In the Revolution's Twilight

The Betrayal

The Return of the Nationals

The National Party, having long since discarded Muldoon, came back to power, like Labour in 1984, on the strength of touchy-feely weasel-worded bromides about consensus & reconciliation & The Decent Society. It promised to repeal one of Douglas' most hated innovations, a surtax on the earnings of the elderly which progressively reduced their state pension according to the amount of money they were earning independently. Leader Jim Bolger was an admirer of your ghastly President Bush, and had lulled shell-shocked Kiwis, many of whom still hankered after the good old days of Muldoonist interventionism, into thinking that National would usher in a "kinder, gentler" New Zealand. His Finance Minister, Ruth Richardson, fortunately, had other ideas. Just weeks after assuming office, she cut welfare benefits across the board. In addition, National set about deregulating the labour market by means of the Employment Contracts Act, drafted by the Business Roundtable, which abolished compulsory unionism & gave workers the right to negotiate individual contracts. Voters who had been seduced by the touchy-feely bromides started to cry foul.

Then National announced that it would be reneging on its promise to repeal the surtax. From that self-inflicted blow more than any other one specific move, neither the government nor the reforms ever recovered. The surtax was sensible enough in an imperfect world — an attempt to reduce the country's burgeoning superannuation burden by reducing payments to those who didn't need them — but the fact was, the National Party had lied about it. A significant section of the electorate concluded that for the second time they had been duped into voting for something they didn't want. The reform process itself became synonymous with deceit.

Opponents of the reforms pointed out that neither the Lange/Douglas nor the Bolger/Richardson governments had enjoyed majority support at the ballot box. This in fact was a routine feature of New Zealand's electoral system, known as First Past the Post, whereby the government was formed by whichever party had the most "seats" in Parliament, regardless of its actual share of the popular vote. Now, however, the opponents of economic reform saw salvation in political reform. If the system were changed so that each party was represented in Parliament in proportion to the actual number of votes it received, then, they realised, the anti-reform parties would out-number the pro, & the reform process could be stopped & perhaps reversed.

Agitation for such a change culminated in two referenda: one to decide whether there should be a change (result: yes); and one to decide what form the change would take. The winner of the latter vote was the system we call MMP. Mixed Member Proportional (commonly & justifiably known among its critics as Many More Politicians, More Marxists in Parliament, More Morons in Parliament, etc.). The new system significantly increased the overall number of seats in Parliament and decreed that half of them would be voted for in the old way while the other half would be allocated so that every party which received more than 5% of the popular vote had seats in Parliament to match its proportion of that vote. This would bring into Parliament for the first time many parties who had hitherto been denied seats. Since, in all likelihood, no one party would win a majority of seats outright, high-scoring parties would have to try to negotiate deals with other parties to form a coalition that did enjoy a majority.

That is the system that went into effect in the 1996 general election. Before depressing you with its unedifying results, I'll just backtrack to point out that in the last First Past the Post election in 1993, the National Government of Jim Bolger had scraped back into power by the skin of its teeth — whereupon the first thing Bolger did was to fire Ruth Richardson and effectively signal another breather & cup of tea.

Liberty or Hayek

Roger Douglas, meanwhile, long since sidelined, was spending a lot of time with his Hayekian businessman friend, Alan Gibbs. Financed by Gibbs, he wrote a book called Unfinished Business. The title was self-explanatory; the content demonstrated once & for all that whatever motivated Roger Douglas & Alan Gibbs in their policy formulations, it wasn't freedom. Gibbs was later to say to my face: "The problem with you, Lindsay, is that you reduce everything to the issue of personal freedom."

In place of taxpayer-funded superannuation, Douglas proposed compulsory private superannuation overseen by the Inland Revenue Department & backed up by a taxpayer-funded "safety net." In place of taxpayer-funded "free" health care, he proposed compulsory private health insurance, with the insurers prohibited from setting premiums according to risk, and prohibited from cancelling policies or refusing to renew them. Since this reduced the incentive for the insured actually to make their payments — why bother paying your premiums if the policy can't be cancelled ? — Douglas insisted that "Government regulation will be necessary to ensure payment, and assistance in policing non-payment and non-participation will be necessary." (In these proposals one can hear echoes of Hayek's claim, in The Road to Serfdom, that it is the government's job to put in place a "comprehensive system of social insurance.")

Elsewhere in Unfinished Business, Roger Douglas rhapsodised about the boon to government coffers that GST had been, reminding us that even as he dramatically cut income tax rates, with the simultaneous introduction of GST, the overall tax take as a percentage of GDP had risen from 30 to 36%. He proposed to finance government entirely from GST in future — which would mean a crackdown on the cash economy, i.e. the black economy, the true free market economy of which you & I would approve, in which people could avoid GST:

"In the past 20 years, the cash economy of New Zealand and many other countries has grown enormously ... The introduction of the Goods & Services Tax exposed a lot of previously undeclared income, but more recently the problem — [the problem!] — has started growing again, with the increase in weekend markets and tradespeople doing jobs for cash. It is difficult to police this practice through the person earning the undeclared income. Some responsibility has to be put back on to the people who are paying the tradesperson or organising the weekend markets. One possibility is a withholding system where someone employing a tradesperson withholds tax from their payment if the tradesperson does not give his or her GST number. For those who continue to deal in cash without following correct procedures, there will have to be stiff penalties on both parties to the transaction."

This, remember is Bill Bradford's libertarian politician who slew the statist dragon!

At this time, Douglas would show me & Deborah Coddington proofs of the manuscript as he wrote it. Deborah at this time didn't know any better, but when I saw such horrendous passages as those I've quoted & remonstrated with him, I would get the same dismissive contempt for my naive, theoretical purity, my incomprehensible obsession with personal freedom, that Roger had reserved for me when he was Finance Minister. I was not surprised to see, as recently as Bill Bradford's article, Roger describing me as "a sad case."

When Unfinished Business came out in 1993, Roger presented me with a copy in which he had inscribed: "Lindsay. Herewith Stage 2. All we need is a political party to run with it — Roger." He, Deborah, myself, a former National cabinet minister named Derek Quigley and an up-and-coming Hayekian economist by the name of Rodney Hide began to hold clandestine discussions about forming such a party. Roger already had a name for it — the Association of Consumers & Taxpayers (ACT). It was clear from the outset, however, that Roger was irretrievably wedded to compulsion. I & Deborah, who by now did know better, withdrew from the fledgling group. It was shortly after that that I founded The Free Radical and included in the first issue a detailed critique of Unfinished Business from a libertarian point of view. I would refer ever after to ACT as the Association of Compulsion Touters, for reasons which by now should be clear.

ACT took no part in the 1993 elections, but by 1996 was formidably well-organised & financed in preparation for the first MMP election. Its goal, of course, was to break that 5% threshold and get into Parliament. Roger Douglas had handed over the leadership of ACT to Richard Prebble, Minister of State-Owned Enterprises in David Lange's government. We naive, theoretically-pure freedom-obsessors formed our own party, The Libertarianz, just before the election. We put forward an uncompromising libertarian manifesto which included the abolition of the Reserve Bank, the abolition of GST, the setting of income tax at a flat rate of 20% (to be progressively reduced to zero), the full privatisation of health & education, the phasing out of the welfare state, the legalisation of drugs, an open immigration policy, etc.. We campaigned against the endemic political correctness in NZ society & flaunted such politically incorrect symbols as cigarettes & wine bottles. In an election in which 27 parties were competing, we told people, accurately, that there were 27 parties, but only one choice: Nanny State in 26 different guises, or us, The Libertarianz. We knew we stood no chance, of course, especially with much of our potential support going to ACT because it did stand a chance, but we knew also that we had to start somewhere, sometime.

A Coalition Forms

The telling thing about the 1996 election was that so persistent & pervasive was anti-reform sentiment that MMP did indeed serve as a vehicle for the rearguard ambitions of the anti-reformers, even though there had been no significant reform for the past three years and the economic benefits of the reforms had been obvious for the last two. Unemployment had plummeted. So had public debt. The government was running surpluses for the first time in twenty years. Inflation was negligible. Exports were booming. Economic growth hit 6% per annum — unbelievable when compared to the average one-point two per cent of the last three decades. The two biggest privatised industries, telecommunications & the airline industry, were spectacularly successful, chalking up big profits with dramatically reduced staff numbers while delivering a customer service immeasurably superior to that of their government-owned predecessors.

But the majority of the voters simply did not want to know. 56% of them registered votes that could reasonably be construed as anti-reform, 44% pro (or at least, not anti). 56% vs 44%. National ended up with 44 seats and ACT 8 — a total of 52 on the pro-reform side. Labour, which had by now repudiated Rogernomics and resurrected at least partially its socialist past, received 37 seats; the Alliance, an extreme left-wing party itching to raise taxes, soak the rich, resurrect import barriers, renationalise privatised industries, etc., received 13 seats; and New Zealand First, another left-wing party specialising in anti-immigration & anti-foreign investment sentiment, received 17 seats: a total of 67 on the anti-reform side. 67 vs 52.

Under MMP, in this situation, with no one party able to govern in its own right, the bronze medallist is the winner, since he gets to choose which of the first two place-getters he goes to bed with. Winston Peters, the leader of New Zealand First, was the bronze medallist, and thus the king-maker. He had originally been a cabinet minister in the National Government, but had defected to form New Zealand First after protracted & bitter rivalry between him & Prime Minister Bolger. The hatred between the two men was mutual & intense, based as it was on the fact that both of them wanted equally desperately to be Prime Minister. Peters' main campaign theme, apart from cutting immigration & foreign investment to the bone, was: if you want to get rid of this government, vote for New Zealand First — the clear implication being that, post-election he would go into coalition with Labour. That's what everyone expected him to do now.

For weeks, both Labour & National courted Peters behind closed doors. For the first time in their lives, while this was going on, New Zealanders didn't have a government. People started to notice that the sky was not falling in. A leading business newspaper, The Independent, greeted its readers one morning with the words: "The Libertarianz were right all along." (Better late than never, we thought.) Alas, all good things must come to an end, and Peters finally made his choice — a choice that stunned everyone who had voted for him in the expectation that he would help oust the National Government. Peters chose National as New Zealand First's coalition partner.

The country collectively vomited as Peters & Bolger, supposedly sworn enemies, now appeared on our screens practically having sex with each other. Each now informed the electorate, in a deliciously brazen instance of pragmatism at work, that we were to disregard everything they had said about each other before the election because a new system was now in place! An examination of the deal struck between them explained how such an astonishing reconciliation could have occurred — Bolger, frantic to remain Prime Minister, had given Peters just about everything he had demanded: the deferral of tax cuts that had been scheduled for this year; extra government spending on health, education & welfare; the raising of the statutory minimum wage; a moratorium on asset sales (not that National had been active in that regard); a referendum on compulsory superannuation, which was part of NZ First policy; Peters to become deputy-Prime Minister & all-powerful Treasurer in charge of the purse strings; New Zealand First to be represented disproportionately in the Cabinet; etc..

The Fallout

Since then, the Coalition Government has become a farce. One of Peters' lieutenants has become involved in a series of petty scandals involving lies, underpants & misspent public money (don't ask!). Policy-wise, the deferral of the tax cuts precipitated a dramatic fall in business confidence. Projections for government surpluses & economic growth have been revised downward. Unemployment is on the rise again.

So there you have it. A "revolution," if that's what it was, stalled again. And is there a public clamour for it to be revitalised? Here is the current political position:

* The born-again left-wing Labour Party is hugely outpolling the National Party & is poised to regain power — possibly in its own right, even under MMP, so great is its support right now. If it does have to go into coalition, it'll be with the even more left-wing Alliance.

* Polls show 72% of respondents are opposed to the idea of any further privatisation, specifically of electricity and the Post Office.

* Smaller but still significant majorities remain opposed to the privatisation that has already occurred, notwithstanding the extraordinary benefits that have flowed therefrom. 59%, according to a poll conducted by our leading business weekly, the National Business Review, still oppose the privatisation of Telecom, seven years after the event. Telecom, where in the bad old days customers used to have to wait up to six weeks to have a phone installed or a fault repaired. Now it happens more or less immediately. We have the least regulated & most sophisticated telecommunications industry in the world, with every gizmo & gadget imaginable available at affordable rates — yet 59% still oppose the privatisation of Telecom! Another poll hot off the press as I left for this conference showed 60% opposed to any private involvement in roading. (That doesn't mean 40% supported it — 12% didn't know, leaving a mere 28% in support.)

Clearly, if there has been a revolution, it hasn't been inside people's heads.

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