By Michael Reddell 06/12/2016 4


Perhaps nothing became John Key more than the manner of his departure.  Tired –  “nothing left in the tank” –  and admirably unwilling to go into an election year and lie about his willingness to serve another full term, or to just struggle on, he chose to walk away instead.

It is rare for political leaders to leave voluntarily when they are well, undefeated, and not facing any serious internal challenge.  Harold Wilson (in the UK) and Calvin Coolidge are two who spring to mind.  Enoch Powell’s maxim was that:

“All political lives, unless they are cut off in midstream at a happy juncture, end in failure, because that is the nature of politics and of human affairs.”

John F Kennedy and Norman Kirk were examples of leaders cut off in their prime, and reputations shaped for decades by the combination of their short time in office and the unexpected early deaths.

Ending on a high – but so what?

At one level, John Key’s political career won’t have ended in failure.  He remained popular and had had a pretty good chance of leading his party to a fourth term in government next year.  But at another level, so what?  If almost all political careers end in failure, in Powell’s terms,  that includes the careers of many very great men and women.

For each of Bob Hawke, Paul Keating, and John Howard, their careers ended in failure and defeat, but it doesn’t change what they had accomplished over the course of their careers.  The same could be said for Margaret Thatcher, Winston Churchill or Charles de Gaulle.  I might even include Tony Blair and Gordon Brown in such a list.  They left having made a difference. I’m not sure that same can be said of John Key.

The political right's share of the vote
The political right’s share of the vote

There were three election victories, to be sure.  But here are the centre-right (National +ACT) vote shares for those three elections.

Only at the 2008 election did those two parties together have a clear electoral majority (they obtained a tiny majority in 2014, and lost it shortly afterwards in the Northland by-election).   Those vote shares – and those of the National Party alone –  look very impressive in an FPP context, but those weren’t the rules Key was operating under.  Throughout his term he had either small majorities or a minority-government position.  Passing any contentious legislation required cobbling together the numbers among minority parties, and partly for that reason not much contentious was actually done.

In his 1975 election campaign, the then Opposition leader Robert Muldoon stated that if his party was elected his goal was to leave the country no worse than he found it.  That wasn’t how John Key articulated his vision.  In his campaign opening address in 2008 he talked about serious change:

You are looking for a Government that will focus on the issues that matter to you – a Government with a plan for economic recovery, and a Government with fresh ideas and the energy to meet the challenges this country faces.

At this election National is offering exactly that.

I am campaigning on strengthening our economy, on rising to the challenge presented by tough global conditions, and on delivering greater prosperity to New Zealanders and their families

Of Labour’s economic performance he said:

It’s a shocking record, and Helen Clark and Michael Cullen should be judged by it.

Promising something different:

National’s plan faces the fact that we must lift productivity in this country.

Labour has a dreadful record on productivity and National will do better. ……Labour won’t do that. End of story.

Third, National’s plan recognises that lifting productivity also means removing the bottlenecks in the economy – the roading problems and the creaky communications networks that are holding business back. That’s why National will fix the Resource Management Act and that’s why we’ll invest more in the infrastructure the economy needs to grow.

Fourth, lifting productivity also means encouraging businesses to invest.

The guys in red like to talk about this idea. But let me tell you something. I’ve had a bit more to do with business than them and it’s actually more straightforward than they think.

The number 1 reason that private companies invest is because they are profitable and feeling positive about the future. All the R&D credits in the world won’t cut it if companies aren’t making any money. We have to get the fundamentals right first.

And

…we must grow our economy faster.

I know we can do it.

You want to know why? Because I’ve actually worked in the world of finance and business. Helen Clark hasn’t. I’ve actually picked up a struggling business and made it grow. Helen Clark never has. And I’ve actually got stuck into a business, trimmed its sails, and delivered some profits to its shareholders.

And that’s what I am determined to do for this country.

No big step change

I was always a bit of a sceptic on John Key, but during that election campaign –  in the middle of a recession and with the international financial crises as backdrop – the aspirations  he spoke of occasionally resonated.  The National Party has now taken down the link to the economic speech Key gave just a few days before the 2008 election but –  naive as I perhaps was –  I actually found this passage quite inspiring, and had it pinned above my desk at The Treasury for the next following year or two.

I came into politics because I believed New Zealand was underperforming economically as a country. I don’t think it’s good enough that so many New Zealanders feel forced to leave our country each year to seek higher wages in Australia. I don’t think it’s good enough that our average incomes lag so far behind the rest of the world. And I think it’s unforgivable that the Labour Party has done so little to address these fundamental challenges.

I believe that a very big step change is needed in our economic performance to ensure New Zealand can make the most of its considerable potential. Growing the economy of this country continues to be my driving ambition. I stand before you today ready to deliver on that ambition for New Zealand.

You have my personal commitment that if I am elected Prime Minister in eight days’ time I will work tirelessly over the next three years to deliver the stronger economic future our country deserves.

I don’t doubt that he has worked tirelessly over the last eight years, but to what end?

There has been no “very big step change” in our economic performance.  What is worse perhaps, there has been no serious attempt to bring about such a change.  The 2025 Taskforce’s prescription was dismissed –  from some Caribbean island where the Prime Minister was –  the night before its report was released.  And if he didn’t like that prescription there was no sign of any energy being put into finding a package of measures he really believed would make a difference.  Worse still has been the sheer dishonesty of the last few years in which the Prime Minister repeatedly asserts that New Zealand is doing very well by international standards, and is somehow the envy of the advanced world.

Only a few months ago we had the nonsensical claims that he was remaking New Zealand as the Switzerland of the South Pacific, or the frankly rather offensive proposition (to all those struggling in that market) that Auckland house prices were just what one expects in a successful global city –  when all the time, Auckland’s GDP per capita has been falling relative to that in the rest of the country (and when the government knows it has been making little or no progress in freeing up land use restrictions).  And for all the talk of international connections etc, there has been no nationwide productivity growth in the last few years, and exports as a share of GDP are, if anything, a bit lower now than they were in 2008.

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Some worthwhile reforms

Of course, over eight years in office almost any government is going to do some worthwhile things.  When Malcolm Turnbull last year talked to wanting to emulate the Key reform programme, I managed a brief list of worthwhile reforms.

But on the other hand, I noted this list:

  • Higher effective corporate tax rates
  • The debacle of the earthquake-strengthening legislation
  • The continuing debasement of our skills-based immigration system, both in the way it is administered and in formal announced policy.
  • New overlays of financial market regulation
  • The re-establishment of direct government controls over who banks can and cannot lend to
  • The continuation of a regime of “corporate welfare”, including for example the Sky and Tiwai Point deals, and the smell that the Saudi sheep deal gives off
  • The degree of central government control of the Christchurch repair project, involving both wasteful projects (some of which may not finally go ahead), and the way central government has artificially boosted land prices and impeded the prompt redevelopment of the central city.
  • The continuing apparent decline in the rigour of public sector policy advice, and in the use of robust cost-benefit analyses in underpinning policy decisions.
  • Increased first home buyer subsidies.
  • Undermining housing affordability with mandatory insulation etc requirements for rental properties
  • Continuing increases in minimum wages, from very high levels (relative to median wages) at a time when unemployment is quite high, and policy was supposedly oriented to getting people off welfare.
  • Heavy investment in the newly state-repurchased loss-making Kiwirail

As Eric Crampton notes, the new government regulations that killed off iPredict now mean we don’t even have functioning predictions markets to follow in the wake of the Prime Minister’s resignation.

Of course, some credit is due to the government for returning the budget to balance, or even modest surplus.  It isn’t a trivial achievement, especially against the backdrop of the Canterbury earthquakes, but equally when you have benefited from (a) high terms of trade, (b) low interest rates, (c) rapid population growth which in the short-term tends to raised government revenue more than expenditure, and (d) unexpectedly slow wage inflation, and (e) some very big spending programmes from the outgoing previous government that had not yet become firmly entrenched, it was all a little easier than it might otherwise have been.  And important as maintaining fiscal balance is, it isn’t the sort of structural reform that generates the very big step changes in economic performance that John Key talked of.

The Prime Minister would also no doubt note the reduced outflow of New Zealanders to Australia. As I’ve noted here previously, there is a lot of year-to-year volatility in those figures, but the average outflow of New Zealanders has been lower over his term than over the nine years of the Clark-Cullen government.

That would have been encouraging if a reflected a sustained narrowing in the income/productivity gaps between New Zealand and Australia.  As it is, it seems to reflect higher unemployment rates in Australia and a recognition that the position of New Zealanders moving to Australia isn’t always very secure if things don’t turn out well.  As for productivity, those gaps have only continued to widen over the Key years (and especially the last few years).

Relatively good

Of course, relative to other advanced countries the years since 2008 have not been especially bad in New Zealand. There have been plenty of countries that have done worse, and plenty that have done better.  We’ve been middling at best and that is probably about the least we should have expected as –  whether through good management or good luck –  our incoming government in 2008 inherited neither a fiscal or financial crises.

I haven’t touched much on the  debacle that is the housing market.  It didn’t feature in that 2008 campaign  launch – probably house prices were falling at that point of the recession. But in many parts of the country – including our largest city – the issues of unaffordability are so much worse now than they were then. Turning around our long-term productivity performance might seem really hard.

Doing something effective to reverse the inexorable climb in real house prices just wouldn’t have been that hard – between land use law reforms, and easing back on the immigration-led population pressures until new policy frameworks left the housing market better able to cope. But, in fact, there has been almost no serious reform, and a generation of young families are increasingly shut out of home ownership. It is inexcusable. And perhaps the worst of it is that there was never any sign that the government was willing to go down fighting, to spend serious political capital – and perhaps to fail in the attempt nonetheless – to make a real difference. That isn’t leadership. At best it is “followership”.

I could go on.  About, for example, the suspension of property rights following the earthquakes, about the weak regard for the institutions of our democracy, or –  mundanely –  about the fiscal and moral failure that the big increase in (already high) prisoner numbers over the term of this government represents.

But I’m sure you get the drift.  It has been eight largely wasted years –  building on at least the previous nine largely wasted years –  in which none of the big structural economic challenges New Zealand  faced has been even seriously addressed.  On not one of them can the government show serious progress and on some –  house prices most noticeably –  things are now even worse than they were in November 2008 when John Key spoke of his goal of securing a very big step change in economic performance.  He has held office, and left at a time of his own choosing.  But to what end?  In that sense, surely, his political career ends in a failure much more indelible than that of a mere electoral defeat or internal coup.


4 Responses to “Key’s legacy – an economist’s view”

  • You wrote “It has been eight largely wasted years – building on at least the previous nine largely wasted years – in which none of the big structural economic challenges New Zealand faced has been even seriously addressed.”

    However, you didn’t mention the Superannuation Fund which was designed to help with the “big structural economic challenge” of an ageing population. Introduced by Labour, but contributions stopped by National.

  • I don’t regard the NZSF as a useful structural reform. Labour’s success was in running fiscal surpluses and lowering the debt – and they deserve credit for that. As I noted in another post earlier this week, the ageing population (a good thing) is best dealt with by raising the age of NZS eligibility. It isn’t obvious why improving longevity should be met with ever more years being in receipt of a universal state pension.

    More practically, iin the short term, it didn’t make much sense to be contributing to NZSF when the government was in deficit. The deficits have now gone of course, but that is a quite recent thing.

  • John Key came in and slashed government spending. Years of massive surpluses gave him plenty to chop away. Then he turned NZ into a trading hub for Asian -Pacific money ( much of which was undocumented). He reaffirmed that capital gains tax and raise super age would never happen on his watch. He shouted a lot at the UN then retired. That’s about it. Without the jokes and Internet memes he’d be considered a very beige leader. My living memory of him will be when he fell off the stage and broke his arm. Perhaps the only PM to govern in a sling?

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