From day one, Clark’s government was confronted by a revolt from the NZ business world that came to be known as the ‘winter of discontent’. There is a similar chill in the air now, writes Branko Marcetic
No matter what Jacinda Ardern does, she can’t quite seem to win over the business world.
Since last year’s election, the public has been treated to a constant stream of bad news about business confidence, which plummeted to an eight-year low immediately after the government formed, and has remained stubbornly low. The prime minister has been courting business leaders, assuring them this pessimism doesn’t reflect reality. Meanwhile, business trade groups have publicly complained about Labour’s planned legislation, such as the union-friendly Employment Relations Amendment Bill, changes to the 90-day trial period and, most recently, its proposed Fair Pay Agreement system for collective bargaining.
If it’s all giving you a severe case of déjà vu, there may be good reason. The events of the sixth Labour government’s first year are eerily similar to those of the fifth Labour government’s first year, when Helen Clark became prime minister on the back of a campaign in 1999 that promised a reversal of course from the preceding decade’s market-wedded direction and to undo some of its more radical reforms.
From her first day in power, Clark faced a revolt by the New Zealand business world that came to be known as the “winter of discontent”, aided by international condemnation of her “socialist” government and news coverage that, for the most part, supported her critics’ narrative. The whole pushback ultimately led her to scale back her ambitions.
The whole affair lasted closer to a year than a single season. Business groups spent the 1999 election campaign attacking the policies Labour campaigned on – namely, repealing the anti-union Employment Contracts Act (ECA), raising taxes on high earners and reversing the year-old ACC reforms that had opened accident insurance to private competition.
Labour’s first year in power had the bad luck of coinciding with several trends that were bad for business. The New Zealand dollar nose-dived throughout the year, frequently ascribed to the new government in news reports even as economists pointed out there was little to no connection. The year 2000 also saw oil prices jump, another trend the new government had no power over, but which put a further strain on production costs.
But the “winter” had started long before this. From the very first day after the election, groups like the Northern Employers and Manufacturers Association, the Employers’ Federation and Federated Farmers began warning these policies would cost jobs and hurt the economy. Some employment lawyers warned that repealing the ECA would lead to a rash of strikes that in some cases would cripple industries. Calling Labour’s policies “radical” and “Muldoonist”, the Business Roundtable’s Roger Kerr charged they would hurt economic growth and be “negative for business”.
It wasn’t just business trade groups that opposed the policies. BNZ chief economist Tony Alexander came out swinging against the government, calling them “teachers, academics, unionists and social workers” who had “no idea about running a business”, and an “active negative” on the economy. He declared Michael Cullen a “failure” as finance minister and while he later apologised for the remark, he continued to insist that, among other things, raising the minimum wage would push people out of jobs and that its Employment Relations Bill (ERB) was scaring businesses out of hiring people. Gareth Morgan, decades before apparently falling into the well of statism, complained that the government was “anti-growth” and tarred with a “socialist mentality” that repelled overseas investment.
The government also faced international right-wing pressure to conform. The Australian Financial Review ran several op-eds warning New Zealand would be economically isolated and perceived as having “lost the plot”, as did the Asian Wall Street Journal, linking Labour’s reforms to the fall in the New Zealand dollar. A former Australian Liberal leader, an adviser to Republican Presidents Reagan and Bush, and conservative economist Wolfgang Kasper all warned against turning away from what they saw as the successful reforms of the 1980s and 1990s. International credit rating agency Standard & Poor’s warned the economy could weaken thanks to more regulation and spending, higher taxes and a return to interventionist policies.
The opposition made hay out of it all, using phrasing that might sound familiar to today’s readers. Jenny Shipley called the Labour programme “a huge payback to the unions” and a “shopping list of the sort that used to be trotted out in the 1970s and 80s”, suggesting New Zealand would gain a “banana republic reputation”.
The government’s approach to this business opposition didn’t help matters. It had made little attempt to win the already sceptical business world over, and had failed to follow through on a planned national roadshow to educate people about the ERB. Meanwhile, Michael Cullen’s combative style – calling business critics “dinosaurs”, “hysterical” and engaged in “blatantly anti-New Zealand drivel” – seemed to confirm what the government’s critics were saying.
Every week seemed to bring some new, depressing statistic. Business confidence plunged to the lowest in the National Bank survey’s then-12-year history. The Institute of Economic Research recorded the worst plunge in 16 years a month later. The number of Canterbury businesses expecting decline doubled. And Labour slipped steadily in the polls.
The constant drum beat of negative coverage drowned out the fact that, well, things weren’t actually that bad. By the time widely publicized fears of a left wing-engineered economic collapse were reaching fever pitch in June, Reserve Bank Deputy Governor Murray Sherwin projected growth of more than 4% for the following two years. He cautioned business leaders and commentators not to talk the economy “into a downward spiral”.
Deutsche Bank Chief Economist Ulf Schoefisch cautioned that “there are a lot of positives out there and the negatives do not justify the current low level of confidence”. Other economists pointed out that the lower exchange rate would be good for exporters. But these facts were drowned out by coverage that overwhelmingly echoed the assertions of the government’s critics.
Cullen had spent that first part of the year warning, similar to Sherwin, that businesses could be talking themselves into a “blue funk”, and that they were creating a cycle of “perpetual grievance” that would end up “spooking customers, workers, other employers and investors”. This appeared to come true when, come August, the Reserve Bank lopped 1.5 percentage points off its initial economic growth projection, citing the fact that uncertainty over Labour’s policy had caused “some deferment of new investment and employment.”
To some extent, the revolt had the desired effect. The government began courting business leaders at private dinners and seminars and more private face-time with MPs. More importantly, it scaled back its ambitions.
Labour dropped plans for a rise in youth minimum wage, four weeks annual leave and a second phase of ACC reforms, as well as employer-funded 12 weeks paid parental leave (taxpayers would instead foot the bill). This created a rift with a humiliated Alliance, its coalition partner, which had championed such policies. Michael Cullen delivered a budget widely described as “boring”, with a $5.9 billion spending cap for three years.
The government also revised certain aspects of the ERB, the legislation most hated by its critics. Some were relatively uncontroversial – allowing some independent contractors to stay defined that way, for instance. In another case, it allowed the use of strike-breakers in some circumstances. Even so, the bill passed relatively intact, much to the chagrin of its critics.
Perhaps this is why, despite all of the government’s compromises, nothing really changed as the winter turned into spring. National pulled ahead of Labour for the first time and businesses continued to sit in a funk over its policies. In October, the Business Roundtable was revealed to have secretly bankrolled a series of newspaper ads featuring ordinary New Zealanders calling for a change in economic policies.
Yet by the end of November, Labour had retaken the lead, optimism about the economy had rebounded and business pessimism about the economy plummeted. On the 9th of December, Cullen declared the “long winter of discontent” over. What happened?
Simply put, the 42% of business people who had expected the economy to worsen by Christmas had been wrong, and the economy experienced an upturn. Economic forecasters Business and Economic Research Ltd (Berl) predicted prosperity that would see the lowest unemployment in 15 years, thanks to an economic recovery led by the export-sector – the very part of the economy that had benefited from the lower dollar commentators and business leaders had spent the year bemoaning.
Economists pointed out that it had taken time for that prosperity to filter out from the rural regions, which benefitted from the low dollar, to the rest of the country. Some, like Ganesh Nana of Berl, complained about the “fickle” nature of business and consumer confidence, which had gone from overjoyed, to despondent, to suddenly overjoyed again.
If we’re currently reliving the events of 2000, this iteration has been far milder – perhaps more a “cold snap of discontent” than a full-blown winter.
Nothing so far matches the ferocity of the business revolt faced by Clark, nor the unceasing march of negative news coverage and even international condemnation from right-wing commentators her government faced. New Zealand businesses have surprisingly acquiesced to certain policies that were condemned 18 years ago, such as a higher minimum wage. Business confidence has clawed back slightly, and consumer confidence is currently above its historical average, even as it’s somewhat shaky. Just look at the muted, if displeased, business reaction to the just-announced Fair Pay Agreement working group, something that, under Clark, would have been met with howls of outrage from the start.
Why this is the case in another story. Ardern’s government appears to have made a concerted attempt to bring business into the fold. It’s also been relatively conservative, signing on to the TPP and meeting businesses halfway in other matters. But Clark’s government wasn’t all that radical either, despite what her critics charged: her most radical action, repealing the ECA, was later described by Jim Bolger as “tiddl[ing] around the edges.”
Just because this particular “winter” isn’t as severe as the first, however, doesn’t mean it couldn’t get that way. All it would take is for the economy to stumble, regardless of the actual cause, and we would likely see a non-stop drumbeat of negative headlines about Labour’s approach similar to what the Clark government experienced.
In any case, there are things we can learn from the first “winter”, first among them that we should take apocalyptic visions from the business world with a grain of salt. Clark’s policies – mostly aimed at rolling back some of the 90s reforms and softening the existing system, rather than fully tilting it back in the opposite direction – never led to the economic armageddon her critics foresaw. In fact, the economy rebounded in a matter of months, and Clark’s government would go on to be ranked first twice in the “Ease of Doing Business” report produced by the World Bank, hardly a bastion of radical left-wing thought.
Despite this, the perceptions of business owners – even unjustified – can have an effect on the country’s economic fortunes, as both Cullen and others warned at the time. It’s a reminder that, whatever the reality, misconceptions can become a self-fulfilling prophecy, something that currently shows signs of happening, even as the economy is relatively strong.
For those cheering on Labour, the most alarming lesson of the episode is that the “winter” did work. Clarked still passed her major policies, but, spooked by the business revolt, she scaled back her ambitions and shelved a number of other policies. If Ardern – a close disciple of Clark’s – has frustrated her fans with her caution, perhaps it’s to avoid a similar scenario.
Of course, business is only one set of voices. With nurses, teachers and others making noises of displeasure since the election, perhaps the Ardern government is seeing the makings of an entirely different revolt.
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