How Neoliberal is the Government?

The Ardern-Peters Government appears to be comfortable with neoliberalism. Is that because it does not know of any alternative?

The awarding of a knighthood to accountant Rob McLeod raises some interesting questions about the attitude of the government to Rogernomics. I am not competent to judge McLeod’s worthiness for the award; I am a republican and do not approve of titles. Nothing written here should change your view of McLeod, nor the worthiness of his knighthood. I am interested in the political context in which the award was made.

It is a matter of record that he was chair of the New Zealand Business Roundtable (NZBR) from 2002 to 2010. It is also a matter of record that he received no royal honour, not necessarily a title, under the Clark-Cullen Government nor under the Key-English one.

I think it reasonable to assume that Helen Clark’s lot would have rejected any such proposal because they detested the NZBR and Rogernomics. Key would not make an award because he wanted to distance his government from neoliberal economics advocates; recall his treatment of Don Brash.

Neoliberalism is a tricky notion, especially as it shades into more centrist economics. As Ken Rogoff, of Harvard University, has recently written, the technical economics is rather similar, the distinction being the ideology.

The dead give-away of neoliberalism is the rejection of government having a positive role in the economy. Consider the following: ‘Bill English has been too conservative in reining in government expenditure.’ Made early in English’s term it did not foresee the way that New Zealand would suffer from inadequate public funding. The assessment was Rob McLeod’s.

So what is the Ardern-Peters view? Apparently they are more comfortable with the NZBR, Rogernomics and neoliberal economics than the previous Labour Government and not as concerned about distancing themselves from those views as the previous National Government was. This suggests that they have come to terms with what the Fourth Labour Government did (although that does not mean they are comfortable with the Richardson-Shipley policies).

This opens up a very deep wound in the Labour psyche. Sorry about doing this, but we need to be honest. The Fourth Labour Government saw itself as a transforming government – far more so than this one. A lot of the things it did have stood the test of time and have been built upon. For instance, its reorganisation of the management of the environment sector remains foundational, despite considerable to-ing and fro-ing and arguments over the pace of change,.

The economic story is more complicated. At the time, my view – by no means a minority one in the economics profession – was that the economy needed to shift to ‘more-market’, that is, make greater use of market mechanisms and use less direct government intervention, which was common in Muldoon’s time. (See, for instance, my Economics for Social Democrats; it is no accident that the 1981 book’s cover features a market – the younger Breughel’s painting of ‘Flemish Fair’. At the time, publicly supporting this stance could generate a thunderbolt from the top of Muldoon’s Beehive.)

Many of the economic changes that Labour made, especially in the 1984 to 1987 period, were a modernisation consistent with policies that a social democrat or democratic socialist would support – even if conservative Labour might reject them. However, after 1987 the Labour Government began explicitly implementing neoliberal economics policies which were an anathema to the modernising left as well as to conservative Labour. (That their senior politicians were of this mind was evident from 1985.) There was sufficient resistance in some areas to leave the remaining neoliberal policies to be pursued by the following National Government.

Jim Bolger quelled the more extreme neoliberalism. Some of the more loony policies – such as the health system redisorganisation – fell over under their own incompetence. Others were put on the back burner or implemented only slowly and partially. But the neoliberal framework remained.

Helen Clark’s government came in to reverse Rogernomics’ excesses. In many areas they succeeded – although sometimes it took a bloody long time, like breaking up the Telecom monopoly. Others were left, and are still to be addressed or being addressed (like the poverty policies of Richardson-Shipley).

Even so, with a few exceptions, the Clark-Cullen Government continued to rely on those deeply involved in the neoliberal changes. Admittedly, the promoted tended to play down their past roles, but there was surprisingly little attempt to seek an alternative approach. When Labour left office, neoliberalism continued to underpin the policy framework. John Key may have distanced himself from neoclassical extremism but his government used its framework.

As illustrated by the McLeod knighthood, the Ardern-Peters Government has continued this approach. It is rolling back some of the neoliberal policies left untouched by the Clark-Cullen Government, mainly because they not are fit for purpose. But basically they are using neoliberal economics because they do not know any better.

Future columns will be reporting various examples. I sketch one here to illustrate how the government is struggling. From the early 1990s ‘light-handed regulation’ dominated – critics suggest it is better called ‘light-brained’ or even ‘light-fingered’. The notion was that business would largely regulate itself and did not need much government involvement. It could be left to the market. Ergo, there was no need to fund much government enforcement. Underfunded departments raided what funding provision there was for ‘higher’ priorities.

Failures under Key-English include Pike River and other worker deaths, leaky homes, archives, finance companies, earthquake engineering ... the list is long. The Ardern-Peters list already includes warrants of fitness, immigration controls, social media and private training establishments (and then there is the muddle we are in over natural resources).

An alert government would surely see a pattern and try to provide some overview, with the aim of ensuring government regulation was effective and efficient and preventing future failures. Instead, each crisis is dealt with individually after the horse has bolted. There is no minister responsible and certainly no public agency.

The fascination of light-handed regulation is that once you begin to think of it in a comprehensive context, you realise that the individual failures coalesce into an account of the limitations of the market (as well as its strengths). Push further and many of the assumptions which underpin public debate and policy thinking become undermined – like the role of competition and the extent to which an increase in GDP increases wellbeing. Most of all, the logic changes the role of government, not back to the pre-Rogernomics interventionist mode, but more towards what the social democrats were exploring at the time.

Imagine the government setting up a taskforce to explore this. Aside from the usual ineffective politically-corrects, they are likely to appoint economists anchored in the neoliberal framework. Guess what the taskforce’s conclusions would be? Tinkering.

Light-handed regulation is not the only way to critique the current policy framework – consider exploring the ‘budget responsibility rules’. My guess is the government’s promise to pursue ‘wellbeing’ will come to grief on the rocks of neoliberalism.

Recall that back in the late 1980s the Labour Government asked for a (secret) report about an alternative to Rogernomics. It was prepared largely from a neoliberal perspective, and the government found it too trapped current policies to make much change.

As a result the Ardern-Peters Government will be continually bedevilled by the problems that the existing framework generates. To repeat an analogy I have used before, it is going to be so busy battling the alligators as to have no perspective of the swamp.