October 25, 2005
Moving the Modern Socialist Agenda Forward
First, I must mention the Canadian contribution to recent New Zealand politics. In the early 1990s, Sir Roger Douglas, New Zealand’s former finance minister, came back from Canada inspired by the work of the Manitoba Taxpayers Association. He declared to me that he was going to form an Association of Consumers and Taxpayers. He did, and within 12 months it became a political party and won eight seats in Parliament in October, 1996, in the first election that used proportional representation.
I think the contribution made by taxpayer and public policy organizations like the Frontier Centre is an important one. Ideas matter and have consequences.
To put the topic in perspective, I originally joined the New Zealand Labour Party for two reasons. I was interested in politics and I wanted to meet other people who were, too. I joined Labour because it was the party that stood against the abuse of power and against privilege. That’s how I viewed it at the time.
I wasn’t a conservative and I am still not.
The Prime Minister of the time, Sir Robert Muldoon, was a very intelligent man, larger than life, and he ran the country all by himself. He intervened, taxed and bullied his way, and after five years in office many in his own party were very unhappy with his excesses.
Sir Robert had a huge influence on my thinking. I figured out that big government was not necessarily the friend of working people. High inflation and taxes were all consequences of his policies. I eventually learned to understand the dynamic power of the market.
More importantly, a group of key MPs and others in the Labour Party actively debated economic policy. This led to Labour’s renouncing protectionism, and in 1982 Labour MPs supported the National government by introducing legislation for “Closer Economic Relations” with Australia. This was a major free trade agreement. At the time, the Labour left predicted it would cause unemployment for 200,000 people. Now, 20 years after the reforms, New Zealand has the lowest unemployment in the OECD.
Roger Douglas became finance minister in the Labour government elected in 1984 and the rest, as they say, is history.
I regard the evidence that small government is better government as overwhelming, but the proposition remains a hard sell at the polls. Floating voters like to hear about action, and that requires a government program, and that requires taxation. It is only the voters' distaste of taxation that saves us from ever-bigger government, as aspiring politicians have to learn how to promise more government action on less taxation.
This is particularly true of New Zealand, where politicians are held in low regard but where there is a great desire for government intervention in virtually everything. As the joke goes, "New Zealanders hate politicians but love government." It is a ridiculous situation, when one thinks about it, but most of the population does not see the joke. For most of the twentieth century, we had governments which interfered more and more in economic life. In the early 1970s, our economy was the most heavily regulated among Western Nations, and that was under a supposedly right-wing government. The Opposition constantly demanded more action to correct perceived injustice.
The degree of government control was laughable. To protect the dairy industry, at one point margarine was available only by prescription. Imports were tightly controlled to protect local industry. At one stage, to protect the local assembling industry, Japanese televisions were partially disassembled in Japan. Having an import licence for scarce products was like having a licence to print money.
We got away with it because we were primarily an agricultural country. The farming sector was dominated by efficient owner-operators, our bureaucrats were amongst the most honest in the world, and our products sold for good prices internationally. But in the 1970s, our terms of trade moved against us. Governments borrowed to sustain living standards and to defend an artificially high exchange rate. It was all bound to end in tears, and it all came to an end in 1984 when New Zealand ran out of hard currency and our Reserve Bank stopped trading because there was nothing left in the kitty.
This catastrophe happened to coincide with the election of a Labour government, and in high drama the new government sought to avoid default. An International Monetary Fund group prepared to come in and take over the New Zealand economy, but it was never deployed because our incoming Labour government contained considerable talent and the greatest of them all was the Finance Minister, Roger Douglas.
The immediate haemorrhage of capital was stemmed by a sharp devaluation in the New Zealand dollar, and the economy was reformed at breakneck speed to become one of the most free-enterprise economies in the world. All of this was achieved between 1984 and 1988, after which the Prime Minister lost his nerve. It was an achievement that earned Roger Douglas the Hayek Medal for services to freedom and bequeathed New Zealand a flexible economy.
At the time, the incoming Labour government was trying to keep its head above water. But with the benefit of hindsight I can now see that it had a unique opportunity. The old system was clearly broken and Roger Douglas clearly had a vision and a plan. In the face of disastrous failure by the old regime, most people gave him the benefit of the doubt when reform was criticised. Therein lays a paradox: free market reforms are easiest to introduce in times of plenty, but the political initiative for reform exists in times of crisis.
But in politics the phenomenon of unexpected consequences often comes into play. Our flexible economy generated large budget surpluses, which offered the opportunity to have low taxes and a welfare state. But those surpluses created a huge temptation to incoming governments, and some of it has been squandered. Sometimes I think we will go full circle as governments buy votes with interventionist policies until it becomes unsupportable, which creates an opportunity for free-market reform, and the cycle starts again.
And there is the risk of government's creating unfunded liabilities for future generations. In New Zealand, we currently have a situation where there is some hefty competition for the votes of the elderly, all at the expense of the taxpayer. The problem is that the schemes are generally not sustainable in the long term, and the cost of sorting out the mess will be borne by people who are currently children. Children can't vote. The creation of liabilities to be carried by future generations raises constitutional questions, as it represents the ultimate in taxation without representation.
Roger Douglas is the father of enlightened socialism. He and his fellow-travellers in the 4th Labour government dismantled privilege wherever they found it. You name it, they deregulated it, and then they privatized huge parts of the government apparatus.
What is the agenda for the modern socialist? First, we are all socialists. It’s a matter of degree. Most of us agree with public education, public health and adequate retirement income for our retired. These areas, however, are dominated by government policies that are failing. In addition, the increases in government revenue as a result of higher growth are providing a treasure trove of revenue for governments that use the money to get re-elected.
The modern socialist agenda must comprise:
The Frontier Centre for Public Policy
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