On 27 October 1990, New Zealand’s Labour government suffered one of the heaviest defeats in the country’s electoral history.footnote1 Labour lost twenty-seven of its fifty-six seats, and its share of the vote was the lowest since 1931. It was a humiliating but not inappropriate end for a government that once commanded international respect—on the Left for its anti-nuclear stand, and on the Right for its uncompromising laissez faire policies. What we have experienced in New Zealand is not just the defeat of a party, however, but the disintegration of a tradition. Historically, Labour was the party of the welfare state and the regulated economy. On becoming the government in 1984, it discarded this tradition without warning and became a party of the New Right. In the next six years, Labour almost entirely deregulated the economy. It privatized most of the state’s commercial activities. It reorganized both central and local government along commercial lines. The government ceased to play any role in economic management, with the exception of eliminating inflation, which became its sole economic goal. To this end it operated a high-interest-rate monetary policy.

These policies were not original, but were borrowed from the international literature or copied from Thatcher’s Britain. But the way they were applied in New Zealand was highly distinctive. Not only did we have the case of a Labour Party instituting the policies it had been formed to oppose, but the process of change was more intense and uncompromising than elsewhere. Policies that took years to develop in Britain, such as privatization, were inflicted on New Zealand in a matter of months. Particularly contentious policies—for example, high-interest-rate monetary policy—were pursued pitilessly. New Zealand also serves as a case study of the economic and social damage that can be wrought by monetarism. In its six years in office, Labour set in motion a process of economic disintegration, which in turn undermined the welfare state. It is fitting that in the 1990 election, Labour should itself fall victim to the forces it had unleashed.

Having lost the election, the Labour Party is reverting to its traditional rhetoric, but there is no prospect of it returning to traditional Labour policies. The structure of New Zealand society has changed forever. Both major parties, National and Labour, have the same laissez faire and monetarist policies. The incoming National government is extending these policies into an attack on trade unionism and the welfare state. One of National’s senior ministers, Simon Upton, is the author of a book called The Withering of the State.footnote2

The eighties were a period of rapid and extraordinary change, about which New Zealanders remain bewildered. How did it happen, so suddenly, without warning, and without significant resistance? The flippant answer (but accurate as far as it goes) is that the government was hijacked by a cabal in the Labour Party leadership which had kept its intentions hidden from both party and electorate. The fuller explanation is that several developments in fact coincided to produce a convulsion in New Zealand’s economy and political culture. The economy had been sliding into crisis since the mid 1970s. Growth was small; budget and current-account deficits were large; the overseas debt was formidable. Meanwhile, National Party prime minister Rob Muldoon had antagonized most sections of the electorate with his authoritarian style, and was heavily defeated in July 1984. Economic crisis coincided with the exhaustion of a political tradition, rather like what was to happen in Eastern Europe except that in this case the casualty was Keynesian economic management and the welfare state. In an atmosphere of economic and political crisis, the monetarist Right took control, claiming (with few demurring) that there was no alternative.

The most important factor was the severity of the country’s economic troubles. New Zealand in the 1980s was particularly vulnerable, in the main because it lacked the normal developed economy of other Western nations. The country is, in fact, something of a paradox: it has enjoyed a Western-style way of life and standard of living, but with an economic structure possessing definite colonial features. Indeed, one way of interpreting New Zealand’s recent history is that its colonial background has remorselessly asserted itself, as the country settles into a South American condition of economic decline and instability.