A cautionary tale from down under

In the Eighties and Nineties, New Zealand led the world in the zeal of its free market reforms. David Walker, just returned, has a warning for New Labour of the political risks of such radicalism

I have seen the future, and it works, they said, a stream of think- tankers, consultants and MPs who in recent years have returned from New Zealand praising its "revolution in government". In London, red carpets have been unrolled for the likes of former NZ Treasury minister Sir Roger Douglas, powerhouse of the Eighties reforms. But having just returned from Wellington, I am tempted to say: I have seen the past and it doesn't work.

The sheep (much reduced in number) are still grazing the Canterbury Plain, the All Blacks last month worsted the old Aussie enemy and last week they were enjoying the fireworks in downtown Auckland; but politically speaking, New Zealand is an unhappy, edgy country. The economy is stagnant, exports flat. Old worries surface about young Kiwis leaving the country never to return. Television news leads with stories of wheels dropping off planes flown by (under-regulated) privatised airlines. Preparations for electricity privatisation are pulling the country apart - as North and South Islands fight over power supply. Crime is rising: in parts of Auckland youth gangs regularly gather to throw stones at police.

Wherever you go people talk about the "social question" - jobs, youth, provision for the elderly, ethnic disparities. Prime Minister Jim Bolger makes heart-wringing speeches invoking the spirit of community, aka cheap ways of looking after the country's growing numbers of old people. And Sir Roger Douglas has left Labour far behind - he is now a leader of the far-right ACT (Association of Consumers and Taxpayers) party.

It does not feel much like a model. A lot has been made of the way New Zealand contracted-out services and introduced competition into its public sector - it has even gone as far as government ministers entering into contracts with their permanent secretaries to provide them with advice. But there is no hard-and-fast evidence that services are delivered any more efficiently there than elsewhere. On the contrary: if the central measure of the effectiveness of a state is public trust in and appreciation of its government, New Zealand is a case study in failure - levels of mistrust of and outright disdain for government are at an all-time high.

This has nothing to do with sleaze. The recent revelation that a former New Zealand high commissioner had used the polished dining-room table in the Commission to consummate his sexual relations left most Kiwis amused. In fact their country consistently scores near the top of the league for lack of financial corruption.

It has to do with the compact that has to exist between governed and government if the state is to be effective. New Zealand is an object lesson in committing the government of a pluralist and democratic welfare state to theorists and ideological hard-liners from the neo-liberal right wing - as if we in Britain needed one. What they do is destroy public trust in government, which is indeed one of the legacies of the era of Conservative dominance just ended in this country. New Zealand shows how, eventually, radical right-wing government is self-defeating. "Rogernomics", as the New Zealanders christened their version of what the Americans experienced as Reaganism and we as Thatcherism, doesn't work.

Take reform of pensions and arrangements for old age, a subject close to New Labour's heart. This autumn New Zealanders are due to vote in a referendum on a government proposal for compulsory private pensions. Polls say it will be conclusively rejected. One reason is that Kiwis actually trust state provision, especially over the long haul. They don't trust the grand promises of their right-of-centre politicians that private is necessarily better.

Moral for Blairites: make sure the people trust you before putting forward long-term programmes of financial change.

New Zealand is a small country with only 3.5 million people. Unlike Australia it was settled by free men and women. Given its common heritage and parliamentary tradition, it is a place where people ought to trust their government. Yet in the Eighties it experienced an episode of radical top-down institutional reform. But unlike that in the UK, change was powered by a Labour government responding to financial and economic crisis.

On coming to power in 1984 David Lange's administration pushed through a raft of measures breaking decisively with New Zealand's consensual past. Public spending and tariffs were cut, civil servants put on performance contracts, the central bank given operational autonomy, farm supports slashed and the NZ dollar floated. When Labour was replaced by the National Party (hitherto moderate Tories) the revolution continued. Town and country planning as we know it was abolished, social benefits were cut. Privatisation steamed ahead, services were contracted out and a Fiscal Responsibility Act was introduced to bear down permanently on tax and spending. The NZ state now consumes 34 per cent of national product, a figure British Tories still dream of - the British state is still worth around 41 per cent.

For the neo-conservatives what New Zealand did made the country an antipodean paradise. Gurus and government ministers descended on Wellington to hail the simplest of simple propositions - cut government and all your troubles disappear. The great thing about New Zealand was that the ostensible left had also swallowed the medicine.

In retrospect a lot of what happened in New Zealand went with the flow of the Eighties, at least in Britain and the US - the Continentals have so far found the doctrine less appealing. Some of New Zealand's reforms were necessary and inevitable. World economic conditions in the Seventies and Eighties meant that New Zealand would have to do more than produce dairy products, wool, sheep meat and sportsmen; and one way or another it would have had to sort out a public finance mess bequeathed by (National Party) Prime Minister Robert Muldoon.

What was distinctive - and odd - about New Zealand was the doctrinal certitude of the politicians and officials who carried out the changes. Here was a country priding itself on British-style pragmatism surrendering to theory. Here was a broadly tolerant and secular nation getting true religion in a bad way.

There is no denying the political success of the revolutionaries, led by Sir Roger Douglas and staffed by a group of civil servants in the Treasury, with outposts in Business Roundtable and other lobbying organisations. Within a decade the radical right had succeeded in abolishing the New Zealand welfare state - in the face of consistent public support for its principles. Governments changed but the radical right remains in power. It is still a potent presence, now working on proposals to set up toll booths (or their electronic equivalent) on rural roads. "Users ought to pay," they cry, not realising or caring that New Zealand's extensive network of rural roads is what keeps the country in one piece, socially speaking.

The radicals' promise was clear: cut government and the economy would be free to soar, carrying the people into a new heaven of material prosperity where they alone would choose what to spend on their health, social security and so forth. What the revolutionaries did not add was that their version of Reaganomics would make New Zealand a much less equal society and now also a less safe one. They did not care to foresee that the reforms would create a new class of high-rolling consultants and business executives for whom greed was good and some of the most attractive features of a pastoral, egalitarian society would be lost forever.

In the early Nineties, the promise of material prosperity looked as if it were being realised. Economic growth soared as New Zealand adapted to new patterns of trade with Japan and other Asian neighbours. The exchange rate fell, encouraging exports. But now the boom is over and only a true believer would claim the New Zealand economy has been left in permanently fine fettle. Inflation has been brought down; but that is a common or garden achievement these days. The trick is to match low inflation and jobs and growth, and New Zealand has nothing to teach us or anyone else here.

Meanwhile, New Zealand politics and society are in a mess. Anxious about Opposition pledges on proportional representation, Prime Minister Jim Bolger committed the National Party to a referendum on PR; the country said yes and the first elections on the new franchise were held last autumn. The result was a coalition between National and a new party, New Zealand First, a mixture of Maori representatives and "none of the above". Six months on, the coalition is in the dumps, New Zealand First's rating is negligible and polls show voters want yet another referendum, this time to reject PR and restore first past the post.

Kiwis have not lost their stolidity - such volatility needs an explanation. The most obvious is that people feel betrayed by governments that have pushed change too far and too fast. People said to me: we voted Labour in the Eighties and we got right-wing radicalism; we voted conservative in the Nineties and we got right-wing radicalism; something is wrong with the political system.

What the public wants more than anything is a long period of pragmatic administration; no more shocks, no more experiments - but a lot more social spending and a lot less of the cynicism that recently prompted Prime Minister Bolger to say he would rather give $500 to the city mission than his own social welfare department.

Sir Roger Douglas used to argue in the patronising way of Thatcherites that consensus would develop after the hard decisions had delivered growth, prosperity and lower taxes. But there's been little growth lately and even less consensus. The neo-liberals in New Zealand have failed.

People want to recover social solidarity and mutual concern. Tony Blair and colleagues do not have to travel to the other side of the globe to take on the lesson - it was surely one of the principal reasons why people voted for them on May 1.