For an election ostensibly fought over a “cost-of-living crisis”, there was a strong unspoken consensus between the two major parties: most people’s living standards needed to reduce to thwart inflation. Regardless of the election result, a form of austerity was always going to win.
Both National and Labour essentially agreed with the Reserve Bank hiking interest rates to bring down inflation – a crude market discipline likely to cause redundancies, suppress wages, and increase debt and inequality.
Such policies – classically neoliberal, specifically monetarist – are presented as if there is no alternative. Yet other countries have successfully used other measures to protect living standards, including wealth taxes, rent caps, windfall taxes on excessive profits, and major subsidies on energy payments.
While National and Labour both offered targeted support for those struggling to get by, such as tax cuts (National) or the removal of GST from fruit and vegetables (Labour), such mitigation seems paltry by comparison.
Only smaller parties, notably the Greens and Te Pāti Māori, offered policies aimed at changing fundamental economic settings.
Radical incrementalism?
Of course, there were and are important differences between Labour and National. Many contend Labour has abandoned the free-market fundamentalism associated with “Rogernomics” that it adopted in the 1980s.
Under the Labour governments led by Jacinda Ardern and then Chris Hipkins, there was an attempt to ameliorate the worst excesses of market capitalism.
Hipkins, for instance, insisted Labour’s policies were not simply about “tinkering around the edges of the neoliberal model”. He spoke of “radical incrementalism” – allowing a government to “do big change”.
In that light, the 2017-23 Labour government lifted the minimum wage, introduced fair pay agreements, built state houses, increased Working for Families wage subsidies, and intervened during a pandemic and natural disasters to support people and jobs.
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Labour also reformed the Reserve Bank’s targets to include “maximum sustainable employment”, alongside the bank’s traditional goal of keeping inflation within a 1–3% band.
Beyond Aotearoa New Zealand, neoliberalism’s demise was proclaimed in the aftermath of the 2007-09 global financial crisis, as governments everywhere shored up the financial sector.
The obituaries have increased since the COVID pandemic. In the United States, Joe Biden’s preference for public investment prompted one commentator to claim the president had “declared the death of neoliberalism”.
The ‘third way’
Given the Labour government’s track record, then, it might seem unfair to label it a neoliberal administration. But I think such reasoning is mistaken on several counts.
A rough scholarly consensus has emerged that neoliberalism has shown a remarkable ability to evolve. Labour – and to some extent National – have rejected the harsh “vanguard neoliberalism” of the 1980s and ‘90s. Instead, they have embraced the mild neoliberalism of “third way” politics since 1999.
Sometimes called the “post-Washington consensus”, third way economics accepts the need for some government intervention in the market, something the more hardline “Washington consensus” of the late 1980s did not.
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Yet under this softer form of neoliberalism, governments do not intervene to genuinely redistribute wealth. Instead, they act to temporarily support business during crises.
For example, the Labour government’s COVID business support and wage subsidy scheme was supposedly undertaken to protect workers from unemployment.
In reality, it facilitated a massive upward transfer of wealth by subsidising businesses, and boosting house prices and private savings. That wealth transfer amounted to about NZ$1 trillion, according to economic commentator Bernard Hickey.
Hickey also argued governments of both stripes have effectively cut social services such as housing, health and education in real per-capita terms, as the population has increased. For the most part, increased funding has not stayed level with inflation.
We might call this austerity by stealth, with one example being the current funding crisis in tertiary education that has resulted in many job cuts.
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Intervention for the market
In this sense, the various palliative reforms made by the Ardern-Hipkins governments do not represent a fundamental swing away from neoliberalism. Crucially, both prime ministers ruled out any kind of wealth or capital gains tax, and generally kept tax levels low (despite a small increase in the highest income tax rate).
Tellingly, the US Heritage Foundation – a think tank devoted to the “principles of free enterprise, limited government [and] individual freedom” – still ranks New Zealand fifth in its global “index of economic freedom”.
While Labour’s Reserve Bank reforms appeared to modify its monetary priorities to maximise sustainable employment, its governor admitted raising interest rates to control inflation was deliberately engineering a recession, with a likely rise in unemployment.
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Before becoming prime minister in 2017, Ardern agreed with the view of previous National prime minister Jim Bolger that neoliberalism had failed. She said Labour accepted the need for government intervention in the market.
This might qualify as a rejection of neoliberalism if we define it only as a set of ideas or policies designed to “hollow out the state” and promote free-market, individualistic competition.
But there is another view of neoliberalism, put forward by historian Quinn Slobodian and other scholars, that it was never about rejecting big government. Rather, at its core, it is about imposing a global and state framework that favours business and private property.
To achieve this, they argue, the state restricts democracy, trade unions and community interest groups from achieving genuine improvements in ordinary people’s lives. Slobodian sees neoliberalism as involving “re-regulation” rather than deregulation.
The underlying consensus
None of this means Labour and National mirror each other. Labour is more centrist, more committed to maintaining public services. National is more business-friendly and seems poised to make deeper cuts to public services.
To differing degrees, National and its probable coalition partner ACT reject the “progressive” aspects of what feminist scholar Nancy Fraser called “progressive neoliberalism”. They aim to roll back most of Labour’s incremental reforms, and are aligned in their opposition to what they see as excessive government spending and regulation.
But beneath those apparent ideological differences there remains an underlying neoliberal consensus. Roughly speaking, this compact aims to keep taxes low, push for free trade agreements, maintain a largely deregulated business sector, enable financial speculation, and use interest rates to combat inflation.
Above all, the goal is to be “fiscally responsible” by keeping government spending tight and the debt-to-GDP ratio low. Austerity is the means by which this is achieved, whether by stealth or through more upfront cuts.
It was perhaps predictable that governments everywhere would revert to austerity to pay down debts incurred during the pandemic. But those same governments are also struggling with broader economic, climate, housing, health and education crises.
Wars and political polarisation generally have added to a sense that neoliberalism’s hegemony is fraying. There has been a trend towards more nationalist and authoritarian government – although not yet in Aotearoa New Zealand to any great extent.
Given we are now seeing living standards squeezed to combat inflation, and government austerity to pay off COVID debts, neoliberalism still seems embedded in the political and economic fabric of Aotearoa. This is especially so with the election success of parties promising to reduce government spending.