New Zealand moved from being perhaps the most socialized OECD economy to the freest. The country now has free trade, 0-2 percent inflation, no agricultural subsidies, free labor markets, free capital markets, low marginal tax rates, a reasonable fiscal position, and it conducted substantial privatizations, mostly with success. The reforms started about twenty years ago, but the country is not sweeping the world ...UPDATE: Tyler Cowen posts a response from a Kiwi who maintains that NZ's domestic economy is laden with a regulatory environment that heavily discourages private capital accumulation and investment, including foreign investment.
First, New Zealand without the reforms would have fallen apart and become insolvent; that is the relevant counterfactual. Second, the country is small. The population is just a bit over 4 million; for purposes of comparison the Philadelphia metropolitan area is over six million.
Michael Porter nailed it over ten years ago. New Zealanders have few if any industries [one being electric fencing] where they control market conditions or lead with innovations. For the most part they are at the mercy of world prices and broader conditions. The country's earlier crisis was precipitated in the early 1970s, when the UK ended "imperial preference" for New Zealand agricultural exports. Another shock will come if Australia passes its free trade agreement with the U.S.; New Zealand exports will face a new and tough competitor.
Finally, the brain drain has not gone away ...
22 November 2004
New Zealand's Market Reforms
Tyler Cowen of Marginal Revolution asks Have New Zealand's Market Reforms Failed?
Posted by Joel at 11/22/2004 05:26:00 PM