What I soon found was a new strategy for the country had been developed and implemented. The Economic Management (1984) report by the Ministry of Finance and the Treasury contained the seeds of a transformation from a “Welfare State” to a new kind of society focused on digital transformation in conjunction with emerging global financial and trade practices. The new government instituted radical reform measures to implement a neo-liberal regulatory regime that would “reinvent” civil service and privatize many government organizations. The intention was to monetarize the national political economy

Starting “Down Under”

New Zealand was one of the first “guinea pigs” for the global system of digital monetarism. A one-time leader in developing 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 the latter’s increasing participation in the European Community. New Zealand’s industrializing attempts also ran up against rapidly escalating inflation, especially oil costs now based on petrodollars. As a result, the NZ economy struggled, and a financial crisis ensued that would turn the country’s tide towards neo-liberalism.[1]

In 1984, a new Labour government was voted in with David Lange as Prime Minister. 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 “Reaganomics” economic transition. 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.

The Economic Management (1984) report contained the strategy 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, streamlining bureaucracy, and selling off state assets. It would also liberalize trade and control inflation through independent central banking.

In 1985, the Labour Party government launched a review of the Post Office after losses in 1987 and 1988 created a political crisis. 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 created three new companies: New Zealand Post Limited would continue postal services; the Post Office Bank Limited would become a savings bank, later called PostBank; and Telecom New Zealand Limited, the telecommunications company that would take over the countries’s new fiber optic backbone and implement new technologies with its American partners. 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 (Post, Telephone, and Telegraph). 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 of many countries would be the regime of digital monetarism’s first target. The reason was twofold. First, telecommunications was increasingly identified as the main conduit for both domestic and transnational business. Digital monetarism needed the fluid movement of information and digital 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 stronger magnet for capital and 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 almost half the of the the 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 nascent 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.

Summary

This essay recounts observations of New Zealand’s radical economic transformation in the 1980s, driven by the principles of “digital monetarism.” Facing economic hardship in the early 1980s, New Zealand, a former Welfare State pioneer, adopted neoliberal policies under the Daivd Lange Labour government. The 1984 Economic Management report laid the groundwork for this shift, advocating deregulation, privatization, and fiscal discipline. This transformation, dubbed “Rogernomics,” aimed to revive the economy by embracing markets.

A key element of this change was the restructuring and privatization of the telecommunications sector. Initially part of the Post Office, telecommunications was corporatized as Telecom New Zealand and subsequently partially sold to American companies. This move was driven by the recognition of telecommunications as crucial for both domestic and international business in the emerging digital age, as well as its potential to attract capital investment.

It argues that telecommunications infrastructure became a prime target for privatization globally, facilitating the flow of information and digital money. New Zealand’s experience served as an early example of this shift, driven by a global debt crisis, the dismantling of the Bretton Woods system, and technological innovations in finance and information. The privatization of Telecom New Zealand, presented as a debt-reducing measure, exemplifies this broader move towards a digitally-driven, market-based economy.

Citation APA (7th Edition)

Pennings, A.J. (2018, FEb 14). New Zealand as the World Model For Digital Monetarism. apennings.com https://apennings.com/uncategorized/the-experiment-part-i-new-zealand-as-the-world-model-for-digital-monetarism/

Notes

[1] 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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Anthony J. Pennings, PhD is a professor at 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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Category: digital monetarism, digital spreadsheets, dystopian economies, enterprise systems, political economy of media, telecom policy and net neutrality, uncategorized
Tags: ANZUS Treaty > privatization > Rogernomics > Secretary of State George Shultz > SOE

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