New Zealand and the Tragedy of Neoliberalism

New Zealand – In a Land of Plenty

Directed by Alister Barry (2002)

Film Review

This documentary provides a blow by blow account of the advent of “neoliberalism” [1] to New Zealand in the 1980s and 1990s. The feature films of British filmmaker Ken Loach document the tragic consequences of Margaret Thatcher’s brand of neoliberalism (Thacherism). I have yet to find similar films tracking the brutal effect of American neoliberalism (under Reagan, Bush senior and Clinton).

In 1984, the assent of Labour Prime Minister David Lange (and Finance Minister Roger Douglas [2]  to power resulted in a sudden shift from New Zealand’s 40-year commitment to full employment to a regime in which jobs and living wages were deliberated sacrificed to a brutal campaign to quash inflation.[3]

The film traces the stepwise process by which Douglas collaborated with the Reserve Bank of New Zealand to increase unemployment by massively increasing interest rates. With no access to credit, businesses quickly began shutting down and laying off workers \.

This move was followed by cutting public sector employment (in the government owned railroad, state energy companies and post office) and the elimination of farm support by way of price stabilization and crop subsidies. Squeezed between prohibitive loan rates and loss of government support, thousands of families lost their farms and livelihood. Unemployment skyrocketed as cheese factories and freezing works depending on the agricultural sector shut down.

At the end of 1984, the Lange government also ended protective trade barriers that protected New Zealand manufacturers, immediately flooding the domestic market with cheap imports from China. The move effectively killed New Zealand’s home grown manufacturing sector (mainly auto, shoe, garment and home appliance production).

During its two terms in government, Labour persisted with these draconian reforms despite massive public protest and open rebellion by rand and file Labour Party members. During the 1990 election, Labour voters stayed home, and the conservative National government took over the neoliberal agenda.

by the mid-90s, more than half of New Zealand’s unemployed (many of whom were over 55) had been out of work more than six months. The National government responded to the chronic unemployment crisis by slashing unemployment and welfare benefits. Despite a big increase in free food distribution at schools, foodbanks and other charities, resulting malnutrition levels resulted in an epidemic (which persists to the present day) of rheumatic fever, meningitis, asthma and other illnesses of poverty.

---

[1] Neoliberalism is a model of extreme free market capitalism that favors greatly reduced government spending, deregulation, globalization, free trade, and privatization.

[2] It’s unclear how Roger Douglas, a right wing conservative, became Finance Minister under a Labour Government. He later helped form the pro-corporate ACT Party and served as an ACT list MP between 2008 and 2001.

[3] Inflation hurts bankers far more than it hurts workers, especially those relying on credit cards to pay for basic survival needs. In reducing the value of money, it simultaneously reduces the value of debts owned to banks. See Who Does Inflation Hurt Most

 

 

 

In New Zealand We Call It Rogernomics

Roger Douglas, from Wikimedia

(The 7th of 8 posts about my new life in New Zealand)

In brief, the policies introduced by Minister of Finance Sir Roger Douglas in the 1980s included the rapid elimination of import tariffs that protected New Zealand farmers and manufacturers; rapid privatization of state owned industries (most ended up under foreign ownership);  stringent anti-union legislation; and substantial cuts in social welfare benefits. With the abolition of import controls, New Zealand companies struggled to compete against cheap imported goods from Asia. This resulted in multiple plant closures, massive layoffs and more than a decade of unrelenting hardship for communities that relied on these industries.

The 1984 reforms also resulted in seven years of continuous economic stagnation, during which the New Zealand economy shrank by 1% in contrast with an average 20% growth in other OECD countries.

The Mass Exodus of Generations X and Y

The most enduring harm stemming from the 1984 reforms is the staggering loss of human capital that continues to this day. At present approximately one million Kiwis – representing one quarter New Zealand’s current population of four million – live overseas.

As I wrote previously, the massive sell-off of both state-owned and private companies to foreign owners has translated into a chronic accounts deficit (negative balance of trade), as profits and dividends disappear overseas. To compensate for this steady loss of wealth, New Zealand, under pressure to increase exports, entered into “free trade” treaties that forced them to reduce tariffs and quotas even more. This led to the shut down of even more factories, which had no hope of competing with overseas companies that paid sweat shop wages to third world workers.

The Student Loan Debacle

In my view, the most damaging neoliberal reform of the 1980s was the decision to replace government subsidized tertiary education (which until recently was standard in most European countries) with a student loan scheme. While lumbering young people with student loan debt can prove problematic for large, broad-based economies like US and Britain, the policy has proved absolutely disastrous for New Zealand. Repaying a student loan is extremely difficult on the low salaries Kiwi professionals earn. Thus a third or more of new college graduates to emigrate. In my view, this continual hemorrhage of human capital is a major reason New Zealand remains near the bottom of OECD countries for economic growth, productivity and salaries.

At present approximately one-third of medical students leave New Zealand following graduation. Many really have no choice, strapped with giant student loan repayments while simultaneously looking to buy a home and start a family. Their only hope of managing this massive financial stress is to seek work in Australia or the UK, where they can command a 20-30% higher salary than here in New Zealand. And once they buy a home and their kids start school, they very rarely return.

A recent study estimated 37% of new NZ teachers leave New Zealand schools within the first three years. In addition to doctors and teachers, New Zealand also loses a large proportion of the nurses, physiotherapists, social workers, audiologists and other health professionals they train – as well as engineers, urban planners and veterinarians, who are also on New Zealand Immigration’s critical skills shortage list.

New Zealand’s Neoliberal Transportation Policy

Other really destructive neoliberal policies New Zealand enacted in the eighties and nineties relate to public transportation: 1) the privatization of New Zealand railways (leading to the immediate shutdown of all but four routes) and 2) the dismantling of local public transportation systems. Both have resulted in extreme reliance on private automobiles and foreign oil, the second biggest culprit in our accounts deficit.

New Zealand, which still has a predominantly rural population (only 1/3 of Kiwis live in major cities), has also been extremely slow in implementing rational growth management strategies. For all these reasons, it holds the embarrassing honor of the highest rate of car ownership in the world.

 

The Chile of the Pacific

Milton Friedman from Wikimedia Commons

(The 6th of 8 posts about my new life in New Zealand.)

An Early Laboratory for Neoliberal Reforms

Overall I have enjoyed numerous lifestyle advantages living in New Zealand. There are a few notable exceptions, of course, beyond the emotional isolation of being separated from my family and American friends. Most relate, either directly or indirectly, to New Zealand’s historic role as “the Chile of the South Pacific.” During the 1980s, New Zealand was used as a laboratory for the neoliberal reforms subsequently implemented by Ronald Reagan and Margaret Thatcher.

In theory, neoliberalism is a “market-driven” approach to economic and social policy that stresses the efficiency of free enterprise and opposes government regulation of corporate recklessness and any government role in public services other than law enforcement. In practice, neoliberal policies have been universally pro-corporate and anti-free market, promoting vast amounts of legislation (tax law, government contracts and direct corporate bail-outs) that favor large corporations at the expense of both small business and ordinary citizens.

The University of Chicago is usually credited as the birthplace (in the 1960s) for neoliberalism and Milton Friedman as its father. A frequently overlooked aspect of the CIA’s 1973 coup in Chile was the direct role University of Chicago economists played in assisting Chilean dictator Augusto Pinochet in setting out the neoliberal economic reforms enforced by his brutal regime. New Zealand played a similar role in the early eighties, by trying out neoliberal policies that were later adopted by Britain and the US.

New Zealand: a Second World Country

At present New Zealand is a relatively poor, second world country. It ranks 20th in GDP for OECD countries. Americans are always struck by the high cost of living here relative to wages and salaries. Although average income is much lower than in other developed countries, the cost of basic necessities is just as high. At times it’s much higher, particularly in the case of gasoline, home energy costs and fresh meat and fish.

Central heating is virtually non-existent – in part because so few people can afford it and in part because the (colder) South Island has no access to piped natural gas. Just so no one has any illusions about our climate, the New Zealand winter is relatively short. However except for the far north, it gets just as cold here as in northern California and the Pacific Northwest.

Here We Call It Rogernomics

In 1975 New Zealand was 10th in the OECD in per capita GDP. Prior to the eighties, the UK was always the primary importer of New Zealand lamb and dairy products. In the early 1980s, these policies changed, and Britain began to favor European Union trading partners over commonwealth countries.

Increasingly, however, many economists blame the draconian reforms Minister of Finance Roger Douglas enacted in 1984 for the decline in Kiwi living standards. So-called “Rogernomics” was responsible for the institutionalization of a large and steady wealth transfer (as profits and dividends) to overseas corporations. This in turn has led to a large, chronic accounts deficit (negative balance of trade), which has led to many other economic problems.

It’s only with the 2008 economic collapse and the non-existent US recovery that American analysts are starting to appreciate the devastating impact that “Reaganomics” – the main culprit in the virtual collapse of American manufacturing – had on the US economy.

In a country 1/60^th the size of the US, the damage was much more immediate and obvious.

 

The Common Misfortunes of Capitalism

Note cow in stream

(The 5th of 8 posts about my new life in New Zealand)

Obviously there is both an upside and a downside to living in New Zealand. All developed and developing countries are forced to operate under the same corporate-dominated capitalist system.

New Zealand is no exception and has many of the major economic and social problems other developed countries are experiencing. In a few areas, New Zealand has adopted some of the worst aspects of global capitalism, which results in uniquely negative consequences for the New Zealand public. For the most part, Kiwis retain their commitment to a “democratic socialism” as practiced in most of Europe. The result, in my view, is a society and culture that tends to be far more humane than is found in the US.

That being said, New Zealand shares a number of pernicious social problems found in all modern capitalist countries:

• Worsening income inequality – only 10% of Kiwis have incomes above $72,000 ($58,216) in US dollars), whereas half the population earns less than $24,000 ($US 19,405).
• Irrational and blind adherence to a continuous economic growth paradigm. In a small country like New Zealand, this has a devastating impact, in terms of water contamination, habitat destruction and environmental toxins in the food chain. Over the past two decades, dairy intensification has made the most of New Zealand’s picturesque waterways unsuitable for swimming (due to cow shit and fertilizer run-off.
• Slow uptake of renewable energy production (owing nonexistent finance capital or government subsidies)
• Slow uptake of sprawl prevention strategies essential to the development of cost-effective public transportation.
• Heavy corporate media emphasis on stereotypical female roles, resulting in massive pressure on New Zealand women to look young, thin and sexually attractive. Fortunately cosmetic surgery is much less common here than in the US – there aren’t enough Kiwis who can afford it.
• Factory shut-downs and movement of well-paid union and manufacturing jobs to overseas sweat shops.
• Massive household debt (146% of disposable income largely owing to chronic low wages).
• Diets which are excessively dependent on foreign food imports, as opposed to more sustainable reliance on locally and regionally produced food.
• Factory farming of pigs and chickens. Thanks to the high prevalence of battery hen operations (and constant exposure of chickens to feces), New Zealand enjoys the highest per capita incidence of campylobacter infection in the world.

 

photo credit: Mollivan Jon via photopin cc