When the cord breaks: the fourth Labour government

Talk by Colin James to Christchurch Labour, 19 May 2016

“The moment of conception is a barrier surpassed, birth a boundary crossed. Gunter Grass’s Oskar, the mettlesome hero of The Tin Drum, narrates in real time his troubling passage through the birth canal and his desire, once delivered into the world, to reverse the process. The room is cold. A moth beats against the naked light bulb. But it’s too late to turn back, the midwife has cut the cord.” – Francis Stonor Saunders, “Where on Earth are you?”, London Review of Books, Vol 38 No5, 3 March 2016.

This could be an allegory for the Labour party’s wrenching eviction from the warm womb of the regulated mixed economy into the cold world of globalised markets and the glare of Friedmanite economics. The midwife was the 1984-90 fourth Labour government’s cabinet and the birth was by rough caesarean section.

Many at the time saw, and many since have seen, this birth as unnatural, a severing of the bloodline of the inheritors of ideals inherited from Karl Marx and moulded by Beatrice and Sidney Webb and the Fabians and the New Zealand party’s progenitors in the 1890s and 1900s and the party’s founders at the unity conference of 7 July 1916. Moreover, the party of 2016 cannot “reverse the process”. There is no way back up the birth canal to the economic policy certainties of 1936. The cord was cut.

But to focus on the economic reforms undervalues much else the fourth Labour government did that was consistent with and/or an extension of Labour tradition. The DNA of the party of 1916 has been transmitted (with the modifications that accompany such transmissions through generations) to the great-grandchild party of 2016. The big question, as society goes through another deep change, at least as convulsive as those to which the first and fourth Labour governments responded, is whether Labour has, in its inherited DNA, the genetic elements that made it in the 1930s and 1980s the party of deep policy change.

Socialism in its various forms was born of the deep social change generated by the industrial revolution. The pre-industrial hierarchies and oligarchies gave ground under pressure, expanding the franchise and with that the scope for the rising middle and working classes to seek policy change through parliamentary parties. In New Zealand the Labour party’s precursor socialist and union groupings influenced the Liberals’ social innovations in the 1890s and first half of the 1900s decade, though, as John E Martin(1) and Tom Brooking(2) have demonstrated, these innovations in practice owed more to a notion of “honouring the contract” (Martin’s phrase) between the nascent state and migrants than to revolutionary ideas and ideals.

The 1914-18 war, electrification and mass production, coupled with much improved communications and transport, generated another deep social change through the 1920s, intensified in the 1930s by economic depression. This time the Labour party was in the box seat to respond with deep policy change. That programme focused on social security, including near-free health care, free compulsory education and good houses, and on what I call the “guaranteed job”. By that I mean a state active in the economy by way of regulation, industry protection and import substitution and state-backed unions which ensured nearly everyone who wanted a job got one – and with that guaranteed job, through a regulated wage-fixing system, guaranteed sustenance for a family.

The socialists-turned-social democrats in that first Labour government accepted private ownership of the means of production, distribution and exchange and cohabited with those private owners. New Zealand was not unique in adopting this “mixed economy” and social security. But it was an early adopter and in some ways was an innovator and it took some elements further than other countries did, at least initially. It stayed long enough in office to ward off counter-reform by the National party which in power after 1949 adjusted it only at the edges. Sir John Marshall, in his exposition of what a “liberal” on National’s side believed, could say in his maiden speech in 1947 that “the doctrine of laissez-faire passed out of liberal thinking 50 years ago” His liberalism was “a social individualism which imposes duties as well as rights on each and all” and social security was a necessary such duty.(3)

The 1930s settings lasted until the 1980s by which time social security had expanded into the welfare state and was so embedded in the national psyche that in 1972 a Royal Commission on Social Security, set up by the Holyoake National government and chaired by a conservative judge, Sir Thaddeus McCarthy, while restrained in its recommendations, stated the system’s “highly desirable objective” as: “…to enable any citizen to meet and mix with other New Zealanders as one of them, as a full member of the community – in brief, to belong.”(4) This was not the classical liberal’s right of legal access, indifferent to capacity to exercise that right. It was a positive right, requiring government action to ensure genuine capacity to fully belong.

Later in 1972 Norman Kirk led Labour to a landslide election win. The landslide was to prove illusory: the third Labour government, like the second, lasted only one three-year term. Kirk died and Bill Rowling could not fill his outsize shoes. The post-1965 terms of trade decline, after a brief spike in 1971-72, turned precipitous after the 1973 oil shock, undermining the government’s credibility as an economic manager.

Kirk, I argued in comments to an Auckland Fabian Society retrospective in November 2012,(5) was a “pivot” between old and emerging Labour.

One Kirk was a product of his working class upbringing and early adult life and had stances to match on the likes of law and order and the place of women and state influence on the economy: one of the first acts of his government was to impose rent controls (though he did reject central planning). Kirk did talk in 1968 of “an open-ended commitment to free trade with highly industrialised nations like Japan and Singapore… [L]et us not be frightened of all this and run for shelter.”(6) But that “free” trade focused on exports and was consistent with the 1965 New Zealand Australia Free Trade Agreement which was a managed, not a free, trade arrangement. That Kirk would have responded pretty much as Sir Robert Muldoon did to the terms-of-trade crisis as it worsened through the late 1970s and early 1980s: more regulation, more borrowing – traditional Labour. That Kirk did not anticipate the 1984 Labour government.

The other Kirk looked forward, in conformity with but extending traditional Labour. In 1968 he said he wanted the country to acknowledge Maori as “equal partners in the determination of this country’s destiny”. He wanted New Zealand to be a truly independent nation, which he expressed as a “journey towards nationhood”. In office, for all his scorn of the idealistic, moralising young Michael Bassetts and Mike Hirschfelds, he withdrew smartly from the Vietnam war, equally smartly recognised Communist China, stopped a Springbok rugby tour, sent a frigate to protest against French nuclear testing at Mururoa and joined an Australian case before the International Court of Justice to get the tests stopped — all a decade before 1984.

The Bassetts and Hirschfelds were of the “baby-boom” generation born late in or after the second war. By the late 1970s this cohort was generating deep social change, accompanied by the economic stress – an echo of the 1930s. By 1983 most key Labour shadow ministers were baby-boomers. That presaged deep policy reforms. The only questions were what forms those reforms would take and how far and fast the reformers would go.

The answer lay in their values.

By contrast with their parents’ experience of depression and war, the baby-boomers grew up in a period of political near-consensus, geopolitical order and rising prosperity. They chafed at the restrictions on personal freedoms their parents accepted: they demanded and practised freer sex, freer drinking, freer thinking. They were the first to have the privilege of general access (if qualified) to tertiary education where many became noisily political, in protests, in “teach-ins” on the Vietnam war set in the a context of American imperialism and in dissent within and from the two established political parties. In Labour those activists pushed for an idealistic international policy, including banning nuclear weapons, protection of the natural environment and banning rugby with South Africa while Maori were excluded from the All Blacks. From the early 1970s they pushed for equality for women, Maori and ethnic minorities, which was consistent with Labour’s traditional representation of the weak (the working class) but went far beyond where many Labour traditionalists wanted to go.

This “values revolution” of the 1960s, as some have labelled it, was not unique to New Zealand. A similar ferment in the United States and France triggered the May-June 1968 Paris student riots and general strike and the May 1970 Kent State University riots. There were even overtones behind the Iron Curtain, as evidenced in a Latvian play in the 2010 Wellington Arts Festival set in 1968 and to the music of a Simon and Garfunkel song.(7)

Nevertheless there was a unique New Zealand dimension: independence. This was not simple independence from parents’ mores and civil culture. The baby-boomers were the first of European descent to make their home truly here, initially through an unselfconscious New Zealandness in crafts and arts in the 1970s and early 1980s (by contrast with earlier generations’ conscious differentiation from Britain which the baby-boomers’ parents called Home). Jamie Belich wrote a revisionist history in 1986. In this way the ex-British indigenised, became true inhabitants of this land.

At the same time a parallel cohort of Maori re-indigenised. This was initially through protests to reclaim land taken in breach of the Treaty of Waitangi, then through reassertion of Maori culture and practice. This Aotearoan reclamation ran alongside and contributed to the separation from Britain and proclamation of New Zealandness.

This deep social change, arguably the deepest since the mid-nineteenth century, required deep policy change. The baby-boom cohort was up for that. In office it set out to translate its values revolution into policy reality. The result was breathtaking – in the context of a parliamentary democracy, a revolution.

One strain of policy of this fourth Labour government was broadly consistent with, or an extension of, Labour tradition. It increased spending in real terms on education, health and housing, administered benefits more generously and doubled Maori assistance (though most of the higher spending went on higher wages and salaries and a royal commission on social security report was pigeon-holed). There was family support for the least-well-off earners: the least-well-off quintile’s real disposable incomes rose more through to 1987 than the most-well-off quintile’s (though the second-least-well-off quintile’s income fell). A Ministry of Women’s Affairs was set up to advance women’s causes, stronger gender-equal pay laws were enacted and more women appointed to prominent positions. Homosexuality was decriminalised. Shopping and drinking laws were liberalised.

Legislation enabled claims to be adjudicated for breaches of the Treaty of Waitangi back to 1840 and some health and early education services were devolved to iwi and Maori organisations. Rugby with apartheid South Africa was stopped.

The environment-versus-economy balance was tilted toward the environment with a new Department of Conservation and the drafting of a world-leading Resource Management Bill focused on the environmental effects of development. A Bill of Rights was enacted, the Constitution Act updated, Parliament’s processes modernised and local government radically reorganised.

And the anti-nuclear policy tentatively introduced by the third Labour government was embedded by the fourth Labour government, triggering New Zealand’s suspension from the Australia New Zealand and United States (Anzus) treaty by the other two partners, and, as a result, an “independent foreign policy”. This was the fully independent New Zealand Kirk envisaged and the baby-boomers assumed. The anti-nuclear policy became part of the national folklore and ethos.

To repeat, all this was consistent with, though in some areas an extension or reimagining of, Labour tradition.

Not so the economic reforms, which came to be known as Rogernomics after its main cabinet architect, Sir Roger Douglas.

A short list: free-floating interest rates and exchange rate, deregulated banks and foreign exchange transactions and an independent Reserve Bank; removal of most subsidies and cuts in tariffs and an end to import quotas; state trading entities turned into commercial companies, which sacked large numbers of workers and some of which were sold off; a radical rejig of tax, offsetting lower personal and company income tax rates with a value-added tax, GST, a fringe benefit tax and a penal tax on pensioners with other income above a certain level; legislation for more flexibility and contestability in wage setting, including allowing bigger companies to negotiate agreements outside national awards; and deregulation of many sectors, including air transport, broadcasting, telecommunications, petroleum, retailing and the ports. There was also major reform of the public sector to introduce accrual accounting and private sector management techniques, separate agencies’ policy, regulatory, purchase and delivery functions and contract out some services to for-profit companies and not-for-profit entities. Part-charges were levied for some social services. Locally elected boards were charged with running schools.

The economic reforms were neither consistent with Labour tradition nor an extension of it – and certainly were not prefigured by Kirk. They removed the foundation stone of Labour policy since 1936, the guaranteed job. Some called it a counter-revolution.(8)

How did a Labour government come to do this? There were four main drivers.

First, the economy was in serious trouble. By 1984 the terms of trade were around 25% lower than the mid-1950s-to-mid-1960s level, through a combination of lower commodity export prices and higher prices for oil and some other imports. That drove the external and fiscal balances deeply into deficit, compounded domestic inflationary forces and caused a financial crisis. Sir Robert Muldoon’s response, to impose more and tighter regulation, borrow heavily and push an ill-designed heavy industry development programme, left no scope for more regulation. Some deregulation was the only logical course. The only question was what form the deregulation would take, how far would it go and what other policies would accompany the deregulation. There was also a strong argument that the seriously high government debt bequeathed by Muldoon was a threat to economic health: the capital raised from the sales could bring that debt under control.

Second, the mixed economy had fallen into disrepute as a result of stagflation – a combination of high inflation and slow or stagnant gross domestic product (GDP) growth in advanced economies. Alternative Friedmanite theories of economic management were available and internationally were in the ascendant (principally the Chicago and Virginia Schools in the United States). The Treasury sent officials to study these theories and bring them back to New Zealand. The Treasury fed its findings to the Labour party, as well as to an unreceptive Muldoon.

These theories appealed in two ways to the baby-boom cohort in the upper reaches of the shadow cabinet in 1983-84. One was the practical argument that only by reducing or removing regulation could the true “price” of items and activities be discovered and appropriate policy devised. The second was that a freer economy was consistent with the baby-boomers’ desire for a much freer society. The economy is a subset of society.

And this was not just Sir Roger Douglas. He is rightly credited with leading the policy development in the months leading up to the 1984 election and then in government. Indeed, in floating some “more market” ideas in an “alternative budget” in the first week of July 1980, he had got himself removed to the back benches.(9) But he was not alone. David Caygill, usually regarded as the most moderate of the finance trio, had in a speech in 1980s also endorsed a “more market” orientation and in 1982 as associate finance spokesman said in a speech: “I want to see central government off the backs of private enterprise”.(10) And Deputy Prime Minister Sir Geoffrey Palmer, while at Chicago University, had studied some Friedmanite economics.

Third, it seemed to the cabinet actors that they could marry freer markets with Labour tradition because they expected – or at least insisted they expected – that after an initial increase in unemployment, the freer economy would in five years or so (later revised to 10 years) deliver a “new normal” of high employment and higher wages on the back of greater efficiency. In fact, wage rises stayed tepid even when unemployment abated.

Fourth, the Rogergnomes, as they became known, deregulated the economy because they could. Six senior ministers operating as a cabal – drawing on a small coterie of younger senior public servants in the Treasury and Reserve Bank – commanded the cabinet, the cabinet commanded the Labour caucus and the Labour caucus commanded the Parliament. And president Margaret Wilson was determined there should not be another one-term Labour government, which secured the wider party’s temporary acquiescence until 1987. Then, even when he broke with Douglas, David Lange proved incapable of leading the opposition within the cabinet and caucus.

But, still, why so radical? In part it was because that was the baby-boom cohort’s restless, brash mentality. And, as Sir Roger Douglas put it, there was a “window of opportunity”, first in the immediate financial crisis of 1984, then in the stockmarket crash of 1989 and the resultant recession.

The result was a new paradigm.

So what is the fourth Labour government’s legacy?

One element is the independent foreign policy. A majority in the National party wanted back in the Anzus treaty and periodically National feinted in that direction but eventually conceded it could not. Even Americanophile John Key feels constrained. The independent foreign policy was one expression of the baby-boomers’ assumption of and insistence on genuine independence in our high and daily culture.

Closely associated with that independence, and a large ingredient in it, is a bicultural nation, the second element in the legacy. While this evolved beyond its original intentions, the fourth Labour government not only did not back away as it evolved but actively embraced it. Uniquely in the world, Aotearoa/New Zealand accords equal formal status to an animist culture and a post-Enlightenment culture and has benn working out – is still working out – how such deeply different worldviews can coexist. It has changed the way decisions are made by according rights in policymaking and management. Maybe, as I argued in a column last year,(11) the forces were strong enough to ensure something like biculturalism would have emerged without the Treaty of Waitangi peg which the fourth Labour government hammered into the wall. But it would have taken longer and would probably have generated much more angst and conflict by contrast with the relatively peaceful transition we have made and continue to make.

In effect, this changed the constitution – not the formal constitution in law and various documents and written and unwritten conventions but in the way we think about what constitutes our nation. That change was profound.

A third element in the legacy is a higher place for environmental protection, in the Resource Management Act (carried through in 1991 by conservation-minded Simon Upton in the Bolger Administration) and the Department of Conservation.

A fourth element, the one most talked about then and now, is a much more flexible economy, able to absorb and rebound from international shocks of the sort that paralysed the 1975-84 Muldoon administration, focused on what New Zealanders can do that is competitive internationally, with more transparent and rigorous fiscal management and with inflation under control. An early spinoff was much lower prices for consumer goods, including cars, as protection was removed from local industry.

But that flexibility came at a big cost: the guaranteed job and resultant guaranteed sustenance. This is the fifth element of the legacy and has embedded serious socioeconomic inequalities that divide those who can be competitive in the globalised economy of which New Zealand is inescapably a part from those who cannot compete and has injected the word “poverty” into general discussion. An element of this division is a privileged class, or elite, of educational and other “meritocrats” (some read “merit” as irony), who got tertiary education and whose children and grandchildren are socially positioned with more opportunity and/or have benefited from income-enhancing tertiary education in far higher proportions than the children and grandchildren of those who did not get higher education. This amounts to a new class system, with a new elite in charge.

Educational “meritocrats” dominate the current Labour caucus and upper reaches. This “meritocracy” does not readily connect with and form common cause with the people who are in income bands and in suburbs who in earlier times would have constituted the core Labour vote. The meritocrats are not “part of the communities (they) live in”, to quote Grant Robertson in his interview with Katherine Ryan on Nine-to-noon the Monday after the 2014 election.

That is the sixth element of the legacy of the fourth Labour government: a Labour party languishing around 30% in polls without a connecting message or messenger.

The fourth Labour government shattered the party. A foreigner at the 1987 conference, shortly after Labour increased its vote from 43.0% to 48.0% in that year’s election, would have concluded it had lost the election. And, in a sense, it had. Safe Labour seats swung 5.5% to National, reflecting a big stay-at-home response from Labour’s core voters: the non-vote rose 4.8 percentage points from 1984. In the 1990 election this exit continued: the non-vote rose another 3.8 percentage points to 17.2%. Altogether, 42% of Labour’s 1987 vote deserted in 1990.

Membership plummeted. After Jim Anderton’s failed putsch to seize the presidency at the Dunedin conference in 1988, some executive, council and other members went off in 1989 to Anderton’s NewLabour party, which was really the OldLabour party, wanting to restore the “guaranteed job” and associated economic policy settings – that is, to “return back up the birth canal”. A rival “backbone club” championed the economic reforms through 1988-90 and later Sir Roger Douglas and Richard Prebble were among Labour people who joined the libertarian ACT party dedicated to completing the transition to a free-market economy. Four Labour MPs, headed by Peter Dunne and joined by three National MPs, went on a quixotic hunt for centrist voters in the 1996 election. Labour’s vote dropped to 35.1% in 1990, 34.7% in 1993 and 28.2% in 1996.

The revival, when it came in 1998-99, was via the “third way”, which in essence accepted that the economic reforms could not be reversed. The fifth Labour government from 1999 to 2008 in effect embedded the new status quo (a reversal of the major party roles, National being the usual party to do the embedding). There were some modest modifications, coupled with some expanded social programmes. NewLabour, renamed the Alliance, disappeared, except for Jim Anderton.

Helen Clark’s strong personal leadership lent plausibility to the “third way”. Steve Maharey and others mused, or rather dreamed, of a Scandinavian future of Labour dominance but that was always a chimera. Once National got its act together in 2006, the “third way” was exposed as stasis, not a route upward to a new “light on the hill”. (I used to say the third way was any way between any two other ways.) Labour headed down: to 34.0% in 2008, 27.5% in 2011 and 25.1% in 2014 and a poll average around 29% right now.

The fourth Labour government cast a long shadow.

That takes us to the epilogue.

We are again in a time of deep social change, driven in part by international forces, including economic hyperglobalisation, mass migration, environmental stress and climate change, in part by technological change and in part by a new generation which has come to its 20s in this remarkable decade. History suggests that in the next 10 to 15 years this deep social change will likely express itself in deep policy change.

National is not the party to generate such a policy reformulation. Its predecessor 1931-35 coalition could not respond effectively to the deep social charge of the 1920s and 1930s. When from December 1990 National’s Ruth Richardson continued the radical economic reform programme begun by the fourth Labour government, National went through wracking convulsions, desertions and splits and survived in government in 1993 only because Labour was severely weakened by its own strife, desertions and splits. National’s adventure into radicalism also ensured, by compounding Labour’s radicalism, a majority popular vote to introduce proportional representation. National fully regained its equilibrium only with the installation of the John Key-Bill English leadership in 2006, marrying a moderate liberalism and a moderate conservatism.

This right-leaning but careful National has neither the inclination nor the nerve for the deep policy change that the deep social change of the 2010s and 2020s demands. In any case, it is wedded to the 1970s-80s policy paradigm, able to tweak it, in some ways significantly, but not to depart from it.

One alternative is a populist response, as is evident in Europe and the United States where resentful and frustrated voters have swelled the votes for fringe parties or unconventional movements and individuals promising to take on the political and related elites. Here the resentment and frustration is not as great as across the North Atlantic. Winston Peters has been the main sinkhole over the past quarter-century. More recently John Key’s blokeyness, affability and silken bright-side focus probably diverts some votes that would otherwise turn populist – and will when he goes if those voters can’t see a compelling alternative.

Populist responses to strain are neither coherent nor durable. Sir Robert Muldoon’s utilitarian version of populism in the late 1970s and early 1980s took the country up a dead-end. The European and United States populists will do more damage than good and in an extreme version – so far not in evidence – can turn very bad.

So if there is to be a durable, coherent response to the deep social change of the 2010s and 2020s, that points to Labour – and/or the Greens. Might there instead be space for a new party to capture the aspirations and mood of the rising generation and supplant Labour as Labour supplanted the Liberals? Very unlikely: it takes time to build a genuine reforming party, as distinct from a populist one, and, given the pace of social change in this decade, there is not time. The most that might be expected is that the Green party – or Labour itself – acquires new coordinates. After all, Labour did radically change its economic policy in 1983-84 and the Greens have come a long way from the environment-first-and-only party of the 1970s or even the 1990s. But resetting policy coordinates is tough work.

That is the fourth Labour government’s bequest and challenge to 2010s Labour: to recover its status as a party of deep reform through applying first principles to a radically different, inextricably globalised society. Can “predistribution”, a “living wage” and a “universal basic income” do the work of the guaranteed job? Can Labour unearth, develop and apply the new paradigm the 2020s require? Your call.


1. Martin, John E, Honouring the Contract (Victoria University Press, Wellington, 2010).

2. Brooking, Tom, King of God’s Own. The Life and Times of New Zealand’s Longest-serving Prime Minister (Penguin Books, Auckland 2014).

3. New Zealand Parliamentary Debates, v276, 1947, July 8, pp294-5.

4. New Zealand Royal Commission of Inquiry into Social Security, Social Security in New Zealand (Government Printer, Wellington, 1972, as printed in the Appendices to the Journal of the House of Representatives, [1972] IV AJHR H 53, p62. The “objective” quotation is on p64. On p55, the commission said there was a “need for a comprehensive social welfare system, flexible and adaptable, complementing, rather than conflicting with the total programme of economic and cultural action in the community and directed at the achievement of objectives rather than serving dogma”. It had found “no need for sweeping or radical change in the general principles underlying our present system of social security” (p65).

5. James, Colin, “The last labour Prime Minister. The first New Zealand Prime Minister”, talk to Fabian Society conference on Norman Kirk, 3 November, 2012, http://www.colinjames.co.nz/2012/11/03/the-last-labour-prime-minister-the-first-new-zealand-prime-minister/.

6. Anonymous, Towards Nationhood. Selected Extracts from the Speeches of Norman Kirk (New Zealand Books, Palmerston North, 1969).

7. New Riga Theatre, Latvia, “The Sound of Silence”, play presented at the 2010 New Zealand Festival of the Arts. Reviews are at www.nzherald.co.nz/entertainment/news/article.cfm?c_id=1501119&objectid=10628240 and http://www.theatreview.org.nz/reviews/production.php?id=1469.

8. Brian Easton called it a counter-revolution. At a conference on the first term of the fourth Labour government in 2004 I argued this focused too tightly on the economic overturning of the keynesian mixed economy. I argued: “The fourth Labour government was about far more than economics; it ploughed up every policy field, in some cases very innovatively. Moreover, it did this amid rapid and deep social change that was independent of, and infected the tone of, Lange’s government — and made its time in office not just a period but an era. It is in that wider context that I want to situate Lange’s government and the Parliament of 1984-87.” http://www.colinjames.co.nz/2004/04/04/what-made-the-revolution-the-context-of-the-1984-87-parliament/

9. James, Colin, The Quiet Revolution, Turbulence and Transition in Contemporary New Zealand (Allen and Unwin/Port Nicholson Press, Wellington, 1986), p139.

10. Caygill, David, speech to Aggregates Association, 21 September 1982, typescript in author’s files.

11. James, Colin, “What if there had been no Treaty of Waitangi” Otago Daily Times column, 3 February 2015, http://www.colinjames.co.nz/2015/02/03/what-if-there-had-been-no-treaty-of-waitangi/