For producing material goods and personal fulfillment, freedom makes all the difference. One country that proved that convincingly is New Zealand. It’s a model from which nations the world over can learn a great deal.
In 1950, New Zealand ranked as one of the 10 wealthiest countries on the planet, with a relatively free economy and strong protections for enterprise and property. Then, under the growing influence of socialist and welfare state ideas, the country took a hard turn toward government control of economic life.
The next 20 years produced a harvest of big government and stagnation. Increasingly, New Zealanders found themselves victims of exorbitant tariffs, massive farm subsidies, a huge public debt, chronic budget deficits, rising inflation, costly labor strife, a top marginal income tax rate of 66 percent and a gold-plated welfare system.
About the only things that grew during the period from 1975 to 1983 were unemployment, taxes and government spending.
With an endless roster of failed government programs and economic ruin staring them in the face, New Zealand’s leaders in 1984 embarked upon one of the most comprehensive economic liberalization programs ever undertaken in a developed country.
All farm subsidies ended in less than two years. Tariffs were cut by two-thirds almost immediately. Taxes were slashed. The top rate was cut to 33 percent, half of what it was when the big government crowd was in charge.
From the mid-1980s into the 1990s, the New Zealand government sold off dozens of money-losing government enterprises. The government workforce in 1984 stood at 88,000. In 1996, after the most radical downsizing of any government anywhere in recent memory, its public sector workforce stood at less than 36,000 — a reduction of 59 percent.
The dramatic changes paid handsome dividends. The national budget was balanced, inflation plummeted to negligible rates, and economic growth surged ahead at between 3 percent and 5 percent annually for years.
The reforms of nearly four decades ago have remained largely intact. Both the Fraser Institute’s Economic Freedom of the World Index and The Heritage Foundation’s Index of Economic Freedom currently rank the country as the third freest economy in the world.
The top personal income tax rate, at 33 percent, is right where it was when it was slashed in half nearly 40 years ago.
The World Bank produces an annual Doing Business Index that measures the burden of government regulations on entrepreneurs. New Zealand scores the very top position — #1 in the world for both “starting a business” and the “ease of doing business.” To open a business in the average country takes three to four times longer than it does in New Zealand.
With all this freedom, a socialist might expect New Zealand to be among the poorer countries of the world. But it isn’t, as anyone who understands economics and human nature would predict. The International Monetary Fund reports that GDP per capita in the land of the Kiwis is the 22nd highest in the world.
What’s the big-picture lesson here? Montesquieu, the French Enlightenment thinker, summed it up in 1748: “Countries are well cultivated, not as they are fertile, but as they are free.”
Lawrence W. Reed, a resident of Newnan, is president emeritus of the Foundation for Economic Education. His most recent book is “Was Jesus a Socialist?” He can be reached at firstname.lastname@example.org.