New Zealand Sets Economy Loose

THERE is a lesson to be learned from New Zealand:

"Don't let yourself drop so far. The further you fall, the more you have to pick yourself up," says the minister for finance, Ruth Richardson.

Indeed, governments around the world are now watching as New Zealand dismantles the icons of the 1960s. The government of Prime Minister Jim Bolger, after 20 months in office, has scaled back the welfare system, once one of the most liberal in the world, as well as the health, education, and housing systems. In some cases, entire ministries have disappeared as the government tries to slim down.

"What we've said is no social contract can be sustained if you can't afford it," Mrs. Richardson says. Thus, instead of universal welfare, the country is trying to target social services more directly. And it is encouraging New Zealanders to get off the "dole," or welfare. "There is no doubt that our policies have signaled to New Zealanders you must take more responsibility for your welfare, for your health, for your retirement income," she says.

The changes go beyond the bureaucracy in Wellington. In 1991, Mr. Bolger's government attacked the trade unions' power by passing the Employment Contracts Act, which allows employers to negotiate directly with employees, possibly bypassing unions.

From the corporate perspective, the Act has allowed improvements in productivity and a lowering of labor costs. According to a Department of Labour study of 190 contracts signed as of February 1992, 28 percent of the agreements resulted in either no increase or a reduction in wages. Higher output, lower pay

Typical is Comalco New Zealand Limited, which late last year began negotiating directly with its employees at its Tiwai Point smelter. Since the change, the company says productivity is up 25 percent.

"There is a different attitude in the workplace. People actually drop into the smelter over the weekend to see how it's going," says Richard Procter, general manager of finance and administration. He concedes it is likely employees' total take-home pay is lower since the change.

These structural changes actually began under the Labour government of David Lange, who became prime minister in 1984. For six years, Labour deregulated the financial markets, ended import protections, and began privatizing parts of the government. In 1990, the National Party was elected, continuing the changes.

The domestic belt-tightening has forced the country to look overseas for markets. The aluminum, fishing, timber, dairy, and wool industries are all shipping out goods at an increased pace.

The result is an export boom that resulted in a $116 million (New Zealand; $US64 million) balance-of-payments surplus - the first since 1973.

Exports have been bolstered by more efficient ports. In 1988, the island nation started to deregulate the waterfront. The results are dramatic. Four years ago at the Port of Auckland, it took 38 hours to unload a container ship. Today, it takes 16 hours. Faster means cheaper, since shippers pay less demurrage while the port pays lower total wages.

Four years ago, the Port of Auckland employed 1,020 people; today, it has 510 workers. "We are handling more cargo with greater efficiency," says Richard Cooper, chief executive of Ports of Auckland Limited.

The Employment Contracts Act permitted the port to negotiate more flexible work hours. Thus, the port is now operating 24 hours a day, seven days a week. Before the port only ran nine hours a day, five-and-a-half days a week.

Work practices also changed. "We guaranteed we would pay all of our staff even if we didn't have any work for them, but we said, `You must be prepared to do anything for which you have skills and training,' " Mr. Cooper says. Competition introduced

The changed work ethic extended to all parts of the port. An engineering unit was given a year to prove it could compete with outside services. When it could not compete, the port shut it down. An equipment-repair division was ordered to get part of its revenue from outside work. "That way we know it has to be competitive," Cooper says. Last year the division won a contract to assemble Finnish port equipment for a Danish company in Taiwan.

Initially, union reaction was positive. "We accepted that change was inevitable, but must be negotiated," says J. Ross Wilson, a vice president of the New Zealand Council of Trade Unions and an official of the harbor workers' union. The harbor workers agreed to changes in return for higher pay. But today, he says, average pay has been reduced by about 20 percent.

The country's gains, in fact, have not been without a great deal of hardship. In the past two years the official unemployment rate has soared from 7.3 percent to 10.8 percent. The rising unemployment rate has resulted in social problems, including higher crime rates.

"Real living standards have fallen for the past seven or eight years," says economist John Lepper of Integrated Economic Services Limited, an independent forecasting service. Mr. Lepper says the country is now "at the bottom of the deepest depression since 1932." The economic consensus is for about 2 percent growth in the next year.

The politicians are aware of the slump and its social cost. The budget Richardson presented to Parliament July 2 has few new spending cuts. Instead, the government will live with a 1992-93 budget deficit of $3.3 billion.

But Richardson says there is no chance the country will go back to the social policies of the 1960s and '70s. "I'm the parent of two children and I was getting a welfare benefit that was paid to me irrespective of my income or whether the country could afford it," she says. Those days are gone in a leaner, meaner New Zealand.