New Zealand: Cutting Edge Orthodoxy

[mcclintockbrent%faculty%Carthage@xxxxxxxxxxxxxxxx]

Doug Henwood asks of my earlier posting on the adoption of transaction cost
analysis by New Zealand policymakers -- But wasn't this cutting edge
orthodoxy deflationary and unemployment-enhancing? (paraphrased)

I didn't say it was perfect :). What many of the microeconomic reforms based
on transaction-cost analysis did was improve productivity substantially and
enhanced accountability within the public sector. By 1984, I think NZ society
had decided it wasn't going to sanction widespread government failures any
longer (or many failures in the market sector). Like many other economies, NZ
did not require those who received government largesse in the form of import
protection, legislated monopolies, industrial policy to meet performance
requirements. Many of the post-1984 reforms explicitly required such
performance in both the private and public sectors. Looking back on fifty
years of state intervention between the 1930s and 1980s, one could see the
long run costs of poor performance: low growth, increasing fiscal and trade
deficits, in-built inflationary pressures, and a lack of innovation. The
bright spot was full employment -- most had a job, sorry about standard of
living improvements.

Yes, the industry reforms created widespread structural unemployment,
exacerbated by deflationary macro policies that generated cyclical
unemployment. But there have still been significant efficiency gains. GDP is
growing at 4.5%, the budget is in surplus, and the BOP is much improved.
Unemployment is still in double-digits and the income distribution has
widened. Of course a heterodox policy regime would have done things
differently. I would like to think more expansive macro policies, retention
of more resources in the public sector, more activist labor, industrial, and
trade policies, and a more humane welfare system would have enhanced the
adjustment process needed to generate a more sustainable improvement in
Kiwis' standard of living than they have today.

Incidentally, the interesting (read frightening) thing to me about living in
the U.S. in the 1990s is the prospect of "deja vu all over again" -- slowly
Americans have been catching on as did Kiwis in the early 1980s -- great
dissatisfaction with prevailing economic and political systems with all the
nasty possibilities for destabilizing reforms, including the potential
emergence of authoritarian regimes. Beam me up, Scotty!

Cheers, Brent McClintock