Nostalgic Governments Face Cold Realities

Commentary, Local Government, Michael Bassett (historic), Uncategorized

Two years ago centre-left parties the world over were celebrating what looked like an electoral swing in their direction. Tony Blair’s convincing win in Britain in May 1997 was followed by Lionel Jospin’s in France, Gerhard Schroeder’s in Germany, the re-election of Jean Chretien in Canada, and a swing to the Democrats in the mid-term elections in the United States. Pundits confidently announced that economic re-structuring was over, and that the voters were yearning once more for a compassionate style of government that – to use that meaningless slogan – “put people before profits”. (New Zealand Labour Prime Minister) Helen Clark confidently proclaimed after her victory in November 1999 that “neo-liberalism” was dead.

In the middle of 2000 such confidence no longer seems warranted. The pendulum seems to be swinging back at a faster rate than the most pessimistic social reformer can have anticipated. George W. Bush looks the odds on favourite for the White House, a conservative coalition is on the come-back trail in Canada, it is by no means certain that John Howard’s government is finished in Australia, and British Labour is in trouble with the voters for the first time since coming to power. Tony Blair is still slightly ahead in the polls, as is Helen Clark’s ministry, but both seem to be constantly in hot water. Of the leading centre-left governments, only Germany’s has displayed considerable economic and political skills of late, in their case over tax reform. Schroeder has been aided this last twelve months by continuing chaos and scandal among his Christian Democrat opponents, and has enjoyed a dream run.

What has gone wrong with the centre-left experiment? Some of the answers lie in matters that are beyond any government’s capacity to fix. Interest rates are edging upwards worldwide, placing family budgets under strain as the cost of the roof overhead rises. Moreover, as they did twice in the 1970s, the oil-producing nations are contriving to push up the cost of oil which is leading to higher petrol prices in all parts of the world. Americans, the British and Europeans are all experiencing their highest fuel prices on record, many of them paying substantially higher prices than New Zealanders because their governments use gas as a major source of tax revenue. Voters are getting grumpy, and not surprisingly their willingness to contemplate tax increases to support social engineering is ebbing.

Nor do the experiences of the last half-century, or the increasingly stern disciplines of the globalizing economy guarantee centre-left success. Voters still tell their politicians that they want a more caring society, that they favour more money for health and education, and don’t want means testing. But most of the time the voters don’t mean what they tell the pollsters on these issues. Their schizophrenia is partly due to the extra financial burdens which they are having to carry of late as interest rates and petrol prices rise. It is partly also because the wider public is unable to discern any improvement in the quality of their societies whenever governments do decide to spend up big on health, education and welfare. After three years of more social spending in Britain, culminating in recent extravagant additional budgets for health, education and transport, some Labour-held electorates are telling their MPs that supporters are apathetic and they can’t convince voters that a Labour government has made a measurable improvement to their quality of life.

No one should be surprised about this. Extra money has always taken a long time to filter down to the local level. Often it takes longer than the electoral term. Some Labour electorates in Britain are claiming that less is spent now on health and education in their areas despite the Blair government. Some of this is due to bureaucratic delay; some because provider groups take their share of the money before it can produce more services. In recent weeks Tony Blair, who has made better health care his personal mission, has encountered fierce resistance to those administrative changes that are necessary if the British National Health Service is to produce better outcomes. It’s a fact of life that Labour governments, more than their opponents, always come under heavy pressure from teachers and nurses wanting pay rises. With health, the rapid increase in new medicines and the availability of costly interventions generate demand and an endless series of media sob stories. To spend time with the British newspapers is to watch the same articles appearing as in New Zealand. Growing waiting lists, medical bungles, angry providers, grizzling patients. At a time when New Zealanders are wrestling with the reality that towns like Gisborne and Wanganui can’t deliver first-class health services any more, the British are waking up to headlines admitting that many parts of the UK are receiving services of an “uneven quality”, in other words, bad.

Political parties that guarantee quality “free” public services in health and education for everyone, are bound to come a cropper. Centre-left politicians are being forced to re-learn what their predecessors slowly comprehended a generation ago. First of all it isn’t always lack of money that is the cause of a problem, and secondly, promises of more money always awaken expectations that outstrip an economy’s capacity to provide. It is in the nature of government spending that the quantum will always disappoint. Labour governments that rely on spending alone will always fail. As the terms of trade turned against New Zealand in the early 1970s Bill Rowling’s ministry went heavily into debt so that it could maintain full employment, promising to “Keep New Zealand Rowling”. A big deficit was run up, inflation soon gathered pace, and economic growth without which the poor would never succeed, was choked off. Yet in the eyes of the voters, the Third Labour Government couldn’t spend enough. In 1975 it was thrown out, neck and crop.

The rapidly gathering pace of globalization is playing its part, too, in complicating centre-left achievements. Many commentators have pointed out that there is nothing new about globalization. Earlier manifestations of it have been part of history since Roman times. But the rapidity of modern transport and the world of credit cards and electronic money and information transfers has torn away the “insulation” that Mickey Savage and subsequent governments wrapped round their social experiments. These days no government anywhere seems able to stem the inexorable movement of people and money towards the wider world marketplace. Many parts of Britain are bemoaning the gravitational pull that London exerts on the young. And once there, the brightest flee to Europe or increasingly to the United States to pursue their careers. Lower rewards for skills as well as higher tax levels usually come with centre-left governments; envy and egalitarianism are the language of Labour the world over. Cutting down tall poppies is the daily game. Sadly, these encourage emigration that not even the most rigorous regulator can prevent.

Off and on after 1985 when New Zealand opened its economy to the world there was a flow of skills into the country. But since the middle of the 1990s we have been haemorrhaging talents and money as people move their skills and/or resources to what they deem to be more congenial climates. The rate has stepped up over the last twelve months. Appeals to patriotism of the kind used from time-to-time by Jim Anderton won’t work here any more than elsewhere. Some still believe that if controls were re-introduced the bold centre-left experiment could resume once more. But in today’s world, controls are no longer an option. If New Zealand, or any other economy for that matter, wants to cut the mustard in the globalizing world, it has to perform sufficiently well that outsiders take notice of it, and want part of the action. Competition is not a word that comes naturally to centre-left lips, but it is an inexorable force at work in the globalizing world. Blair’s government has realised this, and has embraced Europe with caution, holding back on currency union, and becoming the fourth largest economy in the world. Schroeder also recognises the competitive forces at work, and is moving to reduce corporate compliance costs in Germany with tax changes and pension reforms.

The cold reality these days is that nostalgic centre-left goals and wish lists often conflict with day-to-day realities. As a policy, tax-and-spend drives people away, and extra government spending is never enough for those who stay put. More is always required, as Blair has discovered, yet the harder the centre-left tries, the more damage they can do both to themselves and to the economy as well. Blair’s first two years were spent wooing middle Britain with a mixture of spending and restructuring. All the while Blair kept himself centre stage, ruthlessly dealing to his colleagues and critics, and relying on the spin with which his advisors succeeded in seducing the media. Eventually, internal party ructions over what was seen as too little respect for traditional Labour spending forced a re-assessment of priorities in Downing Street. Recently British Labour has reverted more to type with a new rush of spending promises that depend for their sustainability on the economy operating at full speed. The trouble is, as the Bank of England warned last week, such a rapid escalation in spending is likely to have inflationary consequences. Meanwhile Blair’s conservative opponents have finally got his measure, and have worked out how to reduce him in voters’ eyes. He has been forced to drop the “New” from Labour. It is by no means certain that British Labour will be back on the Treasury benches after the next election.

Helen Clark faced somewhat the same conundrum when she came to power.

The economy was improving, and the public was longing for change. The centre-left bristled with policy initiatives, both those on the pledge card and others buried deep in policy documents. Unlike Blair, Clark seized the moment to do the controversial things first, increasing taxes, restructuring the ACC, pushing up minimum wages and redrawing the labour laws. Where Blair kept the big spending for later in Labour’s term, Clark’s government has committed most of the money that can be safely anticipated during the three-year term, in the first budget. She hopes that the benefits will show up in time for the next election. If the British and world-wide centre-left experience is any guide, there will be few demonstrable improvements in public service performance by election year, and a great many tongues hanging out for more funds.

By early in 2002, few backbenchers will be questioning whether more money is what the public service requires. Instead, they will be demanding more spending. And by then elected hospital boards will be adding their wails and lamentations to the chorus seeking more money. This will really test Helen Clark’s government. There will be little fiscal freeboard, and in any event, it will be too late. Too late to impress the electorate, and too late then to start asking the hard questions like whether fully-funded, un-means-tested public provision of every service under the sun is the way to ensure health and education for all. Like most centre-left governments, ours, and Tony Blair’s, could well limp from office much wiser than when they first reached the Treasury benches. And they’ll face another decade in the wilderness, wondering what went wrong.

Everywhere the predicament facing today’s centre-left is that greatness does not lie simply in spending more, or indulging ideological whims. Opposing privatization in all circumstances doesn’t necessarily help the centre-left’s electoral chances. As Schroeder, Chretien, and to a lesser extent Jospin have demonstrated, it is essential carefully to identify on the one hand those areas where the greater good requires public provision of services, then on the other where the private sector could well produce a good or better outcome for less. This process frees up scarce resources for other things, as both Schroeder and Jospin have discovered. Each has indulged in selective privatization. Those centre-left governments looking strongest these days are those that have kept on re-thinking their raison d’etre.

As Tony Blair has demonstrated, centre-left governments can retain public confidence for a long time with spin. But in the complex world we live in, pretty faces, sloganeering and experimental tinkering are a poor recipe for long-term success. Few British voters seem ready to reward Blair for radically reforming the House of Lords, for devolution of functions to Scotland and Wales, or for trying to repeal laws forbidding the discussion or promotion of homosexuality in public schools. As Clinton’s campaign team said in 1992, “It’s the economy, stupid”. The centre-left made its name in the early years of last century for its economic proposals, not for promoting minority fads. It painted pictures in the minds of its supporters of a future society where governments underpinned private initiative and levelled up the playing field for everyone. In office the centre-left was boldly experimental, and succeeded in extending a long shadow over politics for the rest of the century, even if it was more often out of office. In all countries re-jigging the welfare state has, to a greater or lesser extent, been the centre-left’s mission of recent times.

However, Helen Clark’s government often seems at the nostalgic end of the centre-left spectrum, looking backwards to a world of publicly owned and funded ACC (worker’s compensation), public health care, public transport, and union empowerment. Eight months into her term, it is still not too late for the coalition to re-jig its thinking. While the coalition’s support is sliding, the New Zealand public still supports Helen Clark’s firm hand on the tiller. But come election time, they will need convincing that her government is more than a giant exercise in nostalgia. Especially since there will be so little to show for the extra spending, and so few alternatives than to try to find more – with all the economic consequences in terms of inflation and slower growth that would inevitably follow.