The Rogernomics revolution 20 years on

Sunday 11 July 2004

Wednesday is the 20th anniversary of the coming to power of the David Lange-led Labour Government.

By The Landlord

Appropriately, the election was on July 14 - Bastille Day, which marks the French Revolution, and revolutionary it certainly was.

It transformed an economy from what Lange described as operating like a Polish shipyard into one of the most deregulated free market economies the industrialised world has known.

And like Charles Dickens' A Tale of Two Cities novel on the French Revolution, it was the best of times and worst of times. Certainly, it was a ripping ride.

There were booms in everything: shares, takeovers, property, foreign exchange, art, consumer spending. It was the time of the yuppie with BMWs proliferating and more champagne sold per head than in any other country. The booms turned to crashes on a scale not seen since the Great Depression.

The United States was in the grip of Ronald Reagan's free market Reaganomics while Margaret Thatcher was also pursuing Chicago School of Economics' monetarist policies. But neither went as far as New Zealand under Finance Minister Roger Douglas and his National Party successor Ruth Richardson.

It began excitingly on June 14 with a drunken Sir Robert Muldoon calling a snap election, followed a month later with Labour's landslide victory. Then, nine days before Lange took office the country was plunged into a financial and constitutional crisis over devaluation of the currency.

Because Labour had signalled, even possibly deliberately leaked, it would devalue the New Zealand dollar by 20%, there was such a run on the dollar the Reserve Bank had to suspend trading. Muldoon refused Lange's order to devalue until threatened by a mass resignation of the outgoing Cabinet.

There is debate about whether that crisis established the whole path of what followed - financial market deregulation including floating the dollar, a radical reshaping of the tax system including introducing GST, removal of subsides and tax breaks, corporatising Government trading departments followed by a huge privatisation programme, giving the Reserve Bank operational independence and opening the economy up by removing tariffs and so on. The programme of social shake-up was almost as radical and extensive.

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