Labour still haunted by economic ‘loser’ tag

‘Iknow they spent all the money!’’ The scene is 2015, and a focus group is flaying the economic track record of the last Labour government. The group is presented with figures showing that Helen Clark and Michael Cullen had, in fact, run repeated surpluses and got government debt down to almost nil. Whereupon – in the recollection of one observer – a member of the focus group angrily says, ‘‘No, no, no. That can’t possibly be true. You must be talking about some other kind of debt . . . Because I know they spent all the money!’’

Once negative perceptions set in, facts can’t always shift them. And this will shape Finance Minister Grant Robertson’s approach when he delivers the Budget the week after next.

Labour and its global counterparts suffer from an entrenched view that conservatives are somehow better with the economy, irrespective of facts. It doesn’t help that many left-wing parties were unfairly blamed for the global financial crisis and the resultant spike in public debt.

But it’s more than that. In the US, for instance, the economy has grown faster and more jobs have been created under Democrats than under Republicans. But the negative perception persists.

In extremis, even promises to spend up large on health and education fail, because voters refuse to believe left-wing parties can afford them. That leaves Labour politicians in a defensive crouch, ‘‘terrified’’, in the words of one former staffer, of being seen as economic losers.

Hence 2017’s Budget Responsibility Rules, which constrained government debt and spending, in line with the post-1980s economic orthodoxy. The rules may have hamstrung Labour, but for Robertson, being able to shout ‘‘surpluses, surpluses, surpluses’’ defused National attacks.

Now, by handling coronavirus well, and thus limiting the economic damage, Labour has – for the first time in ages – become the party most trusted on the economy. That trust is fragile, though, and could easily flow back to a classic National Party ‘‘sensible man in a suit’’, if only the Nats could stop forming circular firing squads.

That’s what Labour’s most left-wing critics don’t fully grasp. The world of economic perceptions is not a level playing field; for Labour, a false step can be fatal. On the other hand, the flaws in Labour’s recent approach are clear. It wins by ensuring voters aren’t worrying – or talking – about the economy, by keeping things ticking along.

But that leaves it unable to make the structural changes needed – to restore frontline staff’s share of company profits, to tax capital gains like any other income, to fund public services properly by boosting government spending from 30 per cent to 40 per cent of GDP – lest it frighten the horses.

Consider also the coronavirus lesson: protecting people proved to be the best way to protect the economy. And the global picture has shifted. After the 2008 financial crisis, the debate was dominated by austerity and public spending cuts; now, it’s all about government stimulus. Inequality is more salient. Even National pollster David Farrar thinks New Zealanders will in future ‘‘feel much more positive about [the] big state’’ that saved the economy from collapse.

All this could be the core of a different economics, combining old elements – like 20th-century ‘‘Keynesian’’ government spending to counteract recessions – with new ones, like the need for growth that respects environmental limits.

It would draw on the Italian-American economist Mariana Mazzucato’s ground-breaking work, which shows how governments create whole new markets by picking big social ‘‘missions’’ and mobilising behind them private-sector innovation that would otherwise never occur.

In this view, the economy is not something organic that should be left alone but rather a machine in need of constant adjustment. It needs government to direct it, actively using its taxing, spending and regulating powers, and investing in people, to ensure economic growth is built from the bottom up, or the middle out. You could call it Living Wage economics, since better-paid staff often work harder and quit less often, making the Living Wage a benefit, not a cost, to their company.

So far Labour hasn’t fully capitalised on its coronavirus success. Businesses know the wage subsidy saved their bacon. But Labour has yet to translate that into support for everyday – as opposed to crisis-based – active government.

Moves to clamp down on property investors, though – plus free trades training, and instructing the Productivity Commission to re-examine immigration policy – hint at a new approach.

Robertson has said he wants to fix long-term failings like unaffordable housing, runaway climate change and ingrained child poverty; expect something in the Budget on the latter two.

Mostly, though, Robertson will be balancing old and new, rehashing public-debt fears while quietly trying a few new lines. He’ll still be worried about the economic losers tag. But he has room to accelerate the shift towards a new world – and must do so, lest we remain forever trapped in the old.

[Robertson] has room to accelerate the shift towards a new world – and must do so, lest we remain forever trapped in the old.