Only six years ago, New Zealand, a pair of lush, green islands in the far South Pacific, was a place where small was beautiful: a largely agrarian economy flourished without unemployment or inflation, and with a measure of social equality unparalleled in the world.

Today this tidy little country of 3 million persons is struggling to cope with 16.5 percent inflation, 60,000 unemployed, a rapid emigration of skilled workers and a massive industrialization program.

What happened? Oil-price increases, of course.

Before the price of imported oil quintupled, this former British colony enjoyed one of the world's highest living standards. Even today, New Zealand is a placed where hardly anyone is rich or poor, where trout swim in city rivers, milk in glass bottles is delivered to the doorstep and policemen don't carry guns.

But this remote country imports 57 percent of its energy needs in the form of oil. Thus, transportation costs have skyrocketed, drastically affecting the cost of exporting meat, wool and dairy products -- the lifeblood of New Zealand's economy. There are 66 million sheep here -- 22 for each human being. The United States is the islands' largest customer, buying $700 million worth of products a year, primarily beef.

Prime Minister Robert Muldoon's remedy for the present economic woes is a controversial program labeled "Think Big," which is designed to encourage foreign investment and large capital-intensive projects. Huge hydroelectric dams are under construction on the mountainous South Island. Large natural-gas fields are being developed off the North Island's coast. A National Development Act, similar to President Carter's defeated rapid-development energy bill, passed parliament here last year.

Driving through the velvet pastures and along the semitropical coastline of the north, one can see newly planted pine forests by the roadside, part of a massive buildup of the timber industry.

But the government overestimated electrical demand and is now scrambling to develop energy-intensive industry to use the power. Scheduled gas-fired power plants are being canceled. The government wants to convert the gas to liquid fuel, possibly with the help of a new Mobil Oil Co. process, and is offering consumers incentives to switch their cars to liquid-petroleum gas.

The Labor Party oppposition is wary of thinking big, advocating instead a program of small labor-intensive industries spread throughout the country. Environmentalists are battling a giant aluminum smelter proposed for a pristine, scenic area.

But in a recent interview, Prime Minister Muldoon said there is "no alternative . . . . We have had a no-growth economy since the first oil shock of 1973. Our vast energy resources must be exploited. Added to an expansion of the farming sector, that will move us back up the ladder and enable a growth in living standards."

The picture has improved slightly in the last two years. Exports are increasing faster than imports. As Briain, New Zealand's principal customer for a century, has withdrawn into the European Common Market, New Zealand has vigorously developed new markets in the United States, Latin America and the Middle East. Iran, an important buyer, sent Moslem inspectors to make sure butchers here faced Mecca when they slaughtered the lambs.

Although family farms are the norm, New England is the third largest meat exporter in the world, an extraordinary feat for so small and remote a country. Dairymen here are the most efficient on earth, milking an averge of 104 cows, compared with 30 in the United States. (Industry, by contrast, is hampered by the frequent strikes of powerful unions.)

Muldoon, an outspoken politician, strongly objected to the United States' recent legislation to regulate beef imports according to time of year. "The consumer lobby is very weak in the U.S.," he said. "Invariably, the cattlemen's lobby wins the round . . . . Our farmers can't produce beef hoping that it will strike the right part of the cycle. We've got to produce to the low part of the cycle. This will create shortages, and prices will go up."

Industrialization seems bound to alter New Zealand's easygoing life style.

Factories with enormous capital investment lie dormant here two days a week because no one will work weekends, even for double-time pay. For the last month, a furious debate has raged about whether stores should be allowed to open on Saturdays, a day reserved for such national passions as gardening, rugby, horseracing and cricket.

Even the prime minister boasted that "golf here is not for the rich. Why, even my driver has just taken several weeks off to compete in tournaments. The average workingman here is likely to own a boat and go fishing every weekend."

Egalitarianism in this welfare state has been fostered by some of the most generous social benefits in the world. Regardless of income, New Zealanders get free medical care, accident insurance and pensions at age 60.To pay for it, income is taxed at 35 percent for a $5,500 annual wage, at 60 percent if it is more than $22,000.

"We don't have poor people in the sense that you do," Muldoon said. "In Washington, D.C., you drive down the streets and see broken, empty houses. We have 60,000 unemployed, but 25,000 of them work for full wages on government projects."

Today, throughout New Zealand, the system is being sharply questioned. Even opposition leader Bill Rowling, sounding incongruously like Ronald Reagan, said in an interview, "Originally, it was geared to human needs. Now people use their superannuation [pension] for holidays in Fiji. nThe system is an undue burden on the taxpayer. It is resented more and more by people at the bottom of the scale, working people with young children." m

Prompted by the economic downturn and dissatisfied perhaps with a system that seems to discourage incentive, skilled workers and educated New Zealanders are leaving in droves -- a net emigration of 50,000 in the last two years. A common complaint is that this may be a utopian dream for some -- New Zealand was the setting for Samuel Butler's fictional "Erewhon" -- but utopia can be dull.

Another sign of change is the restlessness of Maoris, New Zealand's original inhabitants. Maoris, now 10 percent of the population, receive even more generous benefits than the rest of the population, but their tribal culture has disintegrated as they have moved to the cities. Three-quarters drop out of school. Maoris make up 40 percent of the prison population.

A new cultural pride and militancy has aroused demands for bilingual education and the return of tribal lands. Youth gangs who call themselves Black Power, Storm Troopers and Antarctic Angels have clashed with police. But lately, they've turned to sponsoring community projects.

"These are not the Maori people, these are Maori radicals," Muldoon said of the militants. Race relations here historically have been harmonious, with a high rate of intermarriage. Immigration from other Pacific islands has increased in recent years.

"We are becoming a polynesian-European people," Muldoon said. "A hundred years from now, we'll all be slightly more brown-skinned. [European New Zealanders] have absorbed a great deal of Maori culture subconsciously. nWe put less store on material values and more store on the pleasant aspects of life."

Acutely aware of its isolation -- 1,200 miles away from Australia and 6,000 miles from the United States -- New Zealand is increasingly looking toward the Pacific as British ties fade. "Our principal role is father confessor to the independent island states," Muldoon said. "We seek no hegemony and we have their trust, I believe."

Unlike the previous Labor government, which advocated a "nuclear-free Pacific" and turned away American nuclear-powered ships, the National Party welcomes a strong American presence. Only in the last two years did the Carter administration recognize the importance of the 11 independent islands, Muldoon said. "They are capable of forming alliances with any power on earth. The strategic importance of that fact is not something we would wish any American administration to overlook."