The political economy of opposition

I've been thinking about the Labour/Green proposals to introduce a monopoly purchaser of electricity, as a mooted way of driving electricity prices down.I have to assume their proposals were well-intentioned and sincere, but equally there was a lot of media comment (and business pushback) suggesting that the policy was an opportunistic spoiler of the Mighty River share float.

It reminded me of an episode that occurred back in 1987, when I got seconded by the BNZ to be Jim Bolger's economic adviser. Apparently, the tradition was - and I have to say it's a nice one, and I hope it's still respected - that someone in Treasury got deputed to help out the office of the Leader of the Opposition once a general election got underway, so as to even up the odds a bit. Trouble was, the reform-minded Treasury of the time had a low opinion of National, assuming that National was still in the grips of Muldoon's dirigisme, and I don't blame them. I'd have felt the same way in their shoes, too.

In short, nobody in Treasury could be persuaded to go along. So the call went out: is there an economist in the public sector that could be persuaded to give it a go? The flying fickle finger of fate pointed towards the BNZ (then still government owned). The top brass at the BNZ dithered for a while but eventually, said, okay, partly because I'd done this kind of job before in Ireland.

A big issue for National back then was how to respond to one of Labour's set piece policies - GST (which had been introduced the previous year). The National team went into reflexive oppositional mode: GST is a work of the devil, we won't have it, we'll do something completely different. For tragic policy wonks who might want to know, the alternative National came up with at the time was called the X-tax ('X' being 'expenditure'), which as I remember it was a sales tax on spending in the shops. And as an adviser, you banged your head against the politics of those days. The alternative policy might be poor, or inferior to the government's policy, but any talk along those lines got trumped by what seemed to be the political axiom of those times: we have to be seen to oppose. Opposing rallies our supporters, and attracts defectors from the other camp.

Except if you are creating credibility problems for yourself later on. National lost in a landslide, and post-election the supposedly superior policy of an X-tax was quietly buried, never to be exhumed again. Exactly the same process, by the way, played out in Australia, where Labor portrayed John Howard's introduction of GST in 2000 as a terrible idea, only to leave it in place when they got in.

How, as an opposition, do you establish your credibility as a potentially competent manager of the economy, when you are faced with the modern-day equivalent of a big new policy like GST?
From what I observed in 1987, the wrecking-ball, or the reflex "we'll do the opposite", risks coming across as political posturing in the voters' eyes, and not seen as primarily concerned about what's best for the economy.

There are alternative ways. Say that the government policy goes too far? Sure. Too late, too little? No problem. We'll open the books and look at the problem when we get in? That can work. It's just what we'd have done if we were in power? Not the path often followed, but can sometimes be true, gets traction with the electorate for candour, and doesn't leave you in the awkward position of having to backtrack on what you once said, as and when you end up in the Beehive.

There will, of course, be occasions where an opposition will genuinely have good reasons to junk an incumbent policy - we saw this play out in industrial relations legislation in particular, where successively we had the Employment Contracts Act (National), then the Employment Relations Act (Labour), then amendments to the ERA (National again) - and the electorate will agree with them, and that's obviously fine.

That said, economic credibility for an opposition is an extremely valuable asset, hard to accumulate and easy to dissipate (much the same is true of central banks). Look at the UK: it took the UK Labour Party 18 years (1979-'97) to rebuild itself as a plausible economic manager, after the chaos of the "winter of discontent" (1978-79) of James Callaghan's administration. And then it took the Conservatives 13 years (1997-2010) in the wilderness before they were again seen as credible, after the assorted problems of John Major's government (including getting forcibly driven out of the European Monetary System in 1992). Hoarding your credibility is still playing out there, too: polls show that the voters, despite the swingeing austerity policies of the Conservative/LibDem coalition, rate the incumbents as better economic managers than Labour.