Analysis: What’s driving down business confidence?
Business interests aren’t very happy at the moment. This is known from numerous “business confidence” surveys, media interviews with chief executives, and increasingly restive business groups. Of course much of this might be put down to “business bias” against a Labour government – quite simply, businesses are struggling with the pledge the government made when it came to power, that “capitalism must regain its human face.”
There is more to it than this, though. At the moment, there seem to be three main concerns for business: 1) A belief that this coalition government arrangement is unstable and unpredictable, 2) The oil and gas exploration decision, and 3) Proposed employment law reforms. These are all explored below.
1) An unstable and unpredictable coalition government arrangement
On Friday, veteran political journalist John Armstrong penned a hard-hitting TVNZ column that implores the new government to reflect on how its relationship with business is developing. Armstrong warns that, despite the potential for this dynamic to lead to the government’s early demise, “Labour instead gives every impression that it cannot be bothered” with the problem – see: Ardern's baby leave gives her time to give serious thought to Labour's 'cannot be bothered' attitude to business sector.
Armstrong worries that cabinet ministers are in an arrogant phase, believing they are “infallible,” and that “Ardern’s troops have become battle-hardened” with a strong belief in the need to “remain staunch rather than being seen to be caving into employers hell-bent on blocking reform.” They don’t seem to realise “the government’s honeymoon is long over.”
Although Armstrong puts some of the government’s relationship “disconnect” with business down to ideology (“Under the leadership of first Andrew Little and then Ardern, Labour has also undergone a marked shift to the left”), his most important point is that business doesn’t think the government’s reform agenda is clear and consistent enough, and “Business hates inconsistency. It hates uncertainty”.
Right-wing commentator Matthew Hooton also published a column on Friday that explained that falling business confidence is “driven by huge policy uncertainty,” which is further undermined by “questions about government's decision-making processes” – see: Business uncertainty to get worse.
The problem isn’t so much the Labour Party, according to Mr Hooton, but the struggling New Zealand First and Green parties, whose fight for survival will necessitate asserting themselves with some bolder policy initiatives as time goes on: “As the election emerges on the horizon, the pressure on NZ First and the Greens to make ever-more outlandish demands will only increase and Labour's ability to say no will decline. Even the most peculiar policy proposal or sudden carve-out for your competitor will become possible. No one can really anticipate what will happen. But only the most brave or reckless businesspeople will see the next two years as a good time to take a risk.”
The latest editorial in the NZ Listener also says business has little problem with “fiscally conservative” Grant Robertson, and is instead more worried about his colleagues who have made a habit of taking “potshots” at business: “Robertson’s mission is to convince business it does not face wild policy lurches or instability. Yet fellow ministers have repeatedly undermined Robertson’s message. So far this is more a matter of careless and self-aggrandising rhetoric and poor communications than of actual business-hindering policy. But an understandable sense of enmity has ensued” – see: NZ's falling business confidence reflects the true price of ministers' potshots.
The Listener singles out Employment Minister Iain Lees-Galloway and “ad hominem attacks on Air New Zealand and Fonterra” from Regional Economic Development Minister Shane Jones.
2) The oil and gas exploration decision
The surprise decision of the government to essentially ban further oil and gas exploration apparently still has many in the private sector reeling. This isn’t simply because they disagree with the actual decision but because the decision-making process scared them. Concern has actually increased as more information has come to light. Last month official documents were released that indicate the decision was made quickly, without proper cabinet involvement, no industry consultation, and minimal advice from government department officials.
Mr Hooton has been the biggest critic of the process in the media, suggesting businesses are rightfully fearful that their own sectors could be vulnerable to similar interventions by the government. He wrote about this in detail last month in his column, Crisis-filled month triggered Ardern's oil & gas move.
To Mr Hooton, the decision involved poor process, and was not actually driven by environmental considerations, but essentially by pragmatic and strategic considerations: “Could there be a more cavalier and shameful way for a government to behave when making decisions affecting 8481 jobs, billions of dollars of exports and which it had been advised would most likely increase greenhouse emissions and thus worsen climate change? The reason for the urgency is suggested by its context. After Labour's mishandling of the sexual assault allegations at its summer camp, Winston Peters' inexplicable stance on the Russian chemical weapons attack in the UK, Phil Twyford's comical Pt Chevalier KiwiBuild announcement and the scandal involving Clare Curran and RNZ, Ms Ardern was desperate for something – anything – to reassure her core supporters.”
These points were also made strongly by Fran O’Sullivan, who argued the decision was rushed in order to aid the PM’s diplomatic trip to Europe: “Ardern put her debut as a global climate change warrior ahead of making credible plans to transition New Zealand away from a reliance on fossil fuels towards clean energy. There's no other way to interpret the documents and emails that have been released this week” – see: Ardern's Orwellian move to ban exploration.
Although pro-business commentators might be expected to criticise the process, some on the political left were also unimpressed. The No Right Turn blogger said: “Like many, I welcomed this decision – we need to decarbonise, and slowly shutting down the oil industry is a necessary step to that. But the process they followed to do it all seems a bit Mickey Mouse” – see: Government by press conference.
The blogger condemned the prime minister’s decision not to involve the cabinet and government departments in such a controversial decision, pointing to the Cabinet Manual’s rules about this. He concluded: “Fundamentally, this is not how decisions are supposed to be made in our system of government. And it raises the question of exactly why the government chose to sidestep the cabinet in this manner. And if it was to avoid their obligations under the Public Records Act and Official Information Act, then that is looking very dubious indeed.”
Many journalists have since reported business leaders have been concerned about this episode of governance. But Hamish Rutherford has reported Finance Minister Grant Robertson claims that few businesspeople raise the oil and gas decision with him: “On Tuesday he played down the degree to which the abrupt decision to end offering offshore oil permits has dented investment confidence, saying it was hardly ever raised with him. If that really was the case, that seems likely to be a sign that business has not yet become comfortable being candid with the finance minister” – see: To inspire confidence, Grant Robertson must do more than repeat the message.
3) Employment law reforms proposed
In all likelihood, the main problem that the business sector has with the new left-wing government is the perennial “class struggle” issue of wanting to retain its advantages over employees. With the Labour-led government carrying out all sorts of industrial relations reform, business is simply unhappy to have profitability under threat.
The chief executive of Wellington Chamber of Commerce, John Milford, is fairly upfront about this, saying in a recent newspaper column on business confidence surveys, that “The problem for the government is that confidence is not going to improve as long as they insist on pushing ahead with their proposed changes to industrial legislation” – see: Minister, concerns from business aren't junk.
Milford makes it clear that employers regard the reforms as a backward step: “What's proposed is old thinking that's threatening to take us back to the industrial strife of the 1970s.” And he outlines what they don’t like: “The Employment Relations Amendment Bill as it's drafted will further reduce flexibility and harm the growth prospects of businesses. They are provisions that allow union reps to enter a workplace without permission, force businesses to settle collective agreements even if they don't or can't agree, and force them to join a multi-employer collective agreement (MECA).”
So, some degree of union power is being restored by this government and understandably this isn’t welcomed by those who might be negatively impacted. This has also been discussed by John Roughan: “The Government is on a mission to raise incomes at the lower levels and rightly so. It proposes to do so not just with steeper annual increases in the statutory minimum wage but by strengthening trade unions. This is probably what is keeping business confidence low, and rightly so” – see: Striking state servants will be chilling business confidence.
This is also dealt with in Liam Dann’s column, Business heads for winter of discontent. Here’s the main point: “Feedback from groups like the Employers and Manufacturers Association (EMA) and BusinessNZ suggests that, despite a broad acceptance that the new Government is not radical, there is genuine concern about the impact of new labour laws. This is less about rises to the minimum wage and more related to issues like the repeal of the 90-day trial period for businesses with more than 20 staff and changes to collective bargaining rules that will give unions more clout in some workplaces.”
Ms O'Sullivan reports that business groups have launched a campaign against the reforms: “Employer groups confirmed they are launching an advertising campaign that will include billboards, newspaper and digital advertising. The ‘Please Fix the Bill’ campaign is funded by BusinessNZ's member groups” – see: Business returns to fighting the same old fight.
Finally, not all businesses are complaining about the government. Today, Graham Adams writes about one big business that is very happy, and he quotes their latest annual report: “As a business, we are pleased with the youthfulness and energy of New Zealand’s new government. Given the problems they face, we are impressed with the speed at which they are coming to grips, and we wish them well” – see: Mainfreight: A dissenting business voice on the government.
This is supplied content and not commissioned or paid for by NBR.