The year of living comfortably

Photo: The Press

Now for the hard part: John Key has made political management look easy so far, but testing times are ahead.

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OPINION: We'll know by this Christmas whether John Key's government is capable of generating game-changing ideas for the economy.

We'll know by the following Christmas whether it has the courage and capability to implement them.

Thus, it will be his government's second anniversary that will determine its longevity. If it can achieve to such high standards it will last multiple terms. If it can't, it won't.

But to succeed, the government will have to do far more in its second year that it has in its first. It has whiled away its first 12 months on the easy and obvious: rolling back lots of Labour things, many minor, that it didn't like, making it look more like National of the 1990s than the thought leaders of 21st century; promising lots such as "a world-class tax system", "a step-change in the economy" and "catching up with Australia by 2025"; and launching reviews, taskforces and stocktakes a plenty.

And the prime minister has made political management look easy. All it takes, apparently, is a sunny disposition, a persuasive manner, a folksy camaraderie and a couple of coalition partners to play off against each other.

But Key and his government have barely been tested yet. And when they have, it's been messy, such as over the emissions trading scheme, ACC and the televising of the Rugby World Cup. Worse, the government's quality of internal debate and co-ordination is too often poor, judging by stories emanating from some rambling and inconclusive cabinet meetings.

The ministers themselves are a very mixed bunch. Only a handful, such as Simon Power and Steven Joyce, are on top of their game; others such as Gerry Brownlee, Anne Tolley and Paula Bennett seem fixated on narrow issues at the expense of being strategic; and Tony Ryall is tactically taking the health sector back to the 1990s rather than preparing it for an even more demanding future.

Moreover, Rodney Hide is a big political liability; Nick Smith, although an experienced parliamentarian, is running the risk of failing to deliver what the government wants on ACC, the Resource Management Act, the emissions trading scheme and water; and a raft of ministers (such as Kate Wilkinson, Wayne Mapp, David Carter and Maurice Williamson) have yet to make any mark at all.

And then there is Bill English. He is turning out to be a deeply conservative finance minister. While steely fiscal discipline and innate prudence are essential to the job, the finance minister needs also to drive the very big policy picture.

So far English has talked vaguely about transforming the way government is delivered, has challenged civil servants to shock him with bold ideas to do so and has relentlessly banged on about the government's rising debt without doing much yet about greater spending discipline.

And his excessive conservatism is causing him to bring ever more power right back to the heart of Treasury. For example, SOEs and government agencies are now intensely controlled from the centre on issues such as financial risk management.

This centralist conservatism, also demonstrated by Ryall in health, is cramping innovation in the public sector and should be anathema to a right-of-centre government that preaches freedom and responsibility.

When it realises it is not getting the innovation it seeks, it will have to return to its true political character and back the government out of micro-management.

From this indifferent start to government in their first year, Key and colleagues face six big risks in their second year:

1. No cohesion: If the Maori Party and Act get tired of being played off against each other or frustrated that they aren't getting more of what they want, coalition management will get a lot harder. Short of such confrontation is a lesser but also debilitating risk – loss of enthusiasm. For example, Hide has gone very quiet on local government reform since National required him to back down on his most contentious ideas in his speech to this year's Local Government New Zealand conference.

2. No direction: Key preaches pragmatism. He says he will do whatever will work. That sounds admirably non-ideological and apolitical. But it can carry a considerable price. It can cause inconsistency within the government's response to an issue. It can also create great disjoints between issues. Too often, the prime minister and his colleagues have appeared to be influenced by the last person who lobbied them. Among the worst cases are Auckland governance and ideas from the Job Summit.

3. No insight: Cabinet is working through a sheaf of policies on economic development, tax, research, science and technology and other issues critical to transforming the economy.

So far many of the ideas are obvious or generic, judging by the papers coming out of public consultations.

For example, Mapp released, on October 29, a paper on New Zealand's research, science and technology priorities. He wants feedback from the science, business and academic communities by November 18, an astonishingly short time for such complex subjects.

Superficial feedback will be easy. The government has merely identified high technology, biological industries and energy and minerals as three priority areas where it is seeking economic outcomes for its R, S&T investment. Similarly, work is under way to consider, again in a very short time, how to reorganise crown research institutes and the whole funding system.

All this smacks of a fundamental New Zealand weakness. As a nation we plunged into rearranging the pieces of the puzzle in a drive for efficiency, transparency, accountability and a slew of other managerial outcomes. But these are second order issues. We never discuss the first order issue: what are we trying to achieve?

So, real insight is lacking into what game our businesses must learn to play in the global economy and how research, science and technology will underpin their strategies.

Economic development, tax, capital markets and all the other reviews should be judged by the same very demanding standard: will the government gain real insight into what needs to be done? Or will it settle for being busy, easy, and expedient?

4. No courage: If the government gains insight, will it have the courage to act on it?

The prime minister has demonstrated admirable courage on a few issues, notably the Section 59 referendum. But that relied on his gut instinct. Being courageous on economic issues requires deep analytical skills and a strong sense of the way the world is shifting and how New Zealand can best play to those seismic changes, topics this column explores frequently. For example, a flood of free trade agreements is fine. But if they only result in us selling some more of the low-value things we already do, they won't make this a more resilient and wealthy economy. The real task is to use the market access to drive new economic relationships and thus transformation.

5. No execution: If the government gains insight and courage, can it deliver on very complex, long-term and hard-to-sell policies? It hasn't tried to yet.

6. No recovery: Renewed recession is a real risk in economies that have failed to make the big structural changes they needed to.

The long list includes the US, the UK, continental Europe, Japan, Australia and New Zealand. While our distant neighbours are at least considering changes, Australia and we have simply gone back to our debt-fuelled consumption.

But a renewed recession would be a good thing if it shook government and business out of their complacent view that incremental change to existing strategies is good enough.

So, year one for the Key government was too easy. Year two is the true test.