NEW ZEALAND'S ECONOMIC POLICY 1984-1988

THE EFFECTIVENESS OF NEW ZEALAND'S ECONOMIC POLICY 1984-1988

This research examines the effectiveness of the economic policy of the government of New Zealand during the 1984-1988 time period. Labour Party dominance has been traditional in New Zealand, although a National Party (conservative) government ruled from 1975 to 1984. The government in power in the 1984-1988 period was a Labour Party government headed by Prime Minister David Lange (of Scottish heritage, with a name given the Scottish pronunciation of Long-ee). The Minister of Finance during the second-half of the 1984-1988 period was Roger Douglas, a major player in the economic events of the day.

The New Zealand economy has traditionally been characterized by predominantly private sector ownership and operation. Nevertheless, government through the late-1980s had participated in some major industries, and government through that time had regulated economic activity to a somewhat greater degree than was true in many other market economy countries.

The New Zealand economy functioned relatively well under this system prior to 1974. In 1973, the United Kingdom became a member of the European Economic Community, and that action spelled economic trouble for New Zealand. Prior to 1974, New Zealand products enjoyed a protected status and guaranteed access to the British market. Trade with Britain and Australia provided almost the entire basis for the New Zealand economy. Subsequent to 1974, however, New Zealand prod

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outcomes unbelievably high interest rates, raging unemployment, massive budget deficits, and a shrinking gross national product that caused the country's earlier economic problems to pale in comparison. It was not long before the whole country was saying that Roger Douglas had gone too far with his privatization and deregulation scheme. In addition to its high interest rate policy, the Lange government pursued a goal of controlling inflation through monetary policy. The tight money that resulted further exacerbated New Zealand's economic miseries. The value of the New Zealand dollar in international currency exchange plummeted. This action caused imports to increase in price, and, as imports are an important segment of the New Zealand economy, the pricier imports further exacerbated inflationary tendencies placed in the economy by the government's economic policies. Increased prices for necessary imports, coupled with lower prices for New Zealand's exports (the outcome in each instance of the decline in the international currency exchange value of the New Zealand dollar) caused New Zealand's payment balance to slip into serious deficit. In turn, New Zealand's international reserves decreased substantially. One result of thi

Category: Economics - N