Up from down under: after a century of socialism, Australia and New Zealand are cutting back government and freeing their economies

National Review, August 29, 1994 by N.R. Evans

ON JULY 4, 1776, the Continental Congress, assembled in Philadelphia, issued the Declaration of Independence, addressed to "the opinions of mankind." Just six years earlier, Lieutenant James Cook had charted the islands of New Zealand and then, sailing westward, discovered the eastern coast of Australia. Reaching the entrance to Torres Strait on August 22, 1770, he "once more hoisted English Coulers, and in the name of His Majesty King George the Third took possession of the whole eastern coast from the latitude of 38 degrees south down to this place by the name of New South Wales."

Australia and New Zealand are, like Canada and the United States, planets spun off from the British Isles, and their settlement was closely bound up with the birth of the United States. But while the U.S. was founded on principles of limited government, from which it only gradually moved away, socialism set the course in Australia and New Zealand early on. Only in the last decade or so have the costs of that course become clear, prompting a series of reforms that have curtailed the government's role in the economies of the two Southwest Pacific countries.

Many of the nineteenth-century settlers in New Zealand and Australia were Chartists or other reformers determined to establish a society free of the faults (as they saw them) of the Britain they had left behind. So New Zealand was, for example, the first country to give women the vote. Socialist ideas gained official endorsement in the antipodes before they did anywhere else in the English-speaking world. In New Zealand before World War I, "socialism without doctrines" became the slogan, and in Australia "state socialism" was explicitly implemented by conservative governments at the state and federal levels. In each country government became the owner (often monopoly owner) and operator of railroads, telephone systems, electricity supply networks, ports and harbors, forests and forestry industries, water supply and sewage systems, primary and secondary schools, hospitals, funeral parlors, butcher shops, fishing boats, gambling facilities, radio and TV networks, airlines, and banks. New Zealand led the world in providing tax-financed pensions for the elderly, the disabled, the unemployed, the widowed, etc.

Australia and New Zealand were able to carry the burden of socialism for so many decades because by the end of the nineteenth century their citizens had the highest per-capita incomes in the world. This prosperity was based on producing commodities--gold, silver, base metals, wool, wheat, frozen meat, dairy products, hides, tallow--for the metropolitan markets, mostly in Britain. But both countries eventually had to deal with the consequences of government ownership, regulation, and income redistribution.

Until the 1960s New Zealanders retained a high position on the world's per-capita-income ladder, despite the government's large role in the economy, and despite a system of socialservice payments that would quickly have bankrupted most societies. It was not until British entry into the European Common Market (which eventually meant the loss of the British market for meat and dairy products) and the oil shocks of the Seventies that the heavy cost of "socialism without doctrines," highly restrictive capital and foreign-exchange controls, and rampant protectionism became manifest to almost everybody in New Zealand. By 1982 New Zealand was the lowest in per-capita income of all the developed nations surveyed by the World Bank. During the Sixties and Seventies, the country saw its best and brightest emigrate in large numbers to Australia and the UK. Inflation increased from 2 per cent in 1965 to 17 per cent in 1982. At the same time, annual balance-of-payments deficits rose from 0 to 13 per cent of GDP.

Australia went down a similar road but not quite as far or as fast. The influence of British socialist ideas on the Australian political elites was apparent in protectionist measures, heavy regulation (particularly labor-market regulation of byzantine complexity), and government ownership and control of many industries. Australia was luckier than New Zealand, benefiting from a series of spectacular oil and mineral discoveries in the 1960s. The exploitation of these new finds of oil, iron ore, aluminum, base metal, uranium, and coal kept Australia prosperous for another two decades. What had been the primary source of Australia's wealth for more than a century, the wool clip, became just another export commodity. Nevertheless, by the end of the Seventies Australia's per-capita income had begun to decline. At first the decline was relative, but during the Eighties it became absolute.

Think Big?

MANY economists, particularly those attached to Buchananite theories of public choice, are deeply suspicious of "great man" theories of political and social change. Human nature is a constant, they believe, and political change can come only as the result of unanticipated or irresistible economic forces. But the story of change in New Zealand is evidence in favor of both the "great man" and the "appalling man" theories. The appalling man was Sir Robert "Piggy" Muldoon, leader of the National Party, who was prime minister and minister of finance from 1975 to 1984.