The 1st Term of the 4th Labour Government

  • Michael Cullen
Deputy Prime Minister

30 April 2004Speech Notes
Embargoed until: 9am Friday The 1st Term of the 4th Labour Government

Former Prime Ministers, Ministers, Members and ladies and gentlemen. It is an honour for me, on behalf of the Prime Minister, to open this conference on the first term of the Fourth Labour Government. This is not to be confused with the fourth term of the First Labour Government since two leaders more unlike each other than Peter Fraser and David Lange could scarcely be imagined.

We are, of course, now some twenty years on from the election of the Fourth Labour Government in what has been called the schnapps election of 14 July, 1984. As you will recall, Sir Robert Muldoon had, in what politicians refer to as a tired and emotional state, called an early election.

The pretext was that he could not rely on the vote of Marilyn Waring. More probably, he realised he could not write anything like a convincing budget to take to Parliament and the country before the normal election time was due.

After a final macabre piece of post-election melodrama in which Sir Robert not so much refused to fall on his sword as refused to accept it was sticking through him, David Lange became Prime Minister.

It was to prove arguably the most radical government in New Zealand’s history, more radical in some ways than Savage’s. It was perhaps also the best educated and most talented seen to that point. It was, especially for a Labour government, peculiarly dominated by lawyers – Lange, Palmer, Caygill, Prebble, Hercus and O’Flynn were all lawyers in the senior group and others were in the legal fold outside that group.

There was also a motley assortment of historians – three in cabinet and myself as senior whip. Most of the rest of caucus came from some kind of professional or academic background.

It was, on average, a very young cabinet and caucus – I suspect the youngest at least since the formation of political parties, and much younger than the cabinets and caucuses of recent years. A number of ministers were still in their thirties, the leadership in its early forties. This was incontrovertibly New Zealand’s first truly post-Second World War cabinet in that only a few had been formed by the experiences of the war. Most had grown up in the golden years of post war prosperity and consensus, though the youngest had also been affected by the student radicalism of the Vietnam War era. Phil Goff, it is rumoured, is still trying to destroy his photos as a long-haired radical. Stan Rodger, of course, wishes he could find one.

If there is one conclusion that I think can be drawn about the first term of the Fourth Labour Government it is that it quickly laid the seeds of both its victory in 1987 and its catastrophic defeat in 1990. For three years a façade of disciplined unity was maintained at the expense of an honest internal debate about basic principles and direction.

At the same time, there was a tendency for the government to become so convinced of its own intelligence, courage, and competence in the pursuit of change that change became the end not the means. In so doing, the government lost sight of the innate conservatism of most New Zealanders, particularly faced with simultaneous change on almost every front.

This was reinforced by the lavish praise heaped upon the government by its new fair weather friends in the Business Round Table and elsewhere. In the same way that business people are often easily seduced by flattery from academics [usually in pursuit of their money and influence] so it was easily seduced and flattered by big business support.

The final element that laid the ground for both subsequent success and failure was the course of the economy. The fundamental political assumption made about the consequences of radical economic reform was that pain would be followed by gain with roughly the right timing from an electoral perspective.

In other words, it was expected that in the immediate term the rapidity and scale of the reforms would lead to a slowing in the economy as the adjustment process unfolded. Then the economy would begin to grow on a stronger sustainable basis as the reforms produced the expected efficiency gains. This would lead to re-election on a rising economy with the delivery of social gains in the second term, and hence relection for a third term.

In fact, of course, this did not happen. Certainly much of the real economy declined fairly spectacularly under the burden of structural reform in the first term. But buoyed by the ideological enthusiam of many business and, especially, financial leaders, a speculative bubble masked this to a considerable extent. New Zealand went into the 1987 election and the subsequent sharemarket crash with a weakened economic base and with probably the most overvalued sharemarket in the developed world. The economy was not to recover for another five years. It is during this period of radical reform from 1984 to 1992 that the largest part of the present gap between ourselves and Australia emerged.

The remarkable thing in retrospect is that while much of the change was necessary, it was, after an initial promising start, mishandled so that the refoms produced smaller benefits and higher costs than could reasonably have been anticipated.

The Labour Government was not alone in being responsible for that. In many respects the prime culprit remains the preceding Muldoon adminstration, particularly the final bizarre year. By 1984 Sir Robert had turned New Zealand into an economic version of the Mad Hatter’s Tea party. Deficits and debt were rapidly expanding. Twenty per cent of all tax revenues went to service the debt. We were well into the second year of a wages-prices-interest freeze with no exit route in sight. All sectors of the economy seemed to be subsidising each other. We were trying to maintain a fixed exchange rate with practically no reserves. And so on and so on. Some have called this socialism but that is to praise the level of intellectual coherence underpinning it far too highly!

Somehow we had to salvage from all this fiscal prudence, rational market and price signals, the ability to succeed or fail on our merits, efficiency in the government and private sector and much else which ought to be, but seldom is, common ground in a well-ordered democracy.

And unlike Australia, this could not be done with a high level of tripartite deal-making for there was no real willingness to do so, in the absence of any common purpose, shared goals or perceived mutual benefits.

What happened instead is that the Labour Party’s old trade union base was largely ignored but kept modestly quiescent by the government avoiding any radical industrial relations reform. In the meantime Treasury, the Treasury Ministers and big business colluded to restructure much of the economy on the basis of a thoroughgoing neo-classical ideology misleadingly called Rogernomics. I say misleadingly because for all his drive, energy, clarity and purpose Roger Douglas was in no way the author of it and not even its clearest articulator within the caucus or in the public at large.

During this first term, despite the internal dissent expressed by Jim Anderton and others, the economic reforms proceeded apace. But underlying them was a broader theory of society and the economy which was so far at odds with Labour’s traditional philosophy that sooner or later the mother of all conflicts was going to break out. As we now know, it nearly did so before the 1987 election but in the event was postponed until shortly after.

The fact that the economic restructuring of the first term had such high costs, the fact that it was carried through in such a single handed and non-consultative way, and the fact that, unlike Australia, little or no transitional assistance was given to business to adjust so that the costs in human and other terms were much higher than they needed to be, should not detract from their necessity in general.

But the means did, as I said, become the ends. Cliches such as crash through or crash, there is no alternative, we must not become a sitting target became not just the modus operandi but almost the raison d’etre of the government. Any other approach was seen as wimpish and wet. And above all of it sat the Prime Minister, fearsomely intelligent and quick witted but economically illiterate, politically clumsy in some respects, without an independent base in the caucus and the party, but increasingly concerned at the general drift of events.

An extraordinary amount was done. The fundamentals of financial and economic reform; local government reform; the nuclear free policy; fiscal reform [largely, I have to point out to my Act ex-colleagues, by substantially lifting tax revenue]; tariff reform; the corporatisation of state trading entities and much else. Though much that the Fourth Labour Government is credited with doing actually occurred in the second term – including the controversial state asset sales, ports reform, the Public Finance Act and many others.

The electorate in 1987 gave its initial verdict. It was basically a continued thumbs up from the new fairweather friends and thumbs down from the traditional Labour base. While we picked up seats on a net basis, the voting gap narrowed as National dramatically recovered from 35 per cent to 44 per cent of the vote. The majorities of many cabinet Ministers were slashed. And in seats such as my own St Kilda, the majority stayed the same but the vote was well up in the wealthier suburbs and well down in the old heartland.

Much of the rest of the heartland had breathed deeply and given us the chance to deliver on the promised social gains and hoped that the experience of broken promises of 1984 [such as the surcharge] would not be repeated. This laid the ground for the conflicts of the second term. And they led in turn to the nemesis that descended upon us in 1990 and after: the creation of both the Alliance and Act parties, the emergence of MMP and the long period in the wilderness.

In some ways then it was, for an historian, an odd government to judge in its first term, for its epitaph had been written nigh on 150 years before in the opening lines of Charles Dickens’ A Tale of Two Cities – the best of times and the worst, the age of wisdom and the age of foolishness, the epoch of belief and of incredulity, and so on. The good news is that, despite the occasional hysterics from the National Business Review, there has been no Bourbon restoration.

That New Zealand is a more dynamic, varied, exciting, colourful place in 2004 than in 1984 can in good part be attributed to the Fourth Labour Government. But so can the fact that it is more socially divided, with greater extremes of wealth and poverty, an inadequate consensus around social goals, an electoral system which arguably does not assist in good government, and a propensity to spend too much of our time reliving old arguments rather than addressing new problems.

But one thing is sure – future historians will make a living from our labours for a long time to come. And for that my former colleagues in academia should be profoundly grateful.