My glib answer to this would be that mostly what the government is doing is getting relected and that they know how to do this very well, thank you, but Brian’s focus is on the policy direction and the drivers of policy development within the government. I recommend reading the whole thing but I’m excerpting this section on business as a driver of policy because it’s something I’ve ranted about on a regular basis but never managed to articulate this well:
The business community – especially the Auckland business community – are Key’s friends, his community, and major funders of the National Party. Their account of the world forms a foundation in his and the government’s thinking, even if outcomes do not always meet their expectations.
(National continues to have a rural base, but while it continues to be supportive, Auckland is given greater support, and there appears to be growing rural disenchantment.)
The ABC is not the same thing as the Business Roundtable. It was once, but most serious businesses no longer belong to it, and many of the business people I meet are dismissive of it as having passed its time. The BRT remains vocal, and it is influential on the ACT Party. Sometimes its views align with that of the ABC, although one businessman told me that they were embarrassed when the BRT did, because it turned off the rest of the polity. (I know the feeling.)
The ABC are not the cowboys that ran finance companies. They are mainly people who run real businesses well and New Zealand is the better off for them. They have no representative organisation, although there are other those which sometimes reflect their view – such as the Auckland Chamber of Commerce and the Herald. Think of it more as a network of like-minded people, often with similar problems, who meet in all sorts of venues and in the business pages. Out of this discussion evolves a common view.
I agree with Roger Kerr, executive director of the BRT, that it is rare for someone to be a good business manager and a good economist – although given the ones he has mentioned (always members of the BRT you will observe), it is much rarer combination than he thinks.
Yet business is vitally dependent upon the economy, so it is inevitable that the business community will have a view of it. Where it directly connects with their business they can be very perceptive. As an economic issue becomes less directly connected with their business and more contextual, their insights become – shall we say – aspirational. Their political judgement is hardly better. The ABC’s basic vision is that if you look after business then everything else will come right too, although just what ‘right’ means is vague. Of course we should ensure that business functions well. But that does not mean that looking after business is the ultimate policy objective and business becomes the end in itself, not the means to the end.
Business ends are only part of the way we pursue the goal of the nation; sometimes business cannot have what it wants because that does not contribute to the desired end. That also means that sometimes business models are not the best way of pursuing things. Business does not always understand this.
So the ABC tends to pursue a narrow self-focussed policy agenda. Sometimes it is reasonably effective as with the tax cuts and the ACC changes, and sometimes it takes the government down a track which with hindsight it wishes it had not gone.
The confluence of ACT’s Rodney Hide being Minister of Local Government and Key’s natural empathy with the ABC, meant that initially the government followed the business community’s prescription for the reform of Auckland local government; that where it was not possible to shift the decision into corporate-like agencies which was based upon a business model – then the rump should be managed by a Mayor with powers similar to a corporate chief executive. While there has been some watering down towards a more democratic form of governance, this business-based model for Auckland is still the framework.
Add the ACT propensity to crash through – which in the past has far too often led to crashes. What we have here is all the characteristics which marked the great health redisorganisation of the early 1990s. We await a far from successful – but very expensive – outcome. I dont know what will happen in the local body elections – my main source of Auckland news is the Herald, which is hardly unbiased – but we can expect many expensive systems failures after it.
It is not the only case of the government starting out along the ABC line and has to change course because its voters dont like it. You get a good sense of the disappointment of the ABC from the Herald columnist Fran O’Sullivan who constantly berates the government for not pursuing the business community’s agenda. Her sub-theme is that Key is one of them, but he is too timid to take the course he – and they – believe in. That the public is not as enamoured with the business agenda as business is; that democracy gets in the way of a pressure group pursuing its self interest does not seem to have occurred to Ms O’Sullivan.
A key element of the business agenda is the demand to catch up with Australia – in per capita GDP terms by 2025. We had the ineffective – and largely ACT driven – committee chaired by Don Brash, which made various policy recommendations of benefit to the business community, claiming that it would accelerate economic growth without providing a skerrick of empirical evidence of the effectiveness of their policies.
In fact any orthodox economic analysis shows that there is little chance that we can meet the target. Ironically, the proposed policies are a continuation for the policies which were administered during, and caused, the Rogernomics Recession, which put us so far behind Australia. That is the reason the committee was unable to provide empirical for the effectiveness of its policies, the evidence from the past points to their failure rather than success.
Catching up to Australia is an aspiration, not a policy. As English said, National had no policy in opposition, and it hoped that the officials would find it one. For a quarter of a century officials have been thinking about the objective, had advised previous governments on how to accelerate economic growth relative to the rest of the world, but with little success. Which should not surprise us; if a policy to accelerate economic growth worked it would be adopted by every other country, everyone would grow faster and no-one would catch up.
Why the focus on GDP per capita? The one group in New Zealand who are closest to direct beneficiaries of material economic growth is the business sector. In the long run the profit rate is roughly equal to the growth of GDP. Profits are the objective of business. By arguing for a higher growth rate, it is arguing for a higher profit rate. They may want to have a high profit rate, but that does not mean it should be the ultimate objective of government. Business is a means to an end, not the end in itself.