Singleton Story of Innovation and Independence for the RBNZ – 1 of 2
As the first country in 1988 to adopt a formal inflation target, New Zealand proves that a nation, as one, can be innovative.
New Zealanders used to be really rich in the world even as the country had a strong socialist streak with cradle-to-grave entitlements. The problem started in 1958 when they lost their main export market for beef, milk and wool. Great Britain joined the European Community. It culminated with the two oil crises in 1973 and 1979. By then the terms of trade had turned against the country. The changes in economic conditions made the entitlements unaffordable.
With strong institutions – the political parties, electoral processes, the Reserve Bank and Treasury – and the political will, the nation turned around. In four years, from 1985, it changed from equality based mainly on entitlements to one based largely on opportunity.
One pillar of this transformation is the formal adoption of inflation targeting, a global innovation. (See Part II for its benefits.)
From 1985, there was a de facto evolution in Central Banking policies. This finally became de jure with the Reserve Bank of New Zealand Act 1989. Even this four-year period of de facto implementation speaks of the political sophistication of the country.
Please read the book, Innovation+ Independence, for details of the political and economic battles royale leading to the transformation. The three years it took for the Japanese, from 1868 to 1871, to bring down the feudal daimyos and create prefectures is a comparable achievement. (Maybe, the Japan experience can be a future post.)
Like the Philippines, New Zealand is a new country. (Read about NZ history here.) Its first parliament convened in 1854. It did have the advantage of adapting institutions and British common law. This emulation allowed the nation to hit the ground running in terms of governing the country. The head of state is the Queen of England and, unlike the Aussies, the Kiwis are more supportive of the constitutional Monarchy.
While the Philippines is not New Zealand, the story as told in the book holds many lessons especially on the importance of strong countervailing institutions necessary for effective governance. Civil society must continuously work hard to attain countervailing powers and make our democracy work.
Click here for Part 2 of 2.
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