Tapu Misa: Taskforce a recipe for greater inequality

Many of the Brash panel's ideas would cause suffering with no guarantee that they would achieve their goal. Photo / Mark Mitchell

Milton Friedman would have been proud of Don Brash's prescription for our ailing economy.

"The last great lion of free-market economics," as one obituary described him, unleashed a legion of free-market disciples on to the world stage from his base at the famed Chicago School of Economics. Friedman died in 2006, but his legacy lives on - impervious to the long trail of casualties he and his true believers left in their wake.

Friedman could have written the 2025 Taskforce's report on how to catch Australia in 35 easy steps, so closely did it align with the core tenets of the Chicago School of Unfettered Capitalism. More privatisation, less government, cuts to public services, cuts to the minimum wage, lower taxes, less welfare, less regulation.

Never mind that this prescription didn't much work the last time we tried it. Or that it was between 1984 to 1993, when we were following the Friedmanite path to free-market nirvana, that Australia sped away from us.

The lucky country opted for more gradual change, while we submitted to shock therapy, a la Friedman, and ended up as one of the most unequal countries in the OECD.

That gap, between rich and poor New Zealanders, is the gap that really matters, the gap that holds us back, and threatens our future prosperity and peace.

But Dr Brash seems oblivious to that. If he and his colleagues have their way we'll be repeating the shock treatment, ensuring the gap widens even further.

There is no question that many of the proposals, if adopted, will cause suffering, and absolutely no guarantee that they will ever achieve their stated goal. Yet Dr Brash seems relaxed about their impact on the most vulnerable New Zealanders.

Yes, some people will get hurt in the process, especially those whose minimum wage will be even more minuscule as a result - but, oh, well, you have to break a few eggs to make an omelette, and, eventually, some day, this is actually going to raise their incomes. That's if they survive it. As Ernest Hemingway said: "It was a brilliant cure but we lost the patient."

Brash's bitter medicine might be a good idea, too - if only it didn't involve real people.

And that was always the problem with Friedman's take-no-prisoners capitalism, as the journalist Naomi Klein points out in her brilliant book, The Shock Doctrine.

Klein's impeccably researched bestseller paints a chilling picture of the influence the Chicago School of Capitalists has had around the world, beginning in Chile, and including Russia, South Africa, and Argentina.

Everywhere, she writes, Friedmanism has left a trail of inequality, corruption, and environmental degradation - and resulted in "a huge transfer of wealth from public to private hands, followed by a huge transfer of private debts into public hands".

Take Chile. In 1973, when the popular socialist government of Salvador Allende was overthrown by the military, the Chicago School got its first chance to try out its free-market theories on a real-world economy. Chile's economists were graduates of the Chicago School, thanks to an American-funded scholarship scheme. They had learned at Friedman's feet. And some of them were complicit in the coup.

As one Chilean put it: "The theories of Milton Friedman gave him the Nobel prize; they gave Chile General Pinochet." At the urging of the Chicago Boys, General Augusto Pinochet faithfully followed the Chicago School prescription of more privatisation, less regulation, and cuts to government services.

When he began to waver, in the face of soaring unemployment and inflation, the great Friedman himself visited Pinochet, in 1975, to encourage him to hold the course. He called for "shock treatment", saying it was "the only medicine".

Klein: "Friedman's notes of his meeting with General Pinochet during that visit record that the general 'was sympathetically attracted to the idea of a shock treatment but was clearly distressed at the possible temporary unemployment that might be caused'. At this point, Pinochet was already notorious the world over for ordering massacres in football stadiums; that the dictator was 'distressed' by the human cost of shock therapy might have given Friedman pause."

It didn't. Instead he pressed Pinochet to cut government spending even further, "by 25 per cent within six months", and to remove "as many obstacles as possible that now hinder the private market".

After a year of "Friedman-prescribed shock therapy", Chile's economy had contracted by 15 per cent. "The junta, which had instantly taken to Friedman's illness metaphors, was unapologetic, explaining that 'this path was chosen because it is the only one that goes directly to the sickness'."

Chile is still held up by free-market enthusiasts as proof that Friedmanism works, writes Klein, but this is a myth.

"The country's period of steady growth that's held up as proof of its miraculous success did not begin until the mid-eighties - a full decade after the Chicago Boys implemented shock therapy and well after Pinochet was forced to make a radical course correction. That's because in 1982, despite its strict adherence to Chicago doctrine, Chile's economy crashed: its debt exploded, it faced hyperinflation once again and unemployment hit 30 per cent - 10 times higher than it was under Allende.

The main cause was that the piranhas, the Enron-style financial houses that the Chicago Boys had freed from all regulation, had bought up the country's assets on borrowed money and run up an enormous debt of $14 billion."

According to Klein, the only thing that protected Chile in the early 1980s was the fact that Pinochet had never privatised the state copper mine company, which had been nationalised by Allende. "That one company generated 85 per cent of Chile's export revenues" which kept the country going.