Paradigms,Economic Ideas and Institutions in Economic Policy Change: the Case of New Zealand

Abstract

After 1984 New Zealand abandoned an economic policy paradigm based on a broadly social democratic Keynesianism and rapidly and comprehensively liberalised its economy. Drawing on interviews with eighty-seven members of institutional elites thought potentially influential on economic policy and individuals nominated as influential, this paper shows economic policy change was highly derivative of neoclassical and related schools of economics. Key 'policy entrepreneurs', sometimes educated in graduate programmes in American economics departments in the late 1970s, were important in convincing their respective institutions and other policy makers to support the new policy directions. Economic theories, sometimes of a controversial nature, were often adopted quite self-consciously and their dominance in decision making and their relative lack of modification in the policy process reflected the simplicity of institutional and policy making structures and the paucity of intellectual debate in New Zealand. Once established, the broadly neoclassical paradigm became highly dominant, extending its reach from macro- and micro-economic policy to gradually taking over public sector management and ownership issues, the labour market and social policy issues such as health and welfare policy.