Bryan Gould: Economic inertia hurts election hopes

Prime Minister John Key. Photo / Herald on Sunday

A three-year electoral cycle may have its detractors - and, many would say, with good reason - but it is usually popular with first-term governments.

The record shows that three years is not really long enough for voters to reach a definitive view that a recently elected government has failed, and the benefit of the doubt will usually mean a second term.

Add to that a Prime Minister with an unusually acute instinct for the popular gesture and the 2011 election might reasonably be thought to be a shoo-in. There is, however, one possible fly in the ointment.

"It's the economy, stupid," might not be such an obvious determining factor as it seemed to be in Bill Clinton's run for the presidency. But the way Kiwis feel about their economic situation on election day will clearly have a bearing on how they vote. And on that issue, the Government's record may not bear too much close scrutiny.

The Government inherited an economy which had already been in recession for most of a year, and which had then been assailed by the global financial crisis. Dealing with that recession and building an economy which would - as we emerged on the other side - reverse our decades-long comparative decline, was surely the most pressing task facing the new Government.

How, after three years in office, will the Government be judged to have done?

It has, after all, had its fair share of good luck. Record commodity prices have helped the economy and the balance of trade.

Our banking sector has remained, by world standards, remarkably stable - though the same can't be said of our finance companies. Our major export markets - Australia and China - have been beacons of light in the recessionary global gloom.

Yet - our unemployment remains stubbornly high, the retail trade is flat on its back and the housing market has stalled.

Business confidence is low and business investment equally so. The protections that the vulnerable depend on in tough times have been reduced, and the talk is all of further cuts.

The early flush of energy and enthusiasm - remember the Jobs Summit? - seems to have evaporated.

The recession has lingered on well beyond what the forecasters predicted.

There is precious little to show that the Government has done more than hold the ring.

We look in vain to see where the lift in demand and employment is to come from.

And, most seriously, if and when we do recover, there is no evidence that anything will have changed. The problems that have dogged us for decades will remain unresolved.

That, after all, was the central point made by Standard and Poor's before Christmas. When they warned of a credit downgrade and placed us on negative watch, they pointed the finger specifically at the prognosis that, as we eventually do emerge from a protracted recession, all of our entrenched problems will also re-surface.

They predicted that we would return to our bad old ways of failing to save and invest and wondering why our productivity does not improve faster, of bingeing on artificially cheap imports and expecting to be able to borrow overseas to fund our excessive consumption. Also of wringing our hands while our counter-inflationary policies force up interest rates and an over-valued exchange rate.

It was the prospect of the resultant deficit - the country's rather than the Government's - and our reliance on overseas borrowing, that caused them real concern. Unusually, a credit-rating agency seems to be taking a longer-term view than that of our own government.

Their message seems to be that, unless we grapple with those long-term problems, our credit rating is at risk.

If all of this remains true on election day, if the remnants of recession still linger on and we are poised to resume the unsustainable rake's progress that has held us back for so long, how will the voters mark the Government's report card?

It has to be said that, as the outcome of three years in office, it would not look good.

The Government would surely not want to face the voters with a record that shows that nothing had really changed. Changes to the tax system, a renewed and welcome emphasis on research, and largely administrative fiddling with the delivery of education and health services may have their proponents but are hardly the stuff of fundamental economic reform.

The Prime Minister is nothing if not a pragmatist.

As he approaches the election, he will figure that he has most bases covered. He would be uncomfortable, therefore, with any vulnerability on his Government's economic record.

Can we expect that he will understand the need - however belatedly - for an "agonising re-appraisal" when something isn't working and to strike out in a new direction?

- Bryan Gould is a former vice-chancellor of Waikato University and member of the House of Commons.