After his rollercoaster stint in politics, Don Brash has been keeping himself busy. Life’s much quieter, now that he’s traded audiences with frosty politicians and journalists for unassuming businessmen and students. He’s now on the board of five companies and after a spell at the then-Auckland Technical Institute (ATI) Foundation in the 80’s, he’s returned to give a series of lectures in his new role as the Adjunct Professor of Banking at the AUT Business School.
With 14 years as Governor of the Reserve Bank under his belt, Dr. Brash became the Finance Spokesman for the National Party after the 2002 election and quickly assumed leadership a year later. Undoubtedly a polarising figure, he nonetheless rebuilt the National Party from the shambles of the 2002 campaign to the point where they nearly toppled the Labour Party at the subsequent 2005 election. But controversy was just around the corner and Dr. Brash resigned in 2006 amidst fallout from the infamous Exclusive Brethren saga, paving the way for the rise of John Key.
Dr. Brash knows the workings of the New Zealand economy better than most, and was kind enough to sit down with Debate to discuss the economic downturn along with his career in politics.
The recession
We were hoping a person of your expertise could explain to readers what this whole economic downturn is about. We essentially experienced two recessions, didn’t we, one domestic and one caused by the global credit crisis?
Well, they in essence merged into one. The local one, which was initiated at the beginning of 2008, was very much about two things: One was drought, and whenever we have drought in New Zealand, agricultural output declines and interestingly, so does the energy sector. The reason is that power generation from hydro sources tends to have high value added, because the input costs are very low, whereas power generated from thermal stations has lower value added, because there’s a higher input cost in terms of oil, coal etc. The other factor in creating the slowdown was that monetary policy was kept deliberately tight to slow down demand since inflationary pressures were very strong and the Reserve Bank was keen to get inflation under control. We were well into that situation when, as you correctly say, the tsunami hit us from offshore, so those two recessions have essentially merged.
Should students be worried? Right now we’re quite isolated from the real world but what about when we graduate and try to find jobs?
Well, I guess the short answer is, nobody knows. The Economist magazine said, and I think I quote them correctly: “This crisis is so huge, that nobody can see the other side of it,” and I think that’s true. Nobody knows how long it’ll last, or how bad it’ll be. People have become more nervous about their employment prospects, whether they’re students at AUT or people in jobs now but it’s not clear what the future holds.
I have to say that I think New Zealand is in one sense in a good spot. When the crisis began, we had very low unemployment by international standards, very low government debt and a strong banking system. [Our high interest rates] meant we had a large amount of room to reduce them and therefore we’ve got significant scope to stimulate the economy from monetary policy. If your interest rates start off at 2%, you haven’t got much space to reduce them. If you start at 8.25%, as we did, you’ve got a lot of scope to reduce them. Additionally, our exports are based around food such as meat, dairy, produce etc and while it’s been fashionable to say “well, these of course are low-tech exports – we’re not in the right industries”, when the world is having a major downturn, it’s actually quite useful to export stuff that people have to eat. They can put off buying another car or another set of clothes, but they can’t easily put off eating.
Having said that, we also face three dangers. First: While I said that the government debt position was very low when this crisis began, a rapid increase in government spending caused by the last government and the sharp downturn in tax revenue caused by the downturn means that that debt is going to get bigger very quickly. The second point of vulnerability is that like the United States and most of the English speaking world, we’ve had a huge bubble in residential house prices and if that bubble were to deflate too quickly, it would put the economy under pressure, which is what is starting to happen in New Zealand. House prices have dropped by 8-10% over the last 12 months but they roughly doubled between 2002-07, so even with a 10% fall, they’re a long way above what they were in 2002. You might say “they’re never going to go back to 2002 levels,” but Japan, which had a similar kind of bubble through until the early nineties, has had falling property prices for the last 15 years. Third point is that because house prices had been going up so strongly, we’ve all felt we don’t need to save as we’re getting wealthier because our house prices are going up, so we’ve been spending more than our income for quite a considerable period, and borrowing from overseas to fill the gap.
Politics
I’ve read that you miss politics which surprised me because I imagine that most people are relieved once they depart.
Well, I didn’t enjoy the petty name-calling, and that’s what it is often. Political opponents often make mountains out of mole-hills and I was on the receiving end of that from time to time. Having said that, politics is where you can most directly change policies and laws. I went into it because I was convinced that some changes needed to be made, and of course in my four-and-a-half years in parliament, with more than three years as leader of the opposition, I didn’t get to change a single law, so in that sense, I’m disappointed. On the other hand, most people would never get a chance to [do what I did], so I was very lucky.
Is it true that Sir Roger Douglas asked you to join the Act Party?
[laughs] I’d prefer not to comment on that.
What do you consider to be your proudest achievements?
[thinks] One of them was getting the National Party back to within a hair’s breath of winning the ’05 election. When I became leader in ’03, there was a significant number of people around who thought the National Party was finished, and in Auckland, I recall a number of people in the business community saying maybe we have to create a new centre right party because clearly the National Party has no hope at all of winning. Well I know that we came very close to winning. I believe we would’ve won were it not for gross overspending of the legal limit by the Labour Party. Parties have strict limits on how much they’re allowed to spend yearly. I think the limit for the National Party in 2005 was about $2.25 million and the limit for the Labour Party was $2.4 million. They overspent that by about 25%, which is a massive overspend, much of it in the last week of the election campaign. We were right up against our limit, couldn’t spend more and they just went right on spending, ignoring the limit. So I think my proudest achievement was bringing the National Party back to the point where in 2008, they were able to win comfortably.
I think my second proudest achievement was reminding New Zealanders that thanks to the Treaty of Waitangi, we are one people. We are all citizens of New Zealand, irrespective of racial background and I think that it needed to be said because there was a growing perception that in fact, the Treaty of Waitangi created some kind of legal partnership between two equal partners, and I don’t believe that’s true.
Your biggest regret?
[laughs] Losing the 2005 election.
What about the Civil Unions Bill?
Well, the way I handled the Civil Unions Bill I also regret. I voted in favour of the Civil Unions Bill in the first reading because I could see no earthly reason for denying gay or lesbian people the right to have their relationship recognized in law. I didn’t think that doing that, in any sense, would threaten heterosexual marriage. We do enough to threaten heterosexual marriage without the gays contributing to it! I was persuaded between the first and second reading that this was a very major change in New Zealand civil society, and it should be subject to a referendum. So in the second reading, I said I’m not going to vote in favour of it because I favour a referendum on the issue, but I should tell the house that in a referendum, I would vote in favour. So I left it in no doubt that I was in favour of allowing gay and lesbian people to formalize their relationship, but I muddied the water by voting in favour in the first reading and against the second reading.
Were you pressured?
No, I mean, everyone in parliament was lobbied – everyone without exception – and as leader of a major party, I was certainly subject to a large amount of lobbying – lots of emails, lots of letters – literally thousands of them.
Have you settled your differences with Helen Clark?
I think Helen Clark is, in many respects, a tragic figure. She’s clearly very able, but when I look back at what she’s accomplished, I feel profoundly disappointed. In her closing speech in the 1999 parliament, before the election, she talked about how New Zealanders were leaving New Zealand in large numbers, and how she was going to put a stop to that. When she became Prime Minister, she said she wanted to return New Zealand to the top half of the developed world, within 10 years. She not only did not succeed in doing that, but we’ve actually slipped back in that 10 year period. So despite having some of the best international economic environment in a generation, she oversaw a gradual move backwards in New Zealand’s relative position. So in the big scheme of things, I think she will be judged by historians as a failure. I mentioned the overspending of the legal limit in 2005. That was one of a number of cases of course, where she simply ignored the law. [The other ones were] the forging of the painting and speeding through South Canterbury and the way she framed the then-Police Commissioner shortly after she arrived, Peter Doone. All those things were outrageous in my view.
What do you think about her new position at the UN?
I don’t know the UNDP [United Nations Development Project] well, but from what I do know about it, it desperately needs thorough reform. It’s the main international agency working to improve the lot of many hundreds of millions of very poor people. It appears to be grossly inefficient, grossly wasteful, and in some respects very corrupt. Do I think Helen Clark can rectify those problems? I doubt it. I don’t think she’s going to do any more for the United Nations or for the poor of the world than what she did for New Zealand for nine years, which is sad.
Just finally, what’s your appraisal of John Key?
Look, he’s doing a very good job. I think he’s an excellent man and there was no question in my mind that he was the right person to succeed me. I stepped down of my own free will and I had discussed with John my view that when I did step down, he would be my successor, and feel very comfortable with that decision still.
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