Should politicians care about 'business confidence'?
The business community’s confidence in the economy – and therefore the government – seems to have hit a new low recently. There have been dozens of articles published in the last couple of weeks highlighting business concerns. So how seriously should politicians take the constant surveys about business confidence?
A looming 'winter of discontent'?
According to the reports of political and business journalists there are genuine fears of an impending “winter of discontent,” in which the business community signals its strong hostility to what the Labour-led government is doing, and thereby attempts to change its direction.
Comparisons are being made with the last time a Labour-led government came into power, in 2000, when business apparently went into opposition mode, fighting strongly against planned employment changes. This is best covered by Richard Harman in his column, Another winter of discontent?
Harman reports “BusinessNZ is warning of a drop in business confidence – raising questions about whether, like the Clark government, the Ardern government faces a first-year winter of discontent from business.” And he suggests the new government might be about to revive the type of business-friendly charm offensive that Helen Clark and Michael Cullen used back in 2000, to woo back the support of chief executives.
For a reminder of exactly what happened, it’s worth reading Branko Marcetic’s Does Jacinda Ardern face a Helen Clark style winter of discontent?
According to Mr Marcetic, although there are some parallels with 2000, the 2018 situation is not so severe: “If we’re currently reliving the events of 2000, this iteration has been far milder – perhaps more a ‘cold snap of discontent’ than a full-blown winter. Nothing so far matches the ferocity of the business revolt faced by Ms Clark, nor the unceasing march of negative news coverage and even international condemnation from right-wing commentators her government faced. New Zealand businesses have surprisingly acquiesced to certain policies that were condemned 18 years ago, such as a higher minimum wage.”
A business-friendly government?
Marcetic suggests the Labour-led government has been surprisingly accommodating to business, and its left-wing reforms have been relatively mild.
This is also one of the main points made by Matthew Hooton, who wrote on Friday about how little business leaders have to fear from the new minister of finance: “Pity Finance Minister Grant Robertson. The former student leader, junior diplomat and political staffer has done almost everything right to avoid repeating the winter of discontent that rocked Helen Clark's first term. He has assiduously networked with industry groups and tries hard to bond with businesspeople despite the enormous gulf between his outlook and theirs. His fiscal rules were designed to avoid allegations of profligacy to the extent of upsetting the Labour left” – see: Business uncertainty to get worse.
Hooton says Mr Robertson has tried hard to pacify business, in part through orthodox economic management, and suggests teachers and nurses wanting pay rises have greater reason to complain about the minister of finance than business. What’s more, he points out that the sharemarket is at a record high, changes to the Reserve Bank have been only “cosmetic,” free-trade agreements continue to be progressed, and even the feared cuts to immigration haven’t materialised.
In fact, the finance minister has already been assiduously cultivating business interests, according to Tracy Watkins: “Mr Robertson has been living on the road since the Budget, cultivating and wooing business audiences and carrying on where he and Prime Minister Jacinda Ardern left off with their pre-Budget charm offensive on a sceptical business sector” – see: Less is more: Why Labour is happy to slow the pace of change.
Ms Watkins suggests he’s doing well – “Mr Robertson is an entertaining and engaging speaker” and his speeches are “about reassuring business … that the focus on the fundamentals hasn't changed.”
She also points out business should be relatively happy with the main way the new government is carrying out change – with reviews and committees: “There is no harm in slowing down the pace of change by putting big decisions out to consultation and expert review. It shows Labour is willing to be flexible and pragmatic. And it lets everyone take a breath. Sometimes in politics, less really is more.”
Hamish Rutherford has also been reporting on Mr Robertson’s business charm offensive, saying that although the politician has great soundbites and is “polished” and “extremely on-message,” he also seems uncertain about how to turn around the perception problem of businesses – see: To inspire confidence, Grant Robertson must do more than repeat the message.
Business bias against Labour?
Should the numerous surveys about business confidence be taken that seriously? The accuracy of business perception as a useful gauge of the state of the economy has been questioned. The economic consulting business BERL has found a distinct lack of correlation between business confidence and the performance of the economy: “Between 2000 and 2008, when Labour last led the government, business was pessimistic for 82 months, yet the economy grew on average 3.2% a year and the government recorded nine years of budget surpluses. In contrast from 2009 to 2017, when National led the government, business was optimistic for 87 months but the economy grew on average just 1.98% a year as the country felt the effects of the global financial crisis and the Canterbury earthquakes” – see Brent Edwards’s NBR article, Don't read too much into business confidence surveys, economist says (paywalled).
BERL’s chief economist, Ganesh Nana is quoted saying business confidence surveys “really reflect changes in government rather than changes in the economy.”
This is also the point CTU president Richard Wagstaff makes when he says such surveys are about partisan politics: “Business confidence is just a one-sided opinion poll of a handful of very wealthy people” – see: The views of business matter but they are not a magic guide to the economy. Mr Wagstaff suggests that in a democracy, such views should not carry more weight than those of ordinary voters: “Of course the views of business leaders do matter – exactly as much as the views of everyone else.”
For more on why it’s anti-democratic to pay so much attention to the “political tantrums” of business leaders, see Bryan Gould’s Business confidence – or confidence trick? He suggests current chief executives simply have “their own axe to grind” over the National government losing power because these employers are “pretty much in favour of profits and capital gains, and they don’t like trade unions or workers’ rights or higher wages very much.”
Here’s Mr Gould’s main point: “Business sentiment, in other words, is not based on anything concrete but is rather a reflection of the disappointment felt by business leaders at having to deal with a Labour-led government – a matter of political prejudice rather than economic fact. It is almost as if, having lost the election, they want a second crack at it, to see whether they can unsettle the elected government and push it off its stride through the simple mechanism of proclaiming that they don’t like it and would have preferred to carry on with the easy ride offered by the previous government.”
Can business concerns be ignored?
Even if they are unfounded and inaccurate, the problem for the government is business concerns can’t simply be ignored. And that’s one of the main themes of the reporting on “business confidence” – the idea that regardless of the justice of business perceptions, perception can become reality if businesses stop investing, stop employing more people and essentially “go on strike.”
As BERL’s Ganesh Nana puts it, “The concern is it becomes a self-fulfilling prophecy because businesses talk themselves into a bit of gloom and they see, or they hear, that other businesses are in a similar gloom so they put off decisions and that becomes a self-fulfilling prophecy, which can turn the economy into a spiral.”
For this reason, the latest NZ Listener editorial declares “these business voices nevertheless need to be taken seriously – urgently. If they find reason to hold back on investment and expansion, their pessimism will hurt us all” – see: NZ's falling business confidence reflects the true price of ministers' potshots.
Finally, Chris Trotter explains that business confidence surveys are very real indeed, as they are “a sharp reminder about who it is that really runs the country.” Not only are the surveys a “winking warning-light on the capitalists’ dashboard,” they are the forerunner to an “investment strike,” which is the way that business interests ultimately assert their control over government policy – see: The Strike that Labour fears most.
This is supplied content and not commissioned or paid for by NBR.