. Moreover, there are ministers in cabinet as concerned with the environment as they are. We may expect a greater commitment to sustainability than was evident in the Key Government.

However, neither whales nor children have votes. The new government is going to have to work hard to build a consensus which is not dominated by short-termism.

A particular challenge any post-Rogernomics Labour government faces is its relations with business. The Clark-Cullen government began messily by not consulting over the Employment Relations Act. This one has been more sensitive over the proposed changes to employment law. However what its attitudes to, say, competition law and government subsidisation and support of industry remains to be seen.

All this suggests is that the Labour-led Government will be between the incrementally and moderately progressive compared to the previous National one, if not particularly radical. We shall have to wait and see whether this turns into a different vision which captures public attention.

A key element may be Green leader James Shaw, who is not even in cabinet but is Minister of Statistics. New Zealand has got a bit behind the international standard in providing measures of wellbeing to replace GDP as the main indicator of progress. Admittedly the New Zealand Treasury has been trying to take a wider approach, but it has hardly influenced the public.

The difficulty is that when it tries, everyone wants to add yet another indicator. Eventually there are so many of us pursuing our hobbyhorses that one indicator comes to dominate them all – sadly it is GDP. The derivation of a workable statistical alternative requires a degree of discipline to be followed by a parallel verbal story which becomes a policy objective and a vision. Shaw carries a much larger burden in this government’s success than his lowly position outside cabinet might suggest.

 

Comments (3)

by James Green on January 24, 2018
James Green

Labour is an intellectually bankrupt party. I expect they will manage our current neoliberal system a bit better than National did because they are at least not enthusiastic about neoliberalism, unlike National, but that is about it.

The liberal paradigm that began around 1970 (internationally, at least) is now harming society more than it is helping. It will be replaced and if a new progressive paradigm is not offered to voters then they will choose neo-fascism, and probably be correct to do so.

Consider: Bernie, Clinton, Trump; Corbyn, Cameron, Farage; Melechon, Macron, Le Pen. Progressive, Liberal, Reactionary*. Such politics has barely touched NZ so far, but it will get here eventually.

As for indicators the one I will judge our government by is the median price of housing, in NZ, and in Auckland.

*I like to call them neo-fascists, but I think I'm the only one using that term.

by Charlie on January 26, 2018
Charlie

My guess is that the current government won't do that much either way.

Most of the 'policies' that got them elected were little more than bumper sticker slogans.Fantasies that they will try to forget but National will keep dredging up.

They will be keen to appease their masters in the union movement. To that end they will scrap the 90 day employment rule, force in some kind of collective agreement system down the throat of employers and scrap Charters schools despite their academic success. All of this would be bad for NZ but would prop up falling union membership.

I expect the Greens to spend 3 years swallowing dead rats. All of their more radical ideas will be pushed aside by pragmatism and Winston will demand they supoprt his horrid waka jumping legislation.

 

 

by Brian Easton on January 26, 2018
Brian Easton

The following is a nice account of the strength and weaknesses of PFI by Martin Wolf a British commentator who is perhaps a little to the right of the NZ centre. 

UK public-private partnerships have to change to be effective

 

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