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THE POUTICS OF ECONOMIC POLICY TRANSFORMATION: NEOLIBERALISM IN THE ANGLO-AMERICAN DEMOCRACIES

DISSERTATION

Presented in Partial Fulfillment of the Requirements for

the Degree Doctor of Philosophy in the Graduate

School of The Ohio State University

By

Jonathan P. Swarts, BA., MA.

*****

The Ohio State University 2000

Dissertation Committee: Approved by Professor Anthony Mughan, Adviser Professor Richard Gunther Cc. fy iA Adviser u Professor Bradley Richardson Department of Political Science UMI Number 9971645

Copyright 2000 by Swarts, Jonathan Paul

All rights reserved.

UMI*

UMI Microform9971645 Copyright 2000 by Bell & Howell Information and Leaming Company. All rights reserved. This microform edition is protected against unauthorâed copying under Title 17, United States Code.

Bell & Howell Information and Leaming Company 300 North Zeeb Road P.O. Box 1346 Ann Arbor, Ml 48106-1346 Copyright by Jonathan P. Swarts 2000 ABSTRACT

This dissertatioa is a systematic and explicitly comparative analysis of the widespread shift to neoliberal economic policies during the 1980s and 1990s. Contrary to the widely- accepted theoretical proposition that parties with different ideologies produce differing public policy outcomes, governments of both the right and the left in this period made significant moves towards policies emphasizing deregulation, privatization and the alleged superioriQf of free markets. In an attempt to explain this puzzling theoretical anomaly, this study examines the neoliberal policy phenomenon by analyzing the adoption of fteer-market policies under four governments: two o f the right, in Britain and Canada, and two of the left, in Australia and New Zealand. Based on extensive field research and a total of over 110 in- depth interviews with political elites in all four countries, it finds that while common influences and motivations led all four governments to move towards neoliberal policies, significant ideological differences between the governing parties produced important differences in the choice of specific policies. Thus, as the Anglo-American cases reveal, partisanship "matters''-but it often does so in complex, often overlooked, ways. By

^stematically examining these economic policy revolutions, this dissertation aims to make a novel contribution to the study of the politics of economic policy-making—first, by

reconsidering traditionally-held conceptions of the link between political parties and

ii economic policy, and second, by explicitly, systematically, and comparatively analyzing neoliberalism as a policy program employed in various ways in a varieQr of economic and

political contexts.

m To Neovi, without whom none of this

would have happened.

IV ACKNOWLEDGMENTS

This dissertation would not have been possible without the support and assistance of numerous people and organizations. First, I would like to extend my warmest thanks and appreciation to the members of my dissertation committee. I count myself fortunate to have had committee members who were not only valued and trusted professional mentors, but also personal friends. Tony Mughan has been my adviser and a never-failing, source of encouragement, advice and support from the very beginning o f my graduate education. He was always the ideal adviser and a genuine friend. I wish to thank him most sincerely for all the kindness, support, and encouragement he has sent my way over the years, not least his unflagging support for a massive dissertation project that at times seemed hardly feasible.

Every graduate student should be so luclqr asto have Tony Mughan for an adviser and friend.

While never my formal adviser, Dick Gunther was also a valued mentor. I can trace every single step in my graduate career to my close working relationship with him. His personal

and professional influence on me has been tremendous and I would like to express my

appreciation to him, as well, for instances of support, direction and encouragement too

numerous to mention. Fmally, I wish to thank Brad Richardson for the many kindnesses,

both professional and personal, he has shown me. It was my privilege both to sit under his teaching in the classroom and to benefit fiom his insightful comments on this dissertation.

I extend my warm appreciation to him.

This dissertation would also not have been possible without the many men and women who so generously gave o f their time to be interviewed. In the course of an interview program spanning several years and three continents, I never failed to be amazed and gratified by the openness and warmth with which I was received by so many-fiom ordinary backbenchers to former prime ministers. I caimot express adequately my thanks to them for taking the time to be interviewed by an unknown graduate student-and in the process, to make this dissertation possible.

Given the scope of this research project, a key element was the great deal of financial support 1 received to conduct the in-depth elite interviews in the four countries analyzed here.

At The Ohio State University, support came from the Graduate School (Graduate Student

Alumni Research Award), the University Center for International Studies (Phyllis Krumm

Memorial Scholarship), the Office of International Studies (Graduate Student Travel and

Research Grant), the Mershon Center (Graduate Student Travel and Research Grant), and the

Department of Political Science (Graduate Student Travel and Research Grant). These awards made possible my research in Britam and New Zealand. My Canadian research was

fully funded by the Canadian Government's Canadian Studies Graduate Student Fellowship.

And in Australia, an extended stay was fully supported by a Fulbright Fellowship finm the

Australian-American Educational Foundation. I offer a sincere 'thank you' to each of these

organizations for tummg the dream o f this large, ambitious project into a reality. Finally, a

VI Presidential Fellowship fiom the Graduate School at Ohio State supported me during the final stages of writing this dissertation.

The kindness of many people along the way was also invaluable and deeply appreciated. In particular, I would like to thank Frank Castles and Barry Hindess of the

Department o f Political Science in the Research School of Social Sciences at the Australian

National University. They graciously arranged forme to be affiliated with their department during my stay in Australia. I cannot overstate how beneficial it was to be able to utilize the office and library resources of the ANU. Also on the campus of the ANU, the director and staff of the Australian-American Educational Foundation made my research in Australia most rewarding. I especially express my warmest thanks to Lindy Fisher for all her help and support At Indiana University South Bend, where this dissertation was written, the staff of the Schurz Library was most kind in providing me office space and library privileges.

Finally, I would like to express my appreciation to Retta Semones at the Department of

Political Science at Ohio State. Living in Indiana while finishing my degree, I often had to rely on Retta to help me navigate the OSU bur^ucracy firom afar. I owe her a debt o f thanks for the kindness-and incredible speed-with which she responded to my countless e-mail messages.

This research program was not only an incredible academic leaming experience, but

it also netted me a rich harvest of cherished fiiends. I wish to thank all of them for every

instance of support and fiiendship they showed me during those long months in the field.

In London, Norah and Frank Mughan were simply delightful fiiends and I thank them fi)r

showing me such warm hospitality and fiiendship during my stay there. In Australia, I had

VÜ the good fortune to meet a number ofwonderful individuals whose hospitality made my time there a real joy-1 thank them all sincerely. Among them, Darren, Michelle and Parhy se May were always the most generous and hospitable o ffiiends. John Kalokerinos-tbe best Aussie analyst of American politics alive-was unstintingly kind and a great fiiend. Finally,

Stefknos Nicolaou and his family were simply wonderful-they befiiended me and made me feel that Canberra was truly my second home. 1 want to thank Stefknos, in particular, for the literally iimumerable acts of kindness and fiiendship he showed me. He is not only an incredible ecclesiastical historian, but the best of fiiends.

I cannot express adequately my love and appreciation to my parents, Richard and

Patricia Swarts. In ways 1 cannot even begin to express, or understand, they made this dissertation possible. Unfortunately, my father did not live to see my education completed.

Yet, his influence has been, and continues to be, tremendous and ever-present. He instilled in me a love of leaming and a respect for education that served as a constant source of strength and motivation throughout my college career. 1 hope he is pleased with the result.

It is also impossible to fiilly explain the role my mother has played throughout the years.

Simply put, she has been a never-failing source of encouragement and support Even when the times seemed most difficult and the future bleak or unclear, she nevertheless was a steady rock of love, assistance, and encouragement She has closely supported my every step in graduate school, patiently awaiting the day when *^it will all be finished.' Some of my fondest memories of this research program are of her visits to London and to Ottawa, where we had a wonderful time together. To her, and to my father, I present this dissertation with love.

viii Fmally, I turn to the person without whom this dissertation, and indeed my graduate education, would almost certainly never have happened. My wife, Neovi Karakatsanis, has been with me virtually every step o f the way. I cannot even begin to express how much this dissertation is a result ofher love, guidance and support. Both personally and professionally, the story of my graduate education is her story as well. We met in graduate school, we married in graduate school, we have seemingly lived our whole lives together in graduate school! This dissertation is, in many ways, nothing less than a product of our life together.

As a fellow student a few years ahead o f me, she literally guided me through every aspect of graduate student life. From taking the same classes, to writing the same grant proposals, to doing elite interviews, and in countless other ways, I have actually done little more than follow in her footsteps, down the path that she had already laid for me. And of that, 1 am quite proud-there could be no better way. The results have been wonderful beyond my wildest dreams. From the now-demolished confines ofNeil Hall, to late-night study breaks on High Street, firom the souks of Istanbul and Jerusalem, to the streets of London and

Sydney, from picnics on the banks of the Scioto, to picnics in the Australian Outback, she has given me, in just a few short years, the most fantastic life. Thus, being totally incapable of expressing what a debt I owe her, I simply present and dedicate this dissertation to her as a completely inadequate token of my deepest love and appreciation.

IX VITA

March 1,1970 Bom, Akron, Ohio

1991 BA., Political Science, The University of Akron

1995 MA., Political Science, The Ohio State University

1991-1996 Graduate Teaching and Research Assistant The Ohio State University

PUBLICATION

Anthony Mughan and Jonathan P. Swarts. 1997. ‘The Coming of Parliamentary Television: The Lords and the Senate Compared.’ Political Studies. 45:36-48.

FIELDS OF STUDY

Major Field: Political Science TABLE OF CONTENTS

Page

A b stract ...... ü

Dedicatioii ...... iv

Acknowledgments ...... v

V ita...... X

List of Tables ...... xiii

Chapter l: Introduction ...... l Neoliberalism and Right-wing Governments: Britain and Canada ...... 5 Neoliberalism and Left-wing Parties: The Antipodean Cases ...... 13 The Theoretical Puzzle of Neoliberalism ...... 18 Explaining Similarities and Differences ...... 21 The Research P lan ...... 25 The Plan of This Study ...... 26

Chapter 2: Parties Do Matter: Reviewing the Literature, Filling Gaps and Generating Hypotheses ...... 35 Do Parties Matter? An Intellectual H istory ...... 38 Filling Lacunae ...... 53 Generating Hypotheses ...... 63

Chapter 3: Prelude to Reform: The Post-War Policy Paradigm and the Economic Turmoil of the 1970s ...... 68 The Dominant Post-War Economic Paradigm ...... 70 Britain ...... 70 C a n a d a ...... 82 Australia and New Zealand ...... 89 Economic Crisis and the Road to Policy Change ...... 103 C onclusion ...... 121

xt Chapter 4: The Neo liberal Experiment: A Review of Economic Reform in the 1980s ...... 123 The 'Crash Through or Crash' Doctrinaire Approach to Neoliberal Reform: Britain and New Zealand ...... 125 Canada and Australia: The Pragmatic Face of Economic Reform ...... 150 C onclusion ...... 166

Chapter 5: Explaining Similarities: Common Sources of Neoliberalism ...... 169 Assessing the Causes of Neoliberal R eform ...... 198

Chapter 6. Detecting the Imprint of Partisanship ...... 202 Labor Market Policy: The Crux of the Partisan Difference ...... 206 Labour Parties and Ideological Change ...... 221

Chapter 7. Concluding Reflections on Neoliberalism and Partisan Theory ...... 236

Appendix: Summary Statistical T ables ...... 257

Bibliography ...... 263

XU LIST OF TABLES

Table Page

1 Main Exports in Australia and New Zealand, ranked (percentage of total exports) ...... 91

2 Real Disposable Personal Incomes, Britain(percentage change year-to-year)...... 108

3 Total public debt. New Zealand (percentage of GDP) ...... 120

4 Average Inflation Rates, selected periods ...... 129

5 Money Supply Targets and Actual Outturns, Britain ...... 132

6 Industrial Disputes and Working Days Lost, Britain, 1960-1997 ...... 137

7 Nationalization and Privatization in Britain, 1945-1997 ...... 139

8 Effective rates of assistance to agriculture. New Zealand ...... 143

9 Effective rates of assistance to New Zealand industry ...... 145

10 The New Zealand privatization program, 1988-94 ...... 149

11 Changes in Real Hourly Earnings in Manufacturing, 1980-1994 ...... 163

12 Privatization in the Anglo-American Democracies, 1979-92 ...... 165

13 The "Misery Index"; Combined Rates o f Inflation and Unemployment, 1970-1984...... 172

14 Unemployment, 1968-1994 (percent unemployed) ...... 258

15 Inflation (Consumer Price Index), 1970-1994, change on previous year (percent) ...... 259

xui 16 Real Per Capita GDP Growth, 1968-1994, change on previous year (percent)...... 260

17 Net Lending of Government, 1968-1994, percentage of GDP ...... 261

18 Strike Activity, 1971-1997, number of workdays lost to strikes, (in millions) ...... 262

XIV CHAPTER I

INTRODUCTION

After years of heated debate among political scientists, it is now widely accepted that political parties ‘^matter’ in determining the content of public policy. A large number of studies has found that the partisan nature of the party in power—right-wing or left-wing, conservative or socialist—has a significant impact on the choice ofeconomic po licies (Castles

1982; Schmidt 1996; Hibbs 1977,1992). Put simply, these studies indicate that, in general, left-wing parties tend to be concerned with reducing unemployment, achieving greater economic equality, and strengthening the social welfare state. Right-wing parties, in contrast, tend to pursue low inflation, limited state regulation of the private sector, and restraint of social welfare expenditures.

Recently however, some governments’ dramatic reorientations of economic policy appear to challenge the notion that parties make a difference in economic policy-making.

Over the course of the 1980s and 90s, in countries governed by parties of both the right and the lefiy traditional policies o f Keynesian demand management and active state economic intervention gave way to policies—variously dubbed ‘neoliberal’, ‘economically rationalist’, and ‘New Right’—usually associated with conservative parties. The worldwide wave of market liberalization was dramatic. From the end ofthe 1970s to the end of the 1990s, there were dramatic shifts in the dominant economic policy paradigms within which countries operated. Government intervention, high government expenditure and deficits, state debt, economic regulation, tariff protection and labor-friendly policies are, if not abandoned completely, at least under close scrutiny and adjustment. Deregulation, attempts to control government expenditure, reduce debt loads, eliminate inflation, free up world trade and reduce the influence of traditionally-powerful trade unions are widespread. The collapse of communism has merely accelerated this trend by further discrediting the interventionist alternative. In large numbers of countries today, the perception is firmly entrenched that some form of liberal, free market economics is the only basis on which efficient and successful economies can operate. Even such former paragons of social democracy as the

British Labour Party, the Swedish Social Democratic Labour Party (SAP) and Greece's

Panhellenic Socialist Movement (PASOK) have adopted market-led policies more in tune with the conservative opposition than with their own traditionally left-wing ideology. These policy transformations present a critical theoretical puzzle; if free market policies have been consciously pursued to varying degrees by all manner o f govenunents, where is the role for partisanship, party differences, ideology, and the seemingly iron-clad lawthat right- and left- wing parties behave quite differently in economic policy? Does the swing to fiee market policies not bring into question the seemingly obvious and well-supported axiom that parties of different ideologies do quite different things? Is the concept on which democracy is ultimately based—alternative potential governments vying for public support for their respective programs-not put in doubt by such seeming policy similarities? Put simply, if parties matter, why did such different parties adopt such apparently similar policy orientations?

In light ofthis clear departure hom theoretical expectations, this dissertation aims to explain the neoliberal policy phenomenon by comparing the adoption of heer-market policies by four governments: those of the right, in Britain and Canada, and of the left, in Australia and New Zealand. In these four countries, governments effected a significant reorientation of economic policy—away fiom traditional methods o f active state economic intervention and regulation towards policies emphasizing the alleged superiority o f‘free market’ outcomes.

Each country’s previously dominant policy pattern was dramatically altered—away from the post-war interventionist 'consensus’ to a new set o f policies oriented towards growth and efSciency through market liberalization. Despite this general neoliberal reorientation, however, policy specifics varied widely. Each government pursued market liberalization, but the specific policies pursued, the speed with which they were implemented, and the resulting political dynamics in each country were widely difièrent. A common neoliberal shift, then, did not imply identical policy choices. Given the similar move to neoliberalism by both the Conservative parties of Britain and Canada and the Labour parties of Australia and New Zealand, as well as the important policy differences identifiable across these four cases, this research aims to answer three central questions: (I) What explains the common shift to fiee market policies by all four governments?, (2) What accounts for the significant variation in specific policy choice?, and (3) what implications do these cases have for the theoretical expectation that the policy outputs of left- and right-wmg parties are significantly different? My fundamental hypothesis is that, despite the adoption of a similar policy orientation by very different political parties, partisan differences do in fact matter. They matter less, however, for the adoption of a general neoliberal economic paradigm than for the application ofthat paradigm to specific policy issues. That is, parties in all four countries adopted freer market policies, irrespective of the partisan and ideological differences between them. The overall economic orientation was the same. Where partisan differences did appear was the manner in which the neoliberal agenda was enacted into specific policies.

My hypothesis is that it is here—in the choice of policies, the nature of the reforms pursued, the timing and pace of change, the social groups helped and harmed by reform—that partisan differences continued to be apparent. Partisanship did not preclude a common move to neoliberalism, but it did leave its mark on each government’s actual policy 'mix’.

This study will thus examine whether similar international and domestic economic pressures stimulated the adoption of a common neoliberal orientation by all four countries, while divergent policy outcomes were the result of partisanship and its interaction with such factors as interest groups, bureaucracies, and elites’ calculations and strategies. In short, this dissertation, by systematicallyexamining the shift to neoliberal economic policies in Britain,

Canada, Australia, and New Zealand, aims to make a novel contribution to the study o f the politics of economic policy-making—first, by reconsidering traditionally-held conceptions of the link between political parties and economic policy, and second, by explicitly, qrstematically, and comparatively analyzing neoliberalism, not as a policy unique to right-wmg parties and governments alone, but as a policy program employed in a variety of ways in a variety of economic and political contexts. Neoliberalism and Right-wing Governments: Britain and Canada

While neoliberal, j&ee market policies have been pursued in a variety of countries in the last twenty years, the case of Great Britain under the leadership o f Margaret Thatcher is generally viewed as the archetypal example of neoliberal change. There, the Conservative

Party’s accession to power in 1979 marked the decisive break away from previous policies of active state intervention towards ones allowing the ‘market’ to operate unhindered by the state. By the late-1970s, many had come to believe that the old economic policy mold—the

‘Butskellite consensus’—was in desperate need o f recasting (Kavanagh and Morris 1989).

Britain suffered from low industrial productivity, declining relative wealth, lower economic growth than its major competitors, persistent balance of payments crises, mounting labor unrest, and seeming uncontrollable inflation thanks to two OPEC oil shocks and a series of failed statutory prices and incomes controls. Complicating the picture was the characteristic

‘stop-go ’ nature of post-war British economic policy—a Keynesian-inspired cycle ofstate-led expansion in times of economic downturn, followed by economic contraction to arrest overheating (Smith 1992).

It was against this backdrop that the Thatcher government came to power in 1979.

Having become Tory leader in 1975, Mrs. Thatcher and her economic guru. Sir Keith Joseph, had spent their time in Opposition fleshing out a free market alternative to what she labeled the interventionist, socialist‘nanny state’(Thatcher 1993,1995). This new approach rejected virtually every element of the old consensus on economic policy. The role of the state in increasing expenditures and lowering interest rates to fuel economic ecpansion—and then engineering contraction to bring it under control—was rejected. Direct state regulation of market outcomes—particularly regarding prices and incomes—was rejected. The traditional policy of conciliation and parmership with the trade unions—of‘beer and sandwiches’ with union leaders at 10 Downing Street—was rejected. And the policy commitment to maintain full employment was explicitly abandoned and replaced with a determined effort to control inflation, regardless of the price in lost jobs. In short, the paradigm of interventionist state economic policy was replaced with one emphasizing entrepreneurialism, individualism, and the allegedly greater efKciencies of free markets.

This new policy orientation took several forms throughout the Thatcher period. First, as mentioned above, the government explicitly abandoned the commitment to full employment. According to the new orthodoxy, the unemployment rate was to find its

‘nattual’ level—the level ofimemployment ‘necessary’ to prevent accelerating inflation'—and inflation was to be attacked as the primary economic problem. This nearly-exclusive focus on inflation was not coincidental. In Britain as in most o f the industrialized world, the 1973 and 1979 OPEC world oil shocks had dramatically increased petroleum prices and, in turn, created inflationary pressures throughout the entire economy. These exogenous shocks, coupled with the seeming inabiliQr of either firms or governments to resist spiralling wage demands, had resulted in a rate of inflation diat peaked at over nineteen percent in 1980.

This, in the view of the Thatcher government, was the most serious threat to national economic well-being. Following the prescriptions o fsuch monetarist economists as Milton

Friedman, the government focused its attempts to reduce inflation on the size, and rate of increase, of the money supply. Strict limits on the money supply-limits that proved quite

' The NAIRU—the non-accelerating inflation rate of imemployment.

6 difScult to enforce in practice—were coupled with fiscal restraint. A concerted efibrt was made to cut public expenditure, while revenue was basically held constant. As a result, the government was able to turn a Public Sector Borrowing Requirement (PSBR) of five percent of GDP in 1980 into a surplus of three percent of GDP by 1989. Even excluding proceeds from the government’s privatization program, the Thatcher government held steady or reduced the PSBR for eight consecutive years and was able to turn surpluses in 1989,1990, and 1991 (OECD [United Kingdom] 1991,35).

These policies ofmonetary and fiscal restraint produced both significant benefits and sizable costs. Their effect was clearly deflationary, particularly at the height of the 1982 recession. By 1986, inflation had bottomed out at 3.4 percent. However, the cost of low inflation was an unemployment rate that peaked at 11.8 percent in the same year—this compared to a 5.1 percent rate when Mrs. Thatcher took ofiBce, and an average unemployment rate of 1.8 percent in the 1960s and 4.1 percent in the 1970s (OECD [United

Kingdom] 1981,28; 1988, 15; 1989,25).

These persistently high rates of unemployment—over ten percent from 1982 to

1987—played an important role in a second part of the government’s agenda—the taming of the trade unions. The previous pattern of govemment-labor relations had been cooperation and compromise with the trade unions in order to prevent widespr^d unrest and secure social peace. Thus, most post-war British governments were largely unwilling to challenge the trade unions, preferring instead to cooperate with them and meet their demands. The

Thatcher approach to the unions was quite different—and resulted m them effective emasculation. A firm resistance to compromise with strikers—particularly dining the 1984 miners’ strike—and a concerted legislative program designed to reduce union power and prerogatives resulted in a dramatically changed labor environment. By the end ofthe decade, the government had removed trade unions’ immunity from legal action, required the use of secret leadership and strike ballots, and removed the statutory basis for the closed shop

(Hanson 1991; McBride 1986).

A third element in the Thatcherite economic program was the reduction in the size of the public sector. This took several forms. First, the government promoted its image of a property-owning society by allowing tenants in government-owned housing to purchase their homes. This policy had dramatic effects. The percentage of owner-occupied homes rose from 54.7 percent in 1979 to 66.5 percent in 1989. In contrast, the percentage of housing stock owned by the state fell from 31.6 percent in 1979 to 23.5 percent a decade later

(Johnson 1993,298).

Just as significantly, the government pursued a concerted policy of reducing the role of the government in the economy and shrinking the size o f the public sector by privatizing state-owned corporations. Over the course of the decade, the government privatized such well-known industrial giants as British Petroleum, British Aerospace, Jaguar, Rolls-Royce,

Rover and British Airways. By 1995, this still-ongoing program had resulted in proceeds exceeding £60 billion, a sum in excess o f 10 percent of total government revenue in that year

(OECD [United Kingdom] 1995,91). Without question, this privatization program had an enormous impact on the structure o f the British economy. The public-sector share of the economy dropped dramatically over the course of the 1980s—with the bulk ofthat reduction due to the sale of public corporations (Veljanovski 1987; Letwin 1988; Gamble 1988).

8 In short, the Thatcher government effected dramatic neoliberal economic change in

Britain. The entire philosophy of the role of the state in economic affairs changed dramatically. Gone was the dominant, interventionist policy orientation of post-war British governments. In its place was a philosophy committed to reducing the economic role of the state to a minimum and emphasizing the priority of market outcomes over state direction

(Jenkins 1989; Howe 1995; Lawson 1993).

Neoliberal, free market policies were not confined to Britain, however. In Canada, the Progressive Conservative government of Brian Mulroney adopted an economic agenda that clearly reflected neoliberal philosophy. From 1984 to 1993, the government pursued a far-reaching program of neoliberal reform, effectively transforming important aspects of the Canadian economy. Like Mrs. Thatcher, the Mulroney government took ofRce arguing that previous governments’ economic policies were imtenable and thus set about reorienting them. Former Liberal governments had followed typical Keynesian demand-management policies. In the years immediately preceding the Progressive Conservative accession to power, for example, fiscal policy had been expansionary, attempting to sustain consumer demand in the midst o f a worldwide recession. The result was mounting government budget deficits. In 1984, the budget deficit hit a high of 7.0 percent of GDP-up from only 2.4 percent three years earlier (OECD [Canada] 1983,24; 1985,19). Thus, a high priority ofthe new government was significant expenditure restraint, coupled with efforts to raise additional revenue. By 1990, these policies had resulted in a drop in the federal budget deficit to 4.7 percent of GDP, although surpluses had to wait for the Liberal government in the late 1990s

(OECD [Canada] 1990,39). Second^ the Progressive Conservatives introduced thoroughgoing reforms in a number of key economic sectors, including the deregulation of the transport market, the telecommunications industry, the financial sector, and commercial aviation. Most important among these reforms, however, were the deregulation of the energy sector and a changed attitude towards foreign investment. Previous energy policy had revolved around the

National Energy Policy (NEP). Created by the Trudeau government in 1980, this program aimed to control prices of Canadian oil and gas, to encourage the use of non-oil energy sources, to restrict foreign ownership of energy assets, and to regulate and control the level of energy exports. The Mulroney government quickly acted to dismantle this regulatory regime and to move to market pricing for energy production and distribution. The Western

Accord, signed in 1985 by the government and Western energy-producing provinces, removed price controls on oil, eliminated most federal energy taxes, and did away with most controls on energy exports and imports. This accord was followed by the Natural Gas

Agreement which essentially deregulated that industry, eliminating measures designed to keep prices artificially low, especially to the non-energy producing provinces. The result was an essentially fiee market for energy in Canada—a market where traditionally disaffected energy-producing Western provinces profited at the expense of the more populous energy­ consuming provinces in the East (Doem and Toner 1985; Toner 1986; James 1990).

The Mulroney government also dramatically changed Canadian policy with regards to foreign investment. In a bold reversal of both previous government policy and long-standing Progressive Conservative support for domestic protection fiom foreign economic penetration, the government essentially threwCanadaopento overseas investment.

10 The symbol of the old policy o f tight restriction was the Foreign Investment Review Agency

(FIRA), which had been set up to review proposals for foreign investment in Canada and impose strict limits on the amount of it that would be allowed. The Mulroney government abolished FIRA and replaced it with Investment Canada, an agency charged with prom oting rather than limiting foreign investment, and with reviewing only especially large acquisition attempts and those in such sensitive areas as culture, energy, and finance (Laxer 1991;

Reynolds e/fl/. 1991).

Finally, in the most dramatic and controversial attempt to open up Canada to world markets, the government concluded a ftee-trade agreement with the United States-an agreement later expanded to include Mexico. This North American Free Trade Agreement

(NAFTA) flew in the face of conventional wisdom, dating back to the Liberals’ defeat over the issue of free trade in the election of 1911, that Canadians would never accept free trade with the United States. While certain limited sectoral free trade agreements had been negotiated with the US—most significantly the Auto Pact of 1965—it was traditionally deemed economically dangerous and politically suicidal to support free trade with the United

States. Mulroney, however, adopted the cause as his own, rejecting the Tories’ long-standing commitment to economic nationalism.’ In the event, he was successful. The 1988 election, run directly on the free trade issue, returned the Conservatives to power and ensured the enactment of possibly the single most important change in Canadian economics in the twentieth century (Woodside 1989; Doem and Tomlin 1991; Castillo 1995).

Thus, in both Britain and Canada, we have clear examples of Conservative governments pursuing dramatic neoliberal reform. For the most part, this is not surprising.

II While these governments dramatically reordered the economic landscape of their countries

in various ways, the pursuit of neoliberal economics does, in many ways, fit what both

experience and political science theory tell us about conservative parties and their policy

preferences. While most Conservative parties have within them traditional, paternalistic,

socially-minded ‘tones’, they also usually include economic liberals, for whom conservatism

is more a suspicion of government intervention and control of the economy than it is a

concern for traditional society and community (Crewe and Searing 1988, Norton and Aughey

1981). Thus the shift to neoliberalism, while dramatic, is more easily understood. What is

more difficult to understand is how traditionally left-wing Labour parties came to adopt free

market economics as well. These parties, closely tied to the trade union movements in their

respective countries and traditionally committed to government intervention for the sake of

economic redistribution and social justice, radically departed 6om that tradition and adopted

policies more commonly associated with right-wing parties—policies, in fact, that generally

won them kudos rather than criticism from their conservative opponents. This clearly

indicates that the link between political parties and economic policy-making is less

deterministic and more complex than has been commonly asserted and thus in need of

careful reexamination. To make sense of this puzzling anomaly, this study also examines

two cases of neoliberal reforms under left-wing governments—that of Australia and New

Zealand.

12 Neoliberalism and Left-wing Parties: The Antipodean Cases

In Australia, the Labor government of Bob Hawke made significant and surprising moves towards market-oriented policies. The long-standing bipartisan tradition in Australian economic policy was the insulation and protection of domestic markets. This policy, dating

fi’om the earliest days of Confederation, had been developed and pursued by virtually every subsequent govemmenL To varying degrees, each strove to erect and preserve a Fortress

Australia, through policies Castles terms ‘domestic defense’ (1988). Central to this agenda were policies limiting foreign investment and competition, regulating wages, finance and

business competition, protecting domestic manufacturing and supporting fiee trade only for

Australian exports in the lucrative raw materials and primary industries. Even the preceding

conservative Coalition government of Malcolm Fraser (1975-83)—with an allegedly proto­

neoliberal program—failed to enact deregulatory reform on anything but the smallest scale

(Castles 1988, 26-7). Most paradoxically, thoroughgoing reform had to await a Labor

govemmenL

Chief among the government’s most important policy changes was the nearly

complete deregulation of the financial sector. Shortly after being elected, the government

devalued the Australian dollar and then followed it with the abolition of all exchange

controls and the dollar’s complete flotation. Regulations which limited the Qrpes o f activities

banks and other financial institutions could engage in, as well as the rates they could charge

for loans and pay for deposits, were largely eliminated. Furthermore, the government began

a policy of actively approving new licenses for those wishing to enter the financial

market—such licenses were issuednot only to Australians, but to foreigners as well, attracting

13 a significant amount of investment capital into the country and bringing to an end a long

Australian history of regulation and protection. In short, by deregulating the financial industry—abolishing banking restrictions, fioating the dollar, and abolishing exchange controls—the government essentially relinquished a number of its most potent levers in the control of the national economy, thereby reversing the dominant pattern of post-war

Australian economic policy and directly subjecting the economy to the influence of world markets (Perkins 1989; Pauly 1987).

The near-total deregulation of the financial and money markets was paralleled by significant deregulation in a ninnber of other sectors as well. Most important among these reforms were the deregulation of the transport sector, ± e telecommunications market, and the commercial aviation market. In the case of the latter, the government opened up the domestic air market to private competition and initiated the sale of the state-owned airline,

Qantas. The sale of Qantas and that of the Commonwealth Bank were the most important privatizations undertaken by the government—a program limited by the fact that much of

Australia’s public assets were held at the state level and thus not subject to federal control.

Those state concerns not sold to the private sector were ‘corporatized’-that is, put on a commercial footing, with an emphasis on profit-making, competition, and market-determined pricing and production (Fairbrother 1997; Teicher 1998).

With respect to Labor’s traditional allies, the trade unions, Hawke pursued a policy ofnegotiation and conciliation. Soon after its accession to power, the government negotiated an agreement with the trade unions—the Accord—that would serve as the basis fi)r govemment-Iabor relations throughout the decade. Its main success was in dampening down

14 wage pressures and thereby controlling inflation. The policy was so successful, in fact, that real workers’ wages in Australia actually declined over the course of the 1980s (OECD

[Australia] 1990,20). And this, as a result of the conscious policy of a Labor government

(Lloyd 1985; Singleton 1990).

The government’s fiscal policies were also broadly similar to the other countries discussed here. Upon coming to office in 1983, the government initially engineered a fiscal expansion—largesse which quickly raised the budget deficit firomO.4 percent o fGDP in 1982 to 4.7 percent in 1984 (OECD [Australia] 1984, 39; 1985, 28). However, the same government soon realized that such expansion was unsustainable over the long-term.

Announcing that, without significant austerity measures and further liberalization, Australia was well on its way to becoming a ‘'banana republic’. Federal Treasurer Paul Keating introduced fiscal economies and revenue increases that would not only eliminate the budget deficit by 1988 but, by 1990, would have the government balance sheet in substantial surplus

(2.2 percent of GDP) (OECD [Australia] 1992,39). In short, through a determined program of deregulation, market liberalization, and tight fiscal control, the Australian government dramatically reversed long-standing previous policies o f active state economic regulation and intervention (Kelly 1994; Castles, Gerritsen and Vowles 1996; Hawke 1994).

But the Hawke government was not the only left-wing government to pursue a significant neoliberal economic transformation. In fact, the most radical neoliberal restructuring of any OECD economy during the 1980s was undertaken by the Labour government of New Zealand. By the time the Lange Labour government came to power in

1984, the need for policy change in New Zealand was evident to all. All, perhaps, except the

15 outgoing conservative prime minister, Robert Muldoon. In what must have been one of the most fantastic, Alice in Wonderland political systems m the world in the 1970s and 1980s,

New Zealand had in the allegedly conservative Muldoon the most interventionist of interventionist premiers, and in the succeeding Lange Labour government the most radical of all market liberalizing parties in the developed world (Gould 1985; Templeton 1995).

By the early 1980s, New Zealand was in serious economic trouble. Dubbed the East

Germany of the fee world. New Zealand^s super-regulated economy had done nothing but decline. From being one ofthe five richest countries in the world in the 1950s, it had slipped to 20th by the end of the 1970s (OECD [New Zealand] 1985,8). Economic growth had completely stagnated in the late 1970s, and double digit inflation rates were only reduced by a statutory wage/price feeze in 1983 (OECD [New Zealand] 1980,58; 1983,56; 1985,9).

Meanwhile, unemployment had climbed to 5.6 percent by 1983-this in a country which had previously counted its total unemployed in the hundredsr (OECD [New Zealand] 1975,90;

1989, 131). However, the only response Muldoon could seem to muster was more intervention. His costly program of massive state-flmded 'Think Big’ development projects failed miserably and had New Zealand on the verge o f bankruptcy by 1984 (Douglas 1980,

1993; Douglas and Callan 1987).

The new Labour Finance Minister, Roger Douglas, set about on a fundamental restructuring of the New Zealand economy. His reforms—dubbed Rogemomics-covered virtually every aspect of economic policy. The government first liberalized the financial

■ In 1966, there were 400 registered unemployed in New Zealand, an tmemployment rate of 0.05 percent. The unemployment rate topped 1 percent only in 1978, but climbed steadily thereafter (OECD [New Zealand] 1975,90; 1982,62).

16 markets. Exchange controls were abolished^ the New Zealand dollar was floated^ and restrictions on foreign investment in New Zealand and on New Zealand investment abroad were eliminated. In the banking sector, interest rate and lending controls were abolished and licenses were issued for new entrants into the market. The reform quickly spread to other sectors. The energy market was liberalized and state energy holdings divested. The transport sector was deregulated, with restrictions on road/rail haulage, civil aviation and airport landing rights, shipping, and taxi services eliminated. In agriculture, tax concessions, compulsory state-managed marketing arrangements, and price supports were abolished. The tax code was also overhauled-while Douglas failed to win Labour support for a flat tax, personal income tax rates were lowered, the tax base was broadened, and a comprehensive goods and services tax was introduced. Finally, a whole spate o f state measures—controlling wages and prices, granting state-regulated monopoly rights, restricting shop trading hours, and enforcing production quantity and quality controls—were eliminated (Easton 1987;

Bollard 1992; Massey 1995; Dalziel 1999).

The Lange Labour government also pursued a vigorous program of fiscal stabilization. Over the life of the government, expenditures increased fix)m 40.8 percent of

GDP in 1984 to 44.7 percent in 1989. Meanwhile, revenue increased fi:om 31.9 percent of

GDP to 42.6 percent over the same period—thanks largely to the government’s extensive tax reform program. However, when proceeds fiom privatization are included, the result on the govenunent balance sheet is dramatic. A budget deficit of 8.4 percent of GDP in 1985 was transformed into a surplus of four percent in 1990—the thfid consecutive budget surplus

(OECD [New Zealand] 1987,38; 1991,39-41).

17 Finally, the government's vigorous privatization program thoroughly transformed the role of the state in the public sector. This program began in 1987, when the government undertook the corporatization of 24 state-owned industries. However, the corporatization program quickly became a vigorous privatization program. The sell-off was extensive—Air

New Zealand, Bank of New Zealand, the Petroleum Corporation, the Rural Bank, the Post

Office Bank, New Zealand Steel, State Insurance, and many other enterprises were privatized. By 1991, proceeds from government sales totaled NZ$4.25 billion, or 14 percent of government expenditure in that year. With a number o f other sales pending when Labour left office in 1990—including the sale of Telecom, valued at NZ$4.25 billion-the total proceeds from privatization in New Zealand approached NZ$10 billion, or nearly one-seventh of the country’s 1991 GDP (OECD [New Zealand] 1991,68). Put simply, the government’s policies-ones continued with even greater fervor by the succeeding conservative National government—drastically reordered both the nature o f economic policy in New Zealand and the very structure of the economy itself (Kelsey 1993; Boston 1995).

The Theoretical Puzzle of Neoliberalism

The case of New Zealand just discussed is only the most dramatic and puzzling manifestation of the phenomenon this dissertation addresses—supposedly left-wing parties, with long histories of social democratic commitments and strong trade union ties, actively pursuing policy reforms usually championed by right-wing parties. In the Antipodes, we have Labour parties cutting expenditure, privatizing state-owned corporations, means-testing social welfare benefits, holding down real wages and eliminating trade restrictions designed

18 to protect domestic jobs. This is not what political science theory has hitherto led us to expect 6om social democratic parties. Instead, what a great deal of empirical social science has foimd is that parQr differences do have a significant impact on public policy choices

(Keman 1997; Schmidt 1996,1997).

Early empirical work questioned the relevance of partisanship and ideology to public policy outputs (Dawson and Robinson 1963, Cutright 1965, Wilensky 1975). These early scholars argued that the level of socioeconomic modernization a country had achieved was the determining factor. Politics was of a distinctly lower-order importance, if its impact could be detected at all. Wealth, development, and the degree of modernization were all better predictors o f public policy—social welfare policy, in particular—than were partisan or ideological differences.

This finding was later convincingly challenged by two literatures (see Schmidt 1996 and Hibbs 1992) which, while distinct, came to a very similar conclusion: that parties and the differences between them do have significant effects on public policy outputs. The differences between parties are not simply rhetorical, nor are they affected by leaders at times of elections in order to please traditional supporters and constituency groups. Instead, parties of the left and right are in fact different and these differences do produce systematic and regularly occurring differences in public policy outcomes.

The first body of work is the well-known ‘do parties matter’ debate within comparative public policy, and has largely fecused on government expenditure, particularly on social welfare. Originating in Castles and McKinlay’s seminal 1979 work and continuing through a large number of modifications, revisions, and extensions, this literature (Castles

19 and McKinlay 1979a, 1979b; Castles 1982; Schmidt 1996) has essentially concluded that parties of the left spend more, tax more and more progressively, are more concerned with constructing and maintaining social welfare programs, and on the whole are more favorable to govenunent intervention and regulation in order to achieve desirable social goals. Parties of the right show the reverse—they tend to be more circumspect about spending (especially on social welfare), are generally opposed to high levels and progressivity of taxation, and are overall more concerned with achieving economic efficiency even at the cost of social equity concerns.

Paralleling this finding is an entirely different literature in comparative political economy. Here, the partisan theory literature has focused on macroeconomic policy and the efiect party differences have on it (Hibbs 1977, 1992; Alvarez, Garrett and Lange 1991).

Again, the conclusion is the same. Different parties behave differently. Left-wing parties, according to most versions of partisan theory, are most concerned with unemployment and its effects on their traditional constituencies. Thus, these parties generally pursue macroeconomic policies aimed at stimulating the economy and generating jobs. These looser fiscal and monetary policies are pursued despite their infiationary consequences. For the left, job stability is more important than price stability. Needless to say, the reverse is true for the right. Faced with any trade-offbetween inflation and unemployment, partisan theory predicts that right-wing parties will accept higher unemployment in order to produce price stability.

Thus, tight fiscal and monetary policies may produce higher employment, but they aid in achieving the price stability most desired by the right's traditional supporters.

20 These conclusions are directly challenged by the examples of Antipodean Labour.

In Britain and Canada, the policies o f the Conservative governments largely correlated with the expectations of partisan theory. But, as this chapter has been at pains to point out, the

Labour governments o f Australia and New Zealand pursued a variety of policies contrary to theoretical expectations. This, then, leads us to consider the extent to which traditional understandings ofparties and public policy are valid across the four cases, and to what extent they are in need of revision in order to accommodate them. To do this, the principal task must be to explain and understand the causes and motivations behind neoliberal change, and

&om that analysis, to divine the impact of partisan ideology.

Explaining Similarities and Differences

As stated above, the four governments' policies were broadly similar. The general neoliberal thrust of deregulation, privatization, fiscal restraint and freer trade shaped the economic policies o f all of them. Yet, within this general orientation, there were important differences—some policies fit into the neoliberal mold, some did not. Privatization was far more extensive in Britain and New Zealand than in Canada and Australia. Taxation policies became more regressive in Britain and New Zealand, but more progressive in Canada and

Australia. The labor markets of Australia and New Zealand were only partly liberalized, while that of Britain was thoroughly reformed. The power of organized labor was explicitly challenged in Britain, while the labor policies of the others—Australia, in particular—were characterized by a greater degree of conciliation. In short, within a general program of market liberalization, policy specifics varied significantly across the four countries.

21 This raises %aia the three central questions addressed in this dissertation: (1) Why was there a shift to free market policies by all four governments, regardless of political orientation?, (2) What accounts for the significant variation in policy choices?, and (3) what do these four cases tell us about the theoretical expectation of partisan impact on public policy?

As stated previously, my frmdamental hypothesis is that parties do, in fact, matter—but that they matter less for the adoption of a neoliberal economic orientation than they do for the adaptation of that orientation to a specific set of national circumstances.

Partisan differences became most apparent when attempting to apply theneoliberal paradigm to specific policy problems. There, party differences stood out—the nature, tuning and focus of reform under Labour governments was systematically different from that under

Conservative ones. The question is thus not simply whether parties do or do not matter, but rather when and in what ways ideology and partisanship woric to shape policy outcomes. My analysis, therefore, proceeds on two levels. First, it asks how this shared neoliberal policy response across the four countries is to be explained in terms of common causes or motivations. Second, it seeks to explain the différent forms of interaction between partisan ideology and policy outcomes in each of the four cases, identifying where partisan differences left an identifiable imprint on public policy.

On the first of these levels, I hypothesize that international and domestic economic conditions, and governments' seeming inabilify to solve chronic economic problems with traditional policies, were the most important catalysts stimulating a common neoliberal policy response. First, this study considers the extent to which important changes in the

2 2 international economic environment contributed to the neoliberal surge (Gourevitch 1986;

Rogowski 1989; Frieden 1991; Katzenstein 1978, 1985). For instance, was the poor adjustment of these countries' economies to the 1973 and 1979 world oil shocks attributed to structural rigidities which could only be eliminated by neoliberal reform? Similarly, did the overall increase in world trade competitiveness reveal inefGciencies and a lack of competitiveness for which market liberalization was seen as a possible cure? To what extent did such international economic problems lead policy-makers to adopt neoliberal solutions to them? Second, this analysis also considers the related question of domestic economic conditions and their impact on neoliberal policy choice. Did these countries’ recurring bouts with such problems as high unemployment and inflation rates, persistently low productivity and growth, severe external trade imbalances, domestic labor unrest, and rising levels of public debt contribute to an agreement on the need for thoroughgoing change? Was there a sense of national economic crisis in these countries and a belief that previous governments following traditional policies had been ineffective in solving pressing economic problems?

To put it simply, did the inability ofKeynesian policies to solve pressing economic problems lead to a widespread commitment to neoliberal change?

On the second level, I hypothesize that the significant variation of in policies actually implemented within the neoliberal paradigm was a result of partisan ideology and its interaction with the traditional class bases o f support ofthe parties in question. For instance, what impact did unique Labour Party ties with trade unions have on these parties’ choices of economic policy? Did these important class-based links influence, as partisan theory posits, the direction ofLabour Party policy, creating identifiable differences between left and

23 right (Lipset 1960, Castles 1978, 1982)? In addition to parties’ traditional electoral constituencies and bases of support, this study will also consider the importance of government bureaucracies and the influence that bureaucratic ofGcials can bring to bear on the making o f public policy (Hecio and Wildavsky 1979; Hall 1986; Krasner 1980; Weir and

Skocpol 1985). Therefore, an attempt will be made to determine the policy preferences of ministry officials and the amount of influence they had in making these preferences felt on the policy process.

Finally, the impact of elites’ own personal and political calculations, strategies, and interests will be considered. The sum total of pressures arising from the aforementioned factors do not determine any particular policy choice. In the end, political elites make policy decisions influenced, but—it is assumed—not entirely constrained, by ‘external’ influences.

Thus, any explanation of these policy changes must focus on how ‘external’ pressures and

‘objective’ environmental conditions combined with elites’ own personal preferences in the making of public policy (Goldstein and Keohane 1993; Hall 1989; King 1973). Did the governing elites of these four countries lead the drive for neoliberal change? What explains elites’ willingness to challenge, and even reverse, long-held tenets of what constitutes

‘appropriate’ government economic policy? To answer these questions, this study will analyze elites’ perceptions of national economic problems and how they came to advocate neoliberal solutions to them.

In short, I hypothesize that, while similar economic problems may have stimulated a common neoliberal response, it is in explaining the clear differences in economic policy choices within a common neoliberal policy orientation that partisan differences will emerge

24 as most important The fact that the British and Canadian governments were led by

Conservative parties should have left an identifiable imprint on the nature of the neoliberal policies adopted; in like manner, the Labour governments of the Antipodean countries pursued policies which, while neoliberal in a general sense, likely revealed the left-wing origin and nature of the parties in power. However, partisan ideology does not operate in a political vacuum—instead, policy-makers give effect to partisan ideology within a context influenced by such forces as interest groups and electoral constituencies, government bureaucracies, and elite calculations and strategies. The goal of this research, then, is to identify and explain those interactions.

The Research Plan

The research for this dissertation was a multi-method analysis of a variety of data and information sources: in-depth elite interviews, economic data, party documents and publications, parliamentary debates and journalistic and other secondary accounts. The primary source of information was an extensive series of in-depth interviews with political elites in all four countries. These interviews were conducted in 1997 and 1998 during extensive field research in each country: Britain (March-July 1997), Canada (November

1997-January 1998), Australia (March-October 1998), and New Zealand (November 1998).

Over 110 interviews were conducted.

Those interviewed were almost entirely former cabinet ministers-including four

former prime ministers—fiom across the political spectrum in each cotmtry. While a concerted effort was made to speak to those who had held importance positions in the

25 reforming governments of the 1980s, attention was also paid to elites of opposition parties and the perceptions they bad of the period. Moreover, in an explicit attempt to explore the nature and magnitude of the break with the past that these policies represented, interviews were also conducted with significant numbers of those who had served in governments of the 1960s and 70s.

Supplementing these interviews was an extensive program of research, identifying and analyzing other sources, particularly economic data, parliamentary debates, and other primary and secondary sources of the period. In this effort, the resources of a number of

libraries proved invaluable: those of the library at the London School of Economics, the

National Library of Canada in Ottawa, ± e National Library of Australia and the library at the

Australian National University in Canberra, and the National Library of New Zealand in

Wellington.

The Plan of This Study

The following chapter takes up an examination of theories o f parties and their impact

on public policy. As discussed above, two literatures-one in comparative public policy, the

other in comparative political economy—both find that partisanship matters and that public

policy is directly affected by it. This chapter, then, discusses these literatures in detail. It

first analyzes early attempts at identifying the determinants of public policy outcomes,

studies which usually downplayed the role of partisan influences. It then turns to a review

and analysis o f more recent theoretical developments, showing how most recent empirical

research finds a direct link between partisanship and public policy outcomes—a finding that

26 is, oa the face, put into question by the neoliberal revolutions in the Anglo-American democracies.

Chapter Three considers thepre-1980s state o f economic policies in Britain, Canada,

Australia and New Zealand. In all four countries, the post-war period was a period of

‘consensus’ politics, characterized by an all-party commitment to active state intervention in economic affairs. While each country faced its own particular policy challenges—in

Britain, industrial decline and the prospect of European integration; in Canada, the ever­ present economic power of the US; in Australia and New Zealand, living in isolated, commodity-based economies—a number of similarities stand out.

One was the all-party commitment to the social welfare state. After the war, parties across the political spectrum in these countries came to a general understanding that the social welfare state was a necessary feature of any modem, industrialized society and that maintaining and improving the welfare state would be the task of whatever party formed the government of the day. Differences might arise as to the particulars of social policy, but the goals of the social welfare state were by and large unchallenged.

Another was Keynesian demand management. Typified by Nixon’s comment, ‘We are all Keynesians now’, this policy consensus rested on the belief that the state could play a positive role in stimulating the national economy in times of economic downturn. Not unique to the four countries at hand, Keynesian economics was in fact the orthodoxy o f the capitalist world, at least into the 1970s (Hall 1989, Wattel 1985). Governments ofall parties, then, felt justified in stimulating the economy when necessary, even at the eventual cost of government debt and higher inflation.

27 Finally, there was a perception of the need for active state economic intervention and regulation. This part of the consensus took a variety of forms. In some places, such as in

Britain and New Zealand, this meant that a large segment of economic activity was owned and controlled by the state through state-owned enterprises. While Conservatives and

Labour often disagreed over the extent of ‘^nationalization’, it was uncontroversial that the state should control large segments of industry, particularly in such areas as public utilities, heavy manufacturing, and public transport In the other countries, intervention took a variety of forms—tariff protection, subsidies to farmers and industry, restrictions on shopping hours and price levels, and national wage fixation, among many others. Again, while differences existed between the parties over the degree o f desirable state interventiort the principle itself was never thoroughly attacked, as it would be in the 1980s.

These elements (and others) were the targets of the reformers of the 1980s. To varying degrees and in varying ways, they directed their policies against what they perceived to be the failures of the preceding decades. When they spoke of those failures and the need to reform, it was largely against these elements of the interparty consensus that they were directing their attacks.

Chapter Four takes a necessarily broadbrush look at the changes that took place in each country overthe 1980s. Having described in Chapter Three the predominant consensus of the post-war period, this chapter shows how the 1980s was, in each country, a true revolution in economic policy. It outlines the policy changes pursued by the four governing parties. Conservative in Britam and Canada, and Labour in Australia and New Zealand. Here the emphasis will be on the fundamental similarities of each government’s program—a

28 scaleback of the state in tenus of spending control deregulation, privatization, freer trade, and a general opening up to the larger world economy.

Chapter Five addresses what is certainly the most diffîcult analytical task—the attempt to understand and present in a cogent and organized manner the wide variety of motivations and causes of the neoliberal revolution in these four countries. Clearly, there were significant reasons that were unique to each country. However, this chapter addresses what can be seen as common to the policy transformations of all. They include:

A profound sense ofcrisis. Reforming goverrunents in each country came to office in an atmosphere of deep crisis. In all four countries, as indeed in most of the world, the

1970s had been a very difficult time economically. The twin oil shocks effectively laid to rest the notion that the long post-war boom would continue indefinitely and the emergence of stagflation shook the confidence of policy-makers that the old Keynesian methods were relevant or useful. In each country, governments struggled to make sense of the new economic environment and attempted to stave off what seemed to be an inexorable slide in comparative living standards. Each reforming government, then, took office with a feeling that dramatic change was necessary: in Britain, the Winter o f Discontent had Just ended; in

Australia, drought and depressed farm prices were threatening the dollar and the economy as a whole; in New Zealand, Muldoon’s Think Big orgy of interventionism had brought the country to the verge of default. Only in Canada was the sense o f crisis less acute. There, the crises have usually been constitutional, although shortly after the Mulroney government took office, a Royal Commission recommended free trade as the only way to ensure secure access to the US market in an atmosphere of rising protectionism in Washington.

29 A Sense o fNational Decline. As mentioned above, each government came to ofhce with the acute sense that its country was in a period of significant economic decline—both relative and, in some ways, absolute. From the heights of economic prosperity these countries had enjoyed in the 19th and early 20th centuries, the decline was painfully felt.

Britain was the prototypical industrial society, leading the world in creating a modem, industrial economy. Canada had always seen itself as an economically successful, yet caring society, prospering from massive trade in raw materials and heavy manufactures (particularly automobiles) to the US. Australia and New Zealand had been, at the turn of the century, at the top of the world league in per capita wealth, and had confidently enjoyed their status as

‘The Lucky Country’ and ‘Godzone’. By the 1980s, these glorious perceptions had met dark reality—each country was in serious economic trouble, and policy-makers felt both as a matter of necessity and of pride, that radical change was the only solution.

TINA: There is no alternative. Time and again, respondents to interviews reported that the TINA syndrome-the perception that there is no alternative-heavily influenced their decision-making. Simply put. Keynesianism was seen to have failed. Whatever its merits at the time, it was at best an anachronistic failure under current conditions. Moreover, the now-obvious failure of centrally-planned economies in the Soviet bloc left policy-makers searching for options. Thus, with central planning discredited, government intervention perceived to be a failure, and with the prophets of free market economics declaring that economic salvation was available for the asking, governments concluded that there was no alternative to the painfiil economic medicine. Whether UNA was in reality true is a complex

30 and controversial question. But that TINA was perceivedhy each government to be true in the 1980s is a definite fact.

Bureaucratic influences. In each country, the role ofthe economic bureaucracy must be examined. It is clear that, whatever policy predilections they may have brought to office, governments in these countries were heavily influenced by the leading officials in the

Exchequer/Treasury—officials who were in this period almost entirely economic rationalists or fiee-marketeers. In many ways the influences were complex and synergistic—some governments came in ready to reform, others grew into it. But in each case, the influence of economic advice coming firom ‘true believer firee market government officials was

unmistakable.

The role o fstrong leadership. Another common element in understanding the policy

revolutions in these four countries is the role played by strong, even domineering, leadership.

The case of Margaret Thatcher is the stuff of legend, and hardly needs additional comment.

But in the other three cases, very strong leaders committed themselves to controversial

policies and were able, largely through the force of personality, to bring their parties and

traditional supporters into line with them. Mulroney did this with the still-controversial issue

of fiee trade in Canada, adopting it as his own personal crusade. Hawke and Keating played

the "good cop-bad cop routine’ in Australia to dramatic effect—Hawke the likeable larrikin

and Keating the razor-tongued, hard-nosed Treasurer. And Roger Douglas made no secret

that he felt the only way to achieve change in New Zealand was to bombard the country with

huge numbers o f dramatic changes and to give effect to them so quickly that the opposition

was continually wrong-footed and unable to respond effectively.

31 International factors. This section addresses the issue of globalization. This is, at the same time, an important and very diffîcult issue to assess. On the one hand, there is no doubt that policy-makers in all four countries responded to what they perceived to be the inevitability o f globalization and world economic integration, and the need for their country to be included in that process or be left behind. On the other hand, accurately measuring the importance of that variable, as indeed with the others, is diffîcult. Respondents differed in their assessment of the importance of international factions—some considered them of ftrst- rate importance, others saw them as factors facilitating and encouraging a process o f change already underway domestically.

This chapter, then, is concerned with similarities. Pursuant to my hypothesis that similar forces and stimuli led to the adoption of similar neolibeial paradigms in these countries, it attempts to discern and explicate these conunon factors. The next chapter, however, is about differences—differences, I argue, directly traceable to differences in party ideology.

Chapter Six attempts to discover the imprint of these partisan differences. In it, I argue that, despite the dramatic similarities between the four countries—similarities in economic situation, economic problems, and policy responses-an identifiable imprint of partisan differences can in fact be found when comparing the policy mix adopted by these governments. Put very simply, parties of the left in Australia and New Zealand did in fact challenge traditional notions of partisan theory in adopting economically rationalist policies.

In so doing, they courted the charge that they had sold out the best in Labour tradition and had adopted wholesale the prescriptions of the right-wii% ftee marketeers. The truth,

32 however, is more complex. This chapter will argue that it is certainly true that the Labour parties of Australia and New Zealand departed, often dramatically, ftom their traditional

Labour roots. However, the policies they adopted were not in all respects the policies that would have been adopted by Conservative parties. Particularly in the field of labor market policy, the Antipodean Labour parties pursued policies that were identifiably Labour.

Specifically, they consistently refused to countenance any labor market policy that could potentially undermine the position of their traditional trade union supporters. The contrast between Labour’s policies in these countries with the agenda of the Conservatives becomes even more apparent when considering the policies o fthe governments that succeeded Labour.

The Coalition in Australia and National in New Zealand have taken the neoliberal revolution much further than Labour was willing to do, indeed right into Labour’s most sacrosanct areas. In short, this chapter will show that neoliberal reform was not a monolithic set of doctrinaire policies before which parties ofboth left and right prostrated themselves. In fact, neoliberal policies were applied in different ways by different parties, reflecting national circumstances, but more importantly, the special sensitivities and traditional constituencies with which each party had to contend.

Chapter Seven concludes by taking up again the issue of partisan theory. Having shown that policy choices varied between the governments of these four countries—and that that policy choice was d ire c tly affected by the partisan character of the party in power—I address the question of how these findings affect our traditional understanding of partisan differences and their effect on public policy. Clearly, the traditional conceptions are not entirely accurate—left-wing parties were willing to do very un-left’ things, even

33 Meapfiogging’ to the right over their conservative opponents. However, this does not mean that partisan differences are meanir^ess or absent, or that this is the ‘^end of history’ in public policy terms. Instead, it shows that parties are flexible enough to adapt their tactics

while still holding on to traditional social goals. The Labour parties ofboth Australia and

New Zealand did resemble their Conservative counterparts in Britain and Canada. They

broke out of the post-war consensual Keynesian mold and adopted signiflcant liberalizing

policies. But, according to my findings, they did it in the p w su it o f traditional Labour or

social democratic goals. To put it quite simply. Labour argued that the goals remain the

same, but that the means must, of necessity, change. This then reflnes traditional partisan

theory. By focusing on policy outputs, analysts have assumed that left-wing parties will

pursue policy A and right-wing parties policy B in all cases everywhere. What my research

shows is that policy choice is much more contingent, less firm, less attached to traditional

doctrine’. Instead, the 1980s showed that specific policy choice is much more pragm atic

and subject to change, at least on the Labour side. For the Conservatives, neoliberalism took

on the form of theology in many cases. But for the left, it was much more a tool to be used

to achieve desirable social ends. Thus, my study concludes that partisan theory must more

clearly recognize the contingent nature of specific policy choices—and instead focus on

policy goals and values as the more permanent, important points of difference between

political parties.

34 CHAPTER 2

PARTIES DO MATTER:

REVIEWING THE LITERATURE, FILLING GAPS AND

GENERATING HYPOTHESES

Diffèrent political parties take differing policy stands. When elected to government, they pursue different policy programs, and these divergent programs produce diSèring policy outcomes. Party differences are not inconsequential, but rather generate and structure political competition in democracies as, at least partly, a contest between competing policy agendas. It is this competition—and the choice it provides voters—which is at the heart o f electoral democracy.

These statements are, on the face, obvious and intuitive. Choice and accountability are only meaningful democratic concepts when competing ofiBce-seekers present voters with a choice'—policy programs that differ hom each other in important ways and which would produce appreciably different public policy outcomes if implemented. As Klingemaim e t a i put it.

Modem politics is par^ politics. Political parties are the major actors in the system that connects the citizenry and the governmental process.... From this perspective, political parties must choose policies. They have to rule, and they have to take responsibility for their decisions. ... For democracy to

35 mean all that it can there must be some policy consequence o felections. (1994,5,48; emphasis added).

Thus the issue of partisan di&rences is of critical importance to electoral democracy.

Whether parties matter is one o fthe ‘concerns that lie at the core of democratic theory.... By changing the partisan hue of those who govern... can voters reasonably expect policy to be changed in more or less predictable directions?... Or is the policy relevance of differences in either political performance or governmental institutions rendered largely trivial or moot by the overwhelming constraint imposed by economic resources or social conditions?’

(Hofiferbert and Cingranelli 1996,594).

This chapter begins by considering the intellectual history of these questions. From widespread acceptance of the assumption o f the consequentiality of party differences, social scientists increasingly turned their attention to an empirical investigation of whether that notion was indeed valid. This then began a debate—between those claiming their findings indicated the unimportance o f parQr differences and those arguing that they found empirical evidence of important différences in public policy between parties. By the end of the twentieth century, the issue had not been fiilly resolved to the satisfaction of all, but such a preponderance ofthe evidence pointed to the importance of party differences that Hofferbert and Cingranelli could claim:

The long-standing logic of democratic theory, attributing policy consequentiality to partisan conditions (party in government, competitiveness, strength of opposition, programmatic stances) has, after initial challenges, stood the test o f time and ever more technically elegant inquiry (1996,607).

36 The first part of this chapter, then, discusses and reviews the question of partisan differences and their impact on public policy. It shows how in the 1960s, underthe influence of sociological theories of politics, the relevance of parties and partisan differences was questioned, and how a number of important empirical studies indicated the low importance of partisan factors in explaining differences in public policy outputs. It then describes the

‘^counterattack’ which reasserted the importance of politics and partisan factors so consistently that, as quoted above, the notion ofpartisan differences is now widely accepted.

The second part of this chapter takes this broad conclusion that politics and parties matter and shows how the heretofore dominant approach in policy studies leaves important questions and issues unaddressed. Simply determining that parties differ in their policy agendas and that these differences matter in policy output is important, but it is not sufficient in understanding the Anglo-American cases, ones in which partisan political differences do not seem to have been particularly relevant- As this study will repeatedly point out, significant differences between the governing parties in Britain, Canada, Australia and New

Zealand during the 1980s did not preclude an oftentimes surprisingly similar move by parties of both the ideological left and right towards neoliberal reform. The general empirical conclusion that parties matter is challenged by these cases-this challenge calls for a more detailed, nuanced analysis than most policy studies provide. It is by focusing on elements often given only scant attention in most of the literature that a deeper understanding of the complex and ever-changing nature of the influence of partisanship on public policy can be had. To this end, this study aims to fill these lacunae, focusing on the often neglected, but critically important fectors as the role of elites and them preferences, perceptions and

37 motivations; the shifting nature of ideological and partisan influences in situations of dramatic economic and political change; the actual process by which policy is made; and the changing relation between ideologically-driven policy goals and the pragmatic means to those ends.

Finally, a set of plausible hypotheses will be generated in this chapter. Attempting to apply the generic finding that ‘•parties matter’ to the Anglo-American cases of neoliberal reform, an attempt will be made to construct propositions which marry this general finding that partisanship is important to these specific cases of reform-ones in which partisan differences seemed much less important than overall public policy similitude.

Do Parties Matter? An Intellectual History

The argument is fairly straightforward: political parties tend to have different bases

of support, rooted in differences between various groups within society. These social groups are sometimes distinguished on the bases o f ethnicity, religion or culture, but in virtually all

societies are based on class or socio-economic differences. Because ofthese socio-economic

differences, or disparities, different groups within society have different material interests

in various public policies. Political parties tend to form around such class groupings and

each attempts to use the democratic political process to advance in ter a lia their class-based

material interests. Terming this electoral competition the expression of the democratic class

struggle’, Lipset argues that.

The leftist parties represent themselves as instruments ofsocial change m the direction of equality; the lower-income groups support them in order to

38 become economically better off^ while the higher-income groups oppose them in order to maintain their economic advantages (I960,229).

In short, the traditional view is that political parties pursue policy programs which are rooted in objective, material differences in the socio-economic status of their prime constituents.

Organized around such cleavages in the early modem period (Lipset and Rokkan 1967), parties continue to model their electoral appeals and policy programs on the perceived class interests of their main body of supporters. Inter-party differences, then, are not meaningless, but rather derive from, and are intended to serve, the interests of varying groups within society. Political conflict, in the view of Lipset and others of this school, is thus the democratic, peaceful manifestation of conflict based on real, socio-economic divisions within society. Whereas in the past, class conflict would have taken the form of political violence and even revolution, democratic systems of government allow for the ‘channeling’ of such demands into peaceful, 'moderate’ forms of political action.

By the 1960s, however, another view was beginning to take hold—that industrialization and modernization generally were narrowing divisions within society, reducing social inequality and consequent social strife, and decreasing the impact and salience of ideolo^ as a structuring force in democratic politics. This 'end of ideology’ argument, initially advanced by Aron (1955), Shils (1955), Tingsten (1955) and Bell (I960), asserted that divisions within industrial societies were diminishing and that both politics and economics were undergoing a process of convergence as afrluence and modernity spread to even formerly disadvant^ed groups within society.

39 Closely related to this notion was the sociologically-based theory that a ^logic of industrialism^ promotes convergence between advanced industrial societies. As modernization takes place and as industrialization becomes the predominant economic and social paradigm in the modem worlds differences between societies begin to narrow as each grows closer to the industrialized ideal. The political consequence of this socio-economic convergence is, as in the end of ideology’ argument, that politics ceases to be deeply conflictual or ideological and that political parties and their programs become increasingly less important and even indistinguishable. Put another way,

... (T)here is a logic of industrialism in which in the exigencies of modem technology and an advanced economy override political factors making for diversity, and progressively shape social stmctures and public policies in a similar mould. The 'end of ideology ’ thesis can be seen as a sub-theme in the growing similari^ of advanced societies in so far as it points to the lessened salience of party conflict, the growing acceptance of a consensus on the middle-ground of politics. ... Where policies and goals can no longer be distinguished, the question of which party is in office ceases to have any practical importance (Castles 1982,6).

In a classic statement of the convergence thesis, Kerr et al. describe the dramatic effects of industrialization as it blurs traditional diSerences distinguishing societies: The differences in language and dress, which themselves are much reduced, are in contrast to the common characteristics produced by the automobile, airplane, tin can, electric lights and power, and other features of industrialization’ (1960, 45). Furthermore, the process of industrialization is a veritable juggernaut, eliminating traditional, local variations o f custom and practice and replacing them with a modem, uniform, industrial consistency. As Kerr et a i put it, '...(a)U industrializing societies respond to the logic of industrialism itself. The empire of industrialism will embrace the whole world; and such similarities as it decrees will

40 penetrate the outermost points of its sphere of influence, and its sphere comes to be universal’ (1960,46). As for politics, %t)he imperatives oftechnology and organization, not the images o f ideology, are what determine the shape of economic society’ (Galbraith 1967,

7).

So even as Lipset in Political Man described the class basis of modem politics—and the programmatic differences it produces—he argued that Western societies would increasingly see the end of ideological fervor as social democratic ideas became dominant:

... (T)he fundamental political problems of the industrial revolution have been solved: the workers have achieved industrial and political citizenship; the conservatives have accepted the welfare state; and the democratic left has recognized that an increase in over-all state power carries with it more dangers to freedom than solutions for economic problems. This very triumph of the democratic social revolution in the West ends domestic politics for those intellectuals who must have ideologies or utopias to motivate them to political action (I960,406).

The implication is clear—politics will continue, but in a muted form. Political conflict will take place, but within much more narrowly circumscribed boimdaries. Issues will continue to be debated between parties and politicians, but they will be about details and administration, the ‘^big’ political conflicts having already been resolved. The dominant social democratic politics will rather be about more or less redistribution, relatively greater or lesser taxation, marginally higher or lower expenditure. ‘^The democratic class struggle will continue, but it will be a f i^ t without ideologies, without red flags, without May Day parades’ (Lipset 1960,408).

Thus, by the mid-1960s, the ‘^end of ideolo^’ thesis and the industnalization- convergence theory had, directly and indirectly, pronounced the death sentence on partisan

41 differences and their continued importance to modem politics. All that remained was for empirical social science to verify these theories and dispatch the victim completely. Such studies were ready to hand.

In a whole series of comparative studies spanning the 1960s and 1970s, a variety of scholars examining public policy outputs in a wide range of countries concluded that differing levels of economic development were the prime explanatory factor in explaining variation in public policy outputs. Ideology and partisan differences invariably came in as very weak also-rans. A few of the many such studies will be mentioned here.

In early investigations ofdifferences between American states in taxation and welfare spending, Dawson and Robinson (1963) and Dye (1966) conclude that once level of economic development is taken into account, the impact of partisan political factors is quite weak indeed. Expanding this type of analysis to a comparative study of 76 nations in the period 1934-1960, Phillips Cutright (1965) makes a classic empirical case for the sociological hypothesis. He rinds that, overall, socioeconomic development is the prime explanatory factor in accounting for the development of social welfare programs. Only at the highest levels of economic development do political factors play a stronger role—a cmcial point he fails to develop, but to which we shall return. In a conclusion closely influenced by functionalist thinking, he argues that political factors—such as democracy and authoritarianism—are of only secondary importance in explaining public policy differences.'

'The counterargument is made by Lenski (1966), who argues that democracy and a more egalitarian distribution of political power inevitably generates demands for improved social services. Thus, democratic nations should provide superior services than non-democratic ones: As the democratic ideolo^ spread, those who govemed had to make substantial concessions in order to avoid massive challenges to their power—

42 It appears that the level of social securi^ in a nation is a response to deeper strains affecting the organization ofsocieQr. Governments may ignore human needs, but there are rather tight limits on the extent to which they may ignore organizational requirements (Cutright 1965,548).

Studies such as Cutright’s, asserting the primacy of socio-structural variables, were reinforced by a variety of other studies with similar findings. Indeed, by the mid-1970s, one could say that the "sociological approach’ was the standard theoretical perspective on difièrences in social policy, in particular, and public policy, more generally.- Typical of these studies were those of Pryor (1968), Rimlinger (1971), Dye (1972) and Hani£f(l976), who all concluded that such socio-structural variables as industrialization, wealth, literacy, and urbanization account for social policy variation better than political or partisan factors.

As Dye put it in his analysis of American public policy.

challenges which would have been costly to resist, and might even have led to their overthrow— Wherever democratic theory has become institutionalized, a dramatic new possibility has arisen: now the many can combine against the few and even though individually the many are weaker, in combination they may be as strong or stronger. With this development, the door is opened to a host o f revolutionary developments in the distributive realm’ (318, emphasis in original).

-It should be noted that Marxist-oriented analysts also took the view that democratic partisan politics was also largely irrelevant in the making of public policy, as both left and right parties are supportive of capitalist modes of production. As Parkin put it in his discussion of the ineffectiveness of left-wing parties: "Socialist parties were initially committed to abolishing the system of ownership and rewards of capitalist society and replacing it with a system based on egalitarian principles. All the major Social Democratic parties in Western Europe have now abandoned this aim. The process of de- radicalization has occurred over an extensive period o f time, but in most cases the final break with traditional or egalitarian socialist doctrines occurred in the 1950s, coinciding with first European taste o f affluence.... (W)henever Social Democrats form the main party o f the subordinate class there is no major political force in society which represents a radical challenge to the reward system of modem capitalism’ (1971,127-8; see also Gough 1979).

43 It makes relatively little difference in the major direction of public policy whether Democrats or Republicans dominate the political scene. ... (P)arties do not have much independent impact on policy outcomes.... A change in par^ control ofthe Presidency or Congress has not resulted in any significant shifts in the course of American foreign or domestic policy (1972,275).

Finally, Harold Wilenslqr’s 1975 book. The Welfare State and Equality, made what is in many ways the classic empirical contribution to the ‘^sociological hypothesis’. In his study, he examines the public policy outputs of 64 countries, ranging firom the United States, with a 1966 per capita GNP of $3542, to Upper Volta which had a 1966 GNP per head of

$50. His findings are simple: the level of economic development of a particular country is the most important factor in explaining that country’s welfare effort. His findings are driven by sociological phenomena: as economic development takes place, demands are placed on the political system to respond to social needs with social welfare provision. This provision tends to improve over time as more and more demands are placed upon it—particularly the needs of an ageing population as life expectancies increase—and politicians respond with enhanced social services. Politics, in Wilensky’s view, is a weak predictor indeed. In responding to social needs, state actors are driven by practical necessity, not ideology. As he sums up the case. Over the long pull, economic level is the root cause of welfare-state development, but its effects are felt chiefly through demographic changes ofthe past century and the momentum of the programs themselves, once established’ (Wilensky, 1975,47).

While the influence of socio-structural explanations of public policy was strong throughout the 1960s and 1970s, there were nevertheless a number of scholars whose work argued for the importance of political factors. As early as 1973, Paige had posed the central theoretical question with which the entire subsequent public policy debate would be

44 concerned: Are political ^sterns to be conceived of as largely determined by the socioeconomic characteristics of the societies in which they are found? Or are they to be conceived as capable of largely autonomous variation which can result in profound economic, social and cultural change’ (1973, 339)? Concerned that politics had lost its

‘primacy’ to the sociologically-minded, Paige bemoaned the relegation of politics to the status of a dependent variable, with political science in general stiffering from a strongly deterministic bias. In his view, the "rediscovery of politics’ was necessary, with ‘political behaviour [being] conceived as both a causal’ and ‘relatively autonomous’ social force’

(343).

Thus, by the mid-1970s, the question as to the importance of partisan politics on the policy process was open and widely contested. On the one hand, the case for the sociological hypothesis that differing levels of social provision were best accounted forby differing levels of economic development had been convincingly made by Wilensky, Cutright and a number of others. On the other hand, however, a growing concern over the seeming irrelevance of politics to public policy—something, as stated above, so central to democratic theory—was leading to a counterattack by those attempting to ‘rediscover’ the ‘primacy’ of politics.

How then to reconcile, or even explain, such conflicting arguments? In concluding his study arguing for the relevance of partisan factors, Dryzek attempts a first cut at why the field had produced such divergent approaches. In doing so, he identifies an important point that Castles and McKinlay (1979a) were shortly to make the centerpiece of their highly- influential article on the subject of partisan effects—that the sample o f coimtries one selects makes a critical difference to the findings. Dryzek argues that the wide discrepancies

45 between the sociological hypothesis studies and the ^politics matters^ argument were due to the fact that studies arguing for socio-structural factors

have in general considered a greater spread of development than that encompassing the industrialized countries analyzed here.... ( A)s development proceeds countries become more egalitarian, but that alter a certain level is reached the extent of any further redistribution depends on the cultural homogeneity of society and the associated strength of socialist movements (1978,408).

Put simply, politics matters among rich, advanced industrial nations, but its effect is completely overshadowed by the wide disparity in socioeconomic development between rich and poor nations in large-N samples. Placing, as did Wilenslqr ( 1975), the United States and

Upper Volta in the same sample allows the huge disparity in national wealth to overpower statistically any partisan effect that may, in fact, be present within a narrower subset of countries.

This seemingly obvious, yet powerful, argument was central to the first o f Castles and

McKinlay’s two 1979 articles that are often held to be classic statement of the 'politics matters’ approach. In them, they systematically test the proposition that socioeconomic factors are more important to welfare provision against the argument that partisan factors are more significant. Like Dryzek, they argue that the sociological hypothesis is mainly supported only by cross-national studies whose samples include countries at widely-differing levels of development:

Virtually every major empirical study that demonstrates a strong relationship between economic development and party outcomes has one very special feature; comparisons are made between states or sub-national units across a wide range of levels of economic development (1979a, 165).

46 Scholars like Wilensky and Cutright had committed an ecological fallacy: assuming that what was true for their entire sample of nations would be true for various subsamples.

However, it was within these subsamples of poor nations, on the one hand, and rich societies, on the other, that partisan impacts would be detectable (Castles and McKinlay 1979a).

Therefore, Castles and McKinlay limit their analyses to advanced, industrial nations, and obtain clear results:

(W)e must conclude that the "politics is irrelevant ' model cannot provide an adequate explanation of the behaviour of public welfare in advanced democratic states. Applied to the commitment to public welfare in these countries, the convergence theory in isolation is invalid (1979b, 177, italics in original).

What they do find is that, consistent with Castles (1978), parties of the right often have a powerful limiting effect on the development o f social welfare provision. As the vote for the major party o f the right in various countries increases, there is a secular decline in the level of public welfare effort Their explanation, then, is tied very closely to the classic theory of parties as representatives of particular groups within society, groups with particular class interests. As they put it

This argument rests on the assumption that welfare confers "equaliQ^ of status’, and that the only section ofthe community which has an unequivocal motive for opposing this type of equali^, given that it may involve a redistribution of income and wealth, is that which is extremely privileged compared with the majoriQr of the population. Where that section of the community exercises power and intellectual hegemony through a political party that does their bidding, this will constitute a major barrier to welfare provision (1979a, 168).

Thus, Castles and McKinlay ‘^demonstrated quite clearly... that as far as the policy Geld of public welfare is concerned, politics, and party ideologr in particular, is of vital importance’

47 (1979a, 171). By showing the methodological reason for the robustness of the sociologically-based findings, they effectively changed the course o f this debate, placing partisanship and the political process into a position of analytical primacy in comparative policy studies (see their recent comment on this work, 1997).

From the late 1970s to today, the field of comparative public policy analysis has literally exploded. Even limiting one's investigation to those studies analyzing the link between political parties and public policy outputs, an enormous and extremely diverse sample is generated. Scholars have found the strength of the right to be a critical factor in public policy outcomes (Borg and Castles 1981; Hicks and Swank 1984b; Castles and

Marceau 1989; Castles 1986,1989,1998a). Others have emphasized the importance of left- wing parties and collective action (Keman 1993; Hicks and Swank 1984a,b; Hicks, Swank and Ambuhl 1989; Hicks and Misra 1983), political institutional arrangements (Blais, Blake and Dion 1993; Huber, Ragin and Stephens 1993), and the limiting effects of economic crisis

(Schmidt 1985; Hicks and Swank 1985). Finally, an entire literature has explicated the effect ofpartisan factors on macroeconomic policy (Hibbs 1977,1986,1992;Tufte 1978,1979; Alt

1985; Alesinaand Sachs 1988; Alesina and Roubini 1990; Alvarez, Garrett and Lange 1991;

Garrett 1995; Garrett and Lange 1989,1991; Alesinaand Rosenthal 1995; Alesina, Roubini and Cohen 1997).

Put simply, the 1980s and 1990s have been a period of intense interest in the relationship between political parties and public policy, with scholars investigating a wide range of relationships, variables, hypotheses, and indicators and producing-inevitably— conflicting conclusions. As Castles and Merrill point out, scholars working in the public

48 policy fîeid have been at no loss to propose and test various explanations of public policy difièrences between nations.

The range of independent variables which have been utilized as predictors of variance in (public] policy outcomes is impressive. The size of the welfare state has been correlated with economic development, the age structure ofthe population, social programme experience, the openness o f the economy, state centralization, the articulation of class protest, the strength and organizational coherence of the trade union movement, and a selection of political variables too numerous to catalogue. Unemployment has been hypothesized to be a function of economic development, economic growth, economic and political integration, labour supply, inflation, the growth of the state, the structure of interest mediation and, again, a host of political factors. It is unnecessary to provide more lists of variables offered as explanations of inflation, strikes, economic growth and income inequaliy (1989,181-2).

Yet, despite the great deal of debate continuing as to the determinants o f public policy and a few notable dissenters (e.g. Rose 1984; Jackman 1980,1986,1987), the vast majority of policy studies in the last tweny years have found significant roles for partisanship in determining public policy outcomes. By the turn of the twenty-first century, the nature of the literature in public policy was, if not tidy, at least somewhat more clear. Scholars had clearly shown the relevance of a wide range of variables. The old sociological hypothesis and its supporters had been shown to be partially right—public policy outcomes cannot be divorced from socio-economic factors that in large part determine the level of a society's need for social services and its ability to pay for them. But, along with a host of other economic, cultural and institutional factors, the partisan hypothesis has become well- established.^ From early studies that vntually denied a role for partisan differences in public

somewhat different type of analysis also confirming the importance of partisan differences came fiom the work of Klingemann e t a i (1994) on party manifostos and their nnpact on government policy. Klingemann and his collaborators conclusively demonstrate that parties in Western democracies do indeed differ in the policy

49 policy determination, the pendulum has shifted to the point where Manfied Schmidt could declare in his insightful 1996 review of the literature:

Regarding policy outputs, there exists a law -like tendency of partisan differences in public policy: cross-national variation, and within-nations differences, in public policy are significantly associated with—and by inference, dependent upon—difièrences in the party composition of government. Furthermore, a change in the party composition o f government is associated with—and by inference causally related to—changes in policy choices and policy outputs (156, emphasis added).

In short, politics, and party differences in particular, matter a great deal. What Mitchell contends about the relative importance of socio-economic and political theories has been demonstrated repeatedly and convincingly:

The stage of economic development sets the conditions and imposes restrictions on policy making, but it does not mandate the adoption of a particular policy or the specific content of that policy (1983, 180).

Despite the general finding that "politics matter’, the field was still plagued with a seemingly endless merry-go-round of analyses, reanalyses and debates over measurement and operationalization. As Amenta put it in a 1993 review of the social policy literature.

This informational territory has often resembled a battlefield, with researchers sending waves of hypotheses across it, hoping to claim sovereignty for one theory or another. Typically, the rule of left-wing or social democratic’ political parties has emerged triumphant with the greatest explanatory power from regression tests. Nevertheless, factors derived from socioeconomic, statist, pluralist, social insurgency, and Christian democratic theories have each won the occasional explanatory battle. No theory has yet won recognition as the sole legitimate solution, because proponents of theories that lose a test often claim that their ideas were unjustly undermined by unfair operationalizations or inappropriate analyses (752).

declarations they make, and that those differences are not unimportant. Parties take diverging positions on unportant issues and, once elected, most parties attempt to enact their stated policy commitments, producing real, significant differences in policy output.

50 Given this anarchic complexity, a few scholars have argued for a partial change in direction. Acknowledging that the quantitative, cross-national analysis has been a gold mine of information, enabling us to identify important factors in policy determination, they contend that even more insight can be gained by a different methodology—the close examination of a number of important cases, attempting to analyze comparatively how their unique political, historical, institutional and cultural development may play a role in producing public policy outcomes unique to that country or set of countries. Manfred

Schmidt makes this point in what is considered an important attempt to marry the sociological and partisan approaches to public policy. In this 1989 article, he attempts first to allow socio-structural variables to account statistically for policy differences between a variety of countries, rich and not-so-rich. He finds that approximately seventy-five percent of the variation in policy output can be accounted for by socio-economic factors like wealth and economic development But he contends, it is within the twenty-five percent remaining variation that political factors do indeed play their role. Arguing that twenty-five percent variation is not inconsequential in the formulation of real-world policies, he makes the case that those outlying countries in his analysis—those which, given their socio-economic characteristics, over- and under-spend on social welfare-can best be understood by close historical analysis, attempting to understand the historical trajectory whereby these countries, and their public policy profiles, came to deviate from what the regression equation would

‘predict’. (See his review of the 1989 article in Schmidt 1997.)

51 Castles and Merrill (1989) make much the same argument for investigating historical trends in a manner more closely resembling the ^thick description'* o f classic case study analysis. They identify the fact that the English-speaking countries have a unique set of public policy characteristics—chiefly the fact that Britain, the US, Ireland, Canada, Australia and New Zealand are welfare state laggards, providing substantially less in social services than would be expected given their rank on important other factors such as economic development and national wealth. Attempting to identify the cause of the ‘awfvilness’ of the

English-speaking countries, they provide an initial analysis based on their hypothesis that these countries share a common historical trajectory. Aiming to provide a prototypeof such analysis, they consider what possible constellation of national, geographical, institutional, cultural and historical characteristics could possibly have produced this set of nations with

^awfid’ social provision. They do not claim to have found a definitive answer, but rather make a strong argument for further, more finely-grained analysis.

The challenge was, in fact, taken up by Frank Castles and his collègues in the 1993 edited volume. Families o f Nations. In it, Castles argues for taking comparative public policy analysis in this new direction-complementing quantitative, cross-national analysis with country-specific, historically-based studies. He puts the case this way,

... historical events and their assimilation into an individual nation's accumulative policy experience can decisively shape policy outcomes fiir many decades thereafter... [and] a failure to contextualize policy decisions in the particularify of their historical context renders them substantially incomprehensible to contemporary observers (1993, xiv).

■‘The term is Geertz’s (1973).

52 Thus, the traditional battery of variables employed by a generation of scholars to explain public policy outcomes and differences between nations—a battery largely organized around competing sets o f quantifiable socio-economic, political, and institutional variables—only takes us so far down the path of a full explanation. Recognizing, as did Schmidt (1989), that there remains a core o f‘imexplained variance’—a critical component to the shape of public policy in a \'ariety of countries that remains unexplained by typical large-N quantitative analysis—Castles argues that much of that variation is likely to be critically important. And, he asserts, that variation is possibly only uncoverable through more finely-grained historical analyses that recognize common historical, political and institutional developmental trajectories between nations (what he calls the ‘families of nations approach’).

FQiing Lacunae

Clearly, the Anglo-American cases o f neoliberal reform represent such instances of

‘unexplained variation.’ Partisan theories of public policy do not predict parties ofboth right and left adopting policies usually associated with conservative parties. Taking as a springboard, then, Schmidt’s and Castles’ calls for more fine-grained, detailed analysis, this study departs in at least five main ways fiom most public policy studies, explicitly examining how the partisan-based pattern of policy outputs is much more than the incidental outcome of constellations o f socioeconomic variables.

First, this study is systematically and explicitlyelite-centered. Unlike virtually the entire literature on partisanship and public policy, this study examines the role of political elites in shaping the impact of ideology on actual policy programs. Most studies in the

53 partisanship genre are large-N statistical analyses of a range o f countries. As such, they are essentially correlative—demonstrating that there is statistical evidence ofcovariation between some measure ofpartisanship or ideological influence, on the one hand, and particular public policy outputs, on the other. Usually, the political par^ is assumed to play the role.

Parties are, at the same time, both bearers o f an ideological tradition and implementers of that ideology once in government This link is nearly always assumed, but rarely articulated and investigated.

The reasons for this implicit use of party as a linkage between ideology and policy are understandable. Parties are easily identifiable and relatively coherent political institutions with some degree of permanence on the political scene. Furthermore, parties tend to have fairly stable, consistent ideological commitments that shape their electoral appeals, policy programs and, if elected, governing agendas (Klingemann, er a/. 1994). As such, parties are an easy shorthand—a reified concept enabling analysts to link ideology to policy.

But they are reified concepts, nonetheless. They do not themselves possess ideologies, nor do they run campaigns, form ministries or govern countries. Individuals do- party leaders to be sure, but individuals all the same. Parties are usually collections of individuals with competing agendas, interests and ideologies, in some instances organizing themselves into factions which structure these intraparty differences (Sartori 1976; Belloni and Belief 1978). Within this competitive intraparty environment, then, leadership becomes important. One need not subscribe to the view that parties are necessarily arenas for oligarchic, authoritarian rule à la Michels (1962) to admit that individual political elites can

54 often exert tremendous power and influence within them—influence usually strengthened once a party accedes to office (Laver and Schofield 1990; Mitchell 1999).

Given this leadership influence, there is no reason to believe that elites do not play key roles in translating ideological tenets into public policies. The ways in which elites can

‘matter’ are numerous. Chief among them, though, is how elites attempt to actualize ideological commitments into a governing program. Elites may be ‘true Ijelievers’ in the party's traditional ideology and thus attempt to implement its imperatives wholeheartedly when in office. However, such elites, while committed to the ideology, may emphasize, downplay or even ignore elements of that program in the name of some more pressing concern, such as electoral success. Conversely, parties may be led by elites unconcerned with, or even opposed to, the party's traditional partisan stands. Their influence may be to discount, or even seek to change, such partisan commitments in order to more closely match their own predilections. The possible variations are endless. One need only think o f recent leaders of the British Labour Party to see how leadership affects a party's partisan stance—

Michael Foot, the traditional left-wing socialist; Neil Kinnock, the cautious left-wing reformer; Tony B lair, the agent of radical centrist transformation. Recognizing the critically important yet often overlooked influence which key political elites can have on public policy­ making, then, this study attempts to fully and systematically consider the motivations, perceptions and interests of important elites in the Anglo-American cases and to assess their impact on the shift to neoliberal reform.

A second area in which this study seeks to go beyond traditional cross-national policy studies is in considering the impact o fpolitical and economic change on the nature of

55 partisan influences on public policy. Specifically, how do a variety of changes in the political and economic environment in which governments operate alter the relationship between partisanship and public policy? Most extant public policy studies have been relatively static in their fundamental approach. For them, the question has been framed largely as whether partisanship matters in the abstract, neglecting the possibility that the nature of the partisan stimuli may change given shifts in the external environment. There have been exceptions, however. Schmidt (1983, 1985, 1986), for example, has considered whether the impact of partisanship is stable despite changing economic conditions.

Specifically, he investigated whether the impact of ideolo^ and partisan diûêrences was strong and stable throughout the post-war period, or whether that influence changed over time, particularly during the economically turbulent years of the 1970s. His findings were important, in that they indicated that the impact ofpartisanship was not constant. During and following periods of economic crisis, like the oil shocks of the 1970s. the impact of partisanship was much less, if at all, discernible. What had been a strong influence before the period of economic crisis became a decidedly weak one with the erosion of the ability to easily manage their economies in order to achieve their desired ends. As economic conditions worsened, governments were compelled to respond to the crisis, often with policies at variance with their ideological predilections. Partisanship, then, had a variable impact—important in periods in which governments had greater policy discretion, less in times of economic stringency.

While this conclusion did not go uncontested (see, e.g. Castles' (1986) rejoinder to

Schmidt), it did at least represent an attempt to introduce the notion of change into a

56 relationship that had been conceptualized in relatively static terms—the impact ofpartisanship

went firom being analyzed in terms of whether it existed or not, to whether, when, and under

what conditions, it would be important. However, the question of when partisanship matters

overlooks the equally critical issue of how partisanship matters. Schmidt investigated

whether partisanship had similar effects in different periods of time—but the dependent

variable, so to speak, the existence o fthe effect, was the same. He found that tight economic

conditions had prevented the full implementation of various governing parties' ideological

programs. But the nn/ureofthe left-right difference was assumed to be constant: left-wing

parties were assumed to be in favor of economic redistribution and social justice through

higher government spending, regulation, taxation and so on. The converse was assumed for

right-wing parties. Put differently, these studies simply showed that govermnenfs abilities

to implement their desired policies were limited by economic crisis, but they did not consider

whether the set of desired policies itself had been altered by changing conditions.

This study aims to do just thaL Going beyond the demonstration that 'politics

matters’—a well-documented, though fairly unexciting finding-this study examines whether

the nature of the partisan influence itself is different. Simply proceeding on the assumption

that left-wing parties pursue interventionist, redistributive policies while right-wing parties

support deregulatory, fi%er-market policies may overlook important shifts in the ideological

and partisan character of these parties.^ The Anglo-American democracies, for instance.

*As Hans Keman put it, \.. the question... is not so much concerned with whether ’politics’ plays an important role in steering the state and in managing socie^, but more with the way it does this, and with what effect' (1997,161, emphasis in original).

57 would seem to indicate that these standard assumptions about what right- and left-wing parties ‘want^ may no longer be true, or only partially so. The fact that left-wing parties in the Antipodes pursued policies which scholars normally associate with right-wing parties calls for a re-examination of whether partisan influences change over time-that is, not just whether they are more or less present at particular times, but whether the partisan orientations o f parties themselves change and thus bring about such policy puzzles as we see in the Anglo-American cases.

Such changes could be brought about by a variety of factors. Politically, parties' core constituencies may undergo change, leading them to support different policies than those traditionally pursued. A prime example would be rising afQuence within a Labour party's traditional working-class constituency, leading the party to shift and adapt its programmatic appeal to fit the changed circumstances. Economic change may also alter the nature of partisan effects. Parties may come to recognize that traditional policies are anachronistic in a changed economic environment and conclude that the interests oftheir constituents are best served by a shift to new policy positions. The possibilities are legion, but the fundamental point remains: there is no reason to assume that partisan differences between left and right will be stable, unchanging or consistent. Change is possible—and this study will attempt to take that possibili^ into account in explaining policy responses in Britain, Canada, Australia and New Zealand..

Closely related to the changmg nature of left-right differences and their impact on public policy are changingperceptions o f means and ends. The public policy literature has, as with right-left differences, largely operated as if the relationship between parties' desired

58 ends and the means they use to achieve them is relatively unchanging. Thus, not only were parties' goals assumed to be relatively constant, but the actual policies parties use as means to those ends were treated as static as well. For instance, socialist parties were assumed to be motivated by such goals as redistribution of wealth and it was natural (and empirically valid) to assume that such policies as progressive taxation and high social spending would be employed to achieve those goals. The literature thus largely took for granted both the goals of left- and right-wing parties, as well as the policy instruments they would utilize to achieve them.*

There are, however, good reasons for opening this coimection up to careful examination. One need not assume that, given a particular ideological goal, parties will be constrained in their choice of policies designed to achieve that end. While certain means and ends do seem to ^hang togetheri in modem industrial societies—for instance, progressive taxation is often a tool for redistribution, as deregulation is utilized in the name ofeconomic efficiency—there is the clear possibility that change-oriented, reforming parties could seek to break out of the conventional mold and go in search of new policies designed to achieve their traditional goals, but by new and innovative means. One would particularly expect to see such a decoupling o f traditional means and ends in periods when, for whatever reason, traditional policies do not seem to be producing desired social outcomes.

Given this possibiliQr, this study will examine the nature of both means and ends.

Change is possible in either, or both. Goals and the means to them may remain constant—

*A noteworthy exception is Frank Castles' analysis o f home ownership as an alternative to welfare state provision (1998b). See also Castles and Ferrera (1996).

59 traditionalists of both left and right may prefer the accepted policy orthodoxy and resist change. Conversely, leaders may reexamine traditionally-held beliefs about the proper means to accepted policy goals and even initiate radically new policies-ones that appear to break with tradition, but ones, leaders argue, are in the service of traditional goals (see, for example, Douglas 1980,1993). And finally, there is the possibility that perception of proper means and ends can change. While party ideology tends to be ‘sticky’ and resistant to large- scale change, it is by no means fixed and is conceivably open to alteration by reforming leaders (Blondel 1987; Klingemann e t a i 1994). This dissertation examines all these possibilities—throwing open the door to the possibility that parties, their ideologies, and their traditionally-employed policy tactics may all undergo substantial change.

The possibility of change in goals, means, ends and overall ideological stance cannot be dissociated fiom another lacuna in much of the partisanship literature-rAg impact o fideas.

Ideas have reemerged as a topic of analysis in a variety of policy studies, from foreign policy

(Goldstein and Keohane 1993) to economic policy (Hall 1989). Yet they have been largely absent from most of the ‘does politics matter’ literature.^ This absence is entirely understandable. ‘Ideas’ are notoriously ‘slippery’ things, and adequate quantitative measurement and assessment of them is extraordinarily difficult

Yet, despite not being amenable to large-K, cross-national research, the importance of ideas about what constitutes appropriate economic and social policy is nonetheless present Returning to the previous discussion of elites, it matters what elites think, what they

^Exceptions, such as Castles and Merrill (1989), recognize that ideas help structure both definitions of social problems as well as de&ie appropriate responses to them.

60 believe to be appropriate policies for their particular countries at particular times. As King

(1973) demonstrated for the US and a number of European nations^ ideas about the nature of one's society, about the individual rights vs. collective responsibilities, about society and how it operates, about how economies work and the laws' that ‘^govem' them, can all have important, and identifiable, influences on how decision-makers perceive policy problems and go about crafting appropriate policy responses to them. Moreover, change is possible here as well. The most obvious example of such a change was the widespread shift from a conscious and explicit pursuit of Keynesian policies in the 1950s and 1960s in many countries to a greater skepticism about their usefulness and a shift to such alternatives as monetarism in the 1980s (Hall 1989). A shift had occurred, not in ideolo^per^e, but in the ideas which influence the perceptions and judgments elites make in formulating policy. This dissertation aims to consider the potential impact of such ideas, as well as the impact that changes in those ideas can have.

Finally, the aforementioned lacunae in the literature which this study attempts to fill— a focus on elites, on change, on the relationship between means and ends, and on the role of ideas-all point to the need for a more detailed look at the process by which policy is made.

This does not mean, in the context o f this study, examining solely the bureaucratic channels and structures through which an actual policy decision is made. While such an examination is not necessarily excluded, what is meant here by process' is the larger constellation of economic, political, and even personal, factors which combine to produce a particular policy decision.

61 Such factors are not a prio ri easy to catalogue. They could conceivably include such divergent factors as electoral politics, the timing of elections, the nature of intraparty competition and factionalism, the interplay between government and civil service, the nature of pressing economic and social problems, and the perceptions, motivations and interests of political leaders. In a way nearly impossible to specify in a general model, these and other factors combine to produce an output we call ‘public policy^. While messy and complex, these factors are present nonetheless. And it is these factors which largely account for the

'unexplained variance’ that Schmidt and Castles identified. Large-N, cross-national correlative studies can tell us a lot about the nature o f the relationship between partisanship and public policy outcomes in general. They can identify the ‘central tendency’ in policy output of right-wing parties versus that of left-wing parties. But it is in the unexplained variance’—those policy outcomes not predicted by simple theories and assumptions of left- right differences—that the real complexity ofpolicy-making is to be found. As this study will reveal, the Anglo-American cases fall, in many respects, into the category o f‘unexplained variance’ ; they represent an error term in the standard equation describing what left and right parties do. Therefore, following the calls of Schmidt and the example of Castles e t a l., this study attempts an explanation of that ‘unexplained variance’ by examining in a close, ftne- grained way the ways in which both right and left in the Anglo-American democracies came to such apparently similar public policies.

62 Generating Hypotheses

Having considered in some detail the development of the partisan hypothesis, as well as ways in which this study seeks to go beyond the dominant approach in cross-national studies so as to provide a more detailed account of the impact of partisan differences, it is now time to derive from that literature hypotheses that can be directly applied and assessed in the cases of neoliberal economic reform in Britain, Canada, Australia and New Zealand.

As stated repeatedly above, it would appear on the face of it, that the partisan thesis is challenged by these cases. Under both parties of the right and the left, governments in these countries pursued significant policies of neoliberal reform—policies that, particularly for the

Antipodean Labour parties, marked a significant and decided break with previous parQr policy. Thus, the question is legitimately raised—what was the role for partisan differences in these cases? Were they present? If so, how? And if not, why not?

In an attempt to integrate the very clear findings of scores of empirical studies that

'politics matters’ with the seemingly counterintuitive phenomenon of market-oriented economic rationalization in the Anglo-American democracies, the remainder ofthis chapter will articulate a number of plausible hypotheses. These hypotheses are an attempt to address the issue of neoliberalism within the context the findings of the above-cited literature, to set the theoretical stage for the empirical analysis which is to follow.

First, and most obviously, this chapter has been at great pains to point out that the notion that politics, and diftëring political parties, matter has received thoroughgoing and convincmg theoretical and empirical confirmation. Thus, we should expect to see party differences "mattering ' in the Anglo-American cases. Even though it appears, on the face o f

63 it* that party differences* traditional ideologies* and historical class-based constituencies did not produce the differences in policy output which one would expect* the overwhelming conclusion of the literature is that party does in fact matter. This leads us* then* to examine ways in which party did matter in the Anglo-American cases—ways in which the neoliberal reforms pursued by each governing party bore the distinguishable imprint of partisanship.

Second* if such differences can be identified* we would expect them to be in areas o f special interest to the parties historically, and to their traditional constituents. In other words* we should be most likely to see differences between parties in policy areas that touch upon each party's ‘sacred cows’. While one can imagine a situation in which parties converge and take similar policy positions on issues that are relatively marginal to their main policy concerns* we should expect to see greater differences—and a greater reluctance to change policy stances-on those issues to which a party has traditionally been strongly attached. Based on the studies cited above, for example* we should expect to see left-wing parties to be most concerned about—and unwilling to change traditionally-held positions in - such areas as social welfare* redistribution* equal opportunity and social justice. Right-wing parties* by contrast* should be most reluctant to abandon traditional positions in areas o f most concern to their constituents—issues related to protection of property, wealth, business regulation and rural assistance.

Next* we should expect to see changes in policy positions—specifically on "sacred cow ’ issues—to come only with change in a party's traditional constituency. As has been discussed in this chapter* the basis o f the partisan thesis is that parties seek to enact policies beneficial to their traditional supporters and are averse to policies perceived as detrimental

64 to their interests. Thus, major change of policy positions should only be possible, let alone likely, once a p a ir's traditional base o fsupport has been transformed in some important way.

For example, a traditionally rural-based party might be enabled, even encouraged, to undertake policy revisions as its traditional rural constituency becomes more urbanized. The same could be said for rising affluence and gentrifîcation within leftist parties, to take another example. Whether such constituency change is sufficient for policy change is an open question, but the literature reviewed here suggests it is a necessary condition.

Change, however, is likely to be controversial. Parties and their traditional social bases do not change overnight Rather the process of change is likely to be slow, gradual and not uncontested by those resisting policy iimovation. This then opens the door to leadership effects, something that has not received systematic attention in the literature reviewed here.

It is most likely that as parties and their bases o fsupport change, there will arise factions

(loosely defined) within parties advancing and resisting the cause o f change. These movements are likely to be elite-led, as different elements of a party's leadership take differing positions on the need for change, and attempt to recruit grassroots support for their particular position. One of the prime sources of debate is likely to be between leaders' various definitions of what constitutes the party's herd of sacred cows, which ones must be preserved, and which ones are to be culled.

Opposition will not only occur within parties, though. The ‘^parties matter’ literature clearly demonstrates that differing policy positions constitute the nature of political competition in democratic systems. Basmg their programmatic positions on their own social bases of support, the literature implies, opposition parties w ill be vigorous in opposing

65 policies deemed detrimental to this core constituency. Furthermore, it will be the sacred cows that will prove to be the flashpoints of political contestation. In the case of neoliberal reform, then, we would expect to see traditional Labour parties arguing against reform that militates against the cause of redistribution and social justice, while conservative parties can be expected to support reform, but not in areas likely to harm its traditional supporters. Put simply, the entire approach of both supporters and opponents of neoliberal reform is likely to be highly-conditioned by an acute awareness of the impact such reform will have on their traditional supporters.

Finally, change is to be expected. But the change is likely to be influenced by strong partisan considerations. Put differently, nothing in the literature on partisan effects leads us to assume that change is impossible, or even unlikely. Rather, politics and the economic and social imperatives to which politicians respond are always in flux—a point reminiscent of the early developmentalists and their emphasis on the changing nature of social needs.

But partisanship and traditional preferences and ideologies should be a source of ^stickiness’.

Parties change, but they do not do so haphazardly or randomly. Instead, change will come in ways heavily influenced by a party's history, traditional ideology, bases of support and internal ‘^culture’. Even in the process of change, then, the hand of partisanship weighs heavily. As Klingemann and his collaborators argue in their analysis of party manifestos, parties are not inflexible, unchanging political institutions impervious to political conditions.

Such parties rarely last past the next election. But their change is conditioned by their past, by the kinds of ideological, historical and cultural factors that make them what th ^ are today:

66 Left patties take leftist stands, flight parties take rightist stands. And center parties wander about in the middle. All keep somewhat to their own turf, yet they sustain sufBcient flexibility to accommodate to the evolution of voters' aspirations and the needs of new times (Klingemann, e t al. 1994,254).

It is that complex interaction between traditional ideological positions and the perceived need

for significant public policy change which will be the key focus of the succeeding analysis of neoliberal reform in the Anglo-American countries.

67 CHAPTERS

PRELUDE TO REFORM: THE POST-WAR POLICY PARADIGM

AND THE ECONOMIC TURMOIL OF THE I970S

The Anglo-American policy reforms of the 1980s were without question dramatic and in many cases thoroughgoing. As will be illustrated in the next chapter, both Tory and

Labour governments adopted policies which, in many important respects, represented significantly new directions in economic policy. These changes, however, are even more remarkable when considered in the light of each country's previously dominant policy paradigm. The reforms effectively reversed many long-standing, venerable public policy traditions—some dating from the early post-war years, others from the founding of the countries themselves. Neoliberal reform was dramatic precisely because it so effectively reversed what had been considered by most to be fairly sacrosanct economic policy assumptions and approaches. It is the task of this chapter to trace the major features o f those pre-l980s traditions of public policy.

In the first part of this chapter, the dominant features of post-war public policy in

Britain, Canada, Australia and New Zealand will be described. Here the emphasis will be on outlining the most important characteristics ofwhat is often referred to as the ‘^consensus^

68 period of post-war politics—that is, that period after the Second World War in which economic policy in many countries seemed to revolve around a shared commitment to

Keynesian demand management, some form of active state economic intervention, and the funding of an sizeable social welfare state. Obviously, no two countries were exactly alike in all respects. Facing their own peculiar problems and with unique histories, political cultures, geographies and general economic conditions, each country adopted policies specially tailored to meet its own unique circumstances. The first part of this chapter, then, will attempt to outline the areas o f similarity in approach and philosophy between the four countries, while also pointing to those areas of uniqueness that formed part o f the national policy tradition that would be definitively reshaped by the experience of the 1980s.

The second part of the chapter addresses the immediate pre-reform period—that is, before the accession to power of the reforming governments discussed in this dissertation.

The reason for this more detailed account will become clear in succeeding pages: by the time each ofthese reforming governments came to ofiice, economic conditions had significantly worsened and stood in sharp contrast to the boom times of the 1950s and 1960s. In fact, in all four Anglo-American democracies, the 1970s and early 1980s were a time of significant concern among policy-makers. Economic conditions continued to deteriorate despite the best efforts of governments to control them. As governments struggled to understand and influence economic events during this period, it became clear that the facility with which governments had managed their economies in the past no longer obtained in this new environment In the post-oil shock world, the old certainties had been lost and the door was opened for reforming governments to experhnent with new and different policy directions.

69 The chapter concludes, then, by setting the scene for the reforms of the 1980s, to be discussed in Chapter Four.

The Dominant Post-War Economic Paradigm

In examining the dominant pattern of post-war economic policy in the Anglo-

American countries, it makes most sense to begin with Britain. Long touted as the quintessential example ofconsensus politics' (Kavanagh and Morris 1989; Beer 1969,1982),

Britain serves as an excellent example of most of the important features of the Anglo-

American policy paradigm. The other countries considered here resembled Britain in various ways, and to varying degrees. But the archetype remained, in large part, post-war Britain.

However, despite these similarities, the other countries also evinced unique patterns o f public policy themselves, each adapting to the peculiar economic and social challenges it faced.

Thus, Canada, Australia and New Zealand significantly modified the general pattern and developed unique policies suited to their own particular circumstances. After a general discussion o f the British case, those peculiarities will be considered in closer detail.

Britain

While the origins of post-war British economic policy can be traced back far further, the most proximate cause of the dominant consensus was the Attlee Labour Government o f

1945-51. Coming out of the Second World War and taking office alone for the first time as a majori^ government. Labour set about recasting British socieQr and the British economy into Arms which would structure future governments' policies for decades (Caimcross 1992).

70 With few exceptions^ the Attlee government's policy changes would be maintained as dominant elements in economic policy by both succeeding Tory and Labour governments.

Despite long periods of Tory rule—under Churchill, Eden, Macmillan, Douglas-Home and

Heath (1951-64, 1970-74), the basic pattern remained.

This basic policy pattern consisted o f at least four fundamental elements, shared to varying degrees by the other Anglo-American cases. ' First, the British post-war model was fundamentally that o f a mixed economy, involving a significant degree of public ownership of large industries. Throughout the post-war period, significant parts ofBritish industry were owned and controlled by the state. It would not be until Margaret Thatcher's massive program ofprivatization, in fact, that this pattern would be definitively reversed. The origins of public ownership and the notion that socially-responsible economies involved large-scale state ownership, particularly in industry, can be traced directly to Clause IV of the old 1918

Labour Party program, a provision that committed the party to public ownership of the

'means of production, distribution and exchange.'- This provision was put into effect in earnest by the Attlee Government after 1945. Building on a pattern of extensive state interventionjustified by the exigencies ofworld war, the Attlee government proceeded, firom

1946-1949, to nationalize the Bank ofEngland, the coal industry, civil aviation, road and rail transport and haulage, the electricity and gas industries, and the iron and steel industry

^This discussion is based in part on Kavan%h and Morris (1989), who set out a similar enumeration of consensus characteristics.

^A clause which would remain in this ftjrm until the reforms o f the Labour ParQr led by Tony Blair in 1995.

71 (Morgan 1984). By the time the Tories returned to government in 1951, fully 20 percent of the British economy was in state-owned hands (Kavanagh and Morris 1989,26).

Succeeding governments tbmugh to the 1970s essentially left this government-owned industrial structure in place. Even the Conservative Party, which occasionally opined about the desirability of private enterprise and ownership, did little before 1979 to substantially reverse the mixed economy. The only significant industries it managed to privatize—or in the lingo of the period ‘denationalize’—before the Thatcher era were the iron and steel and road haulage industries, returned to private ownership by the Churchill government in 1953 and 1954, respectively. However, when Labour acted to renationalize steel in 1968, the succeeding Conservative government of Ted Heath not only declined to reverse the move, but eventually felt compelled, in the hope of saving endangered jobs, to nationalize the ailing

Rolls Royce and the Upper Clyde Shipbuilders. Thus, through a combination of philosophical commitment on the part of Labour and pragmatic acquiescence on the part of the Conservatives, Britain remained, until the 1980s, a very mixed economy, with large swathes o f public ownership (Beer 1982, Forman-Peck and Millward 1994, Gamble 1988).

A second major characteristic of the post-war British economy was the widespread acceptance of the notion that the state has a significant responsibility for the provision of social welfare. At a minimum, this social welfare state was to provide and care for those in society least able to care for themselves—in particular, the young, the old, the sick, the unemployed—and in its more generous forms, social welfare was to entitle all members of society to state benefits and would serve as a mechanism by which some measure of

72 redistribution of wealth could take place (Esping-Andersen 1985, Marshall 1950, Castles

1978).

In Britain, the concept of state provision of welfare was not new. Its antecedents could be seen in such public policies as the 19th century poor laws (Layboum 1995). But the real emergence o f the modem British social welfare state took place after the First World

War. In those years, all political parties accepted the basic notion that the state had the responsibility to care for those in the most dire need and with no other source of assistance.

Hence, the state undertook to provide such benefits as pensions, health and unemployment insurance, and poor relief for those most in need. However, it was the Second World War that most advanced the primary concept of post-war welfare: that all citizens are entitled to at least some basic level of benefits fi'om the state. In this regard, the key development was the publication in 1942 of Sir William Beveridge’s Report on Social Insttrance and Allied

Services. In it, Beveridge’s committee recommended the integration and consolidation of existing social welfare programs—ones which were spotty and non-universal in coverage— into a comprehensive system of national insurance which would protect all citizens ftom cradle to grave’. Benefits were to be provided universally by a system in which citizens would contribute; those unable to pay the national insurance premiums would receive ‘^ftee’ means-tested benefits (Beveridge 1942; Hills, Ditch and Glennerster 1994).

In the event, the Second World War delayed the implementation of Beveridge’s proposals, but it created the environment of social solidari^ and egalitarianism that resulted in all-parQr acceptance of this much-expanded role for the state. Upon taking office in 1945, the Attlee Labour Government set about implementing the major elements o f Beveridge’s

73 proposals, of which the most significant was the creatioa of the National Health Service in

1946. This system of universal, essentially free health care was remarkable in a number of ways; it was, and continues to be, financed out of direct taxation, enshrining the notion of health care as a right accruing to all citizens, not something subject to special payments or contributions; its creation was essentially supported by both Conservatives and Labour, in principle, if not in actual detail; and it quickly became the hallmark of the British welfare state, coming to be viewed as the sacrosanct cornerstone of the British system of welfare

(Klein 1983). Governments threatened the NHS at their political peril and all felt compelled to proclaim their commitment to, and generosity towards, the system of national health care.

Speaking of the Conservative Party’s commitment to social welfare, a former Heath and

Thatcher minister put it,

[It] had been very shaken by its defeat of 1945 which occurred largely because it was seen as the party of unemployment, separated from the lives of ordinary people. And their first reaction, which was quite skillfully done by RAB Butler and others was to say, ‘Oh, no. We believe in the welfare state and we will maintain it and we believe in good relations with labor and we will maintain them.’ And they did, of course ... (Personal interview, London, 24 June 1997).

As this statement indicates, a similar attitude existed with regard to the other areas of welfare policy largely created by the Attlee government. Across the political spectrum, the system of unemployment insurance, old age, retirement and disability pensions and educational benefits enjoyed nearly universal support for most of the post-war period. The social policy phenomenon worked quite simply: Labour govermnents often took the lead m promoting welfare benefits and services, usually with an element of redistribution or

Teveling’ attached, and succeeding Conservative governments did virtually nothing to check

74 or reverse the expansion of social services. In fact, social welfare proved to be such a permanent and enduring plank in the post-war policy consensus in Britain that, as we shall see, even the Thatcher government refused to introduce deep cuts and, to the contrary, boasted of its willingness to expand social spending throughout its term in office (Thatcher

1993,603; Pierson 1994; Savage and Robins 1990).

In this platform of consensus economic policies, a third key element was the commitment ofBritish governments to hill employment and their use of Keynesian demand management policies in order to achieve it. According to Hall, the British commitment to full employment was virtually unmatched anywhere else in the Western world (1986,71).

The 1930s had, in Britain as in most of the industrialized world, been a period of high unemployment and economic orthodoxy. On the one band, the Great Depression produced appallingly high levels of unemployment throughout Britain, but was particularly vicious in poor, industrial areas of the North and in Wales, where unemployment rates reached levels of well over sixty percent (Mowat 1955,465). However, governments ofthe time, including the Labour government of Ramsay MacDonald, believed the best economic medicine was tight budgetary controls and restraint of government expenditure. In the context of worldwide depression, of course, such policies only worsened a situation of crisis proportions (Mowat 1955, Stevenson and Cook 1994).

Two events combined to mark the passing of high unemployment and the adoption of conscious government policy to achieve full employment. One was, simply, the Second

World War. With the country straining to produce as much war materiel as possible, every able-bodied adult was seemingly put to work in war-related mdustries and thus

75 unemployment simply ceased to exist. Within this context, the work of John Meynard

Keynes came to the fore. In the aftermath of the onset of the Great Depression, his work— principally The General Theory o f Employment, Interest and Money—xoade the case for govemment-Ied reinflation ofthe economy at times of economic downturn. Keynes argued that most economic downturns were consequences of insufficient economic demand— something that could be remedied by judicious government intervention. Government expenditure and taxation, in this view, could be tailored to produce the optimum level of consumer demand, and thus provide the economy with requisite boosts or restraints as circumstances warranted. In this way, economic conditions could be more effectively controlled and unemployment—the bane of the 1930s—largely eliminated^ (Keynes 1935,

Schott 1982).

Enjoying full employment based on war production and with a Keynesian employment-generating method seemingly, to hand, the wartime coalition government pronounced in its 1944 White Paper on Employment that one of the primary aims and responsibilities [of government would be] the maintenance of a high and stable level of employment after the war’ (Kavanagh and Morris 1989, 36). From that point until the accession to power of the Thatcher government in 1979, full employment was a goal

^Speaking of the post-war reaction to the suffiering o f the pre-period, a former Thatcher minister said, ‘^[T]he mter-war period was summed up in the memorable words of Herbert Morrison... “a paradise for profiteers, a hell for everyone else”. Those were words which resounded round the 1945 election. There was a huge determination that we were never going to go back to the mass unemployment o f the 1930s. There was Keynesians economics which was, as it were, convincing people that you didn’t have to.’ (Personal interview, 3 June 1997, London).

76 consciously pursued by Tory and Labour governments alike. As a former head of the Home

Civil Service described it, *^In the 50s and 60s, full employment was almost the key policy’

(Personal interview, London, 10 April 1997). And as put by a leading minister in the Heath government.

We had been brought u p ... at school, going to university when [there was] mass unemployment. Our motivation [which] took many of us into politics was to see that that sort of thing never happened again. And we were prepared to tolerate... economic inefSciency up to a point, rather [than have] the social damage and hatreds and divisions, divisiveness in society caused by the mass unemployment of the earlier part of the century and some parts of the last century (Personal interview, 21 May 1997, London).

This commitment to full employment through Keynesian demand management helped produce what is usually held to be the most obvious characteristic ofBritish economic policy in the post-war period: the recurring cycle of stop-go, inflation-déflation economic policy. Since the Bretton Woods conference o f1944, a worldwide system of fixed exchange rates had been in place, with the British government committed to maintaining the parity of the pound and the role of sterling as a currency of international exchange. This produced a difflcult dilemma: when the government acted to stimulate the economy in order to protect jobs, the balance of payments deficit grew as British consumers increasingly purchased imported goods. The result was downward pressure on the exchange rate and the need for the government to strengthen the pound to maintain its parity and to slow the economy.

This, of course, had adverse consequences on employment, and the cycle began to repeat itself (ffall 1986, Brittan 1970, Hansen 1968). This cycle of government-induced boom followed by deflation was flirther reinforced in the post-war period by policy based on the widely-accepted Phillips curve theory—the notion that there was a stable tradeoff between

77 unemployment and inflation. As the theory went, increases in demand usually produced (as

Keynes predicted) a rise in both employment and prices. Weaker demand led to lower inflation, but higher unemployment. Thus, prudent governments could apparently pick which combination of inflation and unemployment was most desirable, attempting to tailor macroeconomic policy to achieve the desired equilibrium (Britton 1991,94-98). In reality, though, the equilibrium was difBcuit to achieve. With governments committed to full employment, the maintenance of jobs usually took precedence over low inflation, with governments speeding and slowing the economy as conditions warranted. Through the

1950s and 60s, inflation remained relatively constant, but in the 1970s, the seemingly stable

Phillips trade-off collapsed in the wake of the world oil shocks and increased union militancy. From the 1970s, and certainly since 1979, the commitment to full employment was effectively abandoned (Britton 1991, ch. 16; Kavanagh and Morris 1989, ch. 3).

A fourth important characteristic of the British postwar economy was the way in which governments attempted to structure the relationship between themselves and trade unions. At the heart of this relationship was the tension between the desire to include trade unions as a significant player in national economic policy-making, on the one hand, and the need to ensure moderate wage increases in the presence of fiee collective bargaining and a govermnent commitment to full employment, on the other. In Britain, the story of post-war industrial relations is largely one of this tension between wage demands and wage restraint.

But, despite conflict and tension along the way, the dominant pre-1979 feature of govemment-union relations was the conviction that trade unions had a legitimate and significant role to play in the determination and execution of national economic policy.

78 In the early post-war period, govemment-Iabor relations were remarkably good, particularly considering the overtly hostile attitude of governments towards unions in the strife-torn 1920s/ The tone had been set, yet again, by the wartime coalition government.

With the full inclusion ofthe Labour Party in government, organized labor reaped the reward of unprecedented access to power and government decision-making. Former trade union ofhcials and union-sponsored MPs now began to occupy high offices of state. Ernest Bevin, the former general secretary of the Transport and General Workers’ Union (TGWU), was

Minister of Labour in the coalition government and went on to become Foreign Secretary in the Attlee Labour government, one which gave fidl sway to union-sponsored MPs and union interests. In its time in government, the Labour Party repealed all the restrictive measures o f the 1927 Trade Disputes and Trade Unions Act, ensured labor participation in government committees and supervisory bodies and encouraged the notion that trade unions as a constituent part of the modem economy had an appropriate, legitimate role to play in economy policy-setting (BCavanagh and Morris 1989,51-2; Morgan 1984).

This attitude was to last up until the late 1970s, despite repeated tensions and conflicts between governments and unions, usually over the issue of wages. Put simply, the government commitments mentioned earlier to maintain both full employment and the parity of the pound demanded that some form of wage restraint be practiced by trade unions. With virtually firee collective bargaining, and few statutory controls over union activities or pay

*The 1920s was a period of open conflict between government and unions, characterized by tight statutory controls on union activities and culminating in the General Strike of 1926 (McDonald 1975; Mowat 1955, ch. 6,7).

79 awards^ governments increasingly found themselves on the horns o f a dilemma—attempting to accommodate union demands, fearful of union power if scorned, yet constantly requiring wage restraint in order to avoid runaway inflation in a full employment economy.

Faced with the dilemma of wage restraint, and experiencing increasing union militancy throughout the 1960s and 70s, governments increasingly turned to incomes policies as way of moderating wage increases and, through them, inflation. At times, governments attempted to moderate wages through argument and persuasion. At other times, statutory controls were briefly introduced. But in every case, incomes policies turned out to be short-lived and ultimately failures (Hall 1986, 80-5; Clegg 1971,1979). Governments recognized the need for wage moderation but were unwilling to risk the kind of industrial unrest that a thoroughgoing policy o f wage limitation would likely provoke. This prompted an alternative tack by governments in the late 1960s and early 1970s—the introduction of legislation designed to limit, structure and regulate the power of trade unions. First, the

Wilson Labour Government produced a White Paper in 1969 entitled In Place o fStrife. The proposed legislation would have established cooling off periods for certain strikes, required workers’ ballots for strikes deemed particularly threatening to the national interest, and established a regulatory body, the Commission on Industrial Relations, with the power to make legally-enforceable Judgments in union disputes. By the standards of the 1980s, perhaps, the White Paper was relatively benign. But in the late 1960s, it was seen by labor as a distinct threat to its historic rights, privileges and clout Both union organizations and their allies within the Labour Party combmed to oppose the legislation and ensure that it was never enacted (Castle 1984, Jenkins 1970). A second attempt, by the Heath Government in

80 1971, was at first more successful. Heath’s Industrial Relations Act was intended to make the provisions and remedies present in civil law apply to trade union activity. Unions were registered, given clearly-defined legal standing, and their immunity firom prosecution was limited as they were exposed to the same legal liability as other corporate entities. Workers were given the right to opt out of union membership and to vote in pre-strike ballots. In the event, the legislation failed to work as envisaged. Trade unions vehemently opposed this statutory limitation on their rights and made repeal of the Bill their primary goal, refusing to cooperate with the government at all so long as the legislation was in force (Moran 1977,

Crouch 1977). By the election of 1974, the Conservative Party itself had largely admitted its failure and the succeeding Labour government repealed all sections opposed by the unions.

Yet, despite growing conflict in industrial relations, the notion that unions had to be included in the economic life of the nation—essentially as an equal partner to employers—was felt by Labour and Conservative alike. While Britain never achieved the heights of tripartite corporatism seen in some continental European countries (Schmitter and Lehmbruch 1979,

1982), it was a widely-accepted nostrum of the post-war period that some degree of union consultation and cooperation was not only necessary, but eminently appropriate. As a high- ranking member o f the Heath government put it,

1 believed in trade unionism all my life. There was a wing of the Conservative ParQr which was rightly r^arded as anti-[union]. Ted and I and Geofhey Howe and people like us were not of that ilk. We believed that unions were the proper thing and we welcomed strong trade unions ... (Personal interview, 21 May 1997, London).

81 So deeply held was this coavictioa that evea after the nearly-disastrous 1972 miners’ strike,

Ted Heath could still proclaim, I believe that a Conservative Prime Minister must set himself to 6nd common ground with the trade unions as well as the employers’

(Conservative Central Office 1973).

This conciliatory view, however, fell into increasing disfavor in the late 1970s. The events of the latter part of the decade, particularly the 1978-79 Winter of Discontent so transformed public attitudes about trade unions—even among many unionists themselves— that the stage was set for the dramatic and radically thoroughgoing changes that were to be

made by the Thatcher government (Kavanagh and Morris 1989,68). In this aspect of the post-war consensus, perhaps to a greater degree than with any other, the Thatcher period marked a total and complete reversal.

Canada

As stated above, Britain is in many ways the archetype of the post-war consensus model of economy policy. To greater or lesser degrees, the four elements seen in the British case—the mixed economy with a significant degree of public ownership, the existence of a modem social welfare state, the commitment to full employment and Keynesian demand management, and cooperation and conciliation of trade unions—were present in all four cases discussed here. What has been presented here as a British archetype is perhaps more accurately portrayed as a general model obtaining in various ways in most industrialized economies in the post-war period. Yet, despite a great degree o f overall similarly, specifics in each country showed signffîcant variation. Reacting to their own economic conditions and

82 problems, each country fashioned a policy pattern that reflected these unique circumstances.

In this, Canada was no exception. For Canada, the economic problem has always been obvious: a massive, yet sparsely populated country sitting directly on the doorstep of the world’s most powerful economy, the United States. No discussion of Canadian economic policy can ignore this reality.

The problems of geography and population have largely driven the Canadian approach to government intervention. Simply put, Canada occupies the second latest landmass of any nation in the world. Even excluding the essentially uninhabited far north of the country, Canada stretches nearly 5000 miles from coast to coast and includes such diverse regions and economies as maritime fishing communities, heavy industrial production, substantial farming and agribusiness, logging and timber production and petrochemicals. And this with a current population of barely 3 0 million people. Taking into account that, at the turn of the twentieth century, Canada’s population was only 53 million, the enormity of the task of economic development becomes apparent. Making this task particularly pressing, furthermore, was the presence of the United States. Ostensibly a friendly neighbor for most of Canadian history, the United States has nonetheless always been viewed in Canada as a serious potential threat—one that, if it wished, could easily dominate or even extinguish the unique Canadian society in North America (Stairs and

Winham 1985, Laxer I99I, Riekhokk and Neuhold 1993).

Thus, faced with these challenges—overwhelming geography, sparse population and an ever-present threat from the south—two themes came to dominate Canadian economic policy since the time of Confederation in 1867: first, government-initiated and sponsored

83 economic development and, second, protectionism, as safeguards against being overwhelmed by the economic might of the United States. Unlike the case of Britain, however, whose dominant patterns of economic policy largely date firom the Second World War and the immediate post-war period, Canada^s twin strategies of government intervention and economic protectionism have their roots much farther back, in the years immediately following the foimding of modem Canada in 1867. In fact, this pattern of economic policy, which would come to dominate virtually all Canadian government policy until at least the push for continental free trade in the 1980s, was based largely on the ideas of Sir John A.

Macdonald, Canada’s first premier, and his National Policy.

In a word, this policy was premised on the interrelated notion that national economic development depended on government protection from competition from the United States, while securing Canada’s freedom of action vis-à-vis the US depended on stimulating and protecting economic development along all-Canadian, east-west (rather than north-south) lines. Thus, the two main objectives went hand-in-hand—development required protection, and the best protection was development. The primary agent of this state-sponsored development was, initially, the Canadian Pacific Railway—a rail link which would connect east to west, stitch Canada together as a coherent, unified nation, and discourage what are in some ways more natural north-south links with the United States. Along with the railroad-

-eventually completed in 1885—tariff protection was the primary means by which, as envisioned by Macdonald and others, Canada could sufficiently shield its producers and

manu6cturers from southern competition, allowing them time and resources to develop truly

indigenous Canadian industry and agriculture (Brown 1986, Waite 1971, Lamb 1977).

84 So embedded did these notions of state-led development and tariffprotection become that they took on the mantle of virtual bywords of Canadian politics and economic policy throughout most o f the twentieth century. No serious challenge to these principles emerged prior to the 1980s, with one exception. In the 1911 election. Liberal leader Sir Wilfred

Laurier took his party to the polls on a program of limited reciprocity, or tariff reduction, with the United States. Such an idea was rather new—the last attempt at tariff reduction occurred prior to Confederation when Abraham Lincoln proposed the US and Canada reduce tariffs, and it failed to achieve any concrete gains. In the event, the thumping defeat administered to Laurier by Sir Robert Borden and his protectionist Tories became part of

Canadian politics’ conventional wisdom—truck or trade with the Yankees’ was economic foolishness and political suicide. As a consequence, no attempt was made, until the end of the twentieth century, to reassess the traditionally strong role played by Canadian governments in economic development (Doem and Tomlin 1991, Wonnacott 1987).

Conservatives and Liberals alike—parties usually quite difficult to distinguish on philosophical grounds^—accepted that the uniqueness of the Canadian situation dictated a strong role for government intervention. This penchant for state action was only reinforced

^A former Trudeau cabinet minister emphasized the fundamentally pragmatic nature of Canadian parties this way: ‘You seem to have a very different concept of a party than I have. You think a party is the European type where it has a slogan, a platform, nails its colors up and stands with tests of faith every now and again, expelling the dissidents or the people who don’t meet the theology of the time. [Canadian] parties aren’t like that Parties have to govern. Parties have to make compromises.... The objective of a politician is to make things work. The objective of a political party is to provide good government. And it can only provide good government in a sense of compromise and bemg very practical in terms of what you can do’ (Personal interview, 9 December 1997, Ottawa).

85 by both strands of Canadian political culture—an Anglo-Canadian strand much less individualistic and liberal than that found in the US, and a French-Canadian strand deeply influenced by state paternalism, corporatism and dirigism e (Horowitz 1966, Forbes 1987).

Despite deep-seated concerns and suspicions about the economic and cultural might of the United States, it became increasingly clear that the US-Canada relationship would be, of necessity, a close one. As cultural and economic ties with Britain and the rest of the

Commonwealth declined, particularly in the early twentieth century,* ties with the United

States strengthened considerably. Yet, the prevailing notion in Canada was that active protection was the only safeguard. The freer trade that did take place was strictly on a sectoral basis—that is, tariff reductions were negotiated with the Americans on a limited case- by-case, sector-by-sector basis. Of these agreements, the most important was the 1965 Auto

Pact, allowing for virtually free trade in automobiles and new parts and establishing an industry that, in some respects, was continental, rather than national (Molot 1993, U.S.-

Canada Automotive 1985). Yet, despite intermittent calls for further tariff reform, protectionism remained the predominant theme.

Well into the 1980s, Canadian governments continued to make attempts to insulate

Canada from American economic influence. The Trudeau government’s third option’ was an early-1970s attempt at reestablishing some degree of independence by developing

^ a jo r issues in both world wars was the role Canada would play in helping defend Britain and the Empire. French Canada, in particular, was overwhelming hostile to Canadian involvement. Conscription operated in the First World War but was only implemented over French Canadian opposition very late in the Second World War (Granatstein and Hftsman 1977).

86 European and Far East trade links/ While it produced some success in expanding trade ties outside North America, it never developed into the full-fledged alternative to North

American trade that the government had hoped for (Muirhead 1992, Sharp 1994). As part o f this program of enhancing Canadian protection, the Trudeau government in 1974 created the Foreign Investment Review Agency (FIRA), an agency charged with screening proposals for foreign investment in Canada. FIRA proved somewhat successful in limiting the amount of foreign capital penetration into Canada, with decreased foreign control of Canadian corporations, but at the cost of limiting the amount of capital available to Canadian entrepreneurs (Deigan 1991, Hayden and Bums 1976, Beckman 1984). Still, the program reflected a century’s worth o f dominant attitudes about the appropriate way in which to limit

American influence in the Canadian economy.

An even more radically protectionist move was the Trudeau government’s introduction in 1980 of the National Energy Policy (NEP). The NEP was consciously designed to limit foreign involvement in Canada’s large energy industry and to strengthen and extend the control ofthe federal govenunent over Canada’s energy income and reserves.

It did so by granting significant concessions and subsidies to Canadian energy corporations, imposing special taxes on foreign profits from Canadian energy, and providing for the transfer of up to twenty-five percent of the value of oil and gas finds on federal lands to the

^The ‘^third option’ was based on External Afiairs Mmister Mitchell Sharp’s Three O ptions paper. Option one was the status quo, option two was increased Americanization of Canadian trade, while the third was trade diversification. At the time, there was no support—from either the cabinet or the senior civil service— for increased links with the United States, the policy which, of course, come to define the subsequent Mulroney approach (Martin 1993,26).

87 state-owned Petro-Canada, irrespective of exploration and development costs. The goal, simply put, was Canadian, and in particular, federal control of Canadian en er^ sources and industry—one well in keeping with both Canadian traditions of government intervention and economic nationalism, traditions that would endure until the neoliberal reforms of the 1980s

(Doem and Toner 1985, James 1990).

Finally, the tradition of state economic intervention in Canada manifested itself in an all-party commitment to the social welfare state. Based on political cultures that are fundamentally sympathetic and supportive of state activity in the name of communitarian values, the Canadian social welfare system continues to function, at least in principle, on the basis of universality of provision. The system largely dates from the time of the Great

Depression when, in response to obvious need. Conservative prime minister R.B. Bennett was elected on a platform promising enhanced social welfare. His 1935 New Deal’ promised farm subsidies, unemployment insurance, regulation of working conditions and a minimum wage. In the event, his program was largely struck down by the Supreme Court of Canada on the grounds that it represented an unconstitutional infringement of provincial powers (Banting 1982, Ismael 1987). This decision, however, was largely bypassed in the future by provisions allowing for provincial administration of federally-mandated spending programs. The result has been a social wel^re state providing universal benefits in health care, child and family allowances and retirement pensions. As in Britain, it has been the social welfare state which has proven to be the aspect of public policy most resistant to change. Every post-war Canadian govermnenthas professed its commitment to the universal

social welfare state and has allowed it to grow steadily as a proportion of national income.

88 As will be discussed in the following chapter, efforts by the Mulroney government to compromise the principle o f universally met with such fierce opposition that the government largely abandoned its plans and in the event presided over a substantial increase in health and welfare spending. Thus, as in Britain, social welfare proved to be the element of Canadian economic policy most resistant to reform and change, even while the two longest-standing pillars of economic policy—active state economic intervention and protection against the

United States—were significantly challenged and undermined.

Australia and New Zealand

The economic dilemmas facing Canada were not entirely dissimilar finm those facing the Antipodean democracies. For Canada, the problem was the economic behemoth just across the border. While neither Australia nor New Zealand faced such an obvious, visible challenger, problems of domestic economic protection and development were seen there as well. In both Australia and New Zealand, small population size continually challenged governments in each country to protect themselves against external domination. This was true not only of Australia—which attempted to bolster its population through massive immigration, first from Britain, then from elsewhere—but especially ofNew Zealand whose total population has never exceeded that of a reasonably large North American or European city. Furthermore, the problem of size so problematic in Canada was in many ways felt in

Australia as well. With abundant natural resources, but with hardly the population or the infrastructural capady to develop them, both Australia and New Zealand were impelled to

89 seek state solutions and state initiative as the primary motors of economic development and change (Maddock and McLean 1987, Pincus 1987).

In considering the unique characteristics of the economic policy patterns of the

Antipodean countries, then, two major characteristics stand out. One is a set of policies which, in the context of Australia, Castles has termed 'domestic defense’ (1988).

Fundamental to this policy agenda was high tariffprotection to protect domestic industry and a system of centrally determined wage fixation. The other dominant characteristic, visible in extreme form in New Zealand, was pervasive state regulation of the economy. Both

Antipodean economies were highly controlled by government regulation and, in New

Zealand, by the time the reforming Labour government of the 1980s took office. New

Zealand was not unjustly labelled the most highly-regulated and controlled economy in the free world. We consider both of these characteristics in turn.

First, both Australia and New Zealand responded to similar economic challenges by constructing quite similar modes of economic defense from foreign economic penetration or domination. While the two countries differ immensely in size, both shared a number of important characteristics. Both were sparsely populated countries, colonial outposts whose economies were dependent upon the production and export o f raw materials (Hawke 1985;

Oyster and Meredith 1990, ch. 2,3). It could rightly be said of both Australia and New

Zealand that their primary export-driven prosperity in the nineteenth and twentieth centuries did indeed come 'on the sheep’s back’. As Table 1 indicates, both at mid-century and just before the advent of the reforming Labour governments ofthe 1980s, the Antipodean exports were dominated by raw and agricultural goods. Even though, towards the end ofthe century,

90 their export economies bad diversified beyond wool and milk* the fundamentally primary nature of Antipodean products is clear. The practical implication of this narrow range of primary, price-sensitive products was that both economies’ ability to import necessary manufactured and finished goods continually depended on favorable terms o f trade (Casdes

1988,44-5; Pope 1987).

Recognizing that without some form ofdomestic protection their national economies would be virtually controlled by external forces, governments in both Australia and New

Zealand devised similar systems o f domestic defense’. The depressed conditions in the late

1952 1982

Australia Wool (49.1) Minerals (31.0) Wheat and flour (13.4) Wool (9.7) Minerals (7.1) Wheat (9.1) Meat (5.4) Meat (73)

Mew Zealand Wool (34.0) Meat (233) Dairy (33.2) Dairy (17.1) Meat (21.0) Wool (13.6) Wood products (8.0)

Table 1: Main Exports in Australia and New Zealand, ranked (percentage of total exports).

Source: Easton and Gerritsen 1996,26.

19th century had shown clearly that both Antipodean countries were highly dependent on the

prices of their goods on international markets. So an alternative strategy was developed.

First, high tariff barriers were erected in order to protect both primary and manufacturing

91 industries (Anderson 1987, Reitsma 1960, Anderson and Gamaut 1987, Hawke 1985,

Chatteqee 1988). While the initial motivation for high tariffs came firom manufacturers and their employees—at the turn of the century still a fairly small force—primary producers increasingly came to support policies that would protect their products as well. The dominant conception was that, in a volatile world market in which each country's primary commodities faced constantly changing prices, tariff protection served a number ofpurposes.

It provided a measure of protection behind which indigenous manufacturing could grow, diversify and begin to satisfy domestic demand through import substitution—something which, as former colonies, neither country had fully developed. It also encouraged the growth of the manufacturing job base, diversified the economy to provide employment outside of primary industries and helped soak up any excess labor underutilized in the primary sector. Protection also played a social function, as Castles points out in regard to

Australia. By helping raise the rates of pay in the nascent manufacturing sector to a level comparable to those enjoyed in the primary industries, a certain degree of wage-based social insurance was put in place-declines in income were minimized by ensuring the profitability of firms through tariff protection (Castles 1988,95-7). Finally, tariffs—and later, other non­ tariff barriers such as import licensing and quotas—served the same fundamental purpose of insulating the entire economy firom external economic shocks, particularly those related to prices of primary goods.

Put simply, the role of tariff protection as a fundamental tenet of economic faith in

Australia and New Zealand was virtually unchallenged until the advent of the reforming

governments of the 1980s. For most of the twentieth century, the role of protection as the

92 only insurance these countries had against volatile world markets was nearly universally accepted. It was simply economic madness^ according to this way of thinking, to imagine that such small, relatively undiversified economies could survive if subjected fully to the vicissitudes of the world market As a former Liberal minister described the prevailing attitudes,

I can remember vividly in the Liberal Party room... there were right from the beginning of my time, the 1960s, a few anti-tariff stalwarts who used to get up on every tariff debate... And as soon as they rose to their feet—they were popular people, they weren’t fbols—there would be a groan go through the party room, a collective groan. The abolition oftariffs was regarded as a joke (Personal interview, 18 May 1998, Canberra).

Up until the 1980s, then, the place of protection was secure. Australia had seen only one significant instance of tariff reduction—Gough Whitlam’s surprise across-the-board cut, a move which proved to be a one-off change and which angered both employers and workers alike by its lack of preparation or warning (Hawke 1994). And in New Zealand, hopes for significant free trade reform were dashed by Sir Robert Muldoon's application of even tighter controls and more active government intervention following the turbulent period of the 1970s.* As with so many of the other features of economic policy discussed here, it was only later in the 1980s that real policy change began to occur.

The second main feature of the pattern o f domestic defense’ was one virtually unique to Australia and New Zealand—a system o f centralized wage fixation. Originating in the late

19th century, the system of centrally-determined national wage rates across the entire

*lt must be said, however, that Muldoon did agree-reluctantly—to sign the Closer Economic Relations (CER) treaty with Australia in 1983 (Templeton 1995).

93 economy became both a fundamental pillar of Antipodean economic policy for most of the twentieth century and also, by world standards, one of the most unusual and most highly- centralized form of wage regulation in the industrialized world (Castles 1985, Holt 1986).

In Australia, the system of centralized wage fixation came into being largely in response to a wave of strikes experienced in the 1890s. Conscious that one of the central grievances oflabor was that workers had little control over the wages for which they worked, and that these wages often bore little relation to labor supply and were imposed virtually at the whim of employers, the Commonwealth government moved to create a Court of

Conciliation and Arbitration which could ensure a fair wage to labor. Moreover, these provisions were largely seen as the necessary consequence and complement to tariff protection. Just as manufacturers were insulated and protected from the vicissitudes of the foreign economic environment by trade regulation, so it was seen as only natural and right that workers should too be protected in a similar way. As Castles points out, this ‘"New protection" was new precisely because it promised both sides of industry a defence against the unfettered implication of the self-regulating market mechanism' (1988,98).

In the development of the Australian system of wage regulation, the landmark event was the 1907 Harvester Judgment, in which the President of the Court of Conciliation and

Arbitration, Henry Boumes Higgins, set out what would become the standard principle by which wage awards would be made in Australia for most o f the coming century (Macarthy

1967). Simply put, that principle was that all workers would be entitled to a living wage, one consonant with basic, ordinary human needs, and unrelated to the level of profits or losses experienced by their employers. As Higgins put it, there was no ‘other standard appropriate

94 ... [to assess a] fair and reasonable wage... than the normal needs of the average employee regarded as a human being living in a civilized community^ and ^the remuneration of the employee cannot be allowed to depend on the profits of his individual employer’ (quoted in

Castles 1988, 99). This, then, set the standard for future wage orders: the wage award consisted of a basic award payable to unskilled labor and indexed to changes in consumer prices, plus incremental increases for skilled workers. At least in principle, the living wage was the Australian government’s guarantee to workers.

As the system developed, perhaps inevitably the profits of employers began to be taken into account. Recognizing that Judgments made without consideration to profits only encouraged employers to seek greater tariff protection as compensation for accepting higher wage awards, the court increasingly came to introduce the 'capacity ofthe economy to pay’ as a principle operating alongside basic worker needs. In times of economic upheaval and strain, such as the Great Depression and during the Korean War, the court felt fiee to limit awards to reflect its assessment of current economic conditions as a whole (Castles 1988,99,

100). However, the fundamental principle remained intact until well into the 1990s. Despite periodic episodes, particularly in the late 1960s and early 1970 when tight labor conditions and wage agreements seemed to outpace the centralized system, the fundamental commitment to centralized wage fixation remained, especially on the part of unions. Thus, the 1980s saw the advent of the Accord, a centrally-negotiated agreement between unions and the government, and it was not until the 1990s that efforts were made, first by Labor, then by the Coalition, to move towards the more flexible enterprise bargaining arrangements

95 common in other countries (Bray and Neilson 1996, 72; Hancock and Rawson 1993;

Matthews 1994).

In New Zealand, a similar system of wage regulation emerged, although the impetus for its development and the causes of its final demise were different. There, the initiative for centralized wage fixing came fi-om neither employers nor unions, but from a Liberal government intent on extending the regulatory role of the state in order to ensure economic stability and control. As in Australia, the late 19th century had been a period of intense strike and union activity, culminating in the 1890 Maritime strike, which ended in an overwhelming employer victory over the unions. In the wake of this upheaval the government undertook to implement a controlled and centralized system of wage fixation and dispute arbitration. Initially, the system was opposed both by employers, who feared the rebirth of union power, and by unions, who believed that independent action was likely to be more rewarding than cooptation into a state system (Walsh 1997, 190-2; Walsh 1993).

In the end, the centralized regulation option was imposed and New Zealand set out on a track quite similar to that of Australia.

As in Australia, the Arbitration Court made wage awards on the basis of the living wage concept and accepted the notion that wage increases should be consistent with increases in the cost of living. It too saw its role as having an important moderating e& ct on market forces, especially in such a small and economically insignificant country. Unlike in Australia, however, the centralized fixation of wages did not last nearly as long, nor did it retain its credibility with organized labor. For one, economic conditions in New Zealand often outpaced the ability o f the arbitration system to respond with awards satisfactory to

96 workers. As happened in Australia^ tight labor conditions prompted workers and employers to largely bypass the centralized system and hammer out %reements more generous to labor than they would have received through the Court Unions had the advantage of labor shortages and employers were willing to pay the additional premium for contented workers and industrial peace. Thus, at various time, the centralized wage system was overtaken by events and rendered less influential (Walsh 1997,192-3).

The real blow to the Court’s position, however—and the event which precipitated its total loss of credibility with organized labor—was its decision in 1968 to award no increase in the basic wage. This "nil order’ was justified by the Court on the grounds that, while an increased cost of living indicated that a wage rise was in order, the economy as a whole did not permit any increase. This decision, coupled with a series of conservative Court awards over the course of the 1960s, essentially spelled an end to the role of the Court in centralized wage fixation (Walsh 1994). To dampen down impending industrial strife, employer representatives on the Court joined with union representatives to outvote the Judge of the

Court and approve a five percent wage increase. Following the nil order debacle and the

industrial unrest that succeeded it in the early 1970s, the National goverrunent moved to control wages through statutory incomes policies, reshaping the Court into little more than an enforcer of wage decisions made not by the Court, but by elected government officials.

These policies were, as in Britain and elsewhere, largely unsuccessful. Workers generally

succeeded in obtaining fiom employers much larger pay settlements than the government

preferred. To the extent they worked at all, incomes policies simply served to bottle up pay

97 demands until the controls expired and the inevitable w%e boom occurred (Walsh 1993,

Boston 1984).

However, in a radical departure from what happened in Australia, the Fourth Labour

Government of New Zealand did not attempt any large-scale revitalization of the notion of centralized wage determination in the 1980s, negotiating, as did Australian Labor, a series of govemment-union agreements in which wage increases and other labor issues were thrashed out in high-level meetings.’ As will be discussed in Chapter Four, the government rather sought to extend the principle of enterprise bargaining, a notion that would be continued with a radical vengeance by the succeeding National government (1990-99). In short, centralized wage fixation was an important part ofthe overall post-war pattern ofNew

Zealand economic policy, as it was in Australia, but unlike Australia, the New Zealand experience ended much sooner and was, in the end, more dramatically reformed by neoliberal governments in the 1980s and 1990s (Walsh 1989, Boxall 1991).

Finally, a key component of both Australia and New Zealand’s twentieth century dominant economic program was extensive government intervention and regulation in virtually all aspects of the national economy. Of course, the most obvious and significant method of state regulation was the one discussed above—the use of tariffs and other trade provisions to limit the import of foreign goods, thereby fostering domestic industry and protecting domestic employment. However, the regulation did not end there. In both

^Several efforts to model agreements on the Australian Accord-particularly the government’s Compact and Growth Agreement with the Council of Trade Unions (CTU)- -were unsuccessful (Walsh 1997,194).

98 countries, governments took an active role in promoting development through government initiative and protection.

In Australia, the main sources of regulation were in the protection o f the rinancial markets and in a complex system of subsidies and development grants to virtually every domestic industry. Under the long-serving post-war government of Sir Robert Menzies

(1949-66), wartime controls and restrictions were largely lifted, but they were replaced by a thoroughgoing system of controls on the financial markets. Credit was rationed, the flow of capital was regulated, foreign investment in the financial sector was strictly limited, interest rates were state-controlled, access to world money markets was restricted and the government intervened in the market to promote housing and industrial development through subsidized loans and tax concessions. Put simply. Just as the other sector of the economy which was vulnerable to foreign penetration and competition—manufacturing—was highly protected, so the government intervened to ensure that finance, also quite susceptible to external influences and fluctuations, was equally, if not more, protected and controlled

(Catley 1996,55-9; Butlin 1987),

The second main feature of Australian regulation was an extensive system of subsidies, grants, price controls and other regulation of product markets. With its origins in the farm sector crises of the 1930s, this system sought to ensure basic minimum prices for

(primarily) agricultural commodities, and to limit and subsidize the cost of production

(Catley 1996,59; Edwards and Watson 1978). With a strong advocate in the Country Party and its leader Black Jack' McEwen, this system remained essentially intact until the reforms o f the 1980s. It consisted of regulatory, price-maintaining and marketing boards which

99 ^regulated output levels, licensed different producers, bought and sold product, and stored and released reserves in policies designed to stabilise price levels’ (Catley, 1996, 59).

Supplementing these were measures intended to guarantee uniform prices for producers, particularly o fgasoline and other essential goods. The system of regulations and government intervention was so complicated that, as Catley puts it, ‘[t]he whole system ... known as

McEwenism... represented a myriad [of] cross-sectoral subsidies so complex they could not be easily identified, let alone quantified’ (1996,59). But it was that type ofregulation which enjoyed such bipartisan support in Australia. In 1964, Prime Minister Robert Menzies expressed the prevailing attitude this way, *We have no doctrinaire political philosophy.

Where government action or control has seemed to us to be the best answer to a practical problem, we have adopted that answer at the risk of being called socialists’ (quoted in

Puplick 1994, 54). And as one observer commented.

By the late 1960s [the free enterprise versus socialism debate] seemed dead. Australia had reached a period of close to consensus in economic management: in a mixed economy where there was recognition of the importance of both government and business activity, there were only marginal differences between the political parties about how governments should intervene (Home 1976,62).

Finally, we come to government regulation in New Zealand, perhaps that country’s defining characteristic of twentieth-century economic policy. For it was in the complexity and extensiveness of its maze of government controls and regulations that New Zealand set itself apart from virtually every other country in the capitalist, industrialized world.

Attempting to insulate itself as much as possible from the vagaries of the international economy, and seeking to compensate, subsidize and regulate the activities of virtually every

100 major sector of the economy. New Zealand built up what was, in many ways, the arche^al example of the insulated, semi-autarchic, domestic defense’ economy. In constructing this system of regulation, both parties of the left and right were active and supportive participants. In fact, in Sir Robert Muldoon, the putatively conservative National prime minister from 1975 to 1984, New Zealand had nothing less than a wholehearted believer in the benefits of government regulation and intervention, against which the radical reforms of the 1980s and 1990s were directed (Gould 1982; Muldoon 1977, 198I; Templeton 1995).

In fact, Roger Douglas, the Fourth Labour Government’s most vocal advocate of free market reform, had this to say about New Zealand’s hyper-controUed economy:

It is surprising how quickly people forget what life was like in the 1960s and 1970s when this was essentially a state-run, state-controlled economy.... Daily life was a patchwork of controls, regulations and State interventions. Hotels closed at 6 pm. Only the government was allowed to broadcast television programs. Interest rates were set by the government. If you wanted to bring in Italian tiles or German beers or an American car you needed a government license. Workers were obliged to belong to a trade union.... In those days it took three to six weeks to have a business telephone connected. Movies took nine to 18 months to arrive here. There were Just two sorts of refingerator-both made by the same manufacturer to the same specifications. If you wanted to rent a television you were obliged by law to put down six months’ rent in advance. If you wanted to invest in or set up a business overseas you had to renounce your nationality to get your money out of the country. You needed a permit to subscribe to an overseas journal. You were not allowed to truck goods more than 40 miles and then 150 kilometres without the permission of the Railways. It was illegal to sell petrol below a minimiun price.... It was against the law to make carpets from anything other than wool To buy margarine, you had to have a doctor’s prescription (1993,257, emphasis in original).

It was this system of controls, regulation and compensation that Douglas and his colleagues set about to destroy in the 1980s. In large measure, as we shall see, they succeeded—by

101 1996, an Economist poll of ten leading economists ranked New Zealand first, as the fieest economy of the twenty countries considered (13 January 1996,21).

In conclusion, this first section has attempted to lay out, in rather summary form, the major outlines of the dominant economic patterns in the twentieth century in the Anglo-

American democracies considered here. Certainly this list is not exhaustive, nor has space permitted the detailed exploration o f subtle differences and similarities between the four cases. What has emerged, however, is the general outline of the economic policy programs against which the reforming governments of the 1980s directed their policy reforms. In

Britain, the targets were public ownership of corporations, Keynesian demand management and stop-go economic cycles in the pursuit of full employment, and the traditionally conciliatory government approach to trade unions and industrial relations. For the Mulroney government in Canada, the goal was to reverse the holy writ of protectionism and resistance to freer trade, particularly with the United States. In the Antipodes, the Labour governments ofthe 1980s fundamentally altered traditional policies o f‘domestic defense’, reducing tariffs, eliminating widespread government controls and regulations, and moving away from previous patterns of centralized wage determination. In fact, as shall be discussed in the next chapter, the fundamental pattern of post-war economics in these countries was fundamentally shifted, and in some cases, even reversed. The only area spared was the social welfare state.

As we shall see, in none of the four countries did reforming governments effect any significant reversal of traditional patterns. Even in the face of occasional hostile

Conservative rhetoric, particularly from Mrs. Thatcher, the welfare state actually expanded

102 its share of national income over the 1980s, despite the otherwise general rightward shift.

The details of that shift, then, will be analyzed in the succeeding chapter.

Economic Crisis and the Road to Policy Change

The roots of the policy transformations witnessed in the 1980s in the Anglo-

American democracies can be found most immediately in the troubled times of the 1970s and, with the exception of Britain, in the early 1980s. In each case, these countries experienced major challenges to the dominant pattern of post-war economic policy just described. These challenges—and government’s seeming inability to cope with them—led, by the time the reforming goverrunents took ofhce, to a recognition that something had to change.’ Put simply, the immediate run-up to the reform period of the 1980s is critical to a fuller understanding of how, why and in what ways the goverrunents of the 1980s set about altering, and reversing, tactics and policies which had been pursued prior to their accessions to power. This section takes a brief, summary look at the major features of that pre-reform period and the problems which led to a fundamental reassessment of traditional modes of economic policy.

Without a doubt, Britain in the 1970s was in economic and social turmoil. Just as it now serves as a the arche^rpe of radical neoliberal restructuring in the 1980s, its experience in the 1970s is similarly a paradigmatic, albeit extreme, case of the serious upheavals experienced in many Western, industrialized nations. Not surprisingly, the extremes o f the

1970s in many ways contributed to the extreme policy reactions o f the 1980s.

103 In 1970, the Conservative government of Edward Heath took ofBce promising what many envisioned to be a new-found adherence to deregulation, smaller government and a putatively neoliberal program. In only two years, however, this set of policies—dubbed

‘Selsdon Man’ after the Selsdon Park Hotel where the government’s policy seminar was held—lay in tatters as the government executed the most famous policy ‘U-tum’ in British history and abandoned its new-found economic discipline. Two years later, the government was out of office, having failed to resolve two major industrial disputes with the miners.

Initially, though, the government came to power on a program of less government intervention and more economic competition. Heath was seen to be a man of the new right, one who would breathe fresh air into a stale, overregulated economy (Hurd 1979). Almost immediately, however, his good intentions fell awry.

Upon taking office, the government faced the immediate problem of rising unemployment. With the number inching ever closer to the psychologically-critical figure o f one million,'® the government decisively backtracked on its commitments to tight economic policies and less government intervention. Chancellor Anthony Barber’s 1972 budget was nothing less than a Keynesian-inspired reflation o f the economy, a policy U-tum that, in the short run at least, launched the now-famous 'Barber boom’ in which unemployment was briefly reduced (Table 14), but which, with the knock-on effect of the

1973 world oil shock, produced inflation rates of sixteen percent in 1974 and a yearly rate of 24.2 percent in 1975 (Table 15). Meanwhile, the government was also forced to backtrack

'“Which, in percentage terms, is the now quite low figure o f around 4.5 percent (OECD [United Kingdom] 1976,16,17).

104 on its early commitment to reduce the scope of government intervention—the 1971 budget, for example, cut income taxes and reduced subsidies for housing and school milk, the latter ably defended in the House by the Education Minister, one Margaret Thatcher. But later in the year, the government was forced into retreat. Faced with the imminent bankruptcy of

Rolls Royce, the government nationalized the company and effectively laid Selsdon Man to rest. Later, the same thing happened again—this time, the govenunent stepped in to nationalize and, at least for a time, rescue Upper Clyde Shipbuilders (Hall 1986,89-90).

It was the area of industrial relations, however, which would prove the downfall of the Heath govenunent, not to mention the Labour government to follow.” First, the government’s attempt at forcing reform on trade unions—Robert Carr’s Industrial Relations

Bill of 1971—essentially went the way of the attempt of the previous Labour government,

Barbara Castle’s In Place o f Strife, While Carr’s Bill was actually enacted into law, its provisions for pre-strike ballots, cooling off periods and union registration were so vociferously opposed by the unions that it effectively became a dead letter, the government unwilling to jail unionists who defied it. But the great labor events o f the Heath government were the confoontations with the miners. The Grst coal strike lasted six weeks in early 1972 and proved to be disastrous for the government—with coal supplies at dangerously low levels, severe winter weather increasing the need for foel, and the country on a three-day work week, the government conceded pay rises ofseventeen to twen^-four percent forthe average

"Even as early as 1970, industrial relations had deteriorated to the point where the Economist could conunent. Now... a lot of people, ranging firom Ford car workers to Tory schoolmistresses and farmers, regard sürikes and demonstrations as exciting and fashionable things...’ (21 January 1970,14).

105 miner and effectively destroyed any economic credibility it had had (Morgan 1990,328; Hall

1981; Taylor 1984). The second miners' strike finished the government off! Called in early

1974, with the country having again been on a three-day week and with inflation spiralling up as a result of the OPEC oil embargo, the strike forced Heath into an election run on the theme ‘Who Governs Britain?’. As a former minister in that government recalls,

[T]he more trade union power saw that it had the upper hand, the more it grabbed and finally began to assert itself so strongly that it began switching on and off the electricity. That was the atmosphere in which the ‘74 election was fought The British public didn’t know what the alternative was, but they said, ‘We can’t go on like this’ (Personal interview, 3 June 1997, London).

The result was that the 28 February 1974 election produced a Labour minority government

(Butler and Kavanagh 1974,1975).

The Labour governments of 1974to 1979 faced an economic nightmare (Whitehead

1985, Callaghan 1987). Britain, like the rest of the industrialized world, was entering a

period of post-oil embargo stagflation-one in which, contrary to previously-accepted

economic theory, both inflation and unemployment rose simultaneously. In 1974, inflation

hit an inter-year high of over twenty-eight percent, while wages rose by 26.4 percent

(Morgan, 1990,376). Inflation would drop fiom these dizzying heights, but would remain

in double-digits for most of the remaining decade (Table 15). Meanwhile, unemployment

broke through the million barrier in 1976 and never dropped below it again—the rate of

unemployment continued to climb, fiom 2.1 percent in 1974 to nearly five percent in 1979

(and of course would reach astronomical heights during the 1980s) (Table 14).

106 With the economic situation deteriorating, the government attempted to rein in public expenditure and control the expansion of the money supply in what constituted the first real abandonment ofKeynesian policies in the post-war era. As James Callaghan, then the Prime

Minister, admonished the 1976 Labour Party Con&rence in Blackpool:

We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that insofar as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step (quoted in Day 1993).

Also in 1976, with the pound under extreme pressure and interest rates climbing to support it, Britain had to take the humiliating step of taking a loan fiom the International Monetary

Fund, in exchange for a commitment to effect significant cuts in public expenditure (Barnett

1982). The loan stabilized the pound and the country for a time, but was a deeply humiliating psychological blow—‘Britain after the IMF crisis had an air of being a nation after the deluge’ (Morgan 1990,397).

The coup de grâce of the 1970s was still in store, however, and turned out to again be the thorny British problem of industrial relations (Barnes and Reid 1980, Dorfinan

1979).*- From 1974 on the government continued to hold wage demands in check. As Table

2 shows, real personal disposable incomes actually fell between 1974 and 1977. But such wage restraint simply bottled up industrial tensions. In September 1978, a massive strike against Ford was settled with a seventeen percent pay increase for the auto workers. This simply encouraged a new round o f often intransigent wage demands—as one union leader

*^This account is (fiawn firom Morgan (1990,397-433).

107 told a Callaghan adviser. Our purpose is to get more than you ofifer and whatever you offer won’t be enough’ (Morgan 1990,420). In the event, the firemen got a twenty-two percent pay rise, bakers fourteen percent, heating and ventilation workers thirty percent and striking truck drivers received pay increases ofaround twenty percent. Then the public-sector unions

1970 3.4 1975 -0.6 1971 2.9 1976 0.0 1972 7.9 1977 -1.8 1973 5.9 1978 6.4 1974 0.8

Table 2: Real Disposable Personal Incomes, Britain (percentage change year-to-year).

Source: Parliamentary Debates (Hansard) [United Kingdom], 1979, vol. 967, Written answers, col. 91.

got into the act. A national public sector strike on 22 January 1979 was followed by "a rash of local selective strikes by health-service workers, dustmen, even the grave-diggers of

Liverpool. Rotting rubbish piled up in the streets. Schools were kept closed because their caretakers stayed away, as did cleaners, cooks, and deliverers of fuel’ (Morgan 1990,420).

Eventually, an agreement was reached, but sporadic strikes continued through February and

March. This was the Winter of Discontent, the event that, in many ways, produced a widespread desire for change and essentially doomed the government. In the words of one former Labour minister,

[Consensus] broke down most clearly in the 1979 General Election. The public sector unions were not prepared to accept any form of income limitation.... The unions cared about prices and were death to any wider

108 considerations. ... And so you had this massive series of industrial conhrontations.... Bodies in Liverpool were not being buried and there were people demonstrating outside hospitals and trying to stop blood supplies going in. I mean, it was very macabre stu ff... It demonstrated that although [the government was] negotiating with trade union leaders, in reality the trade union leaders had no control over their own members (Personal interview, 11 March 1997, London).

And according to a former senior trade union ofGcial,

[W]hen the strike tool place in the manufacturing industry, be it Ford’s or Vauxhall’s or whatever, the only people really affected were the people who worked there. But when you got refuse people, gravediggers, and others who took strike action, it hit the public and perhaps nowhere else better than in transport. And families going away at holiday time couldn’t fly out because of the dispute with the goods handlers or whatever. Now all these created a picture for Maggie to blame the trade unions (Personal interview, 6 May 1997, Broadstairs, Kent).

Largely as a result of this widespread social unrest, the Callaghan govenunent lost a no confidence motion on 28 March 1979 and went on to lose the ensuing April election. With a comfortable majority of forty-four, the new Tory government of Margaret Thatcher was now in a position to effect her radically new economic program.

In Canada, the nm-up to the reform period of the 1980s was different &om that of

Britain in a number of ways. More than anything else, the 1970s in Canada had little of the sense of impending economic disaster that seemed to recur periodically in Britain. In fact, as throughout Canada’s recent history, any sense of impending crisis or national peril has usually been constitutional in nature, and has dealt with the issue ofQuebec nationalism and separatism. The 1970s is a prime example—from Charles de Gaulle’s 1967 " Frve le Québec libre' speech in Montreal to the hostage situation of 1970 and the eventual patriation of the

Canadian constitution in 1982, the prime issue facing Canada in the 1970s was national

109 identic and cohesion, not economic decline (Lafbrest 1995). Nevertheless, economic issues were never farhrom the surface. No less than other industrial nations, Canada had to respond to the world economic shocks of the 1970s and, as we shall see, the way it did so led in part to the reform program o f the Mulroney government from 1984 on.

Unlike Britain, Canada in the 1970s was dominated by one political party and indeed one prime minister—the decade belonged to the Liberals and to Pierre Elliott Trudeau, who took office in April 1968 and held it until June 1984, with the single exception of the June

1979-March 1980 Conservative interlude. Thus, Canada s economic policy at this time largely reflected Trudeau's own personal attitude towards economics (Radwanski 1978,

Sharp 1994). Trudeau was, according to most observers, largely uninterested in economic policy. For him, it was largely a matter of management, of bureaucratic tinkering, and he was more interested in the "big issues’ of Canadian society and foreign afrairs than in the niceties o f economic theory.'^ The only exception to this was the issue of the United States.

Significantly more internationalist and less disposed towards the United States than his predecessors, Trudeau sought to reduce Canada’s dependence on and economic penetration by the United States, as has been discussed above. Meanwhile, the government continued an essentially Keynesian set of policy responses (Doem 1983). As the economic crises of

% ne of Trudeau’s former ministers put the point bluntly, 'Frankly, Mr. Trudeau wasn’t interested in things economic’ (Personal interview, 12 February 1998, Columbus, Ohio). And in the words of one of his ministerial colleagues, 'Sometimes we didn’t care about economics. We just did whatever we frit was right. Everything we thought that should be done, we did— I think [Trudeau] loved doing these things which were of a progressive nature, liberal, which helped the needy, which brought culture and the arts to the people, housing. If you had a good social case in that cabinet, it was tough to lose it on m on^ grounds’ (Personal mterview, 10 December 1997, Toronto). no the 1970s began to bite, the government largely maintained a reflatiotiary stance, attempting to stop what became an inevitable spike in unemployment. In the end, just before the 1984 election, Canada sufiered a severe recession and, in budget terms, was on the verge ofserious fiscal trouble.

Trudeau's efforts to reduce Canadian dependence on US markets and limit the degree ofAmerican penetration of the Canadian market have been touched upon above. Essentially,

Trudeau's approach to trade was classic economic nationalism. Exercising the so-called

‘third option', the government sought to strengthen its ties with a variety of countries other than the United States, hoping that over time such links would diminish the seemingly overwhelming influence of the US. In this vein, the two main economic examples were the

Foreign Investment Review Agency (FIRA), set up in 1974. and the National Energy Policy

(NEP), introduced in 1980. Both were intended to provide Canada with some much-needed control over its own economic affairs—the first by providing for the systematic vetting o f all foreign investment proposals in Canada (which, in reality, nearly always meant US investment) and the second by attempting to more rigorously control the supply, distribution and pricing of Canadian oil in an effort to achieve a high degree ofself-sufEciency in energy.

The relative merits and faults of these programs are beyond the scope of this work. It sufRces to say that these attempts by the federal government to extend state control over key points of foreign economic penetration and involvement were products ofTrudeau's attempts to lessen American influence in Canada and, in turn, would be prime targets of Brian

Mulroney's efforts to reverse this trend and transform Canada into a market virtually entirely

111 open to foreign, and particularly American, economic involvement (James and Michelin

1989; Laxer 1989).

The other economic story of the Trudeau years, however, is the success of economic policy in the 1970s and its seeming ineffectiveness in the 1980s. For most of the decade of the 1970s, Canada held its own against the world economic forces that were causing so much distress in Britain and elsewhere. As Table 15 shows, Canada certainly saw a jump in inflation following the 1973 oil shock, but it was actually below that experienced in the

OECD as a whole and well below that in other three countries considered here. For the period 1973 to 1979, Canada's inflation rate was well below the OECD average, below

Australia and New Zealand, and nearly six and a half percent lower on average than that of

Britain during this period. Some of this success was undoubtedly at the cost of higher unemployment—Canada's unemployment rate in the 1970s was higher than the other three countries, as it had been in the 1960s and would remain so in the 1980s (Table 14). But the real indication of Canada's weathering of the storms of the 1970s were its rates of growth.

From 1973-79, Canada averaged real GNP growth of 4.2 percent a year, a remarkable Ggure when compared to 2.7 percent for Australia, 1.5 percent for Britain, New Zealand’s abysmal

0 2 percent and an OECD average of 2.6 percent (Table 16).

But the wheels were soon to come off this rather respectable economic performance.

Following the brief minority government of Joe Clark (1979-80) whose tight, tax-raising, expenditure-cutting budget failed in parliament (Simpson 1980), the Liberals returned in time for another worldwide recession. In fact, the recession of 1982 was the worst Canada had seen since the Great Depression. By way of comparison, GDP had shrunk in real per capita

112 tenns by only 0.4 percent in 1975 and 0.2 percent in 1980, following the twin oil shocks.

But in 1982, the Canadian economy contracted 5.5 percent on a per capita basis, by far the worst of the four Anglo-American coimtries (Table 16), and much worse than its nearest

OECD competitor, the US at 3.9 percent. The response of the government, and that of

Finance Minister Marc Lalonde, was to take the brakes off the economy altogether.

Reversing recent attempts at restraining inflation, the government tried a Keynesian-inspired stimulus to reduce unemployment from its high of nearly twelve percent in 1983, and bring the country out of recession. In the event, the strategy was successful: real GDP rose by 6.4 percent in 1984. But the cost of the repeated fiscal stimuli, plus the revenue impact of recession, was an explosion of government debt (Perry 1989, Jenish 1996). From moderate deficits in the range of 1.5 to 3 percent ofGDP in the late 1970s, deficits in the early 1980s ballooned to six percent, then to seven percent of GDP-put differently, a debt/GNP ration of 16.6 percent in fiscal 1974/75 had grown to 452 percent in 1984/85 (OECD [Canada]

1985,20). Unemployment, however, reacted weakly to all the deficit spending. When the

Tories took office in 1984, the Jobless rate was still in excess of eleven percent, double what it had been in the early 1970s (Table 14).'*^

Thus, the Conservative government of Brian Mulroney came to power in the aftermath of an extraordinarily painful recession, much more so even than the relatively

‘^As a former Finance Minister in Trudeau’s government would later say, ‘[W]e had certainly not abandoned the Keynesian approach, that you need pump-priming in times of deep recession. So that certainly added to the deficit.... [B]ut this was the prevalent economic theory of the day still’ (Personal interview, 17 February 1998, Columbus, Ohio).

113 easily-weathered shocks of the 1970s. As will be shown in the next chapter^ Mulroney came to ofSce promising first and foremost a reduction in government deficits and eventually a balancing of the government’s books (Mulroney 1983). The strategy he chose was a neoliberal-inspired combination of tight monetary and fiscal policies. Absent, however, fiom his initial policy program was any mention of the need to open Canada to international economic competition. The issue of foreign penetration, so near to Pierre Trudeau’s heart, was to come later. Instead, in the aftermath of the 1981-82 recession, the new government claimed that the key to lasting economic recovery was an entrepreneurial revolution, cutting the size o f‘big government’ and rolling back what it claimed were the big-spending excesses of Liberal hegemony.

For Australia, the 1970s was a decade of unrealized ambitions for many. Without a doubt, the seminal events of the decade were the accession to power of Gough Whitlam and the Labor Party in 1972 and its dismissal from government in 1975. Having been in the political wilderness for most o f the postwar period—the Liberal/Country coalition had been in power since 1949—the Australian Labor Party came to office with a leader committed to achieving a social vision premised on equality, compassion, social welfare and a progressive attitude to moral and social issues (Whitlam 1985; Emy, Hughes and Mathews 1993). In the words of one former Labor minister, the Whitlam government ‘opened the windows and doors of this nation and let some fiesh breezes blow through and invigorate a sense of nationhood and challenge and opportunity that had never been thought of or dreamed of in the long reign of the conservative « a ’ (Personal interview, 2 July 1998, Canberra). In his grand vision for whata modem Australia should be, Whitlam was similar m many ways to

114 Trudeau—a man who thought the ^deep thoughts’ and left the technicalities of economic administration to his Treasurers.'* The government’s policies wexc not radically different from what one would expect from social democratic parties of the day, except that, in the case of Australian Labor, a prolonged period in opposition had whetted the park’s appetite for the introduction of, in their view, long-overdue reforms and social spending programs.

Thus, the government introduced a raff of spending measures, largely targeted on social programs. As remembered by a former Liberal minister,

[The Whitlam government was able] to suddenly hop into the sweet jar and imagine they could do anything. And I give one example, and it was an extraordinary one. There’s a man called Gordon Bryant, Minister for Aboriginal Affrirs. And he was a very kindly, decent man, Gordon Bryant. ... And as he went around to the aboriginal communities and talked to them, he literally-and I’m not joking here—he went round with a suitcase o fmoney and as he saw things that needed fixing, he shelled it out On the spot In cash. ... Now, in an extreme form, that was illustrative of the Whitlam government’s approach to economics (Personal interview, 21 May 1998, Canberra).

The result of such largesse was a massive growth in government spending—from 26.3 percent of GDP in 1972 to 323 percent in 1975. Fuelled in large measure by government spending, the economy weathered the 1973 oil shock nicely, growing at a real rate of 5.5 percent in 1973, falling only to 1.9 percent in 1974 (Table 16). The real problem, not surprisingly, was inflation. In 1975 it peaked at 15.1 percent, this up from just 3.9 percent

^In his biography of Bill Hayden, John Stubbs relates the following anecdote; ‘^At a function to marie Bill Hayden’s twen^-frve years in Parliament, Whitlam recalled Hayden coming to him anxiously to report than an American agency was considering downgradmg Australia’s credit rating. Whitlam said: ‘^Sounds serious, comrade. What does it mean?’*^ (1989,119).

115 in 1970 (Table 15). By this point, though, the government realized the need for restraint and introduced a fiscally tight ‘mini-budget’ in late 1974.

In the end, however, it all ended in tears for the Labor Party. In what has now become a legendary event in Australian political history, then-Govemor General John Kerr responded to a govemment-opposition deadlock in parliament in 1975 by dismissing the

Whitlam government in what Labor supporters to this day view as a supremely undemocratic, even unconstitutional, act (Kelly 1995, Horae 1976). Whitlam’s brief government was replaced by a Liberal/National coalition under Malcolm Fraser, which would last until 1983.

Here too, however, disappointment was at hand. Just as Whitlam’s government had portended a progressive revitalization of Australian society before it was prematurely dismissed, so Fraser’s accession to power seemingly signaled the arrival of a new economic doctrine—that oflimited government, deregulation, rolling back the state, restraining taxation and expenditure. But, while the language was there, the results were lackluster. Fraser proved to be more a traditional patrician conservative than a radically reforming neoliberal

(Ayres 1989, Weller 1989).'* Rather than cutting back the scope of government, Fraser actually extended it during his term in office. When he left office in 1983, total government outlays totalled 36.4 percent of GDP, a substantial increase firom the 323 percent left after

'*In the words of a former Liberal minister, ‘There were a lot of people who were unhappy with Fraser because they felt that in 1976 Australia needed a dose of very strong medicine to recover fiom the Whitlam excesses. And Fraser, he looked like a patrician figure, everyone thought that... he would really make life tough for us. Now that didn’t happen— [H]e is, in fact, a softie and the soft options were the ones that he adopted’ (Personal interview, 29 May 1997, Canberra).

116 the Whitlam government’s heyday. In short, fearful o fpolicies potentially damaging to the social fabric he so valued, Fraser resisted any attempts at real economic reform. As he resisted a sizeable minority of backbenchers—and even a few Cabinet ministers—who

increasingly called for some sort of neoliberal change (Costar 1994), the economy’s performance continued to slide. The economy contracted in per capita terms by 23 and 0.4 percent in 1982 and 1983, inflation reemerged in the 1980s and hit 11.2 percent in 1982 and unemployment doubled over the course of the government, to 9.8 percent in 1983.

Meanwhile, the federal government’s budget deficit hit a postwar high of 3.7 percent of GDP

in 1983 (Table 17).

Thus, by the time the Hawke Labor government came to power in 1983, it was clear that the old economic shibboleths had failed. Whitlam had taken a ^ically social democratic tack—dramatically increasing govenunent spending and introducing deficit

financing. Then, for the rest of the decade and into the 1980s, as the economy worsened,

Fraser stayed the course, carrying on largely as Australian governments always had—with

sizeable doses of regulation, protection and domestic defense’ forming the cornerstone of

economic policy. The paradoxical result was that, when radical reform actually came to

Australia, it came from the left of the political spectrum—not from Fraser, not from a

Whitlamhe Labor Party, but from one which was prepared to take a radically different course

in the latter half of the 1980s.

While in Australia, Malcolm Fraser’s rather conservative, status quo-oriented hand

rode the economic tiller, in New Zealand a very different kind of conservative’ governed

the country. There, from 1975 to 1984, Sir Robert Muldoon presided over what has to be

117 considered the most interventionist and regulatory of any industrialized democracy. As discussed above. New Zealand was already a highly-regulated, highly-protected economy.

It was even more enveloped in policies of domestic defense than its neighbor across the

Tasman. But in Sir Robert it had a forceful proponent ofthis approach, a man convinced that only the most active government economic intervention could help protect a country like

New Zealand from the incursions and instabilities of the world market. As put by one of his former ministers, ‘Although he campaigned all his life on being a party of private enterprise, he actually didn’t believe that the big decisions could be made other than by govemmenL

He really had enormous faith in government and he enjoyed the power of it’ (Personal interview, 26 November 1998, Wellington). The result, as in Australia, was that it was a succeeding Labour government which set itself the task of fundamentally reversing the post­ war economic paradigm.

To put it simply. New Zealand in the.1970s was in serious economic trouble. From

1973 to 1979, the average real rate of GDP growth was 0 2 percent; on a per capita basis, the economy actually contracted an average of 0.7 percent a year over the period. As growth essentially stopped, inflation skyrocketed (hitting 17.1 percent in 1980), the balance of payments deficit mushroomed, and unemployment went from practically zero to 5.7 percent in 1984. In any number of categories. New Zealand was performing very badly and, in comparative terms, was doing worse and losing ground to virtually every other OECD economy. The Muldoon solution, simply put, was strong government intervention.

Muldoon was a committed interventionist—radically so for a conservative—believing that only a firm, controlling hand such as his could see New Zealand’s economy through

118 (Muldoon 1977,1981).'^ As both Prime Minister and Minister ofFînance. he essentially set economic policy himself, by personal whhn, often disregarding the advice of colleagues and ofGcials to the contrary (Bollard 1994). Muldoon's economic policies reflected this essentially personalistic approach—they fluctuated frequently, with the only constant being

Muldoon’s personal belief in the virtue of intervention. His fiscal policies were largely

Keynesian—expansionary when economic downturns appeared, followed by a certain restraint when the budget deficit seemed too high. The result were fiscal deficits of four to eight percent throughout his tenure, with the deficit hitting a high of nearly ten percent in

1984 (Massey 1995,33). But undoubtedly Sir Robert will best be remembered for his grandiose, expensive—and ultimately failed—attempt at govemment-led economic investment, the 'Think Big’ projects. In a word. Think Big was the product of Muldoon’s theory that there were significant developmental opportunities for New Zealand which private enterprise was unwilling to exploit (Gould 1985). Thus, it was the government’s duty to step in and take control of large economic development schemes. For a country the size ofNew Zealand, the projects were massive. In all. Think Big approached a price tag of

NZ$10 billion—in a country whose total government expenditure in 1983/84 was only

NZ$14.3 billion. Moreover, the projects were economically unsound, even leaving aside the inability of the New Zealand Treasury to actually foot the bill. For New Zealand’s greatly

high-ranking Labour minister put it this way, I think the failure of the (protectionist] paradigm, plus the impact of the two oil shocks, led the National government into a kind o f reductio ad absurdum of the paradigm in the sense o f moving to an extraordinarily high level of controls, of intervention, of a massive industrialization program, which was clearly unsuited to New Zealand’s needs or potential’ (Personal mterview, 5 November 1998, Wellington).

119 expanded steel production capaciQr to have been economically worthwhile, half of its production would have had to be exported—at a time o f world oversupply of steel (Massey

1995,48-50). As Roger Douglas would later put it.

In the case of the ‘Think Big’ projects... we would have been better to take the NZ$10 billion that they cost on to the top of the harbour bridge and dropped it over the side. The return would have been better, for we would have had a few New Zealanders out there swimming, and they would have grabbed a bit of the money and they would never have invested in any of those projects. We would have been a lot better off They are a write-off under all circumstances. The Motonui expansion was premised on the basis that oil would now be NZ$100 a barrel. We have a little way to go to get to that figure (quoted in Massey 1995,50).'*

Simply put, by 1984, New Zealand was on the brink of bankruptcy. As Table 3 so clearly

1974/75 413 1980/81 47.5 1975/76 47.6 1981/82 49.1 1976/77 44.6 1982/83 58.1 1977/78 48.5 1983/84 63.5 1978/79 50.4 1984/85 70.6 1979/80 49.1

Table 3: Total Public Debt, New Zealand (percentage of GDP).

Source: OECD [New Zealand] 1985,9.

shows, public debt had levelled off towards the end of the 1970s, but with the advent of

Think Big, the real blowout occurred. From 1981 to 1984, total public debt rose from 49.1

percent of GDP to 70.6 percent.

'*At the time Douglas made this comment, the price of oil was about NZ$23 a barrel (United Nations 1986,59)1

120 In short, Muldoon’s attempt to âshion an autonomous, even autarchic. New Zealand economy by means of classic policies of domestic defense had failed. As one National MP put it. Controls begat further controls and at the end of the day it was Sir Robert versus the rest of the economy’ (Upton 1985,35; quoted in Massey 1995,52). Thus, once Muldoon and the National Party lost the election ofJuly 1984, the way was paved for the Labour Party and its new Treasurer, Roger Douglas, who had his radical reform package ready to go firom the start

Conclusion

In this chapter, the main outlines of post-war economic policy were described, with particular focus on the immediate run-up to the reforming period of the 1980s. Britain was in many ways the archetype—the model o f’Butskellite’, consensus politics for most of the post-war period and the paradigmatic example of how increasingly turbulent economic conditions in the 1970s paved the way for neoliberalism in the 1980s. But the example was seen in the other three countries as well, albeit in dififerent forms and with different leaders.

In each, the end result was the same—the turmoil and economic upheavals of the 1970s (and in three of the countries, the early 1980s) largely paved the way for the governments to follow. It is true that nothing about the 1970s predetermined the course of policy in the

1980s—coimtries such as France or Greece which initially tried standard socialist policies in the 1980s are salutary reminders that public policy is not predetermined by inanimate economic forces. Nevertheless, the experiences of the 1970s m the Anglo-American democracies did at least two things: they provided an opportunity for succeeding

121 governments to pursue new programs with at least some level of public support for policy change, and they provided a set of old policies and outcomes as models against which reforming governments could react and fashion new policies. As will be seen in succeeding chapters, the fundamental importance of the 1970s in these countries was that it was held to be an example of what not to do in economic policy, and as a jmtification for the radical change which was to come.

122 CHAPTER 4

THE NEOLIBERAL EXPERIMENT:

A REVIEW OF ECONOMIC REFORM IN THE I980S

Having considered the dominant patterns of post-war economic policy in the Anglo-

American democracies, as well as the economic crises and upheavals of the 1970s and early

1980s, we now return to the central concern of this dissertation: the fact that in these countries, over the course of the 1980s, a variety of quite significant market-liberalizing reforms were enacted by both Conservative and Labour governments. Contrary to the theoretical «cpectations discussed in Chapter Two, and in clear reversal of many of the prevailing forms of post-war economic policy, governments of both political stripes embarked on reform programs that, paradoxically enough, often bore more resemblance to each other—despite partisan differences—than they did to the previous four decades of economic policy. This chapter, then, is concerned to outline the major elements of those reform programs and to highlight similarities between them, regardless of the partisan differences commonly held to exist between the parties and governments spearheading the changes.

123 The decade of the 1980s in Britain, Canada, Australia and New Zealand has generated a remarkably large literature, assessing political events, elections, personalities, party platforms, policy programs, economic variables and a variety of other topics. This literature is particularly well-developed with respect to Britain, although a great deal has been written about the other cases as well. It is not the intent of this chapter to duplicate those works. Such an exercise would be not only be redundant, but it would also be completely impossible within the few p%es available to it here. Thus, this chapter takes a necessarily summary look at the 1980s, focusing not on the fine grain of events and the details of policies, but rather on the general theme that recurs throughout this dissertation: the pursuit of remarkably similar policies by putatively dissimilar political parties in government.

Specifically, two main patterns of neoliberal reform will be identified here: the first, a dogmatic, 'revolutionary' model in which governments adopted neoliberal policies as a sort of economic religion, forcefully attempting to implement its tenets across a wide spectrum of economic policies in as thoroughgoing a way as possible; and second, a more pragmatic pattern of change, in which government leaders adopted neoliberal solutions to pressing economic problems, but did so in a much less doctrinaire fashion, applying the neoliberal medicine in a more limited, focused manner. As this chapter will be at pains to illustrate, the two patterns cross-cut partisan lines—among the four cases considered here, one

Conservative and one Labour government (in Britain and New Zealand) pursued the radical revolutionary line, while the other Conservative and Labor government (in Canada and

Australia) took a less revolutionary, more pragmatic, targeted tack. Thus, not only was

124 partisanship seemingly not relevant to the adoption of a neoliberal program, but it also had little bearing on the forceftilness and fervor of reforms as actually pursued across the cases— serving as yet another example of the partisan puzzle this study seeks to address.

The 'Crash Through or Crash* Doctrinaire Approach to Neoiiheral Reform:

Britain and New Zealand

The first model considered here is that of revolutionary, thoroughgoing change as witnessed in Britain and New Zealand. In these countries, the reforming govemments-one

Conservative, one Labour-instituted a program of economic change that fundamentally restructured most aspects of the national economy. Not content to introduce piecemeal changes, or wait for propitious circumstances in which to reorder economic policy, the governments of Margaret Thatcher and David Lange adopted what could be labeled the

'crash through or crash' approach: neo liberal economic reform pursued as part of a strongly ideological commitment to the superiority of fiee markets, and forcefully implemented with seemingly little heed for current economic conditions, political risk or social opposition.

Before moving to a summary discussion of these two cases, it is useful to point out several key aspects of this doctrinaire approach to neoliberal change as it was actually implemented in Britain and New Zealand. First, and most importantly fiom the perspective ofthis study, the 'crash through' approach cut across partisan lines (as did the more pragmatic approach discussed below): a very similar approach, and m foct, a similar set of policy objectives, were adopted both by the Conservative government m Britam and the Labour government of New Zealand, In this particular instance, partisanship seems to have been

125 essentially irrelevant. Paradoxically enough, in fact, it was actually the Labour Par^ ofNew

Zealand which achieved more radical neoliberal reforms in even a shorter period oftime than

its Tory counterpart in Britain. Here, perhaps more than anywhere else, we see a paradox

of partisanship in practice.

A second key element of this approach was that each government had, in some way,

prepared for its radical program of economic policy before coming to government In the

case of Margaret Thatcher and the Conservative Party, the formation of the new Tory Party

policy was clear and obvious. From the time Mrs. Thatcher became party leader in 1975 to

the time she became prime minister in 1979, there was a well-publicized shift from

traditional, Butskellite policies of the past to the new dogma of monetarism, 'smaller

government', entreprenuerialism, and 'getting the government out' of the economy (Joseph

1975, 1977; Behrens 1980; Waldegrave 1978). In this shift, the key event was the

publication in 1977 o f The Right Approach to the Economy: Outline ofan Economic Strategy for the New Conservative Government, a party document which detailed the major elements

of the party's new-found economic religion. In the case ofNew Zealand Labour, the change

was perhaps less immediately obvious, but, in hindsight, quite clear. As a whole, the party

made no ofBcial pronouncements prior to its 1984 election to government that it would be

as radical as it turned out to be once in ofBce. Yet, the new Finance Minister, Roger

Douglas, had not hidden his own intellectual transformation. His 1980 book There's Got to

Be a Better Wayl, published while in opposition, signalled that, at least as far as he was

concerned, a new Labour government should make major neoliberal changes. It should

therefore have come as little surprise that, once elected to office, the British Conservatives

126 and New Zealand Labour immediately began to implement these well-planned and anticipated reforms.

Finally, a third major element in this approach is probably the most obvious-the essentially doctrinaire way in which market liberalizing policies were pursued in Britain and

New Zealand. Simply put, firee-market economics had taken on something o f the status of religious dogma: deregulation, privatization and firee markets were dogmatically held to be

'correct', while the old consensus policies ofthe past were relegated to the status of economic heresy. As Margaret Thatcher, the self described 'conviction politician' put it bluntly. The other side have got an ideology ... we must have one as well. ... There are dangers in consensus: it could be an attempt to satisfy people holding no particular views about anything.... No great party can survive except on the basis of firm beliefs about what it wants to do' (quoted in Small 1996,178; Young 1989,406; Riddell 1989,1). A reflection of this essentially doctrinaire approach is the fact that only in these two countries were the architects of'revolutionary' neoliberal reforms rewarded by having their economic theories named after them: there was Thatcherism in Britain and Rogemomics in New Zealand, but, nothing comparable under Mulroney in Canada or Hawke and Keating in Australia We therefore now turn to a summary discussion ofhow the concerted application ofThatcherism and Rogemomics fundamentally altered the nature of economic policy in their respective countries.

No sooner had the dust settled on the selection of Margaret Thatcher as the new leader of the Conservative Party in 1975 than she set about reordering the party's fundamental approach to economic policy. As mentioned above, the key initial statement

127 of this new approach was found in a new economic policy manifesto. The Right Approach to the Economy, issued in 1977. In it, the party definitively stated its intention to break with the post-war consensus pattern of public policy and to set Britain on a path of economic reform which, it argued, would lead to a reversal of the long-term decline of the British economy. As the party summarized its new approach:

Our policies are designed to restore and defend individual freedom and responsibility. We mean to protect the individual from excessive interference from the State or by organisations licensed by the State, to stop the drift of power away from the people and their democratic institutions, and to give them more power as citizens, as owners and as consumers. We shall do this by better financial management, by reducing the proportion of the nation's wealth consumed by the State, by steadily easing the burden of Britain's debts, by lowering taxes where we can, by encouraging home ownership, by taking the first steps towards making this country a nation o f worker owners, by giving parents a greater say in the better education of their children (Conservative Central Ofiice 1976,71).

Despite a certain degree of campaign-style posturing, the central message was clean Britain was to see a government committed to entreprenuerialism and the primacy of the 'free market' over the dead hand o f the 'state.'

Once in ofGce, Thatcher and her first Chancellor of the Exchequer, Sir Geoffrey

Howe, set about creating this new Britain by the application of the Tories' new economic doctrine—monetarism. To put it simply, the monetarist experiment in Britain was motivated by the simple, overriding desire of Mrs. Thatcher and her government to stamp out the endemic inflation of the 1970s. As she dramatically put it in 1975,

Inflation is a pernicious evil capable of destroying any society built on a value system where freedom is paramount. No democracy has survived a rate of inflation consistently higher than 20 per cent. When money can no longer be counted on to act as a store of value, savings and mvestment are undermined, the basis of contracts is distorted and the professional and

128 middle-class citizen, the backbone of all societies, is disaffected (Conservative Central Office 1975,22).

As shown in Table 4 (see also Table 15), inflation was the bane o f Britain—not to mention the entire industrialized world—in the 1970s. The average post-1973 oil shock inflation rate in Britain was over three times as high as that experienced in the preceding thirteen years.

1960- 1973- 1979- 1989- 1973 1979 1989 1995

Britain 5.1 15.6 7.4 4.4 Canada 3.3 9.2 6.5 2.7 Australia 3.5 12.1 8.4 3.3 New Zealand 4.8 13.8 11.8 2.7 OECD Average 4.1 10.7 8.9 5.4

Table 4: Average Inflation Rates, selected periods.

Source: OECD, OECD Historical Statistics, various years.

Supported by her economics guru. Sir Keith Joseph, Thatcher had adopted the notions of

Milton Friedman and others (Friedman 1968,1970; Barro 1976; Hayek 1975; Joseph 1975;

Britton 1991,ch. 7) that the fundamental cause of—and cure for—this inflation could be found in the size and rate of increase of the money supply. In the monetarists' view, Keynesian- inspired reflations simply produced momentary increases in output at the cost of higher inflation and a growing public deficit. Once the reflation was over, output returned to a more

'natural' level, but the 'injection' of inflation mto the economy remained. Therefore, according to this view, 'growth without infiatioa was most likely to be obtained if the

129 government adhered to rigid targets for monetary growth and maintained a low public sector borrowing requirement (PSBR) wWevgr fAe sfofe o/fAe econom/ (Hall 1986» 101, emphasis added). This was a clear rejection of Keynesianism, 'that great engine of creeping socialism'.' Instead of government acting at times of recession to inject money into a stagnant economy, the monetarist idea was to maintain tight monetary and fiscal policies at all times, regardless of current economic circumstances. The government’s task, then, was not to adjust its policies to deflate or inflate as conditions warranted, but rather to hold the line in a committed, predictable manner (Thatcher 1993,97).

Moreover, 'there was a nice sense of automatic justice to the operation of monetarism’—in a restrictive monetary environment, unreasonable demands firom belligerent trade unionists would simply cost them their jobs (Hall 1986, 101).* This anti-inflation policy, then, was to be the centerpiece of the early Thatcher government's economic program.

As Thatcher told the Conservative Party Conference meeting in Brighton in 1978:

First, we must conquer inflation.... That is why we shall introduce and carry through a programme for sque^ing inflation out of the system and for restoring the balance and stability of our economy. The rate of growth of the money supply, the real size of Government borrowing, the State’s share of the nation's resources—we shall set limits for them all. Every one o f them must be reduced. We shall apply those limits with firm and unshakable resolve (Conservative Central Office, 1978,4).

'The phrase was Nigel Lawson's (quoted in Jenkins 1988,54).

"As Sir Geoffiey Howe expressed this logic. I f workers and their representatives take pay decisions which are unwise because they seek too much, they will find they have crippled their employers and gravely harmed themselves by destroying their own jobs' (quoted in Hall 1986,101).

130 In actual fact, Mrs. Thatcher's 'firm and unshakable resolve* to implement monetarism in Britam produced decidedly dubious results (Pliatzky 1989; Maynard 1988; Keegan 1984,

1989). According to the new program, dubbed the Medium Term Financial Strategy

(MTFS), both monetary and fiscal policy were directed at eliminating inflation and restoring

Britain’s competitiveness and economic growth. The government's plan was to set specific targets for the yearly growth o fthe money supply, targets which would be achieved primarily through the manipulation of interest rates and the control ofbudget deficits. As it turned out, controlling the money supply proved well beyond the government's capacity. As Table 5 shows, year after year, the actual growth of the money supply exceeded the government's stated targets. Even with interest rates approaching twenty percent, the monetarist strategy of the early 1980s did very little to stem monetary expansion. Furthermore, despite the fact that a deep recession was underway—with unemployment in the double digits and real GDP declining-the government initially held firm to the holy writ of monetary targets, refusing to relax the stringent anti-inflation strategy.^

Faced with its quite obvious failure to meet the money supply targets, the government from 1982 on tried a variety of other tactics: the initial target aggregate M3 was joined by a grab bag of other monetary targets, including M1, M5 and MO, while the targets themselves were increasingly relaxed (and usually exceeded) (Goodhart 1989). In the years to come, the

^As Nfrs. Thatcher declared to the 1980 Conservative Party Conference, T o those waiting with bated breath for that favorite media catchphrase, the "U-tum", I have only one thing to say: You turn if you want to. The lady’s not for turning’ (quoted in Harris, ed. 1997,116).

131 MTFS Targets (percent per annum)

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Actual

M3 80/81 7-11 20.0 81/82 6-10 6-10 14.5 82/83 5-9 5-9 8-12 10.0 83/84 4-8 4-8 7-11 7-11 9.8 84/85 6-10 6-10 6-10 9.5 85/86 5-9 5-9 5-9 5-9 14.8 86/87 4-8 4-8 11-15 *** 18.0 87/88 3-7 3-7 22.1 88/89 2-6 2-6 22.4

M l 82/83 8-12 11.0 83/84 7-11 7-11 11.0 84/85 6-10 6-10 85/86 5-9

MS 82/83 8-12 9.0 83/84 7-11 7-11 12.3 84/85 6-10 6-10 *** 85/86 5-9

MO 84/85 4-8 5.5 85/86 3-7 3-7 3.5 86/87 2-6 2-6 2-6 4.0 87/88 1-5 1-5 2-6 2-6 5.0 88/89 0-4 0-4 1-5 1-5 1-5 7.5 89/90 1-5 1-5 1-5 1-5 6.0 90/91 0-4 0-4 2.7 91/92 ■ 0-4 0-4 92/93 0-4

Table 5: Money Supply Targets and Actual Outturns» Britain.

Key: *** = Target range abandoned Source: Healey 1993» 138-9.

132 government, while not openly admitting defeat, progressively retreated &om its kamikaze attitude towards inflation—five percent 'effectively became the "target" inflation rate, with the government only tightening policy when inflation looked set to breach this ceiling; the goal of price stability, like fidl employment before it, became a vague, political aspiration, rather than a concrete policy objective' (Healey 1993, 140). Whether the monetarist experiment in Britain contributed to dramatically reduced rates of inflation by the end of the

1980s is debatable (Davies 1989). What is not is that 'monetarism had become synonymous with Thatcherism (or Thatcherism with monetarism) and [the Prime Minister) remained wedded to her simple beliefs that governments had no business printing money and that markets must be allowed their play' (Jenkins 1988, 283). This grand experiment with monetarism in Britain proved one thing, however—that the commitment to full employment was dead.’’ Inflation, rather than unemployment, was now the chief target of government

*As Nigel Lawson put it in 1982, ^[S]o long as it was believed that governments could always maintain full employment by accommodating fully, in monetary terms, whatever wage or price push happened to occur, then not only was wage and price push tacitly encouraged, but the moral and political pressure on government always to make such accommodation was irresistible. By contrast, now that we have learned the hard way that the monetary validation of whatever wage or price push may occur leads not to hill employment but to accelerating inflation, the political pressure is greatly weakened and the moral pressure reversed. Thus the important change in the economic framework is not that we happen to be passing through a particular stage in the trade cycle. It is that tfie notion that governments can guarantee fa ll employment is now recognisedfor the cloud- cuckoo-land it always wasi and the moral that management and unions alike cannot be protected from the consequences o fthem own actions has at last been thrawn (1982,10, emphasis added).

133 policy and price stability was to be pursued regardless of the price to be paid in lost jobs

(Jenkins 1988, ch. 5).*

The skyrocketing unemployment of the early 1980s also contributed to another important element in Thatcher's program to reform the British economy—the emasculation of the trade unions. As described in Chapter Three, the 1970s, and particularly the latter years, had been a period oftremendous industrial upheaval.® The Heath government had lost two major confrontations with the miners, in 1972 and 1974, and the Callaghan government had been felled by the massive series of rows with public sector unions during the Winter of

Discontent The nation had become increasingly weary of major industrial disputes^ and it

*As Jenkins describes the Thatcherite attitude, 'Before the end o f [1980] unemployment at 1J million when [Thatcher] came in, had exceeded two million. "How much responsibility do you feel for unemployment?" Sir Keith Joseph was asked in an interview. Sincere as ever, he replied, "None. None."’ (1988,98).

®The average number of workdays lost to strikes per year in the 1970s was 12.9 million. This compares to 3.6 million in the 1960s, 12. million in the 1980s (including the one big event, the 1984-85 miners' strike), and only 607,000 from 1990-97 (International Labour Office, Year Book o fLabour Statistics^ various years).

^The shift in attitudes is well-attested by comments by Lord Hailsham, the quintessential old-style, 'middle way' Conservative, at the end of the 1970s: 'Of course Trade Unions were formed to defeat hard faced masters, Thomas Gradgrind and his kind. But if! may coin a phrase: who are the masters now? Who ate the exploiters? Who are the oppressors? It is one thing to bring Thomas Gradgrind to his knees by hitting him where it hurt most—in his pocket. But it is another thing to bring your follow countrymen to their knees by threatening to deprive them of the means of a living. It is one thing to close Thomas Gradgrind's mill to teach him that it does not pay to starve your workers. It is another thing to build up a state monopoly like the railways, the mines, the steel works, and then say to your follow countrymen—'We will bring the whole thing to a halt unless you give us a 25% rise or £120 a week.” It is one thing to picket Thomas Gradgrind's factory. It is another thing to picket a hospital, a school, or a magistrate’s Court' (Conservative Central Office, 1980).

134 was obvious &om the start that Thatcher was not particularly sympathetic to the unions. At the Party Conference in September 1979 she declared:

What madness it is, that winter after winter we have the great set-piece battles, in which the powerful unions do so much damage to the industries on which their members' living standards depend ... We hanker after a West German standard of living. But we fail to recognise that you cannot have a West German standard of living with a British standard of output The truth is very simple: West German pay plus British output per man equals inflation. And that is exactly what is happening. The unions win pay awards their members have not earned; the company pays out increases it can't afford; the prices to the consumer go up; Government prints the money to make it all possible, and everyone congratulates it on its success as an honest broker, with or without beer and sandwiches at Number Ten (Conservative Central OfiBce 1979,4).

The government's approach was thus simply to 'stand up to the unions.' As discussed above, part of the government's strate^ was to run such a tight monetary policy that workers could easily find themselves priced out o f jobs if they insisted on excessively high pay rises.

In the public sector, the government's new cash-limited budgets sought to enforce the same discipline on ministers—if they granted excessive pay awards to public employees, the department budget would run short. Linder no circumstances, however, would the government consider a return to the old strategy of incomes policies, attempting to either negotiate or enforce some predetermined rate of pay increase on workers (Kavanagh 1987,

237).

Coupled with legislative acts to outlaw flying pickets, remove unions' legal immunity firom civil action, compensate those expelled fix)m a union in a closed shop, and regulate workers' ability to declare closed shops, elect union officials and call strikes*, the government

*The Employment Acts o f 1980 and 1982 and the Trade Union Act of 1984.

135 also stood firm and resisted compromise with strikers against British Leyland, British Steel,

British Rail, and with various public sector workers. But the real test, perhaps not surprisingly, came against the miners in 1984 and 1985. Having had to back down over the threat of a miners’ strike in 1981, Thatcher had prepared for a second round (Walker 1991,

Thatcher 1993). With coal stocks at high levels at power stations throughout the country and with police well-organized and coordinated to deal with picketing, the miners under the leadership of Arthur Scargill were unable to create the disruptions they had caused in 1972 and 1974. To make matters worse for Scargill, the miners were divided—Scargill bad not polled miners prior to calling the strike and, as a result, many pits remained open, worked by dissident miners. Throughout it all, Thatcher refused to negotiate or compromise with the miners. She had prepared for this moment and she would not be moved. Eventually, the dissident miners formed a new union, the Union o f Democratic Mineworkers, and gradually more and more miners defied Scargill and returned to work. By April 1985, the strike was over and Thatcher, through her irresolute refusal to compromise, had broken the back of one of the formerly most powerful unions (Morgan 1990, 472-5; Adeney and Lloyd 1986;

Beynon 1985; Winterton 1989). In effect this was not only the end of miners’ militancy- helped in large measure by the collapse of the industry as a whole (Glyn and Machin 1986)— but of industrial conflict altogether. As Table 6 shows, by the 1990s, the number ofworkdays lost to industrial disputes was at post-war lows.

A third major element in Thatcher's program was one to be repeated with a vengeance in New Zealand—the wholesale privatization o f state-owned enterprises (Veljanovski 1987,

136 Letwm 1988, Gamble 1988). At the heart of Thatcherism was the notion that private individuals and corporations were inherently better.

1960-69 1970-79 1980-89 1990-97

Industrial Disputes 2446 2598 1123 295 (average/year)

Working Days Lost 3555 12870 7213 607 (thousands, average/year)

Table 6: Industrial Disputes and Working Days Lost, Britain, 1960-1997.

Source; International Labour Office, Year Book o f Labour Statistics, various years.

more efficient economic managers than the state. Thus, the state had no business interfering in what should properly be private activity. Loss-making enterprises were nothing more than a massive drain on the public purse; the few profitable ones could obviously compete in the private sector and should be returned there.^ Finally, the public tendering of state-owned

’Sir Geoffirey Howe put the case this way: 'A private firm must adapt its production—in qualiQf, specification, cost and volume—to what the consumer will biQr or go out of business. In the private sector the consumer is generally sovereign. In the public sector he is all too often dethroned by subsidy and monopoly. All too often subsidies have been paid in order to maintain production in those industries which were failing to sell their output profitably to the public. Thus in the past we have tended to subsidise production o f those goods the public wants least, produced by those processes which are relatively least efficient, manned by employees who are most highly paid relative to their productivity—not a recipe for nnproving living standards!' (Howe 1981,4-5).

137 assets served to further a long-cherished goal of Mrs. Thatcher's—to turn Britain into her vision of a property-owning society of ordinary citizen-capitalists.'®

By the time the Tories left ofBce in 1 991, the Thatcher-initiated privatization program had resulted in nearly fifty state-owned enterprises being privatized, for total proceeds of over £60 billion, or in excess of ten percent of 1994 GDP (OECD [United Kingdom] 1995,

91). Whereas in 1979, 'the state had a major stake in many of Britain's most important industries, namely steel, motor vehicles, aero engines, aerospace, coal, rail, road haulage, air travel, oil, telecommunications, electricity, gas and water,' by 1997 none of these industries remained in public hands (Table 7) (Parker 1993, 174). As a result of'selling the family silver,’" the government's twin privatization-related goals were largely achieved: the share of British industry controlled by the state fell by sixty percent from 1979 to 1991 and the number of private citizens owning shares jumped firom 3 million in 1979 to 11 million in

1990 (Thatcher 1995,574; Coxall and Robins 1998,62).‘*

‘°As The Right Approach to the Economy sxated the Thatcherite notion: "The Conservative Party's commitment to a property-owning democracy is long-standing. We believe the time has come to extend it to ownership, not only of homes, but of wealth in other forms as well. For us a free society is a society in which property in all its forms is held by as many people as possible. This is the antithesis of the narrow State ownership in which Socialists believe. We would like to see the habit of personal capital accumulation, making vast numbers of people owners as well as earners, much more deeply ingrained in our society' (Conservative Central Office, 1976,34).

"The phrase was reportedly the Earl of Stockton's, the former Harold Macmillan. In actual fact, he warned of the dangers of selling off the Georgian silver before going on to the furniture and the Canaletto paintings (Evans 1997,36).

'^The issue of Thatcher's success in creating a property-owning society is a contentious one. Some point out that many of the first-time share-owners sold their shares very quickly, pocketing the easy profit without becoming the kind of'little capitalists' Mrs. Thatcher envisioned. For example, within a year o f the sale o f Cable and Wireless in

138 Nationalized Industries, 1945-1979 Privatization, 1979-1997

Bank of England (1946) British Petroleum (1979-87) Civil aviation (1946) British Aerospace (1981,1985) Cable and Wireless (1946) British Sugar Corporation (1981) Coal (1946) Cable and Wireless (1981,1983, 1985) Road and rail transport (1946) Amersham International (1982) road haulage denationalized 1953 National Freight Consortium (1982) Land development rights (1947) Britoü(1982, 1985) Electricity (1947) Associated British Ports (1985) Gas (1948) Enterprise Oil (1984) Iron and Steel (1949) Sealink(1984) denationalized 1953 Jaguar (1984) renationalized 1967 British Telecom (1984-94) Rolls-Royce (1971) British Gas (1986) British Leyland (1975) British Airways (1987) British National Oil Corp. (1976) Royal Ordnance (1987) British Aerospace (1977) Rolls-Royce (1987) British Shipbuilders (1977) British Airports Authority (1987) Rover Group (1988) British Steel (1988) Water companies, 10 (1989) Electricity companies, 12 (1990) National Power/Powergen (1991) Scottish Electricity Companies (1991) British Coal (1994) Railtrack(1995) British Energy (1996) Rail passenger franchises (1996-97)

Table 7: Nationalization and Privatization in Britain, 1945-1997.

Source: Coxall and Robins 1998,62.

139 In short, the monetarist attack on Keynesianism, the unemployment it produced, the significant weakening of the trade unions, and the wholesale sell-off of public enterprises radically transformed the nature ofthe British economy over the 1980s. If one includes such policies as council home sales, the 'reform' of local government and its finances, as well as health and education reform the magnitude of change becomes even more apparent. In many important respects, the 'firontiers of the state' were well and truly 'rolled back.' Throughout it all, the explicit Thatcherite approach was to be revolutionary, to make dramatic change and to do so rapidly. As Thatcher said of herself, 1 am a conviction politician. The Old

Testament prophets did not merely say, "Brothers, I want a consensus." They said: "This is my faith and vision. This is what 1 passionately believe. If you believe it too, then come with me'" (quoted in Thatcher 1995,448).

This same prophetic zeal was characteristic of the other 'crash through or crash' neoliberal government of the 1980s, that of the Labour Party of New Zealand. More specifically, a small coterie of ministers drove the revolutionary pace of change—Roger

Douglas, actively supported by David Caygill and Richard Prebble, and tolerated by the prime minister, David Lange. After a brief honeymoon period,

[Douglas and his colleagues] were firmly in control, and began moving as far and as fast as the few institutional constraints allowed.'^ Easton has called

1981-2, the number of shareholders in the company dropped finm 150,000 to less than 26,000. By 1990, the number of shareholders in British Airways had dropped firom one million to less than 350,000, those owning stock in British Gas fell fiom ft)ur and a half million to less than three million, and share-owners in Rolls Royce declined fiom two million to 925,000 (Dorey 1995,203).

must be remembered that the Labour Party in 1984 had a solid majority—56 of 95 seats—and, in a unicameral system, thus had little in the way of legislative barriers to slow

140 this the 'blitzkrieg' approach; In each case the lightening strike involved a policy goal radically different firom the existing configuration, to be attained in a short period, following a surprise announcement and a very rapid implementation' (1994, 215). Critics and opponents were always on the defensive and left debating last week's reforms. The major decisions had already been taken; any consultation was left to details (Kelsey 1995,33).

In a page tom directly fiom Mrs. Thatcher's hymn book, the agenda o f economic and structural reform carried out in New Zealand was centered on four key areas of reform: the liberalization of markets and trade, a reduction of the size and scope of the state itself, a monetary policy whose fundamental goal was price stability, and a fiscal policy emphasizing the need for restraint and better fiscal balance (Kelsey 1995, 85). We briefly consider the most far-reaching o f these reform programs—the liberalization o fdomestic markets and trade, a monetary policy focused on the total elimination of inflation, and a huge privatization program to reduce the size of the state sector.

As previously discussed. New Zealand in the post-war period, and certainly after the

Muldoon foray into interventionism on a massive scale, was probably the most regulated and illiberal economy in the Western industrialized world. With government regulations, controls, subsidies and restrictions affecting virtually every aspect of the economy. New

Zealand was, in David Lange's words, 'nm like a Polish shipyard' {The Listener, 19 August

1989; quoted in Kelsey 1995,38). Not surprisingly, then, the destruction o f this elaborate system of controls was high on Douglas and Co.'s list o f necessary reforms. The financial sector was one of the first to be deregulated. As Massey puts it, '[wjithin nine months of

Labour's election victory in July 1984 the financial system went fiom bemg the most to

the pace of reform.

141 possibly the least regulated within the OECD' (1995, 133). In July 1984, interest rate controls were abolished. In December exchange controls were eliminated, allowing for virtually firee capital flows in and out of the country. Then, in March 1985, the New Zealand dollar was floated. Foreign banks were now allowed to operate in New Zealand and a whole host of regulations strictly limiting the activities of flnancial institutions were eliminated

(Harper and Karacaoglu 1987; Buckle 1987).

In other sectors, deregulation was extensive as well. In agriculture—traditionally the most protected and subsidized sector in a country once dubbed "England's overseas farm'—the government dismantled virtually all subsidies, controls and supports. In fact, as Table 8 indicates, the effective rates of assistance to agriculture over the course of the decade declined dramatically. By 1987/88 they were actually negative. The deregulation of

%riculture was matched by the deregulation of transport. Previously, in support of the railroads, it had been unlawful for goods to be transported more than 150 kilometers by road.

Similar protective controls existed for air transport, shipping and ports. The government moved to essentially deregulate these markets as well, even to the point of allowing foreign access to these traditionally well-protected sectors (Bremer and Brooking 1993, Evans 1987).

Finally, in a move to significantly liberalize foreign trade. New Zealand's complex network of industry protections, tariffs and import restrictions was drastically liberalized

(Bollard 1987, Wooding 1987). The old system of protection had relied on high tariffs, strict

142 1980/81 1983/84 1986/97 1988/89

Sheepmeat 11 100+ 44.7 -3 Wool -2 25 -7 -13 Milk 16 100+ 3 -6

Table 8: Effective rates of assistance to agriculture. New Zealand.

Note: Effective rates of assistance measure the degree by which an industry's value added is artificially inflated by government assistance. So a rate of one hundred percent indicates that for every dollar of value added, the government provides a dollar of assistance. A figure in excess of 100 percent indicates that the value of output was actually less than the value of inputs, when calculated at world market prices. Negative amounts exist when the 'cost excess'—the cost due to higher rates of input prices caused by assistance to other sectors-is greater than assistance to this industry.

Source: OECD [New Zealand] 1989,37; 1991,63.

143 import licensing rules, and rigid New Zealand content requirements." The result of these trade barriers was that, for all intents and purposes, most finished goods had to be produced iu New Zealand itself, rather than imported. Seeking to expose this traditionally-sheltered market to the rigors of international competition, the government implemented across-the- board tariff reductions in 1986 and 1987 and, in 1989, abolished most import quotas altogether (Table 9). Additionally, the Closer Economic Relations (CER) agreement which

Muldoon had signed with Australia became fully operational in 1990 and thus created an essentially firee trade zone across the Tasman. In short, the government's trade policies were a significant reversal of the protectionist shibboleths of'domestic defense'. While a few isolated sectors retained a higher degree of protection into the 1990s—notably textiles, clothing and footwear—the resultant effect of the Labour government's trade policies was a

"Roger Douglas quotes businessman Alan Gibbs' description of how the system operated to prevent the importation of foreign products: A typical example was the television assembly industry. We would go to Japan and explain to wide-eyed Japanese that our government wanted us to assemble their TV sets in New Zealand. They could hardly believe their ears. They said no one assembles Japanese TV sets. "Do you have cheaper labour?" they asked. "Make you own tubes? Transistors? Anything?" "No," we said. "We Just have to make them in New Zealand; and because there are only a few of us permitted to do this, we make good money doing it." After much time and explanation and shaking of heads, the Japanese finally agreed to sell us the bits to assemble their sets in New Zealand. However, they explained this was very costly. They were making tens of thousands of sets a day and we only wanted parts for a few thousand a year. At great cost they contracted outside people to come in, take assembled sets apart, sort out all the pieces we needed and put them in boxes. T h ^ got engineers to write out all the instructions in English for reassembly, and shipped them on their way. Naturally someone has to pay for this, and on average they charged us for the parts, as a special favour, 110 per cent of the price of the finished goods all boxed and ready to go to the retailer. We then opened a factory, imported much machinery, paid the highest wages in the neighbourhood, employed the most intelligent engineers to decipher the instructions, used a great deal of electricity, and foially produced a TV set with negative New Zealand content at twice the imported price' (Douglas 1993,27-8).

144 decisive and probably irreversible blow to the ancien régime (OECD [New Zealand] 1991,

63-4, Massey 1995, ch. 5).

1981/82 1985/86 1987/88 1989/90

Pastoral agriculture 49 34 15 -6 Manufacturing 39 37 26 19 Food, beverages and tobacco 20 14 9 7 Textiles, apparel and footwear 90 160 69 59 Wood and wood products 51 28 21 16 Paper, printing and publishing 24 17 13 9 Chemicals, petroleum and mbber 37 38 34 23 Non-metallic mineral products 19 19 17 13 Basic metal industries 12 12 11 5 Metal products 69 58 51 34 Other 56 53 41 27

Table 9: Effective rates of assistance to New Zealand industry.

Note: See note. Table 8.

Source: OECD [New Zealand] 1991,63.

A second key characteristic of the New Zealand reform program was its approach to monetary policy. Paradoxically—for an allegedly social democratic government—it shared the Thatcher government's determination to stamp out inflation as its first priority.

Retreating from the long-standing bipartisan commitment to full employment—one essentially pioneered by social democratic parties (Castles 1978)—the government pursued a remarkably Thatcherite monetary policy of attempting to eliminate inflation. In its post- election briefing to the government in 1984, the Treasury declared that 'ideally polity should

145 be directed at achieving, in the medium term, a zero rate of inflation' (quoted in Massey

1995, 62, emphasis added). The new government quickly adopted this vigorous anti­ inflation policy as its own.

However, while pursuing the same anti-inflation objective, the New Zealand Labour government took a somewhat different tack &om that o f Thatcher, Howe and Lawson in

Britain. Rather than establishing strict, precise targets for various monetary aggregates,

Roger Douglas and his colleagues instead relied upon the Reserve Bank of New Zealand to keep a tight lid on inflation independently through its own strict monetary policy. However, with the 1987 stock market crash increasing calls for monetary relaxation, the government moved to strengthen the role of the Reserve Bank as the ultimate weapon, and protection against, inflation. It introduced a measure, the Reserve Bank Act 1989, which codified the anti-inflation objective by establishing price stability as the Reserve Bank’s overriding goal of monetary policy and instituting a mechanism whereby the Governor of the Bank could be dismissed if inflation exceeded the government's targets. This, then, was an anti-inflation policy with teeth. While the Conservative Thatcher government toyed with monetary aggregates, the New Zealand's Labour government codified into law an anti-inflation objective. In section eight of the 1989 Act, the government reduced the Bank's charge fiom including 'social welfare' and 'full employment' to only one objective:

The primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stabiliQ r m the general level o f prices (quoted in Dalziel 1993,84).

In one foil swoop, '[a]Il references to the social welfare ofNew Zealand, and to production, trade and employment, ^adj been removed fiom the statutory objectives.' From then on, 'the

146 sole focus [would bej on the economic objective of price stability’ (Dalziel 1993,84). In this respect, perhaps, the New Zealand government proved to be the most radical of the four neoliberal governments considered in this dissertation—by codifying the anti-inflation objective into law, this putatively social democratic parfy completely eliminated, by statute, the old consensus commitment to fixll employment (Dalziel 1993, Whitwell 1987, Bertram

1993).

Finally, New Zealand Labour imitated the British government’s wholesale sell-off of state-nm entities. The argument in New Zealand was essentially that used in Britain—the public sector was bloated with inefficient, poorly-managed, usually loss-making enterprises that rather than representing a net asset to the nation constituted instead a drain on the public purse. In the mid-1980s in New Zealand, this sector of the economy was reasonably large, constituting twelve percent of GDP in a wide variety ofareas—banking, mining, engineering, transport and tourism among them (OECD [New Zealand] 1989,49).

Initially the government announced its intention to simply ’corporatize’ a niunber of state-controlled activities. That is, the commercial state operations would be converted into state-owned enterprises (SOEs)—essentially state-owned corporations but ones which would have profit as their primary goal and which would in most respects resemble normal private sector corporations in their operation. In December 1986, the State Owned Enterprises Act established nine newgovemment-owned corporations along these lines: corporations in land, forestry, electricity, telecommunications, coal, ahways, the Post OfGce Bank, New Zealand

Post and Government Property Services were established. As Kelsey describes it, 'the early corporatisation policy was implemented virtually without debate. The public service was

147 widely perceived as inefScient, privileged and in need of a good shake-up, and no alternative models were being promoted.... Critics... were deliberately marginalised by the speed and secrecy of the reforms' (1995,118-19).

Shortly thereafter, however, the government proceeded to shake up the public sector yet again, this time by initiating a large scale privatization of government assets (Duncan and

Bollard 1992, Kelsey 1993, Boston 1995). Whereas the SOEs were companies whose shares were ultimately held by the state, the privatized companies were to be completely placed in the hands of the private sector, severing the government link entirely. The sell-off started in Douglas' 1988 budget, but would continue well into the 1990s, even after Labour had lost power to the conservative National Par^. The Labour privatization program was

'breathtaking in its scope, speed and disregard for popular opinion'(Kelsey 1995,128). The goal seemed to be to simply rid the state of enterprises as quickly as possible—assets were sold to the highest available bidder and, unlike Thatcher's interest in producing a property- owning, capitalist society, shares were not offered directly for public sale (OECD [New

Zealand] 1996,97). Even public concerns about foreign ownership of key New Zealand assets were brushed aside-in the most significant case of foreign ownership, the largest single asset sale, of Telecom, was to the US phone giants Bell Atlantic and Amerhech. Table

10 gives an accounting of the privatization program, both under Labour and National. To summarize the scope ofthe sell-off, between 1988 and 1990, nineteen asset sales took place with total proceeds exceeding NZ$9 billion, or nearly fourteen percent of 1990 GDP.

Thus, through a concerted program of deregulation, monetarism and privatization—to

148 Date Sale Price (2VZS millions)

New Zealand Steel Limited 1988 327 Petrocorp 1988 801 Health Computing Service 1988 4 Development Finance Corporation 1988 111 Post Office Bank Limited 1988 678 Shipping Corporation o f New Zealand 1990 32 Air New Zealand 1989 660 Landcorp financial instruments 1989-90 77 Rural Bank 1989-92 688 Communicate New Zealand 1989 0 Government Printing Office 1989-93 39 National Film Unit 1990 3 State Insurance Office 1990 735 Tourist Hotel Corporation 1990 72 New Zealand Liquid Fuel Investment 1990 (203) Maui Gas 1990 254 Synfiiels stocks and current assets 1990-95 206 Telecom Corporation 1990 4250 Forestry cutting rights 1990 1027 Export Guarantee Limited 1990-93 20 Housing Corporation mortgages 1991-95 1316 Government Supply Brokerage 1992 3 Taranaki Petroleum mining licenses 1992-93 118 New Zealand Timberlands Limited 1992 366 Bank o f New Zealand 1992 850 New Zealand Rail Limited 1993 328 Fletcher Challenge shares 1993 418 Government Computing Services Limited 1994 47

Table 10: The New Zealand privatization program, 1988-94.

Source: OECD (New Zealand) 1996,98.

149 name only the most significant examples—Roger Douglas and his Labour compatriots dramatically altered the nature of economic policy in New Zealand. Just as in Britain the

Butskellite, 'middle way' consensus was rejected in the campaign to 'shake up' the economy, so in New Zealand the dominant post-war consensus of'domestic defense' was consigned to the dustbin. In both countries, a sea change in attitudes occurred. These reforming governments of the 1980s were succeeded in government by parties—"New Labouf in Britain and National in New Zealand—committed to consolidating and, in some instances, even dramatically furthering the extent of economic reforms. Perhaps, this fundamental shift, even more than the specific policies each 1980s government implemented, was the real public policy legacy of the 1980s.

Canada and Australia: The Pragmatic Face of Economic Reform

At first glance, it is perhaps paradoxical, even erroneous, to speak of'pragmatic,'

'gradual' reform in Canada and Australia. Taken in isolation, without comparisons to other cases, the reforms wimessed in the 1980s in both countries were, by any standard, dramatic reversals of very long-standing public policy traditions. In Canada, for instance, free trade essentially overturned more than a century's worth of National Policy-sQfle protectionism and, in Australia, deregulation and liberalization of major markets largely reversed the tradition of 'domestic defense'. Thus, it would be completely wrong to assert that these changes were anything less than groundbreaking reforms.

However, when the light ofcross-national comparison is shined upon these two cases and they are compared to the cases of Britain and New Zealand, the essentially dîfiërent

150 nature o f change in Canada and Australia becomes apparent. First, Wiile these governments

were definitely reformist in nature—radically so, in some ways—the tone oftheir governments and the ways in which they set about pursuing reform were not as overtly confrontational and dismissive of public opinion as they ofien were in Britain and New Zealand. Whereas the

'crash through’ governments pursued what they perceived to be necessary reforms seemingly

irrespective o f public opinion, and often counter to it, the Mulroney and Hawke governments

in Canada and Australia, respectively, were in a sense more circumspect. Hawke, for

instance, elevated consultation and cooperation to a seeming art form, with the 1983

Economic Summit and his yearly Accords with labor. The strategy was apparently

successful—a party that had had only one abortive term in office since 1949 won a total of

five elections between 1983 and 1 9 9 3 Mulroney, for his part, also adopted a general policy

orientation of neoliberalism, but shied away from the confrontational, revolutionary tone

identified with the Thatcher and Reagan years. As has been written about his conversion to

free trade, the most significant policy change of his tenure and possibly of the entire

twentieth century in Canada, 'the embrace was gradual... not an ideologically driven decision

[and] ... was the product of a confluence of political reasoning, fortuitous events, and

personal influences' (Doem and Tomlin 1991,276). Thus, while very significant changes

'^This is not to say that the 'crash through’ approach was electorally unsuccessful, though. While New Zealand Labour was only reelected once, in 1987, the British Conservatives served for eighteen years, with election victories in 1979,1983,1987 and 1992. On the interaction between public opinion, neoliberal reform and the Thatcher program see Heath et aL 1985, Dunleavy and Husbands 1985, Heath et al. 1991, Denver 1989.

151 were made in Canada in the 1980s, they were accomplished in the absence of the doctrinaire, dogmatically rigid tone so ^ ic a l of the policy revolutions in Britain and New Zealand.

Second, the pragmatic approach to policy reform as practiced in Canada and Australia was more focused and less encompassing in scope than that implemented in the other two countries. In the latter, the Thatcher and Lange governments attempted what was, with a few exceptions, a comprehensive review and restructuring o f the entire economy. The goal was explicitly to change the very nature of economic policy and practice. In Canada and

Australia, however, the reforms were more narrow, focusing primarily on the key sectors perceived by government to be most important to restoring growth, efhciency and competitiveness. For instance, in Canada, the govenunent undertook a varied of reforms, but the real focus was on opening Canada up to world competition through deregulation and free trade. In Australia the goal was largely similar—to free up the economy through deregulation of a number of critically important economic sectors. Attempts to go substantially fiirther-comprehensive tax reform in Australia for example—were defeated by a party and prime minister unwilling to 'go too far*.

In short, it must be reiterated that dramatic change took place in both these countries— both Canada and Australia looked radically different in 1990 from what they did in 1980.

Yet, when compared to Britain and New Zealand, the relatively more pragmatic, less comprehensive nature ofthe Canadian and Australian approaches becomes clear. However, despite this fundamental difference, partisanship cross-cut the sQrle and approach: Just as partisanship could not predict which ^rpes o f parties would follow a revolutionary approach to economic change, so too it was unable to account for the feet that, in Canada and

152 Australia, a Conservative and a Labor party both took a more 'conservative' tack. Once again, the 'partisan paradox' remains.

Without a doubt, the most significant legacy left by the Mulroney government in

Canada was its deregulation o f the energy market, its reversal of Canada's traditionally wary attitudes towards foreign investment and, most of all, the Free Trade Agreement with the

United States. While the government also engaged in other reforms—attempts to tighten fiscal policy and improve Canada's budget balance, tax reform including the introduction of a Goods and Services Tax (GST), and the privatization of a number of Crown Corporations including Petro-Canada—it was in the government's effective removal of barriers to foreign economic penetration where the most dramatic effects could be seen. Chapter Three points out that, from the time of Macdonald's National Policy to Trudeau's inauguration of the

National Energy Program (NEP), the tide bad always gone in the direction of shielding

Canada from the potentially destructive impact of economic penetration from beyond, particularly the United States. It was the major feat of the Mulroney period to definitively reverse this approach.

The first major structural reforms undertaken by the Mulroney government were to essentially abolish the National Energy Program and to transform the Foreign Investment

Review Agency (FIRA) into Investment Canada, an agency designed to facilitate rather than restrict foreign investment (Doem and Toner 1985; James 1990; James and Michelin 1989;

Toner 1986; Reynolds et al. 1991). The abolition of the NEP was in keeping with

Mulroney's basic neoliberal, yet nondogmatic, approach. As he put it.

153 It is absolutely clear that the private sector is and must continue to be the driving force in the economy. It is not a matter of whether government or the private sector should take the lead in rejuvenating the economy. In this context of intensifying competition, the role and purpose of government policy will relate primarily to how we can nurture and stimulate the Canadian private sector. A Progressive Conservative government [should] create an overall economic environment which provides exactly this kind of support (Mulroney 1983,98).

It also made sense politically, and received a great deal of support within his party, whose parliamentary benches were drawn disproportionately from Western provinces that hated the

NEP, seeing it as yet another unwarranted, draconian, heavy-handed intervention by Ottawa at the behest of Pierre Trudeau (Penniman 1988). Worse still, its provisions controlling the price of domestic energy ensured that, when world energy prices were high, large, energy­ consuming Ontario and Quebec profited at the expense of the energy-producing provinces in the West. Finally, the NEP's 'back-in provision', allowing the federal government to claim a twenty-five percent share of all energy finds on federal lands, was resented by oil explorers and producers in both the Canadian West and the United States (Doem and Toner 1985).

In one of his first major economic changes, Mulroney moved to eliminate the NEP through an agreement, the Western Accord, with Alberta, British Columbia and

Saskatchewan in March 1985. The agreement essentially transformed Canada into a free market for energy—prices, outputs and imports were to be determined by market forces, restrictions on exports were lifted, and a wide range of special energy taxes were abolished

(OECD [Canada] 1986,25). This was followed in October by the Natural Gas and Pricing

Agreement—which did for natural gas what the Western Accord had done for oil—and by the abolition ofthat centerpiece ofthe old NEP, the twenty-five percent back-in provision. Over

154 the course of1985, then, Canada went from having a highly-centralized, federally-controlled energy regime to one essentially deregulated and open to market forces.

Virtually contemporaneous with the government's liberalization ofthe ener^ sector was the abolition of FIRA and its replacement by Investment Canada. In an important policy shift, the government made it clear that it was not one to fear foreign investment in Canada.

As a Tory minister put it in the House of Commons:

By changing the name of the agency, we will be sending a positive signal, changing from that hostile-sounding terminology of Foreign Investment Review Agency, to one of: We are open for business again. I si^gest that in changing the mandate from one of foreign investment review to Investment Canada we will demonstrate that indeed there is a strong, positive signal once again coming from Canada with respect to our investment potential, and that those who have money to invest, be they Canadian or non-Canadian, are once again welcome in this country {House o f Commons Debates, 1984, v. 128, p. 1089).

The policy shift represented an important change in attitudes towards the United States.

FIRA had traditionally been despised by many in the US. When the Trudeau government renewed FERA legislation in 1981 and seemed likely to extend its reach into additional sectors of the economy, 'the howls of outrage from the American business establishment turned the guns o f the Reagan administration on Canada' (Doem and Tomlin 1991,17). The

Trudeau government quickly backtracked and declined to extend FIRA's reach, but 'the memory of the NEP and FERA would linger' and would be a prime impetus in the American push for free trade with Canada (Doem and Tomlin 1991,17-18). In December 1984, the

Mulroney government introduced legislation to transform FIRA into Investment Canada.

Instead of seeking to lim it Canadian exposure to foreign investment, the new approach would actually invite such investment, encourage Canadian entrepreneurs to seek capital abroad,

155 and only limit investments that seemed threatening to vital national, economic or cultural interests. Having made this fundamental shift in national economic orientation, Mulroney could then do what Trudeau and the economic nationalists would have found unthinkable.

He travelled to New York in December 1984 and repeated to Wall Street the government's new mantra: 'Our message is clear. Canada is open for business again' (Martin 1993,69).

This move towards deregulation, and particularly towards allowing increased foreign economic intervention in Canada, was part of a growing belief both among policy-makers and the general public that the time was ripe for a shift away firom economically nationalist policies as typified by the NEP and FIRA towards policies more conducive to foreign investment. First, as LeDuc and Murray show, there had been a gradual shift in attitudes amongst the general public towards greater approval ofU S economic involvement in Canada

(1989, 131). In 1974, only eighteen percent of Canadians favored closer ties with the US

(with thirty percent wanting closer links to Europe and Asia). But by 1985, ftdly forty-five percent supported closer American ties (with the Europe/Asia figure dropping to nineteen percent). Similarly, elite attitudes were also shifting, largely in line with those of citizens.

The balance between economic nationalists and those more favorable to US ties had firequently shifted in the Trudeau cabinet. But by the mid-1980s, with recession in full force, there was yet another swing away firom nationalist positions—the pragmatic Marc Lalonde replaced Allan MacEachen in the finance portfolio and the government began to soften the harder-line nationalism o f the early 1980s (LeDuc and Murray 1989,132).

It was not long before this generally positive attitude towards the United States became a more explicit call for the fieeing of trade between the two countries. Initially,

156 Brian Mulroney had been openly opposed to the idea. In the Tory leadership contest in 1983 he scoffed at the firee trade position of challenger John Crosbie:

There's a real beauty for you. Now there's a real honey—firee trade with the Americans. Free trade with the United States is like sleeping with an elephant It's terrific until the elephant twitches, and if the elephant rolls over, you are a dead m an.... That's why fiee trade was decided on in an election in 1911.... It affects Canadian sovereignty, and we'll have none of i t not during leadership campaigns, not at any other times' (quoted in Martin 1993,43-4).

But the tide was turning. Barely two years later, in September 1985, Mulroney told the

Commons that Canada needed 'fieer trade' with the US, a term that would quickly transmogrify into 'free trade': '[wje need a better, a fairer, and more predictable trade relationship with the United States. At stake are more than two million jobs which depend entirely on Canadian access to the U.S. market' {House o fCommons Debates, 1984, vol. 128, p. 7055).

A central element in the transformation of Mulroney's attitude was probably the publication ofthe landmark report ofthe Macdonald Commission, headed by former Liberal finance minister Donald Macdonald. Set up by Pierre Trudeau in 1982, this conunission was charged with investigating and making recommendations on the 'economic union and development prospects for Canada'. When the commission reported its findings and offered its recommendations in November 1984, they were something of a bombshell—they were nothing less than an official call for a break with the old interventionist, economically nationalist consensus and a shift to neoliberal, deregulatory policies, with fiee trade with the

US as its cornerstone. Macdonald called for a leap of faith', to adopt free trade as best way to spur competition, hmovation and long-term economic growth:

157 We support the pursuit and eventual implementation o f a Canada-U.S. &ee trade agreement to encompass both tariffand non-tariffbairiers.... Free trade is the main instrument in this Commission's approach to industrial policy. It is based on the same intellectual thrust which governs Commissioners' approach to domestic economic policy; that the role of government is not to retard economic forces, but to complement them by positive adjustment measures.... We Canadians are at a turning point in our history. TheNational Policy of 1879 has played itself out. The Commission is convinced of the general superiority o f market forces to the attempts ofgovernments in Canada to pick 'winners' and 'losers'. Protectionism is counterproductive and self- defeating (Royal Commission on the Economic Union and Development Prospects for Canada 1985, v.l, 60,63).

This was a critical push for the Mulroney government to move towards free trade (Doem and

Tomlin 1991). Once it set free trade as its ultimate goal, the government never looked back, preaching the merits of free trade with zeal and determination. Negotiations which began in May 1986 were completed two years later, with the Free Trade Agreement (FTA) finally passed into law in December 1988. Free trade proved to be a divisive political issue, however. The election held in November 1988 was run almost entirely on this issue, with the Liberals and their leader John Turner accusing the Tories of selling out Canadian sovereignty, with Mulroney and the Progressive Conservatives claiming the deal was necessary to ward off American protectionism and ensure free access to US markets. In the event, the Tories won 170 o f295 seats in the new parliament and the issue was resolved.

The Liberal Party continued for a time to oppose the agreement and its successor, the North

American Free Trade Agreement (NAFTA), which included Mexico. Liberal leader Jean

Chrétien even promised to 'tear up' the agreement if elected in 1993. Yet, once in office.

Chrétien signed NAFTA and the Grits settled on apro-fiee trade position not dissimilar from

158 that of the Tories in the 1980s. In Canada, then, as in the other cases, the ground was shifted decisively by the events of the 1980s (Barlow and Campbell 1995, Lusztig 1996).

In Australia, the main story o f the 1980s was also broad deregulation and the pursuit of freer markets. As Chapter Three sought to demonstrate, the previous pattern of Australian public policy was 'domestic defense'—a set of policies of regulation, protection and government intervention calculated to shield Australia from the worst vagaries, unpredictability and shocks of the external environment. Until the 1980s, this pattern was essentially unassailable. Only in the late 1970s, under Malcolm Fraser's government, did a minori^ of Liberal MPs begin making the case for change along neoliberal lines. Fraser, however, largely resisted those calls and essentially left the field open to his successors. Bob

Hawke and Paul Keating. Under the influence of a strong Treasury (Whitwell 1986), they made a number of important 'more-market' changes to the Australian economy.

Almost immediately upon its election in 1983, the Hawke government set about on its first and possibly most important reform of the Australian economy—the reform of the

Gnancial sector (Hall 1987, Perkins 1989, Pauly 1987, Argy 1995). This sector had been what was in some ways the quintessential exemplar of'domestic defense' economics. A wide variety of government regulations controlled virtually every major aspect of finance in

Australia—the activities banks and other financial institutions could engage in, the kind of deposits they could receive and the interest they could pay, the sort of loans that could be made and the rates of interest charged. Furthermore, domestic access to the banking sector was highly controlled—with not a single new entrant to the market between 1946 and 1982

(OECD [Australia] 1985,10-1)—and foreign entry was well-nigh impossible. Finally, the

159 flow of capital into and out of the country was strictly limited and exchange rates were government-controlled.

All this changed quite quickly upon the new government's accession to power. The most significant change was the complete flotation of the dollar in December 1983. Not only did the dollar become fiilly convertible, but a large number of foreign exchange licenses were granted, virtually all foreign exchange controls were lifted and the heretofore strict controls on Australians wishing to invest their money abroad were lifted. The opening of Australia to world capital markets became the precursor to the opening of Australia's domestic financial markets. The following year, the banking and financial services industry was substantially deregulated. Controls over deposits, loans, and interest rates were all removed.

And in 1985, sixteen foreign-o wned corporations were selected to receive licenses to operate in Australia. As Keating explained the government's rationale,

[A]s time wore on... it became obvious to us that there was less competition in the banking system and that for this country it was important to inject some competition back into that system .... This country's flnancial arteries were clogged by redimdant and outdated regulation and the lack of effective competition. [As a result], creative people with ideas and drive could not get the funds to grow {Parliamentary Debates (Hansard) [Australia], 1984, v. 193, p. 139; Johnson 1989,107).

The government also undertook a program of tariff reduction and acted to deregulate a number of other important industries—chiefamong them being the telecommunications and the transport sectors. On tariffs, a series of gradual reductions over a broad range ofproducts was implemented, bringing the duty on most goods fix)m as high as forty to as low as five percent by the mid-1990s (OECD [Australia] 1998,81). With a highly-efflcient, relatively unprotected agricultural sector in Australia, these tariff reductions were targeted primarily

160 at manufacturing industry in an attempt to force Australian industry to operate more competitively. Here, as in the other three cases, we see the clear reversal ofprevious policies

(Keating and Dixon 1989, ch. 7, Bell 1993). In a direct criticism of policies of'domestic defense', Hawke stated:

Tariffs have been one of the abiding features ofthe Australian economy since Federation. Tariffs protected Australian industry by making foreign goods more expensive here; and the supposed virtues of this protection became deeply entrenched in the psyche of the nation. But wMt in fact was the result? inefficient industries that could not compete overseas; and higher prices for consumers and higher costs for our efficient primary producers. Worse still, tariffs are a regressive burden—that is, the poorest Austtalians are hurt more than the richest.... We live in a world of unprecedented, indeed breathtaking, change. Our own region is a crucible of change. We can no longer afford the easy simplicities, the costly complacencies of the fifties and sixties and seventies (Department of the Prime Minister and Cabinet 1991, 1.5,122).

At the same time the govenunent was deregulating the financial industry, it was also pursuing a model of govemment-labor relations tmique among the Anglo-American democracies discussed here. Throughout its tenure in office, the government pursued a policy o f corporatist bargaining and negotiating with trade unions (Matthews 1994, Stilwell

1986, Singleton 1990). The goal of these negotiations—resulting in regular agreements called the Accord—was to allow the government to essentially trade off wage demands in exchange for a social wage' of improved social welfare benefits and tax concessions. The government was fieed to pursue expansionist policies and to increase spending, particularly on social benefits enjoyed by workers, and in exchange the union movement agreed to cooperate with the government's effiorts to moderate wage demands and thereby control inflation and make Australian manufacturing more competitive in the world market

161 The adoption of such a strategy is, in some ways, not surprising. The Australian

Labor ParQr, like British and New Zealand Labour, had close links with the trade union movement, and Hawke himself had been its head, as president of the Australian Council of

Trade Unions (ACTU) prior to his entry into parliament in 1980. Thus, corporatist-style cooperation formed a fundamental part of the government’s approach. As Paul Keating memorably put it:

We are interested in making Australia work. We are interested in making this economy kick over. We will do it with business, the ACTU and every other group. We will not be deterred from our magnificent obsession which is to consult with every group in this community that matters to try to get a consensus approach to policy, including economic policy, to restore this country to the greatness it once knew before the Liberals. We will not be deterred from that course {Parliamentary Debates (Hansard) [Australia], 1984,v.I37,p. 3014).

What is, however, remarkable is not the government's consensual approach, but the success the government had in dampening down wage pressures. As Table 11 shows, real hourly wages in manufacturing actually gyew (albeit marginally) in Britain during the 1980s, despite the Thatcher government’s attempts to force wage restraint on unions even at the cost o f lost jobs. But in Australia, the government achieved wage restraint in active coalition with trade unions. From 1985 to 1990, average real manufacturing wages in Australia fell more than two percent. Or, put differently, in the March quarter o f1983, when the Labor Government

“While in New Zealand the decline over the period 1979-1989 was even greater, this can be partially explained by the failure of wages to keep pace with higher inflation rates. Nominal wage increases were large, but were outstripped by especially high rates of inflation.

162 1980 1982 1984 1986 1988 1990 1992 1994 1979-89

Britain -0.7 2.4 3.6 4.1 3.4 -0.1 2.7 2 2 2.6 Canada -0.1 1.1 2 2 -12 -0.1 0.0 2.0 1.4 -0 2 Australia 0.6 3.0 3.5 -3.7 -1.2 -0.9 1.5 -0.5 -0.6 New Zealand 1.5 -3.5 -3.7 3.6 1.1 -1.7 -0.1 -0.4 -1.8

Table 11: Changes in Real Hourly Earnings in Manufacturing, 1980-1994.

Source: OECD, Historical Statistics, various years.

was elected, the average male worker earned A$394.70 a week. By the time Hawke left the

premiership in 1991, that same worker earned in real terms AS395.00. Every single year

wages came in at or below the government's targets. Yet, the government's 'social contract'

guarantee to compensate workers with higher social spending was kept, if not spectacularly

so—the average household income rose from AS164.40 a week to AS176.70 (Mills 1993,40-

1 ). Hawke himselfjustified the st%nant wage rates thus:

The trade unions have been prepared to forego the [ability! that undoubtedly they've had to extract higher wages. They have tolerated, in the interests of economic growth, some reductions in real wages. They have seen and recognised, to their ever-lasting credit, that it was better, rather than to push for unacceptably high levels of wage increase, it was better to have moderate increases and to push properly for improvements in the social wage, in a way which would mean that more of their fellow Australians would be employed (quoted in Mills 1993,46).

Finally, the government also began taking the first steps towards the privatization of

a number of key Australian government-owned assets (Fairbrother 1997, Teicher 1998).

Initially, the government was dead set against this radical idea apparently coming from the

more dogmatic reforming governments in Britain and New Zealand, hi 1985, Hawke asked,

163 'What in the name o f reason, is the justification for breaking up and selling off the great and efficient national assets, like the Commonwealth Bank, Telecom, TAA, Qantas?*

Privatization, he said was a 'recipe for disaster" and the 'height of irrationality' (Henderson

1995,102). But this attitude gradually changed. In a similar course of events to that in New

Zealand, the government first sought to corporatize a number of state-owned enterprises, putting them on a competitive, profit-oriented footing. But, in time, corporatization gave way to privatization. Of the state-owned enterprises partially privatized by the federal government—which only held a minority of Australia's state-owned assets, in any case

(OECD [Australia] 1992, 78)—the two largest and most symbolic were those traditional

Australian icons, Qantas and the Commonwealth Bank of Australia (CBA).

However, reflecting the less revolutionary, ideological pace of neoliberal change in

Australia, the scale of privatization there differed dramatically fiom that in New Zealand or

Britain. In contrast to the massive sell-offs in the latter two countries, privatization was fairly limited in Australia. Qantas was gradually privatized, with a majority stake going public only in 1995 and the CBA was not fully privatized until the accession to power of the

Coalition in 1996. In comparative terms. Table 12 tells the dramatic story with regard to privatization—a story which typifies the difference between the 'crash through' and the

'pragmatic' approaches to change. In Britain and New Zealand, total privatization proceeds well etceeded ten percent of average 1980s GDP; in Australia and Canada, the figure was less than one percent

164 % of GDP*

Britain 12.0 New Zealand 14.1 Canada 0.6 Australia <1.0

Table 12: Privatization in the Anglo-American Democracies, 1979-92.

Key: 'Accinnulated privatization proceeds as a percentage of average annual GDP over the privatization period.

Source: Boix 1997,475.

In short, then, the Hawke and Keating Labor governments saw a definitive break and, in many ways, a reversal of traditional forms of 'domestic defense’ economic policies.

Important sectors of the economy were deregulated, tariffs were nearly eliminated for a wide variety of goods, government-owned enterprises were privatized and the government effectively held down wages though a series of high-level corporatist agreements. But, as should be obvious &om this discussion, the Australian Labor Party did not attack the issue of economic reform as did its counterpart in New Zealand. The change in Australia was

important, but in many cases evolutionary, the government adopting policies it had refused

to consider only several years before. Keating himself—usually held to be, if anyone, the free

market 'true believeri in the Labor government—argued that he was not doctrinaire in any

way:

The model here ... is a social-democratic one.... 'Model' in a sense is the wrong word. Because what characterises the philosophy is flexibility, pragmatism, responsiveness, an absence of ideological rigidity.... We are not '-ists' and we do not believe in '-isms'. We are not Thatcherite, or Reaganite,

165 or even Rogemomic. We are Labor. The 1980s sawthe demise of two ofthe world's major ideologies: it was not just communism that died, monetarism went with it (quoted in Ryan 1995,126).

When this is compared to Roger Douglas’s words, written four years before he began his policy revolution in New Zealand, the contrast is unmistakable:

The most important Minister in the Cabinet should be the Minister in Charge of Killing Things. The First Douglas Rule of Administration is: although it is easier to start something in business than to stop it, it is ten times easier again in Government.... The committee to review the size of tap washers will still be there long after tap washers have been standardized. The departmental ofGcer to administer the special benefit for the issue of sandpaper to needy owners of wooden legs is still there, though everybody has moved on to fibreglass.... To put it in one syllable, for every dollar spent on doing something new, three old dollars for doing old thinks must go. If you are hankering after a revolution, try that one for starters (Douglas 1980, 48).

In short, change in both Canada and Australia was more pragmatic and focused than thoroughgoing and ideological. While important and surely long-lasting reforms were implemented—ones maintained and pushed forwards by these governments' successors—the scale, tone and fimdamental nature of reform in these countries is undeniably distinct fix>m that experienced in Britain and New Zealand.

Conclusion

This chapter has been concerned with outlining the major economic policy changes initiated and promoted by the neoliberal reforming governments of the Anglo-American democracies. As stated in the beginning, no attempt was made to be comprehensive—the policy record of each government was long and presents ample evidence of the desire to dramatically reorient all or part o f each's national economy along freer market lines. What

166 bas been given here are simply the highlights, the most important changes witnessed in each case. In this pursuit ofchange, however, two main patterns presented themselves. One was the revolutionary, 'crash through or crash' approach so evident in the British and New

Zealand cases. The other, Qrpical of Canada and Australia, was more pragmatic, focused, even moderate. But in both cases the central interest of this dissertation—the impact of partisanship—was not an important explanatory factor the two revolutionary governments were the British Conservative and New Zealand Labour governments, while the more pragmatic reformers were the Canadian Tories and Australian Labor. Therefore, Just as partisanship cannot seemingly account for the similarities in policies adopted across the four cases, neither does it help in comprehending the divergent paths and dramatically digèrent pace of reform in each. The partisan paradox’ thus remains.

The next chapter will take a first cut at a systematic explanation of this paradox. It tackles the primary question of what motivated these governments to move towards freer market policies in the first place, despite national and partisan traditions which should have militated against it. Specifically, what led the British and Canadian Tories into a reversal of their long-standing policy traditions discussed above? What prompted them to break with important elements o f the post-war consensus and reorient economic policy along new lines?

And, in the Antipodes, what explains both Australian and New Zealand Labour's willingness to reverse not only the venerable, even sacrosanct, policy of'domestic defense', but even do so in apparent contradiction to each party's own partisan and ideological heritage? How did both come to lead a surprising and often-controversial volte-face of both long-accepted

167 national patterns of public policy and their own party's unique ideological and programmatic traditions? These are the questions the succeeding chapter will address.

168 CHAPTERS

EXPLAINING SIMILARITIES:

COMMON SOURCES OF NEOLIBERAUSM

The time has now come for an explanation of the common move to neoliberalism in the Anglo-American democracies. Previous chapters have described the dominant patterns ofpost-war economic policy in each country, the turbulent economic times of the 1970s and early 1980s, the reforms each govenunent undertook over the course of the 1980s to move its coimtry in a more-market direction, and the theoretical puzzle these cases present. This chapter's task is to arrive at a partial explanation for why such different parties adopted surprisingly similar policies. How governments of both the left and the right came to a neoliberal agenda in the 1980s is the focus here.

To come to an explanation for the neoliberal phenomenon in these coimtries is rather like assembling the pieces of a large puzzle, fitting into place a wide variety of factors, influences, motivations and causes. As with any phenomenon—even more so a social and economic policy phenomenon spanning a decade in four countries—a single-variable explanation is impossible. Also impossible, however, is a precise weighting or specification of the importance and impact of factors and causes relative to each other. While such a

169 weighting is possible in a gross, imprecise sense, an exact accounting of the relative impact of essentially qualitative and unquantifîable variables is unachievable. Thus, all that can be done here is to give as complete an accounting as possible of the factors which led to neoliberalism in the four countries, relying upon the best judgment of observers and participants in a gross weighting and consideration of these factors, but without being able to specify the intricate interactions, interrelationships and relative importance of each.

A key source for this analysis is the series of in-depth elite interviews discussed in

Chapter One. This program of over one himdred interviews focused primarily on the very motivations this chapter considers. Rather than engaging in detailed discussions of the events of the period itself, these interviews focused rather on the reasons why neoliberal changes were made, why decision-makers took often radical steps away from the dominant national and partisan programmatic norms of the past and how, in the first instance, neoliberal ideas came to the fore of decision-makers' thinking. Respondents, then, were asked to focus their attention on explaining, rather than simply describing, the events of which most of them were integral parts. This chapter, therefore, is largely a systematic compilation and reporting oftheir combined responses. Its unique contribution-and indeed the dissertation's—is to provide the first cross-national study o f neoliberalism to be based so heavily on such detailed examination of the motives, perceptions and beliefs of the key participants in the process o f reform in the 1980s.

From this detailed, interview-based analysis of the causes and motivations for neoliberal reform in the Anglo-American democracies, six key factors were identified. As just stated, it is difficult, even impossible, to specify exactly the relative nnportance o f each.

170 These six common motivations and causes stand out nonetheless. They axe: a sense of crisis, following the upheavals of the crises of the 1970s and 1980s; a long-term perception of national economic decline-particularly relative to other countries; the belief of decision­ makers ofthe period that 'there is no alternative', the TINA phenomenon; the role of Treasury bureaucrats who used their influence to propagate the new &ee-market agenda; the role of strong, domineering leadership; and Gnally, the impact o f international factors, particularly globalization and its incessant, growing influence on the national economies in question.

The chapter then ends with some comments about how these six factors should be considered relative to each other across the four cases, showing how they are linked and interrelated.

The first key element which impelled the four governments to make radical, market liberalizing changes was a profoundsense ofeconomic crisis. In each country, the reforming governments of the 1980s came to power in an atmosphere of economic turmoil and crisis.

As discussed in Chapter Three, the 1970s had been in these countries, as in most of the world, a very difhcult time economically. The twin oil shocks o f 1973 and 1979 had effectively laid to rest the notion that the long post-war boom would continue indefinitely.

Runaway inflation went hand in hand with rising unemployment-a direct challenge to the

Phillips curve theory which held that inflation and unemployment were largely opposite, mutually exclusive phenomena. The emergence ofthis 'stagflation—inflation during a period of stagnant growth—shook the confidence of policy-makers that the old Keynesian methods continued to be relevant or useful. The 'misery index', a composite of inflation and unemployment rates, tells the sorry story (Table 13). In all four countries, the 1970s had seen

171 the emergence of both rising prices and widespread joblessness/ Coupled with growing budget deficits, mcreasingly hostile confiontations with trade unions, worsening terms of trade, and much else besides, the 1970s marked a clear departure fiom the growth periods of the 1950s and 1960s. In this atmosphere, governments struggled to make sense of the new economic environment and attempted to stave ofi^ what seemed to be an inexorable slide in overall living standards.

Britain Canada Australia New Zealand OECD Average

1970 8.6 9.0 5.5 6.7 8.9 1971 12.2 8.9 8.0 10.5 8.8 1972 102 11.0 8.4 72 8.6 1973 11.4 13.1 11.4 8.4 11.3 1974 18.1 162 17.7 112 172 1975 27.4 17.7 19.9 14.9 16.7 1976 21.3 14.6 182 17.3 14.1 1977 21.0 16.0 17.9 162 14.4 1978 13.4 172 14.3 13.7 13.3 1979 18.1 16.6 152 15.7 152 1980 23.6 17.6 162 19.3 18.9 1981 20.9 20.0 15.4 19.1 17.5 1982 19.0 21.7 182 19.6 18.4 1983 15.8 17.6 19.9 13.0 192 1984 16.2 15.5 12.8 11.8 16.6

Table 13: The "Misery Index': Combined Rates of Inflation and Unemployment, 1970-1984.

Source: OECD Historical Statistics^ various years.

'New Zealand was an exception to this pattern. There, full employment had essentially been achieved in the post-war period and persisted imtil the late 1970s. Widespread unemployment—particularly compared to the full employment the country had previously enjoyed-only emerged in the 1980s (see Table 14).

172 Each reforming government, then, took office with a foeling that dramatic change was necessary: in Britain, the Winter of Discontent had just ended; in Australia, drought and depressed farm prices were threatening the dollar and the economy as a whole; in New

Zealand, Muldoon's Think Big orgy o f interventionism had brought the country to the verge of default Only in Canada was the sense of crisis somewhat less acute. There, the crises had usually been constitutional, but growing protectionist sentiment in the United States was beginning to pose a real threat to the stabili^ and ease of access of Canadian goods to the

American market

The sense ofcrisis was perhaps felt first and most acutely, in Britain. The persistent trade union conflicts of the 1970s, seemingly uncontrollable inflatioit the humiliation of the

IMF loan, and finally the Winter of Discontent all served to produce the perception that

'something had to be done.' While this sense of crisis was palpable throughout the 1970s, and reached its peak Just before the general election in 1979, as early as the mid-1970s, a well-known economic analyst and firee-market proponent warned:

So by 1975 we can at last sit back and contemplate the wondrous New Jerusalem. Beholdl The welfare state is a seething mass of grievances, nationalised industries in turmoil, companies brought to the verge of insolvency, public spending above 55 per cent of GNP, the poimd going under for the third time, foreign debts mortgaging our future, unemployment mounting towards one million, inflation roaring above 20 per cent and national bankruptcy staring us in the face. 'Bankruptcy'—ofwhat? Not ofthe skills, resources, enterprise of the British people. They have survived the assault and battery of government mismanagement. What is being bankrupted before your eyes is the post-war, all-party mythology that bigger and bigger government can solve any problems. If we are ready, 1975 should give those of us who never believed it a chance to prove our case. The Adam Smith, Hayek, Friedman argument for a market economy has gained the intellectual ascendancty—on grounds of morality and fieedom, even more than efficiency. 'Oh yes', say the pessimists, 'but the masses will never learn

173 except by experience.' Very well, fasten your safe^ belts and cheer up: the rudest awakening of all is at hand (Harris [1975] 1994,23).

Following this example, promoters of free-market reform in the other countries would later use this same sense of crisis to advance their own brands of economic medicine. Roger

Douglas claimed that

As at no other time in its history. New Zealand stands a divided, confused, dispirited nation.... Its standard of living has dropped and continues to drop visibly. It stands on the brink of economic ruin. It has stifled iimovation for mediocrity— How much further will New Zealand sink before we start to fight back? (Douglas 1980,9).

Perhaps the most famous example, however, of the use of perceptions of crisis to promote a program of neoliberal change was Australian Treasurer Paul Keating's legendary

"banana republic' declaration. When the Hawke government first took ofiSce, it engaged in an immediate expansion ofthe economy through increased government spending." However, this expansion shortly became fiscally unsustainable and with the Australian dollar under enormous pressure on world capital markets (OECD [Australia] 1987), the Treasurer in 1986 announced that only radical reform would turn the situation around for good. In a statement

"As Keating put it in his first budget statement in August 1983, "The policy of "fighting inflation first" had not only failed to restrain the inflation rate but had laid to waste large areas of our industries, relegating himdreds of thousands to the misery and indignity of unemployment This Government sought and received a very clear mandate finm the Australian people to put the country back on the path to economic prosperity and to deal with inflation and unemployment shnultaneously—with a spirit o f consensus and fahness that would give the strategy its greatest opportunity for success.... Its policy in this Budget is to provide the maximum fiscal stimulus to the economy consistent with its anti­ inflation objectives but without placing tmdtie burdens on interest rates or the balance of payments.... There can be no doubt that this Budget, with a deficit increasing to an estimated 4.7 per cent o f GDP fiom 2.8 per cent last year, will prove to be highly expansionary {Parliamentary Debates (Hansard) [Australia], 1983, voL 132, pp. 44,55).

174 that had a tremendous effect on Australian attitudes towards the need for economic reform, he said,

I get the very clear feeling that we must let Australians know truthfully, honestly, earnestly, just what sort of an international hole Australia is in. It's the prices o f commodities—they are as bad in real terms since the Depression. That's a fact of Australian life now—it's got nothing to do with the government. It's the price of commodities on world markets but it means an internal economic adjustment And if we don't make it this time we will never make it If this government cannot get the adjustment get manufacturing going again and keep moderate wage outcomes, and a sensible economic policy, then Australia is basically done for. We will just end up being a third-rate economy. ... If in the final analysis Australia is so undisciplined, so disinterested in its salvation and its economic wellbeing... the only thing to do is to slow the growth down to a canter. Once you slow the growth under 3 per cent, unemployment starts to rise again.... Then you [are] gone. You are a banana republic (quoted in Carew 1988, 157).

A similar attitude of crisis and doom could be found in New Zealand. As a former Labour minister put it.

We came into office against the short-term background o f a total crisis.... Against that sort of background, crisis, the need to take dramatic action to address the fiscal situation, the fact that there are all of these Think Big debts and stuff coming on board—it created an atmosphere of crisis which fed into the Douglas/Prebble agenda in that regard. And so bit by bit, I think you said, 'Oh yes ... we've got to firee up the financial markets, we've got to float the exchange rate, we can't go back to all this nonsense again (Personal interview, 5 November 1998, Wellington).

Thus, a perception of crisis, urgency and impending economic doom was extremely significant in the shift to neoliberal economic policies. First, it served as an impetus for governments to break out of long-standing patterns of economic policy and adopt radically different ones—not to 'go back to all the nonsense' of the mterventionist approach. These policies were seen to have 6iled miserably. As a former Mulroney minister said.

175 When we came in in '84, it was clear that change had to occur because everything heretofore had failed in terms of addressing what it was intended to address—job creation, regional disparities, economic growth, productivity. We were lagging in a whole range of economic indicators... I knew we were going to have to do things differently ... (Personal interview, 19 January 1998, Ottawa).

What the crisis situation demanded, according to the reformers, was a concerted, innovative way to bring the country out of economic difficulties. Complacency and the policies of the past were insufficient. Additionally, a sense of crisis also helped prepare the ground for public acceptance-or at least acquiescence—in the reform program. Support for radical change was never particularly high, but a sense of dire economic trouble served to produce at least an acceptance of the notion that radical policy change had to be made.

Very closely related to a sense of imminent crisis was the perception of long-term national economic decline. The 1970s were not only a period of economic crisis and distress, they were also the decade in which it became increasingly obvious to both government elites and ordinary citizens that, relative to the rest of the world, their own countries were declining in terms of economic wealth and performance.

In every case, the sense of national economic weakness and poor performance vis-à- vis other countries was both a source of embarrassment and concern.^ From the heights of economic prosperity these countries had enjoyed in the nineteenth and early twentieth

^This concern was felt most acutely in Britain—not surprisingly, perhaps, given its formerly dominant economic position. An entne literature exists on the topic—see, for example. Gamble 1990, Allen 1976 and Wiener 1981. See also Jones (1976) in which he shows how Britam had living standards in 1955 which were about 15 percent better than those in Germany and France and 40 percent better than Italy's. By the mid-1970s, Germany and France had caught up and exceeded British living standards by 30 percent, while Italy was at parity with Britain.

176 centuries, the decline was painfully felt. Britain had been the prototypical industrial socie^, leading the world in creating a modem, industrial economy. Canada had always seen itself as an economically successful, yet caring socieQr, prospering from massive trade in raw materials and heavy manufactures—particularly automobiles—to the US. Australia and New

Zealand had been, at the turn of the century, at the top o f the world league table in per capita wealth, and had confidently enjoyed their status as The Luclqr Cotmtry' and 'Godzone', respectively. By the 1980s, these glorious perceptions had met dark reality-each country was lagging behind its international competitors across a range of economic indicators.

Reforming governments, then, used this obvious decline as proof of the need for radical change. A former Thatcher minister described how the feeling of decline fed into the agenda of neoliberal reform in Britain:

We were manifestly failing in world league tables. We appeared to be a country in the process of inevitable decline, not just relative but in some respects absolute. There was a great awareness and a great feeling we can’t go on like this.... And all this was creating a sense of national malaise so that when, as it were, the gospel according to Friedman or Hayek or any o f these people who really were the intellectual founders of this found voice in this country in ways which appeared to relate very clearly to our own scene, there was a recognition that perhaps this is the way we ought to go (Personal interview, 3 June 1997, London).

Cognizant of the problem of national decline and advocating neoliberal policies designed to reverse the long-term slide, policy-makers routinely used specific international comparisons to highlight the severity oftheir country’s relative fall. As Brian Mulroney put it in 1983, shortly before becoming Canadian Prime Minister,

In per-c^ita production, we used to be Number Two in the world, second only to the United States. Now we have chopped to Number Twelve among the twenty-four countries that make up the Organization for Economic Co-

177 operation and Development. ... Euromoneyy the leading economic journal firom London, rates the performance of countries according to an accepted set of economic criteria. It published the results of an important analysis in October 1982. And where was Canada? Second? Tenth? Fourteenth in the world? On the basis of our economic performance between 1974 and 1982, Canada landed in fortieth place. Our great weakness was poor economic growth. We ranked fiftieth in economic growth in the last eight or so years. How the mighty and the generously endowed have fallen! (Mulroney 1983, 22-3,38).

Sir Geoffiey Howe said much the same for Britain in his first speech as Chancellor:

It is important for the whole House and, indeed, for the country to understand the gravity of our condition.... If we look back to 1950, we find that even at that time Britain was still one of the world's great commercial and industrial nations. We accounted at that time for one-quarter ofthe world's trade. Our standard of living then was almost the highest in the world—almost twice as high as that in Germany or in France.... It is during the last 15 years that the deterioration has become serious. Our share of world trade has fallen to less than 10 percent This has been accompanied by a steady decline of some of our major industries. We produced no more iron and steel last year than in 1957. Last year we produced no more cars than we did in 1960. In the past 15 years, our share of the world market for cars, ships and steel has been halved. Over the same period, more than I million jobs have been lost in manufacturing (Por/mmen/ory Dehares (HonsorcO [United Kingdom], 1979, vol. 967, col. 893-4).

In New Zealand, the fall was particularly dramatic. The country had gone firom one o f the richest countries in the world at the turn of the century to a mediocre performer eighty years later. This decline in relative prosperity was the centerpiece of the Fourth Labour

Government's arguments for radical change. As Treasurer Roger Douglas put it.

It was true New Zealand had enjoyed the third highest living standard in the world, but that was 30 years befi)re. By 1980 we had dropped to about twentieth place and were still failing. If that rate of relative decline continued, by the end of the century we would be running sixtieth or seventieth, behind Malaysia and Taiwan. The country was in a downward slide that could not be arrested by tinkering, or reversed by faith, hope and nostalgia. To set the coimtry moving forwards would take a serious

178 commitment to making some hard policy decisions (Douglas and Callan 1987,13-4).

And just before taking office in 1984, he said,

[We have had] the slowest 9 years of economic growth in New Zealand history ... [T]he average growth rate in gross domestic product for each person during the past 9 years has been virtually nil—one-third of 1 percent a year. The equivalent rates are 4 percent for Japan and 1.5 percent for Australia. New Zealand is usually at the bottom of the heap for the 24 OECD countries; it is not always at the bottom—sometimes it comes twen^-third out o f 24—it just manages to beat Turkey {Parliamentary Debates (Hansard) [New Zealand], 1983, v. 450, p. 15).

Thus, as these quotes show, there was a clear sense among economic policy-makers that change was necessary. Both the immediate experience of economic turmoil and crisis, as well as the longer-term economic decline each nation had endured, led to a decisive perception among key political and economic elites that their countries' economic policies had to be revamped—retooled as it were—to better address pressing economic issues. These two factors, then—economic crisis and relative decline—were unquestionably the primary, most important motivations and causes for neoliberal change in these four countries. Simply put, the perception was clearly felt that, if change were not made, history would most likely repeat itself—the crises and upheavals o f the 1970s and early 1980s would continue and the secular declineofeach country relative to the restofthe world wouldbecome entrenched and irreversible.

However, there is a critically important point which cannot be overlooked. While economic crisis and long-term decline were the prime motivating agents behind economic policy change, in and of themselves they did not dictate, or even clearly imply, which direction that change should take. There is nothing in the neoliberal policy phenomenon

179 which can properly be seen as automatic, preordained or fundamentally obvious. In fact, in each country, opponents of neoliberal reform argued that not only were more-market reforms not automatic or obviously required, but rather that they were quite the reverse of what was needed.^ Moreover, a number of countries in the 1980s, faced with similar economic dilemmas of economic crisis and decline, took quite the opposite path. France, perhaps, is the most well-known example—in the early 1980s the Socialist government of François

Mitterand actually implemented a program o f reflation and higher government spending, in a move partisan theory would have us expect from social democratic governments (Machin and Wright 1985). The fact that this turn to the left in France was later and rather dramatically reversed is not particularly relevant^—the critically important point is that, in the early 1980s, it was not universally-accepted conventional wisdom that neoliberal economics were the only cure.

Y et among those elected to office in the Anglo-American democracies in this period it was believed that some form of free market reform was the only real remedy to these economic difficulties. For these elites, it was not a question of 'trying a little reform'.

‘‘The most famous example of such opposition, perhaps, was the letter sent to the Tim es in March 1981 by 364 leading British economists, denouncing monetarism and the Thatcherite agenda as the worst possible economic medicine.

^Or, perhaps, it is very relevant. One former minister in the Hawke government used the French example to argue that the changes made by Australian Labor were part of a worldwide tide which it, no less than France, found hard to resist: The way I would view it is that the world economy was undergoing a structural sea change and it was illusory to imagine that we could somehow isolate ourselves from it The French socialists tried to do that in the early 1980s and then within a couple of years [had] to undertake a politer reversal and austeriQr program that makes anything the Labor government ever did look pretty mild by comparison' (Personal interview, 14 May 1998, Canberra).

180 experimenting with neoliberalism as a possible cure among many potential remedies.

Rather, decision-makers in all four countries were convinced that the specific more-market policies they pursued were the 'correct' and undeniable response to the problem at hand.

This, then, is the third major element helping to explain neoliberalism in these countries-rhe

TINA argument, the perception that There Is No Alternative '. Whereas economic crisis and decline lie behind the m otivation for change, the type of policies adopted was largely constrained by the TINA notion that neoliberalism was the only rational policy option.

Simply put. Keynesianism was seen to have failed. For the more moderate, it was at best viewed as an anachronistic failure by the 1980s. For the more extreme, it had been doomed from the start. As Margaret Thatcher summed up her view of the Keynesian consensus, or what she called 'socialism':

No theory of government was ever given a fairer test or a more prolonged experiment in a democratic country than democratic socialism received in Britain. Yet it was a miserable failure in every respect. Far from reversing the slow relative decline of Britain vis-à-vis its main industrial competitors, it accelerated it. We fell further behind them, until by 1979 we were widely dismissed as 'the sick man of Europe'.... To cure the British disease with socialism was like trying to cure leukaemia with leeches (Thatcher 1993,7- 8).

Moreover, the now-obvious failure of centrally-planned economies in the Soviet bloc left policy-makers searching for options. That is, both the moderate interventionism of

Keynesianism and the more exfreme form of state socialism were perceived as failures.*^

^As a former Thatcher minister put it, '[Tjhere was a worldwide swing to more radical policies on the right and the recognition that the world had gone far too for down the road of social dependency, state control, state financing. It was becoming apparent that centralized markets wouldn't work. The Soviet Union was in the process of collapsing. So these tides of opinion [went] together...' (Personal interview, 3 June 1997, London).

181 With planning of all kinds in disfavor, government intervention believed to be a failure, and with the prophets of fiee market economics declaring that economic salvation was available for the asking, governments concluded that there was no alternative to the painful economic medicine. Whether TINA was in reality true is a complex and controversial question. But that TINA was perceivedhy each government to be true in the 1980s is undeniable.

In fact, one former member of the Fourth Labour Government in New Zealand put it in exactly those terms. When asked how an allegedly left-wing government could pursue such radical market-led reforms, he answered:

TINA. There is no alternative. There way no alternative. We were, as they say, up the creek without a paddle. Roger Douglas made the observation to us that if we had been a Spanish-speaking country, it would be all over—the IMF and the others would have said, 'We're not interested. Call in the debts fellows.' We were right up the creek We got to the position where our embassies were searching around for credit lines and what have you. We were right up the creek, financially as a nation.... Some people don't quite grasp the magnitude of what we faced (Personal interview, 23 November 1998, Wellington).

Put simply, the efficiency and superiority of the market and capitalist economics were perceived to be an objective fact, not something up for partisan, ideological debate.^ The

^The power of the TINA argument-and its implicit dismissal of past policies as misguided and impossible—was attested to by a New Zealand Labour dissident. In an interview, he bemoaned the conscious exclusion of a left-wing alternative to the neoliberal agenda. His comments, so revealing of the TINA phenomenon, bear quoting at some length: ‘^There was no substantial theoretical basis on which you could sustain opposition [to neoliberalism], because there had never been anything like it. They would say, “There is no alternative.” And you’d say, “Well, there is.” [They would reply], “Oh, that's the old [way]—we used to do that, but you can't do that anymore.... Forget that we used to do it that way. That was all old cloth cap socialism, and this is the new way and you've got to get with it and get real—there is no alternative,” and so on. If you said, “WeU, we used to do it this way. What was wrong with that?”, they'd say, “Everything's changed. It's a different world”—da da da, globalization and so on and so on. So even though you instinctively [believed] that the [old ways] were still sound, you will put m a

182 British. Tories were the first proponents of this 'markets as objective fact' argument As The

Right Approach to the Economy put it in 1977, The facts of life are Tory'-that is, our firee market, neoliberal perspective is not fundamentally a matter of ideology, it is a matter of fact

Ergo y there is no alternative to it This was a theme Margaret Thatcher hammered home to the British public for the better part of two decades. There simply was no argument about the superiority of fiee markets, and hence no alternative to them. Any other proposition was simply economic irrationality. This basic proposition was so deeply held by the market reformers that, for example, in Britain, both 'wets’ and 'dries' in the Thatcher cabinet spoke of its potency. As Lord Carrington, a traditional Tory 'wef, explained his own view:

Spending the way into higher employment was an artificial and temporary expedient It didn't work. The only sure route to more permanent jobs was via an expanded economy in a more competitive Britain. Anything else was palliative—and palliative inevitably leading to resurgent inflation and ultimately even higher unemployment There is no alternative' was her reiterated maxim, and the phrase, 'TINA', was adopted and derided by her opponents as epitomizing a dogmatic and uncaring approach. I believed that there was, in fact probably no alternative. There were no easy ways out of the mess of financial indiscipline, lax management over-mighty trades unions, overmanning and excessive state interference which disfigured too box as being a Neanderthal. You almost couldn't use them. If you did, [they would say], ‘That's old. That's all the old stuff. That never worked.” They just wiped the past like that. And you'd say, “Well, hang on a second, it did work. We used to have füll employment here, we used to have a decent health system, an education system and a decent housing system. We had a fair society and we were known as one of the most pleasant places in the world to live. What was wrong with that?” “Oh, that was the old days and you can't have that back now.” So they just wiped the history of New Zealand just like that. And if you tried to resurrect it, you were put in a Neanderthal category: “O f course, [he] talks about those old days, but you know him, he’s just like that.” So they just completely drew a line in the sand. Everything that happened befi)re~it was like Ground Zero, it was like Pol Pot. They called us that—we were Pol Pot-ists, because we wanted to go back. In fact, my view was that th ey were Pol Pot-ists—thqr just drew a line and said “We've got to fi)rget all that [in the past], wipe the history ofNew Zealand [clean], start from Day One’ (Personal interview, 18 November 1998, Wellington.)

183 much of British industrial life ... Under the Conservatives other ways to salvation had in the past been tried and one had to admit that, at least in the particular circumstances of Britain, they hadn’t woriced. In ail this Margaret Thatcher had been more far-seeing than her critics and more so than the doubters among her colleagues, of whom I'd been one (Carrington 1988, 309).

The sentiment is echoed by a former dry’ Thatcher minister:

TINA-there is no alternative—became a term o fabuse on the left But it was a catchword which nobody could ever say, ’Well, if there is an alternative, what is it?’ In the end, we’ve discovered there isn ’t one (Personal interview, 3 June 1997, London).

While Douglas and Thatcher were the most vocal and determined proponents of the

TINA argument, elites in the more pragmatic reforming governments of Australia and

Canada were similarly convinced of it as well and regularly expressed the idea. A former

Australian prime minister put the argument succinctly:

Markets are a fact oflife, you’re not going to uncreate or disinvent the market. It’s been with us for a long time, it’s not operating perfectly by any means, and it certainly has not always operated fairly. But it’s there.... [W]hat is the other, obvious, outstandingly clearly relevant, glaringly relevant [answer] to your question about markets? It is that the communist command system has been given an opportunity to work. What’s the answer? Abject failure. It’s finished. Where does it operate? Cuba? North Korea? In other words, the market has won (Personal interview, 14 November 1996, Menlo Park, Ca.)

The market as fact’ message was also not lost on the Canadian Tories. In the following response, a former high-ranking Mulroney minister argued that the option of state intervention had been definitively laid to rest:

This whole century has been dedicated to the notion that governments are the most efficient, effective and fairest way in which to distribute resources. But in its extremes, the Soviet Union with its 70 years o f [state control was], in fact, a dismal failure. So with all of that history, it’s not altogether surprising that people have pretty well come to the view now that there are things govemmentcando—but the notion that governments can do it better if there’s

184 an alternative in the private sector—that just doesn't have an audience. A few Marxists in a few universities, but that's about it (Personal interview, 19 January 1998, Ottawa).

The Mulroney government made just this argument in support of free trade—a free trade agreement was the only way to protect Canadian manufacturing and trade. John Crosbie, a die-hard fr%e trade proponent and Minister for International Trade in the Mulroney cabinet, argued that Canada had no choice:

Some day we're going to have a North American continent that's an economic union.... That's inevitable. These economic forces are there, and government policy can't stop them. It's only a question of. How do you get into a more secure position?' They’re next door and geography dictates. Whether we like it or not, we're going up or down with the U.S. (quoted in Martin 1993,101).

That each reforming government was convinced of the objective economic

superiority o f their free market policies is certainly the case. But governments were not alone

in this position. Had radically reforming governments come to power and unilaterally,

without any external support, attempted to implement their reform programs, the outcome

would have been far from certain. However, this was not the case. In each country, a fourth

critically-important factor played its part—the economic bureaucracy. It is now clear that,

whatever policy predilections they may have brought to ofifrce, governments in these

countries were, in various ways, influenced and supported by the leading offrdals in the

Treasury—offrcials who were in this period increasingly economic rationalists or free-

marketeers. In many ways the influences were complex and synergistic—the British

Conservative and New Zealand Labour governments came to government with their reform

packages in hand, the Canadian Tory and Australian Labor governments showed greater

signs of evolution once in ofSce. Yet the influence of economic advice coming frnm 'true

185 believer' free market government officials was signifrcant To repeat the important point here—the influences were largely complementary and synergistic. No government was entirely the captive of its Treasury; but neither is it possible to divorce the actions of these governments from official bureaucratic approval and support for most of their neoliberal reforms.

This bureaucratic influence was particularly important in the cases of Australia and

New Zealand (Easton 1989; Boston 1992; Goldfinch and Roper 1993; Walsh 1995. There, traditionally social democratic Labour parties were heavily influenced away from their traditional policies by committed free-marketeers within the economic bureaucracy. While it is impossible to specify exactly the relative weight ofbureaucracy vs. elected governments in policy-making in these cases, interview respondents nonetheless made strong claims for bureaucratic influence. As a former Australian Secretary to the Treasury put it about

Treasurer Paul Keating:

I think for the first few years in his time as Treasurer, Keating... was a kind o f tabula rasa, a totally blank sheet of paper, really, on which the Treasury wrote assiduously for the first eighteen months or so .... And he became a kind o f apostle, almost, burning with zeal for deregulation and all the things which would, I think quite rightly, be dear to the Treasury’s heart (Personal interview, 20 May 1998, Canberra).

And as an Australian opposition member put it,

... I'm sure Treasury was on his back every day... and as I said, I think they influenced him heavily. Keating was a great admirer of people intelligent, qualified, artistic. I don't think he was any of them himself, you know, but he was greatly influenced by them. And I think once he got amongst all the boffins of Treasury—let's face it. Treasury has it all its reform policies carefully bound up in ribbons just awaiting a new Treasurer and away they go... (Personal interview, 24 Jtme 1998, Canberra).

186 Much the same could be said forthe New Zealand Treasury and its influence on Douglas and the Labour government. As Goldfinch and Roper put it, 'the fourth Labour Government... consistently implemented the monetarist macroeconomic strategy, market liberalization, and redesign of the Welfare State advocated by Treasury.’ Specifically, that Treasury line' was nearly pure neoclassical economics:

... [T]he ideal world as portrayed by the Treasury... would be one inhabited by rugged entrepreneurs, where markets were allowed free reign largely unencumbered by consumer and environmental laws, and free from the influence of unions and other interest groups. Social services would be provided by the market, and access to them would be through direct income transfers or private charity. The functions of government would be limited to controlling the money supply in order to maintain price-level stability, distributing limited income transfers, guaranteeing the legislative and institutional framework for the efhcient operation of maricets and defending the 'free enterprise system' against internal and external threats (maintaining law and ordef and 'national security') (Goldfinch and Roper 1993,64,68).

The influence of this consistent neoliberal line was attested to by New Zealand prime minister David Lange himself who 'later described Treasury as being "almost like a religious cult" when its competence, discipline, and persistence were combined with a "zealous, cohesive commitment" to free-market economic doctrine' (Miskin 1997,28).

In the cases of Antipodean Labour, the influence of Treasuries was clearly to convince—and critically reinforce—free market-leaning politicians that their reversal oflong- standing national policy traditions and their own parties' ideological heritage was both necessary and desirable. In Britain and Canada, tmder Conservative parties which, in many ways, had more natural afhnities to freer-market ideas and policies, the role ofbureaucracy was additive and complementary. Certain parts of the reform program were supported by the public service in these countries. Yet, the support was not unequivocal or consistenL Unlike

187 the dominant 'Treasury line' the Labour governments ofAustraliaand New Zealand received, pushing them towards more open markets, the public service in Britain and Canada was more divided. Its support was not in and of itself decisive and, especially in their early years in government, ministers were suspicious of the public service as being too closely linked to the policy traditions of the past. This was true in both countries—Thatcher felt the British bureaucracy was still too linked to 'One Nation' consensus policies (Harris 1988,96), while

Mulroney initially distrusted the Canadian public service, suspecting them of being too closely linked to the long reign of the Liberal Party (Doem and Tomlin 1991,275).

In Britain, the Treasury's support for the Thatcher program was initially mixed. Nigel

Lawson in his memoirs discusses the general Treasury attitude towards the initial whirlwind of Thatcherite reform:

... [I]t was clear that our policies did not commend themselves to more than a very small number o f Treasury ofihcials. The official Treasury recognized that the old policies had failed ... However, they had little faith in any alternative. They welcomed our determination to curb public expenditure: economic fashions come and go, but the one constant beliefat the heart o f the Treasury, which governs the thinking on much else too, is its mission to stand firm against the desire of politicians of all parties and the whole ofthe rest of Whitehall to devise new ways of increasing Government spending. But monetarism was seen by most of them, not least by the Permanent Secretary, Douglas Wass, as at best an intellectually interesting varied of mumbo- jumbo to which lip service probably had to be paid to appease the financial markets (1993,26).

However, monetarism had a strong bureaucratic supporter in the Bank of England.

Whereas, the nearly-sole focus of the Treasury was the control of public expenditure (Hall

1986, 248-9), the Bank of England took a different view. Thanks to its closeness and sensitivi^ to the predilections of the City, the Bank of England was a very early convert to

188 monetarism, its governor claiming that monetarism appealed even to 'the layman's apparently intuitive perception of the broad relationship between monetary growth and inflation— perhaps clearer to Him than to the professional who knows all the necessary qualifications'

(quoted in Hall 1986,97). Throughout the period, then, the Bank of England was generally quite supportive of the government's anti-inflationary monetary policy.

With respect to the single most important transformation of the Canadian economy in the 1980s—the advent of firee trade—the economic bureaucracy there was similarly divided.

Initially, important elements of the public service were quite hesitant, concerned about the potential effects—economically, culturally, and in terms of sovereignty—likely to stem firom continental firee trade. Sectoral firee trade was usually the bureaucrats' preferred option and it was only after consistent government prodding that that view increasingly began to shift to one of fiee trade. Despite this overall tepidity towards free trade, there was one particular bureaucratic 'true believer* who spearheaded the cause of free trade within the public service-

-Derek Burney, the under-secretary at the Department of External Afikirs, then Mulroney's chief of staff (Doem and Tomlin 1991,274-6). As Doem and Tomlin write of his influence:

... [0]ne of the surprising features of the %enda-setting phase of the free trade story is that the initiative was kept on the agenda despite opposition from most of Ottawa's senior mandarins. And here the role o f Derek Burney is pivotal.... [He] was virtually the lone ranger of free trade in the External Affairs bureaucracy. He kept nudging the issue forward, ensuring that it was not pushed aside, insisting that ministers be presented with a full array of alternatives, including comprehensive free trade, over the opposition ofother senior External Affairs officials.... A personal rapport and trust developed between Mulroney and Burney, serving Tory desires to reach below the top level of official Ottawa to find sympathetic allies in the bureaucracy. Burney was like Mulroney in that he was not an ideologue fr)r fiee markets, but saw the firee trade issue in terms of securing market access and getting the U.S.

189 relationship rig h t... As one senior official put it "Burney war the prime minister on trade issues' (1991,274-5,179; emphasis in original).

Thus, in the case of the economic bureaucracy, we have what is a supporting player—a player, but a supporting one nonetheless. It is clear that in the Anglo-American cases of reform, elected politicians took the lead in promoting a new policy program. It was not forced on them unwillingly by an over-mighty civil service-even in Australia and New

Zealand where the more radical influence ofthe Treasury was stronger. Politicians remained in control throughout and governed the form the neoliberal agenda would take.

This, then, leads us to what is perhaps the most important factor at work in these countries: at the core of the reform phenomenon was strong, even domineering, leadership.

Simply put, it is hard to imagine how the neoliberal reforms of the 1980s would have been implemented in the Anglo-American democracies had it not been for the committed, driving advocacy of determined politicians. In previous years in these countries, we have many examples of leaders being personally unwilling to take the neo liberal path—they were openly in opposition to, or only weakly in support of, these policies. In this regard, one thinks of

Heath in Britain, Stanfield in Canada, Fraser in Australia and Muldoon in New Zealand.

Each party leader effectively stood in the way of the thoroughgoing adoption of a neoliberal program by their parties. Yet, less than a decade later, different leaders would take up the neoliberal banner and use all the political capital available to them to enact their policies.

All four countries had at least one such driving leader—Thatcher in Britain, Mulroney in

Canada, both Hawke and Keating in Australia and Douglas in New Zealand. While each had his or her supporting cast—Howe and Lawson in Britain, for example, Michael Wilson in

190 Canada, Peter Walsh in Australia, Richard Prebble and David Caygill in New Zealand—it remains an unquestionable fact that each government's program was tirelessly promoted by the key point-man (or womanl). While any other scenario lies in the realm ofcounterfactual, it is virtually impossible to imagine what the 1980s would have been like in each country were it not for the crusading zeal of each of these dominant leaders. The vast majority of what was accomplished in these countries was due to the energies of a very limited number of determined individuals.

In Britain, the case of Margaret Thatcher is the stufT of legend—she had an ideology and was not to be deterred in her pursuit of h. As one of her former ministers put it.

She certainly was doctrinaire. She was there to be doctrinaire. And in her view and Keith Joseph's and quite a few others', what Britain needed above everything else was somebody who had the guts to be doctrinaire and not to listen to people who said you can't have prescription charges and you can tie the teachers to the cost of living and you can't do all these other things. She believed that you needed somebody—and particularly in trade union law reform, she didn't want anyone, she didn't need anyone to say, 'Don't do it,' or It's dangerous.' She felt it had to be done (Personal interview, 16 June 1997, London).

In the other three cases as well, very strong leaders were able, largely through the force of personality, to bring their parties and traditional supporters into line with them.

Mulroney did this with the still-controversial issue of 6ee trade in Canada, adopting it as his own personal crusade. As Doem and Tomlin put it, the free trade issue in Canada was largely the product of one man's decision and support—Brian Mulrone/s;

It was [he] alone who ultimately decided that the risks of pursuing the firee trade initiative were worth the political candle. Although he consulted his colleagues, there was no serious discussion o f the issue in cabinet prior to ... August 1985, when Mulroney had already made his decision to leap.... [T]he Conservative cabinet received the [hee trade] decision as a fait accompli.

191 already Judged and decided to be worth the risk by the prime minister and his advisers.... Ministers knew without any doubt that this was Brian Mulroney's show... (1991,272-3).

In Australia, the leadership tandem of Hawke and Keating played the ’good cop-bad cop routine' to dramatic effect. Hawke was the likeable larrikin, the one with the solid trade union credentials to bring along traditional Labor supporters, while Keating was the razor- tongued, hard-nosed Treasurer, badgering, lecturing, even insulting those who would dare stand in the way of his personal commitment to market liberalization.^ Supremely confident of his own abilities, Keating gleefully derided all those who came before him, even those of his own party.

In terms of the Labor agenda, this government has left every other Labor government before it bare-arsed. No other Labor government even gets within a cooee of it. We have a Cabinet which has a degree of economic sophistication which puts the Whitlam government into the caveman class in economic terms, (quoted in Carew 1988, 146-7).

And in the most famous of his self-confident declarations of his ability to lead, he said in

1990:

I say this seriously: I walk aroimd with the world financial markets as much in my pocket as any finance minister in the world. I walk around with

*As Edna Carew described the ultra-aggressive Keating style: The opposition collected and circulated a list of terms which Keating bad used when referring to them in parliament: harlots, sleazebags, fiauds, immoral cheats, cheats, blackguards, pigs, mugs, clowns, boxheads, criminal intellects, criminals, corporate crooks, fidends o f tax cheats, brain-damaged, loopy crims, stupid foul-mouthed grub, piece of criminal garbage, dullards, stupid, mindless, crazy tenet of the opposition, alley cat, bunyip aristocracy, clot, fop, gigolo, hare-brained hillbilly, malcontent, mealy-mouthed, ninny, rust bucket, scumbag, scum, sucker, thug, dimwits, dummies, a swill, a pigsty, liberal muck, vile constituency, fools and incompetents, rip-off merchants, perfmned gigolos, gutless spivs, glib rubbish, tripe and drivel, thugs of Australian politics, constitutional vandals, stunned mullets, half-baked crùn, msane stupidities, champion liar, ghouls of the National Party and barnyard bullies' (1992,210).

192 organised labour, I walk around with the central bank and the most committed bureaucracy in the history of the country, an interested press and a conscientious electorate. But what would [opposition Treasury spokesman Peter] Reith walk around with? Would he walk around with the financial markets? With organised labour? Would he walk around with the confidence of the central bank? Would he have the confidence of the Treasury and the other major control departments of the Commonwealth? Because anyone who doesn’t will let the whole show slip. It will all fall apart very quickly indeed, because to hold it together is a fiiU-time job and you have to build those confidences (quoted in Ryan 1995,7).

In New Zealand, Roger Douglas took a less openly arrogant, abrasive approach. Yet while the style was somewhat different, the substance was even more radical; Douglas’s aim was to achieve an overpowering public policy victory in as short a time as possible. He made no secret that he felt the only way to achieve change in New Zealand was for him to personally bombard the country with huge numbers of dramatic changes and to give effect to them so quickly that the opposition was continually wrong-footed and unable to respond effectively. As Douglas himself put it.

Do not try to advance a step at a time. Define your objectives clearly and move towards them in quantum leaps. Otherwise the interest groups will have time to mobilise and drag you down.... Speed is essential. It is almost impossible to go too fast.... Once the program begins to be implemented, don’t stop until you have completed it. The fire of opponents is much less accurate if they have to shoot at a rapidly moving target. ... Don’t blink. Public confidence rests on your composure (Douglas 1993,220,222,225, 233).

In a statement very reminiscent o f Thatcher's 'conviction politics' beliefs, Douglas said that

'compromised policies lead to voter dissatisfaction; letting things drift is political suicide'

(quoted in Deane 1995, 5). As former National prime minister Jim Bolger described

Douglas's personal one-man crash through or crash' approach:

193 The Douglas approach was novel, to say the least Aware that the democratic system could only respond to a certain amount o f change at any one time, he determined to move so fast that the system's checks and balances couldn't keep up. No sooner had he infuriated his opponents with one action, then they would discover that he had done something considered even more outrageous somewhere else (1998,48).

And in the words of a former National Party minister,

I think all credit must go to Roger Douglas.... Roger Douglas really was the driving force. And he got a small group around him that decided, 'Yes, we've got to do something, ifs got to be radical, it's got to be spectacular, otherwise we will continue to be a one-term government,’ which is what they'd been.... So that small team that he surrounded himself with said, 'Realistically, if we want a second term, we've got to do something dramatic. It's got to be something that people will buy into eventually' (Personal interview, 5 November 1998, Wellington).

Put simply, the fact that neoliberalism 'happened' in the 1980s, and took the form that it did, is in large measure a reflection of the personal ideologies, perceptions and personal, political and economic goals of the leaders involved. This is not to say that free market reforms in these countries can be simply explained by the single variable of voluntarism.

Modem world economies are simply too complex and democratic politics too unpredictable for this to be true. If personal influence were all that mattered, Paul Keating would have achieved a goods and services tax (GST) in 1984, Roger Douglas would have succeeded in his flat tax and other very radical proposals, Brian Mulroney would have been able to remove full indexation of pensions when he first proposed it in 1985, and Margaret Thatcher would have been able to continue her personal regal tenure ad infinitum. Despite these 'C ures', however, the personalistic variable was critically important—one would not go too far wrong in asserting that, at least as far as Anglo-American neoliberalism is concerned, elites were fundamental to the process o f change.

194 Finally, there is the role of international factors. This is, at the same time, an important and very difficult issue to assess.’ It served, in many ways, as the ultimate background variable—one forever present, needing to be reckoned with, largely uncontrollable, yet not in itself entirely determinative. There is no doubt that policy-makers in all four countries responded to what they perceived to be the inevitability of globalization and world economic integration, and the need for their country to be included in that process or be left behind. We have the first-hand testimony of participants in the process that this was in fact the case. For example, Roger Douglas argued that the old divisions between left and right were largely obsolete. The international environment had taken on such importance that what mattered most was not partisan ideolo^, but one's attitude towards global integration;

There are new groupings, new divisions. What we have now are internationalists—the realists—and the isolationists or protectionists. The former understand that the world is more and more becoming a single market and want to be a part of it. The second group hanker for the past. They want to put up barriers and pretend that they can operate outside the global market. Both groups are represented in the main political parties around the world, whether they are labelled 'left' or 'right' (Douglas 1993, 11-12).

Yet, despite the ever-present influence of the international environment, accurately measuring its relative importance is difficult. Respondents differed in their assessment of the importance of international factors—some considered them to be of first-rate importance, others saw them as facilitating and encouraging a process of change already underway domestically. Nowhere did decision-makers indicate that international factors were in and

’Within a rapidly-growing literature on globalization and its impact on domestic policy, see Keohane and Milner 1996, Swank 1998, and Germain 2000.

195 of themselves determinative-m the extreme, of course, such a thesis completely eliminates any latitude for action on the part o fdemocratically-elected governments. Yet, the influence was there and can not be denied.

Not surprisingly, the influence of external factors was strongest in the three much smaller, trade-dependent economies—Canada, Australia and New Zealand. In Canada the problem was the overwhelming economic might of the United States. There, the government's push to open up markets and conclude flee trade with the US was explicitly an attempt to impose some order and predictability on the Canadian-American economic relationship. Throughout the early 1980s, members of the US Congress had become

increasingly vocal in their calls for protectionism. Spurred on by the 1982 recession, they argued for stiffer protectionist measures as a means of protecting threatened American jobs.

Such efforts were viewed with great trepidation, even horror, in Canada. In the simplest of terms, the Free Trade Agreement (FTA) with the United States was intended to do neither

more nor less than insure Canadian access to the US market. The urgency of the

international variable, then, was paramount to the flee trade advocates. As the Royal

Commission on the Economic Union and Development Prospects for Canada, headed by

former Liberal flnance minister Donald McDonald, reported in 1985:

Whether our association with our neighbour is easy or not, we 'need' the United States. It buys about a fifth of what we produce, and it sells us many of the products which make our own lives rich and varied. We watch American television, drive American cars, eat American vegetables, drink American orange juice, and wear American clothes. The United States, however, also needs us. It needs our non ore to make cars, otn* paper to print newspapers, our subway cars to travel to work, and our lumber to build homes. We are not only their best customer, but also their principal supplier. The extent o f our links is demonstrated by the fact that every day o f the year,

196 thousands ofcars, planes, trains, trucks, people and ideas flow back and forth across the Canada-U.S. border: More trafhc than between any other two nations on earth. The closeness of this relationship offors both tremendous benefit and risk of harm. We Canadians are wealthier because of the Americans, but we are also vulnerable to changes in their fortunes. ... Canadian business has reached a stage where our domestic market can no longer assure our continued growth, and where our access to foreign markets is no longer perceived to be secure enough to stimulate long-term, job- creating investment (Royal Commission on the Economic Union and Development Prospects for Canada, 1985,1:300).

In Australia, Bob Hawke made a similar argument based on the economic challenges faced by a small, vulnerable trading nation:

The first [challenge to Australia] is for us to realise that this tough, increasingly competitive world of five and a halfbillion people does not owe, and will not give, seventeen million Australians an easy prosperity. The days of our being able to hitch a firee ride on a world clamouring, and prepared to pay high prices, for our rural and mineral products are behind us. From this fact flows everything else (Department of the Prime Minister and Cabinet, 1991,1.I).

And as a former National minister put it with regard to New Zealand's inability to resist worldwide economic forces:

... [B]eing realistic, we have to accept that there's an international world. We have to accept that people like Soros and others are going to move money all around the world and one day we'll find that something's happened to our share market because he's just moved a whole bundle of dough in here and then he might move it out the next day. That's the live we live now. So you can't insulate yourself. If we had tried to do it the old way, we would have been in deep [trouble] now (Personal interview, 5 November 1991, Wellington).

Thus, the international factor proved quite important. As stated above, its role was to prompt, to reinforce, to add urgency to neoliberal reform. While not explicitly controlling the nature, scope and pace of reform, it nonetheless provided a continual reminder to policy­ makers of the motivation and justification for change. In this way, it interacted with and

197 reinforced politicians' own personal perceptions that neoliberal change was essential in the first place. It was a delicate balance—international pressures reinforcing elites’ preconceptions about the need for change, while at the same time providing the mitial impetus to those perceptions. Perhaps the best summation of this important, yet imprecise, interaction came from a former minister in the Australian Labor government. As he put it:

The international environment was absolutely decisive. But certain individuals picked up that ball and ran with it very strongly, Keating being the prime example. There's no accident that governments, social democratic governments, socialist governments, all around the world [have] to confront similar problems. We're just simply not unique. There's a school of thought on the left that views all this as some peculiar sellout by a Labor bloke with political figures, but what gives the lie to that is the-fact that the left can't explain why all over the world a similar phenomenon is occurring. Clearly, major international developments were driving all of this, but that doesn’t mean that individuals can't play a key role in either retarding or accelerating what might be seen as a necessary and inevitable adjustment (Personal interview, 14 May 1998, Canberra).

Elite actions, perceptions and decision-making, then, were critically important. But so also were pressures emanating from the international environment. They caimot, in fact, be separated from each other.

Assessing the Causes of NeoUberal Reform

This chapter, then, has laid out in sununary fashion the six most important elements propelling governments in the Anglo-American democracies to pursue a neoliberal program.

These six by no means exhaust the possibilities. Whole treatises could be written on these, and many other, factors which were passed over in silence here—for instance, the roles played by electoral motivations, interest group relations and internal party politics could all be given

198 their due. Yet, the most important factors have been delineated here and an effort made to show how each interacted with the others in producing the neoliberal policy phenomenon.

Specifically, to summarize the main argument, it is clear that perceptions of economic crisis and relative national decline were the prime motivating agents for change. Absent these twin influences, one cannot imagine how or why a decisive break would have been made from post-war consensus policies. The 'cure' of neoliberalism, then, was only introduced once the 'disease' of economic crisis and decline became apparent. Governments are usually cautious, slow-moving entities, resistant to change (Rose and Davies 1994, Olson

1982)—in the case of neoliberalism, change came only once the failure of previous approaches was perceived by decision-makers.

But, as argued above, it is one thing to recognize a disease; it is quite another to identify a cure. Here, the TINA phenomenon played an important role. Perceiving TINA to be an undeniable fact, governments were both motivated and justified by their belief that neoliberal policies were the only rational alternative available to them. Whether that was, in realiQf, the case is not at issue here. What is critically relevant is that decision-maker

'fiamed' their policy response according to a cognitive 'script' which held that neoliberalism was the only set of economic policies appropriate and available to them at the time. Put simply, TINA was largely a cognitive phenomenon which served to discount and disqualify other poliqr alternatives and promote neoliberalism to the fore.

Once the disease was diagnosed and the alleged cure identified, the treatment was then pursued in earnest by power^A dbmmeermg /eoders acting with the encomagement and support of, inter alia^ the economic Intreaucracy and international economic influences.

199 These^ then, aie the cast ofcharacters—the dominant leaders in each cabinet spearheading and pushing through the agenda for change, receiving justification, support and assistance fiom, on the one hand, an economic bureaucracy strongly supportive (especially in the Antipodes) of neoliberal reform and, on the other, an international environment in which globalization and freer markets worldwide lent credence to governments' pleas that no other options were realistically to hand. In short, leadership played the decisive role, but the supporting ensemble caimot be ignored.

As argued at the beginning, this chapter has been concerned with adducing similar features across the four cases, producing an account capable of explaining what were remarkably similar policy changes, particularly for such dramatically different parties. Were we to end here, the partisan puzzle of neoliberalism would remain unexplained. The impression would be given than policy uniformity and similitude was the rule of the day across these countries. Yet, as the next chapter will reveal, that was not the case. Despite broad overall similarities-both in the motivations each government had fr>r reform, as well as the general thrust of each's reform program—significant differences were apparent Each government applied the medicine ofneoliberalism in ways unique to it and, as will be shown, the uniqueness o f each's policy agenda reveals the distinctive stamp o f partisanship. The common move to neoliberalism discussed in this chapter transcended partisan lines. Yet, as we shall see shortly, partisan differences never ceased to exist or impart their critically- important influence. Inaword, the common motivations and causes discussed in this chapter did nothing to eliminate or obfuscate the significant aspects of partisan influence. As the

200 next chapter shows, neoiibeialism did not obliterate the partisan variable, it simply reshaped and altered it to operate in novel ways in new and challenging economic circumstances.

201 CHAPTER 6

DETECTING THE IMPRINT OF PARTISANSHIP

To this point, the focus of this dissertation has largely been on the policy similarities of the Anglo-American democracies. The story told so far has been one of governments of both the right and left who, reversing significant aspects of national history and partisan tradition, took their countries in decidedly more-market directions. Chapter Four showed how these radical market reform programs shared much in common and Chapter Five identified some ofthe more important causes o f the common move to more open, free market economic policies. Through a varieQf o f common factors and causes, it has been argued, all four governments moved largely in the same policy direction—away from the post-war consensus favoring state economic intervention and regulation and towards a policy regime premised on the notion that freer markets are inherently superior, more efGcient mechanisms for the distribution of scarce economic resources.

Yet, as was discussed atsome length in Chapter Two, the Anglo-American neo liberal policy phenomenon appears to run directly coimter to commonly-accepted theories of partisan influence on public policy. As that chapter shows, the once-contested but now widely-accepted notion is that partisan differences play an important role in the shaping of

202 policy outcomes, particularly with regard to economic and social polity. Far 6om being simple products of apolitical sociological or historical factors, public policy decisions are also, the theory goes, in large measure the results o f the influences brought to bear on the policy-making process by the partisan and ideological predilections of the parties in power.

To be specific with regards to economic policy, both the theoretical and empirical literature advance the claim that parties of the left are likely to be in favor of policies—usually involving substantial state intervention—designed to lower unemployment and create jobs for their primary class constituency, while right-wing parties are likely to pursue policies of limited government, deregulation, and price stability, even at the potential cost of higher unemployment. The impact of partisanship is clear and well-substantiated, with ample empirical verification across a wide variety of nations.

How, then, are we to reconcile the very clear argument that parties 'matter* in the determination of public policy outcomes with the equally clear finding of this project that both Conservative and Labour Parties in the Anglo-American democracies pursued what were—in some ways—remarkably -similar programs of neo liberal economic reform? The puzzle is obvious—the simple expectation of partisan theory would be that the Tory Parties of Britain and Canada would have pursued policy programs at obvious variance to those of

Australian and New Zealand Labour. Based on this theoretical expectation, the set of four cases should be easily divisible into two partisan sub-sets—right-wing parties, on the one hand, and left-wing parties, on the other. Yet, as has been argued so far, this is not the most obvious or empirically justifiable division o f these cases. Rather, what we see in the Anglo-

American democracies are two sub-sets, distinguished fiom each other not on the basis of

203 partisanship, but rather by the nature, pace, and scope of neoliberal change, a factor which cross-cuts partisan lines. Simply put, the simple application of partisan theory to these cases does not produce immediately convincing or even successftil results.

So, to return to the central problem: what, then, for partisan theory? Is it simply wrong in this particular instance? Was the neoliberal policy phenomenon one in which, for whatever reason, the partisan variable was inoperative or ineffectual? Were the forces impelling a common move to market reform so irresistible that they overwhelmed or precluded the impact of ideology or partisanship? Is it then possible to speak of neoliberalism—at least in these cases—as a nonpartisan, or nonideological, phenomenon, one which simply bypassed or ran roughshod over the laws of partisan influence which allegedly operate in other, perhaps more 'normal', times?

The simple answer to these questions is no—partisanship was not 'dead' across these cases nor was neoliberalism an apolitical, nonpartisan policy phenomenon. As this chapter will attempt to show, despite a great deal of evidence indicating the absence of its influence, the reality is that partisanship did indeed play an important role in determining the nature o f neoliberal policy reform in these four cases. Despite significant overall similarities in philosophical approach and in actual policy choice, the influence of partisanship was still very much in evidence, helping to shape the specific nature o f the reform programs in each country, and providing a basis on which the four countries can, indeed, be grouped along partisan lines. In certain key areas, the influence of partisanship was clear. It is the duty of this chapter to uncover that influence and discover where partisan ideology did indeed leave its identifiable imprint on the neo liberal polity revolutions of the 1980s.

204 Once that discussion has been accomplished, the chapter then turns to an analysis of the changing nature of partisanship itself in these cases. As will be argued below, the Anglo-

American democracies do not reveal the irrelevance of partisanship; rather, partisanship played an identifîably important role in the neoliberal policy revolution. In that sense, traditional partisan theory is confirmed. But it is also equally clear that the ways in which partisanship mattered in these cases had changed quite substantially fi*om the predominant patterns of the 1950s, 60s and 70s. This was particularly true with regard to the Labour

Parties considered in this study. By the 1980s, the Labour Parties of Australia and New

Zealand still held some policy positions which were identifiably traditionally social democratic, but the nature of their programs had also changed in significant ways. Simply put, the 1980s saw the emergence of Antipodean Labour Parties which had largely accepted the presence of market forces as a necessary, even desirable, aspect o f modem economies, yet, in certain aspects of policy, also sought to influence the course of market-led economies in a way reflective of their trade union origins and institutional links. Thus, partisan differences still remained when compared to their Conservative counterparts, but the specifics ofthe partisan differences had changed and, in many ways, narrowed. This chapter, then, will first lay out the major partisan diflerences between the Conservative and Labour

Parties of these four countries and then consider how partisanship remained an important factor, but one whose impact had shifted and changed character in quite important ways.

205 Labor Market Policy: The Crux of the Partisan Difference

As stated above, this dissertation has heretofore been largely concerned with the remarkable and quite unprecedented similari^ ofeconomic policy approach between the four

Anglo-American democracies. While policy specifics certainly varied from country to country, the remarkable aspect was similarity—in each case, governments were motivated by the notion that change was necessary, and that only some form of neoliberal change was the appropriate economic remedy. Yet in one key policy area—that of labor relations and labor market policy—v/e see a clear divergence based on partisan political considerations. Here, more than in any other aspect of policy, we see the Anglo-American countries dividing along traditional partisan lines.

In many ways, labor market policy and industrial relations is an important test case of the partisan hypothesis. The reader will recall from Chapter Two that a key component of the 'politics matters' hypothesis is that parties will be motivated to pursue policies beneficial to the most important elements of their electoral constituency. Given the fact, then, that left- and right-wing parties usually draw support from class-based constituencies, we should expect to see policy differences emerging in those areas of greatest salience to each party's main support base (Lipset 1960). It is fr>r this reason that labor market policy provides a particularly important test of the partisan hypothesis—for it the close, institutionally-codified links between the Antipodean Labour Parties and trade unions which most distinguish them from their Conservative counterparts. If, as Lipset and other argue, we should look for policy differences arising from different bases of party support, then it follows that the close, institutionalized relations between Labour and trade unions should

206 provide a particularly salient point of difference between these parties and Conservatives.

As McKenzie points out with regard to Britain, the trade union ties of Labour are of key importance (1955)—they are a fundamental factor serving to structure the nature of political competition in those coimtries with such Labour Parties.

Therefore, given this base-level distinction between Conservative and Labour Parties, the operative question becomes, did this difference translate into significant policy differences as partisan theory would have it? And furthermore, was the key institutional and historical difference between left and right in these countries—i.e., the trade union history and base of the Labour Parties-also the point of departure in actual policy terms between Tory and Labour? To both these questions, the answer is yej—the key point o f policy distinction occurred precisely at the point of greatest difference in terms of history, organization and electoral support, that is, in relations with and policy towards organized labor. Simply put, because of the different nature of each party's political support, the experience of labor relations under Thatcher's Tories in Britain differed significantly firom that of the Labour

Parties of Australia and New Zealand.' In fact, the distinction is even more clear when the

'Canada does not fit into this comparison and labor relations under Mulroney will not be considered here. The reasons fer this are straightforward. First, Canada’s labor market differs markedly firom those which formerly existed in Britain, Australia and New Zealand. Conforming closely to the deregulated North American model of industrial relations, Canada has traditionally resembled the open labor market o f the US more than its other Commonwealth partners. Hence, the Mulroney government had little opportunity or incentive to reform this largely deregulated market and its reform program included no significant statutory changes to the structure of Canadian labor relations. A comparison with the other three would not be valid, then: the Progressive Conservatives failed to significantly deregulate the Canadian labor market not for any identifiable partisan reasons, but simply because the structure of the market itself was alreacty largely deregulated (Drost 2000, Van den Berg 1997).

207 comparison is extended to the conservative successors of Antipodean Labour-in each case, conservative parties proved willing to reform the labor market in ways Labour was unwilling to do. But first we begin with Britain, then look at Australian and New Zealand Labour, and finally conclude with the post-Labour experience in each country.

We have already seen, in Chapter Four, the approach of the Thatcher government towards trade unions. Simply put, Mrs. Thatcher took office convinced that trade unions had established a stranglehold over the economic life of the nation. Such control, she believed, was abetted by the desire of all other post-war governments to achieve a peaceful, working relationship with organized labor—a willingness to compromise that, in the turbulent years of the 1970s, was exploited to the unions' advantage by labor leaders bent on creating economic havoc in order to achieve their desired ends. As she would later recall her early days as a backbencher.

Many of us on the right of the Party—and not Just on the right-were becoming concerned about the abuse of trade union power... [and] I sought advice about whether I could introduce a Bill which would break or at least weaken the power of the closed shop. But here again there were difficulties. Although younger Tories and many backbenchers were restive on the issue, the prevailing ethos in the upper ranks ofthe Conservative Party was still one of accommodating and appeasing the unions.... The Whips made it clear to me that I would not have the Party's support (Thatcher 1995,109-10).

As Nigel Lawson points out, the Thatcher government was convinced that something

had to be done to rein in the trade unions. Recalling the failures o fthe past—particularly the

Wilson Government's In Place o fStrife (1969) and Heath's Industrial Relations Act (1971)—

the government broadened its attack on union prerogatives to extend beyond simply passing

one massive industrial relations act which would purport to reform the labor market in one

208 fell swoop. As Lawson puts it, the government’s approach was to move a step at a time, but also to coordinate other aspects of economic policy so that each contributed, in its own way, to the eventual emasculation of trade union power:

... [T]he transformation of the industrial relations scene in Britain depended just as much on the economic policy the Government pursued as it did on the reform of trade union law. In particular, the eschewing o f pay policy, which conferred undue importance on trade union leaders while creating unnecessary grievances among their members, and the abandonment of the unfulfîllable commitment to full employment, which had enabled the unions to hold previous governments to ransom, were both essential components of the new order—and o f the ’new realism’ which the union leaders felt obliged to embrace. The privatization programme, too, which no previous Government had attempted, was important in this context: trade union leaders are least inclined to feel constrained by the economic facts of life when State ownership both politicizes the context and appears to provide a bottomless purse (Lawson 1993,437).

To put it another way, the problem, according to the government, was trade unions and their leaders acting as ’over-mighty subjects' and the solution was to ensure that that power was effectively removed. The contrast with the past was clKur—there was no talk of conciliation, no talk of moderate reform, and certainly no Heathite references to the positive aspects of trade union strength and power (see Chapter Three). The Butskellite acceptance ofthe trade unions as being a legitimate, appropriate estate of the realm had been replaced by an open suspicion, even hostility, to organized labor and its leaders. As a former minister in the

Heath government put it,

[To Margaret Thatcher] powerful trade unions are a menace.... There’s no doubt that her motivation was much more anti-trade union than Ted Heath’s was or mine was. We were very careful to call our Act an Industrial

209 Relations Act. Margaret Thatcher was very clear that all her Acts were Trade Union Acts.' (Personal interview, London, 21 May 1997).’

With this new attitude—this clear departure from traditional policies of conciliation and compromise—the Thatcher government moved in a series of legislative steps to dramatically reorder the industrial relations landscape in Britain. When these legislative moves are combined with Thatcher's nearly-intransigent attitude towards strikers— particularly those in the 1984-5 miners' dispute—the cumulative effect was revolutionary.

Specifically, the government passed fijur main pieces of industrial relations legislation—the Employment Acts of 1980,1983 and 1990 and the Trade Union Act o f1984.

The cumulative effect of these acts was dramatic: unions' legal immunity from damages due to secondary picketing was removed; rights were introduced for those employees dismissed for refusing to join closed shops; secret ballots were instituted forthe establishment ofclosed shops and for the reconfirmation of existing closed shops (with eighty percent approval necessary); the period of employment necessary before claims of unfair dismissal could be made was lengthened; virtually all legal immunities from civil action arising from unlawful industrial action were removed; all legal immunities for industrial action not agreed in advance by a secret ballot of members were eliminated; provisions were introduced

’This last point is not entirely accurate—only one of Mrs. Thatcher's four industrial relations acts was labeled a Trade Union Act. But, nevertheless, compare the Thatcher attitude to the speaker's own view, one redolent of the more moderate 'consensus' attitude: 'In principle... good, strong trade unions are a strength to society and to industry, not the reverse—providing they are democratic, operate within a framework of law, and providing individual people are neither forced to join or forced to stay out ofjom ing.... No Prune Minister tried so hard [as Heath] to imderstand the unions and to give them a chance to have a bigger say in government than they had ever had before or would ever have again * (Personal interview, London, 21 May 1997).

210 stipulating that trade union leadership must be elected by secret ballot at regular intervals; and it became unlawful to induce industrial action on the part o f workers who were not party to a dispute, except &r lawful picketing (OECD [United Kingdom] 1985,26; 1993,53). In short, the legislation aimed at restricting the unions' scope o f action by reducing their ability to conduct widespread, concerted industrial action, by subjecting them to possible civil action arising from strike activity, by making intra-union democracy legally necessary, and by protecting non-union workers wishing to work in closed shops.

The cumulative result of these reforms caimot be overstated-especially when compared to the failure of the Wilson and Heath governments to enact much less sweeping industrial relations legislation in the late 1960s and early 1970s. By the end of the decade, the Thatcher government had produced the most deregulated labor market in the OECD.

Trade union membership, meanwhile, had declined signifrcantly-a decade of recession, high unemployment and hostile government legislation had served to reduce union membership from fifty-six percent of workers in 1980 to forty percent, and falling, in 1990. At the same time, workplace disputes fell to their lowest level since 1935—another trend which would continue well into the 1990s (see also Table 18) (OECD [United Kingdom] 1991,83).

As the former head of a major trade union described the Thatcher revolution in industrial relations.

There was no doubt that Margaret Thatcher won the [1979] election on the basis that she would put the trade unions in their place. And let's not quibble about it, she succeeded beyond what anybody thought she could. From being relatively all-powerful, the [unions] became relatively impotent. This was achieved by a number of Actors. Firstly, crÿplîng legislation. Secondly, a substantial increase in the number of unemployed. And thfrdly, the ... hostility of employers, with encouragement coming from the Thatcher

211 government Now in saying all these things to you. I'm not pretending that the trade union movement didnt make mistakes. I think it did. Whether it be governments, employers or trade unions, all have the tendency to use the economic boot if [it] is on their foot. Governments use it, trade unions use it, and employers use it. And certainly since 1979, any question of liaison with the government of the day, or consensus, has been out o f the question completely and absolutely (Personal interview, Broadstairs, Kent, 6 May 1997).

And as the Thatcher effect on unions was summarized by a former Labour minister

If you say there was [formerly] a consensus on the place of trade unions as the third arm—employer, employee and government—the answer was yes. Margaret Thatcher's period in history will go down as a period in which she broke the mold from the past (Personal interview, London, 17 March 1997).

Taking the case of industrial relations in Britain and comparing it to the labor market policies pursued by the Labour Parties o f Australia and New Zealand, the contrast could not be more stark. Instead of applying the deregulationist and liberalizing logic of neoliberalism to the labor market with the same enthusiasm with which they deregulated other aspects of their economies, these two Labour Parties actually sought to preserve critically important elements of their countries' traditionally highly-regulated labor markets. In both cases, the

Labour governments in power eschewed any significant labor market deregulation, leaving this task to the conservative parties which succeeded them in ofKce.

This reticence to apply the neoliberal medicine to industrial relations should come as no siuprise to devotees of partisan theory. As with the British Labour Party, the Labour

Parties of Australia and New Zealand grew out of the labor movements in their respective coimtries at the end o fthe last century and have to this day maintained formal organizational links with trade unions. Therefore, in these cases, we have a nearly fron-clad instance of partisan theory logic—not only do trade unions and their members constitute a large part of

212 the Labour Parties' electoral constituency, they also form an integral part of the party organizations themselves. Given the theory's logic, then, the influence of trade unions, particularly on those issues of greatest interest to them, should be significant indeed. This, of course, is precisely what occurred. In contrast to the British Conservative Party~and its near antipathy to unionism—the Antipodean Labour Parties worked closely with and sought to maintain the traditional importance of trade unions in their respective economies.

In Chapter Three the unique system of labor relations in Australia and New Zealand was discussed. Simply put, those systems were ones in which wages were determined by a centralized arbitration commission. From the very beginning, these countries had been accustomed to a direct regulatory and supervisory role for the state in the labor market.

While over time the two systems diverged—by the 1980s, centralized wage fixation had essentially ended in New Zealand while in Australia the decade saw a return to high-level wage bargaining and pay setting—both countries had a legacy of state intervention and regulation of the labor market which was virtually unique among Western, industrialized nations.

The course of industrial relations policy in these countries over the 1980s was not identical. Yet despite significant differences between the two, the one shared feature was that the pace ofchange with respect to labor market policy was significantly slower and more deliberate than with respect to other aspects of the national economy. The contrast between gradual labor market change and rapid reform elsewhere was dramatic in both countries. In

Australia, the Hawke and Keating governments pursued neo-corporatist policies of negotiation and compromise with the Australian Council of Trade Unions (ACTU) while

213 they significantly deregulated other areas o f the economy. In New Zealand^ the contrast was even more stark—compared to the blitzkrieg of reforms Douglas and Co. undertook in virtually every other aspect of the economy, labor market reform was far more gradual and remained largely incomplete until the accession o f the conservative National Party in 1991.

We consider these cases briefly here, pointing out how these cases of labor market reform reveal the workings of partisanship in the area o f public policy most traditionally close to the hearts o f Labour Parties.

As just mentioned, the paths of labor market policy in the two Antipodean cases shared one key characteristic—a gradual, slow pace of change and reform, particularly relative to the rest ofthe governments’ reform programs. In Australia, this could be seen most clearly with the Labor Party's efforts to introduce a significant element ofcorporatist labor relations.

For virtually its entire tenure in office, the Labor governments of Hawke and Keating relied on the Accord as the centerpiece of their economic policy. This agreement was essentially a neo-corporatist arrangement, negotiated yearly between the government and the ACTU, by which the government secured agreement fix>m trade unionists to limit wage demands in exchange for a government commitment to steadily increase the quality of the social wage’, that is, government spending on social services and programs of direct benefit to workers such as health care, education and pensions. As discussed in Chapter Four, this policy was

largely successful in two respects—it succeeded in holding down real wage increases while also securing labor's support forthe government’s program ofreform. The notion underlying the entire experiment with this sQrle of corporatism was that real economic reform did not have to be antithetical to the interests of workers—a committed Labor government could in

214 fact pursue reform while enjoying the support of organized labor. In this respect, the contrast with the British case is cIear~to Margaret Thatcher, over-mighty unions were a sizeable part of the economic problem and their weakening was a fundamental aspect of her reform agenda. For Bob Hawke—the former long-time president ofthe ACTU—the labor movement was a critically important link in the reform effort, their support was critical for the success of liberalization elsewhere in the economy.

This fundamental link between the support oftrade unions and the success of Labor's program was attested to by a former Labor prime minister. When asked if the government's reform policies were dependent on labor support, he replied:

To a very large extent they were. You couldn't have introduced such radical changes as we did if you had a trade union movement which said,... 'We’re Just going to go for it, grab what we can and push wages up.' Then you wouldn't have had the noninflationary environment, and you wouldn't have had the nonconffontational environment within which change had the best chance of operating. The Accord did keep money wage levels down. What it simply meant was that the community—via what we did in education, what we did in health and so on—was meeting some of the cost bill of the employers. Essentially, ifyou put it in simple terms, instead ofpaying higher money wages so that people could buy health insurance and higher education, they paid lower money wages and the community did more in these areas. And that provided a lower inflation rate (Personal interview, 14 November 1996, Menlo Park, Ca.).

Over time, it is true, the Labor government did begin to move away from the highly- centralized industrial relations system in place at the beginning of its tenure. From 1987, wage awards began to be linked in part to productivity increases which were negotiated at the enterprise level and the 1988 Industrial Relations Act enabled firms and unions to hammer out agreements on wages and working conditions on their own, so long as the

Australian Industrial Relations Commission (AIRC) considered these agreements to be

215 consistent with the 'public interest'. These provisions were extended in the Industrial

Relations Reform Act 1993 which further decentralized wage bargaining, enabling unions and firms to reach a wide range of agreements at the enterprise level (OECD [Australia] 1995,

54-5). Yet, despite these changes, the government sought union support throughout-even this series of decentralizing reforms was negotiated with trade unions themselves and received their approval. Not surprisingly, then, interview respondents repeatedly identified labor relations as a key point of difference between the right and left in Australia. As a former member o f the Labor govermnent described it:

The key area of ongoing distinction [between left and right] was the labor market. Initially, there was an Accord ftamework negotiated, with highly- centralized wage fixation, which changed over the life of the government towards a more limited role forthe so-called awards system and an increasing emphasis on enterprise-level bargaining and a focus on productivity—linking productivity growth to wage increases. But that remained and still remains a major area of differentiation between the Labor Party and the current [conservative] government. The current government is, as you might have read, in favor of going fullbore to minimize the influence of trade unions (Personal interview, 14 May 1998, Canberra).

Put simply, the key point of difference between the Labor Party and its conservative Liberal and National competitors was its approach to industrial relations policy. And, as a Liberal

ParQr minister argued, that difference arose precisely because of the close association between Labor and trade unions. Essentially verifying the logic of partisan theory, he said:

The Labor Party is a party that is very heavily based in the trade union movement. Stmcturally, you will find a very substantial majori^ of the decision-makers at all parQr organization conferences dominated by trade union members. You'd find its parliamentary representation heavily dominated by people ftom a trade union background. Now, ftom my point of view as a member of the Liberal Party, I've always regarded the Labor Par^ as a highly sectional parQr and its policies are always influenced by that sectional background.

216 The policy o f consensus which Hawke promoted was essentially an effort to elevate the role ofthe ACTU, of which he had been president, in the national policy scene and he established an approach to policy-making ... which involved unions, government, and private enterprise working together.... That tripartite approach gave the trade union movement a say in policy that it had never managed to achieve before.... It meant that every area of policy was constrained by the institutional interests of the trade union movement. You couldn't move policy to any position that would damage the interests of the trade unions. And that meant, for example, that you couldn't deregulate the labor market because the union power relied on a centralized industrial relations system.... And you could go on in all of the policy areas and you would find them dominant (Personal interview, 9 June 1998, Canberra).

The relationship between trade unions and the Labor government of Australia was much closer than that which existed between the New Zealand Labour government and unions there. In New Zealand, labor was much weaker as a political force and was less able to make its voice heard in opposition to the Douglas steamroller of reform (Bray and Neilson

1996). In particular, nothing comparable to the Accord developed in New Zealand—no highly-institutionalized avenue through which the labor movement was regularly consulted and its support actively cultivated. Yet, despite this contrast with the Australian experience, a very similar public policy pattern developed with respect to labor market policy—New

Zealand Labour seemed nearly as unwilling as its Australian counterpart to effect significant reform to the labor market, especially reform perceived as counter to the interests of organized labor. This reticence is even more remarkable when viewed in the light of the thoroughgoing reform the Fourth Labour Government brought to virtually every other aspect of the New Zealand economy.

The Lange Labour government, in fact, began its tenure in ofBce with an act of dramatic re-regulation by immediately enacting a return to compulsory unionism. The

217 Muidoon government had ended the unionization requirement^ but in an important and thoroughly partisan move, the Fourth Labour Government reinstated it. What then followed was quite different 6om the Australian case, in that no neo-corporatist style agreement was reached with any peak union organizations, but quite similar in that no dramatic efforts were made to scale back unionization or labor influence. As Bray and Neilson aptly put it, '[i]n contrast to its approach in other areas, the New Zealand Labour Government's labour law strategy could be described as a medium-term approach of step-by-step cautious reform'

(1996,77).

The only main pieces of industrial relations legislation introduced by the Labour government were the 1987 Labour Relations Act 19ZS State Sector Act. Essentially, these acts provided for a limited decentralization of wage fixation. Under them, unions could decide to opt out of the national award system and pursue an agreement at the industry or even enterprise level. But the same opt-out clause was not available to employers and those agreements could contain provisions for compulsory unionism or closed shops (OECD [New

Zealand] 1989,44). Thus, there was some limited move towards decentralization but, even when compared to the later Australian experience ofthe 1990s, the reform was minor indeed, and nothing when compared to the shakeups occurring elsewhere in the economy. In fact, the OECD reported in 1991 that, in its first few years of operation, the new industrial relations fiamework had only limited effects—most awards continued to be made at the national level and very few agreements had been concluded at the industry or enterprise-as opposed to craft-level (OECD [New Zealand] 1991,70).

218 A true sense of how marginal the reforms in New Zealand's labor market were under the Lange Labour Government can be had by comparing them to the near-total revolution of

industrial relations implemented by the succeeding conservative National government. Its

1991 Employment Contracts Act was a veritable scorecard of neoliberal labor policies, an act which essentially deregulated the entire labor market. Among other things it; allowed employers and employees to select with whom they will associate or bargain—hence

individual-level employment contracts are possible and legally sanctioned; removed any

preference for unions or union members in negotiations—henceforth closed shops could not

be negotiated and individual workers had equal bargaining rights to those of organized

unions; and outlawed secondary strikes. As a result. New Zealand now has a labor market

which is less regulated than even the classically deregulated North American model.

Specifically, New Zealand law does not require bargaining 'in good faith'; agreements for

closed shops, or which give preferences to union organizations, are illegal; and there are no

statutory requirements for minimum severance notice or severance pay (OECD [New

Zealand] 1996,54). In short, it is here that we see the most significant partisan differences.

The Douglas reform package was in many ways like that of the Thatcher revolution in

Britain: it cut a wide swathe through traditional economic policies and structures and

reformed virtually all of them. Except one: the labor market. And, as if to verify the

essentially partisan nature of economic reform in New Zealand, one of the first acts of the

new National government in 1991 was the radical deregulation o f the one economic market

Labour had refused to significantly reform.

219 Put simply, that the Labour Party of New Zealand acted—in some ways, at least— entirely consistent with partisan theory is evident from the case of labor market reform. In the one area of public policy most dear to the hearts of parties closely linked with trade unions, reform was gradual and tentative. As Jim Bolger, the National prime minister who succeeded the Fourth Labour Government put it in his memoirs,

[Douglas] knew Labour’s supporters cared about the labour movement and to acknowledge that he protected the old order for imions. This in turn created serious distortions in the Labour Government's reform progranune. What Douglas was doing was deregulating every market in sight with the exception of the single most important one of all, the labour market (Bolger 1998,49).

Or, as Walsh describes the Labour approach.

Labour's reluctance to [radically reform the labor market] was in part of legacy of traditional union-party links. These gave unions institutional opportunities to influence par^ and government policy. They combined with Department of Labour officials to turn back the radical agenda of deregulation.... Labour's approach to industrial relations sought to balance efficiency and equity concerns. Efficiency concerns drove its restructuring of State sector industrial relations, including corporatization and privatization.... However, Labour's equity concerns led it to retain union registration, and thus monopoly membership and bargaining rights, blanket award coverage, provision for compulsory union membership, and compulsory arbitration in the Labour Court for disputes o f rights and personal grievances (1993,184-5).

In short, then, partisanship was at the very heart ofthe Australian and New Zealand

Labour government's reform agendas. As a New Zealand National Party minister put it succinctly, describing the essentially partisan, constituencty-based nature ofeconomic reform there, 'Some (people] did some things, some did others. The Labour Party tackled farmers; they didn't have a constituency there. The National Party tackled unions; it didn't have a constituentty there' (Personal interview, 5 November 1998, Wellington).

220 Thus, while there were dramatic and significant changes to the political economy o f all four countries over the course of the 1980s—changes which, in many cases, cut across traditional partisan divisions—it would be erroneous to assert that at no place did partisan difierences make their presence known. It is true that across a wide range of public policy areas—most notably deregulation, corporatization and privatization, fieer trade, and market liberalization in divers places—partisanship was largely irrelevant. But, as we argued above, theory would have us find the impact of partisanship in those policy areas of most salience and sensitivity to the main constituencies ofthe parties involved. In this respect, the obvious place to look was the Labour Parties of the Antipodes. What was found was that in the key area of Labour Party sensitivity—the labor market and industrial relations policy—clear difierences emerged between the Labour Parties and the Conservative experience of

Thatcherism. The New Zealand case is only the most dramatic instance—in virtually every other policy respect, it closely paralleled the nature of Thatcherite reform in Britain, in many ways even surpassing it in speed and radicalness. Yet, as with Australia, labor market policy proved to be the sacred cow protected from the wave of reform occurring elsewhere throughout the economy. In this very important respect, then, partisan theory has been confirmed, its essential class- and constituency-based logic verified. The implications ofthis confirmation will be considered in more detail in the concluding chapter.

Labour Parties and Ideological Change

The preceding discussion o f labor market policy, particularly under the Antipodean

Labour Parties, calls for a fuller explanation. As has been shown, partisanship did indeed

221 play a role in the neoliberal polig phenomenon—at least to the extent that it limited the

Labour Parties' reform agendas, walling off an area o f public policy particularly sensitive to their prime constituency group, the trade unions. Therefore, contrary to what might be assumed from a cursory glance at the 1980s in these countries, partisanship was not entirely absent from the economic policy-making of the decade.

Yet, despite this limited verification of the essential logic of partisan theory, something new was nonetheless afoot. This is particularly true of Australian and New

Zealand Labour—while labor relations were largely spared the bitter medicine of reform, most other economic policy areas felt the frill force of the agenda of change. For parties which both history and partisan theory tell us should have supported, not dismantled, the ancien régime of state economic intervention and regulation, the policy shift was indeed dramatic.

Therefore, at this stage, the critical question is to what extent this policy shift reflected larger, deeper changes taking place within Labour ideology itself. The policy transformation under Antipodean Labour implies that important ideological change took place as well. To put it simply, either these parties acted completely counter to their own ideological tenets or, more plausibly, the nature o f these parties' ideological approach shifted sufficiently by the 1980s so that the new, more-market economic approach became, in fact, possible.

The concluding part of this chapter argues that, indeed, such an ideological transformation took place in the Antipodean Labour Parties. These parties went from being relatively traditional, social democratic, laborist parties to ones with a much more pr%matic

222 view of markets and the role ofmarket forces in promoting economic efficiency and growth.

These changes, then, permitted the dramatic reforms of the 1980s to take place under

Labour's aegis. Thus, it is not that partisanship was irrelevant in these cases. As this chapter has so far shown, there was an identffiably partisan imprint to Labour's economic programs.

It is not the case that partisanship was suspended, or discarded, by these Labour Parties in the 1980s. Rather, as will be discussed below, what happened is that the nature of Labour

Party ideologyits e lf shifted dramatically—to the point where, in the 1980s, the reforms each government pursued were viewed by the proponents of change not as a sell-out of Labour tradition and a capitulation to conservatism, but rather as a new and transformed notion of what social democratic politics meant in a new and rapidly-changing economic environment.

Clearly, the topic of ideological change on the Labour left is a complex and intricate one. This chapter can only outline the major facets of those ideological transformations in

Australia and New Zealand, showing—in line with the theme ofthis chapter—that partisanship was not, in fact, dead throughout the 1980s, but rather operated in ways quite different from those of the past.

Put simply, the key element in the transformation of the programmatic positions of the Antipodean Labour Parties was n o t a wholesale adoption of conservative ideology. Still less was it some kind of suspension of partisanship. Rather what appears to have happened in these countries was the introduction by government leaders of a particularly powerful variety of pragmatism. Relatively nonideological, pragmatic leaders took the economic levers of their respective countries and reshaped economic policy along the lines they perceived were requhed by economic circumstances. In such an mstance, then, what

223 occurred was not the abolition of partisanship, but rather the narrowing o fits influence—Ûat is, the field o f operation of partisanship was narrowed as more and more economic policy decisions came to be made without explicit reference to traditional ideologr. Therefore, as pragmatism became the criterion for Labour Party policy across an ever-wider range of policy issues, the operation of partisanship as traditionally conceptualized in partisan theory was increasingly restricted to those areas o f most sensitivity and traditional Labour concern— particularly labor market policy. Put differently, it is not that traditional Labour Party policy positions and ideology failed to operate at all in some kind of denatured, apartisan policy environment, but rather than the influence oftraditional partisan concerns was limited to only those policy areas most sacrosanct to Labour tradition. All else was open to rethinking, reconceptualization and reform.

While much has been written on the topic of these Labour Parties and their relation to their traditional ideologies and positions (e.g. Beüharz 1994, Latham 1998, Jaensch 1989,

Johnson 1989)—with some arguing that traditional Labour principles were "hijacked' by the reforms of the 1980s and others contending that the period did in fact comport with some more conservative elements in Labour ideology—it is indisputably true that the political leaders of the decade in these countries saw themselves squarely in the mainstream o f

Labour tradition. Undoubtedly, they sawthemselves as making radical changes—it is not as ifthey perceived their actions as undramatic or simply continuations ofprocesses begun well

before their accession to power. But th ^ also believed that, at the same time they were dramatically changing their parties' dominant policy patterns, they were also acting within

Labour tradition. Indeed, most Labour respondents in this study indicated that the reforms

224 of the 1980s were ones fundamentally motivated both by the need to respond to changing world economic conditions and by a desire to update their parties’ own practices without destroying its essential ideological character. Through it all, pragmatism was the watchword of reform—the Labour tradition was being updated, even ’pragmatized’, but, they argued, the core elements of Labour tradition were preserved.

Both parties went through four basic steps on the road from their traditional ideolo^-

-and traditional applications of it—to a less traditional, less rigid, pragmatic set of policy principles. The first step was the perception that the policies of the past were failing to work in a new and ever-changing economic environment. As the last chapter seeks to show, a sense of past policy failure, or at the very least a perception that those policies would no longer work in the contemporary context, was common to all four countries and helped push both Tory and Labour Parties towards the new neoliberal agenda. Yet, this push was stronger in some ways for the Labour Parties. For the Conservatives, the sense that new times demanded new policies implied a move away from the dominant consensus policies of the post-war period, but at least the move was one consistent with the market- and business- oriented elements in Tory Party tradition. For the Labour Parties, in contrast, the move was more dramatic, away from many of the very shibboleths of state economic regulation and intervention on which social democracy as an ideology was based. Yet, the perception was clearly present that challenging economic times demanded new and cr^tive approaches to economic policy.

225 Echoing the TINA argument, a former depuQr prime minister in the Australian Labor

Government described how the party came to believe that no left-wing alternative was available and how, in the government's view, liberalization was the only way forward:

In Britain, for a very long time, they had tried to develop a kind ofalternative economic strategy, a kind ofleft-wing strategy.... But it never went anywhere politically because it wasn't able to come to terms with the dynamics of public policy as they were happening at the present time. There has been this shift towards markets and, âom the '74 period, the old order has broken down—the more you try to go in that direction, the more you're swimming against the tide. And I think Mitterand found that in his early period. Now I think that was understood, in a sense, in our government but more importantly it was understood in the trade union movement. And it's the sophistication in Australia of the trade union movement and the leadership of the trade union movement that explains a lot (Personal interview, 22 June 1998, Canberra).

Following this awareness of policy failure was the second step in the process of programmatic transformation for the Labour Farties-an open shift to pragmatism as the guiding standard o f economic decision-making. In virtually every policy field—labor market policy being the key exception—the need to respond in what were described as pragmatic,

'realistic', nonideological ways was perceived as paramount For these pragmatic reformers, then, economic policy-making was not an exercise in first consulting one's traditional programmatic heritage to see which policy tools it could provide forthe problem at hand.

Rather, the new pragmatic spirit demanded that the government first and foremost, take decisions on what were perceived to be 'realistic' terms, and only later-ifever-consider what the impact of these decisions might be for the longer-term ideological and programmatic positions o f the party.

226 Operating in this new spirit of pragmatism, it was openly argued by the reforming

leaders that many traditional policies o f the Labour Parties were, at best, out of step with the

modem world economy and thus no longer useful. As one former Australian Labor leader

put it bluntly, '[The old policies] had become outdated and anachronistic in many respects,

like the White Australia policy' (Personal interview, 13 August 1998, Sydney). Thus, the

third step was the conscious awareness on the part of reformers that elements of their parties'

traditions must indeed change. Roger Douglas would later describe his own conversion to

more-market economics this way:

My political beliefs and my general philosophy of life are all products of [the] Labour line. ... Where I came to differ from some parts of the Labour movement... was in how we went about achieving the society we all wanted. Like many others in many parties in many countries, my ideas on the means to those ends have not been static. As our goals began to recede, no matter how strenuously we pursued and expanded the instruments of social and economic policy introduced by the First Labour Government, I was forced to consider the possibility that those policies were no longer the answer.... If what we were doing wasn't working, then we needed to find another way to get what we wanted (Douglas 1993,7-9).

There are two important—and ofl-repeated—elements to Douglas's explanation: a justification for change combined with a statement of ultimate fealty to the overall Labour

tradition. As we shall see, this was quite typical—the Labour leaders consistently averred that

their reforms were not fundamentally out of step with the overall principles of Labourism.

However there was nonetheless a recognition of—and justification for—the fact that

heretofore untouchable parts of Labour's policy traditions were being «tcised and replaced

with a much more current, market-oriented approach.

227 A number o f illustrative quotes can be given in regard to this new, timdamentally pr^m atic approach to economic policy. In one particularly dramatic instance. Bob Hawke was reported to have made the following comments to his staff in 1986, comments which clearly show the extent to which he was willing to move away from traditional Labour policies of the past:

We would love to be social democrats ticking along, making a few adjustments to the machine here and there.... But we have to absolutely cut through the assumptions of the past. No previous Government, including Whitlam's, has done this. We can talk about our philosophy and our commitment to the underprivileged. But to achieve those goals we have to change; we have to educate the Party about the irrelevance of their shibboleths.... We can't be captives of the past. We have to tpiestion the past and its assumptions. The world is demanding and different; continuing into the future as we [had been] would be dangerous. The past provides us with relevant inspiration; but we must have the courage and the capaci^ and the determination to challenge the past. We have to crunch up the rules of the past.... The past is both an inspiration and a dragon to slay. We have been about dragon slaying. No tinkering, no cuddly blankets. We take the best of Labor traditions and we also change tack. We take the best from the past, but if its an anchor chain, cut it.... So don't let us have any of this nonsense that we are not a r ^ Labor Government. Don't judge me or my Government by whether we have blindly adhered to the standards of the past or uncritically observed the shibboleths of the past Judge us by our ability to take our inherited principles and breathe new life into them, applying them anew to the task we face today (quoted in Mills 1993,100-2).

This willingness to introduce radical change as a pragmatic response to policy problems was repeated in an interview with a former Australian prime miiusten

Now, through tim e... you had positions that people have adopted for whole lots of reasons which they regard as fundamental [but] which to me seem absolutely irrelevant to that sort of [realistic, pragmatic] framework—that is, what are the forces operating in your society and internationally in response to which you have to operate if you're going to optimize growth ...? For example, your government must run the airline of the country. This is a fundamental tenet of foith that the government must run a bloody airline. That's crap. That"s got nothing to do with realiQr. And it has nothing to do

228 with optimizing your opportunities for growth. I wanted to get into the consciousness of my party that we now lived in a world which was increasingly interrelated—you couldn't keep up high tariff walls and delude yourself that you were going to optimize growth behind high tariS^ walls. You had to be open to competition and you not only had to be open to competition, but you had, as much as you could, to enlarge your market horizon for your own industries. So, that was what 1 and my colleagues who thought about it were about—to try and create a more open, competitive society (Personal interview, 14 November 1996, Menlo Park, Ca.).

And as another Labour leader and prime minister of the period put it, in a classic case for pragmatism in economic approach;

[Policies] always have to be right for the times. Do we ever want again a group o f officials setting the exchange rate, really? And are they going to get it right? No. Because they never did in the past Do we want banks to go back to being rationers of credit? Or do we want to be creative with credit? Do we want no competition in housing lending anymore? Or do we want to keep the competition? Do we want a regulated airline system? Or do we want a genuinely competitive one? Do we want one telephone monopoly— Telstra? Or do we want an open, competitive system? But they say, 'All these ideas about competition are old hat.' And I say, 'Well, hang on, what's new hat? What's the new thing? If that's not good enough, what is it?' Now, that's not to say that we can't improve these things and be more sophisticated about the way they work,... do things that enhance competition... do things to create markets and make them work. But you make them work for a good purpose, not for some ideology that sort of crept into a grocer's daughter's head in 1950. But because it fust makes sense (Personal interview, 21 October 1998, Sydney).

Finally, as mentioned above, the Labour reformers consistently argued that their reforms were solidly in the Labour tradition ofsocially-minded, yet pragmatic policy change.

While recognizing—and «(tolling-the radicalism of their reform programs, they nevertheless argued that these changes represented not a sell-out ofLabour principles, not a surreptitious conversion to conservatism, but rather a refurbishment of Labour policies in order to meet the economic challenges ofthe late twentieth century. Whether they, in fact, believed these

229 assertions is debatable and probably ultimately unknowable. What is not open to question is that they continually asserted that, far hrom selling out the Labour commitment to social justice and a more egalitarian society, the reforms of the 1980s—by promoting economic growth and adjustment-were actually making the achievement of those venerable goals possible in ways they would otherwise not be, were reform not effected. Thus, to return to the central argument of this chapter, it is most certainly not the case that the Labour reformers saw their period in office as being somehow nonpartisan, wholly pragmatic, or worse, a wholesale adoption of the values and policies ofthe right. Rather—sincerely or not— they advanced the argument that these policies represented the hard-headed application of social democratic principles to the economic challenges of the 1980s—globalization chief among them—in as committed a way as the Labour leaders of the 1940s responded to the economic issues of their time. Thus, partisanship and ideological commitments were far from dead in the minds of the reformers. Rather, they were simply being retooled, reshaped in ways to meet contemporary challenges. Whether they were successful in this—whether these retooled social democratic policies produced, in the end, appreciably different results from those produced by Conservative policies—is the longer-term question beyond the scope of this work. All that can be said here is that the argument was made forthe ultimate fidelity of these policies to Labour tradition.

When asked what, in his view, the proper objectives of any Labor government should be, a former Australian prime minister replied:

They may differ from people to people, but to me they seem fiiirly obvious. The most obvious of all is a government that creates a society—not an egalitarian society, because that's nonsense, you don't have egalitarian

230 societies because people aren't bom equal, they don't have equal aptitudes— but a society of equal opportunity. So that means creating a situation in which the abiliQr to acquire an education is not going to be a function of the income level of parents, but that every child, irrespective of the financial position of those upon whom they're dependent will have the opportunity to develop the talents they've got. And that seems to me to be a fundamental of a social democratic party (Personal interview, 14 November 1996, Menlo Park, Ca.).

But, according to this same prime minister, these equity goals of a Labour Party can only be achieved within the context ofeconomic growth. This was a key innovation ofthe reformers to the Labour approach. They regularly repeated the refirain that the new pragmatism was both desirable and necessary because it was the only route to social democratic goals available in the modem world. Thus, market liberalization was not the enemy, but a path to social democratic ends. As was quoted by a Labor leader in Chapter Five, 'markets are a fact of life' and thus they must be used for socially responsible goals. To use a well-worn analogy, in order to redistribute the slices of the economic pie more fairly, the size of the pie itself must be enlarged. So, as this same Australian prime minister put the case for both equity and growth:

There are certain goals which in principle to me are not negotiable. The basic one is equality ofopportunity. That is simply non-negotiable. Secondly, the question of nondiscrimination is absolutely non-negotiable. There must be no discrimination on the basis of race, color, creed— [But] what is [also] non-negotiable is optimizing growth. I have no sympathy for those who, typically, drive around in Volvos and in their middle class comfort say, 'Isn't it terrible that we have this enterprise here, because it's perhaps going to impact upon the yellow-eared squirrel which has become in short supply.' If you replicate that all over the place, you don't have growth at all. The environment should be taken into account, but it shouldn't be taken to a craty extreme. So optimizing growth is not negotiable. Because without growth, you can't do the sorts of things [to create] a better society. No government can do ft. You've got to have the wherewithal (Personal interview, 14 November 1996, Menlo Park, Ca.).

231 Finally, in a classically pragmatic interpretation of Labour ideology, he attempted to place the reforms of the 1980s squarely within his own perception o f what Labor tradition meant:

It Just depends how you define Labor tradition. If you say that anything that was Labor policy is sacrosanct and you can never move away fiom the strict letter of those policies, then we would still be supporting the White Australia policy, which was a fimdamental plank of Labor policy. Now it happened to be wrong. The point is that you have what you see as the fimdamental philosophy of the Labor Party and then you, guided by that, adopt policies which are relevant to the situation. Now fit>m my point of view, the fimdamental Labor philosophy is the improvement of the standard of living of the community, the creation o f equality o f opportunity for everyone in the community. Economic growth is fimdamental to doing those things. You have to adopt policies which are going to optimize growth... And so I say that everything we did was absolutely in the tradition, what I see and have always seen as the Labor philosophy, and we were making policy developments in light of what the changing economic realities were. Some took the view that we could say, 'Oh, we're not part of the world, we can pop off the world and have our own little artificial oasis.' It's unadulterated nonsense—you can't do that (Personal interview, 13 August 1998, Sydney).

Roger Douglas made much the same argument for his own economic policies. In a book published while he was still Finance Minister, he wrote:

The New Zealand Labour Party has not changed its goals. One of the most important for me is the creation of a society where each individual can fulfil his or her potential to the maximum ... But since these goals were first established the world has changed a great deal. Some of the pathways mapped out in the 1930s wfiich worked well for so many years, and others followed by National Party politicians and still advocated by them, now lead to a social and economic wasteland... The social goals of that first Labour Government are the same social goals of the Labour Party and Labour Government today— What we have to concentrate on as we move into the 1990s are the fimdamental social objectives. What we have to decide, as a nation, is how to achieve them. What we did before in this respect is not important. What we do now, for the future, is. ... This is our time and we must provide answers that are right for it (Dot%las and Callan 1987,9,236, 245, emphasis in original).

232 Or as a senior New Zealand Labour minister put it:

What does change is not the goal, but the means by which you hope to be able to realize those goals. If you don't change the means, rather than the end, then you're still going to be applying the solutions of the 1930s to the problems ofthe 1990s (Personal interview, 6 November 1998, Wellington).

Thus, as this brief review attempts to show, the nature of partisanship changed significantly in the Antipodean countries in the 1980s. The fact that two historic Labour

Parties went fiom traditional policies ofKeynesian demand management and state economic intervention to ones involving the significant deregulation and liberalization ofa broad range of economic markets was not, fimdamentally, a nonpartisan, nonideological move. Still less was it—at least in the eyes of the protagonists—a conscious abandonment of traditional

Labour policy goals. Rather what the leaders of the Australian and New Zealand Labour

Parties claimed they were attempting was a significant reorientation of actual policy programs so as to continue to serve traditional Labour goals in a new and challenging economic environment. This reorientation, this adoption o f new policy directions, they argued, was simply the necessary, pragmatic means by which historic Labour ends could be achieved. In this new spirit of pragmatism, traditional Labour goals could only be served by a pragmatic, open-minded willingness to adopt policies—market liberalization, in particular— which were contrary to traditional Labour ideology.

In short, then, what occurred in these countries was not the suspension of partisanship. And even less its direct overthrow. Rather, as was argued above, partisanship was to a large extent eclipsed or reinterpreted as pragmatism came to govern economic polity-making in ever-wider areas of public policy. The response of the Labour leaders m

233 these countries, then, to the economic challenges o fthe 1980s was to adopt whatever policy prescriptions were at hand and seemed 'to work, limiting theapplication oftraditional Labour ideolo^f to those areas of public policy most important to Labour’s key trade union constituency. As this chapter has shown, that point of greatest salience-and hence distinction from Conservative parties—was in labor market policy. In this key sector. Labour showed its 'true colors', its close historic links to unionism, and refused to countenance the application o f neo liberalism there. Thus, the conclusion one must reach is that the essential logic of partisan theory was confirmed. At least with regard to this key public policy area— this point o f greatest sensitivity to Labour Parties—actual public policy comported closely with theoretical expectations. As argued in this chapter, the influence o f partisanship was never absent in these cases, although its influence was significantly circumscribed by the pragmatism o f the Labour leadership.

This point, then, leads us into a re-analysis o f partisan theory itself, something which will be attempted in the next chapter. This chapter has examined the role of partisanship particularly with regard to the cases o f Labour-led reform. The next chapter will attempt to synthesize the findings of this entire dissertation and consider the implications they have for partisan theory as a whole. Clearly, partisan theory fails to fully predict the kind of dramatic-

-very 'conservative-looking'—economic policies pursued by Antipodean Labour. Yet, it does help explain the actions both o f the British and Canadian Tories in pursuing deregulation, as well as those ofAntipodean Labour and their general protection ofthe labor market status quo. The next chapter will attempt to consider, then, these failures and successes of partisan

234 theory and offer suggestion for modifications which would more fiilly account for the dramatic changes witnessed in all four countries in the 1980s.

235 CHAPTER?

CONCLUDING REFLECTIONS ON

NEOLIBERALISM AND PARTISAN THEORY

In this concluding chapter we shall summarize the main findings of this dissertation

and apply these findings to the puzzle posed by partisan theory and the cases o f Anglo-

American neoliberalism. Returning to the central concern of this dissertation, we focus on the seeming puzzle of four political parties—two right- and two left-wing parties—pursuing policy programs that shared much in common. This dissertation has had two main goals: to

map out the nature of the changes that took place in Britain, Canada, Australia and New

Zealand in the 1980s, comparing them both to the previous record of public policy there as

well as to the expectations o f partisan theory, and then to consider what implications these

cases of neoliberal reform have for the validity of partisan theory. It is to the latter task that

this chapter will be primarily concerned. Focusing on the lessons these cases have for

partisan theory, it argues for a partial reconceptualization of partisan theory to take more

fully into account the possibiliQr o frapid economic and social change-change that has clear

consequences for public policy choice in modem economies, as well as for the nature of

partisan differences within these parQr systems.

236 First, however, let us briefly review the main substantive flndings of this study. Put simply, this dissertation has been concerned with outlining the major features of public policy change across the Anglo-American deinocracies of Britain, Canada, Australia and

New Zealand. Over the course of the 1980s, as this dissertation has sought to show in some detail, critically important traditions of public policy shifted dramatically. This was true both for the traditional public policy heritages of these nations as a whole, but also of the particular political parties. In all four cases, the new policy paradigm overturned what had heretofore been nearly sacrosanct national and party policy traditions—away from the

Butskellite, consensus policies of intervention and state regulation so typical of most of the post-war years and towards policies designed to free markets from such control and thereby, its proponents argued, to achieve greater economic growth and efficiency. Thus, the all-party commitment to state intervention was largely broken in this period—national 'consensus' traditions were largely reversed, and each governing party's traditional commitment to some degree ofstate intervention was decidedly tempered and, in some cases, definitively reversed.

Chapter Three set the backgroimd for these sweeping reforms. It showed how the dominant post-war policy patterns in these coimtries involved healthy doses of state regulation and intervention. In the context of Britain, the most proximate cause of this

Keynesian, Butskellite interventionist state was identified as the experience of the Second

World War. It both accustomed the British public to very high levels of state intervention, legitimizing state economic control as an appropriate tool of public policy, as well as raised post-war demands for a wide range of government services and provisions. Thus, the interventionist, Kqmesian, full employment public policy pattern instituted by the Attlee

237 Labour Government was adopted virtually wholesale by every government to follow, Tory and Labour alike. Only on the issue ofnationalization of industry did the Conservative Party appear noticeably more reluctant to adopt all the features of the new economic paradigm.

Yet even here, its efforts to reverse the policies o f Labour were minimal and, in the end, not particularly consequential. What Labour achieved, the Tories largely preserved. In this way, the "Butskellite consensus'—or to the Thatcherites, the "socialist ratchet'—was institutionalized and maintained. Only with the accession to power of the Thatcherite Conservatives would the definite break with the past take place.

In the other three countries, a somewhat longer tradition of interventionism and state regulation was in place. As relatively sparsely-populated countries—occupying, in the case of Canada and Australia, huge and generally inhospitable land masses—these societies had developed largely under an umbrella of state-sponsored development, regulation and protection of domestic markets. In Canada, this took the form of state-led development of the transcontinental railroad and later the highly lucrative energy sector. In Australia and

New Zealand, protection took a uniquely Antipodean turn, with protection and strict regulation not only of trade, commerce and finance, but also with respect to the domestic labor market In these countries, until the 1990s, the labor market was strictly controlled, with a statutorily-established system of wage determination. In all three countries, simply put, regulation and intervention were traditionally perceived as sacred cows in the national policy herd-sacrosanct policies upon which the very economic health of these relatively small, vulnerable societies depended.

238 However, as Chapter Four seeks to show, this legacy of intervention and regulation was largely reversed in the 1980s. In ail four countries, reforming governments took office determined to firee up domestic markets with a determination unseen in the entire post-war period, and indeed, the entire twentieth century. The previous commitment to state intervention as a legitimate and necessary corrective to the inequities and imperfections of markets was replaced by the perception that 'ftee markets’ were, in many respects, more efficient and productive mechanisms for economic allocation and therefore were to be pursued and implemented as quickly as possible. Across a wide range of areas, including trade policy, corporatizatioa and privatization, the deregulation of financial, transport and other markets, and a move to stricter fiscal control, these governments moved their national economies into closer conformi^ to the classically liberal model of economic policy.

Fundamental to these changes was a critical perceptual shift—away from seeing state regulation as necessary and desirable to one decidedly skeptical of governments’ ability to regulate and control markets without paying an inordinately high price in terms of productivity, growth and the abili^ to compete in an increasingly competitive world market

From seeing regulation as necessary for successful economic management all four governments moved, in various ways, to the view that the opposite-deregulation and liberalization—were, in the context of the 1980s, the only responsible economic policy direction.

This change was, to say the least, a complex one. The motivations behind these changes were many, and the number ofsocial, economic and political actors advocating and facilitating these changes nearly as numerous. Chapter Five, however, sought to identify the

239 most important factors which led all four governments to move in a more-market direction.

Recognizing that a full accounting of these factors—even if possible—would constitute a major, independent analysis in and of itself, this chapter nonetheless sought to specify the set of variables which most drove the common shiftto neoliberalism. Based largely on the wide range of interview respondents in this study, six main factors were identified as being critical to the neoliberal shifts experienced in all four Anglo-American democracies. Briefly, the argument was made that the following general set of events was common to all four cases: a sense of short-run economic crisis exacerbated by the perception of a long-term decline of each nation relative to other countries led to an overwhelming perception that dramatic and thoroughgoing economic change was necessary. The perception of change, however, was translated into a desire for neoliberal economic change by the TINA perception—that with the collapse of centrally-planned economies in the Soviet bloc and with even moderate social democratic-style intervention seen as ineffectual and coimterproductive, there was no alternative to neoliberal reform. With the set of options thus limited to neoliberal policies, determined, charismatic leaders, coupled with often strong support fiom the economic bureaucrat^, drove through these policy changes. Underpinning and in many ways justifying these changes was an increasingly integrated and liberalized world economic environment, pressing upon decision-makers the belief that the only way to survive in such a competitive world economy was by playing by that system's largely liberal rules. In this way, these six factors decisively contributed to the common move to freer market policies.

Thus, by the end ofChapter Five, a great number of commonalities had been laid out-

-a fairly common set of post-war economic circumstances, a common set of interventionist

240 and activist state policy traditions, a common perception of the need for change, a common move to neoliberal economic policies across a wide range ofeconomic areas, and at least six major common explanations for this shift across the four countries. Put simply, these four cases were bound together by a great deal of similar aspects. Yet, these important similarities—especially in actual policy choice—run directly counter to the predictions of partisan theory as discussed in Chapter Two. As the reader will recall. Chapter Two traced the development (and empirical verification) of the notion that partisan differences between parties usually produce significant and important differences in actual policy choice. The fundamental theoretical basis of modem democracies—different parties offering divergent policy options to voters and producing appreciably different policy programs once elected to ofhce—had been widely-accepted as theoretically justified and empirically verified.

Different parties, to simplify the issue, do different things; partisan differences are not negligible, are not irrelevant, but actually structure and shape the nature o f party competition and actual policy choice in representative democracies.

The puzzle, put simply, with which this dissertation is ultimately concerned is how and why the neoliberal policy agenda could have been pursued and implemented by such different parties—by Conservative Parties in Britain and Canada and by Labour Parties in the

Antipodes. Clearly, there were important forces pushing all four parties in similar directions-

-the very forces discussed in some detail in Chapter Five. Yet, this result—this apparent convergence of policy around a neoliberal model—flies in the face of accepted partisan theory. As these four parties diffored dramatically along historical partisan lines, their policy choices as well should be empmcally divisible along partisan lines, Tory vs. Labour. Yet

241 they were not, raising critically important questions for partisan theory. Chapter Six attempted to directly address that issue.

Specifically, if partisan theory were to hold in the case ofAnglo-American neoliberal reform, than we should, at a very minimum, expect to see public policy differences arising at the point of greatest difference between the parties. As discussed in Chapter Two, the fimdamental mechanism behind partisan difierences is said to be the different class bases o f various parties—as these bases have different class interests and thus prefer different public policies, the parties should reflect these differences in their actual policy choices. Thus, to return to the Anglo-American cases, if partisan theory were to hold true at all in these cases— if it were indeed operable—we should look most closely at that point at which the parties differed most significantly—their traditional class basis. Put differently, while the four parties did much in common, and seemingly overturned important elements in their own party policy traditions in the shift to neoliberalism, we would expect, at the very least, to see difference between Tories and Labour emerging at the point of greatest distinction between them—most specifically, the unique trade union origins and continuing organization affiliation of the unions with the Labour Parties. If partisan theory were to hold at all, it would have to hold here. What Chapter Six showed was that in one critical public policy area, in particular- labor market policy—there was a clear distinction between the Conservative and Labour

Parties. Thanks in large part to the Antipodean Labour Parties’ close ties to organized labor- tied which continue to this day—these parties steadfastly refused to extend the logic of market deregulation and liberalization to the labor market in any significant way. In Australia, the

Hawke and Keating governments maintained close ties with the trade union movement,

242 negotiating the yearly Accords with the ACTU, agreements which set wage increases and secured union support for the government's overall program of deregulation. What little labor market liberalization that did take place did so with the full agreement and support of organized labor. The story was largely similar in New Zealand—while no high-level agreement like the Accord was ever concluded, the Fourth Labour Government still proved most reluctant to deregulate the labor market This reluctance is made even more obvious by Douglas’ 'crash through or crash' approach in virtually every other aspect of market deregulation and also when compared to the succeeding National government's near-total deregulation of the labor market Put simply, in both Labour-led countries we saw a distinct unwillingness to liberalize the one market closest to the heart of Labour Parties-the labor market. In contrast Chapter Six described the Thatcherite attack on unions-one designed to vitiate virtually every aspect of union power as it had been exercised throughout the post­ war period. It is at this point of difference, then—labor market policy—that the reform agendas most clearly divide: concern for and support firom unions on the Labour side, and an open and unmitigated attack on labor clout &om the Thatcherite Tories. In this critical instance, then, the expectations of partisan theory were confirmed.

At the end of Chapter Six, attention was then turned to the specific case of the

Antipodean Labour Parties and their willingness to reform. Clearly, something had changed by the 1980s—these parties were willing to initiate reforms which would have been unthinkably radical and 'right-wing' only a few years before. Yet, on the critical issue of industrial relations, the Labour Parties reverted to—or better, perhaps, remained in-their

243 traditional partisan policy position. Partisan theory is thus both challenged and verified (in a limited way) by these cases.

Chapter Six argued that Antipodean Labour Party ideology underwent a pragmatic transformation. Simply put^ pragmatism and a nonideological approach to policy-making took over more and more aspects of public policy, forcing traditional Labour ideology into retreat. As pragmatism came to govern the policy approach in ever-widening areas of policy, traditional, overtly 'Labourist' approaches receded farther and farther into the background.

In the case of Antipodean Labour, as we have seen, pragmatism governed policy-making across a wide field of public policy—neoliberalism was adopted as a pragmatic policy response across such policies as corporatization and privatization, financial market deregulation, and fiscal stringency. Only in that area closest to traditional Labour Party concern—the labor market—did the old ideological approach remain intact. Put differently, a nonideological, pragmatic approach increasingly came to govern Labour Party policy, encroaching ever more significantly on public policy-making until, by the 1980s, labor market policy was the last significant traditional policy redoubt. Thus, the message of

Antipodean Labour is not that partisanship was completely irrelevant Nor was it the case that these Labour leaders saw their policies as selling out Labour tradition—quite the opposite, in fact Rather, partisanship continued to operate, but its influence had been greatly circumscribed and attenuated, limited only to those areas in which parties based in and organizationally to trade unions would be most sensitive.

So what, theit of partisan theory in general? The picture painted by the analysis of this dissertation is anythmg but clear-cut. We have instances in which partisan theory

244 apparently had little orno impact on policy-making—where the policy output of Conservative

and Labour Parties were not greatly different—and instances, particularly labor market policy,

where there were very significant differences based in large measure on partisan ideology.

Based on these than clear cases, what can we say about the vaunted conclusion that politics

matters' in the determination of economic outcomes?

First, this study has shown that, whatever other inadequacies it may have the fimdamental mechanism o f partisan theory works as posited. That is, consonant with the

classic and dominant form of partisan theory—the notion that policy difierences will vary

because of, and along the lines of^ differences in each party’s class base of support—the

Anglo-American democracies show that the fundamental class-based mechanism was indeed

operative in these cases. With respect to labor market policy in particular, the essentially

class-based logic of partisan theory worked and was verified. Obviously, then, this

dissertation has not disconfirmed partisan theory or shown it to be completely irrelevant to

an explanation of policy differences between the Conservative and Labour Parties analyzed

here.

However—and this is the critically important second theoretical conclusion of this

dissertation—the nature and content o f partisan differences changed and were at some

variance to those posited by the classical partisan theory model. That is, the simple

formulation of traditional partisan theory was fotmd to be lacking, at least with respect to

economic reform in the 1980s. The original formulation, described in some detail in Chapter

Two and put in simple form here, holds that left-wing parties seek to further the economic

interest oftheir lower-income constituencies by pursuing such policies as state regulation and

245 înterventîoa so as to redistribute income, regulate corporate activity and limit excessive profits, protect domestic industry through trade restrictions, stimulate economic growth and limit unemployment through state spending and, often, significant state ownership of key industrial enterprises. Right-wing parties, by contrast, are posited to be interested in benefitting their higher-income supporters through policies designed to encourage entrepreneurialism and business activity, limit the size of the state and the extent of its intervention and regulation, and work to achieve price stabili^, even at the cost of higher unemployment.

Yet, what we see in the Anglo-American cases is quite different firom this formulation—with the notable exception oflabor market policy, we see parties ofboth the left and the right pursuing policies that partisan theory tells us belong to a conservative political agenda. The explanation ofthis paradox which this dissertation points to is that a narrowing o f party ideology occurred. That is, the heretofore wide gap posited to exist between

Conservative and Labour Parties actually narrowed in the 1980s, to one in which, across a range of policy areas, the differences between left and right were fairly insignificant. They remained in a few limited areas, but overall, the general magnitude of the left-right divide lessened during the 1980s in these countries.

What, then, brought about these changes? What produced this narrowing of partisan differences between left and right? The argument advanced here is that the same factors identified in Chapter Five-the causes ofthe general shift to neoliberalism—help explain how party differences themselves came to be narrowed. Essentially, what occurred in these countries is that, under the influence of an ever more integrated world economic

246 environment—one increasingly open and classically liberal in orientation—and with clear perceptions of national economic decline and crisis, political leaders largely abandoned explicit references to partisan ideology or traditional parQf differences and adopted the economic medicine of liberalism that seemed closest to hand. Thus, echoing the analysis of

Labour Party change in Chapter Six, what actually occurred across the board is that, under the pressures of economic decline and globalization, par^ leaders essentially downplayed and even changed the content of their parties' traditional policy programs. In the case of the

Conservative Parties, Thatcher and Mulroney openly moved away from important elements of'consensus' politics, policy features which made up important elements of Tory policy as well. This shift was, in the case of Thatcher, a fairly ideological one, while in the case of

Mulroney, it reflected a pragmatic acceptance o f dominant conservative economic thinking of the time.

But, as Chapter Six seeks to examine, the key change took place within Labour Party ranks. While it is clear that the British and Canadian Conservative Parties did in fact move away from important elements of traditional 'consensus' politics, they nonetheless tumed to policies which had always enjoyed at least a certain level of Tory ParQr support, however much in the m inori^ those neoliberal views had been at points in the past. The same cannot be said for Labour-clearly here a greater transformation took place, as parQr leaders (both implicitly and often explicitly) rejected heretofore sacrosanct elements of Labour's program, culling the herd of sacred cows with what was, at times, a surprising feroci^.

What drove this transformation were those foctors discussed in Chapter Five. We will not rehearse them again here, but the point is that very powerful incentives-ranging

247 fiom national economic decline to the role of strong leaders to the impact of international influences—drove those changes. But, to return to the main motor o f partisan theory—class support—it is clear that a changing class basis of support forthe Labour Parties at a minimum allow ed the dramatic changes to take place. To put it specifically, rising affiuence and embourgeoisment permitted the Labour leaders to take their parties in new, surprisingly neoliberal, directions and, in doing so, limit the application of traditional Labour policy to ever-narrower fields of policy. To repeat the key argument in Chapter Six, it is not that partisan theory failed to operate, but that the areas in which it did fimction became every more narrowly circumscribed. Part of the explanation for that is social change within these countries.

Returning to the fundamental logic of partisan theory, we took for the cause in a narrowing of the difference between the key class constituencies of left and right. That is, as partisan theory attributes partisan policy differences to underlying class differences in parties' bases of support, a diminution of parQr differences is logically explained by a convergence ofsome kind in the objective class differences traditionally separating left fiom right in these countries. This dissertation argues, then, that this is precisely what occurred: a narrowing ofobjective class differences within the fundamental support bases ofthe parties themselves served to dull the traditionally sharp distinctions between left and right and push both sides of politics into a much less clearly-defined center ground of policy in which pragmatism, not ideology, was the paramotmt criterion in the economic policy-making process.

248 The concluding chapter of this dissertation is clearly not the place for a full-scale analysis of the profound sociological changes underlying the changing nature of partisan differences in these countries. What can be done here is to indicate, using the responses of interview respondents, the ways in which the changing social composition of each party's primary support base undermined the traditional left-right division and in its place produced a polity convergence reflective of a longer-term sociological convergence taking place within these society in general, and in these parties, in particular.

Specifically, interview respondents argued that social change had taken place both with respect to society as a whole, and in terms of the main support bases of the political parties. This was particularly true of the Labour left-as interview respondents argued, the main support base of the Labour Parties, the working class, underwent tremendous sociological changes in the twentieth century, so much so that by the 1980s, affluence and embourgeoisment made it possible for Labour Parties to pursue more classically liberal economic policies with at least the tacit acquiescence of their supporters.

Even by the early 1980s, the great Australian Labor historian, L f . Crisp had signaled the sociological sea change underway within the ALP. He argues that, within the ALP, white collar workers were increasingly coming to dominate party organizations, fiom the top—fiom

Bob Hawke, Rhodes Scholar, ACTU President and future ALP leader—to the local branch organization. As this occurred, traditional blue collar, 'cloth cap’ workers were pushed to the margins-and with them, traditional Labor concerns and public policies. As Crisp describes the typical ALP branch meeting:

249 No longer the pub rendezvous on a Sunday momingl Now a quiet, clean meeting-room in a local communia centre on a week-night, to which secretary and assistant secretary or other officers bring, not schooners and Toohey's draught, but admirable Australian white wines and appropriate glasses—the wine taken during or after a couple of hours of hequently intellectually admirable discussion of national and international issues with which some o f the membership are well, and even professionally, equipped to deal (1982, 73).

This sociological transformation of Labour supporters and cadres had a direct effect on

public policy. It is a difficult issue to judge its precise impact—the cautious assessment is

that, at the very least, it perm itted the changes o f the 1980s to take place. As was argued in

Chapter Five, the neoliberal phenomenon in all four countries was a complex animal-a web

of conflicting and contributing factors and influences. Nothing would be so erroneous in the

context of Anglo-American neoliberalism as a single-variable explanation. Yet, interview

respondents often pointed to the subtle, yet nonetheless powerful, effect which social change

had on the policy orientation of the Labour Parties. As a senior New Zealand Labour

minister described the changes that had taken place within his own party:

[The change] was very marked. It was an extraordinarily new government [in 1984]-it was young, there were more university degrees. There was an average of over one degree per MP in that caucus. I had never been to university in my life. I suppose my CV would be typical of the average National MP—a farming background and limited education. But a lot of things changed with that change of government (Personal interview, 18 November 1998, Wellington).

This sentiment was echoed by another senior Labour minister:

[The Labour Party today is] rather more middle class and professional. But I think the huge change in that regard occurred between 75 and '84 with successive mtakes of Labour MPs. And to some extent, it's simply a consequence of social change over a period of 50 years as in all social democratic parties around the world, gn the past,] it used to be all cloth cap

250 votes in terms of political membership and representation (Personal interview, 5 November 1998, Wellington).

Finally, a close confidant ofMargaret Thatcher gave a similar analysis ofthe current British

Labour Government of Tony Blair, one which, in many ways, is the inheritor ofthe market- liberalizing tradition set down by the Antipodean Labour Governments ofthe 1980s. In the

following quote, he implicitly verifies the essential class-based logic of partisan theory, arguing that, as its main support base, and society in general, became more affluent and as class differences allegedly diminished. Labour Parties were increasingly freed to pursue policies at clear variance to their programmatic traditions:

And what is interesting is that now Blair is learning to live with our sort of society.... Kinnock started it. ... He made that wonderful statement. There's no good saying to a chap... on 400 quid a week, has a nice Ford car, buying his own house, a timeshare in Spain, "Brother, let me share your misery".’ There's no interest in that anymore. We've got to accept we're operating in an affluent society. And it's a different sort of society. ... Blair has accommodated the Labour Party to Thatcher's Britain Just as people like Macmillan and Antony Eden accommodated themselves to Attlee's Britain. It's been very interesting, she came in in '79—for 35 years, really, we lived on a Labour agenda. And now the Labour ParQr is having to switch to our agenda (Personal interview, London, 4 June 1997).

What, then, do these examples tell us about the classic formulation of partisan

theory? What implications does the phenomenon of neoliberal economic reform in the

Anglo-American democracies—and the important shifts that took place in party ideology in

the period—have for the way theory has traditionally characterized the policy impact of

partisan differences? We have seen that partisan theory was not irrelevant, or inoperative in

these cases. Yet, clearly, these cases do not coincide with the classic, left vs. right

conceptualization of partisan theory. What implications, then, do they have?

251 First and foremost, these cases call out for a dynamic partisan theory-one open to the possibility that the traditional class bases on which the original theory was premised have undergone, and continue to experience, significant, even monumental changes. It is true, at least fiom the perspective of Anglo-American neoliberalism, that class still does serve to structure public policy in certain ways—the key instance of labor market policy was highlighted as an instance in which traditional class and partisan interests came to the fore in the policy-making process. Thus, this dissertation makes no 'end of ideology’ or 'end of class conflict' argument. In fact, a number ofobjective measurements indicate that, since the

1980s, class disparities have widened in some industrial societies (Machin 2000, Atkinson

1999). It may be the case that affluence has spread in these countries—and changed the nature of partisan competition in its wake—but it would be erroneous to assert, as did some quoted in Chapter Two, that the end of class-based differences is upon us.

Yet, the recognition that the old left vs. right, worker vs. capitalist dichotomy has not been eliminated in some utopian fantasy of a 'classless socieQf' should not lead us to overlook the possibility that significant sociological change can produce significant shifts in the nature of the left vs. right distinction as posited by traditional partisan theory. If nothing else, the example o f the Anglo-American democracies indicates the importance ofboth inheritances fiom the past, particularly in terms of parQr organization and class bases of support, while at the same time recognizing that significant changes can and do take place. The Anglo-

American cases, then, do not present a clear-cut verdict on the usefulness of traditional partisan theory. The theory as traditionally formulated both explains, and fails to explain, difierent elements of neoliberalism. In some respects, the old partisan differences were

252 visible; in others, the old partisan distinctions seemed to be at best obscured by a powerful variety ofpragmatism that took as accepted fact that neoliberalism was 'the only alternative', heedless o f national and parQr policy traditions.

Therefore, this analysis points up the importance of recognizing the potential for change in partisan theory. First, there is the possibility that the class bases traditionally posited by the theory may shift over time. This is essentially the hypothesis stated above— that as these fundamental class structure ofthese societies changed through embourgeoisment there was a concomitant change in the nature ofpartisan difierences. The conceptual linkage here is obvious—if partisan differences arise feom class distinctions, then it follows that a shift in the nature, intensity or sharpness of those class distinctions will have an identifiable policy impact. That is what is hypothesized above—that, in part, the neoliberal policy phenomenon was made possible by a change in the overall class structure of society. Thus, to repeat the central point here, partisan theory must be flexible and dynamic enough to take into consideration the possibility of sociological change resulting in partisan shifts. As economies and societies undergo long-terms transformations, the logical expectation would be that similar, parallel transformations in inter-party polity differences will occur.

However, changes in the sociological bases of partisan differences are not the only possible source o f change. While this dissertation has not focused on this phenomenon with the Anglo-American democracies, it is also possible that change could occur in the class- based motor o fpartisan theory itself. That is, it is entirely possible that, over time, the main source of partisan differences may no longer be objective class distinctions but may increasingly turn on other divisions within society. This, of course, is the fundamental

253 hypothesis behind 'post-materialist' and 'new politics' arguments—that the nature of modem,

industrial societies is undergoing such significant transformation, away firom industrial

production and towards the provision of services and high-technology goods, that the very

nature and issues involved in partisan competition will shift accordingly (Inglehart 1977,

1990; Kitschelt 1988). In this particular respect, then, the issue for the analyst is to identify

the nature of these new issues, these new fault lines in the politics of post-industrial democratic societies.

At first glance, one might even argue that New Zealand in the 1980s experienced

some of this post-materialist shifting of partisan divisions, along the lines of'new politics'

issues. One of the most important policy positions of the Lange government was the

declaration ofNew Zealand as a 'nuclear fiee zone' and the resulting prohibition of visits by

foreign ships potentially carrying nuclear weapons. The policy, in fact, was so

enthusiastically supported by Labour that it essentially scuttled the ANZUS pact as a defense

alliance between New Zealand, Australia and the United States (Bercovitch 1988, Landais-

Stamp and Rogers 1989). The policy was opposed by the conservatives and, for a time, it

appeared that the main fault line in New Zealand politics was opening up not on a traditional

issue of economic policy—on which Labour and National were largely in agreement—but

along this issue so characteristic of'new politics' concerns. In the end, the nuclear issue

proved not nearly as decisive as it once seemed—most New Zealanders supported the policy,

the succeeding National government declined to reverse it, and the Labour Party of the 1990s

under Helen Clark returned to economic policies much more in tune with Labour tradition.

Thus, by the end o f the twentieth century in New Zealand—as in the three other countries—

254 economic and class-based issues had not been definitively replaced by envhonmental, human rights and other post-materialist concerns as the main dividing line in New Zealand politics.

In short, then, just as society and politics exist in a fluid, ever-changing relationship, so too the critical linkage between the two—the traditional class-based linkage between social structure and public policy—is also fluid and susceptible to change. In the end, the phenomenon of neoliberalism in the Britain, Canada, Australia and New Zealand bears an important message: while traditional, historic political structures and divisions show a remarkable consistency and stabili^ over time, much as Lipset and Rokkan posited long ago

(1967), so also these structures are subject to change, especially in a rapidly-changing, increasingly-integrated world economic and social environment. What we see in the case of neoliberalism was the policy response to those perceived changes. Whatever the merits or failings of the neoliberal reform programs of the 1980s, one thing is clean in a period of rapid economic change, and with the perception that the ideologically-inspired policies of the past had failed, political leaders went in search of new policy solutions, even those at variance to their parties' traditional programmatic heritage. In searching for economic policy solutions, the range of possible options was no longer limited to the 'tried and true' policy choices-one largely discredited in the minds ofthese leaders. Rather subordinated national and party policy traditions to the pragmatic imperative to 'do something’ about the economic problems at hand. Only in those areas of greatest sensitiviQr to the interests of their class- based constituencies did these leaders become more circiunspect and less willing to enact

dramatic change. In short, then, traditional forms of partisanship proved to be 6irly

enduring, hearer and resilient, even in the face o ftremendous change. But they also proved

255 to be flexible, malleable and open to change and reinterpretation in a period o f extraordinary political, economic and social change.

256 APPENDIX

SUMMARY STATISTICAL TABLES

257 Year 68 69 70 71 72 7} 74 75 76 77 78 79 80 8! 82 83 84 85 86 87 88 89 90 9! 92 93 94

Brilain 2,1 2.0 2.2 2.8 3.1 2.2 2.1 3.2 4.8 5.2 5.1 4.7 5.6 9.0 10.4 11.2 11.2 11.5 11.6 10.4 8.3 6.1 5.5 7.9 9,7 10.3 9.6

CMWda 4.4 4.4 5,6 6.1 6.2 5.5 5.3 6.9 7.1 8.0 8.3 7.4 7.4 7.5 10.9 11.8 11.2 10.5 9.5 8.8 7.7 7 5 8.1 10.3 11.3 11.2 10.3

Auslrilli» 1.8 1.8 1.6 1.9 2.6 2.3 2.6 4.8 4.7 5.6 6.4 6.1 6.0 5.7 7.0 9.8 8.9 7.8 7.9 7.8 6.8 5.9 7.2 9.7 10.8 11.0 9.7 g New Zealand 0.8 0.3 0.2 0.2 0.4 0.2 0.1 0.2 0.4 0.3 |.7 1.9 2.2 3.7 3,5 5.6 5.7 4.1 4.0 4.0 5.5 7.1 7.7 10.2 10.3 9.4 8.1

OECPAvg. 3.1 3.8 3.3 3.5 3.9 3.5 3.9 5.4 5.5 5.5 5.4 5.4 6.1 7.0 8.3 8.8 8.4 7.8 78 7.4 6.9 6.4 6.2 6.6 7.3 7.6 7.6

Table 14: Unemployineni, 1968 1994 (percenl unemployed).

Source; OECD, OECD Historical Siaiisiics, various years. Year 70 71 72 73 74 75 76 77 78 79 80 «/ 82 83 84 W 86 87 88 89 90 91 92 93 94

Britain 6.4 9.4 7.1 9.2 16.0 24.2 16.5 15.8 8.3 13.4 18.0 11.9 8.6 4.6 5.0 6.1 3.4 4.1 4.9 7.8 9.5 5.9 3.7 1.6 2.5

Canada 3 4 2.8 4.8 7.6 10.9 10.8 7.5 8.0 8.9 9.2 10,2 12.5 10.8 5.8 4.3 7.0 4.2 4.4 4 0 5.0 4.8 5.6 1.5 1.8 0.2

Australia 3.9 6.1 5.8 9.5 15.1 15.1 13.5 12.3 7.9 4.1 10.2 9.7 11.2 10.1 3.9 6.7 9.1 8.5 7.3 7.5 7.3 3.2 1.0 1.8 1.9 to en 12 0 13.8 (O New Zealand 6.5 10.4 6.9 8.2 III 14.7 16.9 14.3 17.1 15.4 16.1 7.4 6.1 15.4 13.2 15 7 6.4 5.7 6.1 2.6 1.0 1.3 1.8

OECPAvg. 5.6 5.3 4.7 7.8 13.4 11.3 8.6 8.9 7.9 9.8 12.8 10.5 10.1 9.4 8.2 7.0 6.0 7.9 8.7 6.3 6.8 6.1 4.9 4.3 4.4

Table IS; Inflalion (Consumer Price Index), 1970-1994, change on previous year (percent).

Source; OECD, OECD Hisiorical Slatislics, various years. Ÿëw 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 H9 $>/90 92 93 9-f

Brimin 3,7 l.l 1,9 2,1 2,3 7,6 -l.l -0.7 3.9 1.0 3.7 2.0 -2,3 -1.3 1.6 3.4 2.3 3.2 4.1 4.5 4.7 1.8 0.0 -2.4 -0.9 1,8 3.5

Cwuul« 4,0 3,7 1,2 5,6 4,7 6.3 2,0 -0.4 4.8 l.l 2,8 2,4 -0.2 2.7 -5.5 2.2 5.4 3.8 2.2 2.8 3.6 0.6 -1.8 -3.0 -0.7 0.8 3.0

Australia 4,1 4,3 4,0 3,8 1,9 3,9 0.2 1.2 2.1 -0.1 1.6 3.4 0.5 2.4 -2.3 -0.4 6,1 3.30.6 3.2 2.4 2.4 -.03 -2.7 1.4 2.9 4.3

K» o> New Zealand 0.2 6,6 0.1 2,4 2.2 5,7 4.9 -3.0 2.1 -5.3 -0.6 1,1 1.8 3 2 1,0 1.4 3.9 0.3 1.9 -0.2 -1.0 0.4 -1,5 -2,5 0,1 5,1 4,1

OECPAvg, 4,4 4,3 2,4 2,5 4.2 5,2 -0,2 -1,1 4.0 3.0 3.1 2 5 0,4 12 -0.9 1,5 3,5 2,5 2,0 2,4 3,3 2,6 1,5 -0,2 0.9 0,2 2,0

Table 16; Real Per Capita GPP Growth, 1968-1994, change on previous year (percent).

Source; OECP, OECD Historical Statistics, various years. 68 69 70 71 72 73 74 75 76 77 78 79 80 8t 82 83 84 85 86 87 88 89 90 91 92 9} 94

Briwin *0,5 0.6 2,5 1,4 -1.8 -3.5 -3,8 -4,8 -4,9 -3.4 -4,3 -3,2 -3,4 -3.9 -2.8 -3.4 -3.8 -2.8 -2.9 -1.4 0.1 -0.1 -1.5 -2.6 -6.3 -7.8 -6.9

CwMMk 0.4 2,4 0.9 0,1 0,1 1,0 1,9 -2.4 -1.7 -2.4 -3.1 -1.9 -2.1 -1.2 -6.0 -7.0 -6.5 -7.1 -5.4 -3.8 -2.5 -2,9 -4.1 -6.7 -7.5 -7.3 -5,4

Ausliali» 1,6 2,5 2,2 2,2 0.9 1,7 -0,9 -1.3 -1.0 -2.0 -2,4 -1.4 -0.9 -0.5 -2.4 -3.7 -3.2 -2.7 -1,6 0.3 1.6 1.1 -0.6 -4.0 -4,9 -4,0 -2.8 m New Zealand N/A

OECPAvg, -0,5 0,9 0,2 -0.4 -0,2 0.5 -0.8 -3.5 -2.2 -1.6 -2.1 -1.5 -2.0 -2.2 -4.2 -4.6 -3.8 -3.9 -3.9 -2.9 -2.3 -1.7 -2.6 -3.3 -4.3 -4.9 -4,1

Table 17: Nel Lending of Oovemmeni, 1968-1994, percentage of GDP,

Note; Negative figures indicate deficit spending.

Source; OECD, OECD Historical Sialisiics, various years. Year 71 72 73 74 75 76 77 7« 79 AO «/ A2 A3 A4 AJ Ad A7 AA A9 90 9\ 92 93 94 95 96 97

Britain 13.6 24.0 7.2 14.8 6.0 3.3 10.1 9.4 29.5 12.0 4.3 5.3 3.8 21.1 6.4 1.9 3.6 3.7 4.1 1.9 0.8 0.5 0.6 0.3 0.4 1.3 0.2

Canada 2.9 7.8 6.0 9.2 10.9 11.6 3.3 7.4 7.8 9.0 8.9 5.8 4.4 3.9 3.1 7.1 4.0 4.9 3.7 5.1 2.5 2.1 1.6 1.6 1.6 3.3 3.6

Australia 3.1 2,0 2.6 6.3 3.5 3.8 1.7 2.1 4.0 3.3 4.2 2.2 1.6 1.3 1.3 1.4 1.3 1.6 1.2 1.4 1.6 0.9 0.6 0.5 0.5 0.9 0.5

New Zealand 0.2 0.1 0.3 0.2 0.2 0.5 0.4 0.4 0.4 0.4 0.2 0.3 0.4 0.4 0.8 1.3 0.4 0.4 0.2 0.3 0.1 0.1 0.02 0.04 0.05 0,07 0.03

Tuble 18; Strike Activity, 1971 1997, number of workdays lost to strikes (in millions).

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