New Zealand's Privatization Push
Devastated the Country,
Rather Than Saving It

Murray Dobbin

[Reprinted from The National Post, 15 August 2000]

It has been so long since anyone in the business press has praised the New Zealand "miracle," it's almost as if we imagined the whole thing. But, of course, the current silence is really no mystery. The 15-year free market experiment has been an unmitigated disaster. The suffering caused among 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; 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 version of 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 Mr. Douglas himself.

As for the debt in 1984, it was NZ$22-billion, but after 10 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 asset 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, at -1%. The promised creation of enormous new wealth went into reverse: Real GDP in 1992, at 5%, was below the 1985-86 level. A burst of growth from 1993 to 1995 petered out, and the economy 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 anywhere near the 1984 level of 4%. The "workless and wanting work" figure peaked at more than 18% in 1993. In 1999, that figure had been reduced only 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 in comparison with its neighbour, Australia. From 1978 to 1990, the rates had been similar. The gap steadily increased between 1990 and 1998, with Australia posting a 21.9% increase and New Zealand just 5.2%. Only the wealthy in New Zealand could see any benefit from this destructive exercise in social engineering. Between 1984 and 1996, the top 10% of income earners measurably increased their share of total income. The lowest 10% lost 21.6% of their 1984 income. More than 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 to democracy, social peace and equality but to 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 1990s and the subsequent election of minority governments.

And that leads to the last lesson: Globalization is not inevitable, nor is it 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 rethink are a reversal of the privatization of Accident Compensation Insurance; an immediate rise in pensions; a halt to the sale of public housing and a commitment to rebuilding the public housing stock; the appointment of a 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.

Murray Dobbin is a freelance writer and author based in Vancouver.