A pervasive sense of malaise has taken hold in New Zealand. Commentators across the spectrum lament that the country feels “broken”, and polls show a majority of Kiwis believe society is on the wrong track. This despondency is not just the hangover from a tough couple of years, but stems from a deeper rot in our political economy. To diagnose the source of this national gloom, we need to look beyond immediate symptoms and identify the underlying disease.
I’ve covered all this in two other Integrity Briefing essays this week: New Zealand is off the rails and Are Business leaders to blame for the broken state of New Zealand? Today’s third essay in the “Broken NZ” series, looks more deeply at what I believe is the main cause of New Zealand’s decline: the country’s shift into a “crony capitalism” model in which monopolistic corporate power dominates via the political influence of lobbying and associated mechanisms.
The Monopoly problem in New Zealand
As I argued in my last column, New Zealand’s various polycrises and dysfunctions stem from a deeper rot in our political economy. New Zealand’s economic engine has been quietly hollowed out by a form of crony capitalism, where corporate success depends less on innovation and productive competition than on cosy relationships with government.
For a time, the cracks were papered over. A debt-fuelled housing boom, accompanied by high immigration, made us feel richer even as our real economy stagnated. But that illusion has faded. Now the costs of this crony capitalism model are plain to see: feeble productivity, extortionate living costs, an exodus of talent, and an economy increasingly dominated by insiders.
Even New Zealand’s vaunted reputation for clean governance has slipped. Transparency International’s last corruption index warned that the “suspiciously close ties between politics and business” are putting our integrity at risk. In short, crony capitalism is ruining New Zealand, sapping our national dynamism and undermining public trust.
This column examines two tightly connected ailments at the heart of New Zealand’s decline: a monopoly problem in our markets, and an influence problem in our democracy. On the one hand, many key industries here are cosy oligopolies dominated by a few incumbent firms that face little real competition. On the other hand, those same corporate insiders devote outsized effort to lobbying politicians and preserving their privileges, rather than innovating or competing globally.
These twin problems feed off each other. Weak competition breeds complacent businesses that lean on political connections to entrench their advantages. Meanwhile, a permissive political environment, in which Wellington’s doors are wide open to influence, allows incumbent businesses to ward off challengers and regulation, further entrenching their market power. The result is a vicious cycle of entrenched mediocrity: an economy where success is determined by who you know in the Beehive rather than what you can deliver in the marketplace.
Let’s look at how this crony capitalism syndrome manifests in New Zealand, through both our monopolised markets and our politicised boardrooms.
The Cost of cosy markets
Business in New Zealand is no longer the dynamic, entrepreneurial force it once aspired to be. Instead, too much of it has become lazy, mediocre and complacent. A big reason is structural: our economy is riddled with highly concentrated markets that reward incumbents and “rent-seekers” who are those who extract value without creating new value.
Economist Cameron Bagrie puts it bluntly: after New Zealand’s bold pro-competition reforms of the 1980s, “it feels like [we have] gone 360 degrees”. Many industries reconsolidated into powerful duopolies, oligopolies and cartels. Bagrie warns that “Weak competition just inhibits innovation and drives complacency”. And that is exactly what we now face.
You don’t have to look far for examples that affect every Kiwi’s daily life. Supermarkets? A duopoly of two big chains that control roughly 80% of the grocery market, enjoying fat margins while consumers pay over the odds for food. The Commerce Commission’s market study confirmed what every shopper intuits: competition in groceries “is not working well for consumers,” with persistently high prices and little choice. The Government floated a bold fix: forcing the supermarkets to divest stores to create a new competitor, but ultimately caved to half-measures after intense industry lobbying (more on that later).
Banking? Four Australian-owned banks dominate retail banking, together controlling roughly 90% of New Zealand’s lending. They reap billions in profits (a record $7.2 billion after-tax in the last year) from what amounts to a captive market with little genuine competition..
Electricity? A small number of generator-retailers (Meridian, Contact, Mercury, Genesis) dominate generation and retail. They have been able to extract hefty profits and pay out fat dividends (nearly $1.4 billion last year) while consumers face power bills rising at the fastest rate in decades. Annual electricity price hikes (over 11% lately) far outstrip general inflation, hitting households hard.
Building materials? A handful of firms like Fletcher Building and Carter Holt Harvey have long carved up supply chains. Fletcher’s subsidiary Winstone Wallboards, for instance, holds about 95% of the plasterboard market. A 2022 Commerce Commission inquiry found a “regulatory moat” of red tape that protects such incumbents by making it prohibitively hard for new products and entrants to gain approval.
Across the board, too many markets are controlled by a few incumbents, leading to high prices, poor service, and scant innovation. When companies don’t have to fight for customers, they get complacent, and consumers lose.
The economic consequences of this entrenched oligopoly culture are dire. New Zealand’s productivity growth has trailed the rest of the developed world for years, and the OECD consistently fingered insufficient competition as a key culprit. In concentrated markets, firms can coast along without pressure to invest, improve or reinvent. High profits in such markets often reflect monopoly pricing, not brilliance or efficiency. As one observer quipped, some of our corporations are so protected that they’ve forgotten how to compete at all.
Why are our corporate elites so mediocre? Part of the answer also lies in a corrosive business culture that prioritises playing it safe and keeping in the good graces of the powerful, rather than striving to be the best. MacCulloch labels it a “chumocracy” – an insular old-boys network of political and business mates who trade on connections and back-scratching. He writes: “Hiring the best is no longer the NZ way. It’s a schmoozing game”.
Top jobs in both the public sector and private boardrooms often go to well-connected insiders, not necessarily the most competent. Former Cabinet ministers slide effortlessly into plum corporate gigs. Corporate directors sit on each other’s boards, reinforcing groupthink. The same clubby names circulate in governance and advisory roles. In such a climate, meritocracy dies. Why hustle to innovate or excel if advancement depends more on who you know at the club or in Cabinet, rather than what you can achieve? Over time, this “who-you-know” culture actively selects for risk-averse administrators and political fixers instead of visionary entrepreneurs.
To be clear, monopoly power and crony complacency aren’t victimless crimes. Every day, New Zealanders pay the price in myriad ways. We pay more (often much more) for basics like food, electricity, banking, and building a home than we would in a truly competitive economy. We see fewer exciting new firms and innovations, as the incumbents dominate distribution channels and stifle change. Our best and brightest entrepreneurs often head offshore, where dynamism and rewards are greater, leaving behind a brain drain. And, as we’ll see next, those fat profits and cosy positions are zealously guarded through political influence, which just warps our public policies and priorities.
Wellington’s architecture of influence
How have New Zealand’s complacent corporate giants managed to hold on to their privileged positions for so long? A big part of the answer lies in Wellington’s corridors of power. Instead of reinvesting monopoly profits into better products or global expansion, too many Kiwi firms prefer to invest in lobbying, thereby pouring time and resources into managing politicians and regulations to preserve the status quo. This is what economists call classic “rent-seeking” behaviour: extracting profit by influencing the rules of the game, rather than by competing fairly and creating value. Over years, a sophisticated “architecture of influence” has developed in our capital, effectively replacing healthy competition with political manoeuvring.
Consider what happens whenever there’s a threat of market reform or a new entrant on the horizon. The instinct of our business establishment is often to circle the wagons and call in favours. Industry lobby groups swing into action, PR firms spin messages of doom, and “independent” reports miraculously appear to warn against change. Ministers and officials find themselves under pressure from every angle – lunches with corporate executives, calls from well-connected former colleagues now on company payrolls, glossy briefing papers landing on their desks. And they all conveying one overarching message: hands off our industry.
We saw this play out vividly in the supermarket duopoly saga. Faced with the Commerce Commission’s recommendation of structural fixes (like forcing the sale of stores to allow a new competitor), the supermarket lobby fought tooth and nail. They warned of dire consequences if a heavy hand was applied. In the end, the Government opted for milder measures (a regulator here, a code of conduct there) that left the basic duopoly intact. For the incumbents, that outcome was worth every bit of lobbying muscle flexed.
This defensive lobbying playbook is repeated across sector after sector. It’s no accident that reform efforts in banking, energy, telecommunications, and building supplies have been painfully slow and watered down. Privileged access and influence in Wellington often allow incumbents to muzzle bold policy.
As Professor MacCulloch pointedly asked, “Why has the government still not taken on the supermarkets, power companies, banks and big construction firms with a big stick? Why not address the lack of competition causing the cost-of-living crisis?”
The uncomfortable answer is that the insiders are in the ears of our decision-makers. Our governments of all stripes have too often been unwilling to truly confront big corporates, preferring a quiet life of “consultation” and minor tweaks. Essentially the state has been “captured” by vested interests.
It’s easier to maintain the cosy détente with powerful industry players than to ignite open warfare by busting up an oligopoly. In some cases, governments even protect the insiders. For example, MacCulloch highlighted the recent law change that retroactively shielded major banks from lawsuits by their customers, calling it out as a blatant favour to financial cronies. These kinds of decisions are hard to explain except as catering to special interests of mates and lobbyists, at the expense of principled policymaking.
The Power of corporate lobbyists
The lobbying industry in New Zealand, though smaller in scale than in Washington or Brussels, is highly effective and largely hidden from public view. There’s a revolving door of former politicians and advisors moving into lobbying firms and corporate public affairs roles. Elite industry associations like BusinessNZ’s Major Companies Group offer a clubby forum for CEOs to get face-time with Ministers behind closed doors.
Many of our largest corporations employ in-house “government relations” teams whose whole job is to keep ministers sweet and fend off unwelcome policy changes. Yet unlike other democracies, New Zealand has virtually no regulation or transparency around lobbying. We have no mandatory public register of lobbyists, no requirement for politicians to disclose meetings with influence-peddlers, no enforceable code of conduct for this activity.
It’s all very informal, and that’s just how the incumbents like it. The OECD has gently chided us for lagging behind on lobbying transparency, but efforts to install even modest rules have been stymied. The result is an opaque playing field tilted toward those who can afford insider access. Decisions get made without ordinary citizens ever knowing who whispered into whose ear.
It is in this context that Matthew Hooton’s critique of the lobbying culture is so hard-hitting. Hooton has been one of New Zealand’s most experienced and well-connected lobbyists and political PR consultants. Yet in recent times he has turned his fire on the very culture of political cosiness that he once thrived in. As I outlined in my second column, Hooton’s message to business leaders: stop hanging around Wellington and get back to actually running your businesses.
When a veteran political operator like him suggests our policy decisions are sometimes effectively for sale to mates, it’s a red flag that cannot be ignored. Hooton’s broader point is clear: lobbying has replaced enterprise in too many boardrooms. By treating government influence as just another corporate strategy, businesses have lost sight of their real purpose.
The damage from this “Wellington first” mentality is profound. It encourages what I call the “corporate welfare” mindset, the idea that it’s easier to plead for taxpayer money or regulatory protection than to compete. Indeed, during the Covid crisis, countless firms lined up for lavish wage subsidies and bailouts (often continuing to pay dividends or bonuses regardless).
Industries from agriculture to film regularly lobby for special subsidies or exemptions by arguing they’re vital to jobs, essentially threatening doom unless subsidised. This habit has taught many executives that begging beats innovating. Even this week we see examples of this – Air New Zealand is arguing today for state subsidies for their regional services, and the gaming industry has just convinced the Labour Party to promise greater subsidies when they get back into office.
Unfortunately, the costs of this crony capitalism fall on everyone else: taxpayers footing the bill for subsidies, consumers stuck with fewer choices and higher costs, and an economy that becomes more inequitable and stagnant.
Crony capitalism is the exact antithesis of the open, fair, and dynamic market economy that the Labour and National reformers promised in the 1980s and 1990s. And so although New Zealanders like to think of themselves as a relatively egalitarian, meritocratic society with honest government and a nimble, innovative private sector, that self-image is now badly cracked.
Unsurprisingly, New Zealand’s international rankings on transparency and competitiveness are slipping fast. The “rockstar economy” moment (if it ever truly existed beyond property prices) has given way to an era of drift. The monopoly problem and the lobbying problem are two sides of the same coin, and together they form a self-perpetuating cycle of decline.
The Rise and Decline of New Zealand
One of the best ways of understanding how crony capitalism works in conjunction with politics comes from the work of economist Mancur Olson, especially in his seminal 1982 book “The Rise and Decline of Nations”. This theory was covered extremely well by Danyl MacLauchlan in a Listener article titled “How Aotearoa has lost its political bearings”.
Referring to the many examples of the way our political and economic system has broken down, MacLauchlan highlighted how Olsen’s thesis directly applies to this country. This is because Olson warned that as wealthy democracies mature, business and political elites find it easier and more profitable to defect from the collective good. These elites form what Olson termed “distributional coalitions”, covert alliances of vested interests that find ingenious ways to reallocate public wealth to themselves. The mechanism for these wealth transfers is what Olson described as “opaque transfers”: legal but obscured giveaways, enabled by politicians within the coalition who deliberately craft complex laws so that “no one can see what’s happening”.
The dynamics Olson outlined are insidious but effective. As McLauchlan explains, the gains are concentrated among small groups who benefit greatly, while the costs are diffused across millions who barely notice. The result isn’t a sudden collapse of the nation, but a gradual, creeping decay. Olson’s key warning was a “slow rot”: legislation and regulation systematically tweaked to favour opaque transfers and “rational vandalism” rather than transparent governance for the common good.
New Zealand’s current funk, that gut feeling many have that the system is rigged and prices keep rising for no clear reason, is the tangible psychological experience of this slow rot. It is the sense of living in an economy hollowed out by crony capitalism.
In short, New Zealand’s decline is being driven by powerful distributional coalitions that have captured both our markets and our politics, creating a vicious cycle that perpetuates mediocrity and decay. To see how this works, consider the twin pillars of our slow rot: a “captured market economy” and a “captured state”.
Here’s McLauchlan’s conclusion about the need to fix this via the regulation of lobbying: “Most of our peer democracies have extensive regulation around lobbying because the threat the industry poses to the integrity of the political system is obvious. New Zealand has nothing. There are many valid reasons to lobby the government, but very few reasons to do so in secret.”
Conclusion: Breaking the cycle
New Zealand stands at a crossroads. We can continue down the path of what has been aptly called “soft corruption”, not the brown envelopes of brazen graft, but a slower, more insidious corruption of the economic spirit through cronyism and monopoly. That road leads to a future of low growth, high cynicism, and ever-increasing inequality of opportunity. Or, New Zealand can choose to reclaim the dynamism and integrity that once was seen to set us apart. That means restoring genuine competition in our markets, even if it means taking on some very powerful interests.
It means bolstering New Zealand’s under-resourced regulators and, if necessary, breaking up or reining in the oligopolies that have made New Zealand their cosy clubhouse. It also means cleaning up the way we do politics: demanding transparency around lobbying, closing the revolving door for political insiders, and insisting that policy be made on evidence and public interest, not at the beck and call of a few big CEOs.
Our politicians should be made to remember that their duty is to the public, not to their mates from the cocktail circuit. New Zealand will only regain its lost “mojo” when we dismantle the comfortable cartel of crony capitalism and reopen the economy to true enterprise and talent. Anything less condemns the country to remain a nation in quiet decline, run by and for a privileged few.
Dr Bryce Edwards
Director of The Integrity Institute
Note: Future columns in this series on “Broken NZ” will look at the role of political parties, NGOs and think tanks in contributing to the problem. As always, I really value any feedback or suggestions to help me explore on this topic.
Further Reading:
Cameron Bagrie (Herald): Poor governance is stalling NZ productivity growth (paywalled)
Danyl McLauchlan (Listener): Paradise Lost: How short-term thinking, top-down governance and weak economic policies squandered NZ’s potential (paywalled)
Danyl McLauchlan (Listener): How Aotearoa has lost its political bearings (paywalled)
Robert MacCulloch: Chumocracy is threatening NZ’s future
In his Paradise Reforged (2001), James Belich contended that Roger Douglas had failed to account for what he (Belich) called New Zealand's "endemic cartelism." In other words, if we privatise things, or go from what some bureaucrat thinks is fair, e.g. housing as a human right or electricity as a public utility, to what the market will bear, the result will be a cosy extractive oligopoly tightening the screws on a geographically captive market. In other countries, a market is regarded as competitive if if has six or more players of significant market share; here, we just about never get beyond four, and often, of course, it is only two.
OK that’s the problem, beautifully articulated, Bryce. What’s the fix? None of the major political parties can be relied upon for genuine reform. Daylight does not separate National, Labour or the baubled NZF. ACT are the high priests of The Rot. The Greens are down the rabbit hole with Alice on a bad acid trip, and TPM are consumed with loathing for anyone not of their own kind in the NZ waka. I digress … Three-yearly elections are too blunt a corrective instrument. The gods forbid that we should have four-yearly electoral cycles. Defenestration is still illegal. Pity. I dream of a government legislating for crimes against New Zealanders and crimes against New Zealand. No chance of that with the current crop of rotters, is there?