Moore and co set the Kiwi economy free
The passing of former Prime Minister Mike Moore is a good time to revisit the legacy of the fourth Labour Government he served in and the quasi-Soviet administration that preceded it.
Sir Robert Muldoon, a World War II veteran, was prime minister from 1975 to 1984, and he believed in the power of the state.
In reaction to our losing access to British markets when our former colonial overlords joined the European Economic Community, as it was then, his government subsidised farmers by offering minimum prices at the farm gate, set the exchange rate and provided interest rate subsidies to the rural sector.
Farmers did well, but the economy continued to slide as they produced to maximise their government cheques rather than the desires of our remaining export markets.
Muldoon was undaunted. He embarked on his Think Big programme, borrowing vast sums of money for infrastructure projects of dubious merit that he partly paid for by printing money.
This generated inflation, which Muldoon tackled by imposing a prices and wages freeze. It succeeded only in destroying jobs, lowering living standards and reducing the amount of capital in the economy.
These controls didn’t reduce interest rates, which he then regulated, driving lenders and borrowers away from banks and towards the legal fraternity, so he regulated the rates at which lawyers could facilitate loans.
At one point he even required car owners to keep their vehicles in the garage one day a week to help reduce fuel imports. Every time an economic problem emerged Muldoon and his Cabinet would design a new law or regulation.
By 1984 New Zealand was, in the words of David Lange, ‘‘being run very similarly to a Polish shipyard’’.
And then it all changed. Not by new government programmes, but by a sweeping away of a vast swathe of the regulatory state.
The wage and price freeze was scrapped, the dollar was floated and agricultural subsidies were dropped.
The top rate of tax was cut from 66 per cent to 33 per cent, tariffs were slashed or abolished, capital controls disappeared and debts to the Think Big projects were written off.
The effect was electric. New Zealanders were free to buy, sell, invest without the dead hand of the Crown sitting on their shoulder.
Our economy roared into life and the benefits of Rogernomics, as the reforms became known, remain with us today.
Contrary to much contemporary thinking, without this painful deregulation New Zealand would have slid further into economic malaise. By 1984 things were so grim the new government considered seeking assistance from the IMF to keep the lights on.
Those who dismiss the reforms imagine Muldoon’s economy as a romantic kibbutz where we all toiled in harmony.
In reality it was a bankrupt and, at times, abusive state using increasing degrees of force to get a diminishing pool of productive workers to maintain enough economic activity to prevent total collapse.
We abandoned socialism in 1984 and become wealthy as a result.
Farmers did not leave the land, they began to produce what their customers wanted.
Workers dismissed from the makework schemes of New Zealand Rail and others did not starve, they went to work for real businesses that were selling things people wanted to buy. Freed from capital controls, business owners were able to borrow and invest to increase capacity.
Mike Moore became a minister in Lange’s Government 36 years ago. The lessons of that administration have been lost. Neither major party believes in economic freedom any more.
They are both committed to using the power of the state to pursue their own agendas. Like Muldoon, they think that they can regulate and legislate to make New Zealand look and act the way they believe we should.
When the next economic crisis hits the instincts of both major parties will be to reach for Muldoon’s regulatory handbook, rather than the liberalising one left to us by Moore and his comrades.
As Moore said, when head of the World Trade Organisation: ‘‘The freer the people, the higher their living standards, the better their labour and environmental conditions. The more closed the economy, the more corrupt the practices.’’
It is a lesson we seem destined to have to learn again.
The benefits of Rogernomics, as the reforms became known, remain with us today.