How New Zealand works

Asked by Mr Hatherley during his recent visit if I could recommend a book about New Zealand’s political history, I quickly decided that I couldn’t think of one that told the whole story, or enough of it. In the end, I passed on to him the three books I picked up most often from my library: WB Sutch’s The Quest for Security, Ranginui Walker’s Struggle Without End and Jane Kelsey’s The New Zealand Experiment. Together, they cover a lot of historical, political and cultural ground, enough to give a fair sense of how the nation’s institutions got to their present state. They are also deeply critical books, which is what makes them still valuable decades after they were written.

In The New Zealand Experiment (1995), Kelsey carried out a forensic examination of the first and most radical phase of our neoliberal revolution. She has now returned to the same topic with The FIRE Economy: an attempt to place the now fragile but still deeply embedded neoliberal project in its wider international context, describe its operation and suggest how it could be dismantled.

FIRE stands for Finance, Insurance and Real Estate, and describes economies that have shifted from a focus on manufacturing to the ever-growing reliance on financial services and debt-fuelled consumption. It’s a term that has been around for many years, and is in some respects a curious choice of both title and theme – after all, the story of financialisation has been told several times. But one of the recurring claims of the book is precisely that this economic model is obsolete, outmoded, staggering towards its next and quite possibly fatal crisis. We are, says Kelsey, quoting Gramsci, in an interregnum: a phase of dearticulation of the old order that preceeds the articulation of the new one. Yet it is essential that we don’t just wait for the crisis to hit us to press for change, if only because if it were to happen in a void of alternatives, it would pave the way for a devastating austerity programme such as was adopted by Ireland or foisted upon Greece.

The main strength of the book lies in how it integrates analysis and description with the call for an effective counter discourse, and for a reorganisation of the social forces that were locked out of the political process in the transition to neoliberalism. The central subject is not really the FIRE economy, but rather the neoliberal system on which the continued survival of FIRE is predicated.

Kelsey is at her most effective when she updates the story she told in The New Zealand Experiment, detailing how the system was embedded within our political, economic and legal institutions. It’s a story that emphasises continuity and an enduring consensus: Reagan built on the work started by Carter at the end of his term in office, while Clinton brought deregulation to its extremes. Blair intensified the financial reforms started by Thatcher. At home, Kelsey notes that

[w]hile the decade of Labour-led government in New Zealand from 1999 softened the raw edges of Rogernomics, the government's modernisation actually served to embed neoliberalism more deeply […].

Similarly, the initial response in the UK and the US to the Great Financial Crisis appeared to signal a change of approach, but those countries ‘deviated from the orthodoxy only long enough to stem its collapse.’

And this is where we are: a post-GFC world in which the transnational financial elites that benefited the most from neoliberalism are still in control of the levers of political power and (de)regulation, but in which the consensus is finally beginning to waver, even within traditional bulwarks such as the World Bank and the IMF, and in which new powers are emerging.

Then, tucked away at the bottom and to the far right, is old New Zealand: a country wallowing in the myth of its rock economy status whilst blissfully playing down the many indicators – beginning with runaway real estate prices and one of the highest levels of household debt in the OECD – that put it at risk of an acute crisis. On top of which, we stubbornly refuse to adopt any of the prudential measures that even the most radical champions of deregulation consider necessary: we remain, Kelsey tells us, the only developed country with no permanent deposit guarantee scheme to protect depositors, and our oversight of investment practices is considered woeful by international standards.

Those who demand that critics come up with an alternative could answer this at least: what is it that compels us to sit at the far extreme of free-market orthodoxy? And what has this orthodoxy ever done for us? Since adopting neoliberalism, New Zealand has become vastly more unequal, lost the majority of its industries, and opened itself to capital flows that were supposed to help create competitive businesses and new jobs, but never did: as it turns out, foreigners with money to spend will rather speculate on our non-productive assets or push up the dollar to take advantage of high-interest term deposits than put themselves at the mercy of our poorly regulated capital markets. Result: thirty years on from the beginning of the New Zealand experiment, the country remains a primary producer with a real estate fixation and rather pathetic delusions of high-flying entrepreneurial grandeur.

It needn’t be like this, and the task of coming up with a broad range of critical responses is more urgent than ever. Kelsey’s model in this respect is both explicit and implicit: explicit, when it points to the areas in which we should focus our work, or reminds us that neoliberalism is an integrated system that cannot be dismantled in piecemeal fashion, but must be regarded as a whole; implicit, when its at times fierce analysis becomes the sharpest of critical tools.

In its best chapters, The FIRE Economy is a handbook of how New Zealand works, and how its reforms were embedded and made democracy-proof through pieces of legislation such as the Reserve Bank of New Zealand Act 1989, the Public Finance Act 1989 or the Fiscal Responsibility Act 1994. These, the most apparently dry and technical pages of the book, are also the most illuminating and useful: by exposing the workings of the state and of its public and private agents, they define a field of political action that is utterly alien to the rhetoric of our elected representatives. But that is where change must be directed, and where politics must return.

Jane Kelsey. The Fire Economy. Wellington: Bridget Williams Books with the New Zealand Law Foundation, 2015. RRP: $50 (print) | $20 (ebook)