New Zealand is a very prosperous, free, and content country. As recently as the 1980s, it was not. Radical free market reforms helped make it a better place. And, those changes were introduced by a Labour government.
I have been interested in how these radical reforms happened. Why was there no rioting in the streets? A friend who lived there at the time explained “Douglas hit everyone the same. The privileged felt the pain as well”.
I have wanted to find out how this transformation happened. Bill Freeza has filled the gap with “New Zealand’s Far-Reaching Reforms: A Case Study on How to Save Democracy from Itself“. Freeza provides a very helpful guide for any politician who wants to repeat the New Zealand experience. He interviewed the two main architects of the reform, Sir Roger Douglas, the Labour Finance minister, and his National Party successor, Ruth Richardson.
Cold Turkey
The changes Douglas, the Labour Party’s Finance Minister introduced, were radical:
“Agricultural subsidies were terminated. Protectionism was vastly reduced. Capital controls were removed. Marginal income tax rates were dramatically cut and the tax base was widened through the introduction of a comprehensive consumption tax. Capital gains taxes and estate taxes were eliminated. Foreign exchange controls were removed and the kiwi was allowed to float.”
The changes could have been more radical. Douglas tried to introduce a simple flat tax regime, 23 percent on income from all sources, no deductions, but that was a step too far for his Labour Party colleagues.
Fixing the Problem
As Freeza observes:
“The sad truth is that most majoritarian democracies reward politicians with the prize they covet most—winning the next election—not for exhibiting universally admired virtues or even serving the public good. Instead, they are rewarded for dispensing largess to their particular constituents, and doing so in a way that disguises the costs not only to others but to those constituents and sometimes even themselves. This is the problem that New Zealand fixed.”
The system that Douglas and Richardson has hard wired into the system limits to backsliding and can-kicking that infect politicians everywhere.
If You Want To Copy, Here is What You Can Do
The book ends with several good recommendations for any government looking to introduce Douglas and Richardson plan:
- Demand honest accounting, the bedrock of good governance
- Encourage transparency between parties, and between the government and the people
- Create stability through sound money and explicit monetary policy
- Use performance management based civil service reform to deliver results
- Leverage private-sector labor reforms to open the economy
- Never let a crisis go to waste
- Comprehensive reform trumps piecemeal reform
- Reforms must be evenhanded
- Flood the zone to create too many moving targets to effectively oppose
- Speed is of the essence
- Resolve is essential
- To win requires managing the narrative
- Consult widely to get input and buy-in
- Confidence in leaders rests on their own visible relaxed composure
- Never sell the public short
- Institutional disciplines must be established that outlive the reformers
I hope, that one day, my own Party, the UK Labour Party, can copy the New Zealand experiment when it is next in government. Whilst, today at least that seems fanciful, this is a book that any politician who wants to bring long term prosperity to their country should read.