Dr Michael Bassett

Dr Michael Bassett

Newspaper Columns


24/12/02 Local Government
10/12/02 Reflections on the US
26/11/02 Election aftermath
12/11/02 US mid-term elections
29/10/02 The Washington Sniper
15/10/02 The Democrats
01/10/02 American Elections
17/09/02 The American mood
03/09/02 Unions
20/08/02 The media
06/08/02 Immigration
29/07/02 Whatever Happened To National?
09/07/02 Inflation
26/06/02 MMP
12/06/02 Apologies
29/05/02 Dirty tricks?
15/05/02 Health
04/05/02 Don Brash
01/05/02 Welfare
17/04/02 National's Predicament
03/04/02 Self Help
20/03/02 John Banks
06/03/02 Health is a Killer
23/02/02 Jim Anderton
20/02/02 Luck
06/02/02 Treaty of Waitangi
23/01/02 GE
09/01/02 Floating dollar
26/12/01 Health Care
12/12/01 Margaret Wilson


Luck is vital to politics. The first Labour government of Savage and Fraser had the good fortune to take office when world commodity prices were rising, helping New Zealand escape from the Great Depression. That government lasted fourteen years. Walter Nash's and Norman Kirk's, on the other hand, encountered sliding world prices and an oil shock for which they were unprepared. One term apiece was their political lot. The only luck inherited by David Lange's ministers in 1984 was an economic crisis so severe that the public expected drastic measures. Boldness won them a second term. To date, Helen Clark's Labour-led coalition has enjoyed extraordinary economic luck. Will it hold long enough to get them re-elected in November? The answer is probably yes. But, let's be clear: without luck (and help from National - a subject for another day) media spin at which the Prime Minister is a maestro might not be enough.

This government's luck stems in part from the fact that the world economy during the 1990s was reasonably stable. The United States enjoyed one of its longest-running periods of prosperity, while Europe's occasional difficulties, caused in part by overhang from the collapse of communism in 1989-90, always seemed manageable. Only Asia was on a roller-coaster. High growth early in the decade subsided as the Japanese economy tottered towards implosion, which still threatens. Other parts of Asia fluctuated disconcertingly during the 1990s.

For the first time in their histories, Australia and New Zealand were able to adjust easily to world developments, emerging from the decade in better shape than most countries. Neither of us had much exposure to the IT boom which collapsed so spectacularly in 2000. Instead, despite half a century of efforts to diversify our economies away from a narrow band of primary commodities, New Zealand still depended on the mainstays of dairy, meat, wool, and timber plus the relative newcomers - manufacturing and tourism. What helped us weather the Asian crisis in 1997-8 was not a big increase in world commodity prices so much as the swift manner in which our local currency adjusted, enabling competitive pricing; money received on world markets converted into substantially higher dollar returns at home. The acts of devaluation and de-regulation in July 1984, followed by a free float eight months later, followed in turn by the establishment of our modern Reserve Bank in 1989, were opposed publicly or privately at the time by Jim Anderton and Margaret Wilson and accepted reluctantly by Helen Clark and Michael Cullen. Ironically, without those reforms our economy today would have all the economic credibility of Argentina's.

New Zealand never has been able to go it alone, although we tried valiantly between 1938 and 1984. Our high level of dependence on world trade means that global trends have always impacted on us. Right now they have been bad for many months. The world is in one of those unfortunate moments when all three major economic regions - America, Europe and Asia - are down together. Commodity prices were slipping before September's terrorist attacks, and the flush of 2000 was fading. Growth subsided. While domestic confidence remains fairly high, does it reflect past happiness or future expectations? Experts suspect the former. There is speculation world-wide that the US economy might be past the worst, but continued unease about terrorism and what some call "the Enron factor" will retard recovery. If the world economy has bottomed, then New Zealand might not slip much further. But there will be what is euphemistically called "a correction" here. Helen Clark and Michael Cullen are desperately anxious that their luck holds till November, and that we don't have an economic Waihi.

This government loves publicly to sneer at the economic reforms of the 1980s and 90s. Yet, other than continuing to administer their legacy from Roger Douglas, Ruth Richardson and Bill Birch, where is this ministry going economically? The answer is nowhere much. The cornerstone policies from the reform period remain in place. Last week Helen Clark sketched a vision of future "growth through innovation", but she was long on rhetoric and short on specifics. Most notably, she seems in no hurry to fine-tune the economy in order to lift our growth rate above the current 2.5% (which is somewhat lower than when she first came to office), let alone the 4-6% level needed to reclaim our high OECD status of the 1950s. Replaying rhetoric from those days, and using the sorts of interventionism that failed in the 1960s and 1970s is unlikely to produce better results the second time around. She seems to be asking us to suspend our historical experience. Spin, as Tony Blair has demonstrated, can keep a ministry afloat for a long time. But it usually ends in tears.

Sadly, New Zealand's modern left is curiouslu uninterested in the growth economics so vital to the betterment of their core supporters. Our current leaders spent most of their lives climbing the greasy pole of politics. They convey the impression that the economy is best left for the mechanics to deal with while they get on with social engineering. They don't seem to care if higher taxes and increased compliance costs for business have the effect of puncturing growth; their car of state will accelerate to 120kph on the space saver, hoping luck holds till November.

Michael Bassett was a Labour MP between 1972 and 1990, and is author of The State in New Zealand, 1840-1984.