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by Jane Kelsey

  • TOUGH KIWI POLICIES have borne bitter fruit, says Auckland Law Professor Jane Kelsey. And electoral reform now threatens stalemate.

    Dr Jane Kelsey is Associate Professor of Law at Auckland University and author of The New Zealand Experiment, which looks at the NZ economic revolution of the last decade.

  • FOR 12 YEARS New Zealanders have lived through an economic experiment described by the Economist magazine as “out-Thatchering Mrs Thatcher”, and creating “a paradise for free-marketeers—if not for those New Zealanders who have lost their jobs”.

    The experiment was implemented, with no explicit mandate, by a Labour government from 1984 to 1990. It has been continued by rightwing National Party administrations since. The first-past-the-post electoral system was rejected by voters at a referendum in 1993 in favour of mixed-member proportional representation (MMP).

    The election result was a defeat for the right, which captured only 53 of the 120 seats. But it was no clear victory for the centre-left, which secured just 50 seats.

    The balance of power, 17 seats, lies with New Zealand First. A populist nationalist party, its strong anti-immigration and anti-foreign investment line paradoxically drew support from both radical Maori groups and conservative whites. Horse-trading to form a coalition is still under way. A decade on, the right has apparently failed to convince most voters of its economic success, or that the price paid was justified.

  • Despite international plaudits, there has been no economic miracle. For the first eight years of restructuring, the economy faced stagnation or recession. Between 1985 and 1992 total growth across OECD economies averaged almost 20 per cent; New Zealand’s economy shrank by 1 per cent.

    Inflation averaged about 9 per cent a year. Real interest rates remained excessively high. Unemployment rose from 4 per cent in 1986 to 11 per cent in 1992 and government debt doubled. Investment as a percentage GDP halved, while research and development spending fell to half the OECD average.

    Then came three years of recovery, from late 1992 to late 1995. Underlying inflation fell below 1 per cent. Repeated budget surpluses led to cuts in income tax and foreign debt repayment. Official unemployment fell to 6.1 per cent.

  • The boom was short-lived. Investment has slowed and business confidence has plummeted. Large-scale closures have returned and productivity has fallen; there are still nearly 34,000 fewer full-time jobs than in 1987. Unemployment and poverty have become visible features of New Zealand life.

    In the 1980s, recession, unemployment and redistribution of the tax burden saw inequality greatly increase. The 1991 “mother of all budgets” cut NZ $1.3 million from social welfare benefits. People living below the poverty line increased an estimated 35 per cent between 1989 and 1992. By 1993 one-third of children were considered to be living in poverty.

    Labour market deregulation meant real wages continued to fall. State-sector workers have faced a virtual pay freeze for four years. Industrial action has revived as the remaining unions finally put their collective feet down.

    Attacks on the social wage have compounded this. The government removed subsidies for electricity, telephone, postage and transport, most of which are now privatised. Public hospitals ran at an operating loss of NZ $164 million for June; wards were closed to cut costs and waiting lists grow.

    This crisis, alongside higher user charges for health and universities has increased pressure on people to insure privately for pensions, education and health.

  • According to finance minister Bill Birch in 1995, income disparities “are widening and they will widen much more, but that doesn’t worry me”. Yet it clearly does worry most voters who supported Labour, Alliance and New Zealand First. All three are committed to alleviating the social pain caused by the philosophy and practice of the right.

    Labour claims it can be done without revising key economic strategies, such as a tight monetary policy, commitment to budget surpluses, low debt and low taxes. To the Alliance, these social costs are inevitable by-products of the market-driven regime. New Zealand First seeks to have it both ways.

  • Under coalition governments, repeal of key legislation will be even harder to achieve. So the neo-liberal regime may become even more secure under MMP. If electoral reform fails to provide the antidote that many voters expect, the future looks uncertain.

    Source -- The Observer, as reprinted in The Guardian Weekly, 27 October 1996 "Hatched, Thatched and Dispatched" by Jane Kelsey.

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