Politics: The new term: time for strategic policy

John Key took office three years ago amid global financial and economic mayhem. Then came earthquakes in Christchurch, mine disaster and ship grounding causing widespread environmental damage.
Another such concatenation of disasters is unlikely in the next three years – though financial and economic mayhem cannot be ruled out (whether the Greek crisis had really been resolved was unclear when this was written).
The lesson for the 2011-14 government from disasters and the global financial crisis (GFC): build resilience into the economy so it is strong and flexible enough to trade through big shocks. GFC2 would slow world trade and production and this time governments and central banks, including China’s, don’t have the wherewithal to offset it effectively.
To handle disasters requires fixing the sorts of regulatory gaps exposed by the earthquakes, Pike River and the ship grounding. To handle GFC2 – or just to adapt to the global power shift – requires cutting the towering debt to foreigners and banks’ dependence on foreign funding. That demands two rebalancings: of the budget (called “fiscal consolidation”); and from domestic spending and consumer imports to exports.
There will be two counter-balances: from that section of the public, widening as stringency bites, who link fiscal constraint to foreign banks’ arrogance and self-indulgence and therefore think it inappropriate or immoral; and from those who think that when employment is weak and real incomes are stagnant or falling, the government should spend more to pick up the economic slack.
Fiscal consolidation in part requires public service reform – as, for example, outlined in this column last month – not just to save money and improve international competitiveness but to meet rising generations’ expectations of more customised public services. We are in transition from the baby-boom generation to the next one and 2011-14 policy needs to reflect and anticipate the next generations’ needs and aspirations.
One of those next-generation needs is to address the steep rise in the cost of pensions and health services in the 2020s as baby-boomers swell the over-70s. The 2011-14 term is the last chance to make measured start on that. After that the policies needed to tame these voracious programmes and avert serious intergenerational inequities get progressively more expensive and/or painful.
So strategic approach to policy is needed in 2011-14. That is not usually strong point of ministers.
Take innovation, which is the central ingredient in getting richer. From 1999 to 2008 ministers did mainly frameworks and plans and in 2008-11 ministers mainly reorganised state agencies. test of the 2011-14 government will be how much investment it directs into innovation and away from short-term focus-group-driven fixes.
Another test will be how seriously ministers tackle the embedded inequalities in incomes, health, education and opportunity which make New Zealand one of the OECD’s most unequal societies and which growing body of economic evidence indicates affects economic growth.
Will ministers extend the analysis used in the youth policy announced in August – actuarially assessing the whole-of-life income support, health services and crime costs of life gone wrong and investing early to avoid that cost? Both major parties have been moving that way. It is hard to do, results are not visible for five parliamentary terms and voters aren’t patient. But the strategic case is strong: the earlier the action the earlier the returns.
Some other strategic issues: modernising tertiary education so cross-boundary rigidities biodegrade; reframing environment and economic policies as mutually reinforcing, not as alternatives; settling employment relations law so it isn’t getting reworked with every change of government; doing the bits of tax reform Bill English left out; working out for the rest of the country the logic of the Auckland local body reorganisation.
It was busy government in 2008-11, mostly focused on near-term need. The challenge for this term’s busy government will be to focus on the 2020s. M

Colin James is New Zealand’s leading political commentator and NZ Management’s regular political columnist. [email protected]

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