Economic reform

Abstract

New Zealand has become a by‐word for fundamental monetarist reforms in its economy. After a long history of state intervention with a commitment to full employment and a comprehensive welfare state, a foreign exchange crisis forced a radical reappraisal. It fell to a Labour government to initiate change but it was a shift devoid of ideology aimed at improving the quality of decision‐making at all levels of the economy by exposing the decision‐makers to the rigours of the market without undue government interference. The key elements were deregulation of the labour market; freeing of the economy from traditional restrictions; greater fiscal responsibility; and price stability. Initially regarded by many New Zealanders as wild economic theory that was bound to fail, attitudes changed as the benefits began to work through. Significantly the results were seen when the rest of the world was in deep recession, suggesting that the reforms were responsible for a fundamental change in the New Zealand economy rather than a one‐off improvement. If New Zealand is to achieve full employment and a standard of living comparable with other successful countries, improvements have to be made in areas such as relative wealth, relative tax rates and untouched aspects of social reform. But under a new voting system, the next general election is considered likely to usher in a coalition committed to reversing key aspects of the recovery programme.