Rob’s Revenge: Rebuilding Fortress New Zealand?


The international economy is currently undergoing a bit of turbulence. To put it mildly. Whole sections of the industrialised world have literally stopped functioning, frozen in suspension, in what at least one commentator has described as a financial ‘ice-age.’ Sure, the fiscal and monetary authorities of the world are pumping in cash on a scale that makes 2008 look tame, but no-one yet knows if it will prove effective. We have fallen off the edge of the map. ‘Here Be Dragons’ indeed.

How this affects New Zealand is, naturally, of interest to me. You see, New Zealand is a small, trade-based economy. We export dairy (seriously, we are basically a dairy farm with a country attached), together with meat. This is bolstered by the tourism industry. In return, we import most other items: the abolition of trade protections during the 1980s and 1990s have made us very free-trade orientated, and committed to the notion of Comparative Advantage. That is, we specialise in dairy because we’re good at it, and use the earnings derived therefrom to pay our way.

Or so the theory goes anyway. In practice, New Zealand tends to fund its import consumption via a fair amount of foreign borrowing – we haven’t actually run a Current Account Surplus since the early 1970s.

Now, the immediate response to the 2020 economic crisis – which every Government, including our own, is following – is basically this:

  • Ensure supply chains are maintained. Food and medicine being the key here.
  • Prop up aggregate demand via extensive support. Make sure people in the shutdown sectors still have funds to spend on food and other essential items.
  • Prop up the financial system via a giant injection of liquidity. You really, really don’t want credit to dry up right now.

The biggest question mark is what will happen in the slightly longer term – a question none of us can answer, because we don’t know how severe the coronavirus will actually be. The optimists suggest that so long as the major industries can remain afloat (via government support), they can resume production once the epidemic is back under control. A quick recovery.

To my mind, that might be too much to hope for.

To bring the situation back to New Zealand, I would suggest that even if the coronavirus fizzles out in a month or so, the damage to our tourism industry is permanent. And, as mentioned, tourism is a major component of the New Zealand economy. This leaves agriculture as the only thing we have left.

To keep agricultural production running smoothly in the present circumstances will require war-time levels of oversight. Not least because large sections of the agricultural sector (especially fruit) are themselves reliant on migrant workers… who are suddenly unavailable due to closed borders. It would not surprise me if freshly unemployed tourism staff in Queenstown suddenly find themselves roped into Central Otago orchards.

(Meanwhile, if this crisis drags on, I think a degree of demand management becomes inevitable. New Zealand Supermarkets are currently limiting quantities purchased per person, but a more formal government-mandated rationing system – and price controls – should not be ruled out, depending on how things develop).

So infrastructure and supply chains are paramount… but we also face the possibility that international lockdowns will, over time, start affecting those very supply chains. Moving items around the world requires a complex web of interactions, and, well, those interactions are rather fraught right now. There is an enormous degree of interdependence going on here, and with interdependence comes vulnerability. Aforementioned Comparative Advantage relies on products actually getting through.

And this is where we move from discussing the prospect of a temporary wartime economy – with tight oversight of demand and supply – and towards a wider reconsideration of the current economic paradigm. “Never waste a crisis” goes the saying, and it is hard to see longer-term policy-makers not being influenced by the current predicament. Maybe scarred would be a better term.

Consider, for example, a situation where New Zealand’s impending four week lockdown is incredibly successful. The virus is eliminated within the country by the end of May… but the disease is still raging overseas. New Zealand would then have a functioning economy again, at least in terms of being able to mobilise its full resources… but its major trading partners are not so lucky. Borders remained closed for the foreseeable future. What happens?

Well, at this point, there would undoubtedly be pressure to disentangle New Zealand from its extreme reliance on international markets. It is all very well selling milk powder overseas, but if we have nothing to spend the proceeds on, we are rather stuck. Import substitution, a government willing (and able) to throw around subsidies and controls, extensive demand and supply management… why, we have been here before.

I refer to Fortress New Zealand, the regime of former Prime Minister Robert Muldoon (1975-1984).


Rob Muldoon was not a pleasant man. His autocratic personality, in combination with New Zealand’s constitutional model of Elective Dictatorship, led to, well, abuses. Right-wing populism meets paranoid control-freakery is not a happy combination, especially when combined with blatant bullying. However, Muldoon – for all his faults – was highly intelligent, and in the face of the 1970s economic crises, he acted ruthlessly to try and maintain the social and economic order of the previous forty years – a full-employment-focused interventionist system, accompanied by a generous welfare state. Muldoon was conservative in the classical sense of ‘wanting to conserve’, and the antithesis of neoliberals like Margaret Thatcher.

The twin crises hanging over New Zealand during his tenure were the loss of our hitherto major trading partner (Britain joining the EEC in 1973), and the oil shocks of 1973 and 1979. The former forced us to find alternative markets for our agricultural produce. The latter massively increased the cost of oil, with problems in terms of both import costs and inflation. Muldoon’s response involved car-less days to reduce demand for petrol, massive infrastructure projects like the Clyde Dam to encourage energy independence, subsidisation and protection of local industry, tight foreign exchange controls, and the occasional wage/price freeze. Amongst other things.

Now, Muldoon has traditionally been regarded as a failure. His initiation of a run on the New Zealand dollar after losing an election in July 1984 provided the political impetuous for Rogernomics – the massive economic liberalisation project of the 1980s (which extended, in its radical form, until 1993). More than three decades on, it is the free-market system introduced by Roger Douglas after 1984 that still defines this country’s economic framework, and, dare I say, Douglas has probably exerted more influence on the course of my life than any other politician. For good or ill.

But – courtesy of the economic crisis created by the coronavirus – the ghost of Muldoon might now have the last laugh. The next few years might well see the New Zealand Government returning to hitherto forgotten levels of state economic intervention. After all, if the supply of certain goods gets disrupted due to foreign lockdowns… emergency support for import substitution industries might suddenly look an attractive political option. And even if the immediate crisis is (by great good fortune) resolved quickly at the international level, the sheer trauma might well endure among policy-makers for years to come. The world now knows what happens when the heart of the modern economy stops beating, and just how complex and vulnerable the web of a globalised world is. In such a climate autarky might feel safer the next time a pandemic appears on the horizon.

Maybe after thirty-six years, that old Fortress is about to be rebuilt, in circumstances no-one could have predicted.

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