Back in the early 19th century the German philosopher Georg Wilhelm Friedrich Hegel elegantly touched on the idea that human beings are doomed to repeat past mistakes: “What experience and history teach is this — that people and governments never have learned anything from history."
Let’s hope Hegel is wrong this time because any attempt to repair the economic damage wrought by Covid 19 crisis by repeating past mistakes will be catastrophic for New Zealand.
Let me explain.
In 1973, New Zealand suffered two major economic blows: the loss of our primary purchaser when Britain joined what is now known as the European Union; and an oil embargo that saw oil prices rise nearly 400 percent. The combined impact of these events devastated the New Zealand economy, and while the oil crisis eventually passed, the effects of the loss of the British export market stayed with us for well over a decade.
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It's how New Zealand handled these crises from which we can draw a sobering lesson.
In 1975, still reeling from economic disarray, the country elected a National Government with Robert Muldoon as its leader. Don’t be fooled by the party colours: Muldoon was a socialist in every sense of that word. His various reforms would have made Stalin and Lenin proud, and he behaved in a way which was eerily reminiscent of the behaviour we’ve come to expect of the Ardern Government. Muldoon's reforms all started from the premise that the Government could, and should, control the nation's economic recovery. He banned people from driving on certain days, passed laws to prevent prices and rents from increasing, heavily subsidised industries and sectors at the taxpayer's expense, borrowed massively to support the economy, created enormous heavy industry projects that were supposed to save the country, and regulated large sections of the economy.
The result? The economic situation got progressively worse and, by the time he was chucked out of office in 1984, our national debt had skyrocketed and the country was technically bankrupt.
The change in our fortunes came with the election of a Labour Government which implemented the economic reforms of Roger Douglas – now known as "Rogernomics". In the same way that Muldoon was a socialist hiding out in a conservative party, Douglas was a free market reformer within a party to which his ideas would normally have been anathema. Thank goodness that wasn’t the case in 1984 because, in a very real sense, Douglas saved our nation.
With the support of Labour Prime Minister David Lange, Douglas floated the dollar, lowered (and flattened) taxes, reformed and/or sold off inefficient State-owned businesses, removed subsidies, encouraged competition, removed regulation, and created an environment in which innovation flourished. Central to his reforms was the idea that private individuals, not the Government, knew best how to build successful business and create jobs.
Market reforms brought in by Labour Finance Minister Roger Douglas in the 1980s were a break huge break from Muldoon years. Photo / Getty Images
He was right, and although successive Governments have rolled back some of his reforms in ways that we are the worse for, we are still a far better country today than we would have been if Douglas hadn’t come along when he did.
And therein lies the lesson for us right now. As we move to try and rebuild our economy as quickly as possible – we ignore Douglas and his reforms at our peril because the choices in front of us are stark.
At one end of the spectrum we could embark on a period of state control in which the Government seeks to direct economic recovery; imposes new supposedly well-meaning regulation; increases taxes; sets up committees, taskforces, and working groups to talk to themselves; tries to pick winners; props up industries and sectors; massively expands welfarism and borrows excessively to underwrite low quality spending in the interests of "keeping the country working".
At the other end of the spectrum we could use the opportunity presented by Covid to help us to emerge from the crisis even stronger than we were before. To do that would require a clear strategy, but here are some suggestions to get that process started:
1. Lower taxes
Instead of funding corporate welfare, reduce, or even remove, company taxes for a set period of time. The incentive created will spark a period of economic growth unseen in our history.
2. Remove regulation
We should reduce, or even remove, all but the most essential aspects of compliance legislation and regulation for a set period of time. Yes, a few will abuse the privilege, but the vast majority of businesses will exercise common sense while thriving in the new environment. Meanwhile, the sky won’t collapse.
3. Relax the rules for foreign investment
Foreign investment will create jobs, assist expansion and fund innovation. This is no time for xenophobia.
4. Kick start free trade
The dark clouds of economic nationalism (the economic bedfellow of Nazism) are already gathering. We need to firmly reject these murmurings and get international trade re-started as quickly as possible, including opening new markets which didn’t previously exist.
5. Reject universalism
Welfare should be for those who are most vulnerable and need it most. The rest of us just need to be left alone to get on with it.
6. Focus on infrastructure
The Government needs to stay well clear of meddling in economic activity, other than to invest in infrastructure projects for which there is a clear economic case.
7. Have a plan for debt reduction
The Government should be able to demonstrate a trajectory and timeframe for getting net debt back under 20 percent of GDP as soon as possible.
These aren’t the only solutions – but the philosophy behind them is the key to fixing our nation quickly.
Forget the virtue signalling and the cult of personality. Focus on the party which will deliver on this tried and proven formula for recovery from our recent past.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
