March 1, 2011
For us in Ireland, the example of New Zealand should give us cause for hope, because it reveals that a new government with a fresh mandate can reverse the decline
In a crisis, some countries choose to survive and others don’t. If you are prepared to act boldly, you can turn things around. History is full of such examples. In the 1950s, both Uruguay and New Zealand were among the richest countries in the world. Both went into decline as agricultural markets in Europe shut down to them. Both have survived. Compared to other countries in Latin America, the Uruguayans have performed extremely well and their default on their national debt in 2002 did nothing to affect that performance.
But of the two, the turnabout in New Zealand has been the most dramatic. For us in Ireland, the example of New Zealand should give us cause for hope because it reveals that a new government with a fresh mandate can reverse the decline. Not only did the Kiwis dust themselves down and turn their fortunes around, but they did it in the traditional way. While they deregulated, education didn’t suffer. While they stripped down their health system to rebuild it, the provision of healthcare didn’t suffer.
The Kiwis didn’t just change how their public service operated, they changed their laws. Can you imagine Ireland introducing something as logical as a ‘no fault’-based compensation system for personal injury? So if you fall down and break your leg, you get a fixed compensation and you can’t sue anyone for more than that. This seems completely logical and maybe that’s what clear thinking government, unencumbered by vested interests, gets you.
Today, for example, did you know that the average child in secondary school in New Zealand has a mathematical achievement standard that is twice as high as the average child in school in Ireland?
Yes twice as high. In New Zealand, according to a study from Stanford University, 16 per cent of 16-year-olds are performing at an ‘‘advanced level of maths proficiency’’. In Ireland the corresponding figure is 7.9 per cent.
The reason this is important is because it matters to potential job recruiters. We talk about the ‘‘smart economy’’ and have given over much discussion to our corporate tax rate, yet the key to investment is the people not the tax rate and if your people are not as qualified as their counterparts abroad, we become less and less attractive, irrespective of the tax rate.
So how did the Kiwis do it? And could our new government do something similar? In the late 1980s,New Zealand was devastated by the collapse of its main industry – agriculture – its public sector was grossly inefficient and expensive, it suffered persistent fiscal deficits and successive regimes valued mediocre stability over ambitious innovation. In the 1970s, New Zealand had lost access to its traditional food market in Britain after that country joined the EEC. This meant that exports of agricultural products were not producing the returns they had for previous generations. Couple this with the global slowdown from the oil crisis and by the start of the 1980s New Zealand found itself in dire economic straits.
The New Zealand economic model had been one of protectionism, tight regulation of many industries and state support for indigenous industries. What we would now call ‘big government’.
By the time the 1984 election came, the writing was on the wall for the incoming Labour government. Luckily for New Zealand, they had Roger Douglas as finance minister, who had clear ideas on reform. He devalued the currency by 20 per cent. He deregulated many industries.
He set about changing the way the government of New Zealand worked.
He said that he had to work fast in implementing his policies, because if he slowed down, interest groups would have time to get in the way of his reforms. His big message was that the interest groups needed to be smashed if New Zealand was to survive and thrive. Sound familiar?
In 1990, the incoming National Party government of James Brendan Bolger, the son of immigrants from Gorey, faced exactly what Enda Kenny will face today: a banking crisis. The largest bank in New Zealand needed to be bailed out after Australian mortgage loans went bad.
Bolger injected capital into the bank only after forcing the bank and its bondholders and shareholders to take losses.
He also had an exit strategy, which was to sell it to a bigger Australian bank and to get it off the New Zealand books as quickly as possible. Two years later it was sold for a profit to National Australia Bank.
The New Zealand approach of completely changing the health and education services, forcing all public servants to take individual contracts to reduce collective bargaining and removing the ban on firing public servants might not be exactly what is needed here, but it does suggest that it can be done.
The most interesting thing about New Zealand is that someone with a new political mandate decided that change had to come. This is desperately needed here.
Ireland is at that tipping point. We can go on pretending that everything is all right, that everything will work out, or we can face the unpalatable reality and admit that we are on the wrong road. If we do not change, we are going to lose a lot more than billions of euro on the banking system. We are going to lose our sovereignty.
Bolger and the other Kiwis realised that they had to have a credible plan to balance the books. The second thing they realised was that it was not the government’s job to pick industrial winners.
Bolger removed subsidies on industries (especially agriculture).He said that the government should not choose which industries should survive while allowing others to fail. He stated that government subsidies were a function of influence/ lobbying of government by powerful industries.
He would never have believed in the ongoing corporate welfare that has been extended to our banks. In New Zealand, they fixed the banks quickly and then sold them on for a profit.
Today, New Zealand is a rich country. The health service is cited by many as an exemplar, both in terms of the system itself and the way in which it is funded. We can see from the figures that its education service is in the top 2 per cent in the world, while ours is falling back.
However, as we arrive at the point of no return, the New Zealand case is interesting because it shows that the lead has to come from politics.
Now that we have a new government, we have a new opportunity. Our only hope is that this new government seizes the opportunity and, although we know it will be nasty for the next year or two, it has our support. Go for it.