John Roughan: Struggling for a break on the golden horizon

Spare a thought for Don Brash this weekend. He is due to do National's annual opening number, "the state of the nation", on Tuesday and he needs to find a cloud in the sky. He has two problems. Last year's number was such a hit while it lasted that he is unlikely to match it, and, secondly, the state of the nation has been so good for five years now it is making me giddy.

Never in my conscious lifetime have I known a time like this. The economy has been in continuous growth for five years, riding over several international humps in that time, and shows no sign of flagging. Christmas is over and we are still spending. Business is humming, jobs are plentiful.

Employers are complaining they cannot find staff and their exposure to competition continues to keep wages and prices steady.

We have had some good fortune. Five years ago, the dollar dropped and farm export prices rose to give us a double boost through an international slump. By the time the price cycle turned downward, our prosperity was attracting high immigration which sparked a boom in house prices and business generally.

Ever since immigration declined, internal activity has maintained its momentum. House prices are recovering from a stall last year, export prices have risen again and we seem to be living happily with high dollar exchange rates, the ultimate test of a strong economy.

Commentators are saying it can't last of course; they have been saying so for at least the past three of those five years.

To anyone like me, who woke up to the facts of life with the 1967 wool price slump, there has never been so much cause for hope.

The next decade were depressing years of oil shocks, rapidly rising prices and wages, double-digit figures for both inflation and unemployment. Nothing governments did made much difference until prices and wages were frozen and that couldn't last.

In the 1980s we changed tack, and for a few heady years of unfamiliar financial freedom we thought we had cracked it. But sharemarkets took a dive and we took fright.

Early in the 1990s we finally got all the policy right and the economy started to hum mid-decade. But after three years, it went sour.

The latest run of golden weather has lasted the lifespan of the present Government so far. But spare some sympathy for National's leader because he deserves much of the credit for it. 

Observing the long spell of prosperity in many countries, a British commentator last year concluded the reason was, "we have learned to do economics now". He meant, he said, that governments had handed monetary management to their central banks, which had worked out how to use interest rates to keep national activity simmering and growing.

The Reserve Bank of New Zealand under Don Brash was a pioneer in those techniques. Unemployment was well down by the time this Government came to power and was already projected to fall to the current level.

Unemployment is as low now as it was when the country ceased to be a colonial farm with a guaranteed mother market. Exposed to world trade, the economy employs far more people than when industry was protected from imports and licensing limited competition in all things.

All of this is bitterly disappointing to those literate souls we might loosely call the Listener left. They spent the 1990s lamenting monetarism's "inhuman cost". They have never wanted free markets and monetarism to succeed because they are, for the most part, people who derive their jobs and social purpose from politics, public money and state service monopolies.

The present Government has come from the same class but, after some backsliding, it has quietly and sensibly preserved the essentials of the market economy.

National's problem, I think, is that Labour has become the conservative party of the new economy, just as National became the conservative party of the welfare state.

History has some echoes. National became the country's usual government once it convinced the electorate it would not undo the economy of social security.

The electorate had more confidence in National to manage that kind of economy, largely because most voters throughout that era were deeply wary of Labour's association with the union movement.

A similar instinct may be operating in the electorate today. Labour is looking likely to be elected to a third term and the reason could be that most people feel safer with a fairly orthodox Labour Government presiding over a market economy.

Certainly, the electorate is more wary now of National's class interests than Labour's. Economic reforms are widely regarded, quite wrongly, as serving mainly the interests of business and the well off. The more that National advocates tax cuts and privatisation, the more it feeds that misapprehension.

Business is harder in a free market than it was when licensing controlled the number of competitors and virtually ensured every permitted manufacturer and service operator a market share.

Competition forces companies and the self-employed to earn the rewards of a boom. And if the bubble bursts their income suffers. Employees, provided their jobs survive, do not face the same risk and do not reap the same rewards.

That is not an equation trade unions recognise. One declared this week it means to see its members get a greater share of the boom this year. Wage inflation could be the cloud Don Brash needs on the horizon.

But that threat is still distant. This little economy has become so competitive and soundly governed that there need be no end to the golden weather.

* John Roughan is a Herald assistant editor.