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New Zealand "experiment" a colossal failure - Jane Kelsey

9 Jul 1999

LIFE IN THE ECONOMIC TEST-TUBE: New Zealand "experiment" a colossal failure

New Zealand used to claim credit for being the birthplace of the welfare state, for being the first country to give women the vote, and for building a harmonious multi-racial society.

Today, however, it is becoming infamous for what is known as the "New Zealand experiment." Economic theories which had never been tried, let alone proved, anywhere else in the world became New Zealand government policy--first at the hands of a Labour government from 1984 to 1990, and then continued with equal, if not greater, fervor by its National government successor.

The "fundamentals"--market liberalization and free trade, limited government, a narrow monetarist policy, a deregulated labour market, and fiscal restraint--were taken as "given," based on common sense and beyond challenge. These radical policies were systematically embedded against change.

This was a classic structural adjustment program of the kind traditionally imposed on poorer countries of the Third World by the International Monetary Fund and the World Bank. New Zealand did it voluntarily. The result is being promoted in New Zealand and overseas as a model for the developed countries of the OECD. But those governments and their peoples need to look beyond the "good news machine" and learn the real lessons of our last ten years.

The economic deficit

This was no success story. For most of the decade New Zealand's economy has faced stagnation or recession. Between 1985 and 1992, OECD economies grew by an average 20%, while New Zealand's economy shrank by 1% over the same period.

Other objective indicators show that, between 1984 and 1993, productivity growth averaged around 0.9% a year, due mainly to labour cutbacks. Inflation averaged around 9% a year. Real interest rates remained excessively high. Unemployment rose to unprecedented levels. Net migration flows were negative. Foreign debt quadrupled. New Zealand's credit rating was downgraded twice. Investment as a percentage of GDP halved, and spending on research and development fell to half the OECD average.

When New Zealand finally showed some signs of economic growth in 1993, its "turnaround economy" became the toast of the global economic community. Yet three years into this much-heralded recovery, some of the key indicators, such as public debt, are just returning to their pre-1984 levels. Others, such as unemployment, are nowhere near that. Control of the country's vital financial, energy, transport and communications infrastructure, and much of its natural resource base, is now in foreign or transnational hands.

While indicators like inflation and budget balance have improved, many commentators believe the country is significantly worse off than it would have been under a different economic approach. Moreover, a sustainable economy is far from guaranteed. In late 1995, there were signs that the economy was weakening once more. Job growth has slowed, real wages continue to fall, the balance of payments deficit has grown, and economic growth has been forced back down to bring "underlying" inflation within the Rserve Bank's goal.

The social deficit

Whatever the economic outcomes, the country and many of its people are a great deal worse off. Unemployment and poverty have become structural features of New Zealand life. The Labour government was responsible for the early decline, with rising unemployment, failure to keep benefit and family assistance in line with inflation, and favourable tax treatment for the rich at the expense of the poor.

Its National successor fuelled unemployment and deregulated the labour market to force wage rates down. It slashed benefit levels and tightened eligibility criteria, imposed new user charges, and suspended inflation-indexing for family assistance and income support.

There is no doubt that poverty and inequality have increased. The number of New Zealanders estimated to be living in poverty grew by at least 35% between 1989 and 1992, so that, by 1993, one in six New Zealanders was considered to be living in poverty.

Even if unemployment returns to the level of the mid-1980s--still very high by New Zealand's historical standards--poverty and hardship are expected to remain about the same. This doesn't seem to concern the government. Cabinet Minister Bill Birch admitted that income disparities "are widening, and they will widen much more. That doesn't worry me."

New Zealand is now a deeply divided society. Hundreds of thousands of individuals, their families and communities have endured a decade of unrelenting hardship. The burden fell most heavily on those who already had the least: the Maori, the poor, the sick, women with children, and the unemployed. Their "freedom of choice" was whether to use their scarce resources to buy housing, health and education, or other essentials such as food--and which of these essentials to go without.

The government and its affluent supporters talked constantly of the need for stability--but always in terms of the economy, never of people's lives. The strain of constant change fostered uncertainty and insecurity, and made it impossible for people to plan ahead.

"Labour market flexibility" meant going to bed not knowing if you would have a job the next day.

"Price stability" meant sudden hikes in your interest on mortgages and loans, and suppression of growth by the Reserve Bank (the country's central bank).

"Fiscal responsibility" meant continual cuts in income support, benefits and social services.

Privatized state services meant having to choose which essential service to keep, with no one being held to account.

Constant policy failure meant revisions and reversals as new versions of the experiment tried to remedy the disasters of the old.

In this decade of greed, talk of "short-term pain for long-term gain" meant pain for the poor to achieve gain for the rich. Social policy no longer promoted the right of people to participate in and belong to their community. It promised instead to "maintain individuals in the daily essentials of food, clothing and housing at a decent level." By the mid-1990s, however, the government was no longer providing even these minimum benefits for many citizens.

The victims of the market were forced to depend on a shrinking welfare safety net or on private charity. What were once basic priorities--collective responsibility, redistribution of resources and power, social stability, democratic participation, and the belief that human beings were entitled to live and work in security and dignity--seemed to have been left far behind. Poverty, division and alienation had become permanent features of New Zealand's social landscape.

The political deficit

The political verdict was equally damning. Most voters felt paralyzed by the pace of change, confused by the Labour government's role after 1984, and trapped in nostalgia for an interventionist welfare state which was disappearing before their eyes. While they felt uneasy, most remained isolated, insecure, unorganized, and politically inert.

Critics of the right-wing "experiment" were dismissed as dinosaurs or vested interest lobby groups trying to protect their own interests. Too often the media abandoned their investigative role and became seduced by the market hype. Meanwhile, the "change agents" stacked the deck with fellow-travellers who would defend the new regime against all challenges and critiques.

Political choice thus became increasingly sterile. Aside from labour market deregulation and more overt attacks on the welfare state, structural adjustment followed the same neo-liberal course whichever party was in power.

The fortunes of both the Labour and National parties see-sawed throughout the decade. Deprived of real political choice, a majority voted the electoral system down and opted for MMP (a form of proportional representation). Many assumed it would make the political system more accountable and representative, and would serve to moderate, if not reverse, the pace of change. But their expectations were inflated. By 1995, it appeared that they could expect more of the same.

The cultural deficit

Within a decade, the country and the lives of its people were turned upside down. This right-wing revolution--bloodless, but devastating for those who became its victims--had been prosecuted in the name of "the nation as a whole." Constant references to national wealth, national well-being, and national self-interest sought to submerge deep inequalities into an amorphous whole. Along the way, the nation in whose name the experiment was carried out was irreversibly changed, raising vital concerns about identity, sovereignty, and foreign control.

The ethos of the market pervaded everyday life. Even the language was captured, dehumanizing the people and communities it affected. It became acceptable to talk of "shedding workers," as if they were so much dead skin. "Incentives" meant cutting benefits to force people into low-paying jobs. "Broadening the tax base" meant shifting the tax burden from the rich to the poor. "Freeing up the market" meant removing all impediments to profit-making. "Deinstitutionalization" meant closing state institutions and shifting responsibility for their occupants to poor families and communities. "An open economy" meant welcoming foreign purchasers of the country's assets and resources. "International competitiveness" meant competing with countries whose economies are based on prison and child labour, grinding poverty, and environmental degradation.

There are alternatives

The message is very clear: Even if the New Zealand economy has shown signs of recovering, many of the people have not. Yet the New Zealand experiment is now being hailed by the World Bank, the OECD, and other like-minded guardians of the global economy as a "success story" and a model for the rest of the world. What they are really applauding, however, is the unimpeded imposition of an ideological model to which they adhere--regardless of its social and economic consequences.

Few would disagree that New Zealand's economy in 1984 needed attention. The claim that "there was no alternative" to the right-wing revolution has, by sheer repetition, become accepted truth. But in fact this was not the only option available to the New Zealand government. It was simply the only option that had been conceived and promoted at the time--the option that enjoyed the patronage of the political, bureaucratic and business elites.

Those responsible were determined to initiate and entrench the "right" policies, not to secure socially acceptable outcomes. According to their theories, the two would ultimately coincide. In the process, they rationalized the costs to individuals, families and communities as inevitable and short-term.

They justified anti-democratic practices and the privatization of power as being "in the national good." They ignored the gap between prevailing social values and those which they dogmatically pursued. They abandoned the commitment to sustaining a community that cares and shares. They are now beginning to reap the consequences as increasing numbers of victims, especially Maori, fight back.

A decade into this experiment, it is a fruitless exercise to speculate on "what might have been." It is an historical and irreversible fact that the structural adjustment program was imposed by default. New Zealanders feel they are losing control of their identity, their economy, their country, even their lives. They now face the question of where realistically to move from here.

They still have channels for innovation and struggle. They still have a choice. They can fall into line and remain victims of the global market within a divided and polarized society; or they can seek out new identities, new economic strategies, and new forms of politics that will respond creatively to a rapidly changing world.

Ultimately, the people of New Zealand have to decide what kind of society they wish to live in, and work together to create it.

In the meantime, other countries, governments and peoples who are being told that they too have no alternative to the corporate agenda should learn from New Zealand's tragic mistake.

Dr. Jane Kelsey
Associate Professor of Law, The University of Auckland, New Zealand

Summary from HRAG.

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