Paper to NZ Fabian Society, 26 February, Wellington.

The New Zealand Fabian Society has posted my paper Transforming New Zealand: Why Has the Left Failed?, which is a follow-on from my just published book, In Open Seas: How the New Zealand Labour Government Went Wrong: 2017-2023. The paper points out that the Left no longer dominates the economic policy agenda. This paper is a response to Mike’s challenge to me: how to get the Left back to being a progressive force responding to ongoing change, rather than just defending the status quo.

How the Left is Failing

This paper does not spend a lot of time putting the case that New Zealand’s economic agenda is now dominated by neoliberal economics. Typically, the Left’s response to a policy announcement is that it hurts someone and that our side can do it better, implicitly accepting the existing policy framework. You rarely hear that the policy approach is fundamentally flawed with an alternative approach being advanced. Recall Labour campaigned in 1935 on ‘we have a plan’. Remember their slogans in the last three elections? [1] Isn’t each saying ‘in it for us’, the ‘it’ being running the country much the same by a Labour leadership?

Jacinda Ardern said that her government was going to be ‘transformational’ but it was so bereft of policy direction that when it took over in 2017 it set up a series of committees of the worthy and the loyal – but hardly innovative – to tell them what to do. Basically, each accepted the existing agenda and tinkered with it. Transformational the Ardern-Hipkins Government was not. That is why it has been easy for the Luxon Coalition Government to unravel its good intentions.

The Left’s origins go back to a response to the capitalist industrialisation which began in the nineteenth century. Industrialisation had a revolutionary impact on society and the lives of ordinary people, disrupting traditional social networks and the way people lived and worked – often making them worse off.

How to cope with the industrialisation juggernaut? One response was to return to an idealised rural Arcadia. Its best-known advocate was Pierre Joseph Proudhon but many people voted with their feet, including those who migrated from Europe to New Zealand to go farming. A second response was revolutionary – to overthrow the social order and impose a new one. Prominent among the advocates were Marxists and hard-line anarchists.

However, the most successful response was the evolutionary one of adapting the social system so that the economic growth from industrialisation would benefit the masses. Among the most prominent British advocates at the end of the nineteenth century were the Fabians, named after the Roman general Fabius, who won through persistence and wearing the enemy down by attrition rather than in pitched battles. Its logo was a tortoise.

The Fabian approach has been a foundation of social democracy. Their policies had a major impact on the Ballance-Seddon First Liberal Government via William Pember Reeves, New Zealand’s earliest acknowledged Fabian. The influence continued through to the Savage-Fraser First Labour Government. After that, it seemed to the Left a matter of tidying up the unfinished business, as occurred under the Nash-Nordmeyer Second Labour Government and the Kirk-Rowling Third Labour Government.

About this time, there evolved a view that it was possible to manage the economy, ameliorating the business cycle and accelerating economic growth. The Left claimed they could do this better, because they were more pragmatic than the Right about government intervention. However, the New Zealand conservative right is pragmatic too, and there has been a convergence of policies.

One difference was that the Left thought that some groups were being left out of the rising prosperity; the Right disagreed. Government spending patterns through time show the main difference between the two was that Labour governments spent more on social security transfers. (Research sometimes confirms popular prejudices.) But the spending patterns on education and healthcare and so on were similar. (Research does not always confirm popular prejudices.)

However, the traditional Left’s success ceased to be a progressive force and instead became a defender of the status quo its predecessors had created. Its message is that ‘we have made these gains against the capitalist-industrial complex which is trying to reverse them; we are resisting’.

There was a deviation from this Labour tradition when the Lange-Douglas Fourth Labour Government adopted neoliberal (Rogernomics) economic strategies. (They were continued by the Fourth National Government pursuing ‘Ruthanasia-Jennicide’.) Michael Cullen’s memoir Labour Saving explains that the Clark-Cullen Fifth Labour Government was about restoring traditional social democrat approaches.

Post Industrialisation Society

 While the industrialisation phase of modern economic growth may be over, there are other forces transforming the world. Perhaps none is as powerful as was nineteenth-century industrialisation – I wouldn’t know because we are in the middle of it all – but collectively they are as significant. They include

            – increasing affluence and diversity;

            – the shift from the consumption of goods to the consumption of services;

            – rising organisational and intellectual complexity;

            – the globalisation (interconnection) of individual economies (not just trade and investment; labour mobility is a big one). The balance of international power is changing;

            – the rise of the power of the financial sector, generating rising inequality at the top of the wealth distribution with political impacts;

            – the increasing depletion of environmental resources of which climate change – the consequences of using the atmosphere as a sump for carbon emissions – is the big one.

The Left has had some responses to these transformational drivers but frequently they amount to reacting conservatively to preserving a status quo from the past – pretending these changes are trivial. This contrasts with adapting and harnessing the forces to enhance wellbeing for the future, in the way that their nineteenth-century predecessors succeeded in doing. It’s more Proudhon than Fabian. (There are exceptions. Greenies, in particular, are concerned with environmental challenges. The movement is split in the way the nineteenth-century Left was: reversion, revolution, evolution.)

It is perfectly honourable politics to defend the status quo, twiddling some of its settings, promising to manage it better. That is the role of conservatives. The indications are that when Labour takes this strategy, it will be in office about a third of the time. But it will not be in power; it will be neither progressive nor transformational.

It would be a rejection of the great tradition of the Left to be an agent of change and, even more concerningly, that there will be a continuation of the ongoing divergence between the changing world and New Zealand’s response to it. Eventually that leads to an economic and social breakdown.

Thus the neoliberal agenda promoted by the ACT party which is driving some of the most divisive policies New Zealand has faced since Rogernomics. That was their baby too.

Time permits looking at only one of these challenges. (It would take a series of lectures in the nineteenth-century Fabian tradition to deal with all the forces; or you could read In Open Seas.) How to meet the challenge of increasing affluence and diversity.

 The Ardern-Hipkins Government tried to be transformational in a couple of relevant areas, although it failed to get them under way. But there was also an area where the Ardern-Hipkins Government was taking exactly the wrong direction, even though it was pursuing a conventional New Zealand left-wing governing strategy.

The Challenge of Affluent Diversity

It may be that today there is more social diversity – age, class, ethnicity, gender, life experience, occupation, and religious belief among many dimensions – than in the past. It is certainly more challenging. Society can no longer operate on the assumption that what is good for white, middle-class, Protestant, straight men is good for everyone else.

One factor driving this diversity has been affluence. Today someone will, on average, have double the material income of their grandparents. (One chapter of In Open Seas wonders whether that will be true in the future.) Doubling purchasing power does not mean doubling everything. Spending on some things rises by much more, changing the shape of both consumption and society. As In Open Seas explains, affluence generates choice, which generates diversity of consumption, behaviour, opportunity and social display.

The Ardern-Hipkins Government favoured the centralisation of the austere world our grandparents grew up in, where a Wellington-based centre could control just about everything. It did not foster local decision making. It reduced local involvement by its centralisation of health provision under Health New Zealand, under its merged mega-polytechnic and under its Three Waters regime. It did little about the vast, sprawling Ministry of Business, Innovation and Employment and Department of Internal Affairs, ignoring the case for smaller single-focused organisations such as a Ministry of Labour, Archives New Zealand and the National Library. It wanted to merge RNZ and TVNZ despite their quite different cultures. It reduced accountability of the public sector to the public and failed to strengthen the Official Information Act.

Nineteenth-century Fabians supported strong local government favouring locals making local decisions. People value control over their destinies rather than leaving decisions to an anonymous Wellington bureaucracy. It is said that Wellington houses a ‘ministry against local government’.

Critical here is ‘subsidiarity’, that decisions should be taken at the lowest possible level. While the notion is familiar to European social democrats, a leading New Zealand left theorist said he was unaware of it; it is not surprising that Labour is insensitive to the case for decentralisation.

 The strongest form of decentralisation is use of the market, so individuals make decisions about what, when and where they will consume. Historically, the Left has been sceptical about the efficacy of the market, a position reinforced by the failure of Rogernomics.

Recall the British Labour Party’s debate over ‘Clause Four’: the social ownership of the means of production, distribution and exchange. Even fifty years ago it was argued Clause Four should be replaced by the social control of the means of production, distribution and exchange. Ownership is a means of control but so is a socially regulated market.

When economists advocate ‘more market’, they usually do not mention that their case assumes that the income distribution, which determines the purchasing power of individuals, has to be ‘fair’. If it is not fair, an intervention limiting the market may result in a better outcome. This is the justification for many leftish interventions. Unfortunately, such interventions tend to accumulate until they end up with a Muldoon-type economy, where nobody has the foggiest idea of what is going on – Muldoon certainly did not. Hence the market liberalisation of Rogernomics. But that does not mean we should ignore distributional issues, nor need we increase inequality as the Rogernomes did.

Market delivery does not always work well. That is why pragmatic economists advocated ‘more market’, not ‘all market’ like neoliberals, who even tried to ‘Americanise’ the public healthcare system, despite the American healthcare system being the least successful (and most expensive) among affluent economies.

Going down the path of decentralisation would be transformational. Practical income redistribution and market design are not easy. It is critical if we want to deal with local autonomy and the growing diversity on matters like ethnicity and gender. Not in passing, decentralisation is key to resolving Māori concerns. As In Open Seas explains, that was promised in Te Tiriti o Waitangi.

We need a new policy framework where politicians stop strengthening the centre but instead promote subsidiarity.

Distribution

But decentralisation and subsidiarity will not be successful if the income distribution is not fair. Around a quarter of New Zealanders, especially children and their guardians, cannot be described as ‘affluent’ (having choice) because our redistribution system is not working well. Fairness requires addressing the tax and benefit system.

 At the moment raising tax levels is not a part of the public agenda. The implication is that the current system is efficient – it is not; that the resulting income distribution is fair – it is not; and that it raises sufficient revenue for public purposes – it does not. This neoliberal constraint is so overwhelming that Ardern ruled out tax increases, a captain’s call which crippled her government’s policies.

Including her own. Her 2018 Child Poverty Reduction Act directs the government to halve child poverty over ten years. However, neither she nor, apparently, anyone else involved in passing the act seemed to realise how radical the objective was. The act’s goal was to reverse the impact of the Richardson-Shipley redistribution cuts of 1990 and 1991, which doubled child poverty.

We may not need to restore the pre-Rogernomics tax and benefit levels. In Open Seas reports a simpler more effective regime. However, ultimately the relative incomes of those at the top would be reduced. (One consequence would be to reduce their political power – their ability to control the public agenda, reversing the post-Rogernomics shift of the balance of political power.)

Because they did not understand what they were aiming to do, the Ardern-Hipkins Government accomplished little reduction in child poverty. It fiddled at the margins; whatever the benefits of providing free school lunches, it is not going to do much towards a counter-revolution against the neoliberal income distribution. The reductions during the time of the Ardern-Hipkins Government were minuscule and certainly not on the track promised by the legislation. The actual track was more like that under the Key-English Government.

The Ardern-Hipkins Government also got into a tangle with the proposed Unemployment Insurance Scheme, which involves redundant workers getting short-term earnings-related compensation together with assistance towards finding a new job. Income smoothing would have given redundant workers time to adjust to their new circumstances. The upgrading of their skills would minimise their long-term income loss, and add to the competence of the labour force. Such schemes are not radical on the European continent – some were operating half a century ago.

The sensible approach is similar to our public retirement provision with its base New Zealand Superannuation and top-up earnings-related Kiwisaver. Explained in In Open Seas, it offers a path to amalgamate New Zealand’s two different public income-maintenance systems. Unemployment insurance by itself would be a small change, but it opens up the possibility of extending ACC to sickness, as recommended by the Woodhouse Commission sixty years ago.

Apparently, the officials working on the scheme couldn’t see how to do it, despite it being simple and straightforward – or to even explore the possibility – indicating how unprepared we are for seriously tackling redistribution policy.

There was widespread opposition to the proposal from the neoliberal right, which saw it as government intervention involving a tax increase, downgrading social insurance while supporting private insurance. But there was also opposition from some people on the ‘left’, although their understanding of the background and history was so confused that it was difficult to know what their concerns were.

And so the unemployment insurance scheme was abandoned in the February 2023 policy bonfire. No explanation for the decision was given.

The Left tiptoes around the issue of economic redistribution. Sure, there is a case for a more progressive tax structure, a capital gains tax and a wealth tax – I was discussing them five decades ago, including proposing a negative income tax. But it needs to be tackled in a comprehensive integrated way. Instead, the neoliberal standard of no tax increases, no improvement in the efficiency of the tax system, no addressing the fairness of the tax system and underfunding the public sector dominate the public discussion. Envy is not a part of a social democrat’s policy; fairness is.

We need a new policy framework where politicians stop demanding we keep taxes low but ask about the extent to which equality and opportunity are being promoted.

Economic Growth and Wellbeing

As the opening analytic chapter of In Open Seas explains, in a world of affluence and diversity, GDP per capita is no longer a good measure of wellbeing. The distinction is well captured by the Brazilian colonel who, having taken much Chicago School advice, said that he could not understand when he was told the economy was doing well, why the people were not.

Grant Robertson, the Minister of Finance in the Ardern-Hipkins Government, recognised the issue. In his first budget in 2018, he announced:

We have … signalled our intention to take a wellbeing approach … In the past we have used GDP and traditional fiscal indicators as the only signs of success. And yet, real success means much more for New Zealand and New Zealanders. Of course, a strong economy is important. But we must not lose sight of why it is important. … That is why our Government is making a formal change to move beyond narrow measures of economic growth and broaden the scope and definitions of progress and success.

 The announcement was for a new direction in thinking about government economic management. It reflected a shift within the economics profession away from an excessive focus on material market income towards other influences on wellbeing.

Right from the first systematic estimates of GDP, economists were cautious about the extent to which their measures connected to wellbeing. On the whole, the evidence suggests that above certain income thresholds the connection is tenuous.

That is why the first analytic chapter of In Open Seas is about wellbeing. It warns that the notion is difficult to conceptualise, to measure and to apply. Economists will tell you that GDP and its associated measures are hard to analyse. They are simple compared to wellbeing. But as Keynes said, it is better to pursue the vaguely right than the precisely wrong.

Robertson described all his subsequent five budgets as ‘wellbeing budgets’. His statement introducing the 2023 budget – his last – devoted 16 of its 28 pages to the wellbeing outlook and objectives; the term is used 69 times. Yet the term ‘wellbeing’ was not used much in Labour’s 2023 election campaign.

When the incoming National Minister of Finance, Nicola Willis, presented her first budget policy statement she grumpily footnoted that a ‘2020 amendment to the Public Finance Act requires the government to state the wellbeing objectives that will guide its Budget decisions’ and made but two desultory mentions. Her 2025 Budget Policy statement identifies three traditional (and worthy) overarching goals: building a stronger more productive economy, delivering more efficient, effective and responsive public services, and getting the government’s books back in order. It added that the goals were ‘the Government’s wellbeing objectives, as achieving them is the most important contribution the Government can make to the long-term social, economic, environmental and cultural wellbeing of New Zealanders.’ We are back to judging wellbeing in narrow economic terms.

In her post-2024 Budget speech, Labour’s spokesperson on finance said her focus would be on household costs, small business, climate change and roads. There is a glancing mention of wellbeing, equating it with inter-generational issues. So Labour is back to the same dead end as National, as the Key-English Government, as the Luxon Coalition Government.

After more than a year in office, the current Prime Minister has announced that his government will focus on economic growth. We can take this to mean it wants to increase GDP.

 There is a long history of concern about New Zealand’s economic growth record, going back over sixty years, before the prime minister was born. It does not go back much earlier because there was no official GDP data until the 1950s; that’s when modern economic growth theories began. Before then, the long-time concern was more about employment and unemployment which were considered major influencers of wellbeing.

There is a constant rhetoric in the public debate that New Zealand’s growth and long-term productivity record is poor and that we should adopt new policies which will stimulate and accelerate growth. (It is common rhetoric in other affluent economies too; we are not unique in this respect.) There is never any evidence of how the policies being promoted might work. (Rhetoric replaces research.) Nor is it observed that this claim has persisted over the sixty years and that there is not the slightest evidence that we have been able to increase the economic growth rate. Sure, the New Zealand economy has grown and productivity has risen, but there is no period in which long-term productivity has accelerated – especially as a result of policies. (Rogernomics demonstrates that there are policies which can slow down growth.)

The expectation is that this government’s policies will do little to accelerate productivity. It is likely that many people will go into the 2026 election poorer than they were in 2023, with the growth in GDP going to overseas investors and to new immigrants. A cyclical recovery aside, the government will be looking threadbare on the economic front, although one should never underestimate the ability of a public relations team to temporarily dress up the shabby.

The status-quo Left has submitted to the Luxon Coalition Government’s growth agenda. The progressive Left can challenge it by distinguishing wellbeing from growth, as Robertson was trying to do. Why did he fail, why were his wellbeing budgets not transformational?

One explanation is that there was not time enough to bed in the new approach, but that does not explain the Labour retreat in opposition. Robertson kept the cards close to his chest – just him and Treasury. There was no attempt to build a wider community consensus. I suggested to Robertson that they should have extended the Productivity Commission’s remit to cover wellbeing. (It was the only recommendation I made to him.) Even that was seen as a step too far.

Once more the Left is facing a challenge similar to that which it faced in the nineteenth century. Industrialisation increased GDP, while making many people worse off. Critically, it was necessary for public interventions to reduce those downside detriments. Historically, the Left promoted policies to make industrialisation more beneficial. The lesson remains as true today. Economic change has to be harnessed for the public wellbeing. It does not happen automatically.

 We need a new policy framework where politicians stop asking how we can grow the economy but instead how we can develop wellbeing.

The Fourth Lange-Douglas Government

Rogernomics recognised that New Zealand had to respond to changing circumstances – the era which Muldoon represented was past. It correctly diagnosed that this required decentralisation.

However, the neoliberals incorrectly assumed that decentralisation meant only decentralisation to individuals, ignoring that it also requires getting the economic distributions right. Instead, they made them less fair, markedly increasing income inequality, preserving the incomes of the well-off at the expense of reducing the incomes of those in the middle and bottom. (It took twenty years for some of the poorest to recover their pre-Rogernomic income levels.)

Moreover the neoliberals did not accept that subsidiarity could be to lower-level collective institutions like local government and unions. In many ways the neoliberals strengthened the power of the centre by weakening the intermediate institutions between them and the people – while putting the centre more under the influence of the rich and the corporates. They were seduced by the belief that their neoliberal policies could accelerate the economic growth rate. Instead, the economy stagnated.

And yet the neoliberals were transformational. They were in power for only six years, much the same period as the Ardern-Hipkins Labour Government. But unlike it, they transformed the economic policy framework and the political environment. That was because they knew what they were doing, including sterilising any opposition. They will be long remembered. Meanwhile the Sixth Labour Government, already having had most of its policies reversed, will be a footnote in the pages of history.

Endnote

[1] 1.1. 2017 ‘Let’s do it’ [What?]; 2020 ‘Let’s keep moving’ [Where?]; 2023 ‘In it for you’ [Oh really?].

Commentary

Following the presentation a number of people made contributions. There is no transcript of them, and my notes are brief and (in places) illegible so the responses below are incomplete.

One comment was about the importance of overseas influences on New Zealand. I responded heartily agreeing (that is a central theme of In Stormy Seas and appears regularly in my other writings). We need to follow foreign thinking closely but, crucially, we need to adapt it for New Zealand circumstances. Rogernomics was very imitative of overseas neoliberal thinking of the time, which was one of the sources of its failures.

            The commentator also mentioned the rise of finance capitalism. We are in a very different political economy from nineteenth century industrial capitalism. It poses both new ways of thinking about these issues and different challenges to dealing with them.

It was also pointed out that ‘wellbeing’ is a vague notion and that more tangible terms such as unemployment and homeless should be used. Chapter 2 of In Open Seas elaborates the difficulties of conceptualising wellbeing (and GDP). Using more tangible terms leads to the trap of using the existing paradigm which claims to explain them (it doesn’t really) and resolve them (it hasn’t) or explaining why nothing can be done (we have in the past). If the Left wants to be transformational it has to challenge the existing paradigm directly, and that means articulating a new conceptual frame.

One person drew on her Māori roots to suggest that they may offer insights to the a new way. I commented that I learned much from writing Not in Narrow Seas: The Economic History of Aotearoa including the story of Māori development from a non-market (but exchange) community to today.

I’d like to acknowledge friend and colleague, Jerry Mushin, who read the paper on my behalf in order to preserve my voice. He did it ever so well. As usual Elizabeth Caffin made a huge contribution to the writing and editing.