The FIRE Economy: New Zealand's Reckoning

There is a widespread sense in New Zealand that we have survived rather well through the succession of financial crises, including the 2008 Global Financial Crisis, which have caused havoc and hardship in many other countries. Be alarmed rather than complacent, says Jane Kelsey, because New Zealand’s economy has many of the features that have precipitated those crises: a credit boom, rapid financial expansion, skyrocketing property prices, massive household debt tied to housing, and burgeoning private and external debt.

Jane Kelsey is a Professor of Law at the University of Auckland and a well-known critic of neoliberalism especially in its New Zealand form. In her recent book, The FIRE Economy: New Zealand’s Reckoning, she sets out to expose the paradox that financialisation and neoliberalism are fragile, unsustainable and yet resilient because they reinforce each other.

“FIRE” is an acronym for finance, insurance, and real estate. The “FIRE economy” is a metaphor for the shift in global capitalism since the 1970s in which finance has replaced industry as the driver of wealth creation in affluent countries. Hence the term “financialisation”.

The FIRE Economy is an attempt to catalyse a debate about the dangers that confront New Zealand as a result of three decades of neoliberalism. Kelsey notes the features of our FIRE economy often critiqued by international commentators: inflation-targeted monetary policy, unfettered expansion of finance, and the escalation of household, private and external debt, plus the idea of self-correcting financial markets relied on to justify the light-handed role of the state in New Zealand.

Many Tui Motu magazine readers will have already noticed in this review a rapid-fire succession of words that are outside their comfort zone even for serious reading. This book is not an easy read; it is directed towards readers with a background in economics and law. Yet the main lines of its argument are still clear to the persistent reader with a sense of social justice and citizenship. It is alarming how much ordinary people have become collateral damage in a light-handed, risk-tolerant government policy that maximises freedom and profits for the finance industry while leaving the community to carry the costs of corporate risk-taking and failure. New Zealand has a regime of financial regulation that is high-risk for consumers, citizens, businesses, taxpayers and the state, and low-cost for the hugely profitable finance industry. This is a financial sector that rules rather than serves the economy.

While Kelsey’s analysis is alarming, it is not without hope. Her intention is to propose what she calls a “progressive transformation” beyond the risks. She lists the prerequisites and the pathways for achieving such a transformation, including the urgency of popular demand for it. She concludes with the hope that New Zealanders have retained enough sense of social justice, community and manaakitanga, and enough strength in our domestic polity, to rethink the social, cultural and economic foundations that currently define our future in a turbulent and fractured financialised world.