The UnAustralian

Saturday, November 01, 2003
Victims of their own successes... Or maybe not

Yesterday's Australian had an interesting opinion piece by Michael James, which essentially blames the poor showing of conservative parties on their good economic management in the past, which has given the Labour parties in both countries a good economic basis.

Unlike Dr James, I'm not an economist, however I did grow up in New Zealand, and can remember the reforms done by the Lange and Bolger governments. My recollections are somewhat different to Dr James's. He writes:

Before Rogernomics in 1984, New Zealand was trapped in stagnant growth and crushed by high taxes, restrictive labour laws, a mountain of public debt and economically damaging business regulations. National prime ministers Jim Bolger and Jenny Shipley pursued the Douglas reforms that brought sweeping liberalisation of an ossified economy.

Today, New Zealand has a viable economy, recording low inflation (1.5 per cent), unemployment (4.7 per cent) and higher economic growth in recent years than in the pre-1984 era. Indeed, the latest OECD report shows that New Zealand's annual economic growth rate of 3.7 per cent (from 1992 to 2002) is the seventh highest in the industrialised world. Moreover, some New Zealand companies are near the world's best practice and industries such as ports and telecommunications are producing big gains for consumers.

But in the Clark era, Wellington has taken the foot off the reform accelerator and in some key areas - such as industrial relations -- has reverted to failed policies. Again, as the polls consistently demonstrate, New Zealanders aren't minding the growth of big government - for now.

For those not familiar with some NZ history, in 1984 the Labour took power under David Lange. The government start many reforms which changed the face of NZ. The reforms where mostly driven by Richard Prebble and Roger Douglas (and hence frequently nicknamed Rogernomics). In 1989, Lange resigned as Prime Minister, and the Labour flipped and flopped around, before losing power in the 1990 election.

Enter Bolger stage right. Jim Bolger, as the new Prime Minister and leader of the National party took power in 1990. He carried on with the reforms started under Labour. Likewise, these reforms were nicknames Ruthanasia and Jennocide (after two principle Ministers, Ruth Richardson and Jenny Shipley). Bolger was PM until 1997, when Jenny Shipley staged a coup, promptly lost the election to the all conquering Helen Clark in 1999.

The Clark government has rolled back some of the reforms, raised taxes, enjoyed the fruits of high economic growth, low unemployment and is very popular. The National party, on the other hand, is electoral road kill.

Now, is Clark getting all of the luck, thanks to the previous governments efforts, or is their something more this story?

My perception of NZ economic fortunes goes something like this... Having taken power, the effects of Rogernomics was to hammer the growth rates. Unemployment did drop, however, the quality of many of the new jobs was considerable lower. Near the end of the Labour government, things started to improve, however, during this period the pace of reforms had slowed considerable, and the reformers where complaining (and quitting).

Now comes Ruthanasia. Once again, New Zealand took a big step backwards economically. Overall, the first decade of reforms gave New Zealand next to nothing in terms of growth. The government staggers on with some periods of high growth which are matched with periods of very low growth, and is finally replaced by the Clark government. Life, at this stage gets pretty sweet. The growth rates are good, unemployment is down.

These patterns lead me to suspect, that economic growth was reduced during the reforms, and only increased when the reforms stagnated (this is probably related to the speed at which the reforms where carried out). Which, if true, gives a very different picture to what Dr James is putting forward.
| 12:13 PM