The Incredible Shrinking State

How New Zealand got up from down under its bureaucracy.

William D. Eggers from the May 1997 issue

(Page 6 of 6)

Despite his denunciations of the ECA, Douglas wouldn't go back to the pre-ECA days. "Compulsory unionism is why the union movement was so weak here," says Douglas. "I'm in favor of voluntary unionism." It turns out that a lot of workers are much better off under the ECA. Unemployment has fallen from around 10 percent to 5.5 percent, and real wages have grown briskly for skilled workers.

Replicating New Zealand

New Zealand's reforms have attracted considerable international attention-it is said that government reform is the country's best tourism draw. The hundreds of government delegations, academics, and policy wonks who converge on New Zealand each year all have the same question: Can the New Zealand model be replicated in my country? That depends.

Already, at least one government-the state government of Victoria in Australia-is aggressively following the New Zealand model, and Great Britain has instituted many of the same reforms. There is considerable interest in New Zealand's state sector reforms from both Rep. Scott Klug of Wisconsin, the GOP's point man on federal privatization, and from the folks at Al Gore's National Performance Review. Some of New Zealand's public sector reforms will almost surely find their way into the federal government and to some states.

But can the New Zealand model be duplicated holistically in the United States? Fat chance, say the experts. "I think it would be impossible to have such a sweeping overhaul in the United States," says UCLA political scientist Susan Lohmann. "There are too many veto players." Not only that, but transforming a country of 3.5 million people is a lot easier than one of 270 million.

"When talking about the changes in New Zealand, we're talking about an enormous range of changes-macroeconomic, labor markets, health, housing, education, social welfare, privatization, public sector reforms-you name it, we probably changed it," says Victoria University professor Jonathon Boston. "I can't imagine that any other society, in the absence of war or pestilence, will seek to re-engineer virtually every significant public institution simultaneously like we did."

At the national level, Lohmann and Boston are probably right. But a smaller government- a state, city, or county-where the executive and legislative branches are controlled by the same party would have at least a fighting chance. And at least one individual believes the New Zealand model can be duplicated.

"Sure, it's doubtful that you could sell a program like New Zealand's to the public in advance," says Roger Douglas. "But it can be done if you're willing to do it and then take the public with you. But in order to win, you have to be willing to lose."

AFTER THE REVOLUTION

On October 12, New Zealand held a general election, the first under a proportional representation system approved by voters in 1993. The new electoral system was endorsed by voters who clearly wanted to reduce the ability of the party in power to make sweeping changes.

National, the incumbent party, received the largest percentage of the vote of any single party. After six weeks of negotiation, National formed a coalition government with New Zealand First, a populist party led by Winston Peters, a former National M.P. Peters is anti-immigrant, anti-free trade, and anti-big business-kind of a cross between Pat Buchanan and Ross Perot-but you can't take his positions too seriously, because they change so often.

Roger Douglas, Richard Prebble, and a few other disenchanted Labour and National party radicals formed their own party, ACT. Quasi-libertarian, its platform calls for educational vouchers, a flat tax, and privatizing social security. ACT squeaked by the 5 percent threshold needed to garner parliamentary representation. Though hardly an impressive showing, it is not terrible for a new party advocating radical reform in a country that has just been through a decade of change. Led by the irrepressible Prebble, ACT's eight parliamentarians will be vocal, though their small numbers mean it will be an uphill battle to have a major influence on government policy.

Thus, a dozen years after New Zealand embarked on the most radical and comprehensive set of government reforms seen in the industrialized world, further market-based reforms are likely to be on hold. What happened?

The probable answer is the simple one: A majority of New Zealanders want a breather from the relentless pace of change. But free market advocates shouldn't be dismayed. While not a resounding vote of confidence, the people clearly did not vote to reverse the reforms. (Alliance, the major party of the left, saw its share of the votes drop from 18 percent to 10 percent.) The New Zealand experience shows above all else just how much can be accomplished in that limited time by determined reformers with vision.