Rogernomics


Rogernomics

The term Rogernomics, a portmanteau of "Roger" and "economics", was created by analogy with Reaganomics to describe the economic policies followed by New Zealand Finance Minister Roger Douglas from his appointment in 1984. The policies included cutting agricultural subsidies and trade barriers, privatising public assets and the control of inflation through measures rooted in monetarism, and were regarded in some quarters of Douglas's New Zealand Labour Party as a betrayal of traditional Labour ideals. The Labour Party subsequently retreated from pure Rogernomics, which became a core doctrine of ACT.

Background

During the 1970s and early 1980s, New Zealand was faced with a series of economic problems brought on by changes in the global economy, many of which directly affected the country, such as Britain’s entry in to the European Economic Community in 1973. New Zealand was rating badly for living standards and economic performance compared to OECD averages: in 1980 it had slipped from being in the top five OECD countries to 19thPhilippa Mein Smith, "A Concise History of New Zealand", Cambridge University Press, Melbourne: 2005, pp.201-216.] Roger Douglas, who would later become finance minister, went so far as to say that the country stood “on the brink of economic ruin” [Roger Douglas, "There's Got to Be a Better Way", Fourth Estate Books Limited, Wellington: 1980, p.9.] . In 1983, Douglas became responsible for Labour Party economic policy. Throughout the year he attempted to create an economic policy for the next government. Although his ideas were unorthodox for a Labour Party MP, Douglas was not at this time a free market ideologue, but someone looking for practical solutions to the problems of the economy. He was greatly influenced by Doug Andrew from the Treasury, who had spent time working with the World Bank, when he became a strong supporter of free market economics. In June 1983, Andrew became the Treasury liaison with Labour and participated in the party’s debates. He arranged for Douglas to meet non-government economists to draft an economic policy, the result of which was the Economic Policy Package put together by Andrew, Douglas and economist Geoff Swier, and was accepted by the caucus Economic Committee. The package faced opposition when presented to the Labour Party Policy Council: an alternative policy was written by Public Service Association economist Peter Harris and others. Neither policy had enough support to be accepted, but Douglas had the advantage that caucus had the power to send any policy it did not agree with back to the policy council. Because of this the alternative policy had no chance of being accepted, and the Economic Policy Package became the basis of Labour Party policy.Bruce Jesson, "Fragments of Labour" Penguin Books, Auckland: 1989, pp.58-63.]

The reforms

After the snap election of 1984, Douglas hastily began to reform the New Zealand economy, under the government’s slogan of "We will do the right thing". The speed of the reforms can partially be attributed to the ‘currency crisis’ that resulted from Robert Muldoon’s refusal to devalue the dollar after being advised to do so by the incoming government. Labour had planned to devalue the dollar but had not announced devaluation as part of its election policy - Douglas later stated that doing so "...would wreak havoc in the foreign exchange market and invite a run on the New Zealand dollar" The business community became aware of the government's plan and speculated against the dollar, converting New Zealand funds and credits to foreign currency, and then back to a larger quantity of New Zealand dollars.

The reformers argued that the speed with which the reforms were made was due to the fact that New Zealand had not adjusted to Britain’s abandonment of the empire, and had to move quickly to ‘catch up’ with the rest of the world. Douglas claimed in his 1993 book "Unfinished Business" that speed was a key strategy for achieving radical economic change: "Define your objectives clearly, and move towards them in quantum leaps, otherwise the interest groups will have time to mobilise and drag you down"Judith Bell, "I See Red", Awa Press, Wellington: 2006, pp.22-56.] . Political commentator Bruce Jesson argued that Douglas acted fast to achieve a complete economic revolution within one parliamentary term, in case he did not get a second chance. [Bruce Jesson, "The New Rights Network of Power" in "To Build a Nation: Collected Writings 1975-1999", edited Andrew Sharp, Penguin Press: 2005, p.190.] The reforms can be summarized as the dismantling of the Australasian model of state development that had existed for the previous 90 years, and its replacement by the Anglo-American neoliberal orthodoxy based on the monetarist policies of Milton Friedman and the Chicago School. The financial market was deregulated and controls on foreign exchange removed. Subsidies to many industries, notably agriculture, were removed or significantly reduced, as was tariff protection. The marginal tax rate was halved over a number of years from 66% to 33%; this was paid for by the introduction of a tax on goods and services (GST) initially at 10%, later 12.5%, and a surtax on superannuation, which had been made universal from age 60 by the previous government. [Michael King, "The Penguin History of New Zealand", Penguin Books (NZ), Auckland: 2003, p.490.]

Immediate results

New Zealand became part of a global economy. With no restrictions on overseas money coming into the country the focus in the economy shifted from the productive sector to finance. [Bruce Jesson, "The Changing Face of New Zealand Capitalism" in "To Build a Nation" ibid., pp.177-178.] Finance capital outstripped industrial capital and redundancies occurred in manufacturing industry; approximately 76,000 manufacturing jobs were lost between 1987 and 1992. During wage bargaining in 1986 and 1987, employers started to bargain harder. Lock-outs were not uncommon; the most spectacular occurred at a pulp and paper mill owned by Fletcher Challenge and forced changes to work practices and a no-strike commitment from the union. Later settlements forced more concessions from unions, including below-inflation wage increases, a cut in real wages. [Colin James, "The Quiet Revolution", Allen & Unwin New Zealand Ltd in association with Port Nicholson Press, Wellington: 1986, p.166.] There was a structural change in the economy from industry to services, which, along with the arrival of trans-Tasman retail chains and an increasingly cosmopolitan hospitality industry, led to a new ‘café culture’ enjoyed by more affluent New Zealanders. Some argue that for the rest of the population, Rogernomics failed to deliver the higher standard of living promised by its advocates.

After Rogernomics

The policies of Ruth Richardson, sometimes called "Ruthanasia", are often seen as a continuation of Rogernomics. Richardson was Finance Minister in the National Party government from 1990 to 1993.

Douglas claimed in contemporary interviews that Rogernomics could not be confused with Reaganomics in that he was strictly controlling the New Zealand fiscal deficit while the Reagan administration permitted that of the USA to expand dramatically. However, Douglas did not have a hostile Congress to contend with. Having made this point, Douglas generally escaped having to answer the more difficult question of how Rogernomics could be distinguished from Thatcherism.

A major criticism of Rogernomics is that the reforms were undertaken without a detailed philosophical basis so it could be argued that the reforms were not fully completed.

References

Further reading

* Judith Bell, "I See Red: The shocking story of a battle against The Warehouse", Awa Press, Wellington: 2006.
* Roger Douglas, "Toward Prosperity", David Bateman Ltd, Auckland: 1987.
* Colin James, "The Quiet Revolution", Allen & Unwin New Zealand Ltd in association with Port Nicholson Press, Wellington: 1986.
* Jane Kelsey, "The New Zealand Experiment: A World Model for Structural Adjustment", Auckland University Press, Auckland: 1995.


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