As an Australian, there are two things I have always admired about New Zealand—their remarkable national rugby team and their stunning embrace of free markets. But while their rugby team continues to go from strength to strength, their commitment to economic freedom may soon diminish.
In her first interview as New Zealand’s newly elected prime minister, Jacinda Ardern labeled capitalism a “blatant failure.” But nothing could be further from the truth. Free market reforms transformed New Zealand from a backward, closed economy teetering on bankruptcy into one of the world’s most prosperous. Capitalism has been an extraordinary success in New Zealand, and its legacy is worth defending.
New Zealand is currently the third most economically free nation in the world. But this wasn’t always the case. Back in 1975, New Zealand’s economic freedom score was a mere 5.60—akin to that of Zimbabwe today. Even the fiscal basket case Greece currently has a score of 6.36. The economy was plagued by extreme licensing, protectionist trade policies, and big government spending. There was barely any economic growth for over a decade, which culminated in the near bankruptcy of the country in the early 1980s.
How this translated into everyday life is almost unreal. The socialist governments at the time vehemently believed in controlling nearly every aspect of economic life. As Jamie Whyte, the former leader of a free market party New Zealand, recounts:
The New Zealand economy leading up to these [free market] reforms in 1984 was the most state-controlled economy outside of the communist world. You wouldn’t believe some of the rules. You couldn’t buy margarine without a doctor’s certificate. The reason was to protect the dairy industry.
The economy’s stunning collapse in 1984, the same year as a federal election, precipitated major reforms. The country was teetering on bankruptcy, meaning the incoming party had no money in its coffers to prop up the government-dominated economy. The newly elected government was forced to cut all subsidies and protections to domestic industry, remove exchange rate and capital controls, deregulate government-controlled industries, abolish price controls and interest rate controls, and reduce income and company taxes.
Between 1985 and 1993, New Zealand moved from what had probably been the most protected, regulated, and state-dominated system outside of the communist world to a model free-market economy. In 1994, New Zealand ranked first in the world for government policy designed to develop a competitive business environment. The results could not have been more spectacular.
After years of virtually zero growth, New Zealand’s economy grew by around 5 to 6 percent. Old, failing industries that were propped up by the government, such as agriculture, forestry, and mining, have transformed into some of the most successful in the world today. New Zealand citizens experience an astoundingly better quality of life as a result of free-market capitalism.
As a new era of anti-capitalist populism sweeps across the world, it is important not to forget the foundations upon which our current quality of life has been built. Countries like New Zealand, the third most economically free in the world, should be immensely proud of the free market reforms that have ushered in immense progress. Economic freedom has been the single greatest driver of prosperity, whether in the United States, New Zealand, or the rest of the world, and it is imperative that we continue to defend it.