The Politics Of NZ (Inc)

Published in “Foreign Control  Watchdog” 131, December 2012: p. 22-27.

In a feature article in the Christchurch Press John McCrone argues that the rebuild of earthquake-shaken Christchurch and its future development was being dominated – and distorted – by the Key Government’s approach of New Zealand Inc. (‘The Business of NZ Inc’, 8 September, 2012). It would be equally valid to argue that NZ Inc applied to the entirety of New Zealand politics.

A business-oriented approach is a relatively new style of government here. Although there were calls for it in the past – especially in the business pages – the notion that New Zealand should be run as a business, in the interest of business, using business methods and, as far as possible, by business men and women has never before been so dominant in the management of government.

NZ Inc was certainly not the way of past centre-right progressive-conservative governments such as those of Atkinson in the 1880s, Coates in the 1920s and 1930s, and Holyoake in the 1960s and 1970s, or even Bolger after 1993 when he was not hounded by neoliberal demons. (Muldoon’s autocracy was a marked deviation from them.) For a while it seemed the successor phase to the right’s politics was neoliberalism, which began in the middle of the 1980s and which Jim Bolger never really eradicated (Jenny Shipley did not want to). With hindsight, the defeat of the Brash National party in 2005 was its death knell, although it was struggling well before then, for in fundamental ways the Key government is not neoliberal, even if it unquestionably is a government of the right.

The danger is that the opposition – the left in all its manifestations – may continue to interpret New Zealand politics as if neoliberalism is still dominant. Even generals of the left fight the last wars, thereby losing the next ones.

Neoliberalism, ACT and the BRT

The key elements of neoliberalism in New Zealand have been the Business Roundtable (BRT) as a lobbyist and ACT as its political voice (and as close as New Zealand has to the saner end of the American Republican Party), a connection neatly symbolised by the chief executive of one having been married to the president of the other. For over a decade both organisations have been struggling to maintain an impact.

Despite the demise of ACT having reached the farcical stages, there were premonitions of its end even in the 1990s when Richard Prebble realised that, despite generous funding from rich ideologues, there was insufficient public support to provide a truly independent party as distinct from an acolyte of National. He enlarged its mandate to include conservative moral values; some of its more libertarian supporters had difficulty swallowing that rat. The latest stage of the demise is the Libertarianz and the (fundamentalist Christian) Conservative Parties scrapping over the ACT carcass, while others try to resurrect it. (Observers of left splinter parties will find a droll humour in seeing the disease on the political right too.)

The BRT slowly died too. It had repeatedly renewed itself. Before Roger Kerr took over in 1987 it was a coalition of the chief executives of large companies who met to discuss matters of common interest (in smoke-filled rooms, no doubt). Kerr took it in a neoliberal direction which led some of the founding companies to withdraw (or to stay on with lukewarm support) and others to collapse as a result of the BRT’s policies in a less than ceremonial hari kari. By the 1990s the BRT became dominated by the finance industry, but they too began to withdraw as it became increasingly irrelevant to their needs, while public distaste for the BRT meant others thought it better to distance themselves from an increasingly ineffective, but no less prominent, lobbyist.

About a decade ago the BRT had largely become a group of rich ideologues, cut out from an effective public contribution by being ignored by the Labour Government but desperately hanging on in the hope that the public would see the light (it had many years earlier, but what it had seen did not now attract it).

It would be easy – but wrong – to see the BRT ending with the death of Roger Kerr. Wrong because it was already dying; wrong, because it has resurrected itself as the New Zealand Initiative. The new organisation was presented as merger between the BRT and the New Zealand Institute (of which more anon) but, name aside (for the BRT wanted to rebrand its public image), it was a takeover. If its website – and its public impact – is any indication it is doomed to an insipid irrelevancy, with a director whose main interest seems to be offshore. Thus far Oliver Hartwich’s most salient contribution to the national debate has been a Dominion Post article that argued the left versus right division is ‘really so eighteenth century’, apparently because the ‘right’ are racist in Germany. As it happens, New Zealand neoliberalism has not been particularly racist – Roger Kerr marched against apartheid and one chairman of the BRT was a Maori. But imposing a German definition on New Zealand (albeit by someone who grew up there rather than here) seems odd, especially as Germany may be the only country in the world with a significant party which calls itself ‘left’ (Die Link).

Unlike either of its predecessors, NZI does not publish its membership, but it may well be poorly funded given the thinness of its public contributions and poverty of its website. Have the rich ideologues given up on it too?

The Rise of NZ Inc

Business certainly has, but that happened a decade or so ago. The shift was incremental. Some had given up in the 1980s – or never believed in neoliberalism anyway. Others began to realise by the mid 1990s that the economic prosperity the policies promised was never going to be realised. Certainly by the early 2000s senior businessmen were describing the BRT as an organisation of the past. (A couple once regretted to me that a particular policy they supported was also supported by the BRT, which made it much harder to sell to the public.)

At least two counter organisations – the New Zealand Institute and the Business Council for Sustainable Development – were set up. Neither lasted a decade, partly because business found itself squeezed for funds following the Global Financial Crisis, but also because the election of a National Government seemed to make them unnecessary. (The Left also abandons its ‘think tanks’ once it is in power; rather than strengthening them for the time when it is back in opposition.)

The abandoning of the BRT by business reflected a deep divergence between the way they function and the way that neoliberalism said they should function. Throughout history there has been a symbiotic relationship between New Zealand business and the government of New Zealand. Even big business; the majority of the largest companies owed much of their growth and existence to government. Perhaps they are the result of privatisation of a state owned enterprise, perhaps they had at some stage in their past – or today – had vital government contracts; perhaps some government policy had given them, or gives them, a benefit or a subsidy.

There is nothing in principle wrong with this. Business can rarely operate independently of government, especially in a small economy. But the neoliberal message was that government was, if not inherently evil, the problem rather than a part of the solution.

As it happens, the Muldoon government style had been so intrusive that business and neoliberalism could cooperate in its unwinding but eventually their paths parted. Today we have a business-led government repeatedly involving itself in economic activity to support business rather than withdrawing from it. While businesses expressed enthusiasm for the broadband roll out – over which government presides and which it funds – the neoliberals grind their teeth. Similarly the neoliberals had never worked out how to extend the road network without government involvement and so the roading program stagnated, while business was desperate for enlarging it for their trucking.

Enhancing Business

So what does business want? It is a very heterogenous group so any summary is necessarily a simplification. But basically business seeks profits so it wants policies which increase them.

There is a complicated economic theory which says that under certain conditions the pursuit of profit maximises economic output (of GDP). We may argue how realistic these conditions are – whether they are near enough to true – but that avoids the more fundamental issue as to whether we really want to maximise GDP.

This is an ethical debate which neither business – nor economics – is very good at. For what it is worth, the empirical evidence suggests that above a threshold which New Zealand reached many years ago, people’s happiness is not well correlated with per capita GDP and that their wellbeing is more greatly affected by many other things such as their community, the environment, education, family life, health, jobs, recreation and cultural facilities and public and work safety. Pursuit of profit may enhance some of these, but it can also damage them. This evidence is so subversive to the mantra of growth of GDP that it is rarely referred to; certainly not in polite company. (For a brief survey of this see my What Are Our Public Priorities?

How to go about increasing profits? One group of policies involve reducing costs – including wages. In the early 1990s the neoliberal Employment Contracts Act was said to increase productivity, that is, to generate more output for the same inputs. There is no significant evidence that happened. Rather, it cut wage costs and raised profitability, which business interpreted as a productivity increase – a quite different thing.

There is ongoing – and understandable – pressure by businesses to cut their costs, not only by reducing wages (the introduction of youth rates is recent example of a public policy intervention in their interests) but also by cutting government impositions such as those which enhance workplace safety. Essentially the cost cuts for businesses transfer the burden of the costs onto others – workers, consumers, the government coffers and the environment; the Resource Management Act is especially disliked and measures for effectively moderating climate change have been successfully undermined.

Another way to increase profitability is for the economy to grow, although that is not easy in a long recession. A common strategy – central to New Zealand’s economic history – is ‘boosterism’, which tries to entice a substantial outside business to establish in a region, with its spinoffs benefiting local businesses. Thus the encouragement of overseas investment and the attempts to open up natural resources to commercial exploitation even where it seems environmentally imprudent.

A variation of boosterism is getting the government to come in and invest itself – a complete no-no to neoliberalism but attractive to real businesses. Examples are infrastructural investment such as roads and cables, but stadiums also seem to be fashionable at the moment; they temporarily boost the construction industry, although ratepayers suffer the hangover of debt (as those in Dunedin will explain to you).

Business also likes the government to start up trading undertakings, or at least to provide subsidies to make private ones viable. Once they are up and running, the businesses are privatised and the subsidies written off, as in the partial privatisation of state assets. Privatisation will also generate profits for those firms advising and marketing while adding listings to New Zealand’s ailing stock exchange and those who depend upon it. The financial sector greatly benefited from the privatisations which followed the 1987 share market crash; without this public contribution it would have been an even greater struggle to get through the mess it left after its stupidity of the mid 1980s.)

Privatisation comes in many forms. The government may undertake the hard yards with the private sector profitably topping up. That happened in the financial sector when the global financial crisis threatened a run on the banks. The government shifted the risk to the taxpayer with deposit insurance; the bank shareholders sighed with relief. Twenty years ago the private insurance industry said it was keen to share the risks of earthquakes with the government. Certainly they shared the revenue from the levies, but come the Big One and the citizens of Christchurch found they were reluctant to assist them – or to assist them promptly. The insurance industry attempted to do the same to ACC, but businesses who pay the levies found that it was just adding to their costs. (In addition the Accredited Employers Scheme introduced by the Fifth Labour Government had already given the biggest employers what they required.)

Another way of increasing profits is to reduce the size of the non-profit sector (the largest component of which is government), making the non-profit sector smaller by restraining and reducing government expenditure (whatever the public’s preferences for it) and the profit sector larger (even if that is more inefficient). Where this is not possible, outsourcing public activity to profit-driven businesses has a similar effect.

It does not follow that what business is demanding for itself is wrong. Not only may some – but not all – of their policies make New Zealand a better place, in a democracy everyone is entitled to pursue their own interests, although one always hopes there is also some commitment to a community interest. But democracy also says that no group should dominate outcomes. What John McCrone was arguing was that the government’s policy is dominated by business interests – by New Zealand Inc.

NZ Inc does not have it all its own way. Once upon a time the dominance of any political culture was restrained by the three-yearly election. That worked pretty well until the 1970s but first Muldoon and then the neoliberals who followed broke away from a consensus approach. The public reacted by choosing MMP, which limits the authority of the largest party in parliament. We’ll come back to that when we discuss NZ Inc’s attitude to democracy. .

John Key

It is necessary to say a little about the current prime minister, if only to explain he is not a very good representative of the business sector. Some of his defects – such as inattention to detail, lack of a strategic foresight, inability to anticipate and excessive casualness are sufficiently evident to raise a question as to whether he would even be a good chief executive. (On the other hand most of his prime ministerial predecessors had elephantine memories, whereas his is reminiscent of a business man in front of the Winebox Inquiry.) He would be more liked as a Chairman of the Board, because his supervision of the firm’s chief executive would be light handed – although he would be Teflon if the firm got into trouble.

Key may well be the least prepared prime minister in New Zealand’s history, certainly since party politics was established in the 1890s. His time in parliament before his premiership was briefest, and his previous working life experiences – in business – probably the leastadequate.

Prime-ministership involves quite different skills and experiences and preparation, including a political apprenticeship. Our best post-war ones all spent long years in parliament before taking the job. (Peter Fraser 22 years; Keith Holyoake 21 years, Norman Kirk 15 years; Jim Bolger 18 years; Helen Clark 18 years – and oh, yes, Rob Muldoon 15 years, which shows that longevity is not a guarantee by itself. Most had years of community political involvement before entering parliament too; a degree in political studies and time in a minister’s office doesn’t count.) By these standards, Key’s six years in parliament hardly amounts to a preparation for premiership at all..

Business experience is not a good preparation. Farmers aside, it is hard to think of a successful instance in New Zealand history and there are not too many examples from elsewhere. (Our most notable business prime ministers – Julius Vogel and Joe Ward – were both near-bankrupts or bankrupts.) Actually there are few occupations which seem to inevitably provide good preparations. Even a talk-back host like Pam Corkery found parliament difficult; more recently Hekia Parata has struggled as Minister of Education, despite an extensive career as a public servant.

While he may be a poor practitioner of political management Key is attractive to NZ Inc, because he believes in it, while connecting better than they do with the public. Indeed his ignorance of the political system aligns him with them. There are some parallels with David Lange who was promoted by the Rogernomes as their frontman because they had no public charisma. The difference is that while Lange was a moderniser, his Methodism meant he could not ultimately buy into the neoliberal agenda (and his raport with the public told him they could not either). In contrast Key is a true believer in NZ Inc.

Business and Government

Historical experience does not loom large in business thinking, which assumes that running a country (or a government department) and running a firm are similar tasks. (A common fallacy of public life is the belief that success in one dimension – say business – is correlated positively with success in all others ranging from aesthetics and politics to economics and authorship.) It escapes them that the reason for politics is because there are parts of the human experience which cannot be run like a business – at least for democratic politics; there are colonels who are expert at running dictatorships – usually badly.

Businesses are hierarchical organisations in which the chief executive appoints the underlings. In contrast parliament (or one of its party caucuses) appoints the prime minister. (The leaked emails reported in Hollow Men are fascinating about how little correspondence Don Brash had with his caucus.) The prime minister has to continually judge the impact of political decisions on the electorate. The closest business gets is when they sell their products, but that only provides them with a perspective of the human as a customer, not as a holistic political and social animal.

Like most people, those in the business sector have little understanding of how government works. It is no surprise that the subtleties of constitutional arrangements including the proper relations between minister and ministry have eluded Key. When the issue of ministerial responsibility arises he is likely to criticise the ministry as though he was a talk-back show host or – more recently – claim that he had not bothered with the details. Yet ministerial responsibility is vital in a parliamentary democracy, especially from a prime minister.

The hierarchically organised business sector is impatient with democracy, especially when it overrules the profit motive as when greenies want to preserve an environmental resource or nationalists are reluctant to sell off their heritage. However democracy cannot be avoided without considerable social turmoil, which may not be in anybody’s interests including that of business. Instead NZ Inc captures democracy to run the country in business interests.

That capture – perhaps for different objectives – occurred under Muldoon and under the neoliberals – in a form of parliamentary democracy known as ‘elected dictatorship’. It is attractive to business and other pressure groups which cannot get the backing of the public, for under Winner-Takes-All (FPP) they can accumulate enough seats in parliament to impose their agenda without the public’s consent. After almost two decades of its abuse the public switched to MMP.

Today new laws (and amendment to old laws) require a much higher standard of parliamentary consensus, while the smaller caucus of the lead party gives more leverage to its parliamentary dissidents. The government can still ram through legislation – as it did with the bill to partially privatise state owned enterprises – but the political cost is much higher. It is not obvious that every National MP is disheartened by the inability of the government to implement the sell-off. No doubt business is.

(Almost as an aside, Key’s cavalier offers of ‘bonus shares’ for New Zealand purchasers and ‘shares plus’ for iwi may be consistent with business practices but, instructively, Treasury appears to have insisted that the deals conform to standard accounting practices, which expose the that such deals provide subsidies to select interests.)

But while subject to the law the government has considerable discretion in its implementation. One does not need to change the statutes protecting worker safety in order to reduce their effectiveness – instead cut back resources and ease off the vigour of enforcing the details.

The Canterbury Experience as an Example

On occasions the government can use a crisis to panic parliament into passing legislation which gives it more power than what democrats may think reasonable. Thus it was with ACC with claims of the threat of future bankruptcy – which miraculously disappeared shortly after the legislation was passed. Another panic enabled the replacement of the elected Environment Canterbury with a Wellington appointed board (reminiscent of what an earlier National government abolishing elected Area Health Boards one night in 1991). A genuine crisis like the Canterbury earthquakes enabled the government to impose a centrally administered regime on the Peoples Republic of Christchurch (deeply disliked by both Wellington bureaucrats and business). Never waste a crisis.

There was an obvious need for something like the Canterbury Earthquake Recovery Authority as an operational agency to clean up the immediate mess. But its remit has been widened. As John McCrone wrote, the result has been a naked display of NZ Inc in action with priorities being set to meet business needs and shaped by business interests. It is not obvious that so little attention should be given to housing the populace, but the corporations find it harder to build houses than to construct commercial and public buildings. Imposing a plan on the central city with barely any consultation is insulting to a democracy – and those of Christchurch who cherish their city. Including a stadium so close to the city surely reflects businessmen’s fetish for (publicly subsidised) sporting spectacles rather than any realistic assessment of needs and urban forms.

The outcome has been weakened by an unusually inept minister – who repeatedly resorts to bullying. He was recently awarded zero out of ten for his ministerial performance, recalling the 1952 Springbok 44 to 0 massacre of Scotland, in which one commentator wondered how the losers scored the zero. Even the Minister of Education announced a plan for Christchurch schools without consultation; she backed down after the outcry, but it is indicative of a government mind-set in which people’s preferences are irrelevant (but they are still needed as consumers).

The Canterbury experience is not unique. Unquestionably Aucklanders needed to reform their local governance, but NZ Inc wanted an outcome more favourable to business. They did not get their way, when in the 2010 local body election a council was elected which was not as business aligned as they had hoped (bequeathing the previous pro-business Mayor of Auckland to ACT, generating another parliamentary farce). If the Peoples Republic of Christchurch can find a quality leader they may see the same thing in 2013. The government was wise to extend the term of its ECAN dictatorship to 2016 (by which time even Fiji may be a democracy).

The Future of Business in Politics

It is a rule of life is that all things shall pass – often in unexpected ways. What will replace NZ Inc when it has exhausted its goodwill? The question appears not to have occurred to the business sector, nor to those who may succeed the current government.

A couple of points can be made. First, it would be very wrong to conclude that Key, with all his evident inadequacies as a prime minister, was representative of the best of our business community. I have met many of our top chief executives. They are able decent people; perhaps the process of government is a mystery to them, but they run their businesses effectively. It would be most unfortunate if the reaction against NZ Inc was to limit their ability to do this.

For, and second, New Zealand needs high quality businesses to provide the goods and services which contribute to the nation’s wellbeing. Not necessarily all that they produce today; the government’s craven servility towards suppliers of alcohol and gambling services and emitters of carbon illustrates that not all business output should be fostered.

In the future business has to return to its traditional role of serving the community. When it is doing that it should be recognised and respected. But service is not the same as domination. NZ Inc is flawed by its desire to dominate and its lack of respect for other decision-making systems – especially government-based ones. Despite its wealth and despite its power it too shall pass.