Economic and environmental history of Aotearoa - New Zealand

A Review of Economic Fundamentalism: The New Zealand Experiment - A World Model for Structural Adjustment?

By Jane Kelsey
Pluto Press, 1995. 407 pp., $34.95

Reviewed by Eva Cheng in Green Left Weekly
16 March 1996

Economic Fundamentalism is a well-documented and substantial attempt to evaluate from a progressive point of view the sweeping and fundamental changes which have been introduced into New Zealand since 1984.

Kelsey demonstrates, with the support of ample facts, that these changes represented a comprehensive and tightly coordinated attempt to roll back earlier gains of the New Zealand working people (including the unemployed).

This offensive marked a radical change in the role of the state in capitalist development in New Zealand, which since the Great Depression in the 1930s had heavily intervened in the economy to boost consumption demand and provide extensive welfare as a trade-off for class peace.

Kelsey has put 12 years of so-called structural adjustment in New Zealand firmly in the context of a dilemma common to "western capitalist democracies" which arose from "tensions" between the need of capital to accumulate profits, the need of the state to administer a costly machinery and the"need to secure loyalty and cooperation from the mass of its citizens".

She also notes the "significant leverage" that countries like the US, the UK and Germany could apply in shaping the global economy, the ascendancy of the "free market" model worldwide and the role of institutions like the OECD, International Monetary Fund, the World Bank and credit rating agencies in pressing for "conformity" to the free market model. This perspective to situate the New Zealand initiatives in the global restructuring of capitalism is undoubtedly correct, but her analysis could be stronger and more precise.

However, the whole volume is rich in details on what actually happened in New Zealand during these 12 years, especially on the great extent to which publicly owned assets and services have been or are in the course of being privatised into profit-driven operations - including health, housing and education on top of basic areas like land, forestry, electricity, telecommunications, coal, airways, post office bank, post and government property services.

This has seriously undermined the living standard of a big majority of the New Zealand people. As a result of these changes, the social responsibility of state-owned enterprises is no longer recognised.

Similarly, while the Reserve Bank continues to be given important powers to influence the speed and extent of credit creation - which can have an important bearing on the level of interest rates and, therefore, the rest of the economy - since 1989 it has been free of the obligation to seek full employment as a fundamental guide, replaced by the sole concern to maintain price stability.

Under this principle, "wage restraint", high unemployment and "fiscal restraint" are justified and prioritised at heavy social cost. The labour market was "deregulated" (cutting into workers' ability to unionise and defend their conditions). Social services, including essential income supports, were cut, and a regressive goods and services tax of far-reaching impact was introduced. By 1993, one in six New Zealanders was considered as living in poverty.

Kelsey gives a vivid account of the daunting costs paid by working people. By laying bare in detail how the Labour Party led New Zealand into anti-worker restructuring and how the National Party carried it on when it was voted into power in 1990, she illustrates the common class interests that the two parties stand for. The formation of NewLabour (as a result of a 1989 split from the Labour Party) and the five-party Alliance (which NewLabour initiated) as well as the latter's popular support are not hard to understand in this context.

The new electoral system of mixed-member proportional representation, introduced through a referendum in 1993, will better translate popular support for the minor parties into parliamentary seats when the new system is to be put to use in the election scheduled for later this year. Since 1993 the Alliance has increased its support at the expense of Labour.

The crucial background is there in Economic Fundamentalism to understand the basic issues in New Zealand politics today. It provides ample ammunition to debunk the myth of the virtue of the "New Zealand model". The title of the book might deter some readers, but it provides a lot of useful reference. It is slightly heavy on economics, but as Kelsey has rightly pointed out in her checklist of strategies for resistance, "leaving economics to economists is fatal".