Lessons from New Zealand and Chile

by Pearl Hahn

Hawaii’s economy- and that of the United States- should take cues from bold moves made by two countries on opposite sides of the world, Chile and New Zealand.

It seems like US leaders are intentionally steering away from capitalism towards socialism. For years, we’ve been watching as our monetary supply has multiplied (with ensuing inflation), subsidies to various industries have grown, taxes have escalated, and the government workforce has swelled.

With Hawaii’s budget deficit in the hundreds of millions and unemployment creeping up towards ten percent, defenders of current policies would still have us believe that the world would collapse if spending and public sector jobs were slashed.

In the 1970s, Chile was struggling to get out of a severe depression lengthened by capital flight, rising unemployment, and shrinking private investment due to socialist reforms. Chile avoided a complete meltdown by reducing monetary growth (in other words, less printing of dollars), deregulating trade, privatizing state-owned businesses, and cutting the public sector by approximately two-thirds(!). Reducing taxes and spending also helped eliminate the national deficit to the point where Chile rang up a surplus in the 90’s. Today, Chile remains one of South America’s wealthiest and most stable nations.

Our fellow neighbor in the Pacific, New Zealand, is noted for its economic freedom (ranked third behind Hong Kong and Singapore last year), with high ease of doing business, lack of corruption, and scaled back tariffs. New Zealand continues to enjoy economic growth and a low inflation rate.

Here’s the part I found most interesting. Agricultural subsidies once accounted for 30% of farmers’ incomes in New Zealand. Following free market reforms, the subsidies were virtually eliminated. Without the subsidies, agriculture in New Zealand did not crumple. In fact, agricultural products are currently one of the country’s principal exports.

One of my pet peeves is the mind-boggling amounts of farm subsidies in the United States. The US Agricultural Department is even required by law to subsidize dozens of commodities to the tune of billions of dollars per year.

In 2007, USDA’s budget authority totaled $88 billion. In 2008, it increased to $93 billion, then jumped to $124 billion in 2009. For this upcoming year, 2010, USDA’s budget authority stands at $134 billion. That represents a 52% increase from 2007 to 2010 alone!!

Apparently, economic recessions don’t have much of an effect on farmer welfare.