Rogernomics: New Zealand’s Economic Revolution
New Zealand once had the developed world’s most comprehensive welfare state. But one ambitious statesman decided his country needed reform.
To many lefties around the globe, Jacinda Ardern and her Labour Party are progressive heroes, champions of a robust welfare state that has set a standard for the developed world to follow. Labour’s incredible triumph in the 2020 general election, its best since 1946, sealed Ardern’s reputation as a model head of government among those leaning left of center, with her response to the COVID-19 pandemic inspiring particularly strong praise. In the United States, plenty of liberals consistently cheer Ardern and her policies, particularly those that drift further to the left than their more moderate counterparts. I have even witnessed some claims that her leadership will surely expand the welfare state on a level unseen in the developed world, let alone in America.
But as a New Zealand citizen, I must admit that these statements are laughable at best. New Zealanders are well aware of their country’s history of widespread government intervention in the economy and extensive social programs. At its peak in the decades following World War II, the New Zealand welfare state may have been the most comprehensive of any outside the socialist world. But in the 1980s, the welfare programs and state initiatives that so thoroughly defined the intersection between New Zealand’s people, markets, and government began to evaporate at a scintillating pace. Journalists at the New Zealand Listener even coined a name for the reforms that erased the country’s welfare state — “Rogernomics.” Ironically enough, the government that once shaped the most complete social democracy on Earth bulldozed it in favor of joining the world’s most free-market economies.
These changes were nothing short of shocking for Kiwis. The political economy that once shaped their lives and their national identity had changed at an unprecedented speed. But what was New Zealand like before the reforms of the 1980s? How did the welfare state come into existence in the first place? What catalyzed the dissolution of key government entities and mechanisms of state intervention in economic and social life? And more than thirty years later, what is the legacy of Rogernomics and market liberalization on what was once the most state-dominated economy in the developed world?
The First Labour Government, in power from 1935 to 1949, dominated New Zealand politics while the effects of the Great Depression inspired widespread economic and social reform. In 1931, the United and Reform parties formed a coalition government; Labour, meanwhile, had to settle for being the opposition bloc. But the 1935 general election saw a frustrated public back Labour with 53 of the 80 parliamentary seats (United and Reform merged the following year to become the National Party, which remains Labour’s traditional rival) and roughly 46 percent of the vote. Amidst ongoing economic devastation, New Zealanders were happy to support the party and its promise to strengthen the government’s response to poverty. Labour’s leader, Michael Joseph Savage, had a history of association with trade unionist and socialist causes. However, his image was less radical than those of his predecessors, aiding Labour’s successes at the polls.
Nonetheless, Savage and Labour pursued some openly socialist policies in the years leading up to the Second World War. As public spending soared, the government nationalized the Bank of New Zealand and industries such as coal mining and domestic aviation. Public works projects not unlike those of Franklin Delano Roosevelt’s New Deal programs were launched, while broadcasting and transportation services were placed under ministerial control. Savage’s history of involvement with unionism also influenced public policy, as trade unionism was made compulsory alongside a five-day, forty-hour working week. Other policies of the First Labour Government included the introduction of import, exchange, and price controls, the reversal of wage cuts, central planning initiatives, new tariffs and other protectionist measures, and significantly higher taxes on income and land. Keynesian economic thinking arrived in full force; the relationship between the New Zealand Government and the economy it managed had become inseparable.
New Zealanders were also guaranteed incredibly generous welfare benefits. The Social Security Act 1938 established the world’s first social security program, introduced universal government-funded healthcare, and expanded benefits for the ill and unemployed. Pensions were increased and extended to a much larger section of the population, and welfare payments increased for poor and working-class Kiwis. Savage and Finance Minister Walter Nash also launched New Zealand’s state housing program, ordering the construction of 5,000 publicly owned rental homes in 1936. That same year, an accompanying Fair Rents Act was passed, introducing a rigid set of rent controls that required magisterial approval to amend. Education also received significant support from the government. Free secondary education was made compulsory for those under fifteen, school meals and books became publicly funded, support for facilities and faculty increased, and universities were made increasingly cheap and affordable.
New Zealand’s large agricultural industry was also managed by the state. The Agricultural Workers Act 1936 set minimum wages for farmers and provided low-cost loans, housing assistance, and guaranteed prices for produce. Regarding race relations, Māori citizens were also given greater access to education traditionally available to their Pākehā counterparts; their pay on public works, welfare, and pensions was also gradually increased to equal that of whites. Māori living standards improved noticeably, as slums disappeared, unemployment fell, life expectancy rose, and educational enrollment grew.
Though Savage passed away from cancer in March 1940, Labour remained in power for another nine years under new Prime Minister Peter Fraser. Eventually, frustration over issues such as the state housing scheme and Fraser’s commitment to peacetime conscription powered the National Party to victory in the 1949 general election. Nonetheless, Savage remains among New Zealand’s most beloved prime ministers. Adored by much of the public, 50,000 mourners paid their respects at his Auckland funeral. For decades following his death, his portrait hung in the homes of Labour voters across Aotearoa.
Though Labour’s grip on power came and went over the next few decades, the legacy of Savage and the First Labour Government remained largely intact. Throughout the 1950s and 1960s, agriculture continued to dominate the economy as it had since the late 19th century, with the production and exportation of meat and dairy products key to New Zealand’s economic livelihood. Despite fully asserting its independence with the Statute of Westminster Adoption Act 1947, New Zealand remained heavily dependent on Britain. In 1961, more than half of New Zealand exports went to the United Kingdom, with another fifteen percent going to other European nations. Nonetheless, the 1950s and 1960s were a time of prosperity and growth for most New Zealanders, many of whom still saw themselves as inextricably tied to Britain and its culture.
However, the early 1970s saw turmoil on a level unseen by New Zealanders since the Great Depression and the Second World War. 1973 was a particularly disastrous year, as protests against French nuclear testing in the South Pacific worsened, oil prices surged in the wake of the global energy crisis, and the United Kingdom joined the European Economic Community (EEC). British membership in the EEC spelled disaster for New Zealand, as Britons could now purchase cheaper European products thanks to the EEC’s introduction of lower tariffs. New Zealand’s protectionist economy could not compete; stagflation plagued the country for much of the decade. National Prime Minister Robert Muldoon, who served from 1975 to 1984, fought tooth and nail to maintain the welfare state and the prosperous New Zealand of the previous two decades. However, his conservative and polarizing style of governance emboldened an already strong protest movement, most infamously embodied by a vitriolic reaction to the 1981 Springbok tour. Muldoon’s policies also failed to improve a struggling economy, worsening his reputation among many voters. In 1984, New Zealanders rejected a fourth term for Muldoon and National, instead opting for David Lange’s Labour — and a new agenda that would change their country forever.
Interestingly enough, the preeminent figure behind the Fourth Labour Government’s radical economic reforms was not Lange (pronounced Long-ee) but his Minister of Finance, Roger Douglas, for whom Rogernomics was named. Born in 1937, Douglas grew up as the First Labour Government was reshaping New Zealand, spending his childhood in a state house in Auckland. By the early 1960s, he had joined his parents’ beloved Labour Party and entered politics, later becoming a Member of Parliament (MP) for Manukau in 1969. Over the years, Douglas’ political stock rose significantly; by the early 1980s, he was David Lange’s right-hand man. When Lange became Labour’s leader in 1983, he allowed Douglas to take the lead as the party’s voice on economic and financial matters. The following year, Lange became Prime Minister, while Douglas became his Minister of Finance.
“You may have not been responsible for the mess that New Zealand’s in, but when it’s your job to do something about it, you better get on with the job.”
Roger Douglas, 1984
By the time he became a key player in the Fourth Labour Government, Douglas’ economic philosophy had shifted dramatically. Once an adherent of his party’s orthodox center-left, Keynesian economic thinking, Douglas increasingly embraced a free-market perspective on economic issues, believing that New Zealand had to transition rapidly to enjoy any economic prosperity in the modern world. He bluntly addressed New Zealand’s dire financial situation, openly acknowledging that he and his government were “aware of the fact that New Zealand was in considerable difficulty.” Douglas later remarked that “you may have not been responsible for the mess that New Zealand’s in, but when it’s your job to do something about it, you better get on with the job.”
And get on with the job Douglas did. He immediately began instituting sweeping economic reforms. The New Zealand dollar was floated and devalued by 20 percent, farming subsidies were eliminated, import licensing and tariffs were removed, and controls on foreign exchange were abolished. State-owned enterprises and assets were corporatized or privatized. New Zealand Post, Air New Zealand, New Zealand Steel, and other government assets were sold off or otherwise marketized. Tax rates were slashed, with the top marginal tax rate falling from 59.5 percent in 1978 to 33 percent in 1988; the standard rate was reduced from 42.1 percent to 28 percent over the same period. Douglas even proposed a flat tax of 23 percent, infuriating Labour’s traditional voter base enough that Lange was forced to reject his finance minister’s plan.
Labour was re-elected in 1987, building on its 1984 victory thanks to its firm anti-nuclear stance and reformist attitude toward social issues; the recovering economy also helped boost the party at the polls. However, Labour quickly fell into dire straits; soon after the election, the stock market crashed, extinguishing much of the optimism about New Zealand’s economy. Controversy over Labour’s shift toward neoliberalism intensified during the crash and resulting recession, with Lange pushing to slow Douglas’ reforms. Lange took particular issue with the aforementioned flat tax proposal; without consulting Cabinet, he publicly announced he would not accept the plan. A frustrated Douglas expressed his lack of faith in his prime minister, leading Lange to sack him shortly after. Douglas’ departure did not help Lange, nor did it repair Labour’s internal divisions. The next year, Douglas was appointed to Cabinet again, leading to Lange’s resignation. Geoffrey Palmer, his replacement as Prime Minister, lasted only a year before he was replaced as Labour leader by Mike Moore, who hailed from the party’s traditional wing.
In a fitting end for a man of the old Labour, Moore lasted just 59 days as head of government before National won the 1990 general election. The new National government, led by Jim Bolger and later by Jenny Shipley, largely continued the market liberalization that Douglas had started. Public spending fell, the auctioning of state-owned assets continued, and state houses sold at a historic rate. Finance Minister Ruth Richardson’s policies, which embraced a small-government philosophy, earned a sardonic moniker of their own from her critics — “Ruthanasia.”
The result was a sweeping set of changes to New Zealand’s economy and society. In just a few years, New Zealand went from a state-dominated and protectionist economy to a free-market and neoliberal one. While Douglas and his pro-market colleagues certainly had their reasons for instituting major reforms, Rogernomics has never been free of controversy. Even decades later, politicians, academics, and members of the general public debate its consequences. So what does New Zealand look like today, nearly 40 years since the emergence of the Fourth Labour Government, and how do Kiwis feel about Roger Douglas’ legacy?
Roger Douglas has certainly had plenty to say and act on since being removed from his ministerial post in 1988. In 1993, he founded the Association of Consumers and Taxpayers with Derek Quigley, a prominent ex-National politician and fellow champion of market liberalization. When New Zealand adopted MMP in 1996, Douglas and Quigley’s organization-turned political party, ACT New Zealand, was boosted at the polls. In that year’s election, ACT won about 6 percent of the vote and 8 of 120 parliamentary seats. Since then, ACT’s platform has continued to promote free-market economics and some tenets of classical liberalism. Though he did not stand for Parliament in 1990 as National defeated Labour, Douglas returned to Parliament as a List MP with ACT following a solid performance in the 2008 general election. Three years later, Douglas left Parliament for good, retiring a couple of weeks before his seventy-fourth birthday.
Supporters of Rogernomics have made their feelings very clear over the last few decades; Douglas himself has opined that New Zealand would be a “third-world country” if not for his reforms. He has rightly been credited for steering his country away from financial ruin and toward a place in the modern international liberal economic order. With the opening of the economy came long-term prosperity; some have praised Douglas’ policies for their role in New Zealand’s recent economic successes. Many proponents have argued that the persistence of neoliberalism has reflected the benefits Rogernomics has brought to New Zealand. Douglas has claimed that the decades-long continuance of his policies despite criticisms from many prominent politicians proves their quality. Moreover, consumer choice and competition have improved significantly since the Fourth Labour Government came to power; some Kiwis have also hailed Rogernomics for enhancing the overall level of freedom and opportunity in their country. New Zealand topped the World Bank’s most recent Ease of Doing Business rankings and routinely places between first and third among 190 countries surveyed.
“For people who don’t want the government in their lives… [Rogernomics] has been a bonanza. For people who are disabled, limited, resourceless, uneducated, it has been a tragedy.”
David Lange, 1996
On the other hand, Rogernomics and its legacy have prompted considerable criticism, particularly from New Zealand’s political left. Some critics have charged that Douglas’ elimination of New Zealand’s fiscal deficit merely allowed its replacement by a so-called “social deficit.” And while orthodox Labour voters’ initial frustrations centered on their party’s departure from its conventional agenda, the ire of Rogernomics’ contemporary opponents centers on the abandonment of the New Zealand that once was. New Zealand’s paternalistic yet benevolent welfare state is missed by many Kiwis, some of whom have very legitimate grievances. Rising poverty, most notably among children, has caused emotions to flare among some on the left, particularly those of older generations able to reminisce about the years between the First and Fourth Labour Governments. Even David Lange, for all his support of Douglas and many of his reforms, came to regret the vigor and impacts of Rogernomics; in 1996, he admitted that he felt the reforms had been “a tragedy… for people who are disabled, limited, resourceless, [and] uneducated.” Other prominent left-wing actors such as Jim Anderton and the Green Party have also inspired opposition to neoliberalism in recent decades.
The true nature of Rogernomics is that it has produced both positive and negative results. New Zealand’s dire economic situation was resolved for the most part, but Kiwis have since become more likely to face financial hardship. Likewise, New Zealand was integrated into a successful and modern global economy, though at the cost of national traditions considered too precious to sacrifice by many citizens. Either way, the impact of Roger Douglas’ reforms is here to stay. Whether Jacinda Ardern’s Labour is willing to challenge his legacy is a question we shall have to ponder in the coming months and years. But so far, it seems that even waves of Jacindamania are not enough to wash away the relics of Douglas’ ever-towering influence.
In 2009, I moved from my hometown of Dallas, Texas to Wellington, New Zealand’s capital, to be closer to my father’s family. Upon arriving, I was in for a culture shock. Being the small child that I was, I was stunned by the differences in the education systems. I remember my peers chuckling on my first day when I thought “morning tea” meant we would literally be served gumboot tea in class. I was confused by the preference for cricket over more vigorous sports during physical education (then again, I was a woeful batsman). I was also amazed by the disparity between my family’s sprawling suburban Texas house and the modest villa we rented on the southeastern side of Mount Victoria.
Yet hindsight reveals that some adjustments my family made were not so difficult. We could find major fast-food chains from the United States in almost every town with a population north of a few thousand. Shelves at Pak-N-Save and Countdown were lined with products similar to those at any American Walmart, Kroger, or Target. And the commercial districts of major urban centers like Auckland and Wellington were reminiscent of American metropolises like Seattle. For me, this made the transition to life in New Zealand more straightforward; I could recognize things that reminded me of the United States. But I now realize what lessened my culture shock amounted to a watering down of the “authentic” New Zealand of old. The icons I had recognized from life in America had supplanted many of those that defined New Zealand before Douglas. Modern, global, industrialized, and efficient had succeeded the traditions with which my grandparents and father’s older siblings had grown up.
Perhaps this is the most damning element of Rogernomics for many New Zealanders. The economic changes they witnessed were wild enough, but the resulting cultural changes were unprecedented. New Zealanders had to abandon their perception of their government as a reliably benevolent force in their lives practically overnight. The active government of the past had disintegrated, leaving in its wake a smaller state that encouraged Kiwis to embrace individualism and self-sufficiency. While I know these values well as an American, it appears that much of New Zealand remains frustrated by this rapid cultural shift, and not without good reason. For better or for worse, New Zealand has had to contend with a new society. New Zealand’s identity will never be the same — and only time will tell whether the modern Aotearoa will become one that Kiwis can be proud of in the way they once were.