te kunenga ki pūrehuroa varieties of liberalism at the 2008 financial crisis: the case of new...

Te Kunengaki Pūrehuroa

Varieties of liberalism at the2008 financial crisis:

The case of New Zealand

James LockhartCollege of BusinessMassey University


1. 6th generation New Zealander

2. Farming background

3. Have held multiple commercial directorships

4. Leading NZ’s progressive approach to governance• Fonterra• Crown company and entity director training• Rural sector – economic engine room

5. MAgSc (Hons) 1986 -1989; PhD 1995 -1996

6. 12+ years in RNZIR (Territorial Force)

7. Academic with career portfolio

Introduction


1. Historical overview post WWII - Utopia

2. Keynseian Era – Unheralded intervention in 1970s

3. Rogernomics – Conventional liberalism from 1984

4. Social democrats - The wasted decade of 2000s

5. GFC - Impacts

6. Summary and questions

Presentation Outline


1. One of the oldest democracies in the world (1853), with universal right to vote passed in 1893 (first in world)

2. Member of the Commonwealth of Nations

3. In 1952 New Zealand enjoyed the third highest GDP per capita in the world

4. New Zealand’s terms of trade have declined steadily since the 1950s – now resurging (equiv to 1974) boosting exchange rates to 27 year highs

5. Mix of centre left and centre right interventions date to post WWII

6. Pop 4.3m; land mass 268,680 sq km; capital Wellington; maritime climate; first country to have all top posts held by women

Historical Overview


So

uth

Ko

rea

Jap

an

Sp

ain

Gre

ece

Ire

lan

d

Po

rtu

ga

l

Au

stri

a

Italy

Fin

lan

d

No

rwa

y

Tu

rke

y

Lu

xem

bo

urg

Ice

lan

d

Be

lgiu

m

Po

lan

d

Fra

nce

Ne

the

rla

nd

s

Hu

ng

ary

Ch

ile

Sw

ed

en

Au

stra

lia

De

nm

ark

Ca

na

da

Me

xico

Un

ited

Kin

gd

om

Un

ited

Sta

tes

Sw

itze

rla

nd

Ne

w Z

ea

lan

d

0%

1%

2%

3%

4%

5%

6%

Source: The Conference Board Total Economy Database

OECD countries: average GDP per capita growth, 1950-2009

New Zealand’s long-term income growth record


Keynesian Era

1. Keynesian era emerged in late-1960s

2. Peaked in early 1980s – assistance measures, subsidies, price support, fixed exchange rate

3. Policies produced side effects that were only countered by additional measures that produced more side effects

4. Sub-optimal decision making from a national point of view

5. Regular devaluations of currency to correct payments imbalances, triggering inflation (near 20% in 1983)

6. Balance of payments crisis in 1984, coincided with elections


19601962

19641966

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Domestic Purposes Benefit Unemployment Benefit

Human capital and labour supply

Trends in main benefit types as proportion of working age population

Source: Treasury


Rogernomics

1. Government policy in 1984 was to “move to a lower and more even level of policy across all activities in a progressive and predictable manner”

2. Rogernomics, Reaganomics, Thatcherism – started with ‘interventions’ to restore competitiveness of US manufacturing sector

3. Private sector, especially agriculture, was immediately exposed – NZ agriculture suddenly became least supported in OECD – and eventually emerged as most competitive

4. Sticky sectors remained – “cup of tea” (1988)

5. Some resurgence in liberalisation agenda in early 1990s


19951995

19961997

19971998

19991999

20002001

20012002

20032003

20042005

20052006

20072007

20082009

20092010

708090

100110120130140150160170

Tradable sector Total Non-tradable

Real GDP (Mar-2000=100)

Source: NZ Treasury

Tradable and Non-tradable sector growth

Recent real GDP growth trend


Social Democrats

1. Change in government in 1999

2. No real change in fiscal policy from former neoclassical liberalism

• The one significant change compared to the previous PTA is that, with the new words in bold, section 4(c) of the PTA now states: "In pursuing its price stability objective, the Bank shall implement monetary policy in a sustainable, consistent and transparent manner and shall seek to avoid unnecessary instability in output, interest rates and the exchange rate.”

3. But, Government spent all of accumulated current account since 1975 between 2002 – 2008

4. Gap met by non-resident funding, deterioration in net international investment position (1/3 in $NZ; 2/3 in foreign currencies)

5. 2002 Policy Targets Framework enabled Reserve Bank to attempt to manipulate currency June 2007 (@ US76c)


Source: Treasury

Average Cost of social services received by a household in each decile1 2 3 4 5 6 7 8 9 10

Aver

age

$0

$10,000

$20,000

$30,000

$40,000

87/88 97/98 06/07

Equivalised disposable income deciles

Av.

Soc

ial S

ervi

ces

rece

ived

($20

07)

Shift in transfer payments


0.0 0.5 1.0 1.5 2.0 2.5 3.0

PolandTurkeyGreeceMexico

Czech RepublicHungary

Slovak RepublicItaly

KoreaAustriaFrance

SwitzerlandSpain

PortugalGermanyBelgiumSweden

LuxembourgNorway

JapanNetherlands

IrelandFinlandIceland

DenmarkAustralia

New ZealandCanada

United StatesUnited Kingdom

More restrictive

New Zealand’s business environment

Source: OECD

OECD Index of product market regulation 2003


Source: OECD

OECD Index of product market regulation 2008

Greece

Poland

Slovak Republic

Luxembourg

France

Portugal

Italy

Sweden

New Zealand

Finland

Norway

Denmark

Iceland

Canada

United Kingdom

0.0 0.5 1.0 1.5 2.0 2.5 3.0

More re-strictive

New Zealand’s business environment


1995

1995

1996

1996

1997

1998

1998

1999

1999

2000

2001

2001

2002

2002

2003

2003

2004

2005

2005

2006

2006

2007

2008

2008

2009

2009

2010

70

80

90

100

110

120

130

140

150

160

170

Tradable sector Non-tradable less Govt admin & defenceGovernment Admin & Defence

Real GDP (Mar-2000=100)

Source: Treasury

Government, Non-tradable & Tradable Sector Growth

Growth in Government expenditure


Global Financial Crisis

1. NZ ran current account deficits, and strong growth in house and land prices to mid-2007

2. Financial system is bank-dominated through mostly - historically - foreign owned (now Australian) institutions

3. 60 finance companies collapsed, owing more than NZ$848.2m

4. Real estate bubble burst

5. Basel III interventions were promoted

6. Current Government are not convinced about RBNZ’s ability to intervene (@US 82.6c)

7. Introduction of FMRA – succeeding NZSC


Government debt & net foreign asset position, 2008

Australia

Austria

Belgium

Canada

Czech RepublicDenmark

Finland

FranceGermany

Greece

Hungary

Ireland

Italy

Japan

KoreaLuxembourg

Netherlands

New Zealand

Norway Poland

Portugal

Slovak Republic

Spain Sweden

UK

USA

OECD

0

20

40

60

80

100

120

140

160

180

-100 -50 0 50 100

Net foreign asset position (% of GDP, 2008)

Gro

ss g

ove

rnm

ent

deb

t (%

of

GD

P, 2

008)

Source: OECD, IMF, Treasury

Govt debt and net asset position post GFC


Summary

1. Repeated governments and institutions have attempted to shift wealth creation from agriculture sector, without success

2. New Zealanders appear comfortable with ‘big’ government (38.9% GDP), relative to private sector

3. Increased productivity being demanded from public sector

4. Conservative banking environment

5. Finance companies largely gone, SCF

6. New set point in real estate (housing & land), rural and provincial NZ is booming

7. Unemployment is 6.6%, household spending ‘cautious’

8. Easing of credit restrictions

te kunenga ki pūrehuroa varieties of liberalism at the 2008 financial crisis: the case of new...

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