Eerie echoes in Godzone

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The Independent Online
There is only one word to describe a visit to New Zealand these days: uncanny. Memories of the early year of the Thatcher revolution come flooding back, reinforced by marauding bands of young men and women wielding newly acquired mobile telephones, the smell of money in fashionable bars and restaurants and the bewildered faces of the not-so-young, who can't believe what is happening.

Overheard conversations exude confidence that property prices will rise in an ever advancing spiral. Industrialists speak approvingly of the way the shackles have been lifted from free enterprise, trade unions have been decimated and the welfare state vigorously trimmed.

Reasons for optimism abound. The currency is steadily gaining value and is now close to parity with the Australian dollar, a source of considerable pride to New Zealanders, who are forever looking over their shoulders at their bigger neighbour.

International investors have given the thumbs-up to the performance of the economy, pumping unprecedented sums into the local stock market. It is the third-best performing among Pacific Rim markets this year, having gained more than 11 per cent since 1 January.

Foreign direct investment has also soared since 1990, when NZ$2.84bn (pounds 1.184bn) flowed into the country, quadrupling the amount invested the previous year. In 1993 net foreign investment rose to NZ$4.4bn.

Once despised by free marketeers as a bastion of state controls and an unwelcome haven for the mollycoddling of the welfare state, New Zealand has been transformed into a mecca for visiting monetarists and those who believe in the powers of the market.

Whereas the free market revolution in Britain was initiated by a Conservative government, the New Zealand revolution was nursed into being by Sir Roger Douglas, the Labour government's minister of finance. Like Margaret Thatcher he has given his name to a phenomenon. The Kiwis call it Rogernomics.

Rogernomics, like Thatcherism, was built on ideological fervour. It has now been handed over to its natural inheritors, the conservative National Party, which won the 1990 election and has since made Sir Roger's crusade its own.

The extent of the revolution is dazzling. The state once controlled all public utilities and practically the entire infrastructure; now all state assets seem to be up for sale. The latest wall to crumble was that surrounding the defence and security sector. Government industries that have not been sold off have been corporatised. Even the control of schools and hospitals has been given to local boards.

The New Zealand dollar has been allowed to float freely and exchange controls surrounding it have been removed. The taxation system has been greatly simplified and import duties ditched in favour of a flat-rate 12.5 per cent tax on goods and services. Income and corporate taxes have been slashed, bringing the top rates down by half. Further tax cuts are promised.

In the labour market, deregulation means lifetime employment has become a thing of the past. All employees have been placed on short-term contracts and the once influential trade unions are barely a shadow of their former selves. New jobs are being created but there is 20 per cent unemployment among the indigenous Maori population, some three times higher than for white New Zealanders. The insistence on self-sufficiency has also meant dismantling the welfare state.

There is little doubt that the reforms have given a boost to the economy. But the achievements, in terms of growth, are relatively modest compared with other Asian-Pacific nations, which regularly notched up double- digit growth in the past few years.

New Zealand managed 0.3 per cent real gross domestic product growth in 1990, followed by a decline of 2 per cent in 1991 and then a slow recovery of 2.3 per cent growth in 1992. In 1993 the growth was 4.8 per cent, rising to an estimated 5.4 per cent last year. The forecast is for around 4 per cent in the current year.

Nominal GDP growth is little higher than real growth rates because the government, under the watchful eye of the Reserve Bank, has ensured that inflation has been kept below 2 per cent.

However a growing number of New Zealanders are starting to worry that the lifting of the controls and the much-vaunted globalisation of the economy is creating social - and potential economic - problems. The gap between rich and poor is widening as never before.

The left-wing economist Keith Rankin argues that the most wealthy 10 per cent of the population have made 90 per cent of the income gains from the economic reforms. He says that New Zealand has become one of the most unequal societies in the world. "Three-quarters of our present growth can be attributed simply to people working longer hours for pay at lower real wage rates. The rest can be attributed to additional unpaid labour," he says.

There is also a fear that a lot of the money swelling the economy is "hot money" that will evaporate as quickly as it materialised. Despite the government's ambitions, New Zealand is still basically agricultural. No other country in the world carries advertisements for sheep dip on prime-time television. This reality has yet to be changed, a task that might be considered difficult even by the people who call their country God's own - or "Godzone".