Are New Zealand's development experiences relevant to Chile?
This week I was invited to contribute to a Chilean seminar on the way in which New Zealand has developed and whether that is relevant to Chile as it considers the way forward in the wake of the major upheavals of late last year. My presentation can be seen online here: https://www.cepchile.cl/cep/noticias/notas-de-prensa/helen-clark-nueva-zelanda-un-modelo-a-seguir. The prepared text follows:
Rt Hon Helen Clark,
‘Reflections on the New Zealand Experience of Political, Economic, and Social Development’
An online seminar presentation for the Centre de Estudias Publicos (CEP) and the Fundacion por la Democracia (FPD) of Chile.
17 March 2020
Thank you for inviting me to offer some reflections on experiences from New Zealand on how our society, economy, and political system have developed .
New Zealand is a very different country from Chile, but there are some similarities. Apart from the geographical similarities –each is a long thin country in the southern hemisphere, there are also the following:
- Both lands were colonised by Europeans in earlier centuries with severe impacts on the lives of indigenous peoples.
- Both have significant indigenous populations - for New Zealand estimated at 16.5 per cent, and in Chile in the 2017 Census, 12.8 per cent of Chile’s population were recognised as indigenous.
- There are similarities in the primary sectors of the two economies – both have substantial agricultural, horticultural, forestry, and fishing sectors.
- Both countries have sizeable tourism sectors – for Chile, I understand, around ten per cent of GDP; for New Zealand around six per cent, but providing 21 per cent of foreign currency earnings.
But then we come to the dissimilarities – not least in population size. Chile is now estimated to number over nineteen million people; New Zealand around 4.8 million, or a quarter the size of Chile’s population.
On the economic front:
- On nominal GDP per capita in 2019, New Zealand was ranked by the IMF at 23rd in the world on USD 40,634; Chile at around 53rd at USD15,399.
- On GDP Purchasing Power Parity per capita in 2019, New Zealand was ranked 32nd by the IMF on current international dollars at 40,943; Chile at 57th on 26,317.
Different sources give slightly different absolute numbers, but the relativities remain much the same, with New Zealand’s nominal GDP at around 2.5 times that of Chile and the PPP figure at around 1.5 times greater.
On the Gini coefficient ranking in 2020, New Zealand’s number is given as 36.2; Chile’s stands at 50.5 which suggests that it is a significantly less equal society.
Also on dissimilarities, the modern political history of the two countries has diverged greatly. New Zealand is one of the very few countries which was able to retain a democratic political system throughout the twentieth century. Chile, however, experienced the trauma of a military coup d’état and dictatorship from 1973 to 1990.
Now, as I see it, Chile is caught up in a “perfect storm”. Notwithstanding its considerable economic and social progress, including in the reduction of absolute poverty, clearly a significant number of Chileans either feel excluded from that progress, or feel that they have not benefited sufficiently. Grievances have been expressed about the quality of services in education and health, the level of pensions, the cost of living and about inequality.
The major protests in Chile from late last year were seen around the world, and we all mourn the loss of life, injuries, and other damage from that time. Now, the coronavirus pandemic offers a further challenge to Chile, as it does to all societies and economies.
It may seem like cold comfort to say so right now, but out of crisis can also come the opportunity to make a course correction. The Chilean Government has already responded to the dramatic events of last year with a series of social reforms, which may well need to be ongoing as part of a broader debate about the social contract between the people and the state.
Then there is the plebiscite which will be held on whether to establish an assembly to develop a new constitution which could make a decisive break from the past.
All these are matters for Chileans to decide, but perhaps I can offer some reflections on how New Zealand was able to develop to high income country status on the periphery of the world in the far south of the Pacific Ocean.The New Zealand experience:
The New Zealand Experience:
New Zealand today is recognised as a relatively economically successful, inclusive, progressive, democratic nation.
It generally ranks at or near the very top of Transparency International’s Corruption Perceptions Index for being non-corrupt – it was first out of the 180 countries ranked in 2019 with a score of 87/100. By comparison, Chile was ranked 26th with a score of 67/100.
The path to New Zealand’s success has not been linear – there have been stumbles along the way, and succeeding is always a work in progress. New Zealand too has had its tough times, and it continues to have challenges. It needs to be very agile and to reinvent itself continually in order to retain the high income and high human development status it has gained and to build on it.
The progressive tag has long applied to our country:
- New Zealand was the first country where women won the right to vote, in 1893.
- In 1898, New Zealand established the world’s first old age pension funded from general taxation.
- A 1905 law provided the world’s first publicly funded worker housing.
- In 1896, New Zealand set up the first compulsory system of arbitration of industrial disputes.
- In the 1930s, New Zealand introduced comprehensive social security, including free hospital care, subsidised primary health care, and free and compulsory secondary education.
- New Zealand established one of the world’s first comprehensive no fault accident compensation schemes in 1974.
- New Zealand has a long running “truth and reconciliation” process between the state and indigenous people which has led to acceptance of state responsibility for historical injustice and for compensation to be paid and full apologies to be offered for the wrongs of the past.
- New Zealand implemented major structural changes in its economy and major state sector reform in the 1980s.
- It made a course correction in the first decade of the 21st century when I was Prime Minister to mitigate what my government saw as excesses of the reform programme, such as those in the labour market, but the fundamentals of an open market economy with strong social provision form the current paradigm.
What factors have been important in New Zealand becoming what it is today?
Let me suggest a number of factors.
1. Political stability. New Zealand’s history is entirely one of peaceful transitions of power between governments. People could not conceive of it being any other way. It has had a relatively high level of participation in its parliamentary elections – eighty per cent in 2017, and in general people do feel that their vote will help determine the course the country takes.
2. Strong independent institutions which provide a check on executive power, going beyond its parliament and courts to its system of public audits, its ombudsman’s office, its Human Rights Commission, and its range of other independent Commissions and Commissioners from those for the environment, children, privacy, securities, and more.
3. An independent and professional public service. I was asked in Chile today how many public servants change when a government changes office. I said “none”. Our public service is not politicised. It serves the government of the day and provides professional advice to the best of its ability. That mitigates against wild swings in policies when governments change.
4. Relative social stability and cohesion, built on historically high levels of investment in health, education, and social security. These investments produced high human development status, which in turn supports economic performance by generating an educated and skilled workforce. It also ensures a safety net for the old, young, unemployed, sick, and disabled.
5. A strong egalitarian ethos in the society. This may have diminished over time, but New Zealand historically has been a society where Jack was perceived to be as good as his master and Jill as good as her mistress. People expect fair treatment under the law of the land, and a fair share of the cake. Education and health are always important issues affecting voting behaviour.
These fundamentals – political stability, institutional strength, high investment in human development, social stability and cohesion, and fairness as a high value – are accepted across the political spectrum. Yes, there are political differences with conservatives tending to want to spend less and social democrats more, but in general the paradigm is in question, and at election time the tendency is to promise more, not less, investment in, for example, education and health.
To give an example of how policy continuity develops in practice, when the landmark Social Security Act of 1938 was passed, it was opposed by conservative parliamentarians at that time. After a severe election loss later that year, however, they accepted that comprehensive social security was here to stay and ceased to oppose it. That has enabled it to stay as a fundamental part of the social contract in New Zealand. Achieving bipartisan consensus on such fundamentals is very important in enabling them to endure across administrations and give populations certainty.
The road to economic success, however, has not been a smooth one. New Zealand as a start-up colony from 1840, and then as a loyal dominion in the British Empire, was in essence an off-shore farm for Britain, supplying it with primary produce from the time of its first shipment of frozen meat there in 1882. The introduction of that technology, highly innovative at the time, transformed pastoral agriculture’s export potential beyond its traditional products of wool and skins.
Indeed, New Zealand’s guaranteed access to the British market served it well until Britain’s entry to the European Communities, the forerunner of today’s European Union, in 1973. Then, New Zealand had to diversify its markets, and also cope with the oil price shock of 1973/4.
But, much earlier, New Zealand had experienced a sharp economic recession in the early 1920s, and then was severely impacted by the Wall Street crash of 1929. The high unemployment and hardship which that caused was a factor in the election of the First Labour Government in 1935. It moved to industrialise the economy away from its primary sector base, but behind a wall of tariffs and import controls which in the long term was not sustainable. The economy was put on a war footing from 1939 to 1945. In the early 1950s, it benefited from a boom in wool prices occasioned by the Korean War.
Thereafter, the economy lumbered on with little structural reform until it struck severe turbulence in the early 1980s. The incoming government in 1984 took the opportunity offered by that crisis to allow the currency to float freely, and to initiate major structural reforms, including widespread deregulation and subsidy removal. That gave the economy a boost for a time, but the share market crash of 1987 dashed hopes again.
An incoming government in 1990 took economic deregulation further, applying it to the labour market, and it also cut the level of social protection. The result was a sharper rise in unemployment and in poverty, before things began to improve.
When my government came to office in 1999, unemployment stood at around six per cent. Proactive labour market policies and a benign global economy helped that to fall to around 3.5 per cent where it sat for quite a period. The Government reduced its net debt to zero, and established a sovereign wealth fund aimed at securing the universal pension for the long term. It also pushed both upskilling of the workforce and innovation in the economy - with more support for research and development.
Then the global financial crisis of 2007/8 came, a new government was elected, the labour market was taken back to a more deregulatory model, unemployment rose, and social spending was constrained.
Despite these ups and downs, for the most part the bipartisan consensus in New Zealand established since 1984 is that an open, competitive market economy is essential, but must be accompanied by high levels of investment in health, education, and social protection.
It is also widely recognised that New Zealand must keep reinventing its economy and moving it up the value chain. That is as relevant to the primary industries as it is to other sectors. New Zealand agriculture is where it is today because of significant investment over many decades in science, research, and technology. Agri-tech itself has become a significant economic strength.
In my time as Prime Minister, we adopted a “growth and innovation” strategy which focused on boosting what we termed “enabling sectors of the economy. We identified information and communications technologies (ICT), biotechnology, and the creative sectors (design and the film/television and related industries) as significant growth sectors in their own right, but also as sectors which could help other sectors to prosper.
Investment by the state in science and research continues to be very important, as is support for private sector-funded research and development.
Again, while the emphasis and spending levels differ from government to government, the basic approach remains the same – to keep on promoting innovation in the economy and to seek to push it to produce higher value goods and services to maintain and improve on New Zealanders’ living standards. This gives longer term planning horizons for the public and private sectors alike.
In this age of climate crisis, the New Zealand economy now faces existential threats, which Chile will share to a certain extent.
As countries come under increasing pressure to dramatically reduce their greenhouse gas emissions and move towards zero net carbon, questions are being raised globally about the wisdom of sourcing food and other goods and services from far away. New Zealand’s – and Chile’s – geographical remoteness means that many of our markets are indeed far away from our shores. Therefore, sustainable transport becomes very important, whether that be for the export of products or for international travel. Yet, the technology is not yet in place commercially for the non-fossil fuel flight or sea transport. Perhaps hydrogen or advanced battery technology will be the answer for the future, but we are not there yet.
For New Zealand also, the nature of its carbon footprint is a challenge – fifty per cent of it comes from agriculture, and a significant amount of that is from methane from animals and nitrous oxide from fertilisers. Our country has long prided itself on being a highly efficient primary producer, but now it has to rise to the challenge of implementing sustainable farming practice which produces fewer greenhouse gases and doesn’t pollute its freshwater.
Getting that right is important for the global reputation of New Zealand which has marketed itself for tourism purposes for over two decades as “”100% pure”. Thus, it will be important for food and other exporters that the country achieves zero-carbon status – as it has committed to do by 2050 with near unanimous support in Parliament last year.
It was remarkable to achieve near consensus in Parliament on the zero-carbon goal, and highly commendable that dialogue across political parties produced that result. There will of course still be debate about the means of achieving it, but the direction set is now clear, and businesses and all others can plan accordingly.
A significant part of the solution to the challenge of reaching zero-carbon status is the move to renewable energy. New Zealand with its big investments in hydro and geothermal power generation is roughly eighty per cent renewable now – and the twenty per cent gap could be bridged in a reasonable period of time through more investment in solar, wind, and hydrogen technologies.
New Zealand itself has a small fossil fuel industry, but took the decision in 2018 to stop issuing any further oil and gas exploration permits in its offshore waters as part of its commitment to moving away from fossil fuels. To ensure a just transition away from that sector, the Government is investing in regional development initiatives in the immediately affected region.
Some of these debates in New Zealand about sustainability being critical to future economic success may resonate in Chile. As a mineral-rich country, you will have specific opportunities as a supplier of minerals required for sustainable energy. Copper, your great strength, continues to be needed, and you have lithium which is essential for batteries. Thinking strategically now about its development would pay dividends.
With respect to the minerals sector, I do think it would be an advantage for Chile to join the Extractive Industries Transparency Initiative – EITI - which sets the global standard for good governance in the sector. I currently chair its global board which is comprised of three constituencies – governments, industry, and civil society. That structure is replicated in multi-stakeholder groups in each country implementing the EITI Standard.
The standard requires disclosure of beneficial ownership, contracts, and all revenues paid to governments, including environmental payments. Transparency in these areas mitigates against bad practice, and the multi-stakeholder groups help build confidence between society, industry, and government. Joining EITI could be a useful move for Chile at this time of low trust in its institutions.
Reconciliation with indigenous peoples
An important feature of the contemporary New Zealand model is its emphasis on reconciliation with indigenous people for the wrongs of the past. That process has seen lands, forests, and fisheries restored to indigenous owners, and reparations paid. That has supported indigenous people to become substantial economic stakeholders.
The Government also supports Maori language education from early childhood to tertiary services. Many Maori service providers operate in the health and social spheres with public funding. Maori radio and television is supported with public funds.
The Treaty of Waitangi, signed in 1840 between indigenous tribes and the representative of the British Queen, is regarded as our country’s founding document, and government at all levels is expected to act within its ethos of partnership. This approach too has bipartisan support in New Zealand.
Direct Maori representation in the New Zealand Parliament was introduced in 1867 with four reserved seats. Today, there are seven reserved Maori electorates. Out of 120 Members of Parliament, 29 members are of Maori descent. Thus, Maori constitute a powerful political force in decision-making, and their representatives are distributed across four of the five parties in Parliament.
Conclusion
New Zealand has developed its unique ways of advancing economic and social development and the full inclusion of indigenous peoples in decision-making and in society and economy.
Some of our experience will be relevant to Chile – some not. That is for Chileans to determine.
While New Zealand has its ongoing challenges, and political debate is as spirited as it is anywhere else in the world, in many ways the country is remarkable for what unites it rather than for what divides it. That enables the country to build on the gains it has made over time, and to retain a level of civility in its political discourse which is perhaps higher than that often observed around our world.
I hope that these observations have been helpful. I wish Chile well as it works its way through the challenges which it is currently facing, and I very much hope that Chile will emerge as a strong and more united nation out of the processes it is working through at this time.