Posted on 15-5-2002

Unmade In New Zealand
by Aziz Choudry

Long before New Zealand exported Mike Moore to head the World Trade
Organisation, this small country in the South Pacific, with under four
million inhabitants, underwent a transformation from being one of the most
highly protected economies in the OECD into a petri dish for radical market
reforms. A former editor of the New Zealand National Business Review
likened these reforms to Pinochet's Chile "without the gun". Economic
theories hitherto untested and unproven anywhere in the world became
government policy.

After it took power in 1984, New Zealand's Fourth Labour government was
widely praised for its anti-nuclear policy. While many were lulled into a
false sense of security by Labour's multisectoral "consultation" on social
and economic issues, few predicted the ruthless imposition of sweeping
reforms which had
never been part of their election manifesto. The reforms, which mirrored
all the key elements of structural adjustment programmes, have been hailed
as a success story to both OECD and Southern countries being urged to
restructure their economies. Few other countries actually followed, but
successive New Zealand governments have bragged about New Zealand leading
the world towards a free market nirvana. But even now, friends in British
Columbia despairingly tell me that their new conservative provincial
government sees New Zealand as the model to follow. So too does Denmark's
new government. Thai state railway unionists say that the (disastrous)
privatisation of New Zealand Rail has been held up as a success story as
Thailand is encouraged to privatise its railways.

An April 2000 International Herald Tribune article argued that Blair's New
Labour offered "Thatcherism without the handbag". But long before, The
Economist praised New Zealand for "out-Thatchering Mrs Thatcher". The World
Bank, Asian Development Bank and the Commonwealth Secretariat, through
their use of New Zealand consultants, and New Zealand's bilateral aid
programmes, especially in the Pacific and South East Asia have helped to
promote the New Zealand model overseas. New Zealand's economic reforms -
dubbed "Rogernomics" after former Finance Minister Roger Douglas, included
unilateral and rapid removal of virtually all restrictions on foreign
investment, all import controls and most tariffs, floating the NZ dollar,
an independent Reserve Bank with the exclusive objective to control
inflation, extensive programmes of corporatisation and privatisation and
radical restructuring of the public sector. Despite its traditional
relationship with the trade union movement, Labour began the first major
steps to deregulate the labour market before losing the 1990 election after
Mike Moore's ill-fated eight-week stint as Prime Minister. The National
Party, in government from 1990-99, continued with the reforms as if to
'finish the job' and compete with its predecessor for its level of
dedication to this economic fundamentalism.

As important as the substance of the reforms were the tactics employed to
push them through. New Zealand economist Brian Easton described the process
as a 'blitzkrieg" strategy involving "lightning strikes". Roger Douglas'
trick was to implement his programme as quickly as possible to overwhelm
any opposition, to take "quantum leaps" towards clearly defined objectives,
and to press on until the programme was completed. "The fire of opponents
is much less accurate if they have to shoot at a rapidly moving target," he
wrote in his 1993 manual for market reformers, Unfinished Business. He and
Ruth Richardson (finance minister, 1990-93) worked as consultants for the
World Bank and other agencies and governments on implementing unpopular
neoliberal reforms. Between 1988-1993 New Zealand led the world in the sale
of state-owned assets, often at bargain basement prices, to overseas
investors, mostly transnational corporations. Some NZ $14 billion (from a
total $19 billion in asset sales from 1987-1999) was sold off during these
years. The market value of the assets sold to overseas investors since 1987
is equivalent to about two-thirds of the worth of New Zealand's top 200
companies.

New Zealand went into recession with the highest unemployment since the
1930s depression. Nearly 76000 jobs were lost in the manufacturing sector
between 1986 and 1992 (25% of all manufacturing jobs) - many directly
related to aggressive tariff reduction. The official unemployment rate (in
a country which categorises people who are in paid work for only one hour a
week as "employed") rose from 4% in 1986 to 11% in 1992, before falling to
around 6-7%. Most new jobs that were created were part-time, casual and
poorly-paid. The number of New Zealanders estimated to be below the poverty
line rose by at least 35% between 1989 and 1992. In 1993 charity-run
foodbanks provided NZ $25 million worth of aid to the poor. By 1996 about
one in five New Zealanders - and one third of all children - were
considered to be living in poverty. The same year, UNICEF reported New
Zealand's youth suicide rate to be the third highest in the world. Maori
and Pacific Island families were more likely to be poor than Pakeha
(European) New Zealanders. Underfunding, user pays charges in health and
education, and the introduction of market rentals for state house tenants
impacted severely on the poor. Outbreaks of tuberculosis, bronchiectasis,
rickets, scurvy, whooping cough and meningococcal disease were linked to
poverty, inadequate access to healthcare and overcrowded housing,
particularly in poorer, predominantly Pacific Island and Maori communities.

Despite claims of an "economic miracle", between 1985 and 1992 New
Zealand's economy shrunk by 1%, at a time when total growth across OECD
economies averaged nearly 20%. From late 1992 to late 1995 there was a
three year burst of economic recovery, with GDP growth peaking at 6.2% in
December 1994 before plummeting once again. Jane Kelsey, University of
Auckland law professor and prominent critic of New Zealand's free market
reforms writes: "The cumulative economic cost to New Zealand of embracing
the global free market has paralleled that of many poorer countries. New
Zealand's OECD ranking fell from ninth in 1970 to nineteenth in 1999. The
economic growth rate was among the lowest in the OECD, well below
Australia's. Our export growth was dismal. We ranked twentieth out of
twenty-five OECD countries on export growth performance indicators. A 1998
survey of forty-five countries showed that New Zealand was one of five to
have lost market share over the past six years." Import dependency,
persistent trade deficits and current account deficits were hardly the
hallmarks of an economic miracle.

A February 1995 report, Income and Wealth, by the Joseph Rowntree
Foundation revealed that over the previous 15 years, the gap between rich
and poor in New Zealand had increased much faster than in any comparable
industrialised country. The National Party government cut NZ $1.3 billion
from social welfare benefits in "the mother of all budgets" in July 1991,
only to redistribute it through tax cuts to the rich in a $1.4 billion tax
cut package in 1996. Only 29% of the tax cuts went to low and middle-income
working families. In their September 1998 study, Sharing the National Cake
in Post-Reform, New Zealand, economists Srikanta Chatterjee and Nripesh
Podder, examined household income data to see how household income
distribution changed over the period 1983/84 through to 1995/96. They
found that while the bottom 80% of New Zealand income earners suffered a
reduction in their share of the total incomes paid out, the top 10% of
households increased their share of national income by 15%, and the top 5%
of households' share had increased by almost 25% over this period. Based on
this analysis, Paul Dalziel, senior lecturer in economics at the University
of Canterbury, Christchurch notes that between 1984 and 1996 the bottom 40%
of New Zealand's income distribution experienced a fall in spending power
of over 3%. The cut in living standards of the bottom 10% was 8.7%.

Most of New Zealand's productive, financial, energy, retail, transport,
media and communications sectors are now in the hands of transnational
corporations that have sucked huge profits out of the country. The UNCTAD
World Investment Report 2000 described New Zealand as the most
transnationalised economy in the OECD. Foreign Direct Investment increased
from NZ $9.7 billion in 1989 to $49.3 billion in 2001 - an increase of
almost 400%. Foreign control of the share market increased from 19% in 1989
to 47% in 2001. In 1990 Bell Atlantic and Ameritech bought Telecom. In
1993, a Wisconsin Central Transportation Corp-led consortium took over New
Zealand Railways. International Paper has become the majority owner of New
Zealand forestry giant Carter Holt Harvey. Transport TNC Stagecoach bought
most of the public bus services in Wellington and Auckland.

From 1995-1998 TNCs made $10.6 billion in profits, but only 6% of this was
reinvested in New Zealand - most of it was transferred overseas. In 1989,
restrictions on foreign investment were removed for almost all purchases
under NZ $10 million, which was then increased to $50 million ten years
later, while the Overseas Investment Commission effectively behaved as a
rubber stamp for almost all applications above this threshold. Along with
"investment" came huge job losses as formerly state-owned forests,
telecommunications, rail and other sectors were corporatised, privatised
and sold. Quality of service, and worker and public health and safety were
also frequently sacrificed as cost-cutting measures by the new owners.

In 1991, through the Employment Contracts Act, National completed what
Labour had started, the deregulation of the labour market. This
individualised employment relationships and led to further deunionisation.
It was followed by a 2.2% drop in real wages and a virtual pay freeze for
state sector workers. A 1993 survey of women members of the Service Workers
Union found that 40% had suffered a household income decline in the
previous two years. A frequent justification for the reforms was that
without them, New Zealand would be broke. In 1984 New Zealand's total
private and public foreign debt was NZ $16 billion. Yet in 2001, in spite
of all the asset sales and takeovers, it had reached $123 billion - over
100% of New Zealand's GDP. The majority of this was owed by local and
transnational businesses borrowing from overseas creditors. Successive
governments have locked themselves and future governments into maintaining
this policy regime. New Zealand's GATT/WTO commitments and those made
through bilateral trade and investment agreements place it at the extreme
end of trade and investment liberalisation.

Resistance has come from a range of sectors and movements. Local
mobilisations have often mirrored similar struggles elsewhere in the world.
Auckland's Water Pressure Group has fought determinedly against the
corporatisation and privatisation of the city's water supply. Kiwifruit and
pipfruit growers challenged the deregulation of the statutory producer and
marketing boards. Rural communities have fought to save hospitals, banks,
post offices, schools and other services from being withdrawn as part of
the hollowing out of the rural economy which has accompanied the structural
adjustment programme. Yet while many non-indigenous people articulated a
sense of loss of sovereignty and control over their destinies, for Maori
this was nothing new. Many Maori saw the commercialisation, privatisation
and deregulation process as yet another wave of colonisation; the further
appropriation and commodification of their lands and resources. Prior to
corporatisation and privatisation, these had been stolen from Maori. Some
of the strongest challenges to the economic reforms have come from
Maori.through legal challenges, direct actions and other methods. Maori
writer and academic Leonie Pihama says: "Colonisation is colonisation,
whatever new name we may like to give it. Globalisation, free market,
neoliberalism, profitability, capitalism, it is all fundamentally about
colonisation. The privatisation agenda in this country did not start with
the 1984
Labour government or the MAI or the GATT".

New Zealand's cautionary tale deserves a happy ending. However, many
question whether the current centre-left Labour/Alliance government,
elected in November 1999 on a promise that market forces would no longer
rule, has really heralded any substantive change in policy. Some tinkering,
yes. But the economic fundamentals of neoliberalism remain intact.
Proponents of 'Third Way' government ask us to believe that economic
globalisation and market capitalism can have a human face. We haven't seen
much evidence of one of those lurking behind economic policy-making in a
long time.