Reforms are still possible … but they take time

Published in The National Business Review (Auckland), 23 December 2014

Jean-Claude Juncker, the new president of the European Commission and former long-serving Luxembourg prime minister, is well known for his political manoeuvrings. He famously once said, “When it becomes serious, you have to lie.”

However, in one of Mr Juncker’s more honest moments, he also summed up the problem with democracy quite succinctly. Talking about the problems of today’s politicians, he confessed, “We all know what to do, we just don’t know how to get re-elected after we’ve done it.”

There is a world of difference between what needs to be done and what non-suicidal politicians would dare to do. This is a problem not just in Luxembourg or Brussels but in our part of the world as well.

In fact, herein lies the basic challenge for any representative democracy: to design meaningful reforms, implement them in an often hostile media environment and defend them against vocal opposition from special interest groups.

In Australia, the problems of democratic decision-making are palpable. After only 14 months in office, Prime Minister Tony Abbott is confronted with challenges on many fronts. His low personal approval ratings and his party’s dismal polling are only the beginning of his problems.

Australia’s terms-of-trade boom is over, and falling iron ore prices in particular are hitting the economy hard. As a result, the budget deficit is blowing out to $A40.4 billion this year, and the next surplus is not expected until 2019/20 – if it happens at all.

Meanwhile, any attempts at reform are stuck in the Senate, Parliament’s upper house, in which the government does not have a majority and depends on a diverse range of populist and fringe parties.

All of this is happening at a time when Australia desperately needs change. The last meaningful economic reforms deserving of that name were undertaken in the first half of John Howard’s tenure as prime minister.

Australia seems stuck and its government strangely paralysed. Instead of showing his country a way out of its malaise, Mr Abbott’s party spends a lot of energy fighting itself. On his current trajectory, there is a danger Mr Abbott will not only be a one-term prime minister but that he might fail to turn Australia’s fortunes around.

Against this backdrop, many Australians are looking at New Zealand and the Key government with a sense of bewilderment. Not only has John Key’s government managed to steer New Zealand successfully through the difficult years of the Global Financial Crisis and the Canterbury earthquakes; it has also managed to reform the welfare state, part-privatise some state-owned companies, experiment with charter schools, deliver income tax cuts while increasing the GST and might, with a bit of luck, deliver a surplus next year.

To make this all the more astonishing, in accomplishing these reforms the National party has actually increased its electoral appeal, being just one seat short of an absolute majority in Parliament.

To shed some light on the way Mr Key has managed his government, the Menzies Research Centre, the Australian Liberal Party’s think tank, invited me to write a monograph. Quiet Achievers – The New Zealand Path to Reform has a positive message at its core: Even in today’s democracies, economic reforms are still possible. They just take a lot of time and require exceptional political leadership.

Looking at the Key government from within New Zealand can be deceptive. At times, it may appear as if the prime minister did not use his mandate for any real political actions. Writing in this paper straight after the election, Rodney Hide commented: “Mr Key captures the public mood perfectly. He’s giving us exactly what we want: nothing but the status quo. Politicians with ideas scare us. There’s no chance Mr Key will scare us. He has his power precisely because he does nothing with it.”

Mr Hide and other critics of the Key government overlook an important aspect of the Key playbook. He works through his agenda slowly, ensuring any changes are well-developed, signalled early and communicated properly. As we are observing this process from a short distance, it can be so slow that no movement is discernible.

However, step back from this perspective and watch Mr Key from a distance, and you get to see the broader picture. The Sydney Morning Herald’s international editor Peter Hartcher put it like this: “Key has been a neo-liberal activist who has administered some distasteful pills. (…) You might not like his politics or his ideology. But he has coaxed his country into swallowing the pills of reform yet entrusting him with power once again.”

It is hard to imagine that both Messrs Hide and Hartcher are describing the same prime minister but from their different perspectives it makes sense. You may say Mr Key is indeed a reformist politician whose very skill consists of quietly overseeing a reform process that otherwise would have been hugely controversial and confrontational. That makes him a “quiet achiever.”

Despite this, one cannot accuse Mr Key’s government of reform by stealth. It is not as if he had never talked about his intentions or left anyone in doubt about what he was planning to do. The opposite is the case and the government’s welfare reforms are the best example.

Almost the full first term of Mr Key’s administration was spent on preparing the ground for changes to the benefits system. The Welfare Reform Working Group systematically analysed the system and came up with a long list of recommendations.

Having accepted most of them, Mr Key then argued the case for reform and established the case for these changes. He also sought a mandate for his reform in the 2011 election and then implemented it over his second term.

At the launch event for Quiet Achievers in Parliament House in Canberra, Finance Minister Mathias Cormann said that if his government had another five years’ time, it would have accomplished the same successes as its New Zealand counterpart. But for that to happen, the Abbott government still needs to learn a few lessons.

Mr Key’s defining strategy is one of incremental radicalism. It resists any bold rhetoric or big picture reforms. In their stead, reforms are taken one step at a time. This enables the government to make its case and take the public along a journey.

It also helps to solve Mr Juncker’s problem: It is possible to reform an economy and get re-elected afterward. However, it does not work if policy changes are dumped on the population without any consultation, narrative or even an explanation.

Australia’s Mr Abbott needs to take this into account if he wants to be a reformist prime minister – and if he cares about being re-elected in 2016.

Dr Oliver Hartwich is executive director of The New Zealand Initiative. Quiet Achievers – The New Zealand Path to Reform, is published by Connor Court

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