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.

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[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

 

 

 

How Neoliberalism Gave Us Brexit and Trump

Revenge of the Rich: The Neoliberal Revolution in Britain and New Zealand

by Austin Mitchell

Canterbury University Press (2017)

Book Review

Revenge of the Rich, by British economist Austin Mitchell, describes how the neoliberal revolutions of Margaret Thatcher and New Zealand finance minister Roger Douglas virtually gutted the economies of the UK and New Zealand. The result has been years of declining or negative growth rates, virtual destruction of manufacturing, massive job loss, wage stagnation and higher deficits and overseas borrowing.*

As an article of faith, neoliberals maintain that mass layoffs of public service workers will reduce government deficits. The reality, as Mitchell ably demonstrates, is the exact opposite. When you lay off 400,000 public servants (as David Cameron did between 2010 and 2016), they quit paying taxes and increase government costs by claiming unemployment and other benefits.

Britain’s EU Membership: Setting the Stage

According to Mitchell, Britain’s decision to join the EU in 1973 set the stage for the neoliberal revolution that subsequently occurred in both countries. EU membership forced Britain to end their special trading relationship with New Zealand (an other Commonwealth countries), resulting in significant economic decline in both countries. Neoliberal trade liberalization was meant to stem these losses. Instead the loss of tariff and other import protections quickly destroyed manufacturing in both countries.

New Zealand, which was fortunate in having agricultural exports to fall back on, succeeded in developing alternative trade relationships with Australia, China and other Asian countries. Nonetheless, thanks to their 1980s neoliberal experiment, New Zealand has one of the highest levels of foreign ownership (of land, homes and companies) in the developed world. It also has the highest house prices, the second highest prison population and extremely high child poverty levels (1/3 of Kiwi children grow up in poverty). Meanwhile it’s failure to provide jobs for young adults means a sizeable proportion leave New Zealand permanently for other developed countries.

Brexit and Trump: The People Rebel

Mitchell describes the rise of left and right wing extremist groups in Europe, the Brexit vote and the election of Donald Trump as a direct popular reaction to the immense human misery caused by neoliberal policies. In New Zealand the 1996 citizens referendum adopting proportional representation was a direct reaction against both major parties (Labour and National) advancing neoliberal policies.

At this point, the traditionally pro-corporate International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) have both come out against austerity and similar “deflationary” neoliberal policies. Instead they argue strongly for increased stimulus (public) spending to stabilize the world’s developed economies.

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*Similar effects under American neoliberals Reagan, Bush Sr and Jr, Clinton and Obama inflicted similar damage on the US.

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.