Date created:12 December 2001
Last modified: 12 December 2001
Maintained by: John Quiggin
John Quiggin

NZ Labour shows a way

Australian Financial Review

22 November 2001

Among the few positive results of the recent election campaign has been the recognition that fundamental changes in Labor's organisation and its policy approach are necessary. The organisational changes have begun well. However, the crucial changes in the party's structure depend on the formulation of policies sufficiently appealing to produce an influx of new members, attracted by the desire to elect a progressive government rather than as part of the support base for one ambitious careerist or another.

So far, the main suggestions for policy reform have focused on the 'Third Way' exemplified by the Blair government in the UK. But Blair's project of adding a communitarian gloss to Thatcherite economic policies is fading fast as the bankruptcy of the Thatcherite agenda of tax cuts and privatisation becomes steadily more evident.

As many in the ALP have already observed, Blair's approach differs little from the agenda pursued by the Hawke and Keating governments, and overwhelmingly rejected by the Australian people in 1996. After two more defeats, Labor must realise that it needs more than warmed over ideas from the 1980s and 1990s.

Labor could do worse than to look across the Tasman. As in Australia, New Zealand experienced an initial round of free-market reforms under a Labour government, followed by a second instalment from the conservatives. However, NZ Labour (and its coalition partners, the Alliance Party) chose to offer a real alternative rather than assuming, like the ALP, that it would regain office by default.

NZ Labour campaigned on a promise, subsequently implemented, to raise the top marginal rate of taxation from 33 per cent to 39 per cent. As well as raising significant revenue, this was a symbolic break with the policies of the past, which the ALP 'small target' strategy, failed to make.

NZ Labour's initial objective, to move New Zealand away from free-market extremism and towards the mainstream of modern public policy, has largely been achieved. Attention has now turned to the more ambitious project of achieving the fundamental transformation required for an economic and social structure based on concepts of human and social capital.

The resulting policy framework is still taking shape. The New Zealand government's approach to an inclusive society seems to encompass the strengths of the Third Way, including a flexible attitude to the roles of government and the private and community sectors, without its weaknesses, such as the residual element of Thatcherism and defeatism regarding the possibilities of income redistribution.

Initially, the Clark government experienced considerable difficulties in balancing the expectations of its own supporters and the fears of the business sector. Groups like the Business Roundtable referred to Wellington as 'Helengrad' and prophesied imminent disaster, especially after their much-cherished 'reforms' to the labour market were partially reversed.

These prophesies have proved false. In particular, the economy has performed very well. GDP growth has been strong, the budget has been kept in surplus, the current account deficit has been reduced and unemployment has fallen to 5.2 per cent, well below the best levels achieved under the old Employment Contracts Act.

Of course, there have been elements of good luck, such as favorable terms of trade. More importantly, after the disasters imposed on New Zealand by the Business Roundtable and its political representatives, there was nowhere to go but up. New Zealand's workforce is comparable to Australia's for skills and education, and its endowments of natural resources are excellent. Yet after fifteen years of radical reform, per capita income in New Zealand was 20 per cent below the Australian level. In the absence of yet further policy disasters, some catch-up growth was inevitable. However, good luck requires good management, and New Zealand had, until the last election, fallen very short on this score.

The remaining advocates of radical free-market policies have now been marginalised. While the Business Roundtable continues to sulk, many businesses have welcomed plans to promote innovation and venture capital. Former Prime Minister Jenny Shipley, the architect of radical social welfare reforms, has been dumped as leader of the opposition National Party. Even the free-market ACT Party has shifted its focus to a law-and-order policy, laced with coded appeals to racial prejudice.

New Zealand, like Australia, will have to deal with the impact of the global recession now under way. Although predictions are always risky, New Zealand's policy settings seem more appropriate than either of the packages offered to the Australian public at the recent election.

Professor John Quiggin is a Senior Research Fellow of the Australian Research Council, based at the Australian National University and Queensland University of Technology.

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