New Zealand’s Great Regression

Luke Malpass, of the Centre for Independent Studies, has written a sobering, but informative and well-written, article about New Zealand for the Journal of the American Enterprise Institute. He summarises the current state of the economy, and political landscape, before examining how we got to this point – with a particular focus on the reforms of the 1980s and early ‘90s.

A colourful piece, it describes New Zealand variously as a ‘Polish shipyard’ and a ‘beacon of liberalizing reform’ (before suffering from) ‘stultification’ and ‘lost policy mojo’.

The article begins with an anecdote about Ruth Richardson giving the vote of thanks at the PJ O’Rourke dinner last year (excerpts):

Delivering the vote of thanks was the Honorable Ruth Richardson, New Zealand’s indomitable former minister of finance and author of the “mother of all budgets.” Richardson had effectively dismantled the welfare state and slashed government expenditure in the early 1990s before Prime Minister Helen Clark’s Labour government reverted New Zealand to type. In her speech, Richardson noted that since her tenure, New Zealand had “lost its policy mojo” and implied that her former party (the current conservative National-led government) was about to commit “fiscal child abuse.”

 The article argues that New Zealand never fully embraced ‘reform zealotry’:

New Zealand is not in a league of international political big hitters. There are few things that Americans would know about New Zealand: maybe the Lord of the Rings films, perhaps our anti-nuclear policy, or, for the politically minded, the liberalizing reforms of the 1980s (colloquially known as “Rogernomics,” after Minister of Finance Roger Douglas). These reforms ensured that from 1984 to 1993, New Zealand was a beacon of liberalizing reform (liberalizing in the classical sense, as I will use it here) to the rest of the Western world. In reality, despite its great results and international recognition, New Zealand’s overtly ideological and doctrinaire approach to reform was an anomaly in the nation’s otherwise pragmatic path. New Zealanders never really got into reform zealotry, and although the medicine was taken, the exercise regime that would make it unnecessary in the future required a bit too much discipline. It was easier to fall back into the old habits of tax, spend, and regulate.

And so it is. New Zealanders are pleased that Helengrad (the pop culture name for New Zealand under Prime Minister Clark, 1999–2008) has fallen and the socialist government gone. But the nation also seems relatively content with a conservative government doing the same socialist things with marginally lower income tax rates. John Key’s National-led government prefers not rocking the boat—he is keeping up entitlements and continuing to tax and spend, and to clamp down on incorrect social behaviors.

Luke Malpass identifies the ‘50s and ‘60s as New Zealand’s most prosperous years, but argues that years of protectionist policies would eventually make reform a necessity:

The 1950s and ’60s were New Zealand’s “golden years”—it had the highest living standards in the world in the 1950s, largely due to postwar export industries, particularly sheep products to the United Kingdom. But hidden behind this prosperity were the seeds of a long period of decline and a slow process of the stultification of society. The nation was complacent during the good times, and successive governments combined a “she’ll be right” attitude with a misguided belief in the long-term viability of protectionist policies. It took 40 years for the consequences to hit home.    

 Then he launches into his account of New Zealand’s renowned economic reforms:

When they did, the nation responded with radical reforms in 1984. From being one of the most closed-off economies in the world, New Zealand became one of the most liberalized. When the Fourth Labour Government was elected in 1984, almost every area of the economy except the stock market was heavily regulated with tariff and quota protection import licenses and the granting of monopolies. As part of its protectionist policies, government imposed a total wage and price freeze for almost two years in 1982. The government owned about half of the economy and provided cradle-to-the-grave welfare.

I would take issue with one or two points but Luke Malpass has done a well-articulated summary of a turbulent but hugely significant and fascinating period of our history. It continues from here and is well worth reading in full. Here’s the whole article.