Small businesses struggle under Labour

A Massey University study has found longer election cycle could be better for business and that small busiensses struggle under Labour governments:

 A four-year election term may help prevent smaller firms listed on the New Zealand Stock Exchange getting into strife as a result of fast-track policy changes made by new governments, says a Massey University academic.

Dr Chris Malone, a senior lecturer in the School of Economics and Finance, says billions of dollars are lost to the economy because firms, particularly smaller ones, are unable to cope with policy changes brought on by a change of government.

“Four years instead of three in the political cycle would give government more time to phase in policy instead of rushing reform through. This could give smaller firms breathing space to adapt and adjust to the new environment,” he says.

It’s not just businesses which face frustrations and added costs from the shorter election cycle, NGOs which deal with government departments do too.

Dr Malone’s comments arise from the findings of a research paper he co-wrote with Associate Professor Hamish Anderson, who is also from Massey University. The paper found small firms have performed much worse under left-of-centre governments than right-of-centre governments since 1972. It also found stock returns are generally significantly higher under right-of-centre governments.

Given the anti-business policies of the left that isn’t a surprise.

Dr Malone says there has been recent global interest in whether stock markets prefer a right-of-centre or left-of-centre governments – and that researchers were surprised when research in the United States showed its stock markets preferred Democrat governments.

The conventional wisdom had been that Wall Street liked a Republican government “but when they went and looked at the long history of returns they found that during Democrat governments things whistled along pretty well,” says Dr Malone.

The opposite, however, is true for New Zealand. While large firms do relatively well under either the left or right, small firms have underperformed significantly during Labour terms. Dr Malone says perhaps in the United States, Republican governments are more likely to get involved in wars and external policies that can damage the sharemarket but, in New Zealand, right-of-centre governments haven’t had this responsibility and their pro-business focus has shown through in stock returns.

While it might be expected that small firms would struggle during periods of intense reform, such as Rogernomics in the 1980s, the Massey research found they struggled generally through all Labour government terms.

If it’s difficult under a labour government, a Labour Green one would be even worse.

“Small firms in particular can’t handle a changing environment very well. They don’t have access to professionals; they typically don’t have the cash resources or the ability to raise cash if things get tight; and they find it harder to pass on business risks.”

With an election coming up, Dr Malone says the study suggests two things. “First, all the parties should be aware that governments should be cautioned against changing policy too radically and too quickly.

The second thing is we should really try to get a four year-term because it seems governments try to push reforms through quickly in order to get them in place before the next election – three years is really not long enough for many long-term structural reforms.”

Voters, too, should not encourage radical change as political uncertainty has an economic cost.

Most voters don’t want radical change. The ones who do tend to be politically involved and they’re a minority.

New Zealand’s political system is such that parties need to create clear points of difference between each other, “so you often get a party advocating quite significant change and that’s how they get into power, but once they get into power they have to implement some of those reforms and often that can have
severe consequences, particularly on the smaller firms.

“The significance is that there are clear and significant price reactions in financial markets when governments change policy rules. These reactions can be strong if the markets are caught by surprise or cannot adapt to the new environment. When businesses fail we lose a tremendous amount of GDP and wealth. There is a growing awareness that political uncertainty in general is bad for the economy and citizens – take for example the impact of it on the value of the SOE power company floats,” says Dr “We all hold savings accounts and KiwiSaver accounts so when there’s a threat to the value of those companies it does affect our back pocket.” . . .

The left like to talk about big business as if there’s something wrong with that.

But their anti-business policies hurt small businesses more and anyone with investments, whether they’re personal or through KiwiSaver, will also be disadvantaged by policies which add costs and hamper productivity.

This paper gives people another good reason to give National three more years – #3moreyears

5 Responses to Small businesses struggle under Labour

  1. Captain Fantastic says:

    All governments harm business. What I’d like to see is a government that was pro-business. A good example of bad government selectively anti-farmer/anti business, in action that I saw recently is as follows.

    A farmer driving a quad on his own property was fined $15,000 for riding without a helmet.
    My searching on the internet informed that a cyclist riding on the road without a helmet fine from $55 – $1000. A motorcyclist can be fined $155 for riding without a helmet. Are these facts correct? Thats what I could find. I am happy to stand corrected.

    The national party bought in the RMA which allows environment councils to abuse their state monopoly power to overcharge. The individual has no real comeback.

    That is why I am not moved by national party pleadings every election year. Been there, done that. Waste of time.

  2. “A farmer driving a quad on his own property was fined $15,000 for riding without a helmet.”

    That farmer also had a child on thew bike without a helmet.http://www.stuff.co.nz/business/farming/10051594/Quad-bike-helmet-fine-unjustifiable

    If he wants to ride the bike, by himself, without a helmet, and cracks his skull open – that’s his choice. Good luck with that.

    But I draw the line at involving children in an adult’s irresponsible behaviour.

    I think that is what some call taking responsibility for one’s actions.

  3. homepaddock says:

    Frank – that was discussed here: https://homepaddock.wordpress.com/2014/05/17/rural-round-up-633/

    I don’t disagree with the prosecution but I think the fine seems out of proportion.

  4. TraceyS says:

    That farmer was a farm employee, Frank. Heck, did you even check that this guy was on the minimum wage to afford the $15k fine?

    Any way to blame the employer? Not now that you have loaded all the blame on the employee’s shoulders.

  5. TraceyS says:

    “A farmer driving a quad on his own property was fined $15,000 for riding without a helmet”.

    Wrong, Captain Fantastic.

    An employee who was provided with the appropriate personal protective equipment by his employer failed to use it, was repeatedly caught and warned, but continued.

    If you had any empathy for small to medium sized business owners, especially land-based ones, you’d probably agree with the prosecution.

    It’s about time section 19 of the HSE Act grew teeth. This will help employers tremendously with the job of reducing workplace accidents because it will put the shits up employees to wear their PPE and comply with safety procedures.

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