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| The term '''Rogernomics''', a ] of "Roger" and "economics", was coined by journalists at the '']'' by analogy with ] to describe the ] followed by ] after his appointment in 1984 as ] in the ]. Rogernomics was characterised by market-led restructuring and deregulation and the control of inflation through tight monetary policy, accompanied by a ] and reductions in the fiscal deficit.<ref name= "Dalziel Easton 1989">Dalziel, Paul in Easton, Brian ed ''The Making of Rogernomics'' Auckland University Press 1989 ISBN 1 86940 041 0 p. 53</ref> Douglas came from a background of ] politics. His adoption of policies more usually associated with the political right, and their implementation by the Fourth Labour Government, were the subject of lasting controversy. |
The term '''Rogernomics''', a ] of "Roger" and "economics", was coined by journalists at the '']'' by analogy with ] to describe the ] followed by ] after his appointment in 1984 as ] in the ]. Rogernomics was characterised by market-led restructuring and deregulation and the control of inflation through tight monetary policy, accompanied by a ] and reductions in the fiscal deficit.<ref name= "Dalziel Easton 1989">Dalziel, Paul in Easton, Brian ed ''The Making of Rogernomics'' Auckland University Press 1989 ISBN 1 86940 041 0 p. 53</ref> Douglas came from a background of ] politics. His adoption of policies more usually associated with the political right, and their implementation by the Fourth Labour Government, were the subject of lasting controversy. | ||
| ==Douglas and the Development of Economic Policy, 1969-1984== | ==Douglas and the Development of Economic Policy, 1969-1984== | ||
| Douglas became a ] member of parliament at the ]. He showed his interest in economic policy in his maiden speech, in which he argued against foreign investment in the domestic economy.<ref>New Zealand Parliamentary Debates Vol 365 pp. 123-128 |
Douglas became a ] member of parliament at the ]. He showed his interest in economic policy in his maiden speech, in which he argued against foreign investment in the domestic economy.<ref>New Zealand Parliamentary Debates Vol 365 pp. 123-128</ref> His case for external protection of the domestic economy and government involvement in investment was characteristic of the Labour Party of the time. From 1972-1975, Douglas was a junior minister in the ], where he won a reputation for his capacity for innovation.<ref name = "Bassett 1976">Bassett, Michael ''The Third Labour Government'' Dunmore Press 1976 ISBN 090856435X pp. 24-25</ref> This government followed a broadly ] approach to economic management. | ||
| As a minister, Douglas was innovative in context of the ]. As Broadcasting Minister he devised an administrative structure in which two publicly-owned television channels competed against each other.<ref>Bassett 1976 p.31</ref> He was among the government’s leading advocates of compulsory saving for retirement, which he saw not only as a supplement to public provision for retirement but as a source of funding for public investment in economic development.<ref>Bassett 1976 p.82</ref> The superannuation scheme he helped design became law in 1974, but was disestablished by ] almost as soon as the ] won the ].<ref>{{Cite book |last=Gustafson |first=Barry |title=His Way: A Biography of Robert Muldoon |location=Auckland |publisher=Auckland University Press |year=2000 |isbn=1869402367 |page=237 }}</ref> | As a minister, Douglas was innovative in context of the ]. As Broadcasting Minister he devised an administrative structure in which two publicly-owned television channels competed against each other.<ref>Bassett 1976 p.31</ref> He was among the government’s leading advocates of compulsory saving for retirement, which he saw not only as a supplement to public provision for retirement but as a source of funding for public investment in economic development.<ref>Bassett 1976 p.82</ref> The superannuation scheme he helped design became law in 1974, but was disestablished by ] almost as soon as the ] won the ].<ref>{{Cite book |last=Gustafson |first=Barry |title=His Way: A Biography of Robert Muldoon |location=Auckland |publisher=Auckland University Press |year=2000 |isbn=1869402367 |page=237 }}</ref> | ||
| Douglas maintained his interest in economic issues in opposition. He framed his chief concern as the deep-seated problems in the structure of the economy that had contributed to deteriorating economic performance and a standard of living that was slipping in comparison to that of other developed countries. In 1980, he described New Zealand as a country living on borrowed money, unable in spite of the record efforts of its exporters to pay its own way in the world.<ref name="Douglas 1980"> |
Douglas maintained his interest in economic issues in opposition. He framed his chief concern as the deep-seated problems in the structure of the economy that had contributed to deteriorating economic performance and a standard of living that was slipping in comparison to that of other developed countries. In 1980, he described New Zealand as a country living on borrowed money, unable in spite of the record efforts of its exporters to pay its own way in the world.<ref name="Douglas 1980">Douglas, Roger </ref> | ||
| The economic policy of successive governments had left the domestic economy sheltered and unresponsive to consumers. Inflation, which was more than ten per cent a year throughout the seventies, was high by the standards of the country’s major trading partners. There was a persistent fiscal deficit. The public sector was inefficient. A large part of the economy was controlled by regulation, some arbitrary or inconsistent. The political consensus of the post-war years produced stability at the cost of innovation.<ref name="Easton, Brian 1997">Easton, Brian ''The Commercialisation of New Zealand'' Auckland University Press 1997 pp. 6-8</ref> Both major political parties maintained the high levels of protection introduced by the ] from 1936 onwards, and since 1945 both parties had aimed at maintaining a structural shortage of labour. Beneficiaries of the regulated economy flourished in both public and private sectors.<ref>Bayliss, Len ''Prosperity Mislaid'' GP Publications 1994 pp.42-45</ref> | The economic policy of successive governments had left the domestic economy sheltered and unresponsive to consumers. Inflation, which was more than ten per cent a year throughout the seventies, was high by the standards of the country’s major trading partners. There was a persistent fiscal deficit. The public sector was inefficient. A large part of the economy was controlled by regulation, some arbitrary or inconsistent. The political consensus of the post-war years produced stability at the cost of innovation.<ref name="Easton, Brian 1997">Easton, Brian ''The Commercialisation of New Zealand'' Auckland University Press 1997 pp. 6-8</ref> Both major political parties maintained the high levels of protection introduced by the ] from 1936 onwards, and since 1945 both parties had aimed at maintaining a structural shortage of labour. Beneficiaries of the regulated economy flourished in both public and private sectors.<ref>Bayliss, Len ''Prosperity Mislaid'' GP Publications 1994 pp.42-45</ref> | ||
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| Douglas argued that only radical action would improve the economic outlook. In 1980, he released an "Alternative Budget" that attacked what Douglas called the Muldoon government’s “tinkering” with the economy. He wrote that twenty years of pandering to entrenched interests had dampened productive investment. The Labour leadership saw his proposals and their unauthorised publication as unfavourable comment on Labour policy. The Labour leader ] publicly rebuked Douglas.<ref name="Douglas 1987">Douglas, Roger and Callan, Louise ''Toward Prosperity'' David Bateman Ltd 1987 ISBN 090861070X p.16</ref> Douglas then published his thinking in the form of a book.<ref>Douglas, Roger ''There's Got to Be a Better Way'' Fourth Estate Books Limited Wellington 1980</ref> Alongside far-reaching proposals for reform of taxation and government spending, it advocated a twenty per cent devaluation of the dollar to increase the competitiveness of exports. Although radical, it took an eclectic approach and did not hint at the abandonment of Labour’s Keynesian policy framework.<ref name="Oliver 1989">Oliver, W H in in Easton, Brian ed ''The Making of Rogernomics'' Auckland University Press 1989 ISBN 1 86940 041 0 p.13</ref> | Douglas argued that only radical action would improve the economic outlook. In 1980, he released an "Alternative Budget" that attacked what Douglas called the Muldoon government’s “tinkering” with the economy. He wrote that twenty years of pandering to entrenched interests had dampened productive investment. The Labour leadership saw his proposals and their unauthorised publication as unfavourable comment on Labour policy. The Labour leader ] publicly rebuked Douglas.<ref name="Douglas 1987">Douglas, Roger and Callan, Louise ''Toward Prosperity'' David Bateman Ltd 1987 ISBN 090861070X p.16</ref> Douglas then published his thinking in the form of a book.<ref>Douglas, Roger ''There's Got to Be a Better Way'' Fourth Estate Books Limited Wellington 1980</ref> Alongside far-reaching proposals for reform of taxation and government spending, it advocated a twenty per cent devaluation of the dollar to increase the competitiveness of exports. Although radical, it took an eclectic approach and did not hint at the abandonment of Labour’s Keynesian policy framework.<ref name="Oliver 1989">Oliver, W H in in Easton, Brian ed ''The Making of Rogernomics'' Auckland University Press 1989 ISBN 1 86940 041 0 p.13</ref> | ||
| Douglas became increasingly frustrated by what he saw as the Labour Party’s reluctance to deal with fundamental issues of economic policy. He claimed in 1981 that Labour had an image as a party that would promise the public anything to be elected. He argued that the party should agree on its economic policy before it agreed on anything else, and allow economic reality to play a part in its decision-making. Unable to convince Rowling of the merit of his case, a disillusioned Douglas decided to stand down from parliament at the ].<ref>Douglas and Callan 1987 pp.21-27</ref> One of those who persuaded him to stay was Labour’s deputy leader ] who offered to make Douglas ] if Lange was prime minister after the 1984 election.<ref> |
Douglas became increasingly frustrated by what he saw as the Labour Party’s reluctance to deal with fundamental issues of economic policy. He claimed in 1981 that Labour had an image as a party that would promise the public anything to be elected. He argued that the party should agree on its economic policy before it agreed on anything else, and allow economic reality to play a part in its decision-making. Unable to convince Rowling of the merit of his case, a disillusioned Douglas decided to stand down from parliament at the ].<ref>Douglas and Callan 1987 pp.21-27</ref> One of those who persuaded him to stay was Labour’s deputy leader ] who offered to make Douglas ] if Lange was prime minister after the 1984 election.<ref>Lange, David ''My Life'' Viking 2005 ISBN 067004556X p.143</ref> | ||
| After Labour’s narrow loss in the 1981 election, Douglas found a growing audience in the parliamentary party for his view that Labour’s established approach to economic policy was deficient. His colleague ] claimed that there was a public perception that Labour policy sought “to reward the lazy and defend bludgers”.<ref>Oliver 1989 pp. 28-29</ref> Douglas’s case for a radical approach was strengthened by the belief among many of his parliamentary colleagues that the economy’s deep-seated problems could only be solved by extensive restructuring. It was understood that some restructuring must follow the ] agreement with Australia, which took effect in 1981 and reduced barriers to trade between Australia and New Zealand.<ref>Oliver 1989 p.31</ref> At the same time, many economists were arguing for the greater use of competition as a tool of policy, and expressing concern about excessive or inappropriate regulation of the economy.<ref name= |
After Labour’s narrow loss in the 1981 election, Douglas found a growing audience in the parliamentary party for his view that Labour’s established approach to economic policy was deficient. His colleague ] claimed that there was a public perception that Labour policy sought “to reward the lazy and defend bludgers”.<ref>Oliver 1989 pp. 28-29</ref> Douglas’s case for a radical approach was strengthened by the belief among many of his parliamentary colleagues that the economy’s deep-seated problems could only be solved by extensive restructuring. It was understood that some restructuring must follow the ] agreement with Australia, which took effect in 1981 and reduced barriers to trade between Australia and New Zealand.<ref>Oliver 1989 p.31</ref> At the same time, many economists were arguing for the greater use of competition as a tool of policy, and expressing concern about excessive or inappropriate regulation of the economy.<ref name="Jesson 1989">Jesson, Bruce ''Fragments of Labour'' Penguin Books 1989 ISBN 0 14 012816 6 pp. 39-40</ref> In 1983, Lange succeeded Rowling as Labour leader. He gave Douglas responsibility for economic policy and made it clear that economic policy would determine other policy.<ref>Oliver 1989 p.30</ref> | ||
| Although Douglas was innovative in his approach, and his open disregard for Rowling had earned him a reputation as a maverick, he remained within the mainstream of economic thinking in the parliamentary Labour Party.<ref>Oliver 1989 p. 35</ref> He argued in 1982 that the government should actively support small business, and intervene to stop the aggregation of assets by big business. In his view, the government should use the tax system to encourage productive investment and discourage speculative investment. Until the end of 1983, Douglas saw exchange rate, tax and protection policies as means of actively shaping the business environment. In August 1982 he supported a contributory superannuation scheme as a means of funding industrial development and in February 1983 he wrote a paper called “Picking Winners for Investment” which proposed the establishment of local consultative groups to guide regional development. In a paper dated May 1983 Douglas argued that an unregulated market led to unhealthy concentrations of market power.<ref>Oliver 1989 pp.13-15</ref> | Although Douglas was innovative in his approach, and his open disregard for Rowling had earned him a reputation as a maverick, he remained within the mainstream of economic thinking in the parliamentary Labour Party.<ref>Oliver 1989 p. 35</ref> He argued in 1982 that the government should actively support small business, and intervene to stop the aggregation of assets by big business. In his view, the government should use the tax system to encourage productive investment and discourage speculative investment. Until the end of 1983, Douglas saw exchange rate, tax and protection policies as means of actively shaping the business environment. In August 1982 he supported a contributory superannuation scheme as a means of funding industrial development and in February 1983 he wrote a paper called “Picking Winners for Investment” which proposed the establishment of local consultative groups to guide regional development. In a paper dated May 1983 Douglas argued that an unregulated market led to unhealthy concentrations of market power.<ref>Oliver 1989 pp.13-15</ref> | ||
| Line 24: | Line 24: | ||
| Division in Labour over economic policy crystallised when a competing proposal was submitted to the Labour Party's Policy Council. Its proponents included Rowling and others who had resisted his replacement as leader. It argued for a Keynesian use of monetary and fiscal policy. It was sceptical about the ability of the private sector to promote economic development. Economic restructuring was to be led by the government, which would act within a consultative framework. In this way, the social costs of restructuring would be avoided.<ref>Oliver 1989 pp.43-45</ref> | Division in Labour over economic policy crystallised when a competing proposal was submitted to the Labour Party's Policy Council. Its proponents included Rowling and others who had resisted his replacement as leader. It argued for a Keynesian use of monetary and fiscal policy. It was sceptical about the ability of the private sector to promote economic development. Economic restructuring was to be led by the government, which would act within a consultative framework. In this way, the social costs of restructuring would be avoided.<ref>Oliver 1989 pp.43-45</ref> | ||
| There was stalemate in the Policy Council. As the ] drew closer, Labour’s deputy leader ] drafted a compromise that contained elements of both proposals. The Palmer paper was broadly worded. It made no mention of devaluation. It anticipated some form of understanding between government and unions about wage restraint. It allowed for extensive consultation about economic policy and stated that necessary structural change would be gradual and agreed.<ref>Oliver 1989 pp. 48-49</ref> When Muldoon unexpectedly called an early general election, the Labour Party adopted Palmer’s paper as its economic policy. Lange said that Labour went into the election with an unfinished argument doing duty as its economic policy.<ref>Lange 2005 p. 164</ref> | There was stalemate in the Policy Council. As the ] drew closer, Labour’s deputy leader ] drafted a compromise that contained elements of both proposals. The Palmer paper was broadly worded. It made no mention of devaluation. It anticipated some form of understanding between government and unions about wage restraint. It allowed for extensive consultation about economic policy and stated that necessary structural change would be gradual and agreed.<ref>Oliver 1989 pp. 48-49</ref> When Muldoon unexpectedly called an early general election, the Labour Party adopted Palmer’s paper as its economic policy. Lange said that Labour went into the election with an unfinished argument doing duty as its economic policy.<ref>Lange 2005 p. 164</ref> | ||
| ==Reforms== | ==Reforms== | ||
| {{ |
{{main|Fourth Labour Government of New Zealand}} | ||
| After the ], Douglas hastily began to reform the New Zealand economy, under the government’s slogan of "We will do the right thing". The speed of the reforms can partially be attributed to the ‘currency crisis’ that resulted from ]’s refusal to devalue the dollar after being advised to do so by the incoming government. Labour had planned to devalue the dollar but had not announced devaluation as part of its election policy - Douglas later stated that doing so "...would wreak havoc in the foreign exchange market and invite a run on the New Zealand dollar". The business community became aware of the government's plan and speculated against the dollar, converting New Zealand funds and credits to foreign currency, and then back to a larger quantity of New Zealand dollars. | After the ], Douglas hastily began to reform the New Zealand economy, under the government’s slogan of "We will do the right thing". The speed of the reforms can partially be attributed to the ‘currency crisis’ that resulted from ]’s refusal to devalue the dollar after being advised to do so by the incoming government. Labour had planned to devalue the dollar but had not announced devaluation as part of its election policy - Douglas later stated that doing so "...would wreak havoc in the foreign exchange market and invite a run on the New Zealand dollar". The business community became aware of the government's plan and speculated against the dollar, converting New Zealand funds and credits to foreign currency, and then back to a larger quantity of New Zealand dollars. | ||
| The reformers argued that the speed with which the reforms were made was due to the fact that New Zealand had not adjusted to Britain’s abandonment of the empire, and had to move quickly to ‘catch up’ with the rest of the world<ref name="smith">Philippa Mein Smith, ''A Concise History of New Zealand'', Cambridge University Press, Melbourne: 2005, pp.201-216.</ref> |
The reformers argued that the speed with which the reforms were made was due to the fact that New Zealand had not adjusted to Britain’s abandonment of the empire, and had to move quickly to ‘catch up’ with the rest of the world.<ref name="smith">Philippa Mein Smith, ''A Concise History of New Zealand'', Cambridge University Press, Melbourne: 2005, pp.201-216.</ref> Douglas claimed in his 1993 book '']'' that speed was a key strategy for achieving radical economic change: "Define your objectives clearly, and move towards them in quantum leaps, otherwise the interest groups will have time to mobilise and drag you down".<ref name="bell">Judith Bell, ''I See Red'', Awa Press, Wellington: 2006, pp.22-56.</ref> Political commentator ] argued that Douglas acted fast to achieve a complete economic revolution within one parliamentary term, in case he did not get a second chance.<ref>Bruce Jesson, "The New Rights Network of Power" in ''To Build a Nation: Collected Writings 1975-1999'', edited Andrew Sharp, Penguin Press: 2005, p.190.</ref> The reforms can be summarised as the dismantling of the Australasian model of state development that had existed for the previous 90 years, and its replacement by the Anglo-American neo-classical orthodoxy based on the monetarist policies of ] and the ].<ref name="smith"/> The financial market was deregulated and controls on foreign exchange removed. Subsidies to many industries, notably agriculture, were removed or significantly reduced, as was tariff protection. The marginal tax rate was halved over a number of years from 66% to 33%; this was paid for by the introduction of a tax on goods and services (]) initially at 10%, later 12.5%, and a ] on superannuation, which had been made universal from age 60 by the previous government.<ref>Michael King, ''The Penguin History of New Zealand'', Penguin Books (NZ), Auckland: 2003, p.490.</ref> | ||
| ==Immediate results== | ==Immediate results== | ||
| New Zealand became part of a ]. With no restrictions on overseas money coming into the country the focus in the economy shifted from the productive sector to finance.<ref>Bruce Jesson, "The Changing Face of New Zealand Capitalism" in ''To Build a Nation'' ibid., pp.177-178.</ref> Finance capital outstripped industrial capital<ref name="smith"/> and redundancies occurred in manufacturing industry; approximately 76,000 manufacturing jobs were lost between 1987 and 1992<ref name="bell"/> |
New Zealand became part of a ]. With no restrictions on overseas money coming into the country the focus in the economy shifted from the productive sector to finance.<ref>Bruce Jesson, "The Changing Face of New Zealand Capitalism" in ''To Build a Nation'' ibid., pp.177-178.</ref> Finance capital outstripped industrial capital<ref name="smith"/> and redundancies occurred in manufacturing industry; approximately 76,000 manufacturing jobs were lost between 1987 and 1992.<ref name="bell"/> During wage bargaining in 1986 and 1987, employers started to bargain harder. ]s were not uncommon; the most spectacular occurred at a pulp and paper mill owned by ] and led to changes to work practices and a no-strike commitment from the union. Later settlements drew further concessions from unions, including below-inflation wage increases, a cut in real wages.<ref>Colin James, ''The Quiet Revolution'', Allen & Unwin New Zealand Ltd in association with Port Nicholson Press, Wellington: 1986, p.166.</ref> There was a structural change in the economy from industry to services, which, along with the arrival of trans-Tasman retail chains and an increasingly cosmopolitan hospitality industry, led to a new ‘café culture’ enjoyed by more affluent New Zealanders. Some argue that for the rest of the population, Rogernomics failed to deliver the higher standard of living promised by its advocates.<ref name="smith"/> | ||
| ==Legacy== | ==Legacy== | ||
| After Rogernomics, the ] was paralysed by infighting for most of the next six years, as former Trade Minister ] became Leader of the Opposition ( |
After Rogernomics, the ] was paralysed by infighting for most of the next six years, as former Trade Minister ] became Leader of the Opposition (1990–1993), followed by ], whose first term as Leader of the Opposition was undermined by Moore's populist personal faction. However, Clark survived and steadily gained ground during the third and final term of the ] and ] administrations. Much like ] in the United Kingdom, Clark decided on a compromise solution, combining advocacy of the ] and ] with greater emphasis| on fighting the ] consequences of ]. | ||
| The policies of ], sometimes called "]", are often seen as a continuation of Rogernomics. Richardson was Finance Minister in the ] government from 1990 to 1993. | The policies of ], sometimes called "]", are often seen as a continuation of Rogernomics. Richardson was Finance Minister in the ] government from 1990 to 1993. | ||
| Line 51: | Line 51: | ||
| {{New Zealand topics}} | {{New Zealand topics}} | ||
| {{Economy of New Zealand}} | {{Economy of New Zealand}} | ||
| ] | ] | ||
| ] | ] | ||
Revision as of 05:26, 14 December 2010
The term Rogernomics, a portmanteau of "Roger" and "economics", was coined by journalists at the New Zealand Listener by analogy with Reaganomics to describe the economic policies followed by Roger Douglas after his appointment in 1984 as Minister of Finance in the Fourth Labour Government. Rogernomics was characterised by market-led restructuring and deregulation and the control of inflation through tight monetary policy, accompanied by a floating exchange rate and reductions in the fiscal deficit. Douglas came from a background of Labour Party politics. His adoption of policies more usually associated with the political right, and their implementation by the Fourth Labour Government, were the subject of lasting controversy.
Douglas and the Development of Economic Policy, 1969-1984
Douglas became a Labour member of parliament at the 1969 general election. He showed his interest in economic policy in his maiden speech, in which he argued against foreign investment in the domestic economy. His case for external protection of the domestic economy and government involvement in investment was characteristic of the Labour Party of the time. From 1972-1975, Douglas was a junior minister in the Third Labour Government, where he won a reputation for his capacity for innovation. This government followed a broadly Keynesian approach to economic management.
As a minister, Douglas was innovative in context of the public sector. As Broadcasting Minister he devised an administrative structure in which two publicly-owned television channels competed against each other. He was among the government’s leading advocates of compulsory saving for retirement, which he saw not only as a supplement to public provision for retirement but as a source of funding for public investment in economic development. The superannuation scheme he helped design became law in 1974, but was disestablished by Robert Muldoon almost as soon as the National Party won the 1975 election.
Douglas maintained his interest in economic issues in opposition. He framed his chief concern as the deep-seated problems in the structure of the economy that had contributed to deteriorating economic performance and a standard of living that was slipping in comparison to that of other developed countries. In 1980, he described New Zealand as a country living on borrowed money, unable in spite of the record efforts of its exporters to pay its own way in the world.
The economic policy of successive governments had left the domestic economy sheltered and unresponsive to consumers. Inflation, which was more than ten per cent a year throughout the seventies, was high by the standards of the country’s major trading partners. There was a persistent fiscal deficit. The public sector was inefficient. A large part of the economy was controlled by regulation, some arbitrary or inconsistent. The political consensus of the post-war years produced stability at the cost of innovation. Both major political parties maintained the high levels of protection introduced by the First Labour Government from 1936 onwards, and since 1945 both parties had aimed at maintaining a structural shortage of labour. Beneficiaries of the regulated economy flourished in both public and private sectors.
Douglas argued that only radical action would improve the economic outlook. In 1980, he released an "Alternative Budget" that attacked what Douglas called the Muldoon government’s “tinkering” with the economy. He wrote that twenty years of pandering to entrenched interests had dampened productive investment. The Labour leadership saw his proposals and their unauthorised publication as unfavourable comment on Labour policy. The Labour leader Bill Rowling publicly rebuked Douglas. Douglas then published his thinking in the form of a book. Alongside far-reaching proposals for reform of taxation and government spending, it advocated a twenty per cent devaluation of the dollar to increase the competitiveness of exports. Although radical, it took an eclectic approach and did not hint at the abandonment of Labour’s Keynesian policy framework.
Douglas became increasingly frustrated by what he saw as the Labour Party’s reluctance to deal with fundamental issues of economic policy. He claimed in 1981 that Labour had an image as a party that would promise the public anything to be elected. He argued that the party should agree on its economic policy before it agreed on anything else, and allow economic reality to play a part in its decision-making. Unable to convince Rowling of the merit of his case, a disillusioned Douglas decided to stand down from parliament at the 1981 election. One of those who persuaded him to stay was Labour’s deputy leader David Lange who offered to make Douglas Minister of Finance if Lange was prime minister after the 1984 election.
After Labour’s narrow loss in the 1981 election, Douglas found a growing audience in the parliamentary party for his view that Labour’s established approach to economic policy was deficient. His colleague Mike Moore claimed that there was a public perception that Labour policy sought “to reward the lazy and defend bludgers”. Douglas’s case for a radical approach was strengthened by the belief among many of his parliamentary colleagues that the economy’s deep-seated problems could only be solved by extensive restructuring. It was understood that some restructuring must follow the Closer Economic Relations agreement with Australia, which took effect in 1981 and reduced barriers to trade between Australia and New Zealand. At the same time, many economists were arguing for the greater use of competition as a tool of policy, and expressing concern about excessive or inappropriate regulation of the economy. In 1983, Lange succeeded Rowling as Labour leader. He gave Douglas responsibility for economic policy and made it clear that economic policy would determine other policy.
Although Douglas was innovative in his approach, and his open disregard for Rowling had earned him a reputation as a maverick, he remained within the mainstream of economic thinking in the parliamentary Labour Party. He argued in 1982 that the government should actively support small business, and intervene to stop the aggregation of assets by big business. In his view, the government should use the tax system to encourage productive investment and discourage speculative investment. Until the end of 1983, Douglas saw exchange rate, tax and protection policies as means of actively shaping the business environment. In August 1982 he supported a contributory superannuation scheme as a means of funding industrial development and in February 1983 he wrote a paper called “Picking Winners for Investment” which proposed the establishment of local consultative groups to guide regional development. In a paper dated May 1983 Douglas argued that an unregulated market led to unhealthy concentrations of market power.
At the end of 1983 there was a marked change in Douglas’s thinking. He released a paper called the “Economic Policy Package” which called for a market-led restructuring of the economy. The key proposal was a 20 per cent devaluation of the dollar, to be followed by the removal of subsidies to industry, border protection and export incentives. The paper doubted the value of “picking winners” and saw only a limited place for government funding of economic development. His colleague Stan Rodger described the paper as a “quite unacceptable leap to the right”. It immediately polarised opinion in the Labour Party.
Douglas characterised the policy package as restrained and responsible, and an appropriate response to the country’s economic difficulties. He acknowledged the contribution to the package of Doug Andrew, a Treasury officer on secondment to the parliamentary opposition, among others. W H Oliver noted the close alignment of the package and Economic Management, Treasury’s 1984 briefing to the incoming government. His assessment was that Douglas was predisposed towards the Treasury view because greater reliance on the market required decisive action and solved what Douglas saw as the problem of interest-group participation in policy-making.
Division in Labour over economic policy crystallised when a competing proposal was submitted to the Labour Party's Policy Council. Its proponents included Rowling and others who had resisted his replacement as leader. It argued for a Keynesian use of monetary and fiscal policy. It was sceptical about the ability of the private sector to promote economic development. Economic restructuring was to be led by the government, which would act within a consultative framework. In this way, the social costs of restructuring would be avoided.
There was stalemate in the Policy Council. As the 1984 election drew closer, Labour’s deputy leader Geoffrey Palmer drafted a compromise that contained elements of both proposals. The Palmer paper was broadly worded. It made no mention of devaluation. It anticipated some form of understanding between government and unions about wage restraint. It allowed for extensive consultation about economic policy and stated that necessary structural change would be gradual and agreed. When Muldoon unexpectedly called an early general election, the Labour Party adopted Palmer’s paper as its economic policy. Lange said that Labour went into the election with an unfinished argument doing duty as its economic policy.
Reforms
Main article: Fourth Labour Government of New ZealandAfter the snap election of 1984, Douglas hastily began to reform the New Zealand economy, under the government’s slogan of "We will do the right thing". The speed of the reforms can partially be attributed to the ‘currency crisis’ that resulted from Robert Muldoon’s refusal to devalue the dollar after being advised to do so by the incoming government. Labour had planned to devalue the dollar but had not announced devaluation as part of its election policy - Douglas later stated that doing so "...would wreak havoc in the foreign exchange market and invite a run on the New Zealand dollar". The business community became aware of the government's plan and speculated against the dollar, converting New Zealand funds and credits to foreign currency, and then back to a larger quantity of New Zealand dollars.
The reformers argued that the speed with which the reforms were made was due to the fact that New Zealand had not adjusted to Britain’s abandonment of the empire, and had to move quickly to ‘catch up’ with the rest of the world. Douglas claimed in his 1993 book Unfinished Business that speed was a key strategy for achieving radical economic change: "Define your objectives clearly, and move towards them in quantum leaps, otherwise the interest groups will have time to mobilise and drag you down". Political commentator Bruce Jesson argued that Douglas acted fast to achieve a complete economic revolution within one parliamentary term, in case he did not get a second chance. The reforms can be summarised as the dismantling of the Australasian model of state development that had existed for the previous 90 years, and its replacement by the Anglo-American neo-classical orthodoxy based on the monetarist policies of Milton Friedman and the Chicago School. The financial market was deregulated and controls on foreign exchange removed. Subsidies to many industries, notably agriculture, were removed or significantly reduced, as was tariff protection. The marginal tax rate was halved over a number of years from 66% to 33%; this was paid for by the introduction of a tax on goods and services (GST) initially at 10%, later 12.5%, and a surtax on superannuation, which had been made universal from age 60 by the previous government.
Immediate results
New Zealand became part of a global economy. With no restrictions on overseas money coming into the country the focus in the economy shifted from the productive sector to finance. Finance capital outstripped industrial capital and redundancies occurred in manufacturing industry; approximately 76,000 manufacturing jobs were lost between 1987 and 1992. During wage bargaining in 1986 and 1987, employers started to bargain harder. Lock-outs were not uncommon; the most spectacular occurred at a pulp and paper mill owned by Fletcher Challenge and led to changes to work practices and a no-strike commitment from the union. Later settlements drew further concessions from unions, including below-inflation wage increases, a cut in real wages. There was a structural change in the economy from industry to services, which, along with the arrival of trans-Tasman retail chains and an increasingly cosmopolitan hospitality industry, led to a new ‘café culture’ enjoyed by more affluent New Zealanders. Some argue that for the rest of the population, Rogernomics failed to deliver the higher standard of living promised by its advocates.
Legacy
After Rogernomics, the New Zealand Labour Party was paralysed by infighting for most of the next six years, as former Trade Minister Mike Moore became Leader of the Opposition (1990–1993), followed by Helen Clark, whose first term as Leader of the Opposition was undermined by Moore's populist personal faction. However, Clark survived and steadily gained ground during the third and final term of the Jim Bolger and Jenny Shipley administrations. Much like Tony Blair in the United Kingdom, Clark decided on a compromise solution, combining advocacy of the open economy and free trade with greater emphasis| on fighting the New Right consequences of social exclusion.
The policies of Ruth Richardson, sometimes called "Ruthanasia", are often seen as a continuation of Rogernomics. Richardson was Finance Minister in the National Party government from 1990 to 1993.
References
- Dalziel, Paul in Easton, Brian ed The Making of Rogernomics Auckland University Press 1989 ISBN 1 86940 041 0 p. 53
- New Zealand Parliamentary Debates Vol 365 pp. 123-128
- Bassett, Michael The Third Labour Government Dunmore Press 1976 ISBN 090856435X pp. 24-25
- Bassett 1976 p.31
- Bassett 1976 p.82
- Gustafson, Barry (2000). His Way: A Biography of Robert Muldoon. Auckland: Auckland University Press. p. 237. ISBN 1869402367.
- Douglas, Roger An Alternative Budget 1980
- Easton, Brian The Commercialisation of New Zealand Auckland University Press 1997 pp. 6-8
- Bayliss, Len Prosperity Mislaid GP Publications 1994 pp.42-45
- Douglas, Roger and Callan, Louise Toward Prosperity David Bateman Ltd 1987 ISBN 090861070X p.16
- Douglas, Roger There's Got to Be a Better Way Fourth Estate Books Limited Wellington 1980
- Oliver, W H in in Easton, Brian ed The Making of Rogernomics Auckland University Press 1989 ISBN 1 86940 041 0 p.13
- Douglas and Callan 1987 pp.21-27
- Lange, David My Life Viking 2005 ISBN 067004556X p.143
- Oliver 1989 pp. 28-29
- Oliver 1989 p.31
- Jesson, Bruce Fragments of Labour Penguin Books 1989 ISBN 0 14 012816 6 pp. 39-40
- Oliver 1989 p.30
- Oliver 1989 p. 35
- Oliver 1989 pp.13-15
- Oliver, 1989 pp.19-20
- Oliver 1989 pp. 42-43
- Douglas 1987 p.36
- Douglas 1987 pp. 29-30
- Oliver 1989 p.19
- Oliver 1989 pp. 42-44
- Oliver 1989 pp.43-45
- Oliver 1989 pp. 48-49
- Lange 2005 p. 164
- ^ Philippa Mein Smith, A Concise History of New Zealand, Cambridge University Press, Melbourne: 2005, pp.201-216.
- ^ Judith Bell, I See Red, Awa Press, Wellington: 2006, pp.22-56.
- Bruce Jesson, "The New Rights Network of Power" in To Build a Nation: Collected Writings 1975-1999, edited Andrew Sharp, Penguin Press: 2005, p.190.
- Michael King, The Penguin History of New Zealand, Penguin Books (NZ), Auckland: 2003, p.490.
- Bruce Jesson, "The Changing Face of New Zealand Capitalism" in To Build a Nation ibid., pp.177-178.
- Colin James, The Quiet Revolution, Allen & Unwin New Zealand Ltd in association with Port Nicholson Press, Wellington: 1986, p.166.
Further reading
- Bell, Judith (2006). I See Red: The shocking story of a battle against The Warehouse. Wellington: Awa Press. ISBN 0958250979.
- Douglas, Roger (1987). Toward Prosperity. Auckland: David Bateman. ISBN 090861070X.
- James, Colin (1986). The Quiet Revolution. Wellington: Allen & Unwin New Zealand Ltd in association with Port Nicholson Press. ISBN 0868617229.
- Kelsey, Jane (1995). The New Zealand Experiment: A World Model for Structural Adjustment. Auckland: Auckland University Press. ISBN 1869401301.
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