New Zealand and economic mono-cultures

John Quiggin  - New Zealand’s zombie miracle

JQ has an interesting post about the current Australian Right wing fanbase that the New Zealand economy has.  (It's all a beat up, how good it's economy is supposed to be, argues the Professor.)

One thing that I have been meaning to say in a post for a long time - my impression, although it stands to be corrected - is that small countries under a strong sway of free market, business friendly policies, often seem to end up as economic mono-cultures, with most of their sudden, relatively good economic improvement coming disproportionately off just one sector.  In New Zealand's case, it's dairy (which is even a subset of one sector); in many other countries, it seems to be financial services, or corporate services of one kind or another.  (Hey global companies, pretend your sales all come from here, and minimise your tax.)

I think we see it in Australia to a degree too, with free marketeers all poo-pooing any manufacturing support of any kind whatsoever.

It's supposed to be all about economic efficiency - letting countries that do something particularly well corner a large part of the global market for it, and we're all better off.

But there must be a risk to the way economies can swing in these mono-cultures, surely.   In New Zealand's case, there's an upheaval going on in dairy globally at the moment - how badly can that affect the country?   Quite a lot, by the sounds:

In its global dairy update for June, Fonterra said the country's milk production is continuing to decline as farmers respond to low prices.

Until recently, dairy was the backbone of New Zealand's economy, representing around 25 percent of exports. But prices have tumbled by more than half since early 2014, hurt by China's
economic slowdown and global oversupply.

In the season that ended May 31 milk production fell 3 percent on the previous 2014-15 season.

"Lower milk collections were largely a result of the low milk price environment, with farmers reducing stocking rates and supplementary feeding to reduce costs," Fonterra said.


Weak dairy prices have put significant pressure on New Zealand farmers. More than 85 percent of dairy farmers are estimated to be running at a loss.

 So, while understanding the benefits of global trade and economic efficiencies, isn't it reasonable to say that governments can play a positive role in ensuring that their economies do not end up putting all eggs in one basket?   Ultimately, doesn't a degree of government support for different sectors help ensure that wild swings in markets and economic circumstances are smoothed out, so to speak, and have reduced potential to cause too much damage?

What do small government, free-market-is-always-best, economists say about that, because it seems to me to be just a sensible position I'm suggesting.