Helen Clark and Michael Cullen have overseen a return to orthodox economic management. 

 

Listener: 30 December, 2006. 

 

Keywords: Political Economy & History; 

 

Asked to comment on Helen Clark’s performance, Roger Kerr said the Prime Minister had presided “over the continuation of the economic directions that the country moved towards in the 1980s … She was among the critics of those moves, but … her government has kept them in place.” The Business Roundtable chief executive’s view reflects a misunderstanding of what happened in the 1980s, and of Labour’s traditions. 

 

The 19th-century British progressive tradition was built on such great economists as David Ricardo, John Stuart Mill and Alfred Marshall (but hardly Karl Marx). Its economics was orthodox so, like orthodox economics, it was deeply distressed by the Great Depression of the 1930s. 

 

The system of market regulation seemed to have broken down. Desperate governments overruled the market with interventions such as controls, licences and quotas. However, while the market mechanism may not be perfect, it is frequently better than the alternatives, even if the removal of interventions often hurts the poor and the weak. So while we regained confidence in the market, political inertia, weighted by those who were beneficiaries (like the owners of import licences), prolonged the old interventions after their use-by dates. 

 

Yet, step by step, there was a post-war return to the market mechanism, although often with accompanying measures to ensure justice and efficiency. 

 

Because National was government more often, it did it more often. But there were Labour traditionalists who wanted to liberalise the economy, too. I have often wondered what would have happened had Bill Rowling become prime minister in 1978 or 1981, when in pre-MMP days he won more of the total votes but fewer of the parliamentary seats. Instead of his cautious liberalisation we got Rob Muldoon, who, struggling with high rates of inflation and concerned with the impact of a more-market approach on his supporters, became a very reluctant liberaliser. 

 

In its haste to catch up from this stalling, Labour over-reacted when it came to power in 1984. Even today, some of their extremists don’t realise how unorthodox they were. As Kerr observes, Clark was a critic of this extremism but that did not mean she opposed all market liberalisation. 

 

When she (and Michael Cullen, for he is as important) came to power in 1999 they returned New Zealand economic management to the orthodox path. Rowling would have been pleased. (Fairness requires mention that National’s Jim Bolger and Bill Birch were also moving in this direction.) Many of their changes were reversals of the past extremism: a fairer tax system, less starving of public spending, selective re-nationalisation, better industry regulation, less confrontational industrial relations, more environmental sustainability, and fiscal conservatism instead of the irresponsibility of the 1980s. 

 

There are still issues to be addressed: 30 years of under-spending created a social deficit; there is a parallel infrastructural deficit; we remain over-dependent on generic managerialism; social welfare needs attention. There are also new issues: how to get Auckland to function more effectively; the energy challenge; the savings deficit. Our macroeconomic stance is better than it was in the 1980s but still not right. There will be more initiatives in the “Economic Transformation” package to be announced in a couple of months, although for my taste the government is likely to err on the side of caution. 

 

Every one of the points in the previous two paragraphs is worthy of a column. Some I’ve covered over the year, others I’ll cover in the next. Here I’ll mention two areas where I think Clark has been outstanding. As Minister for Arts, Culture and Heritage her promotion of national identity has out-performed even Labour prime ministers Peter Fraser and Norman Kirk. In global engagement, she (with Cullen) has promoted the vigorous connection of the economy overseas (which is absolutely necessary for high economic performance), while also engaging culturally, diplomatically, scientifically and in peace-keeping. Fraser, Kirk and Rowling would be proud of her. 

 

Nicky Hager’s The Hollow Men reminds us that politicians are not nearly as glamorous as they appear. No doubt Clark has some grubby emails, too. That’s politics. But returning us to a path of progressive orthodoxy is politics at its best.