How New Zealand saved itself from the failures of socialist government

Aug 2, 2017

Last Thursday, I joined the group of civic-minded people who attend the monthly Washington Policy Center breakfast hosted at the U.S. Seafoods Building on the shores of Lake Union.

This month, we heard a presentation from local business leader Nicholas Kerr about the market reforms passed in his native country in the 1980s and early 1990s.  Nicholas was born and grew up in New Zealand and is now working and raising his family in Seattle.  His remarks in full are here.

Here’s a summary.

Nicholas told us that from 1900 to 1950, New Zealand was one of the wealthiest countries in the world.  Then, during the 1960s and 1970s, the New Zealand’s government nationalized large sectors of the economy, passed limits on imports, imposed wage and price controls, and enacted various protections at the behest of agricultural, corporate and special interests.

The government ran the hotels, banks, telecommunications, airlines, airports and the ports.  There were only two state-run TV channels.  Domestic car manufacturers and dealerships were protected by soaring tariffs on imported cars, so only the wealthy could afford cars.  Jobs were scarce, except in government monopoly-run industries.  Long wait-times blocked access to mortgage financing.  To protect dairy farmers, ordinary citizens were required to get a doctor’s prescription to buy margarine.

By 1984, inflation was so high the incoming center-left Labour government was forced to devalue the currency.  

In the midst of the crisis, a team of economists at New Zealand's Treasury, including Nicholas’ father, Roger Kerr, proposed a series of economic reforms. In 1986, a group of business leaders formed the New Zealand Business Roundtable to advocate for further reforms and recruited Roger to lead it.   

New Zealand launched upon a broad public debate over the role of government.  The country examined the question of what the government’s claims on the country’s resources should be and how the resources it takes from the people should be managed. 

Nicholas described what happened next:

“There was much opposition to many of the reforms, including protests by farmers who wanted to keep their subsidies and unions who opposed privatization, labor market reforms and more.  But on the other side of the debate were large numbers of politicians, business leaders and interest groups who spoke in support of the reforms.  The public saw this, understood the reforms and there was broad acceptance when they were implemented, even if for some it was reluctant at first.”

Successive Labour and National governments put many market reforms in place.  They cancelled agricultural subsidies, repealed protectionist tariffs and privatized various government-run industries.  They placed reasonable limits on government spending increases.

Nicholas said:

“The effect of these reforms was remarkable on the lives of ordinary New Zealanders.  A new generation of entrepreneurs emerged as monopolies faced competition for the first time.  Productive and satisfying jobs were created.  Employees now had choices and bargaining power, and could leave bad employers without having to also exit the industry that they worked in.  Other choices became abundant too, from restaurants and clothing, to cars and stereos, or from beer and wine, to furniture and appliances.  Student deaths from motorcycle accidents fell when young people could afford cheap imported second-hand Japanese cars."

The audience applauded Nicholas’ remarks, which then sparked a lively discussion about what we can learn from New Zealand’s experience in cutting back socialism.

In particular, I thought about how forward-looking education policies that reduce monopoly control, trim back union power, and open up choice for parents can improve learning outcomes for children. 

It was remarkable, and refreshing, to participate in an open-minded and thoughtful discussion of how to improve schools, based on lessons learned from people in another country, while attending an event in the heart of Seattle.

As Seattle pushes to become the nation’s leading proponent of workplace controls, a job-killing minimum wage, high taxes, union influence and favors to politically-connected industries, this event stood out as a safe-space where all opinions were allowed.  The positive energy among attendees was stimulating. 

The WPC Seattle breakfast series is emerging as the ideal forum for hearing fresh perspectives, in a city where holding commonsense views that question the establishment is starting to count as an alternative lifestyle.