Prologue: A Unique Welfare State – and a Changing One

A chapter of Globalisation and Welfare State

Keywords: Social Policy;

In a classic study of welfare states, Gosta Espinger-Anderson argued that all rich capitalist countries were welfare states, and that they could be classified into three groups. (1) He categorized New Zealand at that time (i.e. up to 1990), with Australia, in the same group as United States of America. Frank Castles argued vigorously that there are in fact four types of welfare states, because Australia and New Zealand are quite distinctive from the US and Switzerland. He called them `workers’ welfare states’. (2)

This international debate is reviewed further in Chapter 2. More generally it informs this study, whose concern is how the New Zealand welfare state was unusual – even unique. Moreover the institutions have been changing, because of various pressures, the most important of which is the internationalization of the New Zealand economy. It will become apparent, there is a sense in which Espinger-Anderson may have been wrong about what the New Zealand welfare state was once like, but he may have been prescient in that New Zealand seems to have been drifting towards the residual welfare state of the US style. The study does not simply describe what has happened and why it has happened, but explores possible developments, especially whether there are alternatives to a residual one. Whether New Zealand wants to seek a different one is a matter for the people of New Zealand. The aim of this study is to make them better informed.

How was New Zealand so different from most other welfare states? To summarize the first part of the book.

* Entitlement in the New Zealand welfare state was based upon membership of well defined categories. This entitlement was typically statutory, and generous.

* In order to work such an entitlement system required particular conditions. The key requirement was the lack of behavioral response, which refers to a person adjusting their behaviour in order to improve their entitlements.

* In the early part of the post-war era, opportunities for such behavioral response were limited, partly because of full employment, partly because of particular family circumstances, and partly because technological conditions which applied to education and health entitlements.

* This meant the demands on the early post-war welfare state were not onerous, and could be funded by the economy – one way and another – without damaging the ability of the economy to produce and grow.

* Crucial was the full employment over that period. As (stressful) unemployment began to rise, the traditional – and till then very successful – welfare state system began to get into difficulties.

* That was perhaps thirty years ago. In the subsequent three decades New Zealand has struggled – usually not very successfully – with developing its welfare state in the light of the changes. There has been a tendency to move towards a residual welfare state, where entitlement is based upon a narrow and selective criteria of dire need. And yet, given the heritage of the early post-war welfare state, and given New Zealanders commitment to providing a decent society for all, the tendency has been resisted.

* But there is no serious and comprehensive alternative being offered.

This analysis does not deny the importance of the change in family structures, individual preferences, and technology which also undermine the category approach. However it focuses on the change in the economy, because these issues could have been dealt with – albeit with difficulty – had it been possible to maintain the economic strategy and full employment of the early postwar era. Why can we not go back to that economic strategy?

The miraculous success of the economy (and the welfare state) in the first two decades of the postwar era was dependent upon exceptionally favourable prices obtained for New Zealand’s pastoral exports (which in those days were the only exports of significance). That enabled, in various ways described in Chapter 1, the maintenance of high levels of employment. However, when the terms of trade fell after 1966, the economy no longer had access to easy foreign exchange earnings, and the entire economic and social strategy came under pressure. (A good current example of a country which still receives high prices for its resources, and can maintain a generous – and, by our standards, not overly efficient – welfare state, is Saudi Arabia.)

Fortunately – perhaps even more miraculously – in the 1970s the New Zealand economy diversified from being almost solely a pastoral exporter mainly to Britain, to one which involved a much greater range of products and destinations. This enabled the economy to sustain itself and grow: although the pastoral export price collapse and the diversification process inevitably slowed down the economic growth rate in much of the 1970s.

By the 1980s, the New Zealand economy had worked its way through the diversification but was hit by a second external shock, albeit one not unique to New Zealand. Globalization, the merging of all economies into a single, increasingly integrated, world economy accelerated. (In the New Zealand case the difficulty was compounded by exceptionally inept economic management. (3))

These economic changes undermined the traditional welfare state of the early postwar era. However the response tended to be ad hoc, rather than coherent and thoughtful. Observe that it is not possible to go back to the old ways. Even were New Zealand to unhook from the globalized economy, pastoral export prices would return to their past levels.

The challenge then is to reconstruct consciously the mechanisms of the welfare state, while keeping its past underlying principles. The only practical alternative seems to be a US residual one, which is probably the destiny if the current approach continues. It is this challenge that this study accepts.

Next Chapter Ch.1: The Economic Miracle: 1946-1966

1. G. Espinger-Andersen (1990).
2. F. Castles (1985, 1994)
3. See B. Easton In Stormy Seas (1997), and The Commercialisation of New Zealand (1997).