Rodney Hide Speech to the Nelson Club, Nelson at 12.30pm on Friday, March 1, 2002

Helen Clark is vulnerable on her handling of the economy - and she knows it.

The economy under Helen Clark has but spluttered along. That's despite being buoyed up by a strong world economy, high commodity prices, favourable weather and a low dollar. Our growth rate for the year through to June 2001 was only 2.3 percent - that's with the best economic conditions for decades.

Current Treasury forecasts have New Zealand averaging just 2.5 percent a year for the next ten years.

That compares to their estimate that New Zealand must grow between 4.6 to 7.4 percent a year to achieve Helen Clark's goal of getting into the top half of the developed world's economic ladder in ten years. They see no sign that New Zealand is going to come close to the targeted growth rate.

Treasurer Michael Cullen has set more modest sights: he hopes New Zealand will achieve four percent growth in five years' time. It's a sad target. It's so tragically mediocre. And still on our present course we won't achieve it. That's why Michael Cullen has said five years - he knows he will be long gone by then. He has set his sights for only four percent growth and then only after three elections - 1999, 2002, 2005.

It's not as though we haven't achieved Michael Cullen's target before. We have. And we did so for five consecutive years. For the five years to 1996 - before Winston Peter's disastrous spend up - New Zealand averaged four percent annual growth. At that time Michael Cullen was ranting and raving in opposition claiming that National was "butchering" the economy. He was promising back then to increase government spending by over $2 billion a year to grow the economy by four percent a year. Winston did that spend up instead and flattened the economy.

Even so, New Zealand's average growth rate over the 10 years to 2001 was 3 per cent.

Treasury's forecast for the next ten years is 2.5 percent a year - assuming no hiccups.

The evidence is plain. New Zealand's economic performance is deteriorating, not improving. We are not doing well despite enjoying the best economic conditions since the 1960s.

Treasury is forecasting a poorer performance over the next ten years than we actually achieved over the last ten - and that at best was only mediocre

Helen Clark is vulnerable on the economy. Many of her own voters don't trust her with the purse strings. Her own voters haven't benefited. The working poor have been hit with hikes in prices and cigarette taxes. Unless they are Maori, artists, or pregnant they have not seen one programme from this government to their benefit. In fact, quite the reverse. Their fortunes have fallen with the deterioration in New Zealand's economic outlook.

Working New Zealand families are feeling poorer since Helen Clark came to power. There is a reason for this. They are.

The Statistics Department tells us that a construction worker is $32.80 a week better-off after two years of Labour and the Alliance in power. But the worker has lost $6.40 in tax. He or she is only $26.40 a week better-off after tax. The drop in the dollar has also effected a wage cut. Prices have risen six percent. The same worker is having to pay an extra $37.77 a week for the same basket of goods. The worker is $11.30 a week worse off than when Labour and Alliance came to power. That hurts. And that's precisely the situation for workers throughout New Zealand. If they smoke a packet of cigarettes a day, they are another $7 a week worse off.

There's another dollar a week after last night's hike in petrol taxes.

Working people feel poorer and they are poorer. That's making Helen Clark especially vulnerable. Why would a working person vote Labour?

Helen Clark's government doesn't appreciate the problem. There is not one Minister in Helen Clark's cabinet who identifies with Labour's traditional blue collar vote. It is a cabinet of teachers and university lecturers. Their politics and experience are that of the common room of the 1970s not of the modern workplace and certainly not of working families. There is no Mike Moore, Norm Kirk or Mickey Savage.

Helen Clark's response to her vulnerability on the economy is her usual public relations spin. She started election year declaring a government strategy, called "Innovative New Zealand", just like she declared at the start of her term that her government was committed to "Closing the Gaps". That defining programme - never more than a slogan - was quietly dropped when polling showed Labour voters opposed race-based policies. The failure of the programme was blamed on Opposition parties for playing the "race card".

$361 million was spent on "Closing the Gaps". Now the very phrase is banned.

Helen Clark's "Innovative New Zealand" policy is likewise just a slogan - a stream of words, taskforces and talkfests. It doesn't an economic strategy make. Businesspeople say that they don't need another committee or taskforce. Just sound sensible economic policy. That means low tax, stable, simple laws, with the laws enforced.

Helen Clark has never discussed economic management in her time in politics - except for what she was against. But last week she gave a speech at the London School of Economics titled "Implementing A Progressive Agenda After Fifteen Years Of Neo-Liberalism". The speech is an important one. Helen Clark for the first time explains her economic thinking - such as it is - and also makes plain that she views her government as following a path different to the path followed by both Labour and National governments since 1984.

It's easy to argue that Roger Douglas and Ruth Richardson fit the bill as neo-liberals. But what of Winston Peters, Bill Birch and Jim Bolger? I have asked Winston. He says he's not a neo-liberal. I believe him. He was a Minister for four of the 15 years. I asked Winston whether Bill Birch was a neo-liberal. He declared him a reactionary. He said Jim Bolger was just a floater.

I calculate that New Zealand has only benefited from only five years of neo-liberal government between 1984 and 1999. Only in London, 12,000 miles away, could Helen Clark get away with declaring that Winston Peters, Bill Birch and Jim Bolger were neo-liberals!

Helen Clark recognises that change was called for in 1984 but laments that "at that time, however, third way options were not developed in the social democratic menu". The problem that Helen Clark sees was that there was no alternative to Treasury's "neo-liberalism" and no "smart active government" to foster new businesses.

"Smart active government" is oxymoronic. There is nothing smart about government. Just look at the record and look at contemporary experience. People languish in queues in pain and dying outside state hospitals. Our state schools can't cope with the number of pupils turning up at the start of the term. The state is blundering around the country with enormous powers under the Resource Management Act knocking over wealth-generating investments and undermining nature conservation at every turn. Having seen many of Helen Clark's Ministers in action, I have to say she must have had her tongue firmly in her cheek when she declared her government "smart".

The reason that government blunders every which way is that bureaucrats and politicians don't have the information and incentive that prices, profit and competition bring. They have the tax dollars but no incentive to control costs or attend to people's needs.

Helen Clark told her audience in London that New Zealand was on quite the wrong track through the 1980s and 1990s. As a result, "in the 1990s the economy marked time". In Clark-speak, 3 percent a year for ten years is "marking time". Three percent is not great - but it's hardly marking time. It's also easy to spot Helen Clark's vulnerability on the economy. Her achievement last year was 2.3 percent - that's worse than "marking time".

She concludes that for 15 years New Zealand has been on the "wrong track" and that New Zealand's economic policy for those years had "failed to deliver either prosperity, or a fair society".

Enter then her new Government. Now they are armed with "new social democratic models to hand". She here refers to Professor Anthony Giddens' work. Giddens is a sociologist, the head of the London School of Economics and Politics, and a "Third Way" architect.

"Third Way" theory is an attempt by the Left to rehabilitate the state. The first way is democratic capitalism. The second is state socialism. The theory is that both these Ways don't work and are too ideological. Hence, the "Third Way" - something in the middle between markets and government. Why that is a "Third Way" rather than a "Middle-Way" or a "One-and-a-Half Way" is a puzzle.

So modern Labour parties drop their commitment to state ownership of the means of production. They talk tough on law and order. They say they want to work with business. They loosen their ties to the union movement. And they never mention the "S" word.

Giddens explains in his book "The Third Way" that social democracy can only survive if it finds a "Third Way" because in the 1970s the Welfare Consensus had broken down and Marxism had finally become discredited. Communism has failed. Welfarism has failed. But according to Giddens, socialists must keep the values that drove communism and Welfarism and "make them count where the economic programme of socialism has become discredited". He doesn't explain why communism failed and socialism is discredited. He simply wants to create a new language to re-wrap the mistakes of the past. His books don't set out an economic theory but are rather a sociological analysis of contemporary society infused with a pot pöuri of political ideas.

Prime Minister Helen Clark describes "The Third Way" as a means "for the state to take a leadership role in strategies for economic development, using the full ability it has to facilitate, co-ordinate, and broker, and using its funding powers to maximise investment and participation in education and skills training".

Ms Clark's says she does not hanker after the Fortress New Zealand days like the Alliance retards. She is not a socialist. That doesn't work, she says. Neither is she a Rogernome - that's too uncaring. She's opting for the "Third Way". But that's the puzzle. What is it?

Quite what it means remains mysterious. It probably means just whatever Helen Clark actually does. I suppose in PR speak that if you increase the top rate of tax, talk to business about how best to encourage entrepreneurship, renationalise accident insurance while putting in $80 million into a state bank to foster competition then obviously you are pursuing the "Third Way". Of course, it is incoherent. There is no philosophy underpinning any of it. The "Third Way" allows you to do what you want within the limits of what the polls allow.

We hear other phrases too: everyone is a stakeholder and must be consulted. There is a need everywhere too for a partnership. The Old Socialist Way was to maximise the state's role. Now it is to restructure and to reform. There is no talk of welfare now - only "investing in human capital". The debate is not about the market or state control but about getting the new mix of regulation and competition right.

But it is the same old stuff that has always failed just dressed up as something new. "Third Way" socialists are every bit as keen to get their political hands on other people's money as their predecessors and they are every bit as keen to boss people about.

Helen Clark believes that the state must "take a leadership role in strategies for economic development". That means that politicians and bureaucrats must decide industries are the key to New Zealand's future, and get in behind them and support them. It's a return to "picking winners" and Jim Anderton's boast that Government is now "Hands On". But what special ability does government have to pick successful businesses or industries? It doesn't have any. Besides, the industries and businesses that New Zealand will do well in over the next ten and twenty years are not known now by anyone. They will only be discovered - and they will be unknown in advance. They will be discovered by a multitude of entrepreneurs applying their brains, capital and blood and tears to making a dollar. Some will succeed. Others will fail. In hindsight the successes always look obvious. But they are never obvious until they are a success.

And the history of government picking successful winners has been woeful. Their picks are based on politics, not commercial reality.

The problem is that "picking winners" means "picking losers" too. The chosen industries benefit at the expense of the unchosen ones. Helen Clark would be better-off making business easy for all businesses rather than just for some. And we shouldn't be dragging entrepreneurs into lobbying politicians and bureaucrats to have their industry and their business picked as a winner. They would be better-off concentrating their attention on business, not politics.

Helen Clark says the state must use "the full ability it has to facilitate, co-ordinate, and broker". Of course, the state should facilitate business, just like it should "facilitate" all of us. That's best done by maximising each and every person's freedom by ensuring low tax and simple and stable laws. Of course, what Helen Clark's "Third Way" means is to facilitate the chosen businesses and industries through the thicket of rules and regulations that the state has first erected as an obstacle.

We have seen this approach. Jim Anderton "facilitated" Sovereign Yachts' development at Hobsonville airbase through a thicket of government-mandated procedures and processes in five months. It's estimated that they would have otherwise taken ten years. That's good news. But why facilitate just the chosen business? Why not facilitate them all? Other yacht builders have complained to me that their proposed developments are tied up for years in mad Resource Management Act processes and yet there is no relief for them. That's because "Third Way" economics is about power and control. The politicians in power get to decide who will and who will not be facilitated so you had all better behave.

The power to decide what businesses get the "fast track" is centralised in Wellington but the knowledge of business is dispersed through the entire country. That's why decision-making is best decentralised and co-ordinated by prices. But Helen Clark wants to control and to dictate. She doesn't believe in "neoliberalism" that allows people to make their own decisions for themselves.

Business New Zealand has just completed a study that concludes Helen Clark has loaded an extra $26,000 in costs on a medium-sized business. The increases come through increased costs of Health and Safety requirements, Resource Management Act processes, the Employment Relations Act, ACC, and so on down a long, long list.

One of the costs piled on businesses is to cover five days leave for unionists to attend courses on "employment relations training". Government-approved course include "Te Reo Awareness Workshops" from the teachers union, "Organising your site" by the Engineering, Printing and Manufacturing Union, "An introduction to Unions for Young Workers" by the CTU, and "Be Active" from the Service and Food Workers Union. Employers have to pay for their staff to attend these courses on unions and class warfare. They also have to fund the unions to give them. The taxpayers are handing out $1.8 million this year for courses such as these.

This is Helen Clark's "Third Way. She has hiked taxes, re-monopolised the labour market, re-nationalised accident insurance, increased red-tape, and passed retrospective tax laws back to 1986.

Business is harder under Helen Clark. Decision-making has been re-centralised. It's no surprise that New Zealand's economic outlook is deteriorating. Prosperity is closely tied to freedom. We are losing both. We don't need smart government. We need less government.

ENDS

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