Varieties of liberalism at the 2008 financial crisis: The case of New Zealand

2. Varieties of liberalism at the2008 financial crisis: The case of New Zealand James Lockhart College of Business Massey University

3. Introduction • 6th generation New Zealander • Farming background • Have held multiple commercial directorships • Leading NZ’s progressive approach to governance • Fonterra • Crown company and entity director training • Rural sector – economic engine room • MAgSc (Hons) 1986 -1989; PhD 1995 -1996 • 12+ years in RNZIR (Territorial Force) • Academic with career portfolio

4. Presentation Outline Historical overview post WWII - Utopia Keynseian Era – Unheralded intervention in 1970s Rogernomics – Conventional liberalism from 1984 Social democrats - The wasted decade of 2000s GFC - Impacts Summary and questions

5. Historical Overview • One of the oldest democracies in the world (1853), with universal right to vote passed in 1893 (first in world) • Member of the Commonwealth of Nations • In 1952 New Zealand enjoyed the third highest GDP per capita in the world • New Zealand’s terms of trade have declined steadily since the 1950s – now resurging (equiv to 1974) boosting exchange rates to 27 year highs • Mix of centre left and centre right interventions date to post WWII • Pop 4.3m; land mass 268,680 sq km; capital Wellington; maritime climate; first country to have all top posts held by women

6. New Zealand’s long-term income growth record OECD countries: average GDP per capita growth, 1950-2009 Source: The Conference Board Total Economy Database

7. Keynesian Era Keynesian era emerged in late-1960s Peaked in early 1980s – assistance measures, subsidies, price support, fixed exchange rate Policies produced side effects that were only countered by additional measures that produced more side effects Sub-optimal decision making from a national point of view Regular devaluations of currency to correct payments imbalances, triggering inflation (near 20% in 1983) Balance of payments crisis in 1984, coincided with elections

8. Human capital and labour supply Trends in main benefit types as proportion of working age population Source: Treasury

9. Rogernomics • Government policy in 1984 was to “move to a lower and more even level of policy across all activities in a progressive and predictable manner” • Rogernomics, Reaganomics, Thatcherism – started with ‘interventions’ to restore competitiveness of US manufacturing sector • Private sector, especially agriculture, was immediately exposed – NZ agriculture suddenly became least supported in OECD – and eventually emerged as most competitive • Sticky sectors remained – “cup of tea” (1988) • Some resurgence in liberalisation agenda in early 1990s

10. Recent real GDP growth trend Tradable and Non-tradable sector growth Source: NZ Treasury

11. Social Democrats • Change in government in 1999 • No real change in fiscal policy from former neoclassical liberalism • The one significant change compared to the previous PTA is that, with the new words in bold, section 4(c) of the PTA now states: "In pursuing its price stability objective, the Bank shall implement monetary policy in a sustainable, consistent and transparent manner and shall seek to avoid unnecessary instability in output, interest rates and the exchange rate.” • But, Government spent all of accumulated current account since 1975 between 2002 – 2008 • Gap met by non-resident funding, deterioration in net international investment position (1/3 in $NZ; 2/3 in foreign currencies) • 2002 Policy Targets Framework enabled Reserve Bank to attempt to manipulate currency June 2007 (@ US76c)

12. Shift in transfer payments Average Cost of social services received by a household in each decile Source: Treasury

13. New Zealand’s business environment OECD Index of product market regulation 2003 Source: OECD

14. New Zealand’s business environment OECD Index of product market regulation 2008 Source: OECD

15. Growth in Government expenditure Government, Non-tradable & Tradable Sector Growth Source: Treasury

16. Global Financial Crisis • NZ ran current account deficits, and strong growth in house and land prices to mid-2007 • Financial system is bank-dominated through mostly - historically - foreign owned (now Australian) institutions • 60 finance companies collapsed, owing more than NZ$848.2m • Real estate bubble burst • Basel III interventions were promoted • Current Government are not convinced about RBNZ’s ability to intervene (@US 82.6c) • Introduction of FMRA – succeeding NZSC

17. Govt debt and net asset position post GFC Government debt & net foreign asset position, 2008 180 Japan 160 140 120 Italy Greece 100 Belgium Gross government debt (% of GDP, 2008) Hungary OECD 80 Portugal France Canada Germany USA Spain Austria Netherlands 60 Ireland UK Poland Norway Sweden Denmark Czech Republic 40 Finland New Zealand Korea Slovak Republic 20 Luxembourg Australia 0 - 100 - 50 0 50 100 Net foreign asset position (% of GDP, 2008) Source: OECD, IMF, Treasury

18. Summary • Repeated governments and institutions have attempted to shift wealth creation from agriculture sector, without success • New Zealanders appear comfortable with ‘big’ government (38.9% GDP), relative to private sector • Increased productivity being demanded from public sector • Conservative banking environment • Finance companies largely gone, SCF • New set point in real estate (housing & land), rural and provincial NZ is booming • Unemployment is 6.6%, household spending ‘cautious’ • Easing of credit restrictions