Rod Oram: How to avoid another Winter of Discontent

Updated

Then Prime Minister Helen Clark and Finance Minister Michael Cullen in Parliament in 2002 after the Labour Government was re-elected. Photo by Getty Images.

Will Jacinda Ardern and Grant Robertson face a 'Winter of Discontent' like that seen in 2000 when Labour last won power? Rod Oram compares now with then and assesses the risks in a world bound to see more shocks and crashes.

When Labour took over the government benches in December 1999, New Zealanders were split pretty evenly over whether the nation was on the right track or the wrong track.

But the popularity of the Clark government soared as it moved quickly on its first 100 days’ agenda. It delivered a number of its campaign promises and demonstrated its competence.

By February 2000, 62 percent of Kiwis said New Zealand was “heading in the right direction” and only 22 percent said we were “heading off on the wrong track” in UMR Research’s long-running measurement of our mood.

Yet, just eight months later the Clark government’s rating had plummeted to 27 percent right track and 62 percent wrong track. Business was particularly aggrieved. Its mood swung from 25 percent net positive before the election to 35 percent net negative a year later. This was the infamous Winter of Discontent.

While the times and personalities are different now, the Ardern government faces its own set of economic and political risks. If it handles them badly it could suffer a similar boom and bust in popularity, and a rocky time with business.

Eighteen years ago, the political challenge for Prime Minister Helen Clark and Finance Minister Michael Cullen was to roll back some of the most unpopular parts of economic reforms while leaving the main beneficial changes intact.

As veterans of the Lange government, they were battered and bruised by the reforms it that had pushed through. They focused particularly on replacing the Employment Contracts Act, which was heavily tilted to employers, with the Employment Relations Act. This gave some rights back to employees, but employers remained strongly in control of the relationship.

The neo-liberal Business Roundtable, led by hard-liner Roger Kerr, fiercely opposed the law changes. It was impossible that the government could reach a constructive agreement on the issues with Kerr. But Cullen only made matters worse. As Hansard recorded, he declared in parliament on August 9, 2000: “Eat that! You lost, we won, it [the ECA] goes! It is as simple as that!”

Cullen’s triumphalism reinforced the belief of many in business that the new government wasn’t interested in working with them. Indeed, Clark and Cullen also overturned two other business favourites among the previous National government’s policies – partial privatisation of ACC’s workplace insurance, and further privatisations of State Owned Enterprises. The government also hiked the top personal tax rate from 33 percent to 39 percent.

Clark and Cullen’s judgement was right. Almost all corporate leaders were letting the Business Roundtable do their thinking for them, even though its sway over government and business had diminished from its heyday in the 1980s. There were essentially no independent, future-focused leaders in business the new government could work with.

Government-business animosity deepened severely during 2000.

“There was something close to a strike by capital,” Cullen recalled later.

Eventually the government had to hold a “summit” to try to reach a working relationship with business.

Gradually the two sides’ confidence in each other improved. But neither became great fans of the other during the nine years of Clark’s government. Only the Key government achieved that for most of its three terms. But even so, business was beginning to grouse about the Key government’s lack of strategy and inability to tackle big issues in its last couple of years.

The Winter of Discontent proved short lived for the wider public. By early 2001, the right track / wrong track score was 50 percent to 38 percent, with the balance undecided. On this measure Clark stayed in positive territory until the Global Financial Crisis hit hardest in the few months before the 2008 election, which she lost.

Times are quite different now. The Business Roundtable and its rigid ideology is long gone. Many corporate leaders today have broader minds and bigger ambitions; and some of them are willing to stick their heads slightly above the parapet to urge their colleagues on.

Prime Minister Jacinda Ardern and Finance Minister Grant Robertson are different too. While they are protégés of Clark and Cullen respectively, they bring none of the scars to government their mentors did, nor the same need to ram through some quick, big changes in the face of a hostile business sector.

This does not guarantee the Ardern government an easy ride, though. It has announced further changes to employment relations that seem relatively benign individually. But taken collectively they will reshape workplace relations, potentially deeply if the government takes them further than billed.

Most businesses will cope one way or another with the minimum wage rising from $15.75 an hour now to $16.50 next April. But further rises to $20 by 2020 will be very tough on many of them unless they can significantly improve their productivity.

Likewise, the government intends to do more of the pay equity deals the previous government did with care workers. To that end, this week it withdrew the previous government’s Bill on the issue and is promising to replace it with one with stronger provisions.

This will usher in a new style of Fair Pay Agreements sector by sector that will set the likes of minimum working, pay and training conditions. It is finding some support from companies that work to better-than-these standards. They resent poaching of staff by companies that don’t.

Companies worried about these new requirements can take comfort from the plastics industry. It is one of the very few sectors that has continued with multi-employer, multi-union agreements through recent decades. The constructive relationship has helped the sector grow in sophistication and scale.

But technology is changing faster than ever, and changing the nature of work with it. We’ll have to reinvent how we develop and adopt technology, train people and create new business models so our companies remain internationally competitive. Within the next decade, for example, we’re likely to see the first pilots here of a Universal Basic Income or similar form of remuneration to support people through these rapid transitions.

We must achieve such an unprecedented speed and scale of change in every sector as we make the huge transition to a low emissions, high value economy, as my column last week described.

A new world of work

Such issues make the task of Ardern and Robertson far greater as they embark on their new government than Clark and Cullen faced with theirs.

Today the challenge is for business and government to learn how to work much better together to fast-forward the future. Government, and its SOEs, are also likely to become bigger players in some sectors to help achieve greater scale and investment, with house-building only the first example.

In 1999, Clark and Cullen had very difficult but narrower tasks: to get business to re-engage with government, and to become more pragmatic, and amenable to change.

Their job was made much harder by a sudden deterioration in economic conditions. In the wake of the Asian economic crisis, the global economy was weak and the NZ dollar very low. Things got worse in 2000 with the dotcom stock market crash, and a 2-percentage point hike in interest rates by our Reserve Bank.

NZ businesses hunkered down. It was beginning to dawn on some of them that economic reforms had created a simpler, more level playing field for them, but they had yet to use that to build resilient companies engaged in the global economy. Many weren’t sure what to do next.

Ready for another market crash?

Over the 17 years since, New Zealand businesses have become more sophisticated and ambitious. They also know the status quo is insufficient for sustainable prosperity and equality.

But today, the world is also much riskier, economically and politically. In the years ahead there will be another stock market crash, and another financial crisis, and another hike in interest rates.

Still, this is the first time in many decades that society, business and government have been relatively open to new ideas and ambitions at the same time. How well they work together will be the real test of their relationship.