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The Dollar-Wall Street Regime and New Zealand: the Political

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The Dollar-Wall Street Regime and New Zealand: the Political The Dollar-Wall Street Regime and New Zealand: The Political Implications of Financial Market Liberalisation for Macroeconomic Management in New Zealand, 1994 to 2011 Byron Richards A thesis submitted in fulfilment of the degree of Doctor of Philosophy at the University of Otago, Dunedin, New Zealand. December, 2015 Abstract ii Abstract This is a study of New Zealand’s retention and entrenchment of a neoliberal policy regime, focusing on the role played by international finance. The study examines the influence that international private financial markets and institutions exerted over the macroeconomic policy formulation of New Zealand governments during the period from 1994 to 2011. It is argued that the emergence of international private financial markets and New Zealand’s subsequent integration into these markets was instrumental in successive governments retaining and entrenching all of the core features of a neoliberal macroeconomic policy nexus. This includes, most prominently: a monetary policy regime focused on maintaining low, stable inflation; an independently floating foreign exchange regime; and a conservative fiscal policy oriented towards surplus-generation and public debt reduction. The study utilises a sophisticated neopluralist theoretical framework that also draws on neo-Marxist analyses developed in the field of international political economy. Within this theoretical framework, neopluralism identifies the key sources of business power within contemporary liberal democracies. Respectively, neo-Marxist international political economy identifies the major sources of the power of private financial capital within an increasingly inter- connected global economic system. This theoretical approach provides a coherent and empirically-grounded explanation of the crucial role played by international private financial markets in successive New Zealand governments’ retention and entrenchment of all of the key features of the neoliberal macroeconomic policy nexus. Abstract iii A critical realist methodology is used to apply the theoretical framework deployed in this thesis. This entails the use of primarily, but not exclusively, qualitative data - such as historical company reports, official government policy statements, official statistics, and interviews with key actors involved in the process - to develop a robust analysis of the influence that international private financial markets exercised over macroeconomic policy formulation in New Zealand during the period from 1994 to 2011. This analysis highlights the causal significance of the political activities of individual human agents, while also identifying the broader underlying causal mechanisms that were at play. The central finding of this study is that the comprehensive programme of financial market liberalisation and financial sector deregulation implemented by the Fourth Labour Government between 1984 and 1990 effectively served to integrate New Zealand into the Dollar-Wall Street Regime. Comprising the current system governing contemporary international financial relations, the Dollar-Wall Street Regime accords a central role in public macroeconomic management to international private financial markets. The major political effects of New Zealand’s integration into the Dollar-Wall Street Regime during the period from 1994 to 2011 derived from a transformation of the underlying structural relationship between the state and internationally-mobile financial capital. This resulted in a curtailment of the operational autonomy of the state, the ability of citizen voters to exert democratic political influence, and, ultimately, the retention of a neoliberal macroeconomic policy agenda. Acknowledgements iv Acknowledgements I would like to acknowledge the support provided by my supervisors during the process of writing this thesis. To my primary supervisor, Brian Roper, and secondary supervisors, Greg Rawlings and Chris Rudd, thank you for the years of encouragement, intellectual support, and guidance. Your commitment and professionalism are truly appreciated. I would also like to express my gratitude to my family, so often neglected during my candidature. Thank you for your steadfast belief in my ability to complete this study. The emotional support and understanding you all provided made this sometimes difficult journey much more bearable. More than anyone else, however, I have to thank my wife, Amanda. For all of the encouragement, gentle reassurance, and loving support you provided over the years I am truly grateful. I doubt this thesis could have been completed without you. Contents v Contents Declaration ................................................................................................................................... i Abstract ........................................................................................................................................ ii Acknowledgements .................................................................................................................. iv Table of Contents........................................................................................................................ v List of Figures ........................................................................................................................... vii List of Tables .............................................................................................................................. ix List of Abbreviations and Acronyms ..................................................................................... xi Introduction................................................................................................................................. 1 1. Towards a Critical Analysis of Business-State Relations ........................................ 13 1.1) Critical Realist Methodology .......................................................................................... 15 1.2) Classical Pluralism ........................................................................................................... 36 1.3) The Critics of Classical Pluralism ................................................................................... 44 1.4) Neopluralism .................................................................................................................... 58 Conclusion ......................................................................................................................... 64 2. Globalisation, the Dollar-Wall Street Regime, and Global Neoliberalism ......... 69 2.1) Capitalism and Globalisation ......................................................................................... 71 2.2) The Dollar-Wall Street Regime ....................................................................................... 76 2.3) The Establishment of the Dollar-Wall Street Regime: From Bretton Woods to Global Neoliberalism ............................................................. 88 Conclusion ....................................................................................................................... 110 3. The Shift to Neoliberalism in New Zealand: The Fourth Labour Government’s Neoliberal Policy Agenda, 1984 to 1990 .................................................................... 112 3.1) The Fourth Labour Government: A Political Overview ........................................... 114 3.2) Financial Market Liberalisation and Monetarist Macroeconomic Reform ............. 120 3.3) Explaining the Shift to Neoliberalism in New Zealand ............................................ 129 Conclusion ....................................................................................................................... 144 4. Completing the Shift to Neoliberalism: The Fourth National Government’s Neoliberal Policy Agenda, 1990 to 1999 .................................................................... 145 4.1) The Fourth National Government: A Political Overview ......................................... 147 4.2) Fiscal Austerity ............................................................................................................... 156 4.3) Explaining Fiscal Austerity ........................................................................................... 187 Conclusion ....................................................................................................................... 215 Contents vi 5. The Fifth Labour Government and Macroeconomic Policy, 1999 to 2008 .......... 218 5.1) The Fifth Labour Government: A Political Overview ............................................... 221 5.2) The Fifth Labour Government’s ‘Third Way’ ............................................................. 232 5.3) The Fifth Labour Government’s Macroeconomic Policy Nexus .............................. 237 Conclusion ....................................................................................................................... 265 6. Financial Market Liberalisation and the State: The Constraints on Government Macroeconomic Policy, 1999 to 2008 .................................................. 267 6.1) The Domestic Constraints on Government Macroeconomic Policy Formulation, 1999 to 2008 ............................................................................................. 269 6.2) The Dollar-Wall Street Regime’s Constraints on Macroeconomic Policy Formulation, 1999 to 2008 ............................................................................................. 276
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