ACT and the financial crisis

Note: this post originally appeared on ‘Douglas to Dancing’, a blog I maintained from 2007-9 on the ACT New Zealand political party. The blog was an extension of the thesis I wrote about the Act Party in 2007, From Douglas to Dancing: explaining the lack of success of ACT New Zealand and evaluating its future prospects (PDF).

With all the coverage of the financial contagion which centres on the United States, it’s sobering to recall that it is New Zealand, not the US, which has moved into a “technical recession” in the past week, having suffered two consecutive quarters of negative growth. The last time this happened was in 1998 – a fact which should give ACT pause for thought. While financial troubles are not normally something to be embraced with glee, ACT should actually profit electorally from the economic uncertainty.

In 1998, the year of the last recession (which took place amidst the Asian Crisis), the party managed its best ever election result in the Taranaki-King Country by-election of of 2 May 1998. The by-election, held to find a replacement for the previous seat-holder, ousted Prime Minister Jim Bolger, saw ACT haul in 24% of all electorate votes cast and candidate Owen Jennings come within a veritable whisker of winning the seat. What should have been a safe seat for the National Party was won by Shane Ardern with a majority of just 988 votes of almost 20,000 cast.

Sure, that was just a by-election and ACT has done one better in electorate seats both before and since: Richard Prebble won Wellington Central in 1996; Rodney Hide, of course, has held the Epsom electorate since 2005 and according to ACT will safely win the Epsom seat this year. But let’s go back to the 1990s: while the economy had recovered somewhat by 1999, the situation was precarious enough to allow the 1999 election to be fought primarily on economic issues. Recall Jenny Shipley threatening increased power of unions; Helen Clark promoting a new 39% top tax rate. For its part, ACT managed to increase its number of seats in Parliament from 8 to 9 – the only time in its history (other than its inaugural entry) it has managed to increase representation.

With New Zealand’s economy stronger in 2002 and 2005, these elections were not fought on the overall state of the economy, but on more peripheral issues. These encompassed crime, the environment and race. (It’s true that tax cuts were a campaign issue in 2005, but this was not equivalent to a debate over wider economic reforms). To borrow a simple doctrine I heard last week from one of CNN’s talking heads: when the economy is doing well, something else is the main issue; when the economy is doing badly, the economy is the issue.

For ACT, a party based on economic reform, then, the hard times New Zealand is now facing should be gold dust. The economy is in trouble; house prices are falling – where is the solution? ACT has one ready in the form of a 20 point pledge card plan – available on its website. But ACT is showing few signs of benefiting according to current opinion polls – it is “static” on 2% according to Sunday’s 3 News poll; curiablog’s rolling average puts the party at just 1.5%. Why aren’t economic troubles appearing to benefit an economic party? After all, in Rodney Hide’s own words, “ACT is the only Party with a detailed plan to lift our economic performance”.

Here’s what I think: ACT’s remedy is not perceived as befitting the disease. The collapse of numerous banking institutions in the United States, United Kingdom, Germany and elsewhere has been attributed by voters to the greed of “Wall Street” – with bankers greedy for profits taking inordinate risks. These risks are now being unwound in the form of taxpayer assistance, in the US to the tune of US$700 billion. ACT’s free market message is hardly likely to appeal. Why let the market decide when the market can so clearly badly stuff things up?

Most voters won’t feel the need to go through this analysis – they’ll see “Roger Douglas”, remember the 1980s and think “let’s not go there again”. This doesn’t mean they don’t want the free market, but they prefer a more compassionate form than the unbridled version. In other words, the smiling-your-mate-John Key version appeals, the version which promises no more asset sales, the version which promises no funding cuts for just about anything.

There is an alternative interpretation the financial crisis which is supported by more right-wing members of the Republican party in the United States. In this version, bankers and their greed were not the problem – the free market is not at fault. Rather, it was the government which forced them into this position by dictating that as part of a social policy mortgages should be granted to all and sundry, rather than just those who can afford the repayments. I haven’t seen an ACT position on the causes of the crisis, but I strongly suspect they would side with this view and reject further government intervention.

The trouble for ACT is, far more voters agree with interpretation 1 than interpretation 2. ACT’s remedy is too harsh for the disease.