Michael Bassett Article Index

22 June 2004

Politicians usually like anniversaries. They are platforms for speeches about nationhood, and a break from the tedium of governing. Reminiscing, eating and drinking provide a brief carnival spirit. This year has seen some important commemorations. The Prime Minister took a number of veterans to Cassino where New Zealanders excelled themselves in battle sixty years ago.

Last week she was in Normandy for a re-enactment of the D Day landings, an event that helped bring Hitler to his knees. But a good old "Made in New Zealand" anniversary looks as though it will pass unnoticed.

I am referring, of course, to the election of David Lange’s ministry on 14 July 1984. That event, and the crisis which followed the election returns, was a revolution of sorts. Under Roger Douglass guidance the country shrugged off excessive debt, regulations, subsidies, rampant inflation and punitive taxes. The economy gradually adjusted to modern world commodity prices. 1984 was a difficult year. The economy was in the most appalling state and the new ministry was staring at a deficit that looked as though it could top $5 billion. But courageous politics turned pain into gain. The current ministry has been basking in its after-glow. To date, however, there is no sign that they intend to mark the 1984 election in the way that we celebrated the anniversary of Michael Joseph Savage¹s victory in 1985. Why?

Because Helen Clark, Margaret Wilson, Jim Anderton, and to a much lesser extent Michael Cullen were key in-house opponents of the Lange-Douglas reforms; they fought most changes for the better. To celebrate now risks turning a spotlight on their activities then, or worse, on their subtle attempts to undo the benefits from those reforms since they came to office.

Let¹s tick off a few of the enduring gains from that 1984-90 government. The change with the biggest impact was floating the New Zealand dollar in March 1985. Our exchange rate had been under heavy pressure since the mid-1970s as we borrowed and ran an inflation rate higher than any of our trading partners. Robert Muldoon fixed the exchange rate, then experimented with what became known as a crawling peg, allowing our dollar to slide. Mounting debt and rampant inflation kept the pressure on. Our dollar bought $1-12 US when Muldoon came to office in 1975. It was buying US 62 cents when he left.

Unemployment had reached 100,000 by 1984. An underlying rate of inflation nearing 20% was masked by a wage-price freeze. Muldoon couldn’t work out how to end it.

New Zealand’s floating dollar began finding its own level. By itself, however, that change plus the removal of interest rate controls wasn’t a silver bullet. Farming subsidies had to go if the deficit was to be reined in, and protection dismantled if manufacturing was to compete successfully in world markets. In 1984 the state-trading sector was operating like a bloated employment agency, masking the true level of unemployment, and paying no regard to the value of the assets invested in it. Restructuring involved staff reductions so that those organisations could pay dividends to long-suffering taxpayers. The Labour Government was generous with redundancy payments. Many New Zealanders relocated into areas where they grew the economy instead of living off it like respectable welfare beneficiaries. Higher productivity followed, and unemployment gradually fell.

The Reserve Bank Act 1989 created a mechanism whereby inflation could be controlled through monetary policy, while the sale of several state assets helped reduce debt. Inflation subsided. By 1993 the country had embarked on more than a decade of growth. New Zealand tailed the OECD field between 1960 and 1990. We have been running slightly ahead of the others for a long time now. Reform was painful for some, and required difficult choices. But in 1987 the country voted for more. Eventually we benefited enormously. With hindsight we can see that 1984 marked a turning point for the better in our economic history.

So there’s plenty to celebrate this July. But don’t wait for this ministry to announce a shindig, let alone any bold new strategies to lift us into the top half of the OECD by 2010. This is a government of spenders, not earners. And it’s run by people who want to forget why they have so much to spend. Some like Jim Sutton, Annette King and Phil Goff know in their hearts they did the right thing supporting reform in the 1980’s. The rest are trying to cultivate amnesia.