Guest Post: Resisting Robbonomics and what we can do about it
A guest post by a reader:
The Great Lockdown of 2020 is foisting on New Zealand a new economic consensus. Unemployment and poverty threaten a chilling redefinition of our national story and that of countries across the world.
The unity Jacinda Ardern has inspired to defeat COVID-19 will be tested as debate rages on how such threats to social cohesion are averted. How will the livelihoods of those without a job be rebuilt? How will workplaces be configured? What is the future of public health? How much of our national income will be spent by Government rather than consumers? What will the prospects be of those born into an era knowing unemployment and limited opportunities?
In a matter of weeks markets have been replaced as the distributors of capital. Most businesses will be financed by government or a financial system supported more heavily than ever by central banks. This is not a reversion to the nationalisation of the post-war years, but a regeneration of state coercion in economies unseen since that time, and embraced by conservative and left-wing governments across the world. Viewed from afar, New Zealand stands out for its response, but it also stands out for the level to which the state is prepared to intervene.
In New Zealand, 1.6 million New Zealanders have accessed the Government’s wage subsidy as double-digit unemployment is forecast for this year and an economic contraction of 7.2%. A substantial portion of the economy is effectively owned by the Government with public debt being estimated by some economists to reach 50% of GDP by the time the crisis is over.
A society defined by kindness cannot be built on one that is jobless and facing down a decade of discontent caused by a lethargic economic recovery.
While much discussion has focused on the lockdown until now, much less attention has been paid to the extent of far-reaching economic restructuring that will take place as a result of last week’s Budget. Grant Robertson’s economic prescription of returning public debt to above 50% of GDP thus begins the era of Robbonomics.
Even prior to the crisis, Labour was laying the groundwork of considerable reform possibly banking on a Labour-Green coalition emerging from the election later this year to drive it. It has substantially increased social spending, sought to reverse Tomorrow’s Schools, rewire the public service, and pledge substantial infrastructure spending. Discussion has ignited around a universal basic income and a ‘Ministry of Works’.
A robust conversation about the economic reality of the lockdown and the pandemic was inevitable. After the longest period of global growth and innovation in history, there was a growing sense of unease across the political divide about its effects. There was, and remains, concern for social dislocation, the state of mental health issues and rates of depression and the full impact of technological change on society and national security beyond the economic efficiencies it yields. Markets once seen as liberators and enablers are now being framed as driving gaps and excess. Not because these institutions have failed, but because advocates of a much larger role for government, who have long felt shut out of this world, are seizing upon the vacuum left by marketeers who have better arguments but who no longer inspire in the way they once did.
At this juncture it would be all too predictable to cry foul at a return to Fortress New Zealand. But this would be to miss a point: Policy settings in New Zealand, regardless, must change.
Election after election, for the past 30 years has produced governments that have largely managed public life rather than led it. They have often prioritised the maintenance of office over comprehensive structural reform. Worse still, proponents of reform – irrespective of their political tribe – have been derided as ideological, zealous and dogmatic. Change can be unsettling and dangerous, but it can also be exciting and positive.
While Mixed Member Proportional (MMP) has provided for greater diversity and inclusion it has not led to more coherent government. MMP for years provided a mechanism by which polarising or extreme politics was diluted through diffuse governing arrangements. The transactional cost of its introduction is that while it bridled power, it also bridled reform on core issues, be it reforming the Resource Management Act or tackling climate change. The way this could be tested however is if a single party majority government emerges at the next election.
As with every pre-reform period in our history, it is now crisis catalysing change. It is in these times that new, often young political figures emerge challenging the status quo and who secure the political support to strike off in a new direction.
The last major reform of the economy, also led by new much younger generation of politicians, utterly revamped public institutions. It was unprecedented and controversial but politics made an impact. Public assets were privatised, our public service was reformed, farm subsidies were slashed, income taxes were cut and the welfare state was redesigned.
Crown debt fell to 20% in the mid 1990s and New Zealand had the highest rate of job creation in the OECD. The dramatic state interventions made by the Savage Labour Government in the 1930s too, were also advanced by politicians with a mission not so much fixated on their own political survival as their own nation’s survival.
Resentful that its main legacy has not been an increased role of the state, but a free market revolution, some in Labour will be determined to rewrite that narrative. Equally risky for the party is that whereas it came to office at the end of the Great Depression it is now in office at the start of the largest downturn since that time. It has possibly the most popular leader in its history and the biggest crisis it must steer the country through in living memory.
National too is challenged by the need to offer a more compelling reason to be in government than simply claiming the mantle of competence. As it considers its leadership, it must also contemplate the optimistic vision of the future it is duty bound to inspiring New Zealanders behind. ‘Economic management’ and ‘stability’ are not beliefs or values, and they do not inspire anyone to get out of bed every day. Nor is the suggestion of having an economic “plan” – something you would not encourage from a party properly versed in the values of enterprise. Leadership is not a slogan, it is a method, action and style of governing that persuades and inspires. It is a failure to inspire behind a story or set of values that has seen National often undersell its attributes as politically nimble and practical.
The preference for risk aversion and stability that has defined New Zealand politics for nearly thirty years, only to end in yet more instability and risk, can be replaced by something bolder as we face our greatest challenge since the Second World War. But offering an alternative economic program is by itself not sufficient. That it works, that it inspires, must be self-evident in its capacity to endure and survive long-term. Markets and the welfare state have been enduring institutions in their own right for the past century. What shapes them is open for debate once again.
I like the label Robbonomics because that is literally what the Government is doing – robbing the next generation of all their savings by borrowing $85,000 per household.