, instead of today ’ s 40 cents? none of these benefits show up very clearly in gdp statistics, but all of them have made a big, and a beneficial, impact on our lives. few of us would want to lose them. but what about economic growth? surely growth in gdp has been disappointingly slow since 1984, and this proves beyond reasonable doubt that the reforms have failed? certainly, taking the whole 15 year period growth has been disappointing. i am not at all sure, however, that it is legitimate to conclude that therefore the reforms have made no difference to our potential growth rate. in the first several years of the period, the new zealand economy was going through huge changes made inevitable by the decision to abolish quantitative import controls, to reduce tariffs, to abolish export subsidies, to corporatise and then privatise many state - owned enterprises, to deregulate the banking sector, and to reduce inflation from levels well above the developed country average. a lot of the capital built up in the period before 1984 was destroyed when the subsidies and protection on which that capital was totally dependent were eliminated. while there is some debate about the speed with which subsidies were eliminated, there is little or no debate that abolishing those subsidies was in the interests of the long - term health of the new zealand economy. but inevitably the short - term result of these moves was to leave the overall level of gdp looking pretty flat. it was, on a small scale, similar to the kind of trauma which the former soviet bloc countries have gone through in recent years, with whole industries wiped out and, in their case, overall gdp shrinking substantially. new zealand ’ s gdp did not shrink to any significant extent, but for six or seven years it barely grew at all. from the early nineties, however, the picture is much more encouraging. in the six years from 1992 to 1997, growth in gdp averaged 3 per cent per annum – not the 4 or 5 per cent per annum which we achieved when we were first emerging from the recession but better over those six years than the growth in japan, in continental europe, and in the united kingdom, and almost identical to the growth in australia, on average over those six years. we would of course like to be growing faster, and unless we do we will not regain any of the ground lost relative to australia during the sixties, seventies and eighties, when we were growing quite a bit more slowly than australia and other developed

countries. but we still did very much better in the six years to 1997 than we did in the previous three decades. but what about 1998? i suspect the fact that australia grew at more than 4 per cent in 1998 while we grew not at all in that year is at the root of a lot of our current gloom. how could we bomb out so badly, when both countries had a very similar exposure to the asian crisis? this isn ’ t the place to provide a comprehensive answer to this question, and indeed i don ’ t think anybody yet has a comprehensive answer to this question. some blame poor monetary policy decisions by the reserve bank for the difference. i don ’ t share that view and see the impact of new zealand ’ s severe drought as being a much more relevant factor, but then i am clearly not an objective observer. but even if, for the sake of the argument, monetary policy caused all of the difference between australian growth and new zealand growth in 1998, that was at most a temporary impact, and monetary policy in new zealand was eased very substantially over the course of 1997 and 1998. official forecasts suggest that growth in new zealand over the next two years will be closely similar to that in australia, as it was for the six years prior to 1998. so it is hard to see strong grounds for pessimism there. but what about productivity? now we are getting to the heart of the matter, and there has been some pessimism, even among professional economists, that new zealand ’ s productivity performance has not improved discernibly as a result of 15 years of reform. to shed some light on this issue, the reserve bank, the treasury, and the department of labour commissioned some work on productivity by denis lawrence, director of the tasman asia pacific economic consultancy, and erwin diewert, professor of economics at the university of british columbia, and their conclusion, as summarised by them in the new zealand herald exactly one week ago, was that “ to the extent we can make like - withlike comparisons between new zealand and australia ( another country that has had a sizeable but more gradual reform programme over a similar period ) new zealand ’ s performance ( in multi - factor productivity ) appears to be at least comparable ”. 22 indeed, they suggested that if sectors where productivity is very hard to measure ( such as banking and community services ) are excluded from the numbers on both sides of the tasman, new zealand productivity seems to have been as good