Anthony J. Pennings, PhD

WRITINGS ON DIGITAL STRATEGIES, ICT ECONOMICS, AND GLOBAL COMMUNICATIONS

THE EXPERIMENT, Part I: NEW ZEALAND AS THE WORLD MODEL FOR DIGITAL MONETARISM

Posted on | February 11, 2018 | No Comments


Starting “Down Under”
One of the first “guinea pigs” for the new system of digital monetarism was New Zealand. A one time a leader in the development of the “welfare state,” the small two-island nation-state in the deep Pacific Ocean had run into economic problems by the early 1980s. It had borrowed heavily during the previous decade, and its agricultural products were increasingly excluded from the rich United Kingdom markets due to their increasing participation in the European Community. New Zealand’s attempts to industrialize also ran up against rapidly escalating inflation, especially oil costs. The economy struggled, and a financial crisis ensued that would turn the tide of the country.[2]

In 1984, a new Labour government was voted in under Prime Minister David Lange. It was also a time when an active environmentalist and pacifist movement was growing in the small country. Subsequently, the new government voted to restrict nuclear vessels from coming into their ports. The decision represented a major diplomatic problem as the country was party to the ANZUS Treaty. This treaty brought the nation along with Australia under the defensive protection of the United States. As US policy was never to confirm nor deny the existence of nuclear weapons on any of its ships, it effectively meant that no US ships could port in New Zealand.

Consequently, Reagan’s Secretary of State George Shultz traveled deep into the Pacific to meet with the leaders of the new Labour Government. Shultz had been Ronald Reagan’s first Secretary of the Treasury and one of the architects of the Reagan economic changes. The contents of the meeting are sketchy, but the result was that New Zealand could keep its non-nuclear status but needed to undergo major economic restructuring in line with what was going on in the US and in Britain under Margaret Thatcher.

Under the direction of New Zealand’s Treasury and Ministry of Finance, a new strategy for the country was developed. Their Economic Management (1984) report contained the seeds of their intended transformation from a “Welfare State” to a new kind of “Enterprise Society” lubricated by digital financial activities. The new government instituted radical reform measures to cut government spending, implement a neo-liberal regulatory regime, “reinvent” civil service and privatize many government organizations, including the Post Office. The intention was to monetarize the national political economy in conjunction with emerging global financial and trade practices.

“Rogernomics” as it came to be called, was a strategy for reviving the sluggish and debt-ridden economy by refocusing on private exchanges or what are aggregately called “markets.” Named after Labour’s Minister of Finance, Roger Douglas, the national program offered a host of measures designed to dismantle its welfare apparatus. Drawing on its strong export trade of animal and natural resource products and, New Zealand attempted to provide its citizens with free education, healthcare, unemployment insurance, and social security. The new Labour-led government would focus instead on cutting fiscal expenditures, streamline bureaucracy, sell off state assets, as well as liberalize trade and control inflation.

In 1985, the Labour Party government launched a review of the Post Office. Its final report recommended transforming the postal service into three state-owned enterprises. The government in 1986 passed through parliament the State-Owned Enterprises Act that corporatized several government agencies into state-owned enterprises (SOE).

The New Zealand Post Office’s corporatization was completed with the 1987 passage of the Postal Services Act. Along with the SOE Act, the legislation broke up the New Zealand Post Office into three corporations: the postal service New Zealand Post Limited, the savings bank Post Office Bank Limited, and the telecommunications company Telecom New Zealand Limited. Within a few years, PostBank and Telecom were privatized, and only New Zealand Post remained a state-owned enterprise. [3]

Central to the new strategy was the deregulation and privatization of the telecommunications sector. Previously, the sector was under the purview of the New Zealand Post Office (along with the national bank system) and operated like a traditional PTT. But under this new system, the telecommunications company was first valued and corporatized as a state-owned enterprise (SOE) and then sold off.

Throughout the world, the telecommunication infrastructure would be the regime of digital monetarism’s first target. The reason was twofold. First, telecommunications was identified as the main conduit for both domestic and transnational business. Digital monetarism needed the fluid movement of information and electronic money within and through national borders. The national telecommunications system, while mainly bureaucratic and voice-based, still presented the best opportunity to create a modernized data communications system. The second reason was that, because of the high level of investment needed for a modern telecommunications, a privatized “telco” would be a major listing on a domestic stockmarket and was a high priority for investment bankers.

Telecommunications companies became almost universally the largest companies by market capitalization (current share price times the number of shares sold) by the end of millennium. After a period of deregulation and modernization, New Zealand sold its Telecom SOE government to Bell Atlantic and Ameritech, two American “Baby Bells”. It also partially floated its shares on public stock markets and soon became the largest listing on the New Zealand Sharemarket. When the selloff occurred in 1989, it was announced with the expectation that it would retire 1/3 of the government debt.

The experiment was a move towards a newly liberalized market economy centered around digital financial transactions and telecommunications. It was led ideological by attacks on the Keynesian system of economic management but was driven by the global debt crisis of the 1980s. New monetary liquidity emerged after Nixon dismantled the Bretton Woods system of currency regulation and technological innovations were once again applied for financial gain. Companies like Reuters developed new computerized systems for currency trading and global news and a global “information standard” emerged that replaced the gold standard as the system for ordering the global economy.

Notes

[1] Herb Schiller quoted in his son ’s book, Digital Capitalism, p. 71.
[2] Britain had resisted joining the EEC because of its existing trading obligations with the Commonwealth, primarily former colonies including New Zealand. Also continental interests, primarily France, were suspicious of the British ties to the US. But as the post-WWII economic boom continued in Europe, it became too attractive and on January 1, 1973 Britain was admitted into the EEC. France agreed, partly because it represented a balance to Germany’s power.
[3] Patrick G. McCabe, (1994) “New Zealand: The Unique Experiment in Deregulation,” in Telecommunications in the Pacific Basin: An Evolutionary Approach. Edited by Eli Noam, Seisuke Komatsukzuki, and Douglas A. Conn. New York: Oxford University Press. Originally presented at the Pacific Telecommunications Conference.

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AnthonybwAnthony J. Pennings, PhD is Professor and Associate Chair of the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

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    Professor and Associate Chair at State University of New York (SUNY) Korea. Recently taught at Hannam University in Daejeon, South Korea. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, media economics, and strategic communications.

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