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Labor in New Zealand

Dr Victor Luca

18-Feb-21, Unpublished

The views expressed here are solely my own and do not express the views or opinions of any organization with which I am associated.

David Lange (prime minister) and Roger Douglas (finance minister) in 1984 presided over a series of economic reforms named after latter. Source: [1]

I first set foot on the path to tertiary education in 1980. It was a time when anyone in New Zealand could afford to go to University without having to incur suffocating debt. I was driven to take this plunge due to natural curiosity, a strong interest in science subjects at school, and the notion that education was inherently a good thing. This notion had been inculcated in me from early youth by my parents and then by our education system. Obtaining a university degree in exact sciences is not generally considered by most to be a cruisy option, but rather a sentence to a few years of hard yakka interspersed with some enjoyment.

In the early 80s our country was undergoing something of a not so quiet revolution that was brought about at the hands of the 4th Labor Government of David Lange (1984-1990). This economic revolution occurred under the helmsmanship of the then economy minister, one Roger Douglas, in a series of reforms that became affectionately known as ‘Rogernomics’. New Zealand’s economic system was converted in almost the bat of an eye from one of the most heavily regulated in the OECD to one of the least regulated.

In the early 80s nearly 40% of farming income came from government. The public deficit was about 10% of National GDP. The double digit inflation of the time was combated by raising interest rates [1].

Farmers were forced to employ more ecological farming methods as a result of the removal of subsidies for agrichemicals.

Subsidized fertilizer had resulted in their careless use. Removal of subsidies resulted in a reduction in use without affecting production. The efficiency of the farming sector increased and there was a general improvement in value chains.

Enhanced preservation of the ecosystem also resulted in increased profits. Only 1% of all farming interests had to close down and the production of the rural sector increased by 40%. Between 1986 and 2006 the primary sector achieved sustained growth of 5.9% per year. A 6% y-o-y growth translates to a doubling time of 12 years.

The public sector was restructured to separate core administrative functions from government-owned production activities. The latter were corporatized, and many privatized. Product markets were deregulated and opened to international competition. Virtually all producer subsidies were abolished. Foreign trade was liberalized. Financial and capital markets were liberalized and foreign investment and immigrants were made welcome. Labor markets were freed up, and workers were given the right to associate freely. In the process, a formerly inward looking, slow-moving economy with rising unemployment was turned into a flexible, globally competitive, high-growth economy with price stability, above-average job creation and small, effective government [2]. Pivotal, even in this reform, was the passing into law of the Employment Contracts Act (ECA) on 15 May 1991.

The pendulum that had got to the end of its left-ward travel in the 70s was to quickly reverse direction and head to the right as we copied the neoliberal policies of England and the United States under Thatcher and Reagan respectively in the 80s and 90s.

Fast forward to the super-efficient New Zealand of today and we find a country with a decent GDP and low levels of inflation and government debt. However, these gains in efficiency as measured through the GDP lens, have come at considerable expense when viewed through other lenses. Our country is now plagued by high wealth disparity, increasing general poverty, the highest rate of youth suicide in the developed world, high crime rate, high rate of family violence, decreasing educational standards and so forth. A severe housing crisis the likes of which we have not seen in our entire nation’s history is set to exacerbate all of these ills. I have written extensively on the causes of this particular crisis and ventured some potential cures. It is a situation where neoliberal market economics has clearly failed abysmally.

As a result of deregulating the labor market we have become a low wage economy with a paltry personal pre-tax median annual income of $34,892 in 2018 according to StatsNZ. This is substantially lower than the Australian median personal annual income of around $49,805 (AUD) for the same year as given by the Australia Bureau of Statistics.

In fact Australian annual personal income is about 42% higher than that in New Zealand.

This low wage economy did not happen by accident. Rather it is my contention that it has been engineered. The move to neoliberal economics that started in the 70s ensured that workers had less bargaining power by diminishing the power of unions and forcing folk to enter into individual contracts with employers. In many ways the excesses of labor unions had provided the social license for their demise.

In addition to weakening of the union movement there is another factor that has been responsible for the diminishing the value of human capital and labor in New Zealand. It is by opening up our labor market to international competition under the guise of a skills shortage. The irony should not be lost on most readers that this devaluation of human labor was initiated by a Labor Government.

How could a small country with a supposedly well-honed secondary and tertiary education system possibly end up with a deficit of skilled labor?

Toward the end of the 80s and into the 90s our tertiary education sector also began to be transformed from one that encouraged broad participation toward one based on elitism and profit making. Roger Douglas and other politicians of the era, who got their educations for nothing, forced subsequent generations to take on student loans to finance their tertiary studies. Unless they had rich parents of course. Today’s education loans in many cases require decades to pay down. Paying back loans in a low a wage economy and in the face of a housing crisis is not easy and this led many of the young people we trained to leave NZ in search of greener pastures. You could even say ‘more sustainable pastures’.

Since young folk these days have essentially paid for their own educations, who can blame them for leaving the country in search of better opportunities, leaving behind a skills vacuum that can only be filled by migrants.

Employers from both the public and private sectors have been quick to jump on this so-called skills shortage and tap into an immense pool of qualified overseas people whose training the NZ tax payer has not contributed to. Many foreign workers from developed countries are prepared to forgo higher salaries for an improved life-style. Those from developing countries that may be struggling come for somewhat higher pay and a better life style and we have played on that.

Unlike in Australia, where to apply for permanent Australian government jobs you have to be an Australian citizen, this is not the case here. For appointment of non-New Zealand citizens to permanent government agency positions all you need is to hold a New Zealand Residency Permit. Basically anyone can get this if you meet certain criteria and the employer can make the case.

To test out the above hypothesis I recently requested under the Official Information Act the visa status of employees of one particular Crown Research Institute.

The results in the table show that of the 396 employees of this particular Research Institute, 197 are NZ citizens while 191 are either residents - presumably to become NZ citizens - or hold working visas. That is, about half of the professional workforce of this organization was not born here.

The other interesting feature of the data I obtained was that in this particular Crown Research Institute over 1/3 of the employees (132 employees) perform ‘other/corporate’ functions. By ‘other/corporate’ I mean mostly administrative functions. In other words, this is a science research agency in which fully 1/3 of the workforce does no science. Although this is a subject for another time, it seems to me that there is something seriously wrong when an institution has such a high administrative burden. Crown Research Institutes are government-owned companies that carry out scientific research for the benefit of the New Zealand citizenry. That is, they are quasi-corporations owned by the people of New Zealand that, as it turns out, employ mostly non-New Zealanders. How good is that?

Furthermore, when one looks into the actual financial machinery of this institution one finds that about 80% of the income actually comes from government.

I have always believed that science is a major contributor to the common good. It is not something done in search of immediate short term profits. Most of the greatest scientific discoveries ever made that have changed humanity in immeasurable ways and improved the lot of ordinary humans have been funded through the public purse. I include here the underpinning research related to development.

However, folk will doubtless make their own judgments as to whether or not something is going wrong when government policy designed to suppress wages and salaries makes it difficult for a citizen to get a job in his/her own country. To me it seems clear that the benefits of this neo-liberal economics have fallen to the few while the detriment has been to the many. The results and the data bear it out. One can only wonder at how we could have been so easily duped when the Australians were not? Maybe they really are smarter than us.


[2] Kasper - Liberating Labour - The NZ employment contracts act. 1995.

[3]How Did New Zealand Become Rich? - VisualPolitik EN 369,806 views, Nov 7, 2017

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