New Zealand Hobbits and Successful Reformers


Hobbits is included in the title for a couple of reasons. One is that the movie location for the Lord of the Rings was in New Zealand, and the other reason is a segue for suggesting a great article describing how to get the Republican Party reformed.

Until the mid 1980’s New Zealand had experienced sustained and systemic decline. The government had tried basically every interventionist and protectionist trick in the book to give the public a standard of living that it was not earning. Elected politicians were engaged in the delusion that residents could protect themselves from global trends and insulate themselves from the global economy. That delusion came crashing to its knees in the early 1980s. The institutions were almost literally bankrupt—both financially and in terms of their policy credibility.

Unexpectedly a case of the two reforming governments, the Labour government in the mid-1980s and the National government in the early 1990s, went against their typical philosophical grains in a sense. The Labour Party was one of the most radical market-reforming governments of its time. And National, which had been just a party of the plodding status quo, became a radical reforming government in its own right. Two prime movers stand out, finance ministers from opposing political parties who made common cause to rescue the country they loved: Labour Party Minister of Finance Sir Roger Douglas and National Party Minister of Finance Ruth Richardson.

The biggest reform they both worked to accomplish is removing a lot of political corruption. Predictions that voters would rebel were all proven wrong when New Zealanders were presented with a coherent plan boldly executed by competent leaders. The way that they both went about confronting corruption reminds me of the Hobbits that could get hold of the One Ring and not be corrupted as much as humans possessing it.

The 2015 Index of Economic Freedom report from Heritage includes the following:

New Zealand is tied with Denmark for first place out of 177 countries in Transparency International’s 2013 Corruption Perceptions Index. It is renowned for its efforts to penalize bribery and ensure a transparent, competitive, and corruption-free government procurement system. The judicial system is independent and functions well. Private property rights are strongly protected, and contracts are notably secure.

Sir Roger Douglas wrote in October 2014 the following about the New Zealand election:

The election was an absolute disaster for Labour. The party’s inability to deal with the result is apparent for all to see.

Renewal needs to start with a recognition of what went wrong.

This isn’t simply moving into National Party territory, for several reasons.

National is the party of the status quo: it has added to New Zealand’s debt by $60 billion over the past six years rather than get to grips with wasteful expenditure; borrowed billions to fund consumption rather than investment; and spent billions each year on corporate welfare with few or no beneficial results, all at the expense of the average New Zealander.

National’s do-nothing, status-quo approach to economic and social policy provides Labour with a real opportunity to get back up on its feet.

It will take an upfront admission that Labour has got a lot of things wrong in the last nine to 15 years and a set of principles to guide its policy decision-making that New Zealanders understand.

Always remember that any extreme left-wing policies usually hurt the poor, and the poor know it. Such policies would quickly see Labour back to where it is now.

After 2009 Sir Roger Douglas was interviewed and asked about his time as Minister of Finance in the mid 1980’s.

Fifteen years later he was leftie David Lange’s right-hand man. Sir Roger was appointed Minister of Finance after years of Muldoon’s Think Big projects. Although he’d inherited a mess, he wasn’t shocked. He just knew he had a big task ahead.

“You may have not been responsible for the mess that New Zealand’s in but when it’s your job to do something about it, you better get on with the job. And it wasn’t as if we weren’t aware of the fact that New Zealand was in considerable difficulty.”

He immediately set about enacting a series of reforms now known as ‘Rogernomics’ – deregulation, market-led restructuring and a tight monetary policy to control inflation. Instantly, New Zealand became part of a global economy, with all the good and bad that came with it. Serious money was made as the markets de-regulated. Serious poverty was caused as factories around the country shut down.

David Lange summed up the reforms in 1996. “For people who don’t want the government in their lives… this [Rogernomics] has been a bonanza. For people who are disabled, limited, resourceless, uneducated, it has been a tragedy.”

Obviously, Sir Roger disagrees. Today, he says New Zealand would be a third world country without his reforms.

Ruth Richardson was interviewed in October 2012 and asked about her time as Minister of Finance in the early 1990’s.

On the macro level it was clear to me that monetary policy needed a mate. And the mate it was lacking when I became the minister was high-quality and credible fiscal policy. In the wake of a major adjustment to public spending, I sought to institute a fiscal framework that would give politicians an incentive to pursue policies in the country’s long-term interests rather than to serve short-term political ones. The Fiscal Responsibility Act of 1994, which I saw as the companion measure to the Reserve Bank Act of 1989, had three main prongs: moving to GAAP, explicit targets, and openness.

I knew that I had to demonstrate first of all that the way to tame the deficit and deal with the debt was to dramatically and structurally reduce the size of the government claim on the economy. So this was not done by tax increases; it was done by a very substantial reduction in public expenditure. Then, having achieved a dramatic reduction in public spending, the trick was to keep a lid on it, because, as you know, not all minsters of finance are so committed to public-expenditure control. And that’s why I conceived of the Fiscal Responsibility Act of 1994. The idea was to set out the principles of fiscal responsibility—to make them explicit. This code was conceived in the context of knowing that New Zealand had highly credible figures—none of this cash accounting where you just hide all the inconvenient contingent liabilities and expenditures.

Ruth Richardson was asked how a consensus was built to side with her on these proposed changes.

Well, in the private sector, the stakeholders that mattered were the wealth creators. And we were very fortunate in New Zealand that during these two major reform episodes we had a very literate private sector. The Federated Farmers—our agricultural-advocacy organization—were champions of farming without subsidies and were for opening up the market. And our business leaders were also champions of reform. Meanwhile in the public sector, while there were some old dinosaurs, the reality was that there were a lot of fine public servants who were just waiting for the kind of structural shift that would let them play their best hand.

Then it was a matter of trying to get the public to see that their overall welfare was being compromised by vested or protected interests. We were able to convince the population at large that the kind of historical labor-market arrangement we had was effectively a job destruction machine, and, therefore, open labor markets were going to be good for employment and good for people without jobs and from outside the labor market who were pressing their noses against the glass.

Finally she was asked if there was a political price to pay for pushing so much change so quickly. Her plans were dubbed Ruthenasia by her critics who thought she was assisting the National Party in political suicide.

It was difficult for both Roger Douglas, minister of finance from 1984 through 1988, and me to convince our respective parties that we should keep our foot on the reform pedal. In the end, both of us, having achieved a high tide of very radical and comprehensive institutional reform, lost our political footing in the process. That’s not surprising. But from our point of view, the political reward was to have spent our time in office achieving such institutional and structural change that has stood the test of time. That is all you could ever hope to achieve in politics.

The developed world has to address what I see as one of the hardest of all political tasks, which is this culture of entitlement. There is an evident and entrenched culture of entitlement in much of the developed world. But I’m an optimist. I know that many of the soft options and delusions around debt and deficit and protectionism are going to be exposed for what they are: failed policy templates—and unsustainable to boot.
Fiscal circumstance will force the issue of affordability to be addressed, and consumer choice and supremacy, so much characteristics of the Internet age, will become the prevailing forces in the delivery of health and education. The Berlin Walls of state monopolies in health and education will surely fall.

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I am retired after 36 years of being a state of Indiana employee. I enjoy writing and reading conservative blogs.
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I am retired after 36 years of being a state of Indiana employee. I enjoy writing and reading conservative blogs.

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Mike gamecock DeVine
August 16, 2015 11:20 am

Great info guy. The GOP and America need this Reagan on Steroids agenda.