Colin James on Ruth Richardson

Those who want a fair yet critical analysis of Ruth Richardson’s contribution to Government should read this paper by Colin James which he presented to The Bolger Years conference. I asked Colin if Ruth was in the room when he delivered it, and she was in fact the speaker directly after him.

Some extracts:

The die was cast for the early years of Jim Bolger’s government at a caucus meeting in late 1989 while still in opposition at which Ruth Richardson won commitment to vote for the fourth Labour government’s Reserve Bank Bill. That decision was both a symbolic and a substantive acceptance of the prevailing market-based and monetarist economic prescription and also a symbolic and substantive shift of mentality in a party noted for moderate management of an inherited status quo, not the implementation of radical ideas. The Richardson ascendancy which that caucus vote legitimated decisively finessed (though did not bury) the residual populism of the Muldoon era, of which the most visible and audible exponent was Winston Peters.

Only with the formation of a John Key-Bill English leadership team in November 2006 could the party be said to be fully back on its historical course, presenting something akin to the mix of liberal and conservative tendencies which typified it during its domination of politics from 1949 to 1972 but which had been obscured for 30 years since Sir Robert took it down a populist cul de sac.

But what is clear from National’s history is that the conservative and liberal strands are central and the populist and radical strands are outliers. Only when a powerful or charismatic personality emerges or times are unsettled have the outliers come centre-stage as they did between 1974 and 1992: the populist ascendancy ended with Sir Robert Muldoon’s defeat in 1984; the radical ascendancy was coterminous with Ruth Richardson’s period of greatest influence.

To talk of four tendencies is not to suggest individuals can all be pigeonholed in one or other. John Banks combined populist social attitudes with libertarian economic ones, for example. The four strands do not amount to factions, even if sometimes, as in the late 1980s and early 1990s, the tendencies become more distinctly visible.

James is excellent is his ability to look at the different components of a party and how they very over time. Far too few commentators look only at the short term.

And his conclusion on Ruth:

So was Ruth Richardson just a mistake, an aberration, a diversion, a siding, a less-said-the-better episode in National’s history?

No.

Her championing of the Reserve Bank Act and the Public Finance Act while in opposition and then in government was critical to beating the scourge of inflation and to achieving efficiencies in government activities. Her 1991 Budget deepened the recession in the short term but laid a long-term basis for strong surplus Budgets from 1994 onwards, underpinned by her Fiscal Responsibility Act. Her social assistance policy created hardship and spawned a complex and arguably counterproductive raft of special assistance payments but it also kickstarted a shift from purely rights-based social security and welfare to one predicated on the principle that work is better if practicable, which is now mainstream policy. Her insistence on thoroughgoing labour market deregulation encouraged firms to substitute cheap labour for capital investment, which was the opposite of the high-wage economy objective, but it also laid the basis for the big drop in unemployment over the past 10 years. Labour market deregulation also delivered significant labour mobility gains which added materially and importantly to the economy’s flexibility and eventual ability to ride out the combination of drought and Asian crisis in the late 1990s with little pain, which would have been unthinkable 10 years earlier. Overall her policies, added to those of Sir Roger Douglas and the fourth Labour government, generated a big improvement in productivity growth which is now accepted generally as the only sure eventual route to a high-wage economy.

She aimed to restart the reform blitzkrieg and proved able to do so — only briefly but long enough to weld the National party to the new economic project and in effect rule out any realistic prospect of reversal. The Clark governments have modified the project at the margins but the core principle, that markets allocate resources better than administrators, that private operators are for the most part more efficient than public agencies and that free trade is preferable to managed trade, is substantially intact. Indeed, in many ways, notably in its negligible tariff protection and in its tax system, New Zealand remains an outlier after seven and a-half years of governments led by an avowedly social democratic party. The Richardson ascendancy is an important chapter in the transition from the managed economy to the market economy.

James goes on to criticise the social costs of the reforms however. But his last two paragraphs speak for themselves:

But Ruth Richardson did what she did for what she saw as a greater good. She applied principle when it was sure to cause pain, which took at the very least bone-headed determination but also considerable courage. There were threats to her person. There are not many politicians with spines and carapaces like hers and every now and one comes in handy, if for no other reason than to sharpen the debate. Jim Bolger fired Ruth Richardson after his sorry electoral experiences in 1993. But had he not hired her in the first place, the economic gains and the fiscal improvement which paid off after his sacking might well have been compromised. I think Jim Bolger instinctively felt that and that is why we got Ruth Richardson. The irony is that Helen Clark was the beneficiary.

But let’s end on a Richardsonian note of longer-sightedness. Until the 1970s government spending, including assistance to industry and farming, of which there is very little now, was around a quarter of GDP, 10 percentage points below current levels. East Asian nations get by on less than that and some are richer than we are. Perhaps those nations will increase spending up to our level as they close in our standard of living. More likely, they will keep government spending well below ours, as Japan has done. If so, Ruth Richardson’s drive for smaller government may turn out to have been a pointer to the sorts of hard decisions that await her successors as policymakers down the track. The alien corn might turn out to have been the present.

This to me has been the tragedy of the last seven years. With such a healthy economy we could have significantly reduced spending as a percentage of GDP, while still increasing spending in real terms – just by not so much. That would have allowed us to lock in once in a generation reductions in tax, which would have boosted future economic growth.