By Richard Shaw*
It’s easy to look back at the bad haircuts, beige clothes and brown Beehive carpets and chuckle. But whatever one’s views on its aesthetics, the Fourth Labour Government – elected 40 years ago on July 14 – was no laughing matter.
After nine years of economic nationalism and social conservatism under National prime minister Robert Muldoon, David Lange’s new broom left no corner unswept. In the space of a few short years, fuelled by a high-octane blend of neoliberal theory and neoclassical state minimalism, it reinvented the nation.
The incoming government was helped on its way by Muldoon precipitating a constitutional crisis just days after the election, and by a political system that allowed a government with a parliamentary majority to legislate with relative impunity.
Lange and his finance minister Roger Douglas also relied heavily on the intellectual support of senior Treasury officials who had spent the Muldoon years absorbing the free market philosophies of the Chicago School of Economics.
Labour deployed the political resources of a new, reforming government to full effect. And the list of its reforms says as much about the country we once were as it does about the one we have become.
The rise of Rogernomics
During its first term in office, public subsidies in the agriculture and forestry sectors were removed. Foreign exchange and interest rate controls were lifted. The dollar was floated and financial markets substantially deregulated.
The goods and services tax (GST) was introduced, the personal income tax structure simplified, and the top tax rate for individual income earners fell from 66 to 48 cents in the dollar.
Government businesses and departments were corporatised. Many were then privatised, particularly after Labour’s increased support at the 1987 election. One of the most regulated economies in the world rapidly became one of the most open.
It was dubbed “Rogernomics”, but the Lange-Douglas government’s social and foreign policy reforms were almost as significant. Rape within marriage was finally outlawed, homosexuality was decriminalised, and nuclear-free laws passed as part of a newly assertive and independent foreign policy.
Attorney-general Geoffrey Palmer revised parliament’s Standing Orders, transforming our legislature into one of the most open in the parliamentary democratic world. Palmer also shepherded the Constitution Act (1986) through the House, which formally ended the outmoded provision that New Zealand governments could ask the British parliament to legislate on their behalf.
The past shapes the present
The Lange government would drive other, deeper transformations over time. The manner in which both Labour and its National Party successor threw their executive weight about, for instance, goes a long way to explaining the advent of the MMP proportional electoral system in 1993.
Many, perhaps naively, hoped MMP would clip the wings of the political executive. But the more astute architects of reform recognised MMP was the perfect system for locking in the structural changes made in the 1980s and 1990s by Labour and National.
The sort of radical politics that would be required to undo the neoliberal reforms enacted since 1984 are much harder to achieve in a multi-party system than in one dominated by two parties which swap executive power.
Moreover, the DNA of Labour’s Lange-Douglas era can still be found in the party system that has evolved under MMP.
Most obviously, the ACT Party was co-founded by Roger Douglas. It draws its intellectual inspiration less from Ayn Rand’s Atlas Shrugged than from the Treasury’s epochal briefing to the incoming government in 1984, Economic Management. NZ First leader Winston Peters still adheres to aspects of the world Lange and his core cabinet ended.
And Te Pati Māori is the latest in many attempts to wrangle something for tangata whenua out of our Westminster parliamentary arrangements. The political environment in which it operates was shaped by Labour’s expansion of the Waitangi Tribunal’s powers.
A new orthodoxy
Perhaps the Fourth Labour Government’s most enduring legacy, however, is the least visible: it changed the way we talk and think about politics, especially what we now consider either politically possible or beyond the pale.
We have voluntarily chosen to constrain our ability to control fiscal and monetary policy. And these self-imposed limits on state power are now so embedded in legislation that any form of fiscal activism – such as saving jobs and businesses during a pandemic – seems extraordinary.
The notion that the human condition amounts to the rational pursuit of individual self-interest is similarly pervasive. By this reasoning, wealth inequality – of which there is a great deal more than in 1984 – is a moral not a market failure. Not even a global financial crisis or pandemic could really shift the paradigm.
These things are now widely accepted as natural and immutable, rather than the political choices they are. Without anyone really noticing, two equivalent fictions – the “dead hand” of the state and the “invisible hand” of the market – have assumed the status of both lore and law.
In France, one of the crucibles of modern democracy, the fall of the ancien régime during the revolution is commemorated on July 14, Bastille Day. On that same day in 1984, an old New Zealand order also fell. It was replaced by a new orthodoxy that has effectively smothered an alternative political or economic imagination.
We are all still living in the shadow of 1984. That is the real legacy of the Fourth Labour Government.
*Richard Shaw, Professor of Politics, Massey University. This article is republished from The Conversation under a Creative Commons license. Read the original article.
50 Comments
Yes, TINA (there is no alternative) is such a deadweight on our country.
Of course, since 1984, much of the Chicago school of economics that Rogernomics drew from has been found to be, frankly, nonsense. Yet, here we are living by the same rules... discussing medieval monetary policy as if it's cutting edge science, assuming automatically that private delivery is good and public is bad, and opining confidently on things as if supply curves tell us anything about how pricing works in the real world.
Economics and Physics have a concept in common - for every action there is a equal and opposite reaction.
The Chicago School of Economics - particularly their thoughts on Monetary Policy has been in place globally for 40 years, those countries that floated their dollars and used central banks to control the money supply have been highly successful countries economically.
However you cant defy the physics, increasing the money supply with artificially low rates or Quantative Easing will lead to inflationary pressures, using interest rate increases to then curb the money supply to control inflation will lead to unemployment and failed businesses as homeowners and businesses curb their spending to pay down debt.
The problem is the public expects the economy to always be perfume and roses, but don't believe they have any role to play in ensuring the economy stays stable. Instead we binge on debt, because its cheap, we spend every dollar we earn on things we dont need, because we can. We switch jobs at a whim, resist change in the workplace and put in just the right amount of productivity to keep our jobs. We live in a world for today and don't worry about tomorrow. Eventually the consequences arrive and then we cry "how unfair is this"
The Chicago School of economics relies on the economy being balanced and people behaving rationally- the problem is we have allowed our economies to become unbalanced and for irrational behaviour to occur - mainly driven on "get rich quick" concepts.
In the words of the Australian Treasurer Paul Keating - this is the Recession we had to have - for all of the above reasons- high individual and business debt, high consumption and low productivity.
There is nothing wrong with the Chicago School of Economics and their economic theory, we as a society just didn't read the fine print .
"We switch jobs at a whim, resist change in the workplace and put in just the right amount of productivity to keep our jobs."
Quite often this is the only way to get a pay-rise. And regarding the amount of productivity, it's often just a natural response to the lowest (still employed) common denominator. People look at what others are doing and wonder why break a sweat.
I think your view on economics might be quite out of date there.
While there are aspects that are still more art than science, and there are theories that cannot be currently tested empirically, the massive mountain of data that has been produced since about the 80s on individual decision making has enabled a lot of economic theories to be empirically tested. Today, most academic economic papers are heavy on the data, and utilise the scientific method in a 'testable, rigorous' manner.
The remainder, can often be confused with theoretical mathematics papers
I don't get the point you are trying to make.
Both left and right economic models are flawed, so we have to choose the least worst. A democracy, independent inflation targeting central bank, English Common Law, floating exchange rate and competent regulators are the foundations of most prosporous countries.
"We have voluntarily chosen to constrain our ability to control fiscal and monetary policy. And these self-imposed limits on state power are now so embedded in legislation that any form of fiscal activism – such as saving jobs and businesses during a pandemic – seems extraordinary.
The notion that the human condition amounts to the rational pursuit of individual self-interest is similarly pervasive. By this reasoning, wealth inequality – of which there is a great deal more than in 1984 – is a moral not a market failure. Not even a global financial crisis or pandemic could really shift the paradigm."
It may not have been totally voluntary as the world was changing around us but we certainly adopted the new paradigm with considerable zeal even to our own detriment....what surprises the most is that after the 40 years of evidence of failure we still seem unwilling to accept that nothing that was promoted has eventuated but much of that which was warned of has come to pass....of course there is the fact that the majority of the current population have no knowledge or experience of that history.
Precisely.
"individual self-interest is similarly pervasive. By this reasoning, wealth inequality – of which there is a great deal more than in 1984.... Not even a global financial crisis or pandemic could really shift the paradigm."
And until we have shifted that paradigm; in effect, working for a living instead of expecting the next generation to pay for it from 'our' divinely given tax-free capital gains, we are going nowhere but backwards. Worse. Forwards, to even more of the same.
(eg: From The Herald, "Meet the 30 years old with 13 properties.... Investor says new debt rules won't stop him buying more and becoming a billionaire.." Where does he think that billion is going to come from, if he thinks about it at all? Magical Capital Gains, all harvested from future New Zealanders)
You can’t cherrypick, then blame everything on neoliberalism. Real estate wouldn’t have been a good investment over the past few decades if there were no supply constraints. And allowing planners to impose them is anti-neoliberal. The problems come when you half ass it; we need to finish what Douglas started.
What a sad little dinosaur comment.
Douglas started a short-term rape of the physical habitat we need to support life. In the name of a few, at the expense of the many.
But that doesn't work. approaching and traversing the Limits to Growth.
A predicament the neoliberals are ignorant - in the primary sense of the word - of.
To answer your question, Cantillon’s Law says that the first recipients of new money benefit more than later recipients because they can spend the money before prices increase. This concept highlights how monetary policy can create winners and losers depending on who receives the new money first.
"The notion that the human condition amounts to the rational pursuit of individual self-interest is similarly pervasive."
It's the irrational pursuit of self interest that's pervasive. Some of us are old enough to remember the economic basket case that was NZ in the 1970s & early 80's when politicians dictated the economy before the RB Act.
The state has to set the joined up thinking of the economy (and retain the capability to ascertain and analyse the requirements) even if the private sector undertake the work....we threw away all our ability to carry out that planning and assessment when we decided to leave everything to the markets...and what we have today is the result.
The markets only evaluate the segment they seek to profit from... there is no overarching strategy.
We have far too much central government planning. The best of both worlds is government making market based policy like the ETS, congestion pricing, and (hopefully one day) land value taxes. If it’s bad, price it, then let individuals decide how they want to effect that change in their own lifestyles.
We need no “overarching” strategy.
https://www.youtube.com/watch?v=VOMWzjrRiBg
Even you should get that.
That - is exactly why we need an overarching strategy.
Wrooong, Malthusian.
https://ourworldindata.org/grapher/co2-emissions-and-gdp-per-capita?cou…
And yet global emissions per capita still rise, aligned with GDP Change in per capita CO₂ emissions and GDP, World (ourworldindata.org)
lots of the changes were positive - the removal of agricultural subsidies for example
some is in need of change - superannuation for example
and some is way past its use by date - NZRB
but overall we appear much better off economically and socially than we would have been without change
Unfortunately we are still stuck with a broad range of inefficient monopoly service providers public and private and a population who appears to think the govt is the answer and provider. ACT still has work to do
A pity that Roger Douglas could not finish the reforms after Lange's "cup of tea." New Zealand has drifted Left ever since, and next time we have a Labour/Green government, there will be a wealth tax, resulting in many professional people, and people who have businesses in New Zealand, leaving for Australia.
Its easy to cast the revolutionary 4th Labour govt in a negative light, but it was a breath of fresh air to those of us that recall the Muldoon era. NZ was beset by wage/price freezes, mega-debt, high income, high and complex sales taxes, and the distortionary effects of industry subsidies. Lead by a stifling Muldoon regime, we were a closed economy like some Stalinist era "Romanian" backwater of the South Pacific.
Car-less days, power cuts, exhorbitant petrol prices and flights from Sydney jam packed with transistor radios and other electronics as the sales taxes made them cost prohibitive. Immigration was so high that the standing joke was "Last person to leave please turn off the lights". The country would be a bankrupt 3rd world state if we had carried on that path.
A lot more positives came from the 1984 transformation than negatives.
This is a great article. I hadn't thought about how much harder is it to unwind some of those changes in an MMP environment, but yes, it makes sense. I remember listening to a podcast by RNZ, I think it was called the 9th Floor, in which former prime ministers were interviewed, one of which was Jim Bolger. Interestingly, he thought at the time they thought it was the right thing to do and that once the initial structural displacement of the labour market (particularly around like manufacturing jobs, etc) had been worked through - everyone's boat would rise with the tide. Much to his credit, he now knows their assumptions were wrong. Instead, we've seen a permanent underclass created, and a bunch of other society ills (crime, low achievement hindering our productivity, etc) flowing from our much more unequal society.
I don't think everything the Labour government did was bad, like yes we needed more transparency, yes, we needed to measure outcomes, etc. But I do think overall, it went too far the other way. You only have to look at what happened to social mobility before and after. We've wasted so much human capital, by leaving so many behind. I also think nationalism isn't always a bad thing, we should be looking after our own people first. The neoliberal reforms of the 1980s cast a long shadow over so many liberal democracies - this is why Trump has been able to tap into the sense of anger running through working class communities, who have been told things like globalisation and immigration are good for them, but their lived reality is the opposite.
I feel whichever way we want to lean, NZ is fairly trapped by it's economic/operational aspirations. On the surface, we appear and are trying to act comparable to other nations that look like us, but lack many components that others' enjoy; size, shared culture, proximity to larger markets, population, and significant history of economic and intellectual development.
We had a fair period where that didn't matter so much, for around half a century much of the rest of the world was either in conflict or dealing with the cleanup, or they were substantially under developed. We managed to #8 wire our way to some level of prosperity, but haven't been able to keep up with others' relative advancement, instead having to import technology to try and utilize it for our own economic development.
There's a bunch of unpopular changes we should be making. For a start, if we accept that we can't make a lot of the stuff we want to use, shouldn't we mandate that any imported item needs to last 10, maybe even 20+ years? Instead of importing a steady stream of disposable crap we have to continually throw out and then replace.
Sad but true.
Some of the reform were moronic. Chopping up the electricity network into seperate companies - what was that meant to achieve beyond the exorbitant line fees we are now saddled with.
Same for other infrastructure like Papakura District Council privatising it water and wastewater networks. That company, Veolia, has done nothing to plan for growth and is now asking developers to pay for necessary upgrades. That is dysfunctional.
The RMA - more proof the market doesn't know best.
Finally - we need to ditch pointless monetary policy based on interest rates. It simply doesn't work.
For clarity the electricity reforms were down to National government in the 1990s
https://en.m.wikipedia.org/wiki/Electricity_sector_in_New_Zealand
As was the RMA
Yes, and treating government agencies in a new public management model like businesses has also blown up costs. Having agencies compete against each other has led to an ever inflationary wage environment for the core public service. In Australia and the UK, there are standard bands applied across all agencies. In NZ, there can be huge differences between what agencies will pay, and competing for the same talent has been poor value for money. The only sector I can think of where NZ pays more than Aus is central government roles.
I recall Roger Douglas stating in an interview in the 1990's that the (or his) intent of the reforms was to remove privilege, and that he was less interested in how services were delivered than what was delivered. It seems to me that change was indeed needed, but the changes brought forth were very costly to society indeed.
Interestingly, this makes me think of all the neoliberal assumptions we’ve internalised as laws of nature that hugely favour maintaining the status quo. Like the assumption that removing any regulation or requirement to do something is inherently good (despite the terrible consequences). For example, reason RBNZ only had a week or so to consult to remove the LVRs but months to put them back on. Similarly, it took Labour forever to phase out interest deductibility, and national very speedily undid that policy. What disgusts me is how evidence is weaponised to stall any attempts at regulation. The status quo never need justify itself.
The property market is an example of our policy settings not leading to an actual 'free market', because we give a privileged status to income from property (and capital gains more generally) relative to other forms of incomes. If anything it distorts markets, like the accommodation supplement. Free market ideology has been selectively applied to suit those at the top of the wealth heap.
I think we're still living under the shadow of the 1935 election https://en.wikipedia.org/wiki/1935_New_Zealand_general_election
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