New ZealandÊs Shaky Economic Constitution

n August 2000, New Zealand’s left minority coalition will abolish the Employment Contracts Act. In conjunction with other interventionist legislation, this marks a far-reaching revision of the country’s current liberal ‘economic constitution’, i.e. the fundamental rules that determine how people coordinate their activities (Kasper 2000: 20-25). Seen in isolation, most of the legislative changes the New Zealand government has introduced since the election in late 1999 seem small. But taken together these measures are not simply minor technical corrections of the existing economic order. They amount to a reactionary overturn of New Zealand’s much-acclaimed liberal economic constitution. The Clark-Anderton government’s policy stance reveals a fundamental scepticism about the merits of spontaneous individual initiative and the coordination of free people and firms by market competition within the rule of law. It also signals a belief that a stronger role for the state and more top-down collective coordination can achieve better outcomes while avoiding deleterious side effects. Experience shows that this belief is often mistaken. That the current government ’s moves are but a correction of New Zealand’s liberal economic order may seem plausible to those who take New Zealand’s pre-1984 regime as the norm, or who consider the social democratic, sclerotic European bloc as an appropriate yardstick. But New Zealand is a wide-open economy in the Asia Pacific. New Zealanders compete on their own with producers who enjoy an increasingly dynamic Anglo-Saxon form of capitalism that attracts internationally mobile capital, enterprises and highly skilled people. Many New Zealanders are also in direct competition with Singaporeans, Taiwanese and others in open competitive Asian countries. The New Zealand combination of openness and selective regulation at home will certainly give students of political economy valuable empirical insights into the limits of the ‘primacy of politics’ over economic life under globalisation. This is an important, almost moral, issue. Some find it scandalous that international capital markets now impose the daily constraints of globalisation on democratically elected governments; others welcome the new discipline because they know that parliamentarians, once elected, act opportunistically to ensure their reelection and that the new openness empowers citizens. The present tinkering with constitutional rules in New Zealand therefore promises to shape up as an important litmus test for establishing what scope a small open economy still has for detailed regulatory interventions. We will be able to learn what the economic feedback is after a sovereign change from a liberal to a more interventionist-collectivist economic constitution. I