Gareth Morgan, Director of Gareth Morgan Investments
The political change in the US is not a purely domestic phenomenon. To a large degree the policy changes that the US commenced under Reagan have been mimicked in other capitalist economies, including NZ. The unambiguous result in the US has been an electoral tiring of policies which emphasise economic efficiency at the expense of redistributional interventions. The electoral sentiment is one which resents what is seen as economic exclusion of the vast majority of people for the immediate gain of few, and only promised gains for the many. Clinton has called it the end of trickle down economics and the start of a new era of inclusion. His method involves pro-active government policies for raising the quality of human capital (education), infrastructural expansionism so that industry starts from a better platform vis a vis foreign competitors, and pursuit of an industry policy that encourages technological leadership.
The gaping hole of course is where the money is going to come from to finance higher state activity. The answer from Clinton is from taxing rich households and foreign companies operating in the US. The numbers look spurious but the retort to that from the Democrats is no more spurious than the promises of Republican Presidents” … who’ve been promising to finance the tax cuts they’ve made via spending cuts which haven’t materialised. In other words, the Democrats will be no worse on the budget deficit than the Republicans have been. The prospect then is for ongoing deficit neglect in America.
In NZ we have imported to a large degree the policies of the Reagan era, and in many cases pursued them through to a greater degree – particularly in the areas of microeconomic reform, privatisation and monetary policy. But the electoral response has been the same. There are a large number of voters who see themselves as excluded from the benefits that the policy change has brought, and further they feel government is continuing to confer privilege on the few at the expense of the many. The politics of resentment are dominating electoral opinion now.
If the Democrats in America embark on their policy of change, regardless of the risks that might entail from the budget deficit, then a new respectability – at least politically – will be obtained for pro-active, positive government interventions such as steeper progressivity of the income tax schedule and expanded State provision of social services. Given the bitter resentment felt by so many for the politics of selective growth, it is not at all far fetched to expect NZ politics to change direction in the same manner as Clinton is bringing to America.
Already the Labour party is aligning itself with the new US mood, and certainly the economics of New Labour, which appear to be those of the Alliance, are well and truly enunciated as a somewhat onerous NZ version of active State redistribution. This leaves the National Party still swimming in a direction the electoral tide has less sympathy with. National too will change.