Fourth Labour Government of New Zealand - Division Over Rogernomics

Division Over Rogernomics

The Labour Party was originally founded on socialist principles and traditionally favoured state regulation of the economy and strong support for disadvantaged members of society. The First Labour Government made major Keynesian reforms along these lines, and subsequent governments continued this system. By the 1970s the system of regulation, protectionism and high taxes was no longer functioning properly, and required ever more regulation to prop it up. Meanwhile the Labour Party, once dominated by the working classes and trade unionists, had attracted many middle-class people with its liberal social and independent foreign policies. These new members were interested in international issues such as apartheid and nuclear weapons, and domestic 'identity politics' issues such as the Treaty of Waitangi and feminism. This group held a very wide range of economic views, but the majority had little interest in or knowledge of economics.

When the Fourth Labour government took office, most members accepted the need for some economic reform. Finance Minister Roger Douglas and his supporters felt that a complete overhaul of the New Zealand economic system was required. Initially most of the government supported this, although a number of traditionalists were already suspicious of Douglas. Gradually more and more MPs, including Prime Minister David Lange became alarmed at the extent and speed of the reforms.

Those in the government who wanted to slow or stop the reforms found it difficult to do so. This is partially because few of them knew much about economics, and were thus unable to convincingly rebut Douglas' ideas. It was also because of the structure of New Zealand government. Douglas' faction, which included Ministers Richard Prebble, David Caygill and Michael Bassett, dominated Cabinet. The doctrine of Cabinet collective responsibility requires all Cabinet members to support Cabinet policy, even if they do not agree with it. Since the Cabinet had a slight majority in the Labour caucus, the Douglas faction was able to dominate caucus even though they were a minority. It was later alleged that Douglas and his supporters had used underhand tactics such as introducing important motions at the last minute, preventing serious debate. David Lange also later alleged that Douglas and his supporters formed a faction, known as the "Backbone Club", to ensure victory in caucus votes on policy.

The divisions within the government came to a head in 1988. Lange felt that New Zealand had experienced enough change in a short period, and that the country needed time to recover from the reforms and from the effects of the 1987 stockmarket crash and the resulting economic recession. Douglas wanted to press on with reforms, and put forward a proposal for a flat tax. Lange initially supported this, but then realised it would inevitably lead to cuts in social services. Without informing his colleagues, he held a press conference announcing that the flat tax scheme would not go ahead. Douglas released a letter and press statement stating a lack of confidence in Lange, and Lange treated it as a resignation. He was replaced as Minister of Finance by David Caygill, who said in an Eyewitness special that he stood for a continuation of Rogernomics.

The next year saw even greater fracturing. After being defeated in his bid for party presidency, Jim Anderton quit the party to form NewLabour, which stood for Labour's traditional values. Douglas was re-elected to Cabinet, leading to Lange's resignation. He was replaced with Geoffrey Palmer, a Lange supporter and constitutional lawyer. However he lacked the charisma to attract voters, and shortly before the 1990 election he was replaced by Mike Moore.

The Labour Party took several years to recover from the damage of these years and to regain the trust of their former supporters. In the 1990 election, Labour lost many votes to NewLabour, the Greens, and in 1993 to the Alliance Party, which had been formed by NewLabour, the Greens and several other small left wing parties.

Douglas did not stand at the 1990 election, and several of his supporters were defeated. He went on to form the ACT Party, which aimed to continue his reforms. He was later joined by Richard Prebble, who became leader.