Graeme Wheeler is comfortably orthodox. Comforting to the
Cabinet, that is, but not to exporters - nor to the
red-green-black trio of opposition parties. The new Reserve
Bank governor was clear in his first speech on Friday that his
core role is to contain inflation, aiming at 2% a year, perhaps
a bit high in a deflationary global environment, but lower than
his predecessors' record of mostly 2% to 3%.
Like his predecessors, Mr Wheeler also will keep an eye on
economic growth as a factor in inflation, not an end in
itself. Also like his predecessors, he will watch house and
other asset prices, with - a late legacy from Alan Bollard -
a wider "prudential" brief and more levers to discourage
risky, irresponsible lending than the Reserve Bank had when
the dangerous 2000s house bubble developed, a bubble still
not deflated, especially in flighty Auckland. Wheeler is also
orthodox in valuing "deep, efficient and well-regulated
financial markets" which "facilitate economic growth by
helping to channel funds to their most productive use and to
allocate risk where it can best be borne".
He does reject the neoliberals' orthodoxy which infected much
of the global system, that those markets must be left to run:
unfettered, he says, they have "destructive power" when
"dysfunctional", as they were leading up the global financial
crisis which has loaded governments with debt, on their own
and their central banks' balance sheets.
But that is the only bar of Mr Wheeler's line that is music
to the red-green-black wannabe government of Labour, Greens
and New Zealand First, now holding hearings (with Hone
Harawira) on the "crisis" in manufacturing (which, actually,
Mr Wheeler's exchange rate tune is also discordant to the
red-green-blacks. He sets four conditions for effective
intervention to lower the exchange rate and none are met
right now. Rich-country central banks' dangerous
"quantitative easing" (money printing) is not in-control
management: he calls it "a sign of desperate times".
Mr Wheeler's fix is to shift resources from the public sector
and the non-traded elements in the economy to the private
sector and the traded sector.
Bill English says he is promoting this, but actually the flow
has been from traded to non-traded over the past 18 months.
Mr Wheeler's essential point is that if we are to live up to
our overpriced exchange rate - parked in stratospheric orbit
by commodity prices, enviable government finances, continued
GDP growth and foreign investors' perception of this economy
as a safe haven - we will have to lift productivity growth.
That, Mr Wheeler and his political masters believe, happens
overwhelmingly in the private, traded sector.
(The reasoning is that most of the public sector and much of
the rest of the non-traded sector are person-intensive, where
machines and computers make smaller productivity gains than
in smart manufacturing and high-end tradeable services. This,
too, is comfortably orthodox.) Labour, the Greens and New
Zealand First - and the Maori party, if it were honest and
outspoken on the issue - think differently. They are
searching out interventions to lower the exchange rate, make
exports more profitable and make good jobs.
All three agree with Mr Wheeler that the country's total
external debt is perilously high and that the serious and
rising balance of payments current account deficit is
building it. But they part company with him in wanting active
This is a combining factor for the three parties, potentially
a unifier for a coalition-in-waiting. That the National party
has grasped that possibility is shown in its recent
slackening of its slagging off of New Zealand First. With the
Maori party increasingly sounding like an opposition party,
National knows it may need Winston Peters post-2014.
But within that unifier there is a dividing line between
Labour and the other two. That is over how much a small
economy can counter the powerful intrusions of the modern,
highly globalised economy. Labour signed the Singapore, Chile
and China free trade deals and actively pursued others.
The Greens and New Zealand First oppose free trade deals and
are more suspicious of inward foreign investment. That has
been a link from Russel Norman to Mr Peters, a meeting point
in their occasional chats. Anti-globalisation is a paradox in
Green thinking. Greens have always been globally connected to
like-minded parties and insist ecosystems and climate change
are global issues from which we cannot, or at least should
not, retreat into a nationalistic hutch. But they do not see
the global economic ecosystem in the same light.
This economic globalisation line divided Labour and the
Alliance in coalition 1999-02 and helped split the Alliance
in 2002. That spectre now looms behind the red-green-black
So Mr Wheeler's positioning highlights both what unifies and
what divides the trio. If they do take office, what will they
do with him - and he with them?
• Colin James a leading social and political