An Early Neoliberal Revolution

In the 1980s, New Zealand was one of the first countries to radically transform its economy as part of the neoliberal revolution. What’s striking about the story of neoliberalism in New Zealand is that it was a Labour government, first elected in 1984, that brought about this radical transformation of society for the benefit of the wealthy, with prime minister David Lange at the helm.

Labour, traditionally the party of the working class, had campaigned on a promise to strengthen New Zealand’s embattled social democracy in the midst of the economic downturn of the 1970s and early ’80s. Once elected, however, Labour instead set about dismantling New Zealand’s social democracy, with finance minister Roger Douglas arguing that this was the only solution to the era’s economic turbulence. Labour’s stunning reversal was so stark that, in the words of left-wing journalist Bruce Jesson, neoliberalism could be said to have arrived on New Zealand’s shores by way of a “bureaucratic coup.”

Labour initiated a process of deregulating industry, making the tax system more unequal, and legislating to curb the trade union movement. The intent behind these reforms was to create a profit-making state that would facilitate the accumulation of wealth at the very top of society.

Labour sold these policies with the false claim that the wealth generated in this manner would “trickle down,” lifting living standards for the majority. As part of its project of transforming New Zealand into a profit-making state, Labour privatized state-owned assets, including the Bank of New Zealand, telecommunications (previously run by New Zealand Post), the state insurance office, and Air New Zealand.

The result of this “neoliberal revolution” was a massive upward transfer of wealth from the working class to capitalists. Over the last thirty years, New Zealand’s economy grew by about one-third, but wages declined in real terms for the vast majority of working people. More than half of all these gains went to the wealthiest 10 percent of households.

Today, New Zealand is considered one of the easiest places in the world to do business — a euphemism for the fact that the economy is under-regulated, with lax labor protections and comparatively low tax rates. Indeed, New Zealand is an outlier in the OECD, with the lowest top marginal tax rate and almost no taxes on wealth, capital gains, inheritance, or land.

This lost tax income could have been directed to support public services that have been underfunded and neglected for decades. Instead, the upper classes have hoovered up wealth, while working people carried the lion’s share of the tax burden.

Coalition and Crisis

Before the 1980s, New Zealand was one of the most egalitarian societies in the developed world. Thanks to Labour’s neoliberal revolution, it then saw one of the world’s sharpest increases in inequality between the mid-1980s and the late 1990s.

Successive Labour governments elected between 1999 and 2005 did little to reverse the trend. At the same time, the New Zealand Labour Party changed its branding, distancing itself from its historic image as the party of the working class, in much the same way as Tony Blair’s New Labour.

Labour also changed its makeup. Previously it had been a party with a mass base, embedded in working-class life and the trade union movement. By the 2000s, Labor was structured around a cadre of professional politicians and aspiring politicians, relying more on marketing and media to reach voters than grassroots organizing and power.

These developments shaped Jacinda Ardern’s outlook and instincts. As a career politician with a degree in communications who worked as a senior policy adviser to Tony Blair’s government, in many ways, Ardern is the perfect embodiment of this new breed of media-savvy, professional Labour politician.

This is why it comes as little surprise that, despite Ardern’s progressive flourishes, Labour’s election platforms have pledged to keep both government debt and spending low — two hallmarks of neoliberal economic policy. Although, as we have seen, New Zealand is one of the few OECD countries without a capital gains tax, Ardern backtracked on Labour’s pledge to introduce one after coming under fire from the center-right National party. Ardern then painted herself even further into a corner by ruling out any sort of wealth tax.

In 2017, Ardern’s Labour Party won the election by forming a coalition government with New Zealand First, a populist party on their right flank, and the Greens, on their left. However, a series of national tragedies and crises did more to define Ardern’s first term than her initial policies or coalition partners. First came the 2019 terrorist attack in Christchurch, followed closely by a deadly volcanic eruption at Whakaari. And then COVID-19 hit.

There is no doubt that Ardern is good in a crisis. Her government acted fast after the Christchurch attack to institute stricter gun control laws. It acted quickly again in March 2020, when Ardern ordered a strict lockdown to curb the spread of COVID-19. Ardern’s deft handling of these disasters — and her repeated emphasis on the “politics of kindness” — has cemented her in the minds of many liberals as the antithesis of right-wing populism.

The international praise has been effusive and gushing. One headline from the Atlantic referred to Ardern as the most “effective leader on the planet.” Another article from the New York Times described her leadership during the pandemic as a “master class.” The Guardian argued that Ardern had set the “global standard in leadership,” while Prospect magazine ranked her second in a list of the world’s top fifty thinkers. Umair Haque, a British economist and businessman, even referred to Ardern as the “new leader of the 21st century,” praising her as standing for “democracy, civilization, equality, goodness, and truth, in an age of collapse and chaos.”

Feeding the Housing Bubble

Ardern has certainly had her share of opportunities to change things. In 2011, while still in opposition, she referred to New Zealand’s economy as a “housing market with a few bits added on.” The sentiment was spot on — low interest rates have fueled runaway housing prices, along with a lack of state and private housing stock, rampant speculation, and the absence of a capital gains tax.

The result is a whole generation locked out of homeownership. Meanwhile, rents have soared. In New Zealand, real estate is a rare investment category where returns are not only guaranteed but are also left untaxed. As a result, an almost Victorian landowning class is emerging while renters see their wages drained.

New Zealand was once a society of homeowners. During the interwar and postwar periods, New Zealand’s much-heralded state housing program gave the country a reputation for being an egalitarian paradise. That has now been reduced to a shell.

Successive governments sold large swaths of state homes to private bidders, particularly in the 1990s. Today, only sixty-nine thousand remain, and New Zealand has some of the least affordable housing in the world. Some 34 percent of the population rents accommodation from the country’s privately owned, substandard housing stock, enjoying few protections or rights. Yet the housing bubble remains the focal point of the economy.

Even though extremely restrictive criteria determine the allocation of state housing, there are still more than twenty thousand people currently on the waiting list. Predictably, the value of private real estate has soared at the same time. Property investors have enriched themselves at the expense of renters and heavily mortgaged owner-occupied households.

Yet during her time in government, Ardern has shown no interest in reversing this — or, indeed, any other aspect of New Zealand’s neoliberal transformation. Labour’s economic response to the pandemic has involved lowering mortgage rates and pumping up asset values.

As the economist Bernard Hickey has pointed out, this approach bailed out wealthy property owners and businesses while leaving renters and working people to languish. The result has been a “K-shaped” recovery, meaning that the wealthy have recovered from the economic shock of the pandemic while the working class has not.

Initially, some hoped that Labour would break the mold and respond to the economic downturn by investing in communities. Labour’s wage subsidy scheme, paid out to employers to pass on to workers, did save many jobs. But there has been little more relief for workers, students, or renters, despite finance minister Grant Robertson’s promise that the wage subsidy would be “just the beginning” of a larger stimulus package.

An Antipodean Obama

Even though Ardern has brought little new to the table, members of the liberal commentariat take her progressive credentials entirely at face value, much as they did with charismatic centrists elsewhere, from Barack Obama to Justin Trudeau and Tony Blair. She has won accolades not for transformative leadership but rather because her victory evokes nostalgia among those who crave a return to a rapidly vanishing era in Western politics.

Wishful thinking aside, there will be no going back to the 1990s or early 2000s. Instead of being ahead of the curve, New Zealand may well find itself lagging behind it instead, with Ardern soon facing a similar set of pitfalls to those encountered by Obama, Trudeau, and Blair.

Both Obama and Ardern are charismatic leaders who won the support of working-class voters amid an economic crisis. And, like Obama, if Ardern can’t adequately respond to the challenge facing her, her failure may pave the way for economic instability, stagnation, and the rise of right-wing populism.

Ardern remains very popular at present — understandably so, in the light of New Zealand’s success in containing COVID-19. But that may prove ephemeral if Labour fails to deliver for working-class New Zealanders.

After a generation of neoliberalism, New Zealand badly needs a political program to redistribute wealth back toward workers, communities, and public services. Drawing up that program and building a movement that can advance it will require us to go beyond “Jacinda-mania” and the mirages of liberal centrism.