Listener: 26 April, 2012.
Keywords: Growth & Innovation; Macroeconomics & Money;
New Zealand has had two great economic booms – during the Liberal era from about 1895, and from about 1935 while the first Labour Government was in power. In each case, per capita GDP doubled in about a decade; each followed a depression (since I’m not making a political point, the depression-recovery phase is excluded).
I have followed historians’ standard conventions of labelling each period by the incumbent government, but I don’t think the reasons for the boom should be particularly attributed to them.
In the postwar era, with two exceptions, the New Zealand economy grew more slowly than during the earlier booms but at the same rate as other rich economies.
One exception is in the decade after the wool price collapsed in 1966; you don’t have to have a PhD in economics to work out that if the price of your dominant export (as wool was for almost 100 years after 1870) falls 40%, the economy is in trouble. An economic slowdown during the adjustment is virtually inevitable. And so New Zealand got behind the rest of the rich world.
The other exceptional period was the eight years from 1985 to 1993 when the economic policies we call Rogernomics ruled. At the end of the period, per capita GDP was the same level as it had been at the beginning. In those years we got behind the rest of the OECD by a further 15% or so; we have not caught up.
It is easy to attribute the stagnation to the incompetence of the economic management of the era. Unlike many, however, I do not argue all the policy changes were a failure, or that all the failed policy changes – like the privatisation programme – can explain the poor economic performance. But inept economic management by the Rogernomes remains the best explanation we have.
Because I am a scientist – albeit one writing a history – I seek the best alternative explanation against which to test my account. You might have thought that the Rogernomes would be eager to explain why the Rogernomic stagnation was not a result of their policies. They have been silent, ignoring the poor performance on their watch.
Instead they make misleading and non-factual claims like Roderick Deane’s “New Zealand achieved its fastest growth rate ever in the 1990s, post the reforms” (“Out there”, March 17). Without the “ever”, the statement is trivially true. The growth rate during the reforms was zero. We went back to the usual growth rate afterwards.
But Deane seems to making a wider point, for which there is no factual justification. After 1993 the economy did not do better than during the Liberal and Labour booms. It is not even true that the post-Rogernomics economy did markedly better than the National boom from 1949 to 1966 and the late Muldoon boom from 1978 to 1985 (that was associated with high inflation, of course). It grew at about the same rate – perhaps fractionally below.
A curiosity of the statement is that it does not acknowledge that the post-Rogernomics growth boom lasted through to 2007. One cannot avoid the suspicion that the omission is to avoid acknowledging that the Labour-led Government that followed the National Government of the 1990s also had a good growth record. But except for the Rogernomics period, I am not sure the Government had much influence on the growth performance in the medium term. I do think that some things the Clark-Cullen Government did are helping us today.
Their prudent management of government finances – resisting the irresponsible tax-cut rhetoric of the Rogernomes and keeping government debt down – gave the Key-English Government much more room to move when the global financial crisis hit. The sort of superfi cial analysis of the Rogernomes – this time from the other political extreme – is likely to blame the National Government for the current great stagnation.
Whatever the ideological rhetoric unconnected to any facts, the reality is that the entire rich world is in a stagnation phase and we are parallelling it, just as we usually did when it was booming.