Liam Dann 's Opinion

Business editor of the NZ Herald

Liam Dann: Political divide is widening needlessly

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The Labour Party has taken a serious punt with its sudden shift to the left on electricity market regulation.

Russel Norman (left) and David Parker outline their electricity reforms. Photo / Mark Mitchell
Russel Norman (left) and David Parker outline their electricity reforms. Photo / Mark Mitchell

How about that Bitcoin? You know, that crazy unregulated cyber currency - the monetary Esperanto - that is increasingly accepted by segments of the internet retailing world.

It's like a virtual gold standard with the raw material being mined by automated computer algorithms. It sounds nutty, but despite some major technical scares and crashes it is holding together. This technology-based alternative currency is proving popular at a time when events in places like Cyprus have caused people to start questioning the solidity of traditional banks - again.

Bitcoin is still weird and outside the mainstream but it is only nuts as long as it remains demonstrably less stable and riskier than the traditional financial markets.

If it starts looking better than the local bank, then we're in serious trouble.

Thankfully, in New Zealand we're not even close. After the events of 2008 and 2009 we are still shell-shocked and there is still much soul-searching going on as to how markets can be better regulated and controlled, but the world has not collapsed, there is no 1930s-era depression going on around us.

If you think things are that bad then you seriously need to read some history books.

These are rocky economic times, to be sure. We've been distracted in the past few days by more dramatic events in the United States. This weekend's G-20 meeting of global finance ministers has hardly been top of most news lists. But they've had plenty to talk about. Hard commodity prices have dived again - it wasn't just the Bitcoin. China is falling short of GDP growth expectations and the IMF has revised down its global growth forecasts for the rest of the year.

Yes, we're over five years into the financial crisis and the world has not yet recovered.

The temptation to panic and swing back to the distorted state-controlled economics of the 1970s is clearly growing.

Just look at Labour's sudden lurch to the left on electricity market regulation. They're abandoning policy that dates back to National in the late 1990s. But it is policy that philosophically dates back to the Labour-led reforms of the 1980s.

It was left largely intact by Helen Clark and Michael Cullen for nine years - presumably because they still remembered how bad a state-run power market could be.

And although it is not the stated intent of this policy, we will end up running it again.

Okay, I'll admit it: it wasn't Bitcoin or Boston that overshadowed the G-20 in the business news last week. It was the Opposition's new electricity policy.

I was hoping to avoid the topic because, well, electricity markets are just so damn complicated.

They are so complicated that it is unlikely this debate will be won or lost on the subtle intricacies of policy. It is going to be an ideological slug fest.

We'd all like lower power prices. It's a clever election bribe. But if a government bludgeons down the returns available to international investors they simply won't invest, they'll go elsewhere.

New Zealand taxpayers in the future - my kids - will have to earn or borrow the money to pay for new power generation as the population grows.

We either pay as we go or we pay later. Power stations cost.

The fact that immigration and GDP growth have slowed since the Global Financial Crisis, and the prospect of the Tiwai smelter closing, buys us some time on the need for new supply.

That's time Labour has clearly decided it can exploit for short-term political gain - lower prices now, never mind tomorrow.

Labour finance spokesman David Parker opposed this policy for those reasons in 2006 when the nation needed more power generation; now he's pushing it. Fair enough, National is not shy of doing the same sort of thing, with blindspots on issues like the National Superannuation age and housing.

This is how our political system works - always focused on the next three years. You can't blame Shearer for taking this punt. He needed a point of difference and doesn't seem to have the charisma to win a battle fought on centrist policy with a few cuddlier bits around social spending.

That's a shame because it would be better and safer for New Zealand if he did.

Surely the business savvy end of the Labour Party must be wondering about this. Shane Jones has admitted he "took some convincing".

Political commentators have been quick to point out that New Zealand voters now have a real choice. Sometimes it seems we have two poor choices.

For those in the business world starting to get sick of the Government's bungling and lazy rhetoric - the kind of half-hearted performance that has contributed to the latest slump in the polls - the decision by Labour to lurch left was quite disheartening.

If Labour wants to gain votes from swinging voters who still trust capitalism - rather than just appeasing those on the left that joined the Russel Norman party - then Shearer is going to have to do a very good job of convincing them that Labour is not a destroyer of wealth.

Shearer needs to distance himself from the gleeful schadenfreude of those who celebrated the $600 million value destruction suffered by Contact, Infratil and Trustpower in the day and a half after the new policy was announced.

He will need to communicate clearly how this policy ensures we have enough foreign capital investment to grow power supply as GDP grows. Presumably Labour still hopes it will grow. The Greens, remember, aren't so wedded to GDP growth as a concept.

Despite Norman's efforts to normalise the Greens by talking more about economics than core policy, this is still a party living in a hippie fantasy world. It is a party that "envisions an organic nation" in its policy on food production. Good luck with that. New Zealand owes its first-world status to a world-class, technologically-driven machine of a farming economy. We don't put that on the tourist posters but let's be realistic.

If centre voters needed any further cause for concern about Labour's shift in policy, then the resounding support it has from Winston Peters ought to do it.

Since 1984 there have been many aspects of economic policy that have put Labour and National closer on the political spectrum than they are to their coalition partners.

And recognising the importance of capital markets used to be one of those things.

Critics are very good at pointing out what is wrong with free markets while ignoring the extent to which they work immaculately everyday across every aspect of this crazy, comfortable modern life.

From the moment we get out of our designed and engineered mattresses, to that morning flat white which began its journey somewhere in South America or Africa ... your smartphone, your car, your bicycle, your iTunes ... the list is endless and includes the electric power that makes it all possible - all brought to you by the market, for a price.

Declaring you can do a better job of delivering consumer products than the free market is a very big call and it is one Labour hasn't made since the 1970s.

So yes, here we are five years into a financial crisis that will probably take a decade to unwind, but we're getting through it better than most countries around the world.

It is a shame to watch the political divide growing again.

- NZ Herald

Liam Dann

Business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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