Pattrick Smellie: The essence of confidence is control

Deputy Prime Minister Winston Peters and Prime Minister Jacinda Ardern. Photo / Getty Images

COMMENT:

Someone, somewhere once said that economic competitiveness doesn't come from a single source, but a myriad factors combining either to improve or worsen an economy's performance.

Economic confidence is a bit like that too.

No single factor determines confidence levels at any one time, while the relative influence of the competing factors affecting confidence is forever shifting.

However, there are some common factors to the presence or absence of confidence.

The relative weight of different factors combining to give a reading of business confidence is a good place to start.

Blunt confidence indices tend to mask this interplay of factors.

That's why it's possible for recent confidence indices to show the lowest levels of confidence since the global financial crisis when, on any rational analysis, the New Zealand economy is in far better shape now than it was in 2008/9.

Unemployment is lower, the growth outlook is stronger, agricultural commodity prices are high, the government's books are sound, the kiwi dollar has fallen to favour exporters, the Auckland skyline is full of cranes today when, back then, it was full of clouds, and so on.

In other words, the raw number produced by a confidence index may indicate the direction of the shifting economic mood, but it isn't the same as tide mark painted on a wharf.

That's because confidence levels are a product of context.

The context in 2019 is that the global economy has become weaker and less predictable as the rules-based global trading system breaks down in response to populist and authoritarian politics.

The US and China are in a trade war, the divorce between Europe and Britain is a slow-moving train wreck, and there are more than the usual number of autocrats playing with matches in the Middle East. Increasingly extreme weather events are destroying more crops, homes and infrastructure than before, thanks to the onset of climate change impacts.

That's the global context, and the ebbing mood they create is not unique to New Zealand.

Only last week Shayne Elliott, chief executive of the ANZ Bank, told the Australian Financial Review that "there are lots of positives in the Australian economy".

"But on the other hand, growth is slowing, business confidence is low, consumer confidence is falling. So the question is why?

"Is this just a point in the cycle? Or is there something bigger happening out there? Is it something to do with new technology? Is it something to do with the global economy?"

He might just as well have been talking about this side of the Ditch.

The government's books are sound. Finance Minister Grant Robertson. Photo / File

On the home front, it's a demonstrable truism that business owners generally don't like left-leaning governments. It is also true that the rate of economic growth is slowing, owing to a mixture of workforce and industry bottlenecks, infrastructure investment policy reversals, and the weaker global outlook.

The broader public, if the latest political opinion polls are to be believed, has also begun feeling less confident about its government.

Put these domestic and global contexts together and suddenly caution – measured as weakening economic confidence – looks rational.

Now throw in some dread and outrage.

For urban employers, that might be the prospect of some scary-sounding labour law changes for urban employers. For farmers, it's a shaky Fonterra plus a pile of new environmental regulations that will fundamentally change how New Zealand is farmed, and what is farmed here too.

Arguments about a lower exchange rate and strong commodity prices cut no ice in a farming community apparently determined to don its traditional comfort blanket of victimhood.

Dread and outrage also attract media like moths to a flame, amplifying sources of conflict and uncertainty.

As another wise person once said: "Of course the media amplify things. They have microphones!"

Short of a sudden and unexpected global economic recovery and the election of a government that right-leaning business owners like, there is one crucial factor that can play a big role in whether or not current confidence levels improve.

That is the question of control.

Dread, outrage, conflict and uncertainty are all far worse when those affected feel they are out of control and powerless to change things.

Clearly, New Zealand businesses have no ability to influence deeply worrying global trade and political tensions.

Likewise, there is no sense that individual actions can make a realistic difference to runaway climate change.

Those are bedrock source of declining confidence are uncontrollable.

Within its own borders, where much is in our control, the potential for confidence-building should be stronger.

Here, partisan sector group leadership and a government riven by its own internal contradictions are not helping much.

Prime Minister Jacinda Ardern has been trying to make a virtue of constantly being shagged around by New Zealand First by arguing that "consensus-building" produces more enduring policy.

However, many business owners and individual voters see a government unable to exert control over its own agenda.

While that is the case, confidence is unlikely to recover all on its own.