Financial sector deregulation in New Zealand 1984 - 1990

Abstract

The aims of this study of the Fourth Labour Government's deregulation of the New Zealand financial sector between 1984 and 1990 are two-fold. Firstly, to illustrate the significance of the Lange Government's deregulation of the financial sector both in terms of its break with the post-war consensus approach to managing the financial sector, and in terms of its enormous influence on the development of the New Zealand financial sector post-1984. Secondly, to explain why the Lange Government initiated its deregulation programme in the financial sector and why it was able to liberalise the financial sector so rapidly and comprehensively. Chapter One briefly describes the post-war financial system that operated prior to the 1984 election of the Lange Government with special emphasis on Labour's immediate predecessor, the Sir Robert Muldoon-led National Governments between 1975 and 1984. Chapter Two illustrates both the dramatic nature of the Lange Governments' break with the post-war approach to managing the financial sector and also the impact on the financial institutions, themselves, of the Lange Governments moves to deregulate the sector. Chapter Three looks at why the Lange Government initiated its liberalisation programme in the financial sector and why it was able to deregulate it in such a rapid and comprehensive way. Further helping to address the twin aims of this thesis is an examination in Chapters Four - Seven of some of the significant debates which emerged out of the liberalisation of the financial sector. These debates help draw out both the significance of what the Fourth Labour Government did in deregulating the financial sector and why Labour was able to deregulate the sector in the manner that it did. In particular, Chapter's Four and Six, help explain why the Lange Government initiated its liberalisation programme in the financial sector through looking at the debates surrounding the devaluing of the dollar in 1984 and the overall sequencing of Labour's economic liberalisation programme. Likewise, Chapters Five and Seven, in covering the floating of the dollar and the re-writing of the Reserve Bank Act, examine two of the Lange Government's most radical and influential moves in the financial sector. This thesis concludes that the Fourth Labour Government's radical and all-encompassing liberalisation of the financial sector was attributable to a combination of factors of which the most notable were, (a) the financial sector's unique characteristics of which the most significant was the conjunction of interests between both the regulated financial institutions and the regulators of the financial sector, (b) the influence of Roger Douglas, as Minister of Finance, on Labour's deregulation programme, (c) the influence of the emerging post-war generation of leaders, of which the leading Ministers in the Lange Cabinet were prominent members and, finally, (d) the 'window of opportunity' presented to a deregulatory-minded government such as the Lange Government via the groundswell of dissent against the regulatory excesses of the Muldoon Government especially in its last term between 1981 and 1984.