I really shouldn't be disappointed when politicians act in accordance with theory.
Public choice says that politicians are self interested and want to be re-elected. In an MMP system, that means that the big centre-right or centre-left party has to cobble together a coalition supported by 50%+1. We usually expect the minimum connected winning coalition - the smallest grouping of parties adjacent to each other in left-right space - to emerge. In 2008, Key put together a larger coalition than that, mostly, it seems, to give himself flexibility to ignore ACT, who might sometimes recommend that policies enacted by Helen Clark be rescinded. Even absent that kind of larger coalition, ACT is largely toothless: they know they won't go into coalition with anyone but National, National knows it, ACT knows National knows it and so on. So they have no bargaining power in coalition formation: they're promised productivity task forces that are promptly ignored and so on. ACT can't even get National to support a bill reversing a Labour-Green policy that National opposed when Labour enacted it and that National might reasonably have been expected to reverse in office.
If Key wants to maximize his chances of being Prime Minister after the next election, and ACT would neither bring down a National government nor go into coalition with Labour, then it's hard to fault his strategy. The polling wouldn't be good on changes to minimum wages as most folks don't understand economics; if the policy were enacted, more youth would blame National for small wage decreases than would credit National for getting jobs. So there's little political gain in dropping the youth minimum wage regardless of the economic case for it: no votes to be gained, and ACT doesn't much need appeasing.
I don't know how long ACT can survive as this kind of rump. Not many folks can point to any particular ACT achievements in government other than getting to take the blame for Auckland's amalgamation. Yeah, they're getting a productivity commission (after a productivity task force report was sent to the shredder, unread); yeah, they might eventually get a regulatory responsibility bill (which I'm now having a much harder time imagining both having the teeth to do anything useful AND being supported by Key: looks more like pick one or the other). And maybe they've behind the scenes stopped some really stupid policies; I'd believe it, but that's not the kind of thing they can campaign on. There seems little chance of ACT pulling above the 5% threshold for Parliamentary representation; Hide's seat in Epsom serves as lifeboat.
And, I don't think that just coming up with nifty new economic policies will push ACT over 5%; the problem more is in making credible that their policies ever would be enacted by a coalition. If ACT can't even get National to agree to go back to the status quo as of January 2008 on the youth minimum wage, why should we ever expect them to extract anything substantial from National? They're the dependable rump on the right, easily ignored, who'd never vote with Labour so why worry? It's the centrist parties that profit from bidding wars between the centre-right and centre-left. ACT has been up a bit lately in the polls, pulling from National's right tail. But those right wing voters have more influence staying in National and moving National's policy position than they have by increasing ACT's vote share. The policy position chosen by National at convention will be the median of its members, mediated a bit by a pull to centre. The more voters shift from National to ACT, the further left is the median National voter; as ACT won't credibly go anywhere else, it doesn't much move coalition policy. This of course will limit the number of voters ACT can draw from National's tail.
But ACT could have more serious influence on policy. Folks forget that a truly liberal party, in the European sense of the word, and which ACT has claimed to be, isn't a right wing party: it's to the right on economics and to the left on social issues. But ACT's forgotten the other side. It's time they remembered it.
Key can afford to ignore ACT because there's no chance of ACT going elsewhere after the 2011 election, if it returns in 2011. This has to change. And perhaps the best way of making that happen is for ACT to stop talking about economics and start talking about the parts of a liberal platform where they could make common cause with the Greens and the socially liberal side of Labour.
The Law Commission released a report arguing that New Zealand's laws on marijuana needed revision; Simon Power immediately ruled out any changes in drug policy. When a liberal party could have been jumping up and down with the Greens trying for a liberalization of our drug laws, I didn't hear anything from ACT, probably because caucus isn't as liberal as ACT's banner. Where has ACT been on the internet filter? On the use of asset forfeiture legislation? On copyright reform? They may well have policies on all of these (and, on asset forfeiture, the wrong one), but they've not been priorities. Instead, I only see them on economic issues that increasingly seem doomed and on Tiebout-competition-destroying and subsidiarity-ignoring city amalgamations.
Imagine that after the 2011 elections neither Labour nor National has enough votes to go it alone. Labour plus the Greens plus Maori plus ACT could form government; National could do it with ACT or Maori. That's not implausible. ACT puts out a slate of economic policies for National; a slate of civil liberties policies for Labour/Green, choosing the ones that the Greens would find most enticing. A liberal agenda is advanced in either case. It's not like Labour is hopeless on civil liberties either: I am far more a fan of Labour's civil unions bill and prostitution law reform than I am of anything National's done or, increasingly, than I am of anything I expect National to be likely to do. For all that Labour screwed up on the economics side, a not unreasonable case could be made that a liberal agenda made more progress under nine years of Helen Clark than has been made with a liberal party in a National government.
After an election giving National the choice, would National really choose not to bring ACT into the government if its slate of economic policies were roughly in keeping with the kinds of things that National voters tend to like? Just make former National Party leader Don Brash's productivity commission report the basis for ACT's proposals. But by being willing to go into coalition with Labour on a civil liberties platform where they'd make common cause with the Greens: drug reform, internet filter, civil asset forfeiture, perhaps even copyright reform, ACT could have a decent chance of holding National to some reasonable economic reforms: size of government (giving room for changes in taxation), welfare, regulatory burden, RMA.
ACT needs to be able to make credible threats. Focusing on civil liberties would help.
I could easily be wrong: maybe the Regulatory Responsibility Bill has a really great chance of being implemented in a form that would do a lot of good. I can believe that National would be more friendly towards legislation that constrains future action than legislation that annoys voters today; it's probably ACT's best chance of achieving anything on the economics side. If they can quietly make useful structural changes in a National government, then there's less need for the kind of positioning I'm advocating. But everything I've seen thus far from Key makes me pessimistic; I'd expect National to write in enough escape hatches that it, and Labour, would not be terribly constrained. OIRA in the United States hasn't been particularly effective in constraining bad legislation and budget caps there similarly have proven ineffective when every year can be deemed an emergency year requiring the cap be increased or ignored. Quasi-constitutional constraints are great, but they have a hard time being effective in a Parliamentary system if the majority party doesn't particularly wish to be constrained and if voters aren't particularly constitutionally minded.
The biggest risk in liberal positioning would be in alienating the hard conservatives in ACT's base. But how many of those would be willing to trade a much better chance of advancing the economic issues they care about in exchange for some moves on social policy? And, for those who haven't the stomach for the deal and leave, how many younger folks would ACT bring in on a civil liberties ticket? I hope ACT's doing some polling.