Neoliberalism, 1999, and ‘brat pack’ revisited

I don’t remember neoliberalism being a thing until the last few years, but it was talked about last century (when I only had a superficial interest in politics).

In 1999 Colin James wrote about how New Zealand had “energetically espoused neoliberalism” in the 1980s but bu the late nineties was “still far short of neoliberals’ high-wage, high-performing ideal”.

Here are exerts from an address to the University of Maryland in 1999 – The New Zealand economy and politics: the revolution and the future” (edited):


Just as a vigorous flowering of the arts in the 1980s signalled New Zealand’s true emergence as an independent (decolonialised) nation, it energetically espoused neoliberalism, the third radical policy shift in its 160 years of Anglo-Celtic rule.

This third “New Zealand model”, which attracted considerable international interest from economists, businesspeople and such diverse politicians as the government of Mongolia, the Japanese House of Councillors and Vice-President Al Gore, is now embedded in policy.

But, while the economy is undoubtedly more flexible and robust, it is (for various historical and contemporary reasons) still far short of neoliberals’ high-wage, high-performing ideal and it has left most citizens political “outsiders”, at odds with the “insiders” in the business, bureaucratic and political establishments and this has destabilised politics.

Indeed, the story of New Zealand’s century can be written as one of models we think the world might envy and emulate: the social policy innovations of the 1890s, the world’s first comprehensive welfare state in the 1930s and 1940s and the world’s most determined application of the neoliberal economic model in the 1980s and 1990s.

We then embraced neoliberalism. The pre-1984 administration (an awkward marriage of conservatism and populism) had tiptoed into these waters with some minor liberalisations in the late 1970s.

But after the second oil shock in 1979 it retreated into controls on wages, prices, rents, directors’ fees and interest rates in a desperate attempt to plug the gaping holes in the dyke through which the tides of international economic change were by then pouring.

The incoming Labour administration of 1984 did not have an option of more regulation. The limits had been reached and there was a financial crisis. It had no option but to pick up the 1970s deregulatory ideas.

This was clearly evident to any halfway attentive observer of the party’s public pronouncements and internal debates before the 1984 election. But no one guessed beforehand how far and how fast these heirs to welfarism would drive deregulation.

In seven years this administration and the National party government which replaced it in 1990 transformed the economic policy framework from one of the most regulated in the OECD to one of the most deregulated.

The main objectives of this radical economic policy shift were to lay bare price signals and so shift investment and labour from low-yielding to high-yielding, internationally competitive activities, to make economic governance “transparent” and thus reduce transaction costs. The ultimate aim was to enhance consumer choice and welfare.

This became the third “New Zealand model”. It attracted great interest from economists (and the august London Economist magazine), business leaders, bureaucrats and politicians all the way up to the government of Mongolia, the Japanese House of Councillors and Vice-president Al Gore. Special interest was shown in the innovative and largely home-grown state sector management reforms. Former politicians (including two of the main architects of the reform, Sir Roger Douglas and Ruth Richardson) and senior public servants travelled the globe, running seminars and advising governments. We were the showcase of the new neoliberal orthodoxy – and, for two years in the mid-1990s when growth was 5%-6% we were touted as the living proof of the merits of the free market and rational policymaking.

This new orthodoxy is now embedded in policy. The argument in this month’s election is about refining the new policy environment, not rejecting it.

But far more than economic policy was changed. Every other policy area came under radical assault.

• Environment and resources policy was re-based on “sustainability”. New Zealand is still the only country to have done this.

• Foreign policy was shaken free of its client status to the United States. New Zealand adopted a “nuclear-free” policy against nuclear weapons and nuclear power. Applied to warships and warplanes, this effectively ditched the Anzus (Australia, New Zealand and United States) treaty.

• The Treaty of Waitangi, under which sovereignty was ceded to the British Crown in 1840, was rescued from the legal “nullity” to which a colonial court had consigned it in 1877, elevated in rhetoric to “the founding document of the nation” and given some legislative recognition, including the establishment of a process for redress of breaches of the treaty by successive governments. Nearly 800 claims are before the tribunal.

• The electoral system was changed and parliamentary processes reformed. Freedom of information legislation passed in the early 1980s was given very liberal interpretation, such that the New Zealand government is now perhaps the most open in the world.

• Targeting to need and user part-charges were introduced into social policy, together with some decentralisation of education administration and part-commercialisation of the publicly-funded health system.

Taken with the economic policy reform, this amounted a policy revolution, almost all of it carried out very rapidly between 1984 and 1992.

Why such an upheaval? To some extent New Zealand was simply doing what everybody else was doing: the neoliberal tide was flowing throughout the Anglo-Celtic world, green values were gaining ground, the cold war was loosening the bloc mentality, indigenous peoples were demanding recognition and redress in many countries and winning it in some, electoral systems were in contempt and/or turmoil and the welfare state everywhere was in review.

Also, in common with other Anglo-Celtic countries, New Zealand had been through a values revolution in the 1960s as young people won moral and social freedoms and these people were moving into positions of influence by the 1980s.

But why so far and so fast in New Zealand?

  • In the economy we started from farther behind, with an economy more tightly controlled than any other in the OECD. Just to match early-1970s orthodoxy, let alone join the move to the emerging neoliberal orthodoxy, required a giant leap. In 1982, for example, the Minister of Finance could and did freeze or set all prices, wages, fees, rents and interest rates by decree.

One of the first points most New Zealanders make is that the economy has failed to live up to the neoliberals’ star billing. We do not have a high-wage, high-energy economy.

We are constantly reminded that Australia has done far better during the 1990s: with the exception of the two New Zealand boom years in the mid-1990s, Australian economic growth was consistently higher than New Zealand’s; notably, while New Zealand reeled from the Asian crisis and drought, Australia sustained 4%-plus growth.

If pain is supposed to lead to gain, most New Zealanders feel they are still waiting.

Even so, New Zealand did not ride through the crisis as comfortably as Australia, which awarded itself the accolade of miracle economy. Even though, according to a widespread consensus among economists, we are now heading into a period of firm growth of between 3% and 4% over the next three years, there are some serious structural issues.

If the pain has not yet led to the gain neoliberal reformers promised, it is at least partly, and arguably mostly, because of these structural issues.

  • New Zealand is still largely a “quarry” economy, living off the land and the sea.
  • The trade and services deficits are contributing to a dangerously high balance of payments deficit, likely to exceed 8% of GDP sometime in 2000 and put us at serious risk of being dumped by foreign portfolio and fixed interest investors.
  • We are becoming a “branch” economy and a “nursery” economy. An increasing number of foreign companies run the operation in New Zealand as a branch from Australia or Singapore.
  • We have not adjusted to our diminished economic status.
  • And there is a political and social fallout from the new economy. As in all countries which have adopted the neoliberal reforms, incomes have become more unequal: a “significant” increase in inequality of after-tax disposable income was confirmed in a Statistics Department report in February on income changes in the 15 years since economic reforms began in 1984.

We may be on the verge of passing political power to this next generation. The National party has promoted four young ministers aged 34-40 to high prominence in its cabinet: the most prominent, Bill English (38), is the Treasurer and the acknowledged heir to the leadership.

These four ministers, known colloquially as the “brat pack”, take the economic policy framework as given, not as something that must constantly be fought for and protected as do longer-lived ministers who went through the revolutionary phase. They have therefore a less doctrinal attitude to policy – an appropriate attitude as the neoliberal intellectual wave breaks and the debate moves on.

For the “brat pack” deregulation and asset sales are deemed desirable but not, as with the revolutionaries, because they conform to the “right” doctrine. The “brat pack” judges policy initiatives case by case by whether they will produce desirable outcomes (lower costs to business and greater international competitiveness).

Social policy reform is deemed necessary not just to hold spending but to improve the quality of delivery of social services to a public that demands the same quality from its public services as from its private sector services.

Moreover, the “brat pack” accepts that substantial cuts in the 25% of GDP that goes on social services and social security are politically impossible and in any case are necessary for social order.


One of those brats is now Prime Minister leading us into the 2017 election.

Bill English delivered the first real increase in benefit payments since before the neo-liberal changes in starting in the 1980s.

And his Government has just agreed to a substantial increase in wages for mainly female rest home workers.

It seems that a neoliberal revolution has never been fully happened, and adjustments tend to be moving further towards social necessities and away from economic ideals.