'THE NATION'

ROGER KERR
Interviewed by SEAN PLUNKET

Sean This year The Nation's going to having a series of extended conversations with influential New Zealanders. Our first is with Roger Kerr who joins us in the studio now. Good morning Roger.

Roger Kerr – Business Roundtable Executive Director
Good morning.

Sean Looking back at that piece, do you agree with Matt McCarten that the Business Roundtable, the pirates some would say of private enterprise in the free market won the battle, but lost the war?

Roger Well I don’t know that I'd rely on that as an economic commentator. We had a lot of people at the time of the global financial crisis saying this was the end of capitalism and market economies and we'd all go back to command and control. Didn’t happen of course, countries didn’t change direction. Nor has New Zealand changed direction. I mean for all the debate that we had in the last 15 years or so the base of directions have continued. We're not going back to fortress New Zealand. We're not going back to high inflation. I think a lot has been concreted in if you like, but there's a lot of unfinished business.

Sean Well look at this, you have as we said 67% of your policies on one analysis were actually implemented. We had privatisation, we had the opening up of the New Zealand economy to international competition, essentially the globalisation of this country's economy. Yet many would say where is the land of milk and honey that was promised as a result, or did you never promise that?

Roger Many people over promised. We as an organisation had no expectations that New Zealand would do better than it turned out to do. It did very well remember in the 1990s when the benefits of the two waves or reform kicked in, much faster rates of productivity growth, low unemployment, inflation right down, budget surpluses, all of those kind of things. I would say we lost the plot from the time of the mid 1990s on and we have got a long way to go to recover it now.

Sean I know you’ve said that you were motivated I guess to become more political than you’d been as a diplomat and a Treasury adviser by the mediocrity that you saw in New Zealand and the way it operated as an economy, and the mediocrity I guess of our society. Yet with those two waves of reform we still find ourselves sin 2011 with very little economic growth, with huge indebtedness as a nation, and still fundamental problems in getting this economy going again. Do you think we are any better off than we were at the end of Muldoonism in 1984 when absolutely what was needed as massive reform?

Roger I would say it wasn't a matter of being more political Sean, I'm just an economist, I'm not into politics, I'm interested in good policies.

Sean But politics make economic policy happen.

Roger Government makes the decisions about policies and that’s why governments are so important, but I mean if you think about the things that do matter, you know the open economy, low inflation, full employment, I mean surely nobody would call those policies of the left or the right, you know they're just sound economics basically, and we followed sound economics up to a degree but we seriously have lost the plot, and we've seen that with the huge slump in productivity growth in the last decade, unemployment up to relatively high levels again, inflation pressures I think are going to worry people a lot this year, and I think that that is because we did not carry on as countries like Australia did, with very similar kind of policies, and you can't just go in for brief rounds of reform, you’ve got to carry on in a consistent fashion.

Sean Well fair to say you were right in there, right with that Labour government, the Lange Douglas government. Bolger Richardson, Richardson was certainly very much in your camp and went very hard economically. You say we lost our way, did we lose our way when Winston Peters was made Treasurer and the National Party lost its bottle?

Roger I think that’s around the correct timing. I mean it's not as though we were in alignment with either of those governments, we're totally apolitical. I mean we criticised the Labour government for not freeing up the labour market in the 1980s, that would have led to a much lower increase in unemployment than we subsequently saw. We got somewhat disenchanted by the National government in the second half of the 90s, they did not carry things on. As you say Winston Peters became Treasurer, he was into high levels of government spending.

Sean I'm wondering did the political process do you think stop the reforms that you were after, the necessities of the political process, and particularly of MMP?

Roger I think you're right, I think MMP has been a ball and chain on the economy. I think there's plenty of evidence that what proportional systems lead to are weaker governments. After all the Americans imposed MMP on Germany because they didn’t want strong governments in Germany. What that means is slow decision making, compromise, much more government spending because parties do trade offs at the taxpayers' expense. All of these things I think are holding New Zealand back.

Sean Describe your relationship as that fell apart. How did you get on with Winston Peters, in comparison to say Roger Douglas or Ruth Richardson.

Roger Well I mean Winston Peters is a charming person, you know him very well. I don’t think he had motivations that were against the interests of the country, but he just had the wrong kind of policies. I mean like Robert Muldoon for example, he was quite a bit government sort of person, and I think the National government in its last three years really did very little to improve that the National government that he was a part of, did anything to improve New Zealand's fortune.

Sean Would it be fair to say Roger Kerr that really that was the last time that the Business Roundtable even had any real influence given of course as we noted, Helen Clark in nine years in power only met with you once, you were well on the outer and if you like demonised by the time she came to power?

Roger I don’t think that’s the correct way to look at things actually. I mean you’ve gotta look at what changes actually occurred. And so during the Clark and Cullen years we basically saw the main reforms that New Zealand had introduced years earlier still in place. The Reserve Bank Act the Fiscal Responsibility Act, the open economy and so forth, despite the fact that they pretended to be against those kind of policies. But what they also said of course was that they wanted to take New Zealand back into the top half of the OECD ranks. Their policies were never going to achieve that, we didn’t even move up a notch in that period and that’s why we were critical of a lot of what they were doing.

Sean Do you think too people had stopped listening to your organisation, that your finest days were over by then?

Roger I don’t think so. I mean if they'd stopped listening they would have done a whole lot of different kind of things. They would have gone in for lots of reversals of those policies, and look bear in mind that for a long time now what we have said is not different from what all the major business organisations have been saying. Take Business New Zealand, Federated Farmers, the Chambers of Commerce, there's be a 95% overlap between their policies and ours. They're also very much in line with what the OECD says about New Zealand, they are really mainstream, and that’s why you're not seeing gross departures.

Sean But no doubt you were painted and the organisation was painted into the extreme, and I'm wondering if you look back at that speech about there is no such thing as corporate social responsibility, the only thing companies should do is make a profit. I'm wondering now if you would regret that, because it helped you be painted into that corner?

Roger Not at all, I don’t it was a very cosmic event, and I think that’s a simple question to answer actually. I mean what is the most important social role of business? It's to produce efficiently the goods and services that we all as consumers want. If you think about what Apple and what Microsoft has done for the world, it's their amazing products that have made all our lives better. Is it correct for businesses to go in for supporting other community activities? I say absolutely yes, if they benefit the businesses, the shareholders of the businesses. The dividing line is if they're into things which have no benefit for their shareholders and if I can just finish on that. I mean Bill Gates is into philanthropy now, but it's his money it's not Microsoft's money, Microsoft will never dream of …

Sean Well come on it was made through Microsoft Roger.

Roger Of course it was.

Sean Let's look at say the response to the Christchurch earthquake, and that would seem to give the lie to your speech. Many businesses, many many businesses have got involved there and given money to the cause, and have helped out that community and they're involved in working with the government to re-establish and rebuild that community.

Roger And many individuals have too. I mean Own Glen for example gave a million dollars of his own money, and I think those companies had every reason to do that. I'm sure they felt their shareholders would approve of them doing that at the time of a major national tragedy. I don’t believe you'll get one shareholder at an AGM questioning those things. But if they give away money in ways that do not benefit the community because they don’t improve the image of the company in the eyes of customers or of employees, I think that …

Sean So you're saying all corporate largesse is still self interest or should primarily still be self interest?

Roger Well consider if they were going to give anonymous donations that nobody knew about, if you were a shareholder of a company would you be happy that they were giving away what is actually your money unless they had sought your permission. I mean if they do and they get your permission, I'm perfectly happy with that. This is really quite a simple issue.

Sean Roger Kerr looking at your relationship with the government now, could I first ask you how would you describe your relationship with the Key English administration?

Roger Well actually I would say it's the easiest relationship that we've ever had in all the time that the Roundtable has been in business. I mean it's very easy to communicate with them, there's a lot of interest in stuff that we do. Ministers regularly attend our meetings. That is not a comment of course on how satisfied we are with the general directions of the government which we'll not doubt go to, but there's certainly nothing in the way of cold shoulders.

Sean Alright, so better than the relationship with Clark Cullen which was fundamentally non existent?

Roger Well it wasn't non existent in the sense that the same things happened, we had Labour ministers along to our meetings regularly, we would meet with Labour ministers. The question was was there a point to it, you know was their real engagement and listening and modification of policies, and sadly although they did some things that we would applaud like the free trade agreement with China and the deregulation of producer boards, and I could name others, fundamentally they were into bigger government, bigger spending, much more regulation.

Sean Helen Clark couldn’t stand you could she?

Roger She wanted me fired, but I was determined I'd say on until she lost her job earlier than I did.

Sean John Key I'm presuming doesn’t want you fired. You look at this government though, one of the huge criticisms with John Key has been I think in this first term, that given his level of popularity he has failed to really do anything big. We got criticisms of smile and wave which I guess because of the earthquake aren’t quite so much to the forefront. Do you think this government has squandered the opportunity it had to reinvigorate the sort of reforming agenda that you're interested in?

Roger To a point I can understand the way John Key has operated. After all he was a new Prime Minister, had to learn the ropes, he inherited the global financial crisis.

Sean Well same as David Lange, so was Roger Douglas.

Roger Sure, sure, but he didn’t have a strong mandate in a number of respects and sadly he'd ruled out things that I feel he never should have like raising the super age and touching student loans for example. Some of these I am absolutely sure he is going to have to revisit in due course. You can see some of that as early as this coming budget. Looking back I think the government should have reacted faster to the global financial crisis, because if you don’t get on top of problems like that which hit your accounts and weaken your economy, then you're on the back foot when other economic accidents occur.

Sean Do you think the government's lacked vision, that it's been too obsessed by poll ratings and here we are being the government and let's keep it that way, rather than saying we're here for a purpose? And the sort of purpose I guess that you convinced Lange and Douglas they were there for?

Roger Well in a sense I would say the government has a vision, it talks about closing the income gap with Australia by 2025, as an organisation …

Sean But then you have Bill English coming out and saying no we're gonna compete on cheap wages?

Roger Well I think what he's pointing out is that right now we're a much cheaper labour cost country than Australia and that does mean that we should be attractive to certain kind of industries, but you don’t want to stay there long. You know China was a cheap labour country for a while, it's now finding that some of its industries aren’t competitive and they're going to other places. So Bill English's comment I don’t think is inconsistent, the more important thing is are we on a track which is likely to get us there, and I think few people right now would say we are.

Sean Well let's make a direct comparison then, man for man if you like, or person for person would be more correct these days. 1984 Lange led government with John Key's government.

Roger Well I think the history books are going to say that Roger Douglas was the most important political figure of the last generation, I think there's no question about that. I think it's very early days as far as the Key government is concerned.

Sean Well look at what Labour did in its first two years and you know there's no comparison is there?

Roger Well that’s right but you know they inherited an economic crisis. What worries me right now is that New Zealand could be sleep walking back into an economic crisis. That’s not a direct comment on the government, it's a comment on the state of public opinion.

Sean Do you see the risks right now for the New Zealand economy as high as they were back in 1984 when Labour came to power?

Roger They're growing to that level I would say. I mean one more shock of the sort that we've had, you know a Christchurch earthquake, a bank collapse, or something like that, I think would put us very close to the Greeces and Portugals and so forth of the world.

Sean Alright my question to you is, do you believe we have a government and administration in place now that is up to that challenge?

Roger Well I think there's a mood change that’s been going on particularly since the Christchurch earthquake, I think the government has had to realise that it's got to do more. I mean it's talked much more strongly about government spending, we're going to see what that adds up to in the budget.

Sean But it's talked strongly and it's talked about backroom functions and rationalisations and merging things together. It hasn't talked about the fundamental reforms and getting rid of say Working for Families for people above the average wage. It most certainly is not talking about revisiting super, in fact the Prime Minister has reiterated his pledge on that. So what I want to know from you, do you see any signs that this government is going to make what you would say are the tough decisions necessary to get us out of danger?

Roger Well I think you're right, I mean the big spending areas are what Americans would call the entitlement programmes, the welfare state. I think around the world now the welfare state model is in deep trouble, and many countries including ourselves are going to have to change the democratic trends and the like. So no I don’t think the government's programme has got anything like the gravity that is necessary to restore a faster rate of productivity growth to consolidate the government's financial position and put us in a much more stable situation relative to being able to borrow and avoid credit rating downgrades. There's a lot of hard work now I think ahead, and we've just gotta hope that John Key, I think a very competent and popular Prime Minister will be willing to recognise that and take the country with him.

Sean Do you think as competent and popular as David Lange was or Roger Douglas, as Minister of Finance?

Roger Well I have a lot of regard for David Lange actually in his first term especially.

Sean Is that a no, you say John Key's not the man that Mr David Lange was?

Roger No another very attractive figure I would say, and you know his instincts are private sector instincts, I don’t think he's a big government kind of person, but it was very foolish of him to make commitments like not raising the super age after the global financial crisis countries have been doing that practically across the board. Everyone knows that it's unsustainable. I think if you took a poll probably nine New Zealanders out of ten, and what I would like him to do really is to do what John Howard did about the GST in Australia, where he said he wouldn’t introduce one, he then realised he should, he went to the Australian electorate saying look I need a mandate please to introduce a GST and he got one. I suspect that could happen in New Zealand.

Sean I get the impression Roger Kerr that you believe this government knows the way but may not have the valour if you like to pursue it for political reasons. Do you think MMP in our political system is getting in the way of people making straight headed if you like economic decisions and policy decisions?

Roger Yes I do. I mean almost my definition proportional systems end up with coalition governments and all the tensions that you have operating that way. This year I'd like to see John Key lead an intelligent debate about MMP, not necessarily plumping for any particular alternative. I doubt if he likes MMP as a system, but just explaining to New Zealanders what the properties of a good electoral system should be, and what the downsides of MMP are. Every electoral system has upsides and downsides. I think it's the case however that MMP has more than let's say a Westminster type system, which only throws up coalition governments very infrequently, we do have them in the United Kingdom and in Australia, that’s not the norm though.

Sean Roger Kerr it's still obvious that you are still fighting the fight, the crusade continues for the Business Roundtable. You’ve got another fight on your hands right now. Tell us about that.

Roger Yeah I've got a health issue. I was diagnosed last October with metastatic melanoma, that’s a pretty deadly cancer as you'll know, but if the time has come to sign off well you know it comes for all of us at some point of time, but I've had a great life. I've had a wonderful career, I've had wonderful friends, I've got a terrific job, and I want to live, so I've got a beautiful new wife, I've got a 15 month old granddaughter in Seattle, I've still got a lot of work that I want to do, so unless and until such time comes as I have to fold the tent as it were, I'll be carrying on, and I'm exploring all sorts of possibilities all around the world for treatment, and I guess I've slain a few dragons in my time, and I'm gonna give this one a good old fight.

Sean Roger you'll be going private I take it.

Roger I'm in the public system in Wellington, I'm very happy with that to date, but I'm gonna look at all possible options.

Sean Do you think whatever happens you will leave behind a New Zealand that is less mediocre than it was when you decided that you wanted to do something about that mediocrity. Do you think that your sons, your grandchild, are gonna grow up in a country that is innovative, outward looking, global, and delivers a better standard of living than you grew up with in your time in Nelson?

Roger I think he answer to that is yes. I mean apart from the last part of the Clark years where our performance really fell away again, the reality is that New Zealand has done as well as the average OECD country in the last 20 years or so. It has not done as well as Australia, which has been an out performer, even though you can criticise a lot of Australian policies. What I think though is that we are at risk of continuing to fall behind and certainly not to achieve our full potential, and for that New Zealanders need to be well informed, they need to think hard, they need to look at where the successful countries are.

Sean And you would say you need to keep telling them where they're going wrong?

Roger Oh you need many more people than I do, but there are plenty around.

Sean Roger Kerr I thank you very much indeed for your time today.

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