Doug Henwood dhenwood at
Tue Aug 15 12:58:15 PDT 2000

Financial Post - August 15, 2000

THE REAL LESSONS FROM NEW ZEALAND Vaunted privatization push devastated the country, rather than saving it.

By Murray Dobbin

It has been so long since anyone in the business press has praised the New Zealand "miracle" it is almost as if we imagined the whole thing. But, of course, the current silence is really no mystery. The fifteen year free market experiment has been an unmitigated disaster. The suffering caused amongst ordinary New Zealanders is well known: the highest youth suicide rate in the developed world, the proliferation of food banks, huge increases in violent and other crime, the bankruptcy of half the farms in the country, the economic disruption of hundreds of thousands of lives and health care, education and other social services devastated by the mad marketplace scientists.

But, of course, neo-liberal ideologues don't hold much truck with the human consequences of their experiments. So let's examine those things they do care about. The revolutionaries promised to tear down the "debt wall," unleash spectacular economic growth, spur foreign investment and productivity, create enormous new wealth and new and better jobs.

They failed on every count. Instead of a brave new economy they delivered an economic Frankenstein's monster. The initial wave of changes - deregulation, privatization, tariff elimination - was justified by the infamous debt crisis. This was a ruse all along. Even Sir Roger Douglas admitted this when I interviewed him in 1992. The "crisis" New Zealand faced post-election in 1984 was a currency crisis brought on by Douglas himself.

As for the debt in 1984 it was NZ$22 billion but after ten years of experimenting it had doubled to NZ$45 billion - in spite of the sell off of NZ$16 billion in state enterprises. Today it has finally returned to 1984 levels but only through more crown assets sales.

And economic growth? In the years 1985 - 92 average economic growth in the OECD countries totalled 20% while in New Zealand it was negative: -1%. The promised creation of enormous new wealth went into reverse with real GDP in 1992 at 5% below the ^85-86 level. A burst of growth from1993 to 1995 petered out and steadily declined until it dipped into negative territory in 1998, posting the fourth worst growth in the OECD.

The transformation of the economy was supposed to spur foreign investment but it mostly meant a feeding frenzy on domestic corporate assets. In 1993 the proportion of GDP in investments was just 70% of what it was in 1984.

The restructuring of the economy failed most dramatically on the unemployment front and the country has never managed to get back to any where near the 1984 level of 4%. The "workless and wanting work" figure peaked at over 18% in 1993. In 1999 that figure had only been reduced to 11.2%.

The radicals also promised increases in productivity but again they failed to deliver. After eight years of restructuring and massive labour deregulation New Zealand's productivity began a steady decline compared to its neighbour, Australia. From 1978 to 1990 the rates had been similar. The gap steadily increased between1990 and 1998 with Australia posting a 21.9 % increase and New Zealand just 5.2%.

Only the wealthy in New Zealand could see any success in this destructive exercise in social engineering. Between 1984 and 1996 only the top 10% of income earners measurably increased their share of total income. The lowest 10% lost 21.6% of their 1984 income. Over 50% of the total working population had lower real income in 1996 than in 1984.

There are lessons from New Zealand, but they do not involve adopting that tortured country as a model.

The first lesson is that the unfettered application of ideology is inevitably destructive -- not just of democracy, social peace and equality but of the economy. Even as the revolution continued to deliver disastrous results its promoters claimed it was because it had not gone far enough.

The second lesson is that parliamentary democracy Anglo- Saxon style has proven extremely vulnerable to the ravages of ideology. A virtual executive dictatorship can implement policies that are never even debated during elections - as happened in New Zealand in 1984. The only thing that stopped the zealots from going even further was the introduction of proportional representation in the early ^90s and the subsequent election of minority governments.

And that leads to the last lesson. Globalization is not inevitable nor irreversible. The current New Zealand government (a coalition of a chastened Labour Party and the left-wing Alliance) is unfortunately still committed to signing free trade and investment agreements. But it is reversing many of the most destructive policies. Included in this re-think is the reversal of privatisation of Accident Compensation Insurance, an immediate rise in pensions, a halt to sale of state houses and a commitment to rebuilding the state housing stock, the appointment of review committee on electricity pricing, the freezing of tariffs on clothing and footwear, and the re-recognition of unions.

The pity is that New Zealanders had to suffer through so much in the first place.

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