Will New Zealand Lead the Way Again?

The National party (conservative) just won the general election in New Zealand a few hours ago (see here and here). The Labour party, which had been in power since 1999, was ousted. Prime Minister Helen Clark is to be replaced by John Key, the leader of the National party. 

The really good news is that the ACT party, which is the most free-market party in NZ (and perhaps the most free-market party to be seating in parliament anywhere in the world), won five MPs with 3.7% of the votes. There are 122 seats in the NZ Parliament. As I am writing this, National has won 59 seats, which means that National and ACT together have the majority to govern. This is important because the electoral system in NZ is based on proportionality and, as a result, coalition governments have plagued the political landscape for years (see here and here and here). It is true that no party seems to have the majority, but National and ACT better fit together than other coalitions of the past. Moreover, the famous Sir Roger Douglas, the father of the NZ reforms in the 1980s is back in Parliament. He is one of the five ACT MPs. Douglas is tremendously intelligent and will be an asset for NZ politics.

While New Zealand has done fine in the last 20 years or so, it could have done better (see here). The short story is that the parties in power (especially the Labour Party) since around 1997 have not built up on the past reforms and have not done much to increase the social surplus. For instance, New Zealand has been running budget surpluses for years but a recent forecast showed potential deficits after 2010. This would mark the end of an amazing record of fiscal prudence spanning different governments under the guidance of the Fiscal Responsibility Act of 1994. While conservative by European standards, the Labour government has implemented many bad policies: such as loosening the inflation target, increasing the marginal income tax rate, implementing vast government saving schemes, and re-regulating and nationalizing utilities and transport.

As the world (especially the US and the EU) seems to be turning toward more Keynesian policies and interventionist views, New Zealand replaced its left-leaning party in favor of a more economically conservative one. While I have no idea as to what John Key wants to do as Prime Minister, one may hope that New Zealand, one more time, will lead the way by engaging in sound reforms promoting an institutional environment enabling freer markets (but don't hold your breath, see here).

Comments

[Rafe Champion]

Rodney Hyde, leader of the ACT party is a great guy. When we met at the Mont Pelerin Conference in Christchurch 1989 he may have had some hair on his head and he was just starting to read "Human Action".

[Paul Walker]

You must keep in mind that National are commonly known as "Labour Lite". I don't holdout much hope for any real change. This will not be another post-84 government.

[Frederic Sautet]

Paul,

I agree that there is not much to be expected from the future govt, especially since there is no major crisis in NZ at the moment and thus no window of opportunity to introduce deep reforms. Key himself, from what I have read in the media, said that his govt will be centrist (see here for instance: http://www.stuff.co.nz/vote08/4754721a28435.html).

What may give us hope, however, is the fact that Key cannot rule without ACT (and he also wants to bing United into his govt in order to bolster his majority I assume, or perhaps to limit ACT's bargaining power). This could mean a portfolio for one or two ACT MPs and thus perhaps some good policymaking down the road.

National is also interested in reforming some key areas such as the RMA. They also seem to be more fiscally conservative than Labour, which would help bring spending down. Now, this is where gvts generally fail, so I have little hope on this, but with the help of ACT, curbing public spending may be achieved. If NZ had less public spending, it would be in a different world.

[Rafe Champion]

Maybe it depends whether the move to the centre by Keys was strategic (to win the election) or represesents a failure of nerve. At least with the aid of ACT they will never need to get into the kind of horse-trading that the Australian conservative govt had to use to win critical votes from rent-seeking obstructionist who enjoyed the balance of power in the upper house.

It is great that Roger Douglas is there in the ACT ranks, he was the architect of fundamental market-oriented reforms when he was Finance Minister in the Labor administration a couple of decades ago.

[Devon Steven Phillips]

This election prompted me to check out recent election results in NZ. I have a question. How is it that the two big parties (National and Labour) voluntarily changed the electoral system (in 1996) to one in which they would no longer dominate? In the 1993 election the two big parties controlled 95 out of 99 seats despite receiving about %70 of the vote combined. After changing the electoral system and giving smaller parties a fighting chance the big parties only got about %50 of the vote in 1996, and about 2/3 of parliament. The smaller NZ First party ended up holding the balance.

[Eric Crampton]

Key is also in talks with the Maori Party to be a support partner; if he has them on board along with ACT, ACT can't keep National in line the way they might otherwise have done.

[ap9er]

Devon,

The change to MMP was brought about because in part due to what was seen as something of an unfairness in the First Past the Post system. Both Labour and National could find themselves at odds with it (it was possible to come to power without getting the most votes). If you look at the the voting history you'll find the balance of power and government shifted between them quite often, and there was a growing shift away from them. The Social Credit Party started to garner more and more votes as time passed and was beginning to become a third major party as such (it no longer exists, and hopefully NZ First goes the same way).
I would not be surprised if either the National or Labour parties around that time frame saw it in their best interests,

It wasn't voluntarily as such. The change was put to a referendum. Although the choice of MMP is argured to be somewhat contentious it how it was all put forward.

[forty degrees south]

Devon

ap9er has summarised it well. Additionally, there was growing discontent among votors that a third party could attract around 30% of votes, but not gain any representation in parliament. The incoming Labour government in 1984 undertook to look at constitutional reform, but reneged on the promise.

The incoming 1990 National government campaigned on a similar promise, and followed through on it. A Royal Commission (similar to a Congressional Enquiry, I suspect) analysed the options, held public hearings and recommended a mixed-member proportional system. This was put to a referendum and won.

MMP has increased the number of parties in parliament, and the diversity of members of parliament. However, it has also led to some unseemly horse-trading and pork-barrel politics. The newly elected National government talked in general terms during the campaign of revisiting the MMP Vs FPP debate - it remains to be seen whether anything comes of this.

[Peter Cresswell]

Let me give you just one example of how with National the large print giveth but the small print taketh away. You say, Frederic:

"National is also interested in reforming some key areas such as the RMA..."

In fact, the reforms they propose to the Act (that they themselves introduced) are predominantly intended to free things up not for businesses and property owners but for their own public works programme.

Federated Farmers said of the RMA several years ago that 'Little not Large' was where the main problems lie. National are working on Large, and just ignoring the Little.

In other words, the "reform" is just window dressing.