The failure of the New Zealand more-market economic revolution of 1984-91 to, literally, ‘deliver the goods’ (increase economic growth and raise living standards) is by now manifest. Macroeconomic performance in nearly all measurable dimensions – GDP and productivity growth, unemployment, income distribution, balance of payments – has been worse than in the previous period in NZ and than in Australia since 1984.
After five years of continuously declining real GDP growth, the economy slipped into negative growth in 1999, dragged down by a stagnant export sector, despite a low and falling exchange rate. Inflation performance has been good, but so it has too in most other OECD economies which did not reform their monetary policy. The government has had striking success in paying off public sector debt and moving the fiscal position into surplus, but this would have been much less painfully achieved had there been a tax dividend from a higher rate of economic growth. All this is puzzling to the point of paradox. How could a revolution made in the name of efficiency end up apparently reducing aggregate efficiency, as measured by economic growth? How could labour market reforms aimed at increasing flexibility result in higher unemployment and lower productivity? How could opening up financial markets result in less investment and a stagnant share market? How could deregulation result in less competition? How could liberalising the trading environment apparently constrain the growth of the tradeables sector? How could the share of government expenditure in GDP increase under an anti-public sector regime? How could ‘more markets’ come to mean, more than anything, more managers?
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Agency Theory meets Social Capital: The Failure of the New Zealand Economic Revolution of 1984-91
