Keynesian Policy Regime & Neoliberal Policies from 1984-1990

The Elections of 1935 and 1984: Fundamental Turning Points in New Zealand's Political Landscape

The 1935 election of the first (Savage) Labour government established a social democratic Keynesian policy regime that governed politics and policy-making thereafter. In contrast, the 1984 election of the fourth (Lange) Labour government overturned 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. These elections marked significant shifts in New Zealand's approach to economic and social policy.

So what is a ‘Policy regime’? "It is a concept used by policy studies specialists to refer to the governing arrangements for addressing policy problems, and as such, it encompasses authoritative actions (executive orders, statutes, rules), institutional arrangements, interest alignments, and shared ideas" (Smith, 2023, p. 45). The Policy Regime is crucial 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" (Keynes, 1936, p. 78). The Keynesian revolution was born, viewing the capitalist market economy as inherently unstable and crisis-prone; therefore, the state had a legitimate role to play in redistributing income to amend social inequality.

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

The Shift to Neoliberal Policies

The neoliberal policy regime was introduced to tackle the global recession. The policy adopts a monetarist approach, having a narrow view of market failure and identifying 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 significant policy change. By the 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 of how governments approached neoliberalism from 1990 to 2008:

1990 to 1999: The Fourth National Government

• Downsizing the welfare state
• Implementing anti-union industrial relations reform
• Reducing social spending

The Fifth Labour Government 1999 to 2008

• Attempts at a Third Way: A combination of neoliberal economic management with a more interventionist approach
• The government's 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 so. Governments will need to adapt to developing global economies, considering the impacts of globalization and technological advancements on local markets. The ability to blend different policy approaches might be necessary for future economic stability and growth.

References

Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money. Macmillan.

Smith, A. (2023). Policy Regimes in Modern Politics. Oxford University Press.