The New Zealand Revolution; L.W. Reed

New Zealanders-known as "Kiwis"-are proud of a long heritage as a British outpost that achieved full autonomy in 1931. In 1950, New Zealand ranked as one of the world's five wealthiest countries, with a rela tively 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, the country took a hard left turn. Lawrence w: Reed, economist and author, is presi dent of the Mackinac Center for Public Policy, a free-market research and educational organization headquartered in Midland, Michigan. by Lawrence W. Reed The next 20 years produced "Kiwi social ism"-a harvest of big government and eco nomic malaise. New Zealanders found them selves increasingly victims of exorbitant tariffs, massive farm subsidies, a huge public debt, chronic budget deficits, rising inflation, a top marginal income tax rate of 66 percent, and a gold-plated welfare system.

The central government in those years became involved in virtually every aspect of economic life. It established its own monop olies in the rail, telecommunications, and electrical 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 statist programs and economic ruin staring them in the face, New Zealand's leaders in 1984 embarked upon what the Organization for Economic Cooperation termed "the most comprehensive economic liberalization pro gram ever undertaken in a developed coun try." All farm subsidies were ended in less than two years. Tariffs were cut by two-thirds almost immediately and have continued to decline. Today, the average New Zealand tariff rate is a mere 3.2 percent-virtually unilateral free trade. In fact, over 90 percent of all imports now enter the country com pletely free of any quota, duty, or other restriction.

Taxes were slashed. The top rate is now 33 percent, half of what it was when the big government crowdwas in charge. The average 264 income tax level isjust 21.5percent. There are no capital gains or real estate taxes at all. Since 1984, the New Zealand government has been engaged in a massive privatization effort, selling off at least 22 state enterprises. Its most dramatic success was the sale of Telecom NZ. Pre-privatization, this state communications firm boasted 26,500employ ees, many of them in do-nothing jobs. Lean, modernized, and in private hands, it now employs 9,300 and faces competition for the first time from such companies as MCI in long distance and Bell South in cellular. The country has not suffered some privately engineered communications nightmare; rather, it has gone from antiquated technol ogyto a 97 percent digital system rated second on the planet by the World Competitiveness Report. Telecom NZ is no longer a drain on the public treasury. It actually pays taxes.

New Zealand's public-sector work force in 1984 stood at 88,000. In 1996, after the most radical downsizing of any government any where, its public-sector work force stood at less than 36,000-a reduction of 59 percent. The Ministry of Transport, when it owned and operated everything from the ports to a national airline, employed 4,500. Its entire staffnow occupies the equivalent of two floors of a typical downtown office building. The country's banking system is thoroughly deregulated. Even foreign banks are now welcome. Americans who have grown accus tomed to the thought that government should guarantee their bank deposits might be shocked to learn that in New Zealand, the central government imposes no deposit insur ance on financial institutions. Instead, banks provide full public disclosure of their financial conditions and secure whatever insurance they need in the open market. Establishing a new business in New Zea land is easy, largely because the few regula265 tions imposed are applied evenly and consis tently. Environmental and safety regulations are sometimes burdensome, but are largely offset by low taxes and a business-friendly policy climate.

What the New Zealanders did to change labor policy was especially striking, if you'll pardon the pun. William Eggers of the Rea son Foundation terms it "the most aggressive and far-reaching labor market deregulation in the world." Compulsory union membership was abolished, as were union monopolies over many labor markets. Stripped of special priv ileges that once allowed them to hold the economy hostage, unions now enjoy a legal status no different from that of any other private, voluntary associations. As the New Zealand ambassador to the United States told a gathering at the Heritage Foundation in Washington, D.C., a few months back, all these dramatic changes have paid off big time in economic dividends. The national budget is balanced, inflation is neg ligible, and economic growth is surging ahead at between 4 percent and 6 percent per year. Eggers reports that after the ports and railwayswere privatized, freight costs plunged as much as 50 percent. That helped to offset the loss of subsidies to farmers, who are now among the most competitive in the world.

Recent elections brought about a change in government once again, but most observers believe the political consensus for free market policies has become too deeply rooted to be easily reversed. Indeed, the only party that openly opposed what New Zealanders call "the revolution" garnered a paltry 12 percent of the vote. There's a powerful lesson here: Big Gov ernment sucks the life out of an economy. Free enterprise can undo the damage. Statists everywhere have much to learn from the New Zealand model. 0 THEFREEMAN IDEAS ON LIBERTY GovernmentSchooling:The Bureaucratizationof the Mind by Thomas E. Lehman I n April 1983, the National Commission on Excellence in Education issued its now infamous report, A Nation at Risk. The Com mission found that American students were experiencing, among other things, a decline in literacy levels, a diminishing level of science and mathematics skills, and a limited knowl edge in the "social sciences" when compared to American students of earlier generations or even to students in other countries. The Commission concluded that serious problems existed in the American system of education.