New Zealand asserts a new national and regional identity. One effect: government enjoys high popularity

New Zealand is undergoing its most dramatic period of change since the first settlers arrived in these islands to found a new British colony 146 years ago. There is a growing sense of national and regional identity affecting both the domestic political scene and the economic philosophy of this nation of 3.25 million people. The surprising results of the changing attitudes are:

On the economic front: The Labour government is restructuring the economy -- long fettered by a mass of regulations and costly subsidies -- into a free-wheeling, free-market business environment.

On the political side: That same Labour government is enjoying unusual popularity -- despite the fact that New Zealanders traditionally vote conservative and despite the strains of such radical economic change.

The administration of Prime Minister David Lange is just over half-way through its three-year term of office, and opinion polls show it is doing surprisingly well. Although most New Zealanders say they're worried about the economy, unemployment, inflation, and high interest rates, the polls show Mr. Lange 18 percentage points ahead of his nearest rival as the country's choice for prime minister. His party lags behind the conservative National Party, the main opposition party, by only 1 percent. Lange's is only the fourth Labour government since the party was founded in 1916, and the most recent two lasted only one term each.

Originally developed as a far-away farm for ``mother England,'' this richly fertile country is shedding its traditional image as a European outpost and developing its identity as a South Pacific nation. New Zealanders, who live on two main islands with a total land area the size of Colorado, used to be seen as more English than the English themselves. There was a steady flow of British immigrants, and even those born here referred to Britain as ``home.''

But in the 1960s, New Zealanders discovered Asia, fighting alongside Americans in Vietnam in what they saw as their regional interest.

``We used to be European in our vision,'' explains Deputy Prime Minister Geoffrey Palmer. ``Then we went through a period when Southeast Asia was important to our strategic thinking. Now we are fixed in the South Pacific.

``We realize that is how it should be. That recognition is a step forward in maturity and realism in this country.''

The country's new outlook recognizes New Zealand's geographic isolation, far from the East-West confrontation which troubles much of the world. It acknowledges the cultural revival of the native Maori population and a flow of new immigrants from Polynesia, underlining New Zealand's place as a multiracial society in the Pacific.

Two recent developments have fueled the fire of rising nationalism:

The Labour government's antinuclear policies, which have put it on a collision course with New Zealand's long-time ally, the United States, but which are widely supported here.

Last year's French secret service bombing of the Greenpeace ship Rainbow Warrior in Auckland Harbor.

But the change goes back further -- to the early 1970s, when Britain joined the European Common Market, symbolically cutting the mother country's apron strings.

At that time, farm produce accounted for 85 percent of New Zealand's total exports, and Britain still took 90 percent of the two main products, butter and lamb.

Common Market rules demanded a substantial reduction, and New Zealand, dependent on international trade, was forced to look for other customers and develop new exports to earn its living.

Farm products remain important but today account for less than 60 percent of export earnings. Australia, Japan, and the US are bigger customers than Britain, and New Zealand sells as much butter and lamb to Iran as it does to England.

The change was painful, and New Zealand's standard of living -- once one of the highest in the world -- slumped. But, in losing their cozy traditional relationship with Britain, New Zealanders were forced to look at the rest of the world and assess their own identity for the first time.

The pace of change was stepped up dramatically, when Lange's Labour Party won a landslide election victory in July 1984, to head the youngest Cabinet in New Zealand history. Lange immediately began a major restructuring of the economy to complete the process begun by Britain's entry into Europe.

In a series of startling moves for a socialist administration, the government stripped away long-standing regulations on the economy in favor of a free-market approach.

The New Zealand dollar was floated, and restrictions on interest rates and foreign exchange were removed. Farmers' subsidies and manufacturers' protection against imports were abolished.

The process is hurting many. Inflation, though falling, remains at 13 percent and home mortgage interest rates are around 20 percent. Unemployment is on the rise, and many farmers and manufacturers claim they are going out of business.

But the government claims the measures will work in the long term, and big business -- traditionally a fierce opponent of Labour administrations -- backs the policies.

And while the government's ban on nuclear warship visits leading the US to describe New Zealand as a ``former'' ally, is far from universally approved, only 4 in 100 New Zealanders regard it as the country's biggest problem -- down from 16 percent a year ago.

Another reason for the government's popularity is the lack of any credible alternative. The main opposition National Party, which governed for all but six of the 35 years to 1984, is in disarray, having just elected its third leader in 16 months in a bid to recapture public support. (The National Party first won in 1949, two years after New Zealand gained independence from Britain.)

Two minor parties, which captured one in five votes in 1984, are also in chaos. The leader of one, the New Zealand Party, has just announced a merger with the National Party, even though nearly half of New Zealand Party members say they will vote Labour next time.

Lange, who must go the polls before September 1987, says the opposition is in such a mess that there will be Labour administrations for years to come.