New Zealand, now and then

New Zealand has been showered with plaudits for its success in controlling the coronavirus pandemic. This article, just a month ago, even reported that the virus had been "eradicated" locally.  That didn't last long, as a pair of visitors from (surprise, surprise) the UK reintroduced the infection. Still, there's no doubt that under the leadership of the decisive but empathetic Prime Minister, Jacinda Ardern, and with a big helping hand from the country's geographical isolation, New Zealand has done a far better job than just about everyone else.

Long may Ms Ardern's success continue.  But nothing lasts forever, and it might be worth remembering that not so long ago, New Zealand's economy was a complete basket case. This long paper describes how New Zealand failed to piggyback on the Volcker Fed's anti-inflation push in the early 1980s, resulting in a severe currency crisis in 1984. 

That crisis was followed by a rapid deregulation and transformation of the economy on neo-liberal lines.  This brought painful consequences for many previously protected sectors and greatly reduced the role of the state in the economy.  Famously, a zoo had to kill a newborn baby hippopotamus because it could not afford to feed it, an event that provided the inspiration for an angry book by the Canadian leftist journalist Linda McQuaig.

Reflecting the post-1984 reforms, the nation Ms Ardern leads still has a much smaller government sector than most comparable countries. Government spending amounted to about 38 percent of GDP in 2018, very close to the figures for the United States and Australia, but below the levels posted by Canada (about 41 percent) and the EU (average of 45 percent, with France at 55 percent).*  Evidently success against COVID is not so much about how much you spend as about how well you spend it.  That appears to be something New Zealand is good at these days, but as events in the fairly recent past remind us, that wasn't always the case.

* Data from OECD and other sources; figures are of course reflective of the pre-COVID era.