NEW ZEALAND'S ECONOMIC REFORMS--WERE THEY WORTH IT?
By David Christopher Aldwinckle
Instructor, Hokkaido Information University
Ć§čÜÉmĀ[Égpublished in Hokkaido Information University "Memoirs" (čIóv)
Vol. 7. No. 2, March 1996 pp. 45-60
(footnote numbers in parentheses, reproduced as endnotes)
For scholars of international economics, discerning the engines of growth for a country is crucial, and in recent decades there has been a fierce debate between "free-trade" economists and "industrial policy" scholars. In the former school, the freeing of a country's markets and a largely noninterventionist government provide the incentives for GDP growth. In the latter, the opposite is true--governments intervene to provide financing and targeting in lucrative and promising industries, with export-led growth creating national wealth. Unlike many of its Asian neighbors, New Zealand embarked on the former--a textbook free-trade path--freeing its capital and goods markets, removing the social welfare cushions in the labor markets, and exposing the entire society to an enormous economic shakedown. The pain was great, the economy even contracting, but largely thanks to an educated electorate dedicated to the reforms, GDP growth rates have switched from the lowest to the highest in the OECD. The conclusion is that if growth at all costs is the goal, free-trade reforms can work, but whether or not NZ is a test case for free trade still remains inconclusive. One problem is sustainability of growth--NZ it is not switching to more value-added exports. The other is the relative uniqueness of NZ's position--it was an OECD country from the start, with significant advantages in quality of capital and labor over less-developed countries.
THE BACKGROUND OF THE GOVERNMENT INTERVENTION DEBATE
In the English-speaking world there is a furious debate over whether or not governments should get involved in markets. Some say that a government should intervene in domestic markets to pick winners; i.e. use a merchantilist(1) "industrial policy" (2) to support home industries with a future in exporting, and keep foreign competitors and imports out. Others argue that any time the government intervenes, resources are wasted; i.e. the market is the best allocator of land, labor and capital, and will answer questions of scarcity far better than any administrator. Governments should allow its markets to be permeable, forcing competition at home and abroad to bring innovations to producers and cheaper benefits to consumers. The issue generally boils down to two poles: "free trade" versus "managed trade".
In the Western world, after over 200 years of Adam Smith's and David Ricardo's economic theories holding center-stage in trade circles, free trade has had the upper hand in the debate. The very purpose of membership in the GATT (and now the nascent WTO) has been to force others to lower their market barriers. In essence, the assumption has been that free-trade capitalism has been the builder of the modern industrial world. Indeed, when one looks at economies when the government intervened with massive state planning--the deformed command economies of the former Communist Bloc--it is clear that the free-trade extreme is far preferable to the state-controlled extreme.
The issue becomes less clear in "welfare state" (3) economies, which mix the two poles. Here, markets are permitted to set most prices and allocate capital, but when there is an issue of "public welfare" involved, say, the amelioration of poverty or the support of the unemployed, the government intervenes. However, the "public interest" can also extend to international trade (for example, the prevention of unemployment by protecting domestic industries from foreign competitors); welfare states have tended to intervene in ways that violate principles of free trade and laissez-faire markets, but with arguable social gain. In those cases, the conclusions for free markets and against government interference become less clear.
However, over the past twenty years, the tendency in the West has been a movement away from the welfare state. "Marketization and democratization" have become buzzwords for the newer generation of policymakers, strengthened by the fall of communism and the end of the Cold War. Countries all over the world have been heeding the message. From the privatization of nationally-owned businesses (JNR and NTT in Japan, AT&T in the US, British Rail in the UK, etc.), to the creation of stock markets in the former Communist Bloc, from the European Community's pushes towards the "invisible border" EU, to the dismantling of the welfare state in diehard systems such as Sweden and Denmark. Now the focus of the debate has shifted--away from "capitalism" versus "communism and socialism", and towards "capitalism" versus "developmental capitalism", after the unbelievable economic successes of several Asian economies.
Unquestionably there have been "economic miracles" in Asia. Japan went from a war-torn nation to the per-capita richest OECD member in less than fifty years. South Korea, Taiwan, Singapore, Indonesia, Malaysia, and Thailand have shown sustained annual growth rates nearing or surpassing double digits for over a decade, with per-capita wealth approaching those of developed societies. China is growing just as quickly, and other countries, such as Vietnam, are showing similar promise. But what was the cause? Economists, agog as to how Asia could grow faster in a generation than most countries could grow in a century, tend to assume that these are the fruits of free trade.
However, many would disagree. Developmental capitalists argue that "industrial policy" was the cause, stating that systematic state intervention to support new industries countries was the stimulus for Asian growth. Japan, for example, grew because it kept out foreign imports in profitable market sectors, including cars, electronics, computers, and household appliances, copied and innovated on the above, then encouraged exports. South Korea has also done much the same thing with its automobile and shipbuilding industry, as is Taiwan with its aerospace consortium. Thus, it is argued that governments can not only create world-class industries where there had been no clear competitive advantage, but also foster corporations with world monopolies on some goods. Most importantly, this is possible without resource waste and uninnovative mollycoddled domestic markets. (4)
In sum, these debates have reached an interesting conclusion: free trade does not necessarily produce optimal levels of growth. This paper seeks to address that topic.
THE TOPIC: AN EXAMPLE OF FREE TRADE
NEW ZEALAND'S RECENT MARKET LIBERALIZATION.
Given this background, New Zealand (NZ) is a test case. Like its Asian neighbors, NZ believed in market intervention and empowered a large bureaucracy to accomplish it. The history of NZ's bureaucracy, however, is quite different from the rest of Asia.
The Asian economies, notably Japan, Taiwan, and South Korea, entrusted its bureaucracy to 1) "pick winners"--strengthening companies in specialized markets by providing capital and export incentives, and 2) "keep a pristine home base"--closing domestic markets to strong overseas competitors while domestic favorites captured market share at home and abroad. In other words, the bureaucracy was founded upon merchantilist principles, and it's primary function was to produce growth.
On the other hand, Antepodian bureaucracies' primary function was to further social welfare not necessarily by growth, and it had the opposite effect on the economy. In the 18th and 19th Centuries, Australia and particularly NZ were settled by idealists, who used their geographical isolation to further goals of righting the wrongs of its mother society. The expressed goal of NZ's government was to ensure "a more prosperous, equal, and just society" (5), and government in the name of "social justice" (6) took root faster in NZ than most anywhere else. For example, NZ was the first country in the world to introduce women suffrage, in 1893, which gave far earlier impetus to legislation dealing with infant care, family allowances, and other distaff-side benefits. Non-contributory old-age pensions were introduced in 1898, and per capita benefits for the elderly, the disabled, the unemployed, the widowed, and other unfortunates have been among the highest in the world. (7)
As a result, the government was pervasive in the NZ economy. Until the mid-1980's, it controlled and bore the cost of railways, telephones, electric and water utilities, ports, forestry and fisheries, primary and secondary schooling, hospitals, gambling, radio and TV networks, airlines, banks, even meatpackers and funeral services. NZ labor unions were very strong, and any measures to keep unemployment down, including preventing imports and foreign ownership of NZ businesses, were justifiable policy goals. Moreover, financial markets were also highly regulated in order to prevent capital flight and limit foreign penetration. Eventually, administrative costs became a huge drain on the economy.
A SINKING ECONOMY:
NZ BEFORE THE 80's LIBERALIZATIONS:
Generous benefits of course cost money. Between 1960 and 1980, government "social policy expenditure" averaged 31% of GDP, and 52.1% of all government spending. (8) These figures rose steadily throughout the century. To make ends meet, NZ's tax rates became superlative. The highest marginal income tax rate reached 66%--the highest in the OECD. For the first half of the 20th Century, this was sustainable because the country was prosperous; commodities such as gold, silver, wool, wheat, meat, dairy products, and hides went to guaranteed markets in the British Commonwealth. However, two great events shook NZ out of this cozy relationship. The first was Great Britain's entry into the European Common Market in the 1970's, which cost NZ it's meat and dairy markets and severely affected others. The second was the oil shocks of the 1970's, which made fuel, crucial for faraway NZ's shipping trade, punitively expensive.
The results were striking, and soon convinced many that change was necessary. At the start of the Twentieth Century, NZ had the highest per-capita GDP in the world. By 1953, it was behind only the US and Canada. By 1982, it was the lowest of all industrialized countries surveyed by the World Bank. Employment opportunities evaporated in a stagnant economy, and during the sixties and seventies there was a significant brain drain to Australia and the UK. To top it all off, inflation began beggaring the economy, rising from 2 percent in 1965 to 17 percent in 1982.
Political reactions only made matters worse. In the late seventies, the conservative National Party, in an attempt at fiscal stimulus, instituted an industrial development policy, which became an unbelievable sinkhole of public funds (annually $2,500 per capita), while instituting or tightening wage, price, foreign-exchange, and investment controls. The subsequent political upheaval of 1984 gave the liberal Labour Party a huge mandate and set the stage for NZ's subsequent reforms.
THROWING AWAY A CENTURY OF SOCIALISM IN FOUR YEARS;
NEW ZEALAND'S MARKET REFORMS:
The irony is worth emphasizing--an avowedly socialist party, with the support of organized labor, instituted capitalist reforms. But that is exactly what Roger Douglas, Finance Minister under PM Lange, did. Called "Rogernomics", it was not a "big bang", meaning full deregulation of all markets and prices, but rather deregulation of a sector that would be the easiest for the powerful labor unions to swallow: the financial markets. The NZ dollar was floated, ownership and overseas investment rules scrapped, banking and airlines deregulated, and top tax rates were cut from the highest in the OECD to the lowest--33%. To compensate, higher consumption taxes, particularly a very comprehensive 10% sales tax on goods and services, were levied. Subsequently, once the dust settled, more deregulations followed: all agricultural subsidies were eliminated, import quotas and tariffs were steadily phased out, and privatization of major industries followed. National industries were suddenly put in an awkward position of having to justify their staff rosters, and come up with budget proposals to justify receiving any financial support.
Free traders applauded these moves. (9) The entrenched socialists, watching unemployment climb into double digits, howled for blood. But after some deft political maneuvering, Labour won a second three-year term in 1987 and reform was set to continue. That is, until foreign (and subsequently domestic) speculation on the burgeoning NZ stock market caused a crash, and Labour's drive became blunted for the remainder of its term.
The conservative National Party won the 1990 election, but instead of reversing Labour's reforms, they pushed them farther. Trade unions, barely held at bay by skillful Labour negotiations, thus lost their power base, and previously untouchable sectors became fair game. In 1991, the labor markets were rationalized. The power of contract, meaning performance-based hiring and firing, was removed from the hands of union negotiators and bureaucratic organs, and returned to employers and employees; complicated procedures for hiring and firing, particularly firing, were streamlined.
These reforms as a whole look promising in theory, but in practice they had landmark effects on NZ as a society.
A PAINFUL TRANSITION:
NEW ZEALAND DURING AND AFTER THE LIBERALIZATIONS:
The pain in NZ society was acute. After an initial splurge on the NZ financial and property markets markets (brought about by higher interest rates, a floated currency, freed capital inflow and outflow, then bolstered by coincidental worldwide financial deregulations), boom turned to bust. The stock market fell by half in late 1987, and a third more again soon afterwards (five years later it had still not recovered to half-1987 level). It was a turkey-shoot for companies in the red; 305 firms went bankrupt a year on average 1983-7, but 2092 firms went under in the two years 1988-9 alone. (10) NZ credit agencies were threatened with Third-World credit ratings, and private citizens (including the elderly), who gambled on the stockmarkets "like they were horse races" (11), lost their life savings. Moreover, inflation, instead of coming down, remained unchanged; in the year to June 1985 it averaged 15.7%, averaging 13% in the three years to 1987 (12), which was 1.5 times the OECD average. This in effect destroyed business confidence and planning, counteracted a 20% devaluation of the NZ dollar, and wiped out wage increases given as a sweetener to organized labor.
The financial bubble also had an adverse effect on investment. The high interest rates not only attracted speculative money that could otherwise have been spent on plant and industrial capital, but also made it more expensive for NZ producers to borrow. General manufacturing investment plunged by 20% in real terms in 1988-9; NZ industries began relocating to Fiji and Malaysia where money and labor were cheaper.
Moreover, farmers, who did not have a strong union and could not relocate, felt a double pinch when their subsidies, comprising about 40% of their income (13), were yanked out. Net farm incomes dropped by about a third in real terms between 1984-5 and 1987-8 (14). This matters, since of all the OECD G-24 economies, the agricultural sector accounted for the highest share of GDP--11% in 1985 (15). As icing on the cake, those high interest rates attracted enough foreign money to push the exchange rate up past pre-float levels, making export-led industry noncompetitive and allowing imports to surge in.
To be sure, there was sparse GDP growth between 1985 to 1987 (averaging 1.4%), but this growth had been built on debt, and when the correction came in the stock market, it was profound. In the four calendar years to the end of 1991, real GDP contracted by an average of 0.6%; it bottomed out at -2.6% and -3.5% in the two quarters to June 1991. In effect, excessive borrowing by government was replaced by excessive borrowing by business, indicating that financial deregulation had replaced one black hole with another.
On top of that, privatizations sent unemployment skyrocketing and wrenched some levers of financial and social control from the government's hands. The government lost their ability to lower unemployment; privatized national industries cut their staff dramatically: Coal (50% cut), Electricity (25%), Telecoms (30%), port authorities (40%), and Railways (72%). Banks, also privatized, were awash in debt and facing runs; they looked for a savior in the government but found themselves bought up by foreigners. As a result, NZ lost all of its domestically-owned banks. Unprofitable and remote post offices and hospitals closed. People switching from workers to dole-queuers caused a huge rise in government spending, and thus a rise in public debt to amounts even higher than pre-liberalization levels. (16) Broadly measured, in 1992 unemployment hit a peak of 265,000 people in a workforce of 1.6 million, or about 16.6%. (17) Ironically, it would have been worse, but net emigration from NZ (an average of 1% of the workforce every year left the country in the period 1984-9) ameliorated the numbers.
In the areas described above, there were no winners, but in the consumer market, reforms provided significant benefits. One was in previously-unavailable imports. Cheap used Japanese cars and BMWs flooded into NZ and took market share from domestic assembly plants; import penetration rose to 41% in the early 1990's. Another was cheaper services. Telecom, sold to the Americans, cut long-distance phone call rates by 20% in 1988; consequently, NZ businesses saved a total of about 0.5% of GDP. Prices of electricity, travel, mail, TVs, fuel, and other basic services dropped by over 10%.
Finally, after 1992, things got better and the economy faced a turnaround. It took several years, but NZ managers learned financial management; NZ Post went from a loss to a huge profit (-$6 million to +$141 million) in one short year. Coal, Forestry, and Railways even crept into the black. A coincidental recovery in world agricultural commodity prices enabled NZ farmers to increase their exports. NZ posted a trade surplus from the late eighties. The Central Bank, entrusted with reigning in inflation through the Fiscal Responsibility Act, got its act together, forcing the Consumer Price Index, the common measure of inflation, down to under 2% in recent years. (18) Interest rates have dropped to around 6% (19), and with that, healthy rates of domestic investment and exchange have made exports competitive. Cheap NZ beef can even be found in such difficult-to-penetrate markets as Japan.
Up to now, according to statistics this story has a happy ending. NZ is now growing at a very fast clip, and finally quality of life is surpassing pre-liberalization levels. Taxation is still the lowest. In 1993 the economy grew 3%, then over 5% last year. This year it is projected to grow at 6% (20) , the highest rate in the OECD (21). The national debt is shrinking year by year, from 50% of GDP in 1992 to around 38% projected for 1995 (for comparison, US debt, the highest in the world in the world's largest economy, is around 66% of GDP). Income tax remains at the ultra-low 33%, and consumption and value-added taxes, although high, are enough to balance the budget, which has been in surplus.
Thus finished a decade of instability and pain in a Western-style democratic country. One question that should be briefly addressed is: how was the NZ government able to get away with this? If NZ were a system with a highly-mandated and pervasive bureaucracy, unaffected by electoral the electoral process (as can be seen in Asian nations where mandarins administer growth), it would be understandable why the electorate endured--they would largely have had no choice (politicians would go but the bureaucrats would remain). However, the NZ electorate has Western democratic ideals, such as "question authority" and "throw the rascals out", and issues such as tax rises and wage decreases lose elections. But even in the depths of the pain, both the Labour (1987) and National parties (1993) were in turn reelected. Why did NZ not succumb to naked populism by reversing reforms?
STAYING THE COURSE:
HOW NZ AVOIDED THE POLITICAL BACKLASH
Any sort of policy change produces winners and losers, and in functioning democracies the policymakers are accountable. Hence, the goal for any elected government is to keep short-term pain from becoming political capital. This was why NZ deregulated its financial markets first. Labor, with their near-guaranteed jobs, barriers to being fired, subsidies and a generous safety net, stood to lose the most, and to make the most trouble. They were well-organized, with mandatory labor unions and the right of appeal in any dispute guaranteed by law. Hence, labor's health and unemployment benefits remained reasonably untouched in the first five years of reform. Then the conservatives came in in 1990, disenfranchising labor and freeing the government's hand. However, there is no lesson here--that is a matter of good timing and luck. Why was NZ otherwise able to carry out such radical reforms?
Some reasons are structural. There was an electoral reform in 1990 which gave the conservatives a broader mandate. NZ has no upper house in its parliament, no written constitution to amend or repeal, and no dichotomy between state and federal governments. This means, logistically, that NZ's government, compared to other countries, has to ask fewer opinions from government organizations at each stage of the game. Thus, in theory, reforms would be easier to push through and administrate.
Still, even during the Labour Party years, labor gave up incredible amounts of featherbedding apparently for the sake of the country's overall welfare. From the start, agriculture lost its subsidies and importers saw their import barriers phased out. Moreover, the freedom of contract, along with freedom to rationalize the corporation, was strictly enforced for nationalized industries. How was this possible?
The answer, according to the Rt. Hon. Stan Rodger, the government's negotiator with the labor unions during the Labour years, was good salesmanship and well-designed policy (22). Even when the government was taking power from the hands of the unions, workers still retained the right of arbitration and the option of strike, should all other avenues of negotiation be exhausted. Unions in NZ were by no means abolished, and the choice to either go through the union or resort to direct negotiations with the aggrieved, were still the available recourse in a dispute. This apparently gave labor enough reassurance, and negotiations, it turned out, more often than not circumvented the union process entirely. This explanation is not entirely convincing, but there is one more factor which probably made labor more willing to suffer some hardship. That is, a positive popular sentiment towards the reforms themselves.
This factor is outside the realm of qualifiable politics and quantifiable economics, and is more sociological in nature, but this makes it no less important. As Rodger noted, NZ is a small island country. With only a population of 3.4 people, NZ has the population of Sydney filling a land the size of Japan, which means, in his words, "everybody knows everybody". Moreover, there are only two national newspapers and a couple of national TV channels, and the amount of public access is on par with the OECD. This centralization makes the selling a national proposal that much easier. It is also a long way from its neighbors (over 1000 kms from Australia), so New Zealanders are keenly aware of their remoteness as a trading nation. When a nation cannot rely upon raw materials for sustained economic growth, as expansive Australia can, and when its people realize that decades of bad management are causing the overall standard of living to deteriorate, a well-educated electorate can in fact be mobilized into believing that radical change and sacrifice is necessary, so long as there is a promise of growth in the future. This, probably more than anything else, is why a Western-style democracy such as NZ's could put up with draconian reforms.
HAS FREE TRADE WORKED FOR NEW ZEALAND?
The answer in a word is yes, if growth at all costs is the goal. Without these reforms, NZ would have clearly continued to stagnate, and just about everybody in NZ knew that. That is the point. An educated and dedicated workforce, as well as a business sector that learned quickly from hard knocks, made the economy as a whole (to quote a pithy business concept) "lean and mean". But was that good for NZ as a society?
The answer to that is not so clear. Free-traders would concentrate on the statistics and caution against snap judgments: so long as macroeconomic indicators are good, it's only a matter of time before the "trickle-down effect" occurs; the green shoots of recovery require patience, and some people must get rich in order for the incentive systems to work properly. Nay-sayers would counter that public welfare was not worth the statistical gain: the already-rich simply got richer, the income gap between the top 20% of society and the bottom 20% widened (23), the number of people classified as homeless and the underclass increased, top-quality products (lamb, furniture, and wood) were sold overseas instead of to its citizenry (24), and hospitals and other essential public services closed simply because they were unprofitable. However, the question of "what price for whose progress?" is a topic too large for this paper.
The more answerable question is, "what can other countries learn from this case?" Can other less-developed countries take the same path as NZ--where a freeing of government restrictions unlocks a country's potential? Possibly. However, there are two problems that other countries must recognize before tinkering. One is that NZ had incredible potential already--it was an OECD country from the start, trying to turn itself around. The other is that healthy statistics are not fully indicative, and NZ's "promising future", to this author, seems a little more lackluster than most economists would probably admit. In sum, NZ's sustainable success still remains to be seen.
First, NZ was a rich OECD country from the start. NZ's communication networks, educated populace, organized capital and labor markets, and export economies were all established from over a century ago, and were developed further as a member of the British Commonwealth. Unlike other developing countries, it faced few real threats to developmental reform, such as entrenched feudalism, an extreme imbalance of wealth, a cabal and interventionist military, problems with land reform, ideological opposition to profit, entrepreneurialism, or private property, or saber-rattling neighbors forcing high defense expenditure. The only thing other countries, say, the Eastern European economies, may find identifiable with NZ is a disenchantment with social welfare policies and a commitment to change, but in other poor African and Asian countries that is often not the case.
Moreover, the oft-quoted maxim, "it takes money to make money", was especially true in NZ's case; there was no possibility of developmental loans falling into corrupt hands, as it does for many World Bank loans, since NZ was making its own money from the start. Thus, NZ was more able than most to integrate itself into a rapidly-reforming world economy, and ride the wave of released capital flows. It is hard to see another country taking this path and achieving the same results. Would Burma or Bolivia suffer from a stockmarket crash within the first three years of their reform? For these reasons, it may be erroneous to suggest that "free-trade-style" reforms, with all the pain involved, is the better path than the export-led government intervention and industrial targeting one.
Second, NZ's promising future from free-marketeering remains to be seen. Before the reforms, NZ's main exports were agricultural products: fruits, meat, wool, leather, timber, dairy products, fish, and furniture. After the reforms, they remain largely the same. The numbers look good on paper--NZ has had a trade surplus for the past several years--but a problem remains. These products are not high value-added goods, such as consumer electronics, computer chips, or automobiles. This means that technological advancement and spin-offs will provide little opportunity for virtual monopolies (like Japan has, say, in FAX machines, high-tech ceramics, or missile guidance chips), and will make it more difficult for NZ to enjoy a sustainable competitive advantage, immune to shifts in world commodity prices, beckoning trade to a tiny island state nearly as far south as Antarctica.
This brings us to the "what if" question: "What if NZ had embarked upon merchantilist reforms, using its extensive bureaucracy to target more profitable industrial sectors and funnel capital in ways that markets may not have foreseen by simply following price signals? Then wouldn't it be in an even better position today?" That is a very academic question, but comparisons with its Asian neighbors who have followed industrial policies (as well as some who show promise in doing so, including Singapore, Indonesia, Vietnam, China, and Malaysia), provide few insights. These were mostly societies with long histories of feudalism and nascent capitalism, which made the jump into industrialization after traumatic decolonializations or wars. NZ came about after rich trading Westerners filled a spacious nation and remade it, largely peacefully, into their own image following socialist ideals, enforced by a bureaucracy largely indifferent to policy directives. Moreover, given the inconclusive comparisons other dedicated scholars on the subject (25) have drawn on this subject, this is the topic for a future essay.
In sum, NZ deregulated and unlocked its latent potential in ways both predictable and unpredictable to free-traders. It has more healthy national accounts in terms of inflation, unemployment, budgeting, national debt, and balance of payments, which are widely agreed to be wise moves for any government. However, industrial policy advocates could argue that NZ could have done even better, by targeting sectors that would produce higher and more sustainable growth, and by in fact sheltering those young industries from foreign competition. However, the prescriptive powers of the NZ case are limited at best, and it is questionable whether NZ market liberalizations should offer more fuel to the "free market" or the "industrial policy" side of the debate.
(1) "Merchantilism" is defined by Webster's Third New International Dictionary as: "an economic system, developing during the centralization of power accompanying the decay of feudalism, and intended primarily to unify and increase the power, and especially the monetary wealth, of a nation by strict governmental regulation of the entire national economy, usually through policies designed to secure an accumulation of bullion, a favorable balance of trade, the development of agriculture and manufactures, and the establishment of foreign trading monopolies."
(2) Defined as: "a concern with the structure of domestic industry with promoting the structure that enhances the nation's international competitiveness", where the state leads the industrialization drive. In other words, it is basically an updated version of merchantilism. It is contrasted with the "market-rational" state in Johnson, MITI, pp.19-20.
(3) Defined by Webster's as: "a social system based upon the assumption, by a political state, of primary responsibility for the individual and social welfare of its citizens, usually by the enactment of specific public policies (such as health and unemployment insurance, minimum wages and prices, and subsidies to agriculture, housing, and other segments of the economy) and their implementation directly by governmental agencies". Financially speaking, I will define it here as a nation which allocates more than 50% of its GDP towards SOEs and social support systems.
(4) See Johnson, MITI, Wade 1989, Woo 1989, and many other sources for more information on Industrial Policy and its effects.
(5) RODGER, Keynote Address, p.6.
(6) GAYLE AND GOODRICH, p.330.
(7) EVANS, p.47
(8) SHANNON, 1991, p. 9.
(9) Economist, 3/5/88 and 6/24/89
(10) JAMES, 1992, p.178.
(11) McPHERSON, 1994, p.8.
(12) JAMES, p.174.
(13) FLANIGAN, 1995, p.11.
(14) JAMES, p.175.
(15) GAYLE AND SEATON, p.329.
(16) This is not an understatement. Unemployment benefit paid out in absolute numbers rose 15 fold between 1979 to 1989, and as a percent of total social security spending it rose from 3.3% to 13.98%. Spending on the elderly suffered the most as a result. SHANNON, p.16
(17) JAMES, p.180.
(18) KRAUSE, 1995.
(19) Citicorp statement, October 1995.
(20) Estimates of GDP growth vary widely. KRAUSE gives lower GDP growth statistics, such as 4.3% in 1994, then 3.0% projected for 1995. In any case, NZ is growing well.
(21) FLANIGAN, p.11.
(22) Interview with Rodger 3/29/95.
(23) SHANNON, p.18.
(24) Interview with Dr Juric, 3/30/95
(25) Most notably Robert WADE, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (1991), but JAMES pp. 191-195 also deals with it and calls it "academic".
SOURCES AND SELECT BIBIOGRAPHY
Sources and Select Bibiography:
Anonymous, "Adam Smith's Islands", The Economist, 3/5/88, pp.68-9.
Anonymous, "The Kiwi and the Koala", The Economist, 6/24/89 pp.15-6.
Anonymous, The New Policy Targets Agreement, Text, Reserve Bank Bulletin, Vol 54, No.1, 1991. pp.32-39.
Anonymous, "New Report Advises Exporters on 'Marketing in New Zealand'", Business America, 10/23/89 pp.16.
Anonymous, "New Zealand", Business America, 2/26/90 pp.23-4.
Anonymous, OECD Economic Surveys 1993, New Zealand pp.1007-20.
Anonymous, Reserve Bank of New Zealand Policy Targets Agreement, Text, Reserve Bank Bulletin, Vol 53, No.1, 1990.
Anonymous, "Shrinking Budget Gap Cheers New Zealand Bulls", Barrons, 2/21/94 pp.58-9.
Anonymous, World Almanac 1993, New Zealand section.
BOSTON, J, and DALZIEL, P. eds., "Redesigning New Zealand's Welfare State", The Decent Society, Oxford University Press, 1992. pp.1-15.
EVANS, N.R., "Up From Down Under", National Review, 8/29/94, pp.47-50.
FLANAGAN, J. "New Zealand Profits From Taking Rough Road", Los Angeles Times World Report, 4/15/95, p.11.
GAYLE, D.J. and SEATON, B., New Zealand: A Welfare State Through Corporatization? Privatization and Deregulation in Global Perspective, Pinter Publishers, London. pp.329-46.
Interview with Mr. John Gallaher, investment manager at Forsyth Barr, Inc., 3/30/95, Dunedin, NZ.
Interview with Dr. James Henry, Department of Marketing, Otago University, 3/30/95, Dunedin, NZ.
Interview with Dr. Biljana Juric, Department of Marketing, Otago University, 3/30/95, Dunedin, NZ.
Interview with the Rt. Hon. Stan Rodger, former Minister of Labour under PM Lange and former leader of the Public Service Association, 3/29/95, Dunedin, NZ.
Interview with Mr. John Thorne, Chairman of the Otago Chamber of Commerce, 3/29/95, Dunedin, NZ.
JAMES, Colin, New Territory, the Transformation of New Zealand 1986-1992. Bridget Williams Books Ltd. 1992
JOHNSON, Chalmers, MITI and the Japanese Miracle.
KRAUSE, Lawrence B., "Asia-Pacific Region Attains Sustainable Growth", Daily Yomiuri, Friday, November 17, 1995, p.11.
McPHERSON, Shanta, "Personal Financial Planning", Examination Essay Paper 25.237, Otago Polytechnic, Sept. 1994
RODGER, Stan, Keynote Address to the Royal Australian Institute of Public Administration, 1990 National Conference, November 14, 1990.
SHANNON, Pat, "Social Policy in New Zealand: An Assessment from Above", Critical Issues in New Zealand Society, Oxford University Press, 1991. pp.8-28.
THOMSON, David, Welfare States and the Problem of the Common, pp.1-9.
WADE, Robert, "What Can Economics Learn from East Asian Success?" Annals of the American Academy of Political and Social Science, Sept. 1989, pp.68-79.
WOO, Wing T., "The Art of Economic Development: Markets, Politics, and Externalities", Review Essay, UC Davis. July 1989.
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