New Zealand Economics

This book will encompass theoretical and practical economic developments with respect to a New Zealand context. New Zealand has typically followed orthodox global trends in economics, but has at times diverged from the prevailing economic orthodoxy, leading to its reputation as a "social laboratory of the world". Seddon's Liberal-Labour social and humanitarian reforms of the 1890s, and the introduction of a state welfare system by the First Labour Government, attracted international attention and commentary. More recently, the neoliberal economic 'revolution' of 1984-1993, some of the most rapid and wide-ranging economic 'structural adjustments' the world has seen, has led to massive social, political, and economic changes, and debate still continues as whether the 'pain' was worth the 'gain'.

Initially this book will only focus on the monetarist/neoliberal, Keynesian, and Marxist interpretations of the pivotal economic changes between 1945-1973, and 1973 to the present. As time permits, I shall add other chapters relevant to the economics of 'the Land of the Long White Cloud'. I enthusiastically welcome contributions and editing to this book - "If you have knowledge, let others light their candle by it." - Margaret Fuller

Interpretations of New Zealand's Post-War Economic History
New Zealand’s economic fortunes were drastically altered with the onset of the global recession in the mid-1970s, and two stages are clearly discernible. Prior to 1973 the ‘long boom’ was characterised by strong growth, a balance of payments equilibrium (owing to historically auspicious terms of trade), low inflation, rising real wages, and full employment. From 1974 to 2005 New Zealand had problems with ‘stagflation’ (stagnated growth and high inflation), declining profitability, declining real wages, and massively increased levels of unemployment and impoverishment. This chapter will outline the differences in Marxist, Keynesian and monetarist interpretations of the two epochs in New Zealand (NZ) economic history, and will explain why understanding the interpretations is relevant and necessary to appreciating politics and policy-generation in NZ since the mid-1970s.

NZ was not isolated in its economic downturn. Globally, economies were cooling and unemployment was mounting, with the G7 group of countries, between 1950 and 1973, experiencing a drastic drop in growth (5.5 percent to 2.1 percent) and unemployed numbers up to 6.2 percent from 2.1 percent. However, NZ had peculiarities that exacerbated the global trend. Very few countries experienced both the effects of the oil shocks and a persistently deteriorating market for major traditional exports. NZ’s reliance on a narrow range of exports whilst simultaneously being dependent on imports of oil, capital and intermediate inputs left it vulnerable to the whim of international fortunes. Major demand- and supply-side constraints to agricultural growth also left it susceptible to a decline in terms of trade. Nonetheless, comparative evidence strongly suggests that regardless of the terms of trade decline, growth rates would still have declined, since NZ shares similar predispositions of development as other advanced capitalist economies since 1945.

Whilst monetarists and Keynesians both broadly agree on the heavy impact and effect of the externals shocks of the 1970s and 80s on the NZ economy, they, and their Marxist counterparts, interpret NZ’s economic history through fundamentally distinctive and conflicting approaches. Areas of contention include the role of state in economic management; the basis of the boom and ensuing collapse; the stability and meaning behind the economic recovery of the last decade; and how the shifting economic environment has affected policy, policy-making, and the state.

Monetarism/Neoliberalism
Monetarism and neoliberalism are arguably the most important and widespread of modern economic theories. The central assumption of monetarism/neoliberalism is that the smoothly functioning and self-adjusting market economy, unhindered by government, will spontaneously achieve equilibrium with full employment of resources. With Treasury’s faith in the market’s invisible hand, the utterly rational actions of homo economicus, and a tight grasp of the reins of the money supply, they proposed to make New Zealand a lean, mean, wealth-generating machine.

Many of the economic reforms of the 1980s were of a monetarist/neoliberal nature, centred on the belief that New Zealand's bloated economy was holding the country back. Modern proponents assert that the country's contemporary economic growth is resultant of the hard-fought reforms of the 1980s, and that further, as-yet-unrealised benefits will be the result of this period.

Keynesianism
The central tenets of Keynesian economic thought are the rejection of the neoliberal assumption that market economies are self-regulating and market clearing, and the elevated significance of aggregated demand. Keynes himself put it best, stating, “The system is not self-adjusting and, without purposive direction, it is incapable of translating our actual poverty into potential plenty”. Keynesians refute the assertion that the economic decline of the 1960s and 1970s were a result of Keynesian economic theory, but of poor economic leadership (particularly prime minister Robert Muldoon's 'Think Big' project).

Modern Keynesian supporters claim that the period of stagnation and recession in the 1980s were avoidable and unneccessary. Keynesian adherents believe that as long as the neoliberalism prevails as the orthodox mechanism driving policy, the NZ economy will continue to trail behind the OECD average.

Marxist Interpretation
The key difference between Marxism and the two previously discussed approaches is that whilst monetarism and Keynesianism diverge over how the economy should be managed, Marxian economic thought considers the independent variables to be endogenous to the economy. Consequently, capitalism’s intrinsic tendency to generate crisis, characterised by growing unemployment and economic stagnation, will render state policy ineffective, regardless of which is chosen. From a Marxist perspective, therefore, exogenous shocks or government action were not considered to be the cause of the post-1973 economic deceleration.

The Marxian law of the tendency of the rate of profit to fall is central to this understanding, and the same features responsible for the increase in the general rate of profit were responsible for undermining the long-term rate of profit: the process was internally contradictory. Due to the structural nature of capitalism contemporary Marxists claim that the New Zealand economy will tend towards crises once again.

Importance of Understanding These Interpretations
It is necessary to understand NZ’s changing economic landscape and its interpretations: not only do they shape our life chances, choices, and experiences, they influence politics and policy-making profoundly. Without an understanding of the collapse, without an empirically-supported interpretation of the resulting economic changes, we are doomed to repeat mistakes made by those before us. Changes in the economic landscape of New Zealand have had colossal effects, and an understanding of these changes - and the theoretical interpretations of them - are integral to understanding a diverse and expansive range of issues relevant to every person – today, and in the future. If we do not continue to analyse and understand what has led our world to be the way it is, future generations may themselves be condemned to repeat our mistakes.