In the Revolution's Twilight
Of Three Who Fell
The Fall of the Nationals
Back in 1984, the country was run, as David Lange was subsequently to say, like a Polish shipyard. It had endured nine years of the Prime Ministership of Sir Robert Muldoon, an ugly dwarf with a formidable intellect, an unbridled malevolence, and an overriding passion for two things: power & alcohol. The result was the closest thing to a Reign of Terror you could get in a country that was not officially a dictatorship, the most closed & regulated economy you could get in a country that was not formally communist or fascist. Muldoon's colleagues, cowards one and all, were afraid to stand up to him. Journalists, myself & one or two others excluded, were too afraid to ask him tough questions. Those who did were abused and/or banned from his presence. He was a master of invective. He once described his main political opponent as a man with shivers looking for a spine to run up & down.
In fairness to him, he did not turn the economy into a fortress — it already was. But he made it more so than ever before. Unlike other Prime Ministers, he assumed the finance portfolio as well as the prime ministership, giving himself unprecedented personal power over the economy.
To quote from my 1995 address: "The heavy hand of government was omnipresent. We could not import goods without a licence from the government. We could not take or send money out of the country without the government's permission. If we joined the workforce, we had to join a union. Shops & businesses, with few exceptions, were not allowed to open at night, or at weekends — overseas visitors would say, 'I arrived in New Zealand over the weekend, but it was closed.' If we preferred margarine to butter, we had to get a doctor's prescription. Taxation was at crippling levels in order to support a network of subsidies to a network of industries, mainly the farming industry, producing things the world didn't want, and to support a burgeoning welfare state. The government was committed to providing a retirement income to people 60 years of age & over equivalent to 80% of the average weekly wage — out of taxation. This was the promise on which Muldoon had been elected. A benefit introduced 10 years earlier for single mothers had seen the number of claimants rise from 700 when it was introduced, to about 100,000. Education, health, forestry, telecommunications, broadcasting, rail & air transport, the postal service, electricity generation and other energy projects were all run by the government, usually at a loss, with little or no competition from the private sector permitted. Notwithstanding personal income tax rates as high as 66 cents in the dollar, and a raft of indirect taxes of up to 40% on the retail price of most goods, the government's budget was severely in deficit. [I guess I should have said, because of such tax rates.] Sir Robert Muldoon brushed aside concerns about this profligacy by saying, 'Most people wouldn't recognise a deficit if they fell over one.' Inflation roared away as the government overspent. Muldoon's response was to impose a wage/price/rent/interest rate freeze. When a carpet manufacturer raised his prices in violation of the freeze, Muldoon said: 'If some smart alec tries to beat the system, then we'll use the weapons provided by the system to beat him.' "
It perhaps will come as no surprise to you to learn that the political party of which Muldoon was leader was the New Zealand equivalent of the Republican Party, supposedly dedicated to free enterprise & the liberty of the individual, but in reality consisting of people devoid of the foggiest idea of what this entails. The name of this party is the National Party, routinely referred to by me on my radio programme as the National Socialist Party, for reasons which should be clear already.
By 1984, Muldoon had lost much of his power to terrorise. He was a laughing stock. His tax/spend/borrow policies had delivered the country to the brink of bankruptcy. The man who had touted himself as an economic miracle worker was seen to be an economic wrecker. One night, in a state of conspicuous intoxication, he went on television & called a premature election. An election he knew he would lose.
Because he had called the election early, not only were his own lieutenants caught off guard, but so also were the opposition parties. The main one, the Labour Party — traditionally the party of the welfare state and unabashed government paternalism — was caught without a manifesto.
The Ascendance of Roger Douglas
As it happens, this couldn't have suited the agenda of Labour's finance spokesman, Roger Douglas, better. While Douglas' socialist credentials were impeccable — father & grandfather active in the NZ & British Labour Parties respectively, a passionate belief in the duty of the state to provide its citizens with economic security — he had also realised that the traditional Labour Party approach of having the government own & mismanage everything in sight was incompatible with this duty, since the wealth creation that such a guarantee presupposed would be choked off. He had written a book, There's Got To Be A Better Way, advocating a retreat of government from the economy in order to facilitate the creation of wealth which the government could then redistribute. But not a lot of people had taken this in.
By now, 1984, the man with the thwarted shivers had been deposed as leader of the Labour Party by David Lange, who didn't have a clue about economics, and was, for the moment, prepared to defer to Roger Douglas' relative expertise even though discomfited by his unorthodoxy.
Lange, a consummate orator, traversed the country doing what he did best — making longwinded speeches amounting to nothing, but soothing a country weary of Muldoon's divisiveness with talk of consensus. Throwing opposition to visits by US nuclear-armed-or-powered warships into the mix, he couldn't fail. Douglas, a disaster as a public speaker, could simply hide in the wings with an agenda that he knew would horrify traditional Labour supporters if brought out into the open, even though it was designed to better achieve traditional Labour Party objectives.
Labour won the 1984 election in a landslide.
Douglas set to with a vengeance — aided, abetted & often educated by some highly intelligent & motivated people in the government's economic advisory bureau, the Treasury, who had prepared a brief for the incoming government which said in effect: "The country is on the verge of becoming a basket case; government is not the solution, it is the problem." He lifted Muldoon's controls, devalued & then floated the currency on the foreign exchange markets, abolished subsidies, halved the direct tax rate, introduced a new, uniform, value-added Goods & Services Tax, GST, of 10%, and put some state-owned enterprises on a business footing so that they could be sold off. These policies were dubbed Rogernomics.
The outrage on the Left was muted by two things — the speed at which Douglas proceeded on several fronts simultaneously (he identifies his strategy as: give them so many moving targets that they don't know which one to shoot at), which left the Left shell-shocked; and the oratorical Lange's creation of a diversion, the ridiculous anti-nuclear policy. As well, Douglas refrained from antagonising the Left by not deregulating the thing he probably should have deregulated first — the labour market. That kept the unions quiet, but was a disaster economically. With wage controls lifted, they used the artificial muscle they enjoyed from compulsory unionism to secure wage increases which had no basis in improved productivity. Inflation went through the roof. The Reserve Bank, the equivalent of your Federal Reserve, dampened it down with a high interest rate regime which had the inevitable side-effect of dampening down economic activity overall. The only growth industry for a time was unemployment. But — Lange kept the nukes out; he & Douglas presented a seemingly invincible united front in the face of which the opposition were in disarray — after all, how could the party of free enterprise object to what Douglas was doing? — and many young National Party types, derided as cell-phone yuppies, prospered so much on the deregulated money markets that they switched allegiance to Labour.
Labour was re-elected in another landslide in 1987.
Principles, Hayek, or a Cup of Tea
All through this time, Douglas was taking his cue from the afore-mentioned advisers in Treasury, whose primary goal, if you asked them, was simply to find "sensible" solutions, unbeholden to any particular "ideology" — a word they used with disdain — to the country's economic problems. Douglas had also befriended ultra-wealthy businessman Alan Gibbs, a devotee of Hayek. Gibbs was shortly to co-found the afore-mentioned NZ Business Roundtable, of which Treasury's brightest afore-mentioned official, Roger Kerr, was to become Executive Director. (Gibbs was later to become a major financer of the afore-mentioned political party, ACT.)
The one thing that never impinged on the emerging economic orthodoxy was: moral & political philosophy. The Rogergnomes saw themselves solely as doing what needed to be done to put the country's books in order, heedless of what they saw as such masturbationary, irrelevant abstractions as individual rights. As one millionaire businessman Sir Robert Jones observed, they would have advocated slavery if they thought it would deliver improved economic outcomes.
All through this time, as the country's main television current affairs interviewer, I quizzed Douglas repeatedly about the policies he was implementing. In our off-screen discussions, he would laugh at my naive preoccupation with theoretical underpinnings. His end goal was always the same: in his own words at the time, a society that provided "a reasonable standard of living; access to the opportunity of an adequate education & good health services regardless of income; a job for everyone who can work; a social welfare system that allows people to reach the level they are capable of; and a society which gives people opportunities for self-fulfilment."
Prime Minister Lange, meanwhile, had found his own opportunity for self-fulfilment — he had rediscovered sex. Extramaritally. He had fallen head over heels in love, which was requited, with a leftist, anti-Douglas university graduate working in his department. Subsequent events would indicate that her pillow talk might have amounted to — "If you want to keep rogering, you'll have to stop Roger." Shortly after Labour's re-election, Lange & Douglas held a press conference to announce the next phase of reform: flat tax, targeting of welfare benefits, the introduction of an element of user-pays into the hitherto sacrosanct area of health, asset sales & more. Lange was noticeably uncomfortable, and six weeks later, when Douglas was out of the country, he unilaterally cancelled the whole package. It was time, Lange said, for a "breather & a cup of tea." With the new athletic demands he now confronted, that might have been true for him, but it was certainly not what the country needed.
The announcement of a tea-break was the beginning of the end. After months of internecine warfare, Lange sacked Douglas. Labour went into a state of terminal drift & was thrown out in the election of 1990. Lange divorced his wife & married his mistress.
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