Dialogue: Confidence surveys not business tricks

By CONOR ENGLISH*

Back last century, before the 1990s, there was a drink that made itself famous by being the alcoholic drink you had when you weren't having a drink - Claytons.

So are we now suffering from Claytons Grief, the grief you have when you don't really have it?

Last century I was involved in a range of surveys of the New Zealand population on a variety of issues. New Zealanders often had a positive opinion about their own situation, but when asked about their neighbours they had a negative view.

For example, if you asked New Zealanders if their business was doing okay, being a shy lot they reluctantly replied, "Yes, not too bad." But their neighbours must be having a terrible time.

Similarly for employees. Most got on well with their boss but thought their workmates didn't.

The net effect is that if you had 10 people standing in a circle, most were doing quite well but thought the other nine were doing terribly.

This gap between perception and reality is what I called Claytons Grief - that is, the grief you have when you don't really have grief.

A key reason for this gap, one suspects, is the views people form from the information they receive, either based on fact or through the media.

Much of the perception of economic doom and gloom last year was driven by Opposition politicians overstating the negative. The reality is that a lot of positive things are happening in New Zealand. There usually are.

But confidence is like beauty - it is in the eye of the beholder. And this month's New Zealand Property Institute Confidence Index doesn't tell a pretty story.

Since the index's inception, confidence has plummeted from a high of 99 to seven and now has rebounded to 32. This is also reflected in a number of other confidence surveys, which are also hitting rock-bottom. Put simply, if confidence was a person, it looks pretty ugly.

Last year, confidence was far higher despite New Zealand experiencing two quarters of negative growth. The Asian crisis, two years of drought, and political uncertainty all contributed to this. But taxes, interest rates, and Government intervention were also falling while world economies and commodity prices were rising. In May last year Government politicians of the day were predicting growth of 4 to 5 per cent.

These comments were received with much scepticism and ridiculed by Opposition politicians of the day. Things were in perilous state, they said. Naturally, their view was that the Government needed to change, to bring a new approach. But whoever won the election would be inheriting an economy heading towards the peak of its cycle.

Now the new Minister of Finance, Michael Cullen, in sharp contrast to eight months ago, is saying that things are actually rosy. Confidence should be higher. The problem is that the business community just doesn't seem to understand how rosy everything is. And anyway, in the minds of some Government politicians, these confidence surveys are not real. They are just another lobbying tactic - business is trying to pull a confidence trick by manipulating these surveys to try to change the Employment Relations Bill.

Last year many in business voted for this new Government. The negative carping of last year had an effect that there must be a better way. The last administration had lost touch with the business community and changes in personnel were too little too late to build a new platform and partnership with business. So a new Government was sought.

Now, business has changed its view. It is unified in its gloom. And Labour and Alliance politicians have changed their view. Now they are in Government, suddenly everything is great.

It is hoped that this Government, like any other, understands that whether you like them or not, confidence surveys are important.

While voters get to express their confidence once every three years, markets vote on a shorter time-span - every second. Business people's cycle is also shorter than politicians. They make a vote of confidence when they make a decision to risk capital and employ people. That's what helps economies to grow. What business people think matters, even if under MMP they are a relatively small group.

So what is happening here?

Our survey gives a hint of an answer. Many things affect confidence: interest rates, immigration policy, the weather, the All Blacks' or Silver Ferns' success or otherwise, growth, Government policy and, importantly, attitude.

When asked, "How well do you think the incoming Government understands the key issues affecting the New Zealand construction and property industries?" a stunning 76 per cent say "not well."

The Government has had the opportunity to make a positive difference, a positive impact. What this confidence survey is telling it - and one hopes politicians do take the message on board - is that its actions to date have not instilled confidence.

Whether they like it or not, politicians of any persuasion need to get to grips with the realities of business. Failure to do so means lack of confidence and a subsequent drop in investment, growth and jobs - trends that the statistics are now starting to show.

That isn't Claytons Grief. That's just grief.

* Conor English is the chief executive officer of the New Zealand Property Institute.