International Socialists

Brian Roper

When the new coalition cabinet met for the first time since coming to power, they knew their honeymoon couldn't last forever. Barely nine months into their first term, Labour and the Alliance are facing mounting attacks by business and the media, who accuse them of turning back the clock to bad "old" Labour days. Would this be a bad thing - and just how different is this government from the last?

Socialist Review investigates.

In its editorial reception of the Labour/Alliance Government's first budget, the National Business Review heralds the budget as "a return to old Labour... Budget 2000 was a statement of Labour philosophy, far more in keeping with that of the Savage Labour Government than Kirk or Lange."

Cullen used his budget speech to espouse "classic Old Labour rhetoric, namely closing the gap between rich and poor; between wealthy urban New Zealand and the 'neglected' provinces." The NBR notes that a key stated objective of the budget is to achieve, "a fair and sustainable social and economic order," and considers that, overall, it constitutes a revival of "the tried and failed policies of Kirk and Muldoon."

Is it really the case that this Government, in terms of economic, social and industrial relations policies, is returning to the social democratic policies of the First Labour Government and National and Labour Governments of the 1940s, 50s and 60s?

"Neoliberalism," the economic policies of the New Right, has come to dominate most economic thinking today. Keynesianism, named after the British economist who, in the 1930s argued that the economy is not self regulating and needs regular government action to prevent major recessions, was the dominant economic theory in most countries during the post war period up until the 1980s.

It was Keynes' belief in the need for active economic intervention that justified extensive state intervention in the economy and society from the 1930s to the mid 80s. The state could regulate economic activity in order to maintain economic growth and full employment. Other aspects of the social democratic policy agenda included state development of infrastructure, public works, hydro electricity, roads, etc.; state intervention (subsidies and/or tax benefits) to encourage productive investment; extensive and tight regulation of the financial sector; control over foreign trade; limited state ownership (the "mixed economy"); comprehensive union coverage and centralised wage bargaining; public provision of housing, health, education and welfare funded by progressive taxation (the welfare state).

In view of this, is the current Government really charting a "third way" between this old style social democratic Keynesianism and the New Right? A glance at the Budget Policy Statement, Budget 2000, and the Employment Relations Bill might lend some support to this view. There appears to be a softening of the hard line monetarist approach to economic management enshrined in the Reserve Bank Act 1989 and Fiscal Responsibility Act 1994:

The Government considers, as a general rule, that keeping revenues and expenses in at least broad balance on average, would be an appropriate fiscal policy consistent with good economic performance. This approach allows the automatic fiscal stabilisers to operate across the economic cycle, so taking pressure off monetary policy and reducing fluctuations in employment and output.

This suggests that the Government and Treasury are now acknowledging that fiscal policy can play at least a limited role in balancing regular fluctuations in the economy.

Nonetheless it is important to note that the overall economic policy mix is still driven by a tight monetary policy aimed at maintaining 0-3% inflation, and that the medium term objective is to maintain substantial surpluses. It is also the case that the Government's policies remain firmly entrenched in a vision of the "liberating power of the market mechanism."

The second area in which it could be said that this Government is returning to "old Labour" is social spending, with increases in expenditure on education of $300 million and health of $412 million next year, and housing of $600 million over the next three years.

The Government has committed $114 million over the next four years to close the "urgent and visible gaps" between "Mäori and Pacific communities and others." And it has restored "the floor for New Zealand Superannuation to 65% of the average ordinary time net wage." However, this increased social spending remains restrained by a conservative economic strategy. The Government is strictly limiting new expenditure over the next four years with a provision of $5.9 billion.

It is aiming to reduce government expenditure to, "below 35% of GDP over the next 10 years," "to reduce gross debt to below 30% of Gross Domestic Product and net debt to below 20% of GDP," and to achieve surpluses of $763 million in 1999/00, $1.01 billion in 200/01, $2.1 billion in 2001/02, and $2.7 billion in 2002/03.

The third area is industrial relations. The Employment Relations Bill modifies the Employment Contracts Act with respect to some of the harsher anti union provisions in the Act, crucially improving union organising and bargaining rights and making it legal for workers to take industrial action in support of multi employer contracts. But a detailed analysis of the ERB reveals that in fact it leaves the essential features of the industrial relations system created by the Contracts Act in 1991 in place, and with respect to the tremendously important right to strike provisions it is, if anything, even worse than the ECA.

It should be evident that these policy changes, however generous they may appear in contrast with the further implementation of the New Right agenda promised by the National and Act parties prior to the 1999 election, do not signal a return to "old Labour" in the sense of social democratic Keynesianism. Rather, what they do constitute is a small adjustment to the prevailing neoliberal policy agenda. Far from a return to "old Labour," what we are seeing is the introduction of "neoliberalism with a human face" (that is, little more than minor policy changes behind the rhetoric).

As already described, the overall effect of 16 years of New Right policies has been to dramatically increase the major forms of social inequality while failing to generate sustained economic growth and low unemployment. Putting it crudely, these policies have made the richest 10% of the population substantially richer at the expense of the low and middle income earners who constitute 70% of the population. Nothing this Government has done, or is likely to do, will substantially reduce the widening gap between rich and poor. To reduce the gap would require, among other things: 1) substantial tax increases for high income earners and corporations, combined with; 2) the restoration of benefits to their pre 1991 levels in real terms and; 3) the introduction of industrial relations legislation eliminating current (ECA) restrictions on the right to strike and allowing for a return to comprehensive union coverage and centralised wage bargaining.

In reality the policy agenda of the Labour/Alliance Government involves giving a few crumbs back to the working class majority. But the big pieces of cake that have been given to the rich by Labour and National Governments from 1984 to 1999 through tax cuts, privatisation, rising executive salaries, the Employment Contracts Act, and so forth, remain with the greedy minority who hold the bulk of the wealth and power in this society.

Ultimately the most important factor in determining whether or not a government in New Zealand will seriously roll back the New Right agenda is not the composition of the New Zealand parliament. It is what Marxists refer to as the "balance of class forces." At present the so called "business community" (or capitalist class) is strongly voicing its opposition to the slight moderation of the New Right agenda currently being implemented by this Government.

As the National Business Review puts it, "Mounting concerns over the Employment Relations Bill saw the business world turn against the coalition in a display of strength that no government could ignore." Further, the Government has been guilty of "an over estimation of the power of an electoral mandate and a serious misjudgement of the influence of the business sector."

Business confidence, as measured by the National Bank's regular survey, fell sharply in May 2000, evoking profuse expressions of business friendliness from Prime Minister Clark and Treasurer Cullen. What this highlights is just how desperately business wants to retain its major political and economics gains since 1984. Clearly it is prepared to continue waging class war, through both continued employer industrial militancy and the lobbying activity of the major business associations.

The situation with respect to the trade union movement is rather different. There is absolutely no conception, at least within the leadership of the NZCTU, that significant change in economic, social and industrial relations policy is only likely to be achieved through a prolonged campaign of generalised industrial and political action. If the objective really is to close "the growing gap between rich and poor" then a two pronged strategy is required.

One prong involves reviving traditions of industrial militancy, in danger of being lost but today still exemplified by the Seafarers' Union, in order to push for substantial wage increases and improvements in employment security and conditions.

The other is going beyond simpering adoration of this Government, to actually advancing the interests of rank and file union members by actively campaigning for the removal of the draconian restrictions on industrial action established by the ECA. In the absence of a revival of industrial militancy and the mounting of such a campaign by the NZCTU, little real change is likely to come via parliament.