Productive and Unproductive Capital: A mapping of the New Zealand system of national accounts to classical economic categories, 1972‐95

Abstract

New Zealand has gained considerable international attention for the neo-liberal economic reform programme it enacted from the mid-1980s; this programme has served as a model for similar reform elsewhere. Within the neoclassical framework of the reformers, the programme has produced many improvements to the economy. Such fundamental indicators as lower inflation, lower budget deficits and higher economic growth are cited as evidence of the improved economic conditions. Yet unemployment remains high, real interest rates are among the highest in the world, nominal interest rates and business confidence fluctuate considerably, and the balance of payments is deteriorating. Using a classical framework, this paper examines the neo-liberal reform of the New Zealand economy to see if there are alternative explanations for the persistence of these problems. The methodology developed by Shaikh & Tonak (1994) is used to map official national accounts data to classical economic categories for the 1972 to 1995 period. This approach is compared with earlier attempts at estimating classical economic categories for New Zealand. This classical view of the economic reforms is compared with the conventional view. The paper's main results are that there was a large increase in unproductive economic activity associated with the economic reforms in New Zealand; that the improvement in economic fundamentals emphasised by the reformers reflects this growth of unproductive activity; and that the persistence of other economic indicators is related to the ongoing weakness of productive activity.