Keynesian Policy Regime & Neoliberal Policies from 1984-1990

The elections in 1935 and 1984 which were both fundamental turning points.

The 1935 election of the first (Savage) Labour government established a social democratic Keynesian policy regime that governed politics and policy making thereafter. Contrast to this, the 1984 election of the fourth (Lange) labour government upturned the Keynesian policy regime and implemented neoliberal policies from 1984-1990. Since then governments have implemented neoliberal policies at a slower rate till the present day

So what is a ‘Policy regime’? “Is a concept that is used by policy studies specialists to refer to the governing arrangements for addressing policy problems’ and, as such, it encompasses ‘authoritative actions (executive orders, statues, rules), institutional arrangements, interest alignments, and shared ideas.’” Policy Regime is important in determining whether it maintains high or low levels of unemployment and if it increases or reduces socio-economic inequality.

The first (Savage) Labour government constructed a Keynesian policy regime from 1935 to 1948. In 1935 a serious crisis of the capitalist world economy caused deep recessions creating growing socio-economic inequality. Neoclassical economics wasn’t going to provide the solution thought John Keynes, “Markets make good servants but bad masters.” The Keynesian revolution was born which viewed the capitalist market economy as inherently unstable and crisis prone therefore the state had a legitimate role to play in redistributing income in order to amend social inequality.

Labour and national governments from 1935-1984 operated with broad parameters of the Keynesian policy regime offering different viewpoints of the policy. The Keynesian policy was working well, the economy was booming and unemployment was almost non-existent from 1945 to 1973. Then the long post-war boom collapsed in the midst of a global recession in the mid 1970s. There was high inflation, rapidly rising unemployment and rising government debt. Keynesianism was no longer working.

The neoliberal policy regime was brought in to tackle the global recession. The policy adopts a monetarist approach in having a narrow view of market failure and identifies government failure, reducing inflation and then maintaining that. Neoliberalism views the capitalist market economy as inherently self-adjusting. The fourth labour government elected in 1984 implemented a neoliberal policy. The taxation reform was the most important of policy change. By 1990s households paid the same amount of tax as a percentage of household income. The progressive taxation system was no more. Below is a summary from 1990 to 2008 governments in how they approached neoliberalism.

• 1990 to 1999 the fourth national government
• Downsizing welfare state
• Implement anti-union industrial relations reform
• Reduce social spending
• The fifth labour government 1999 to 2008
• Attempts Third Way. A combination of neoliberal economic managements with a more interventionist approach
• The governments broad approach combines elements of Keynesianism and neoliberalism
• The fifth national government 2008
• The worst financial crisis since the great depression; the government responded from 2009 to 2011 with Keynesian fiscal stimulus as an emergency response, followed by a return to the neoliberal emphasis on the need for fiscal austerity
• Central goal to create a more business-friendly environment in NZ

Neoliberal policy regime has dominated New Zealand politics since 1984, but it will not always do. Government will need to adapt to developing global economies.