Tim Hazledine: Legacy of 80s revolution a hollowed-out society dependent on foreign capital

In 1975 new Prime Minister Robert Muldoon said he would just like to leave New Zealand no worse than he found it. He was mocked for the modesty of his political vision, and it is far from clear he achieved even that.

Those who seized the reins from him in the 1980s had a much grander scheme. They would remake the country into a tiny, perfect, modern market economy.

They reversed the surgeon's pledge: First do no harm. Their motto was: First, do as much harm as you can. They ripped the guts out of the farming and manufacturing sectors. All rotten! Must be cleared away to make room for the efficient new firms and industries that would inevitably follow their forced liberalisation and privatisation.

Now, two decades on, it is time to take stock. Of course it is clear that in many ways and for many people life is better. But is also becoming clear that such successes as we have enjoyed have been in spite of, not because of the radical liberalisation of the 1980s.

Other countries - notably Australia - which followed a more moderate reform path, have outstripped us. A huge income gap with Australia has opened up - now around $10,000 a person a year.

The symptoms of mediocre performance are becoming apparent. There has been a "hollowing-out" of our economy and society - a widening of the income gap, increased intergenerational wealth disparities related to the high cost of housing, fragmentation of many industries and loss of local ownership of key assets.

Hollowing-out has happened elsewhere, including Australia, but it seems to have gone further here, and the reason, I believe, is that we have put more faith in blinkered application of "free market" theory in general, and free trade doctrine in particular.

Free traders are people who think it is actually unpatriotic to say: "Buy New Zealand made". Growth is to be engendered by consumption efficiency - access to cheap imports on a "level playing field" that mustn't favour the home side.

Well, we created the level playing field but nobody turned up to play. Our manufacturing sector never really recovered from the beating it took in the liberalising 1980s. And the foreign capital that has flooded into New Zealand, and on which we now depend to finance even our house mortgages, has to a remarkable extent eschewed the hard graft of creating new businesses and industries, in favour of easier pickings from privatisations and takeover of existing assets.

But globalisation is faltering. It has depended critically on the abundance of cheap, poor-country labour for manufacturing and cheap oil to transport the products back to the rich-country markets.

But just as the cheap oil is running out, so is the cheap labour. The remarkable and welcome economic resurgence of China, India and indeed just about every large poor country outside sub-Saharan Africa is chipping away at their labour cost advantage at an exponential rate of 8 to 10 per cent a year.

Long before wage parity is achieved, the economics even of labour-intensive manufactured goods will have swung back towards producing close to the market. And that trend holds promise for the future of small, isolated countries like ours.

We need leaders with "20/20" vision - politicians and business people who can look ahead 10 to 15 years and start the necessary rebuilding process now.

As for the nature of that vision: As humankind wakes up to the size of the problem it is creating with the collision between shrinking resources and an expanding population, perhaps even Muldoon's notion of not leaving the place worse than you found it doesn't look so feeble any more.