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Nueva Zelanda - El American

New Zealand Still Thriving 40 Years After Free Market Reforms

New Zealand scores the very top position–#1 in the world for both “starting a business” and the “ease of doing business

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For producing both material goods and personal fulfillment, freedom makes all the difference in the world. One country that proved that convincingly in the last 40 years is New Zealand. It’s a model from which nations the world over can learn a great deal.

Situated in the South Pacific midway between the equator and the South Pole, New Zealand is just two-thirds the size of California. Its 4.7 million inhabitants live on two main islands and a scattering of tiny ones.

In 1950, New Zealand ranked as one of the ten wealthiest countries on the planet, with a relatively free economy and strong protections for enterprise and property. Then, under the growing influence of welfare state ideas that were blossoming in Britain, the United States and most of the Western world as well, the country took a hard turn toward government control of economic life.

The next twenty years produced a harvest of big government and stagnation. Increasingly, New Zealanders found themselves victims of exorbitant tariffs, massive farm subsidies, a huge public debt, chronic budget deficits, rising inflation, costly labor strife, a top marginal income tax rate of 66 percent, and a gold-plated welfare system.

The central government in those years established its own monopolies in the rail, telecommunications, and electric power businesses. About the only things that grew during the period from 1975 to 1983 were unemployment, taxes, and government spending.

With an endless roster of failed government programs and economic ruin staring them in the face, New Zealand’s leaders in 1984 embarked upon one of the most comprehensive economic liberalization programs ever undertaken in a developed country.

All farm subsidies were ended in less than two years. Tariffs were cut by two-thirds almost immediately (today the average tariff is just 1.4 percent). Most imports enter the country completely free—or very nearly so—of any quota, duty, or other restriction.

Taxes were slashed. The top rate was cut to 33 percent, half of what it was when the big government crowd was in charge.

From the mid-1980s into the 1990s, the New Zealand government sold off dozens of money-losing government enterprises. The government work force in 1984 stood at 88,000. In 1996, after the most radical downsizing of any government anywhere in recent memory, its public sector work force stood at less than 36,000—a reduction of 59 percent.

Establishing a new business in New Zealand was made quick and easy, largely because the regulations that were not abolished were finally applied evenly and consistently. At the same time, compulsory union membership was abolished, as were union monopolies over various labor markets.

The dramatic changes paid handsome dividends. The national budget was balanced, inflation plummeted to negligible rates, and economic growth surged ahead at between 4 percent and 6 percent annually for years.

New Zealand’s national government bobs back and forth between the major political parties but the reforms of nearly four decades ago have remained largely intact. By some important indexes, the country is in a remarkable and enviable position. Consider the following:

Both the Fraser Institute’s Economic Freedom of the World Index and The Heritage Foundation’s Index of Economic Freedom rank the country as the third freest economy in the world, producing “steady GDP growth” as one result.

The Heritage Foundation’s Index reveals in its analysis of New Zealand that “Subsidies are the lowest among OECD countries, and this has spurred the development of a vibrant and diversified agricultural sector.” It also points out that “There are very few limitations on investment activity, and foreign investment has been actively encouraged.” The top personal income tax rate, at 33 percent, is right where it was when it was slashed in half nearly 40 years ago. 

The Fraser Institute also ranks countries in terms of overall Human Freedom and, separately, in terms of Personal Freedom; New Zealand comes in at #1 and #4, respectively.

Freedom House’s global tally of political rights and civil liberties gives New Zealand a score of 97 out of 100, placing the country in its top category for freedom.

Reporters Without Borders rates nations according to how much freedom of the press they allow. In its latest ranking, RTB puts New Zealand at #9 in the world. Only eight countries possess greater press freedoms.

The World Bank produces an annual Doing Business Index that measures the burden of government regulations on entrepreneurs. New Zealand scores the very top position–#1 in the world for both “starting a business” and the “ease of doing business.” To open a business in the average country elsewhere in the world takes three to four times longer than it does in New Zealand.

Transparency International rates the world based on how corrupt each country’s public sector is perceived to be by experts and business executives. Once again, New Zealand is #1.

With all this freedom, by one measure or another, a socialist might expect New Zealand to be among the poorer countries of the world. But it isn’t, as anyone who understands economics and human nature would predict. The International Monetary Fund reports that GDP per capita in the land of the Kiwis is the 22nd highest in the world, way above where it stood in the early 1980s.

Here in the Americas, we have the example of Venezuela at the opposite end of the spectrum—almost dead last in every measure of freedom. The result? All the hot air from politicians there about “We will help people” has come to nothing but despair, misery, hunger, impoverishment and tyranny. The one-way human traffic speaks volumes.

What’s the big-picture lesson here? Montesquieu, the French Enlightenment thinker, summed it up in 1748: “Countries are well cultivated, not as they are fertile, but as they are free.”

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