The Politics of Avoiding Accountability
The New Politics of the Welfare State
and
Welfare State Retrenchment in New Zealand
1984- 1993
Shane S. Sadorski, B.A. (Hons.)
A thesis submitted to the Department of Political Studies
in conforrnity with the requirements for
the degree of Master of Arts
Queen's University
Kingston, Ontario, Canada
September, 2000
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Since the erirly 1980s. debate over the future of the contemporary welfare stare has
taken a prominent place in the study of comparative public policy. In the growing acadernic literature on this subject. a sub-debate has emerged over the extensiveness rind pervasiveness of programmes of welfare state reuenchment over the pst twenty yerirs. A few theories have emerged seeking to expiain sirnilarities rind differences in retrenchment throughout the indusuialised democracies.
This study seeks to apply one such theory, Paul Pierson3 "New Politics of the Welfare
State." to the New Zealand mode1 of reuenchment. In examining New Zealand as a case study beyond the four examples from which Pierson haderived his theory. this study assesses whether Pierson's theory can be used to shed light on New Zea1and.s particular experience with retrenchment. In doing so, this study contributes to the larger debate over welfare state retrenchment by iIlusuating the limitations of Pierson's theory. and recasting that theory to improve upon it as a neo-institutionalist framework for explaining comparative differences in weifare state reuenchment. Acknowledgements
1 wish to first thank Professor Henry Milner of Laval University for his early interest in the subject of rhis thesis and his helpful guidance in getting this project undenvay.
His advice as supervisor helped put this study on a solid foundation. 1 would also tike to thank Professor Grant Amyot of Queen*s University for shepherding me through the final stages of the thesis process and for serving as my supervisor during the oral examination. Finally. I wish to thank my partner Catharine whose continual support and encouragement was a vital component in the successful cornpletion of this study. Table of Contents
Chapter One The New Politics of the Welfare State and the New Zealand Mode1 1
Chapter Two A Window of Opportunity: Budgetxy Crisis and Reuenchrnent 16
Chapter Three Retrenchment and the Concentration of Political Authority 3 3
Chaptsr Four The Role of Electaral and Party Systems in Retrenchment 50 Chapter Five Towards a Theory of Welfare State Retrenchment 69
Re ferences 79
Vi ta 85 Chapter One
The New Politics of the Welfare State and the New Zealand Modei
Retrenchment of the Welfare State
1s there a place for the welfare smte in the twenty-first century? Since the arly 1980s. when a
ivrtve of right-of-centre govemments preaching the gospel of fiscal austerity rode into political office in a
number of indusuialised democracies. it has become fashionable for many acadernics. politicians, media
cornmentators. and members of the general public to question the sustaïnability of the twentieth-century
welfare state. Whether expressed as part of the "crisis in social dernocracy." the "break-down of the
historical compromise," the "end of the Keynesian paradigm." or "the collapse of the post-war prosperity
consensus." the underlying concept of a cnsis of the welfare state has become a prominent feature in
Western political discourse.' In large part. this discussion over the future of the welfare state has been
fuelled by the retrenchment over the past twenty years of elements of the welfare state in most advanced
industrial democracies.
What exactly do we rnean by welfare state retrenchment'! To answer this, we first need to be clear
as to what constitutes a welfare state. Borrowing from Davidson's comparative work on welfare States. this
study considers a welfare state to be a nation in which the state uses either ( 1) the disbursement of revenues
extracted fron? the economy via taxes and levies. or (2) the re-allocation of costs and benefits among groups
through legislation. to moderate the inequalities generated by the market and/or circumstance within a
predominantly capitalist econorny.' Hence, welfare state retrenchment refers here to reductions in activities of the state originaily designed to moderate the unequal outcomes present within a market economy.
The curent debate in Western political discourse over the significanceof welfare state retrenchment for the future of the welfare state has led to a sub-debate in comparative public policy oïer the extensiveness and pervasiveness of programmes of retrenchment in industrialised democracies. heviewing
'~hesefour exarnpIes can be found in Scharpf, Crisis and Choice iti Eiiropean Social Democracy; Gourevitch, Polirics in Hard Tittres; and James, New Terrirov.
'~avidson.Two Models of Welfare, 1 1. the existing liierature on retrenchment. one quickiy observes that the majority of academic work on the
subject focuses on the universality of retrenchment and seeks explrinations for this phenomenon. For
example, Pontusson, working within the paradigm of the "new logic of industrialism." has undeden to
explain social democratic policy rollback in Europe in terms of the changes in workplace organisation and
employment structure that have occurred in most advanced capitalist countries.' Scharpf. seeking to explain
what he sees as the "crisis" in European social democracy. points to how increased internationalisation of
capital markets has crerited an economic environment which prevents social democratic governments from
engineering a full ernployment econorny. piacing great stress on social welfare systems designed to operate
undrr full employment." Schwartz. pushing this point even funher. contends that "international market
pressures are causing not simply a shifi toward less state'but also a shift toward a different kind of tat te."^
Schwartz points to Australia, Denmark. New Zealand, and Sweden as instances where "sweeping changes
occurred in the 1980'~the scale and significance [of which] malces these four worthy of ~tud~."~
In contrast to the majority of the literature on retrenchment. Paul Pierson takes exception to the
generalised perception that there has been a major shake-up of the welfare state. Presenting his views in the journal World Politics, Pierson contends that
Economic. political, and sociai pressures have fostered an image of welfare states under siege. Yet if one turns from absuact discussions of social transformation to an examination of actuaI policy, it becomes difîîcuIt to sustain the proposition that these strains have generated fundamental shifts ... The welfare state rernains the most resilient aspect of the postwar political economy.'
Pierson bases his argument on data derived from a comparative analysis of retrenchment in Gemany.
Sweden. the United Kingdorn. and the United States. In these counuies (the 1sttwo deliberately chosen because of their perception as "prototypicaI cases of neo~onservatisrn")~,Pierson finds that retrenchrnent has fu ont us son, "Expfaining the Decline of European Social Dernocracy."
'Sc harp f. Crisis arid Ciioice in Ewopearr Social Deniocracy.
'~chwartz."Small States in Big Trouble," 527.
"Ibid..528.
'pierson. "The New Politics of the Welfare State," 173, 179.
'lbid., 173. bsen a fragmenteci. hic-and-miss process of restricted retrenchrnents rather than a "self-reinforcing dynarnic."9 While Pierson does not dispute that there are new giobal ecooomic pressures on we!fare states to retrench. he does dispute the notion that weffare states do not possess the ability to sustain successful resistance to such pressures. Pierson asserts in his analysis that the democratic political institutions upon which the welfare state rests provide built-in mechanisms of resistance whenever radical programmes of reuenchment are attempted.
Singling out Schwartz for criticism in making his case. Pierson argues chat "Schwartz's study provides rernarkably little evidence that the changes he catalogs add up to radical reform rather than the continuous tinkering cornmon in ail modem public sector~."~~On deeper reading, however. one finds that
Pierson is in fact willing to concede to Schwartz one exarnple of radicai retrenchment:
The evidence [for radical retrenchment] looks credib!e only for New Zealand. a tiny country on the periphery of the world economy. which clearly faced severe adjustment problems in light of its long (and unusual) tradition of protectionism. It seerns far more reasonable to treat this case as an outlier than to view it as the pacesetter in a global march toward radical reform of the welfare state."
While it is wise for Pierson to suggest cautious scepticism when presented with clairns about New ZeaIand being ri "pacesetter" in ri world-wide rush to dismantle the welfare state, this does not mean such clairns should be entirely niled out. As the rest of this chapter will show. New Zealand did in fact acquire in de rnid-to-late 1990s an international repuution for being a rrwdel of retrenchment for other nations to follow - a reputation and experience with reuenchment worthy of detailed study.
The objective of this study is to apply Paul Pierson's theory of the "New Politics of the Welfare
State" to a new test case: the so-called New Zeaiand mode1 of retrenchrnent. In ueating New Zealrtnd as an individual case study beyond the four countries from which Pierson originally derived his theory, 1 hope to assess whether Pierson's theory can be used to shed light on New Zealand's particular experience with retrenchrnent. In doing so. 1 hope to concribute to the larger literature on welfare state retrenchment by improving on Pierson's theory as a cool for understanding comparative differences in welfare state
reuenchment among advanced capitalist democracies.
Casting an Eye to New Zealand
The reputation of New Zealand as a rnodel for implementing substantive welfrire state retrenchrnent
within an industrialised country is derived primarily from the positive attention and analysis New Zealand's
retrenchment programme hris been given by various international econornic organisations. For instance. in
discussing "Policies for Sustained Growth in Industrial Counuies" in its May 1995 World Econorriic
Ourlook, the International Monetary Fund chose to single out New Zealand for evidence of the many
benefits of pursuing retrenchrnent in an industrialised welfare sute:
New Zealand has been enjoying rapid economic growth accornpanied by low inflation and strong ernployrnent growth since 1993. This success has followed a decade of far- reaching structural reforms.... The reforms radically reversed past policies, sirnultaneousiy irnproving rnicroeconomic efficiency and restoring rnacroeconornic balance .... The positive supply effects of the reforms took quite a number of years to materialize, but as illustrated by the recent excellent econornic performance, the reforms together with the attainment of macroeconomic stability have positioned New Zealand well for sustained. high growth over the medium term."
Alongside the MF, the Organisation for Economic Cooperation and Developrnent has given New Zealand's
programme of welfare state reuenchment an equally energetic endorsement- Just one year into the
programme. the OECD Observer reponed that
When the new government came into office in July 198-1,... there was generalIy a heavy reliance on interventionist policies which was inhibiting the ailocation of resources. The new government resolved to adopt a comprehensive strategy that included not only sounder rnonetary and fiscal policies and tighter rnacro-economic management but also liberalisation measures .... The progress made over the last year towards the rernoval of distortions, increased flexibility and suengthened competitive forces within an anti- inflationary. medium-rem rnonetary and fiscal policy framework is impre~sive.'~
Four years later. the OECC's initial approval had turned into praise:
The reorientation of micro-econornic policies [in New Zealand] during the last four years has been an outstanding achievement. Four years of extensive reform have put the New Zealand economy in a better position to achieve sustriinable, non-inflationary growth that at any time for decade... With a large array of government conuols on the econorny now
"MF.World Econorriic Outlook, May 1995.30-3 1.
"OECD. "New Zealand." OECD Observer. No. 136, September 1985.30. unwound, New Zealand is well placed to degood use of the strong world economy and buoyant international commodity prïces.'"
The OECD was the first to admit that retrenchrnent in New Zealand had significant short-terrn
transition costs in terms of economic growth and ernployment.'5 The OECD. however, was equally quick to
interpret New Zealrindk recovery from recession in the early 1990's as confirmation that short-term pain had
produced long-term econornic gain. In the mid-1990s. the OECD Observer stressed how New Zealand wu
leading the world with impressive economic indicators:
Although the adjusment to [a] more open environment has been slow and difficuit. encouraging developrnents have ernerged recently, with eXpOR growth in increasingly diversified products and markets. Indeed, New aland is currently one of the fastest growing economies in he OECD. with 3 recovery atypicai in rnany respects: it has. for example, been led by exports rather chan government spending; it occurred in a low- inflation environment; and it began largely in advance of the general OECD reco~er~.'~
Citing New Zeriland's impressive record of public sector reuenchment and its new position of having one of
the most liberal labour markets and the least distortive tax system mong OECD nations, the OECD
Observer attributed New Zealand's "atypical" economic performance to the retrenchrnent programme
pursued between 1984 and 1993."
The IMF and OECDS endorsement of the New Zealand rnodel has not been without effect. A
Canadian example of the way in which events in New Zealand have impacted the thinking of other nations crin be found in the attention the Office of the Auditor-General paid to New Zealand's mode1 of public sector retrenchment in the mid- 1990s at the very tirne the federal Liberals began a series of deep cuts to social program expenditures. In a. report entitied Toward Better Goven~arice:Public Service Refomi in New
Zealattd (1984-1994) and irs Relevance ro Canada, the Auditor-General echoed the OECDS assessment chat much of what has occurred in New Zealand in the way of public sector re-organisation has generated
"OECD."New Zeriland." OECD Observer, No. 158. June-July 1989.37.
''ibid.. 39. See also OECD, "New Zealand: The Results of Openness," OECD Obsenler, No. 192, February-March 1995.52-53.
'"OECD, "New Zealand: The Results of Openness," OECD Observer, No. 192, February-March 1995-51.
"ibid.. 52-53. See also OECD,"New Zealand: Reform of the Public Sector." OECD Observer, No. 200, June-July 1996.40-4 1. beneticial results in fiscal soundness and concluded chat Canada should seriously consider adopting parts of
New Zealand's model of public management.'8 The rqxrt States that the
expenditure reductions required [by the Federal Govement] cannot be accomplished simply by a continuation of put restraint measures. As was the case in New Zedand, the Canadian government hris to reshape a wide range of policies and cut back programs to achieve affordable government .... The New Zealand experience. in several important respects. dernonstrates chat fundamental change in what govements do, and how well they do it. musc be accomplished by changes to the basic features of the public management system itseif.19
In short, in looking for exarnples and lessons on how Canada might successfuliy shrink the scope and
intrusiveness of its public sector to regain fiscal balance, the Auditor-General's Office tmed to New
Zealand as a possible model for such retrenchment."
As long as influential international economic organisations continue to cast an eye to New Zealand
as a model economy frorn which lessons can be draum, New ZeaiandS experience with weIfare state
retrenchment has the potential to shape retrenchment efforts in other indusuialised nations. For no other
reason than this. New ZealandS experience with reuenchment musc be taken serïously by those studying the
politics of the welfare sute today.
The New Zealand Retrenchment Experience
What exactly occurred in New Zealand to cause international organisations such as the MFand the
OECD to present this nation of 3.5 million people as a model of welfare state retrenchrnent? While it is
beyond the scope of this project to provide a detailed catalogue of New ZeaIand's experience with weifare
stare retrenchment between 1984 and 1993, it is possible to give the reader here a fairly comprehensive summary of key events in the retrenchment process.
New Zealand's experience with substantiril welfare state retrenchment can be adequately divided
into three phases coinciding with two terrns of governent under the New Zealand Labour Party and a third period of government under the National Party of New Zealand. Although the teading ch&-acters changed
"~uditor-~eneralof Canada, Toward Berrer Governance, 55-59.67-49.
Iqlbid..69.
9Ibid., 69-80. over time during this pend of retrenchment, there was an underlying consistency in their approach. one
some observers attribute to ideas chat predominated in the Tr-ury during this period."
Under the leadership of Labour Prime Minister David hnge and Finance Minister Sir Roger
Dou_glas, the general character of the first phase of retrenchment can be sumrnarïsed as deregularion.
Between 1983 and 1987, the Labour government's prirnary initiative was to rapidly dismantle New
Zealand's forty-five year oId protectionist policy of import substitution - the economic foundation upon
which New Zealand's welfare state rested - and to replace that foundation with a new policy focusing on
free uride and an export-led economy. ~Movingfrorn one of only a few nations in the OECD to possess
direcr controls on irnports, New Zealand during Labour's tirst term abandoned its strict system of impon
licensing and exchange controls. floated the NZ dollar, eliminated restrictions on foreign investment. and
initiated a gradua1 reduction in the country's tariff schedu~e.~Pardlel with its programme of uade
liberalisation, Labour initiated the deregulation of New Zealand's domestic product markets. Agicultural
producer boards were rapidly scrapped and subsidies and tax incentives to the agricultural sector totalling
over 6% of New Zealand's GDP were e~irninated.~State subsidisation and assistance to rnanufacturers were
also elirninated. tholzgh at a more gradua1
Other major initiatives that the Labour government undertook in its first term were in taxation
poIicy and income support programmes. Taxation policy was shifted sway frorn a graduateci income tax to a
flat consumption tax under Labour's Tax Reform Package of October 1986. Progressivity in the income tax
structure was diminished through a reduction in tax rates and the number of incorne tax brackets. New
Zealand's incorne fax scale moved from five brackets of rates of 208, 33%. 45%. 56% and 66% to three tnx
brrickets with rates of 15%. 308 and 488. The revenue shortfall resulting from this reduction in
progressivity was offset by the simulmneous introduction of a broad-based Goods and Services Tac of 10%.
To help compensate for the loss of personal and family tax exemptions under the tax reform package,
"~hispoint will be eiaborated on in "The Additional Importance of the Treasury" in Chripter Three.
"~ollins.Rogenioniics. 38-44.
31bid.. 53.59.
asse se^, New Zealand, 1 12. funding was increased in some income support programmes. At the same time. however, income maintenance benefits were made taxable for the first time and thereby became subject to new rneans-tested abaternents and claw-bach (most notably a new 8% smxon the other incornes of recipienls of the national pension ~~stern).~
Additional changes pursued by the Labour government in its first term were the rernoval of wage, price. rent. and interest rate convols and the removal of subsidies to keep the prices of peuol, eIectricity. and postal services uniform throughout the nation.'6 Under the Srare-Owmd Enterprises Acf. 1987. nine new state-owned but commercially-run corporations (SOES) took over the task of supptying a wide range of goods and services previously provided by line departments on a subsidised or cost-recovery basis."
With the Labour Party's re-election in August of 1987. revenchment in New Zealand entered its second phase. In its second terrn. LabourS primary initiatives were in cornmercialising and privatising the public sector. Between 1987 and 1990, more than fourteen state-owned enterprises that were either functioning as SOE3 before 1984 or corporatised into SOES during Labour5 first terrn were sold to the private sector in asset sales exceeding NB2000 million. Giants such as Air New Zealand, the State
Insurance Office. and the telephone monopoiy Telecom were privatised dong side misceIlaneous srnaII fry such as the Health Computing Service and the National Film Underscoring the sweeping extent of this progarnrne of privatisation, Schwartz notes that public asset sales in New Zealand between 1988 and
1992 generated receipts as a percenuge of GDP which were three times as large as those generated by
Britain's high profile programme of privatisation under Thatcher. Receipts in New Zealand totalleci 3.55% of its GDP compared to roughly 1% for Britain, 0.5% for Sweden and Ausualia, and less than O. 1% for m en mark.'^
=lbid.. 120-24; and Col lins, Rogerriomics, 82-87.98.
'"~ollins,Rogerrionzics, 5 1-52.55-56.
"~ascarenhas,"State Owned Enterprises." 33-39; and Collins. Rogenionrics, 69.
211 Mascarenhas, "Smte Owned Enterprises." 4333; and Massey, New Zealand. 140- 143.
"~chwartz."Small States in Big Trouble." 528. Alongside its programme of privatisation. Labour proceeded to corporatise other sute activities during this period. The Government Stores Board. seaports. Television New Zealand. Radio New Zealand. and New Zealand Rail were al1 remade into new profit-oriented SOES. What little that rernained in the way of service provision within line departrnents (often referred to as "core government services" in New
Zealand) underwent its own unique form of corporrttisation with the passage of the State Sector Act. 1988 and the hrblic Firiance Acr. 19~9.~'Together. these pieces of legislacion imported new market-oriented practices associated with the ideas of "new public ~nanagernent"~'into public administration which included the expectation for depanments to eam a rate of return on their capital and pay taxes on those
Labour's other initiatives in its second term focused on continuing the thrust of its first term measures. The governrnent continued to deregulate New &aland's uade sector and domestic product markets through further reductions in truiFfs and the negotiation of a free vade agreement with Ausualia that came into effect in 1990.~~Taxation policy shifted funher from a graduated income tax structure to consumption taxation. On the income tax side, the existing three cax brackets of 15%. 308, and 38% were further flattened to two brackets with rates of 24% and 33%, and the corporate tarate wzis reduced from
18% to 28% (Iater increased to 33%). As before, the reduction in revenue resulting from these changes was offset on the consumption side by increasing the GST from 10% to 12.5%~In an extension of the governrnent's previous attempt to crush inflation with high interest rates. the govemment passed Iegislation in 1989 which put price stability into law as the sole objective of the Reserve Bank of New Zealand. the nation's central bank. The new Resenv Ba,rk of New Zealand Act, 1989 also granted the central bank complete autonomy in its palicy instruments in order to achieve the required inflation targets, thereby ending fifty years of rnonetq policy dedicated to the priority of full employment.35
'"Detailed examinations of these two pieces of Iegislation can be found in Walsh. "The State Sector Act 1988" and Pallot, "Financial Management Reform."
3'~oston,"The Theoretical Underpinnings of Public Sector Restnicturing." 20-22.
asse se^. New Zealand, 147.
"lbid.. 1 1 1- 1 12.
35 Dalziel. "The Reserve Bank Act," 74-89; and IMF. World Economic Ourlook, May 1995.30. It is important, however, to note that during Labour's two terms in office, there was no reduction in
total budgetriry expenditures on the cornerstones of social policy in New Zealand: health care, ducation,
and social welfare. Nor did Labour touch the position of unions in the labour market, at least in the private
~ector.~~In each of these areas. real expenditures by government consistently increased between 1984 and
1990. with total expenditure on social protection reaching a record 23.0% of GDP in the 1989/90 fiscal
y~.''While Labour was able to orchestrate for the first tirne in thiny-five years three consecutive budget
surpluses between 1987 and 1990. this was accomplished almost exclusively through revenue increases
resuIting from the shift to broad-based consumption taxes and wind-fdl receipts generated from the sale of
public as set^.^^ Thus. under Labour. retrenchment of state activity in New Zealand concenvated mostly on
(1) disengagement of the state from direct economic intervention, (2) restnicturing and privatising the public
sector. (3) reducing the progressivity of the tax system. and (4) reducing universality in income maintenance
brnetïts. Overall expenditures on New Zealand's social safety net ernerged unscathed.
This is not to sugrgesr that atternpts were not made to go further dong the road of reuenchrnent.
Indeed. the person at the helm of retrenchment under Labour, Finance Minister Roger Douglas. desired a
much more extensive reuenchrnent programme. Douglas'agenda called for the introduction of a flat income
tax. funhcr privatisations. and rnany of the labour market and social policy changes that would eventually
occur clfrer the election of the Nationd Party to government in 1990.~' By 198s. however, Prime Minister
Lange was having suong reservations about Douglas' progrme and took measures to curtriil Douglas'
authonty by re-assigning Douglas' Associate Ministers of Finance, shuffling social policy rninisters, and
taking over the position of Minister of Education him~elf.~The greatest blow against Douglas occurred
"~alsh."The State and Industriai Realtions in New Zealand," 183-187.
"~udd."The Changing Structure of Public Expenditure." 143. 135-46. The OECD's estirnate for the 1989/90 fiscal year is 19% of GDP, but this excludes a nurnber of social programs which Rudd includes in his calculations. The OECD figure of 19% remains a record figure using the OECDS methodology- OECD. New Orienrarions in Social Poltcy. 57. 59.
SIOECD. Econonric Survey: New Zealand, 1WO/9 1,39-40.
39 Jesson. Fragments of labour, 108- 109, 124-125, 14 1.
"Ibid.. 112. when Lange went public with a repudiation of Douglas' post-election policy agenda. effectively isolating
Douglas. The result was a bitter feud between the Prime Minister and the Minister of Finance culminating
first in the resignation from cabinet of Roger Douglas. and then that of the Prime Minister. who lost the
confidence of his caucus in 1989.'' The discrepancy between the Labour PartyS uaditional policy of
economic interventionisrn and the Labour govemment's programme of reuenchrnent proved too peat to
manage."'
After the election of the National Party to office in Octokr 1990, the new Prime Minister Jim
Bolger and Finance Minister Ruth Richardson initiated a programme of reuenchrnent that Douglas was
unable to pursue. First in its 1990 Econontic atid Social Iniriarive and then in its 199 1 Budget, National
announced a package of poiicies designed to roll-back the record 6 1.23% of government expenditure
drvoted to income maintenance. education. and health at the time of taking office." In this third phase of
retrenchment, existing income maintenance programmes were re-organised into five main benefits subject to
some form of an incorne-based means-test: the National Superannuation (state pension), the Domestic
Purposes Benefit (single rnothers). the Sickness Benefit. the Unemployrnent Benefit. and the InvalidS
Benefit. With the exception of National Superannuation (whose indexed pay rates were frozen for two
years) and the Invalid's Benefit. al1 of the above benefits were cutback by as much as 10% in sorne cases. u
New Zerilrind's sixty-five year old universal family benefit was scrapped to ieave only the income-tested
family assistance supplement. thus abolishing the 1st of New ZealandS purely universal transfers."
In the process, etigibility requirements were tightened. The lower paying youth rate for the
unernployment benefit was extended from the age of 18 to 25 while unemployment benefits were entirely
abolished for young people below the age of 18. One report has estimated that these eligibility changes,
combined with the reduction in benefit rates. produced expenditure savings in unemployrnent benefits of an
"Ibid.. 127. 128. 145. 147-149; and Easton. "The Unmaking of Roger Douglas?". 183.
"Chapman. "A Politicai Culture Under Pressure." 1-27.
41Rudd. "The Changing Structure of Public Expenditure," 146.
UBuurman, "Social Welfare Benefits and Income Distribution in New Zealand," 294-95, 3 11-12.
"~t.John, "The State and Welfare." 89-93. rstirnated NZS lmillion per ~eek.'~In 199 1, the supennnuation swtax (the means-testing incorne
abatement for the pension system) was increased. and after 1992. the eligibility age for superannuation was
gradually increased from 60 to 65."
Changes to New Zealand's public education and housing systems were also made. In education,
National proceeded to build on some of Labour's changes to the provision of education at the elementary
and secondary levels by partially corporatising public teniary educational institutions and introducing new
user-fees. In addition, the govemment elirninated the tertiary education allowance for al1 students, leaving
allowances only for students l~nderthe age of 25 who could demonstrate chat they were from low income
families. In the area of housing. National amalgmated al1 forms of housirig assistance offered by the
govemment into a single income and asset-tested "accommodation supplement" while increasing to market
prices the rents the Housing Corporation (the govemment's provider of public housing) charped its tenants."
in the area of health, National Iaunched initiatives changing the provision of health care in New
Zealrind. Public hospitals were comrnercialised into profit-oriented Crown Health Enterprises (CHE'S) and
the provision of health cxe was de-monopolised through the allowance of new private medical plans which could compete with the CHES for both private and public health contracts. Four new Regional Health
Authorities (RHAS) were established with fixed budgets to purchase from the newly competing health care providers the heaith services required within their respective regions. AdditionalIy, income-based user fees for hsalth care were instituted to restnct the top third of income earners from accessing frec state health care. 49
Outside of changes in the provision of social protection in New Zealand. the other dramatic retrenchment to occur under National was in labour market policy. Under the new Employniertt Contracts
Act. 1991, almost one hundred years of compulsory unionisation and national wage arbitracion came to an
------46 Massey, New Zealarrd. 126.
"~t.John, "The State and Welfare," 89-90.
4a Ibid. Sec also Dale. "The State and Education." 70-75; and Massey, New Zealand, 98-99. 151-152,214- 2 16.
'Tougere. "The State and HeaIth-care Reform," 112-1 19; CBC, "Health Care in New Zealand," Ideas. 7 October 1996; and Massey. New Zealand. 98-99. end in New Zealand. The previous quasi-corporatist national wage bargaining system was deregulated from
a system of cornpulsory national wage awards to a system of enterprise-level bargaining with al1 former
wage awards converted into individual employment contracts. Trade union rnernbership was made
voluntary. third-party intervention and strikes made illegal. and the legal obligation for an employer to conclude a collective contract removed. The new labour legislation removed the term "trade union" altoeether. replacing it with "delegrited bargaining agent". Under National. the underIying philosophy of
Iabour market policy shi fted " from the collective to the individ~aL"~~
In surn, this is the experience of state disengagement which haled to the presentrition of New
Zealand as a mode1 for retrenching the welfrire state by international economic organisations. Moreover. this is the experience which Pierson is willing to concede as evidence of significant welfare stsite retrenchment. Indeed, the experience outlined above appears to fit Pierson's own criteria for what retrenchment involves: ;i significant increase in reliance on means-tested benefits, major transfers of responsibility to the private sector. and changes in benefit and eligibility rules that signal a qualitative change to the character of a particular activity of the tat te.^'
Pierson's "New Politics of the Welfare State"
For Pierson. "the contemporary politics of the welfare state is the politics of blame avoidmce.
Governments confronting the slectoral imperatives of modern democracy will undenake retrenchment only when they discover ways to minimize the political costs involved."" This proves difficult because though proposals for welfare state retrsnchment appeal initialty to taxpaying citizens in the aggegate, once the actual process of retrenchment begins to "hit home" in terms of specific reductions in public services. tougher eligibility requirernents, etc., citizens begin to have second thoughts about pursuing retrenchment.
According to Pierson, "the recurrent pattern in public-opinion polis has been a mild swing against the
Sh'alsh. "The State and Industrial Relations in New Zealand." 187-189. See also Massey. New Zerrland. 120.
"~eirson,"The New Politics of the Welfare State," 157.
'?bid, 179. welfare state in the wake of poor economic performance and budgetary stress. followed by a resurgence of
support at the first whiff of significant c~ts."~~
Because modem welfare States are dernocntic systems, Pierson suggests that retrenchment is
typically achieved only when governments are able to obscure from the generat voting public the negative
impacts of retrenchment and/or are able to avoid king blmed for those negative consequencesS This
avoidance of blame is quite dificuit to achieve. since the welfare state is the srarus quo in these democratic
systems. and this generally requires that governments attempting revenchment make orPendecisîons to overhatil the system. This in turn exposes governments to blame by the electorate for the retrenchment
process. In short. advocates of retrenchment do not have the luxury of making "nondecisions" to achieve their goals.55 Moreover. avoiding blame for retrenchment decisions is often difficult to achieve because welfare staies typically generate organised interest associations out of the consumers and providers of various social services.56 These interests are often able to direct the attention of both their constituents and the public at large to govemment as the source of the negative consequences of reuenchment.
Thus. welfrire state retrenchmen: is typically achieved only when specific circumstances exist which allow governments to avoid the electoral costs which accompany the process of retrenchrnent, For
Pierson. these circumstances are exceptional occurrences, and this accounts for his observation among his four case studies of a consistent pattern of fragrnented and limited instances of revenchment rather chan a pattern of unified and self-reinforcing initiatives.
Are there any circumstances under which welfare state retrenchment can be achieved? Pierson presents in his work four possible hypotheses as to the preconditions necessary for successfully pursuing substantive retrenchrnent of the welfare state. The next three chapters of this study shall examine these four propositions using New Zealand as a case of successful substantive retrenchment. In chapter two. we wiil examine PiersonS hypothesis chat moments of brtdgeraq crisis provide opportunities for retrenchment
11Ibid.. 175.
"Ibid., 178
"ibid.. 174
%lbid..175. advocates to recast retrenchment initiatives as efforts at saving the welfare smte from ovenll collapse.
Clriirning that "there is no alternative" to undenaking retrenchment, retrenchment advocates can avoid blame for unpopular cutbacks. Chapter three will examine Piersan's argument that the design of polirical irisrirurioris in a particular welfare state shapes the opportunities a govemment has in obscuring the visibility of its role in pursuing retrenchment initiatives. Chapter three will also examine Pierson's proposition that governments capable of changirig riieir insrirurioris without major attention may be able to redestgn their institutionri1 environment so as to make reuenchment an easier undertriking. Chapter four will deai with the last of Pierson's hypotheses, namely tbat retrenchment is most likely to occur in nations where the elecroral ar~dpa- sysrems function in a way tllat concenuates support for retrenchrnent into a single political party white scattering forces opposing retrenchment among various other parties. Finrilly, after having evaluated the utility of each of these propositions in explaining New ZeaIand's expenence with substantive welfare state retrenchment, the final chapter of this study will draw together the resuits and reformulate PiersonS argument in light of the lessons learned from the New Zealand experience. In addition. chapter five will siturite this arnended theory into the Iarger literature on comparative public policy and suggest some new avenues for further research. Chapter Two
A Window of Opportunity: Budgetary Crisis and Retrenchment
The Budgetary Crisis Hypothesis
The first proposition which we shall apply to the New Zealand case is the role of budgetary crises
in the retrenchment of the wclfrtre state. As hypothesised by Pierson. this proposition contends that when a
urelfarestate is suddenIy confronted with a moment of particulariy acute fiscal stress. an opportunity arises
for government to initiate a large-scale programme of retrenchment without incurring the same political cost
that wouid normally result from imptementing such ri programme. The reason for this. according to Pierson.
is that a budgetary crisis provides an opportunity for the proponents of welfare state reuenchment to re-cast
their proposed retrenchment initiatives as efforts "to Save the welfare state rather than desuoy it. Framing
the issue in this manner rnay allow governments to avoid widespread blme for program cutbacks."'
Of importance here is a differentiation between budgetary stress and a budgetary crisis.' Under the
budgetary crisis hypothesis. a deteriorating tiscal condition is not in itself sufficient to produce a "window of opportunityW3for sustained retrenchrnent of the welfare state. Rather. what is needed is the abrupt arriva1 of a clear and present danger to the fiscal soundness of the nation. In the absence of an unexpected (and ideally drarnatic) event capable of focusing the nation's attention on the fiscal sustainability of its welfare state. opportunitîes remain limited for advocates of retrenchment to convincingly daim that "There 1s No
Alternative" to truncating the siate's social welfare function - the so-called TINA argument.' In other words. successfully re-casting reuenchment as an effort to protect the long-term viability of the welfare state requires a visible pretext for making decisions which break with the status quo. In conuast to protracted deficits and a gradua1 rise in public debt. the clear and present danger of a conspicuousflscal sliock provides
'Pierson, "The New Politics of the Weifare Stace." 177.
Vhe term "window of opportunity" is one which Roger Douglas repeatedly used to describe the events thrit permitted the implementation of fast-paced retrenchment. See James, "Overview", Rogernontics, 2.
o os ton. in his comparison of Rogernomics with Thatcherism. points to the importance that "the regular endorsement of TINA" played in each nation. Boston, "Thatcherism and Rogernomics". 150. governrnent with the blame avoiding defence that circumstances beyond the convol of the sute have lefi the
government with no option but to take rapid action to protect the nation3 fiscal integrity.
In Pierson's hypothesis, making the claim of a budgetary crisis (and therefore the TiNA argument)
credible also "generally requires [governrnent] coilaboration with the political opposition."s This requisite
political consensus. however. rnay in turn create new di fficulties for initiating a programme of fast-paced
retrenchment. Even if the opposition eventuaily agrees to recognise the existence of a crisis, the political
trride-off for granting this recognition may be a watered-down programme of retren~hment.~Thus, while the
appearance of a moment of acute fiscal mess ceminly "encourages downward adjustments in social
programs," it is not at al1 cIear that it will autornaticalIy result in "a radical overhaul of social pclicy."' A
budgetary crisis only provides a window of opponunity for such reuenchment, not a guarantee.
Thus. in order for the budgetary crisis hypothesis to hold in the case of New Zealand, we need to
find the following four conditions to be present: (1) a deteriorating fiscal situation. (2) a clear and present
danger which focuses public andor government attention on the issue of the nation3 fiscal sustainability. (3)
the use of the TINA argument by the proponents of retrenchment, and (4) some degree of political
consensus arnong political parties over the existence of a crisis. Prima facie. New Zealand in 1983 appears
to rneet :hese criteria.
A Deteriorating Fiscal Situation
To begin with, there was a clear deterioration in New Zealand's fiscal health in the decade prior to
the initiation of rapid retrenchment in 1984. In 1974, the gross fiscal deficit of the New Zealand
government amounted to 2% of the nation's GDP. Despite subsequent growth in the economy at an average
rate of 1.3% per annum, the gross budget deficit over the next ten years grew to a near-record level of 8.9%
'pierson, "The New Politics of the Welfare State," 177.
"Pierson uses Sweden's "Crisis Package" of welfare state cuts in 1992 as his empirical example. Pierson's second case is GermanyS fiscal shock resulting from the abrupt integration of East Germany into the West German welfare state. In each crise. Pierson outlines the window of opponunity each nation had to initiate radical retrenchment. and how other factors (especially rnulti-party bargaining) lirnited those opponunities. lbid.. 106-173.
'lbid.. 177. of GDP by 19~4.~Expressed in structural. that is. cyclically adjusted terms, the budget deficit between
1973 and 1984 increased by an average rate of 0.53% of GDP per annum. Whereas the structurai
component of the deticit stood at just 0.58 of GDP in 1975. that figure had increased to 7.0% by 1984.
Cornparing New Zealand with 18 other industrialiseci econornies, one study found that only two countries.
Ireland and Sweden. matched his rate of growth in their structural deficits betwern 1973 and 1983.~
The natural consequence of mnning protracted budget deficits was the gradua1 rise in New
Zeriland's level of public sector debt in the 1970's and early 1980's. According to OECD figures, gross
public debt in 1973 equalled just under 30% of New ZcalandS GDP. By 1984. that figure had climbed to
73%. New ZealandS net public debt expenenced an even higher level of growth. risine from just under 5% of GDP in 1973 to 41 96 in 1984. Criticising New Zealand's pre-1984 fiscal policy as "a futile atternpt to
insulate the econorny from a sharp drop in world cornrnodity pnces and deterioriting terms of trade."'O the
OECD has presented New Zealand's 1984 level of public drbt as abnomally high among OECD mernber
States at the time. as shown in the following table.
Public Debt as a Percentage of GDP. 1983
Gross Debt Net Debt
New Zealand G-7nations smaller OECD countries European counuies OECD average
Sources: OECD. Econornic Survey: New Zealand, 1990/9 1, p. 46; and OECD Econornic Outlook #57, June 1995. p. A37. A38.
Lastly, New Zealand in the 1970's and early 1980's began to increasingly rely on foreign borrowing to finance its debt. Between 1975 and 1981, the externalIy-funded portion of total gross public debt
'~vlasse~,New Zealand. 7. 33: and Boston. "Thatcherism and Rogemomics." 136.
'Massey. New Zealarid. 38-39.
'"OECD, Ecoriomic Survey: New Zealand. 1990fl1.38. increased from 2 1% (9% of GDP) to 33% (24% of GDP)." Even more drmatic was the increase in the foreign-heid cornponent of the nation's overall net debt. In 1973. net foreign debt stood at a iow 7.3% of
GDP. But by the 1983-83 fiscal year. overall net foreign debt had jumped to an amount equal to 57% of
GDP.'' As New Zealand's dcpendency on foreign borrowing steadily grew. so too did the importance of maintaining the confidence of overseas creditors, and the international financial community in genenl, in the health of the New Zealand economy.
A Clear and Present Danger
The increasing importance of overseas creditor and investor confidence to the New Zealand economy leads us to the second iispect of the budgetriry crisis hypothesis: the need for a conspicuous event capable of focusing attention on the fiscal sustainability of the govemrnent. In an environment where overseas lending had become increasingl y cmcial to the financing of government borrowing, there occurred in 1983 a dramatic run on the NZ dollar which put the nation's fixed exchange rate policy into disarray.
On 15 June 1983, the day after a snap announcemeni of a general election by Prime Minister Sir
Robert Muldoon. Iarge quantities of the NZ dollar were dramatically unloaded in the spot market. forcing the Resewe Bank of New Zealand to sel1 off SNZ 256 million of its foreign exchange reserves to cover the outflow. With only $240 million left behind. the central bank had lost a staggering 52% of its liquid reserves in the space of one day's currency trading.I3 Fortunately. the NII on the dollar had occurred on a
Friday. thereby granting the Reserve Bank a brief reprieve as trading was halted for the weekend.
In the midst of what officiais were calling "a foreign exchange crisis of a major kind."l4the
Muldoon governrnent refused to consider any devaluation of the NZ dollar and instead directed the Resewe
Bank io aven the run by deliberately overselling in the forward currency market once trading resumed on the folIowing Monday. This would buy rime for the central bank to liquify its non-tiquid foreign reserves and to borrow additional cunency to meet market demands. While this tactic did succeed in averting the
asse se^. New Zealund, 39.
"~chwartz."Smalt States in Big Trouble." 533,
asto ton, "From Run to Float," 92.
"lbid.. 9 3. immediate crisis, the Reserve Bank was left in the fragile position of having its order book oversold by
NB507 million. The bank's new liquid rçserves of S4O6 million. plus the TreasuryS available liquids of
97million, still rernained far short of the demand for foreign curren~~.'~
The fragility of the government's foreign exchange policy becarne further evident when a second and more prolonged run on the dollar occurred in 1st week of the elecuon campaign. In order to bolster the
NZ dollar, reserves that week were sold at the rate of S 100 million per day. At this rate. the Reserve Bank calcuiated that its total overseas reserves would run out within seven days. Moreover, foward market comrnitrnents had now reriched S 1,222 million, with $1.025 million scheduled for payrnent by the end of
AU~US~.'~In these circumscances. the Reserve Bank announced on 15 July 1983, the day after the electorai defeat of the Muldoon government by the Labour Party, that trading of the NZ dollar would be suspended until further notice.
To cornplicate matters, a constitutional crisis irnrnediaiely ernerged over who possessed the authority to make decisions to deal with the current crisis: the outgoing Prime Minister Robert Muldoon or the Prime Minister-elect David Lange, who had yet to be sworn into offke by the Govemor-General due to the normal delay in the return of election writsn The constitutional crisis, and with it New Zealand's foreign exchange crisis, brewed for a full three days until two senior bureaucrats. the Secremy of the
Treasury and the Governor of the Reserve Bank. threatened Muldoon that they would "break the uaditional silence of public servants and make public their ad~ice"'~if he did not imrnediately hand over his authority as acting Minister of Finance to the leadership of the Labour Party. On 18 July. Mufdoon capitulated and
Labour announced a 20 per cent devaluation of the NZ dollar as well as the removal of controls on interest rates. With the end to political and policy uncertainty, market confidence rebounded and currency trading was resumed by the Reserve Bank on 15 August 1984. If the nation's attention to public policy was al1 over
"~bid.94.
'b~bid..95-96.
"~oberts,"Ministers, the Cabinet, and Public Servants," 89-90.
"AS cited by Roberts, Ibid., 90. the map in the pst. "these extraordinary events certriinly focused attention upon the critical state of the New
Zealand ec~norny."'~
Complicating Factors
At first glance. the above account of New Zealand's currency crisis of 1984 gives support to the
second criterion for triggering a window of opponunity for retrenchment. Upon deeper analysis. however.
Pierson's budgetary hypothesis runs into some difficulty in its application to the New Zealand experience.
As outlined, Pierson's hypothesis is quite specific in suggesting that it is budgerary stress culminrtting in a budgerary crisis which provides a window of opponunity to initiate substanrial retrenchment. Yet it is not at al1 clear that the deterioration in the fiscal health of New Zealand was the cause of New ZealandS currency crisis. In fact. there is good evidence that New Zealand's brush with crisis at the outset of retrenchment had very little to do with anxieties over budget deficits and public debt and more to do with a purely speculative run on the NZ dollar. That is to Say, it is not obvious chat the two criteria are intrinsically linked as Pierson's hypothesis seerns to require.
While many observers have concurred with the OECD's assessrnent that New Zealand's fiscal situation in 1984 was an inherently unsustainable one and that radical change was therefore inevitable, this is a conclusion easily reached with the benefit of hindsightm2' More meaningful for Our analysis of the budgetary crisis hypothesis would be evidence showing that serious concerns about the deterioration of New
Zealand's fiscal soundness were expressed by overseas creditors and economic observers prior ro the nin on the NZ dollar in 1984.
Proponents of retrenchrnent in New Zealand have on occasion cited panicular warnings by overseas observers about the state of the national economy before 1984. Roger Douglas for instance, in defending his daim that there was no alternative to Labour's programme of retrenchment in the 19805. cites a report issued by the MF in February 1984 which called into question the fiscal sustainabitity of New
Zealand. According to Douglas, the report charlicterïses the growth of the fiscal deticit in preceding years
n Schwartz. "Srnall States in Big Trouble." 532; Massey. New Zealand,41-42, 54; and James. New Terrirory, 65-70. as "a major imbalance in the economy that had becorne more serious [and] threatened to have a severe
destabiiizing effect."" The implication is that overseas obsewers were increasingly growing wriry of the
soundness of New Zealand public policy.
Colin James reiterates this assumption of a sudden loss of overseas confidence when discussing the ability of the New Zealand government to meet its dtbt sewicing requirements. Citing credit rating data
from international bond rating services, James writes that
there cornes a time when creditors either stop lending, demand repayment or push up the cost of borrowing. Many Latin American counuies. chronic borrowers, reached that point during the 1980's and paid ri temble price ... The warning of damage to corne was issued to New Zealand in 1975, whtn the country was issued with a credit nting of AA+. it pulled up to AAA in 1978 but dropped to AA+ again in 1983.~
Yet. what James does not point out is that MoodyS bond rating service actually reinstated New ZealandS triple-A credit rating in the first half of ~983.~In olher words. credit rating data irwtediareiy prior to the currency crisis of 1984 suggested a fair degree of confidence in the New &aland economy by overseas credit agencies. Moody's uppade was likely fuelled by the fact that the economy, with the exception of unemployment figures, had shown signs of improvement: inflation had declined to three percent and econornic growth rebounded to a remxkable seven percent.'J It was not until 17 October 1984. three months afier the currency crisis occurred, that Moody's chose to again downgrade New ZeaIandS credit rating back into the AA range." Essentially. the run on the NZ dollar in the summer of 1981 occuned during an upswing in investor and creditor confidence, calling into question the claim that it was concem about New Zealand's credit worthiness by overseas creditors that precipitated the currency crisis.
Indeed. most evidence suggests that the currency crisis was precipitated by currency traders engaged in a speculative one-way bet on the possibility of a post-election devaIuation of the NZ dollar.
"AS cited in Douglas and Callen. Towards Prosperiry, 47.
TJames, New Terriroty. 55 yJames cils0 does not point out that his cornparison of New Zealand's credit worthiness in 1984 with that of developing nations is an unfair one since New Zealand. unlike most debt-laden developing nations. is one of only a few nations in the world whosc credit rating has never fallen below Aa3 and out of the low-risk range. Colgate and Suoombergen, A Promise ro Pay. as cited by McQuaig, Sliooring rhe Hippo. 22.
"~itedin Massey, New Zealand. 54. During the 1984 election campaign. common wisdom mong exchange dealers was that the fixed dollar was substantia!ly overvalued and that the election of a Labour governrnent would prompt a devaluation."
Although Labour expressed no official position on devaluation during the campaign, Roger Douglas' personal views as Labour's pointman on the finance portfolio were known well in advance of the election:
Douglas had a long-stated preference for devduation as a method of kick-strirting exPorts.'' Currency traders. aware of the likelihood of a devaluation should Douglas become Minister of Finance. proceeded to convert NZ dolIars into foreign currency with the intention of converting the funds back into dollars after the dcvaluation (anticipated in the market to be around fifteen percent) and thereby rerip windfalt profits.'s
There was almost no risk with such speculation, for should National retain office and no devaluation occur, dollars could simply be repurctiased at the sarne rate at which they were initiaily dumped with no loss to the speculator. As the 1984 eletion campaign wore on and Labour increasingfy looked as though it would be the victor. expectations of a devaluation grew. The speculative rur. on the dollar expanded until the devaluation did in fact occur and "the speculators c~eaned-u~."'~
In rny view. the speculative origin of the 1984 currency crisis presents an obstacle to the ripplicability of Pierson's budgetary crisis hypothesis to New Zealand. Again. the hypothesis is quite specific in suggesting that it is a moment of acute budgetary stress which provides the window of opportunity for subsmtial retrenchment. Yet. we find that the crisis at the outset of retrenchment in New
Zealrind wris not a "budgetary" crisis at al1 but rather a case of currency speculation. As it stands, we are left wondering which aspect of the budgetruy crisis hypothesis served as the principal force for the window of apportunity in New Zealand: was it the clear and present danger of New Zealand's currency crisis or was it
New ZealandS deterioratingfiscal coridition? Is the existence of any crisis of an economic or financiai nature the source for retrenchrnent rp~rtunities?Or, is the deterioration of fiscal soundness. even if this has not reached crisis proportions, a sufficient condition for a window of opponunity for reuenchrnent?
- - -- -
%aston. Laborir 's Econorrric Stratcgy. 138-39.
-7 Jesson. Fragnzents of Lubour, 63.
25 Collins, Roger~zonrics.38.
3~esson.Fragments of lnbour, 64. Fortunately, an examination of the remsiining two criteria of Pierson's hypothesis sheds some light on these questions.
TINA in New Zealand
Throughout the progrtmme of economic and public sector resuuctiinng following the events of
1984, the third aspect of the budgetary crisis hypothesis. the routine use of the TINA argument to justify retrenchment, was present in New ~ealand.~~Indeed. Colin James has observed two separate versions of
TINA at work in New Zealand at this cime.
The first version of what James calls New Zealand "poIiucians'showy romance with the two Tinas" involved the presentation of a national "economic predicarnent"3' that was used to convince people that a problem existed which necessitated a policy change. Govemment and opposition aIike repeatedly pointed to
New Zealand's declining economic performance in the late 1970's and eariy 1980's relative to that of the
1950's and 1960's and used that declining performance to make the clairn that change had become necessary. In James's view. this TINA was quite successful and led to a situation where "few now disagree chat there was no alternative to doing something about the ec~nom~."~'
For example. in his forward to a 1987 book discussing the first terrn of his Labour government,
Prime Minister Lange defended his government's "politics of change" by arguing that
The choice New Zealanders face at the General Election of 1987 is to continue the process of change begun by this Government and enter the twenty-first century the envy of others. or retum to the policies that preceded this Govemment and see New 2ealand fall into the bottom half of the ranking of nations by weal th.... The objective of this book is to help illuminate the key issues that face New Zealanders and assess the consequences of the solutions adopted by the fourth Labour Government. But of even greater importance is the consequences of rtor proceeding with this process of change.33
%oston. "Thatcherism and Rogernomics". 150.
ames es. New Territory, 28 1.
'Vbid.
"~an~e."Forward." The Fourtlt Labour Governnienr. p. ix. The hypothetical consequences of not proceeding with change were presented as far more dismal t!mthe consequences of change. Essentially, the governrnent*~line was that if one wishes the nation to be better off.
a desire to which everyone would of course agree, then there is no alternative but to initiate change.
Bearing in mind that the welfare state represents the status quo in modem democracies, winning the
battIe for the necessity of change was of great assistance to the governmenr in its presentation of "the other, triwdrier. ~ina."~That is. there was no alternative to the governmentk parlicular solitriort to the problem.
Throughout his rem as Minister of Finance. Roger Douglas consistently assened chat the particular set of policies pursued by Labour after 1984 were motivateci by the fact that there wris no alternative to them.
Once change was accepted as neccssary. Labour drove home the point that there was only one road for change to follow. As Douglas put it after his resignation from cabinet over his "flac tax" feud with Lange.
The voices of the lobby groups have been joined more recently by those engaged in a growing debate about sociai and economic policy options. They include some who maintain, quite incorrectly. chat decisions made early in the Governrnent's first term in office forced it down one particular path. In reality. there was no alternative. coherent econornic suategy for dealing with New Zealand's problerns. There still i~n'i.'~
And, until he began to have second thoughts about cabinet's policy orientation in 1988, David Lange also recited the claim that there was no alternative to Labour's particular programme of reuenchment. Lange defended his governrnent's record at regional party conferences and in media interviews by regularly invoking the 1984 currency crisis, citing how the crisis had left him with no option but to deregulate the financial sector of the econorny. Lange maintained chat this particular instance of deregulation then created new problems for other sectors of the economy which necessitated further deregulation to deal with those new prob~ems.'6
TINA was also invoked to justify welfare state reuenchrnent after Labour's defeat by the National
Party in the 1990 eiection. in presenting National's Econorrtic and Social hiriarive irnrnediately after the election. Finance Minister Ruth Richardson was quiclc to defend her government's cutbacks in unemploymcnt and welfare benefits. health and education subsidies. etc. with the daim that there was no
YJames, New Terrirory, 282.
13Douglas. "The Ends and Means," 28.
%aston, "Labour's Economic Suategy," 144; James, New Terriiory, 149. alternative. Richardson insisted that in a recessionary environment of declining public revenues and
escrilating unemployment expenditures, only sweeping reductions in expenditures would produce a balanced
budget that could satisfy the demands of the international banking cornm~nit~.~~New Zealand. it was
argued, could no longer afford to provide al1 its citizens with social services; public expenditures had to be
reduced to levels sufficient only for the tmly needy.38 As Richardson bluntly stated shonly after taking
office. "individuals and families with reasonable rneans should attend to their own need~."~~
TINA and the Importance of Crisis
The manner in which the TINA argument was employed in New Ztialand to justify reaenchment
also gives us some insight into the question raised earlier about the relative importance of the 1983 currency
crisis to retrenchment ris opposed to New Zealand's position of fiscal deterioration. For most of Labour's six
years in government, proponents of retrenchment placed relatively little ernphasis on the need for a balanced
budget when justifying retrenchment with the TINA argument. Roger Douglas. for example, convinced
Labour's grassroots to support a regressive flattenine of incorne taxation and the introduction of 3 flat GST
not by citing the necessity of reducing the deficit. but by arguing that the new system would reduce tax
avoidance by the rich and provide even more revenue to be spent on the por.1° Richard Prebble. Douglas'
Associate Finance Minister, defended Labour's shift in rnonetary policy away from the goal of full
ernployment to the goal of pice stability not by citing the need to keep the government's oversesis creditors
satisfied. but on the basis that "Socialism is sound rnoney! The one thing owpeople want to know is. if they
have ri buck in the moming. it's still going to be a buck at t~i~ht."~'
- -- "~assey.New Zealand. 99.
%t. John, "The State and Welfare." 95-96.
Y9 Mrissey, New Zealand, 99. ul Jesson, Fragnjetiis ofkboctr, 15. Fiscal sustainability did become more prominent in the defence of retrenchment in Labour's second term as state enterprises were privatised and the procecds used to pay down public debt. See Douglas. "The Ends and Means," 25. But it is also important to recall that major social expztzdirure reducrions did not occur under Labour, and that Labour left office with social spending reaching record levels (Chapter One). Fiscal balance only became a major defence for cuts in public expenditure after the election of National to office in 1990.
41James. New Terrirory, 250. A further example of the secondiuy importance of fiscal soundness in rnaking the argument for retrenchrnent can be found in the presentations made by retrenchment advocates at New Zealand's Econornic
Summit Conference in lare 1984. Attended by a wide range of business organisations, government officials. primary producers. community groups. and trade unions. virtually no mention was made of severe budgetq difficulties as a reason for retrenchment. Public debt load and the nation's ability to manage its debt servicing requirements were barely mentioned ris topics for discussion by the numerous proponents of economic liberalisation at the summit (3 key exception king Treaury officia~s).~'Instead, those supporting retrenchment universally cited the need to achieve export-led economic growth and lower unemployrnrnt when asserting chat there was no alternative to market deregulation and trade liberrilisrition. Although the desirability of a bîlanced budget was raised by advocates ofretrenchment at the summit, this was only raised as a method for keeping interest rates low while monewry policy was tightened to control inflation."
In short. concern over debt and deficits had not reached a Ievel of panic that wouId make a fiscal version of the TINA argument possible. TINA was used, but not quite in the way the budgetary crisis hypothesis implies.
Whereas raw budgetary issues appear to have ken of marginal importance to the introduction of reuenchment in New Zealand. evidence suggests that the 1984 currency crisis played an important role in getting the reuenchment bal1 roliing. The Labour Party. upon taking office in 1984, was a pany deeply divided on matters of econornic policy. A tense struggie had been waged within the pmy in the early 1980's by two rival policy factions: a "more-market" faction led by Roger Douglas and a centre-left "corporatist" faction led by party president Jim Anderton. As wefl. it is widely considered chat the majority of Labour
MPs and party officials outside of these two factions were woefully ill-informed on econornic matters and were quite willing to delegate decision-making power to those whorn they felt comptent in economic
- - "~alziel,"The Economic Summit." 56-59. 61-63.
"lbid.. 58.59.62. mat ter^.^ Consequentially. Lribour entered office in 1984 without a clear strategy for making economic
decisions rit the very moment that urgent decisions were needed to deal with the run on the dollar.JS
In the environment of crisis that the riin on the dollar created. the need to make rapid policy
decisions favoured certain outcornes.= Without sufficient tirne to debate the finer points of the two
economic frameworks contained within the Labour Party, there was a natural inclination to look towards the
camp possessing the most coherent and thought out approach at the tirne. That factor favoured the "rnore-
market" faction of the party, which had spent more cime in opposition deveioping in deuil its policy
programme than had the ami-retrenchment corporatist friction." As Prime Ministcr Lange stated in 1986,
The circurnstances of those first few days in government gave Roger the opportunity to do what he had always wanted to do anyway. But he wouldnl have been able to do that had we gone through the orthodox routine of an election in November. then a budget in June... When the crisis hit in July 1984, it was Roger Dougias who. above all. had thought through the economic issues - so when the Cabinet needed to fa11 back on an economic philosophy it was Douglas who had one18
For a party poorly versed in economics. Douglas and the "more-market" faction of the party leadership were
a sensible choice to turn to for guidance in an unforeseen financial crisis. They had a plan. And as will be explored more fuliy in the next chapter. this faction, once entrenched into critical cabinet positions. could make use of New ZealrindS extensive concentration of power in the hands of cabinet to usher through policies which did not have the widespread backing of their pany.
Moreover, the act of devaluing the dollar provided an excellent opportunity to initiate further economic resuucturing wifiout creating an instant negative impact on the economy. As Collins succinctly explains, the devaluation
u Jesson. Fragrnerits of laborcr, 75; and Roberts. "Ministers, the Cabinet, and Public Servants," 95.
15This is evidenced by the fact thrit the Labour Party's 1984 election manifesto was only released afier the prirty's election to office and was deliberately worded in the vaguest of terms in order to satsify both economic policy factions before the election. Oliver. "The Labour Caucus and Economic Policy Forrnation." 37. u, Easton refers to this as the "uaurna theory" of the origins of Rogernomics. Easton. "Labour's Economic Strategy," 134. Two of the theory's leading exponents are Collins. Rogernomics, 17; and Jesson, Fragnienrs oflaboru, 64. Jesson refers to events sunounding the currency crisis as a policy "coup".
47 Oliver. "The Labour Caucus and Economic Policy Formation." 27-43.
UL David Lange in Narional Business Review, 1 1 July 1986. as cited by both Dalziel, "The Economic Summit," 67 and lames, New Terrirory, 149. pushed up the price of irnports, and so gave Douglas the chance to rrduce import controls without hurting local producers. It also boosted the income of exporters because their overseas eamings were then worth more in New Zealand dollars, and made exports incentives iess necessa~y.~~
The Labour government coutd rnake use of the immediate gains to export producers from the currency
devaluation to begin the process of dismantling New Zealand's protectionist irnpon substitution economy
without an immediatr effect on the level of unemployment. In short. the vital importance of the currency
crisis to reuenchment in New Zealrind wris that it made a left-of-cenue govemment susceptible to econornic
ideas to which it was historically and intuitively opposed.
1s Political Consensus Necessary ?
Finally, we arrive at the fourth aspect of the budgetary crisis hypothesis: the need for some degree
of political consensus arnong rival political parties that will make the claim of crisis credible. An
examination of New Zeatand's reuenchrnent experience with respect to this aspect provides us with rrither
ambivalent results.
During the 1984 election and the run on the NZ dolIar. consensus was absent between the two
parties rcpresented in New ZeaIandS Parliament on the need for a radical shift in policy in light of the
nation's currency crisis. Sir Robert Muldoon's National Party stood firmly behind its interventionist
programme of "Think Big" energy projects. price and wage controls. and fixed exchange rate. Treating the
currency crisis (with some justification) as a purely speculative run on the dollar that would subside with the
end of the election carnpaign. Muldoon refused recomrnendations made by Treasury and Reserve Bank
officials that the dollar be devahed and that exchange rate policy be ~iberalised.~In stiuk conuast, the
Labour Party's response to the crisis after assuming office was to irrunediately devalue the dollar, re-assess
the nation's foreign exchange policy, liberalise exchange controls, and final1y abandon New Zealand's fixed exchnnge rate in favour of a clean float - al1 in the space of eight rn~nths.~'At the moment of crisis. the two
41Collins, Rogernoniics, 16.
MSee Boston and Holland, "The Fourth Labour Government," 3; Easton, "From Run to Fioat," 94; and Massey, New Zealand. Chapter 2.
asto ton. "Labour's Economic Strategy," 138- 14 1. parties could not have ken farther apart in terms of officia1 policy. Moreover. it was not until its 1989
Annual Conference that the leadership of the National Pany finally "switched from opposition to Labour's changes to qunlified support"52 for the retrenchment process. In other words, political consensus ktween government and opposition in the form of publicly-stated policy did not emerge until five yem into the retrenchment process.
But while there was certainly a lack of consensus between the two political parties at the moment of crisis, it is also Vue thrit for over a year National's opposition to Labour's programme of retrenchment after the election lacked the vigour one would expect to find in the absence of a political consensus. This was due pt-immily CO the fact chat after Muldoon's last stand in the days after the 1984 election. opposition to
Labourk policy programme by the Fational Party was submerged by an eruption of "intemecine wi~rfare"~~ within National's rrink. Bitter disputes over the party's leadership involving two leadership coups, plus a major policy split over whether or not the party should support or criticise Labour's programme of reuenchment. essentially prevented National from rnounting a sustained critique of government policy.a
At one end of caucus. led by the new party leader Jim iMcLay, were members seeking to push the pmy away from Muldoon's record of interventionism and retum the party to its right-of-centre roots to re- clairn the "enterprise vote" from Labour. At the other end. the deposed Robert Muldoon conducted a fierce guerrilla campaign against ,McLriy. Muldoon was aided in bis task by an extra-parliamentary ginger group crilled the Sunday Club, as well as a group of dissident National MF's called "Rob3 Mob". al1 of whom were opposed to National adopting what they considered to be the "doctrinaire experimentati~n"~~of the Labour governrnent. This intemal conflict over personalities and policy orientation sapped from National much of its political capital and divened the party away from the task of criticising government policy in a consistent rnanner.
In this context. one questions the importance of consensus arnong political parties during a crisis.
It seems possible from the New Zealand example chat the presence of an opposition party incapable of
52James, New Terrirory, 26 1. s 3 Roberts. "Nats. Fat Ca&, and Democrats," 40-44. s4 Ibid. and James, New Terrirory. 260-6 1. seriously challenging the govemment's use of TLNA makes unnecessary the need for a "crisis consensus"
among psrties. Fortunately for the budgetary crisis h,vpothesis, Pierson appears to allow for exceptions
when he suggests that making the claim of a budgetary cnsis credibls generally requires some amount of
collaboration betwecn government and opposition. Ir may be suggested. then, that New Zealand provides an
empirical case where political consensus among parties is not absolutely necessq for a "window of
opportunity" to occur. provided chat the other elements of the budgetary crisis hypothesis rire sufficiently
present.
Conclusion
Putting together what we have observd in this chapter, it seems fair to say that while New
Zealand's experience with welfare state retrenchment provides support for the generai thrust of Pierson's
budgetary crisis hypothesis. some amendments must be made to the hypothesis if it is to conform with the
evidence outlined in this chapter.
There is no doubt that New Zealand exhibited both a deteriorating fiscal situation in the Iead up to
the period of reuenchment and a major currency crisis at the outset of retrenchrnent. But unlike Pierson's
hypothesis. which focuses on the need for an acute budgetary crisis to pave the way for retrenchment. this
chapter has shown that the crisis providing the window of opportunity for retrenchment in New Zealand was
not linked to fiscal considerations at all. If the hypothesis outlined at the beginning of this chapter is to fit
the New Zealand case. Pierson's exclusive focus on fiscal crises mut be replaced with an appreciation of the
rolc that arty major rconornic or financial crisis can play in successfully launching the TINA argument and
initiating the politics of retrenchment,
If the New Zealand case leads us to a. single conclusion, then. it is that any major economic crisis
has the potential to promote the cause of reuenchment if it forces a governrnent into a position where it has to make rapid and non-debated decisions about economic policy without fully appreciating the consequences of those decisions. Indeed, this may be a necessant condition for retrenchment if the government is composed of a left-of-centre party with an avowed mandate to dcfend the welfare state. How else can fifty years of party tradition be overcome in a short period of time?
"~oberts,"Nats, Fat Cab, and Democrats." 43-46. 3 1 That said. the precondition of an economic crisis may be necessary. but it is also insu~ficient.~~
Crisis conditions can make a government srcrceprible to non-traditional economic ida. but this does mean
chat those ideas musr be ones favouring reuenchment. Bringing reuenchment to the forefront of public
po licy also requires chat retrenchment advocates be wrll-placed to take advantage of the window of opponunity that an economic crisis presents. This hinges in part on the structural design of a nation's political institutions. and it is to this factor that we shall now turn.
'"Ellis reaches the same conclusion. but on the obvious premise that comparative empirical evidence shows that not every economic crisis leads to "a fundamentd recllsting of the political econorny of a nation" towards neoliberalism. Ellis. "Voting for Markets or Marketing for Votes?," 4. Chapter Three
Retrenchment and the Concentration of Political Authority
Pierson's lnstitu tional Design Hypothesis
In testing Pierson's budgetriry crisis hypothesis in chapter two. we observed how the presence of an economic crisis was a necessxy condition for successfully Iaunching a substantive programme of welfare state retrenchment by a left-of-centre govemment. In this chapter. we will tum to an examination of New
Zealand's retrenchrnent experience using the next two propositions Pierson has outlined in explaining the politics of welfare state reuenchment: the design and flexibility of political institutions. In doing so, this chapter will il1ustraie the limitations of these propositions and will seek to amend Pierson's theory of retrenchment to cake into account the New Zealand experience.
The first of these two hypotheses is that the design of a particular welfare state's political institutions is a key factor in successfully adrninistering a programme of retrenchment. Returning once again to his central principle of blame avoidance, Pierson suggests that the success of those wishing to pursue retrenchment depends or. their ability "CO hide their own responsibility for unpopular outcornes"' in making cutbacks. Retrenchment is not just about hiding the cutbacks themselves, but of hiding the government's roIe in making cutbacks.
For Pierson. attempts to minimise the visibility of govemment in the retrenchment process depend on whether or not the political institutions of a welfare state serve to concentrate or fragment political authority:
Whether political authority is concentrated or not helps to structure the choices available to retrenchment advocates. Where authority is concentrated (as in Brïtain and Sweden). governrnents will be hard-pressed to avoid blarne for unpopular decisions, but they will have a greater capacity to develop and implement strategies that obscure cutbacks. Governments in more fragmented systerns must fashion strategies that minimize the need to force multiple policy changes through institutional veto points. Howevrr, they rnay find it easier to duck accountability for unpopular policies. Federalism. for example, opened up considerable possibilities for Reagan to shift the blarne for cuts in some programs. a tactic that is central to the current efforts of congressional Republicans.'
'pierson, "The New Politics of the Welfare State," 177.
'~bid. It is important to note that Picrson does not present a direct correlation between the concentration of power
and ultimate success in implementing retrenchment. In Pierson's hypothesis, retrenchment may be
successful in either concentrated or fragmented systerns of political authority. What his hypothesis suggests
is that a connection exists be:ween the design of political institutiors and the particular retrenchment srraregy that will be needed for success in that panicular institutional environment. Systems with highly concentratrd political authorîty require a strategy to hide the role of government that is very different frorn
that employed in a system of fragmented authority.
Unfortunately for those wishing to test this particular hypothesis, Pierson provides remarkably little detail ris to what these different strategies look like. Pierson is most vague with respect to systems of concentrated political authority. going only so far as to say that such systems possess a greater "capacity" for devising appropriate suaregies to obscure cutbacks. As to what those strategies look Iike, we are left guessing. In discussing reuenchrnent in his two cases of concenuated political authority. Britain and
Sweden, Pierson focuses almost entirety on failed instances of retrenchment instead of successful suategies.
An exception is a very brief discussion of the Thatcher government's successful privatisation of public council housing in the 1980's.~
Such a lack of specificity presents a serious problem in testing Pierson's proposition. Exrictly what should we be looking for? As it tums out. we need not invest too much concern in surmounting this problem. An examination of New Zealand's experience with retrenchment indicates that the basic premise of Pierson's hypothesis - that governments mut seek to minimise visibility in the retrenchment process - stands on slippery ground, calling into question the validity of the overall hypothesis as presented by
Pierson.
The Retrenchment Strategy of the New Zealand Government
As stated above. Pierson's hypothesis assumes that a successful strategy of retrenchment musc be one that obscures the role government plays in making cutbacks. Yet, when one turns to the type of reuenchment "strategy" employed in New Zealand, one finds a suategy that made remarkably Little effort to conceal the connection between government decisions and the outcome of cutbacks to the weIfare state. The approach to retrenchment triken by government in New Zealand has kendescribed by a
number of academics as the "blitzkrieg ~uateg~."~and one of the best outlines of this strategy has been
provided by its architect. Roger oug glas.^ Reviewing his experience with implementing reuenchment
between 1983 and 1988. Douglas presents the fundamental principle behind the blitzkrieg strategy as king
rerroacrive consensus. As Douglas expiains it, "consensus among interest groups on quality decisions
rarely, if ever. aises before they are made and irnplemented. It develops after they are taken, as the
decisions drliver satisfactory results to the public."6 Rather than diverting political resowces into devising
ways fo obscure government's roie in the reuenchment process, the blitzkrieg stratcgy sought to relentlessly push a retrenchrnent programme through regardless of the opposition. with the klief that the public would later reconcile itself to the benefits that supposedly accrue from reuenchment initiatives.
In the context of New Zealand. the blitzkrieg strategy had two major cornponents. The first. rriorrienrunt. called for tactics that typically attracted more attention than not to government initiatives. To obtain momentum. both si;e and speed are required in the retrenchment process. Governments in New
Zealand between 1984 and 1993 chose to implement retrenchment "in quantum leaps. using large packaSes"7 of expansive changes that attracted a lot of public attention. Examples are the high profile year- end blitzkriegs cornmon under Labour. such as the 1981 financial sector deregulation package. the 1985 tax and social benefit reform package. and the aboned 1987 flat tax and gwanteed annual income package - a11 were rapid thmsts "across a broad iront. deep into reform temt~r~."~Under the National Party. the strategy reperited itsrif in the abrupt and sweeping changes of the Ecotioniic and Social hiriarive of 1990 which made major changes to income assistance. health. and edu~ation.~Importantl y. these blitzkriegs were
'A phrase that Easton and Jesson often use to describe the govemment's approach to carrying out retrenchment. See Easton. "The Unmaking of Roger Douglas?." 17 1; and Jesson. Fragnienrs of laborcr, 125.
ougl glas, U~ifiiisliedBusitzess, 2 15-238.
'Ibid., 2 18.
'Ibid..220.
"aston. "The Unmaking of Roger Douglrrs?," 17 1, 185.
'Patrick Massey, New Zealand. 98- 100. not done without fanfare. Instead, they were publidy announced in hiph profile settings, such as televised
budget addresses in ~arliarnent."
Second, operating under the assumption that public uncenainty is just as lethal to retrenchment as
opposition from interest groups, the blitzkrieg suntegy in New Zealand sought to instil public confiderice
that retrenchment initiatives would be brought to their full conclusion after having ken announced by the
government.ll For Roger Douglas. a key element in producing this confidence was the repeated
presentation via the media of the govemment's cornmitment to carrying out its initiatives:
As the reform programme rolls fonvard. a lot of peopfe start hurting. Their confidence depends on continuing to believe that the government wiil drive reform to 3 successful conclusion ... Don1 bl ink. Public confidence rests on your composure... When you know you have it right, and know that the policies are on course. that cornes out through people's TV screens."
Alongside repeated affirmation in the media of the government's cornrnitrnent to see its programme to the
very end. the btitzkrieg suategy sought to make the mechanics of the retrenchment process as visible as possible to allow citizens to CO-operate with the process. In New Zeaiand. this was done through the publishing of strict timetables for reform to give the public a sense of how much time they would have to adjust to the new policy environment. as well as through "educative" programmes in the form of public service announcements and mass marketing campaigns to explain the logic behind the changes.13 The approach to retrenchment in New Zeaiand was to "Let the dog see the rribbit"14 rather than obscure the role played by govemment in the process.
Thus. viewing welfare state reuenchment in New ZeaIand from the perspective of a reuenchment
"strategy". the thinking of govemrnents in New Zealand appears to have been to use speed. size.
'%euenchment initiatives that were first announced without a budget address to Parliament were almost always re-stated in rhe subsequent budget address for added effect. For example, National's Econotrric atzd Social lriiriarive, originaliy announced in December 1990, was uansformed into "the mother of al1 budgets" in the Finance MinisterS 1991 budget address. Mrissey. New ïealand. 98.
"Douglas, Clrifinished Busiriess, 227.
"lbid.,230; and Douglas, "The Ends and the Means," 23. See also Atkinson. "Mass Communciations, Economic Liberalisation. and the New Mediators," 100-102; and Jesson, Fragments of labour. 70-7 1.
14Douglas. Un-finishedBusittess, 329. commitment. and visibility to present retrenchment as a "/airaccor>~~li"'~ and thereby discourage active
resistance to the changes. It seerns that a decision was made to exchange governmental invisibility in the
retrenchment process in favour of rapid and thorough implcmentation of reuenchment initiatives.
It is this observation that reveals the underlying contradiction in Pierson's hypothesis. If we judge
retrenchment to be successful in part by the size and speed of its programme, and if size and speed by their
nature raise the visibility of government in the retrenchment process, it is difficult ro see how successful
retrenchment is predicated on a suategy of minimising government visibility as Pierson suggests. Indeed. it
wou1d seem that government visibility is inherent in a successful programme of retrenchment.
The Concentration of Political Authority in New Zealand
Having found chat Pierson's institutional design hypothesis is flawed from the start. we can safely
dismiss it as presently constructed. That said, should we also dismiss the idea chat the design of a welfare
state's political institutions plays a role in the success for failure of reuenchment initiatives? To the contrary, 1 would !ike to suggest that while the New Zealand expenence has led us to reject Pierson's
panicular hypothesis. New Zealand's retrenchment experience also offers evidence chat supports the general
instinct that the design of political institutions does matter when it comes to the politics of reuenchment.
In chapter two. it was observed chat the primary effect of New ZealrindS currency crisis in 1984 was that it made a ieft-of-centre government susceptible to non-traditional economic ideas and policy proposrils. As weII. the need for economic leadership during the currency crisis brought into the economic portfolios of the Labour cabinet a faction predisposed to a policy of re~renchment.'~What the currency crisis of 1984 does not explain is why this srnail faction of a much larger political party was free to imp1ement policies antithetical to the Labour Party's ethos. The crisis hypothesis in chapter two also does nor readily explain why the "more market" faction of the National Party was also free to implement
esso son, Fragnienrs of labour. 74;and James. "Overview." Rogerrionrics, 13.
'"That is, the "troika" of Roger Douglas (Minister of Finance). Richard Prebble (Associate Finance Minister ar;d Minister of State Enterprises). and David Caygill (Associate Finance Minister). Ellis. "Voting for Markets or Marketing for Votes?," 9; and Boston. "The Treasury: Its Role. Philosophy, and Influence." 208. retrenchment when it too was divided over policy.'7 Why were opponents of retrenchment in New Zealand
so unsuccessfu! in stopping cutbacks from happening?
The answer to this partly resides in the design of New ZealandS political systern at the cime of
retrenchment. Once placed into critical cabinet positions. the "more market" policy factions within both
Labour and National could rely upon the high concentration of political authority in New Zealmd to force
its policy agenda through despite opposition from within criucus and outside their respective parties.
As with most notions based on the Westminster model of parliarnentary govemment. New
ZealandS political system serves to strongly concentrate poiiticai power within the executive branch of the
national govemment. As such. many of the institutional veto points found within more fragmented political
sysrems are absent in New Zealand. One political cornrnentator has even argued that New Zealand
surpassed Britain in the concentration of political authority during the 1980s and early 1990s.'~
To begin with. the executive in New Zealand has historically dominated Parliament. The
constitutional convention of selecting the executive from the majority pany in New ZealandS House of
Representatives. combined with the strict enforcernent of party discipline within the government pany.
typically prevents a legislative veto of government decisions from occurring except in the rnost unusuaI of
circumstan~es.'~Once the govemment caucus decides upon policy. the only real check the legislature has is
to pubIicise as bat it can why government policy is improper.
Moreover. the govemrnent caucus itself has historically provided only a weak check on the power of the executive in New ~ealand.~The fact that the executive in New Zealand often constitutes a rnajority of the governrnent caucus ensures that an executive fu~ctioningon the principle of cabinet solidarity can easily carry the day within caucus. In 1987. for example, the support of only eleven cabinet ministers within
"chapter 1. pp. 1 1- 13; and Chapter 2. p. 30.
'"amely. former New Zealand Attorney-General and Prime Minister Geoffrey Palmer. See Palmer. Unbridled Power?; and Palmer, New Zealattd's Consrirurion in Crisis. For an additional comparative perspective on this point, sec Lijphrirt, Deniocracies (1984) and Lijphart. Patterns of Derttocracy (1999).
"Skene, "Parliament: Reassessing it Role," 238-250. An exceptional circumstance would be one where no political pany received a majority of seats in the House of Representatives. which was rare for New Zealand on account of its first-past-the-pst electorril system.
ZOJackson. "Caucus: The Anti-Parliament Systern?." 239,244-245. the Labour governrnent was al1 that was needed to enact policy. Eleven votes constituted a majority of the
twenty rninisters in cabinet. Cabinet solidarity then ensured ùiat these twenty ministers. plus the eight
ministers and under-secretaies attached to cabinet, would vote together as a majority bloc of votes in a
governrnent caucus of fifty-seven members." As Ellis notes. "with just the Troika'of finance ministers and
a few other votes in Cabinet. the entire [Labour] Caucus could be railroaded into supporting policies which.
without Cabinet solidarity. would not have ken approved."x
Alongside weak government caucuses and a weak legislature. other institutional veto points found
in many political systems are absent from New kland. Unlike other nations with systems based on the
Westminster rnodel. New ZealandS Parliment is unicameral nther than bicameral. I-ience, governments in
New Zealand need not worry about their opponents accessing the countervailing power of an upper house to limit or delay its retrenchment programme, as is sometimes possible in Australia. Canada, and the m."
This is very important when an initiative requires new legislation. as was the case with the Siare Secror Acr and the Reserve Barrk of New Zealand Acr. Furthemore, the judiciary in New kland (as in Britain) does not possess a veto over governrnent in the form of judiciat review. Parliament, composed of both the executive and legislative branches of government, is sovereign in New Zealand, and citizens opposed to retrenchrnent cannot appeal to the courts to have the decisions of the governrnent over-turned."
Finally. also like Britain, New Zealand is a unitary state, and as such lacks the constitutional division of powers capable of providing the jurisdictional veto points found in federations like Germany. the
United States, and Canada. In federations, it might be possible to mount resismnce to retrenchment in the form of constitutional challenges over initiatives on the grounds that they possibly intrude into the jurisdictions of other Ievels of governrnent. Alternatively. one Ievel of government may tq to implement
"~llis,"Voting for Markets or Marketing for Votes?", 10.
.3 -Ibid. The handful of cabinet rninisters referred to by Ellis are most likely the "Auckland cabal" of Roger Douglas. Richard Prebble, David Lange, Michael Bassett, Mike Moore, Phi1 Goff, and Jonathan Hunt. augmented by Geoffrey Palmer and David Caygill from Christchurch. The final two votes needed to carry cabinet could be supplicd by ministers, such as Helen Clark, who were willing to trade off economic policy for gains in other areas such as peace or women's issues. Jesson, Fragments of Labour, 68.7475.
3 As a quick example of this, Canadians only need to recall how their Senatc helped force a general election over the issue of Free Trade in 1988.
"~ood,Goverrririg New Zealarid, 3; and Harris. "The Constitutional Base." 61. rneasures of its own to counter those of another level of govenunent As a unitary stzite. rhough,
governments in New Zealand do not have COcontend with CO-equallevels of government of a different
outlook using their legislative authority to resist a programme of retrenchment.
This high degree concentration of political authority in New Zealand is consistent with the
observation that governments in New Zealand generally did not seek COobscure their role in the
retrenchment process. Given the unitq nature of New Zealand's politicaI systern and the lack of multiple
political uenas onto which blame for cutbacks could be shifted. trying to devise a strategy to obscure the
role of government would have ken near to impossible. Instead. governments in New Zealzind relied on the
fact that political institutions in New Zealand provided only two real points through which opponents of
retrenchment could uy to halt the reuenchment process: the govemrnent's party organisation and a general
election. The approach taken was therefore to "bliiz" through retrenchment. present it as a fait accontpli,
and then put together pany and electoral support for reuenchment afienvards from chose who either
benefitrd from. or were unaffected by, the changes.
The Additional Importance of the Treasury
The importance of concentrated potitical authority in New Zealand in facilitating the irnplementation of retrenchment initiatives can be funher witnessed in the speciaI role that the New Zealand
Treasury department plays as the sole source of economic advice to governments. In seeking explrinations for why reuenchment took place in New Zealand, a number of scholars have pointed to the remarkable consistency between briefing documents provided by the Treasury to incoming governrnents and the economic poIicy mesures inuoduced by those governments since 1984. This observation has led sorne to suggest that governments in New Zealand were subject to rit least some degree of poiicy capture by the
Treasury during this period.3
3The role of the Treasury in New Zealand's experience with reuenchment has ken noted by the following observers: Boston. "The Treasury: Its Rote, Philosophy, and Influence." 194-2 15; Boston, "The Treasury and the Organization of Economic Advice." 68-91; Easton. "Government Management: A Review of its Political Content," 35-42; Goldfinch and Roper, "Treasury's Role in State Policy Formulation During the Post-VIJar Era." 50-73; and lesson, Fragments of labour. 63-67. Content analyses of these Tresury briefing papers from 1984 to 1993 cleatly indicate that the
Treasury's philosophical outlook during this period was profoundly neo-~iberal.~~Each of the three briefings - Ecotionric Mnriugemertr ( 1984). Covenztt~enfMatiagetrretrr ( 1987). and Briefitg to the friconiitrg
Go\vrtrnrerrt ( 1990) - energetically presented to cabinet ideas drawn from "the various schools of thought associatrd with the New Right (Austrian. Chicago. New Classical, Supply-Side, Public ~hoice)."" often with verbatirn citations of the pre-eminent writers in each school. In this, the Chicago School paradigm was panicularly prorninent.ls In terrns of specifk policy. the Treasury's papers taken togther as a whole
"argued vigorously in support of economic liberrilisation, the removal of border protection and industry assistance. the privatisation of state-owned enterprises, a Iowering of top marginal tax rates. the deregulation of the labour market. substantial cuts to welfare assistance. grertter user-pays for tertiary education. and a general winding back of the economic borders of the tat te.'"^ This should come as no surprise. since one would expect the Trertsury in New Zealand. as a group of economists, to be susceptible to international intellectual shifts in that profession's discipline. Moreover. rnany of the authors of the Treasury's briefings received their training at universities where these ideas originated (Chicago. Harvard. Duke, et^.).^
It is one thing to illustrate thrit the Treasury advocated a policy of retrenchment; it is another to suggest chat governments in New Zealand were captured by the Treasury's outlook. For the most part, the bais for the claim of poIicy capture has been the observation that the Treasury's briefing documents present a policy programme far more consistent with actual economic policy deveIopments between 1984 and 1993 than the economic policies contained in the election platforms of successive govemments. Econonric
Manngenrerir. the Treasury's first submission, contains a number of major policy initiatives subsequently implemented by the Labour govemrnent that cannot be found in intemal Labour policy documents or even laJames. New Terrifory, 150- 153; and Boston, "The Treasury: Its Role, Philosophy, and Influence," 202- 204. As with Boston, Jesson notes that in the early 1980's officiais in the Treasury that held economic philosophies divergent from the Chicago School either made their peace with this ernergent deparunentai thinking or left the depanment altogether (some unwillingly). Jesson. Fragments of labour. 42-43.
"~oldfinchand Roper."Treasury0sRole in State PoIicy Formulation During the Post-War Era." 55.
'"lbid., 56; and Easton, "Government Managemcnt." 36.
%oston, "The Trerisury: Its Role, Philosophy, and Influence." 203.
JOJesson, Fragttrents of labour, 42-43. in Roger Douglas's own Economic Policy Package. Indeed, one cornparison of these documents shows chat
of twelve points of economic policy implemented by Labour from 1984 to 1987, the pany's platfann
corresponded with just three points, Roger Douglas's Package with five. and Ecoriorriic Managenient with
ten points of policy.3' Prior to and during the 1987 election. Labour vigorously opposed privatising state-
owned enterprises. yet only months lacer, Labour proceeded with a programme of privatisation
recomrnended in the 1987 briefing document Goventnrerit ~ana~etrienr.~'Only National's party policy
irnrnediately pnor to its election in 1990 rivals Treasury briefings in presaging subsequent policy initiatives.
But even here. some major reversais in policy did take place. notably in pensions and eciucation.j3
If one accepts the claim that some degree of policy capture of the New Zealand govemrnent
occurred at the hands of a neo-liberil Treasury. we need CO explain how. Chapters one and two have already
suggested one answer -- the election of a government poorly versed in economics at a moment of economic crisis. Without a clear and weli thought-out economic plan to fa11 back on, Labour in 1984 probably had
IittIe choice but to seek out help in dealing with the currency crisis. The most natural place to turn to for such advice would be the supposediy politically neutral Treasury bureaucracy. As Jesson notes. "one of the governmen t's early exercises in political management was to get Treasury officiais to run courses in economic policy for backbench MPs. Most of them were prepared to accept the governrnent on uust, and they were ovenvhelrned by the quantity and apparent expertise of Treasury ad~ice."~Additionally. the fact that Labour already possessed within its ranks a faction predisposed to the TreasuryS line of thinking further assisted ridvocates of retrenchment within the Treasury. Oliver, in his study of policy debates within the
3-The policy turn-about is even more ironic in that the minister in charge of carrying out privatisation, Richard Prebble. declared two years earlier that "No govemrnent has the nght to se11 off state trading enterprises to its cronies ... Governrnent rnembers are opposed to selling them." Ibid., 140; and Goldfinch and Roper. "Treasury's Role in Stace Policy Formulation During the Post-War Era," 62.
33 National failed to live up to its high-profile cornmitments to abolish tertiary education user-fees and the superannuation clawback. Vowles and Aimer. Voters ' Vengeance, 80. 1 13- 1 14.
34Jesson. Fragments of iubour. 75-76. Labour Party prior to 1984. points to the role that two econornists seconded to the Labour opposition from the Treasury may have played in moving the "mare market" faction into line with the TreasuryS thinkir~g.~'
Equally important to the TreasuryS ribility to capture the policy direction of the cabinet was the extent to which cabinet was unable to secure advice independent from that of the Treasury. And it is this point that brings us back to the topic of the design of political institutions. Boston has made some important comparative observations about the institutional structure of economic advicr in New Zealand. As in most other indusvialised nations, the Treasury in New Zealand can rely on its role as guardian of the public purse, as well as its strong representation in cabinet by a senior party member and powerful MP. to influence the policy direction of cabinet.j6
UnIike most industrialiseci nations, however, Boston has also found that New Zeaiand in the 1980's was one of only a handful of indusvialised nations to have a single undivided economics rninistry and the absence of an influential economic policy unit in the Office of the Prime Minister and Cabinet. Unlike countries such as Australia and the United States, where no central agency has a completely unquestioned voice in the area of economic advice due to the fragmentation of economic functions into a number of agencies and departments, the design of institutions in New ZeaIand centrrilises econornic advisory functions in the hands of a single apency.)l The '*absenceof significant bureaucratie riva~s"~'to the Trezury essentially meant that a government seeking policy advice in the face of an economic crisis had but one avenue to turn to for help. And, ris noted above. the advice supplied to cabinet from that single source strongly urged cabinet to pursue a programme of welfare state retrenchment.
The lack of multiple channels for economic advice to cabinet, coupled with the dominance of neo- liberal thought within the New Zertland Treasury, helps explain what the economic crisis hypothesis in chapter twa cannot: the remrtrkable consistency with which governments in New Zealand pursued a
''The two ecooornisrs were Doug Andrew and Geoff Swier. who with Douglas wrote Labour's Economic Policy Package of 1983. Oliver. "Labour Caucus and Economic Policy Formation." 18-19. See also James. New Terriroq, 136- 147.
!6 Boston, "The Treasury: Its Role, Philosophy, and Influence." 206-208.
J7 Boston. "The Treasury and the Organisation of Economic Advice," 79-82.
JSBoston. "The Treasury: Its Role, Philosophy, and Influence," 209. programme of wetfare state retrenchrnent despite changes in the actors involved. It also adds weight to the
argument presented so far that the design of political institutions matters to the retrenchrnent process. Had
New Zealand possessed a more fragrnented system of poiicy advice providing a more diverse range of economic theory. thai nation's experience with welfare state retrenchment may have been very different.
Pierson's Institutional Flexibility Hypothesis
Before leaving this chspter's subject of the relationship between the design of political institutions and the implemenmtion of reuenchment initiatives, an evaluation of Pierson's third proposition in constmcting a general theory of retrenchment needs to be made: the Institutional Rexibility Hypothesis.
Under this hypothesis, Pierson posits that an important factor to consider when discussing the pre- conditions for successful reuenchment is the ability of retrenchment proponents to "change the rules of the game"39 so as to uansform an institutional environment chat is hostile to retrenchment into one that is reirenchrnent-friend~~.~Re-designing a nation's institutional environment to make retrenchment an easier undertaking requirss for the most part a political system which allows for such changes to be made. that is, systems with a high degree of concentrated political power. In theory, nations with systerns of fragmented political authority that possess powerful constitutional obstacles to uansforming political institutions should be less likely to be candidates for substantive reuenchment.
Applying this proposition to New Zealand, one expects to find two circumst;inces. First. we should
End in New Zealand a political system where it is relatively easy for an elected governrnent to change the rules of the political process. Second, we should also be able to point to specific changes to political institutions in New Zealand made either imrnediately before or during the period of retrenchment chat served to facilitate the retrenchment process.
Changing the Political Game in New Zealand?
With respect to the first point, New Zealand certainly meets the pre-condition of a political system in which government has the freedom to make major changes to political institutions. As descnbed eulier.
'pierson. "The New Politics of the Welfare Strite," 177.
"~bid.,177- 178., 166. New Zealand is marked by a considerable concentration of political authority in the hands of the cabinet. and this authority inc!udes determining the mles of the political process. Because political institutions in
New Zealand are based entirely on constitutional conventions and non-enuenched stritute law, the principle of parliarnentary suprernacy alIows governments in New Ealand to rnaks major changes to the political process using little more than standard legislative practice." Dorninated by the cabinet throügh strict party discipline, "Parliament. acting by a rnajority of one, has the capacity to change any of the niles of the New
Zealand con~titution."~~
Unlike nations such as Australia and Ireland, where major institutional: changes such as altering the electoral system. joining supra-national poiitical or economic organisations, or changing the budgetary process for public expenditures. require the use of special public referenda. no such referenda are required in New ~ealand.'~Nor does a govemment in New Zealand need to negotiate proposed changes to the political process with other orders of government, as in the case of the Canadian. Australian. and American federations. As Harris succii?ctlyexplains, the absence of a comprehensive written constitution, judicial review of legishion. federalism. and a second legislative chamber have al1 created a situation where governments in New Zealand are restrained only by the power of public opinion and electorai defeat when making changes to the nation's political process.u
Pierson's institutional flexibility hypothesis, however. runs into some difficulty when it cornes to finding specifïc examples of institutional reforms used to facilitate retrenchment. One finds just two attempts rit major reform of New Zealand's political institutions during the period of retrenchment: (1) an attempt to entrench a Bill of Rights into the nation's constitution, and (2) a movement to reform the electoral systern. In addition. rather than assisting the retrenchment process in New Lealand. both of these atternpts at institutional change actuaIly threatened to undermine some of the conditions for retrenchrnent.
"Harris, "The Constitutional Base," 56-60.
4' The Irish Constitution. for example. prohibits the entry of Ireland into any supra-national organisation which involves the loss of national sovereignty of any type. AS such special constitutional amendments rati fied by referenda were required for Ireland's entry into ECSC, EEC, and EU, as well as agreement to the Single European Act and the Maastricht Treaty. See Consriturion of Ireland, Article 29.
UHarris, "The Constitutional Base." 75. First of all. the attempt under the Fourth Labour Government to institute a Bill of Rights modelled on the Canadian Charter of Rights and Freedoms did not ocïginate with those members of the Labour government aggressively pushing retrenchrnent. Rather, the attempt to entrench a Bill of Rights into the constitution was due almost entirely to the personal effort of Sir Geoffrey Palmer. a respected constitutional lawyer who wîs both the Deputy Prime Minister and Minister of Justice in the Lange government-'5 While a good deaI of support existed among the rank and file of the Labour Party for Palmer's drive for a Bill of
Rights and to entrench the Treaty of Waitangi into the constitution, this support did not extend into the
Labour caucus. Palmer's initiatives were ultirnately "defeated by a hostile Opposition and sceptical colleagues who did not want the courts pronouncing judgement on ~arliament."~Palmer had to be content with the New Zealarid Bill of Rights Ac[, which fell well short of his original constirutional goals-47
That many of Palmer3 colleagues within the Labour government opposed his bid to inuoduce judicial review into New hlandshould not corne as a surprise. Palmer's proposed Bill of Rights had the potential of becoming a new institutional veto point that opponents of retrenchment could possibly use to slow down or hait retrenchment initiatives, creating problems for Sir Roger Douglas'"b1itzkrieg suategy."
As well, had the Bili of Rights included the Treaty of Waitangi as Palmer originally intended, the way might have been cleared for a series of court challenges to retrenchmect initiatives based on unsettled Maori
Treaty daims. A precedent of sorts was set for this in 1987 when the Maori Councii of New Zealand requestcd that the Court of Appeal interpret the legaiity of the Srare-Owied Enterprise Act with respect to
Maori land c~aims."~
As with the proposed Bill of Rights, there was also very little appetite among both Labour and
National MPs for the other major change to New Zealand's political institutions, that being reform of the electord system. It was only after much resistance by his cabinet colleagues that Palmer was able to launch
45 Elkind, "The Bill of Rights." 54-7 1. A personal intellectual account of PaImerS constitutional proposais can be found in Palmer. New Zealarid lr Constitution in Crisis.
46James. New Territory. 105.
47 Harris, "The Constitutional Base." 72-72; and Hodder, "Judges: Their Political Role." 419-420.
UHarris. "The Constitutional Base," 74. a Royal Commission to investigate the country*~electoral system and possible alternatives to it."9 Despite subrnissions from both the Labour and National parties that reflected their electoral self-interest in opposing electoraI reform, the Royal Commission on the Electoral System recomrnended in 1986 that changes be made "to introduce elemenrs of proportionality, and that [the] proposed changes should be submitted to the
New Zealand public for approval in a referend~m."~~
Specifically. the Commission's report recommended chat New Zealand adopt Gerrnany's Mixed
Member Proportional (MMP) electoral system. The initial response of Labour and National to this recornmendation indicated that the report would simply be ignored as with so rnany oiher Royal
Commissions. But in an odd twist of fate during the 1987 etection campaign, Prime Minister Lange misread his speech notes and found hirnself promising voters that if re-elected. Labour would hold a binding referendum on electoral reform." Out of this chance occurrence. a series of events vanspired which in due time led to the Electoral Referendurn of 1993 where New Zealanders ratified a proposal to drop the FPTP system in favour of MMP.''
If the introduction of judiciril review in New Zealand threatened to complicate the process of retrenchment by opening a new avenue for resistance. the movement to reform New Zealand's electoral system posed an equal danger. As the next chapter in this study will show, there is evidence that the success of New Zealand's politics of revenchmsnt dependd greatly on the dynamics of the country's first-past-the- post electoral systern. In fact, much of the support among the public for reforming the electoral system appears to have derived from disenchantment with the failure of political parties to outline during election campaigns the economic programmes they would pursue while in office. Labour's betrayal of its 1987 promise to not sel1 off state asscts and National's betrayal of its 1990 cornmitment to repeal the sunax on superannuation were no doubt fresh in the minds of voters when voting for MMP in 1993. The adoption of
41James, New Terrirory. 106.
''Levine and Roberts. "The New Zealand General Election of 1990."
"lbid.. and James, New Terrirory, 106.
''~evineand Roberts. "The New Zealand General Eiection and Electoral Referendum of 1993." 48-5 1. Aiso see Boston. et al., "Why Did New Zealand Adopt German-Style Proportional Representation?," 134- 40. MMP can in some ways be seen as a backiash to reuenchment, with public anger at having been misled in
1984. 1987. and 1990 king channelled into a push for new electoral ru~es.~~Unfortunately for opponents of retrenchrnent. by the cime electoral reform was achieved in New Zealand, nine years worth of reuenchment initiatives had already taken place.
Thus. although governments in New Zealand enjoyed a rernarkable flexibility in changing political institutions. one is hard pressed to find concrete examples of institutional changes designed to facilitate retrenchment. Instead, one finds changes which actually threatened to create new obstacles to retrenchment.
Yet. when one thinks about it, this finding is still consistent with the general observation in this chapter, that
New Zealand already possessed a systern with a remarkable concentration of political authority chat benefited the pursuit of retrenchment initiatives. It is diffîcult to image how changing the desof the political game. as they existed in the 1980s. would have delivered any advantage to advocates of retrenchment when they already held ail the cards.
Conclusion
In this chapter. we found Pierson's hypothesis on how the design of political institutions relates to the polirics of retrenchrnent to be out of step with the retrenchrnent experience in New Zealand. Pierson's assumption that the pursuit of blame avoidance by governments necessitates a strategy of concealment contradicts the blitzkneg strategy of retrenchrnent bat was successfully employed in New &aland in the
1980s and early 1990s.
But although Pierson's hypothesis was shown to contradict the New Zealand experience, this chapter has also shown chat Pierson's instinct chat poiitical institutions matter CO retrenchment is still a good one. New Zealand, with its systern of concentrated political authority, lacked the multiple institutional veto points which rnake obscuring the role of govenunent in the retrenchment process possible or necessary. In
New Zealand, there were vinually no countervailing institutions capable of halting blitzkrieg reuenchment initiatives in the midst of their imptementrition. Provided chat an initiative was launched without public warning and completed before the next general election. welfare state retrenchrnent could be pursued with
5 1Ibid.. 48-5 1. 63. Additional accounts of electoral reform in New Zealand can be found in Milner. Making Every Vore Counf, chapters 1 1- 13. an impunity that would be unavailable in a political system containing judicial review. a division of powers.
a bicameral Parliament, and so on.
Likewise, the role New Zealand's system of concenuated political authority played in the
implementation of retrenchment initiatives was also seen in Pierson's hypothesis on institutional flexibility.
Although New Zealand's political institutions are relatively malleable in comparison with most industridised
democracies. pro-reuenchment forces holding the comrnanding heights of the country's political system showed no interest in changing institutions that were serving them well. Equally, opponents of retrenchment had much difficulty in changing "the niles of the garne" to create new institutions that could block or delay retrenchment initiatives. Their only success, the move to the MMP electoral system, took six years to implemcnt and only occurred after a carnpaign speech gaffe by the Prime Minister.
Essentially, this chapter illustrates chat bringing retrenchment to the forefront of public policy requires that retrenchment advocates be well-placed to take advantage of the window of opponunity that econornic crisis presents. Once entrenched in key positions within cabinet and the New Zealand Trerisury bureaucracy. the architects of reuenchment initiatives could rely on the concentration of political power in
New Zealand to overcome detractors within the govemment caucus and outside of the party.
This. however. is stilI only part of the explanation, for while the design of political institutions explains how govemments in New Zealand could run roughshod over their party caucuses and the general public berween elections, it does not offer an explanation as to how governments retained the suppon of their party organisations and go on to achieve re-election after a highly visible programme of reuenchment.
How did advocates of retrenchment in New &aland overcorne these last two veto points? This is the question we now tum to in chapter four. Chapter Four
The Role of Electoral and Party Systems in Retrenchment
The ElectoraI Conditions Hypothesis
Up to this point, Pierson's theory of welfare state retrenchment has presented us with sorne insight
into how successful reuenchment initiatives are tlrst set into motion (Chapter Two) and then brought to a
successful conclusion (Chapter Three). Missing, however. is an explanation as to how an entire series of
individu31 reuenchment initiatives rnight be sustained over several eiectoral encounters with the public. It is
here chat Pierson's final proposition comes into play - the electoral conditions hypothesis.
Briefly stated, the electoral conditions hypothesis proposes that "radical reuenchment may be
facilitated when there is significant elecroral slack, that is, when govemments beiieve that they are in a
strong enough position to absorb the electoral consequences of unpopuiar decisions."' Such capacity for
govemments to absorb adverse consequences resulting from a programme of retrenchment depends to a
large extent on the structure of a nation's electoral system and the dynamics of political parties within a
given welfare state.
Pierson derives this proposition frorn his observation that the pursuit of welfare state reuenchment
in the 1980s and early 1990s was generally more successful in the LJK than in Sweden. Germany, and the
United States. Pierson posits that "one reason for Thatcher's relative (though still limited) success may have
been the division among her opponents within a first-put-the-post electoral system. This rnay have given
her more roorn to pursue unpopular policies that would have been beyond the reach of a government in a
precarious electoral position."2 Unlike Thatcher, govemments pursuing reuenchment in Germany and
Sweden were in the position of having to deal with a more unified opposition to retrenchment in the context of an electoral systern based on proportional ~e~resenution.~
'pierson. "The New Politics of the Welfare State." 176.
%th respect to Germany. Pierson points to the reduction of Helmut Kohl's coalition government io a bare majority after significant gains by the SPD in the October 1994 elections ris welI as the SPD's majority in the Bundesrat. For Sweden, Pierson points to the SAP'S very sizable election victory in October 1994. In both The underlying logic of the electoral conditions hypothesis rests on the assumption that electoral
systems employing proponional representation (PR) typically prevent a single poliücd party frorn achieving
majority control within a nation's legislature. PR systems are generally understood to encourage policy
consensus between political parties through the process of building sustainable coaIition governments or
forming consensus-based rninority governments. In Sweden and Germany. where proponents and opponents
of welfare state retrenchment were Iargely divided between established centre-right and centre-left parties
with small centrist parties holding the balance of power, attempts to retrench the welfare state required compromises that bndged the divergent preferences contained within a PR ~e~islature.~For this to not be the case. a clear majority of the electorate would first have to support the principle of welfare state retrenchrnent and then translate that majority support into a single-party government with an unequivocal mandate for reuenciiment. Pierson's argument is that this will always be an unlikely scenarîo, since rnajority suppon for retrenchment among the public tends to dissipate once the full impact of retrenchrnent begins to
In contrast. because the first-past-the-post (FPTP) electoral system tends to produce single-party rnajoritarian governrnents, the need for consensus among various political parties can be more easiiy dispensed with. According to Pierson, the Thatcher government, after surveying its opposition, found itself in a strong enough electoral position to weather the Storm thiit retrenchment would create. With Labour and the SDP-Liberal Alliance battling each other out for roughly the same block of votes, the Conservative Party couId realistically rely on the unified suppon of voters in approval of the govemment's programme of retrenchment. With opponents of retrenchment split among political parties, securing a plurality of the votes in a majority of constituencies was well within the Conse~ative'sreach, and this led Thatcher3 govemment cases, the suggestion is that the more radical retrenchment preferences of the government were watered down to accomodate the preferences of the social democratic opposition. Ibid.. 167, 170, 173.
'Pierson's examples for Germany are the CDU/CSU-SPD consensus over cutbacks to welfare and unemployment benefits in the 1980s and the Pension Reform Act of 1989. For Sweden, the example is the Conservative-SAP consensus over the Crisis Package of welfare state cutbacks in 1992. Ibid., 168. 172.
'lbid., 175. This particular aspect of Peirson's argument is supporteci by a number of empirical studies in the field of economics suggesting that coalition governrnents typically Iack the cohesion necessary for major, unpopular fiscal adjustment. Alesina and Perotti, "Fiscal Adjustments in OECD Countires: Compostion and Microeconomic Effects." 2 17. to feel more confident about attempting retrenchment. Pierson does note. however. that as soon as
widespread opposition to a specific revenchment initiative emerged to threaten the Conservatives'electoral
plurality. the govemment quickly moved to soften the ref~rms.~
If Pierson's electorat conditions hypothesis is correct. then one expects to find in New Zealand a
situation where opponents of retrenchment were fragmented among various political parties within a first-
past-the-post electoral systern. In this regard. evidence frorn New Zealand suggests thrit Pierson may have
hit the mark with his electoral conditions hypothesis. as a nurnber riccounts of New Zealand's experience
with retrenchment describe the electoral conditions cited above.
New Zealand's Electoral and Party Systetus - 1945 to 1980
Between 1945 and the late 1970s. the electoral dynarnic in New Zealand was one in which two
major political pûrties, Labour and National, dominated a first-put-the-post electoral system inherited from
Great Britain. While third parties certainly existed and occasionalty had moments of notable electoral
support. increases in the electoral support for third parties always came at the cost of both Labour and
National and thus posed little threat to the two-party dynamic. As Aimer points out, up to the 1990s. no
third pany in New Zealand ever possessed a decisive veto over the two major parties winning government.7
For instance. when the Social Credit Party in New Zealand had its brief moments of success in 1954, 1966.
and 1978, support for Labour and National each tirne remained virtually tied while each stood a good distance ahead of Social credite8 Aimer also points out that in the thirteen general elections between 1953 and 1993, "a total of 113 1 seats have been contested. Between them. [National and Labour] have won
1 114. letting only seven slip from their prasp."9
New Zealand's two-party system between 1919 and the 1970s aiso exhibited Downsian characteristics in the convergence of policy positions of National and Labour. After constructing what
. -- "Pierson, "The New Politics of the WeIfare State." 177. Examples cited by Pierson are the abolition of the SERPS pension programme, National Health Service reforms, and changes to the universal Child Benefit. Ibid.. 163- 163.
'Aimer. "The Changing Party Systern," 326-328.
'Harris. "The Electoral System," 6.
'Aimer. "The Changing Party System." 328. would becorne the basic framework of New kland's postwar welfare state, Labour after 1949 shified ground to the political centre, advocating a policy of "pragmatic intervention in the econorny to conserve md nd~lii~lisrerthe welfare state stem.*"^ While some expansion of the welfare state occurred under the
Second ( 1957-60)and Third (1972-74) Labour governments, New Zealand's welfare state only reached its pinnacle after major irnprovernents were made to it by the Muldoon National government of the rnid-
1970s.l'
The National Party, whose original purpose was to uniie New Zealand's Liberal and Reforrn parties into a single free enterprise party able to defeat Labour under the FPTP e~ectorrtlsystern. also gradually shifted its policy outlook. Over tirne. National rnoved from ouvight opposition to the cornerstone of New
Zealand's welfare state, the Social Secrrriry Acr of 1938. to general acceptance of the welfare state as designed by the First Labour ~overilrnent." Still rejecting any major expansion of the welfare state up to the 1970s. National again shifted policy under the leadership of Sir Robert Muldoon. Under Muldoon.
National proceeded to re-design the state pension system into a new National Superannuation Plan "similar to chat which hrid been the drearn of Labour3 pionerr ~eaders."'~Notinp National's expansion of social prograrns in the 1970s and energetic use of state intervention in the economy in the early 1980s. Robert
Muldoon has even been described in a moment of irony as New Zealand's "Last Social ~emocrat.""
During this period of policy convergence, both National and ~abourafso shared a strong cornmitment to social conservatism - a fact that would have important repercussions for future retrenchment of the welfare state. While conservatisrn on matters relating to family. women, Empire, indigenous peoples, race relations, etc., went to the heart of the National Party from irs inception, ministers in the First Labour
Governrnent who enforced wrirtime policies of conscription. internrnent, and strict censorship also set a
'OGustafson,"The Labour Party," 265.
"TWO exceptions to this were the introduction under the Kirk government of the Accident Compensation Act in 1972 and the Dornestic Purposes Benefit in 1973. See Kunowski. The First Hwtdred Years, 60.66; Gustafson, "The Labour Party," 265-267; and Jesson. Frugmenrs of labour, 23.
"G.A. Wood. "The National Party," 291-293, 301-303; Kunowski, The Firsr Hundred Yeurs. 59-60.
''~ustafson,"The Labour Party." 266.
14Davidson, Two Models of Welfare. 309-3 12. precedent for social conservatism that would follow well into the postwar period.'s Indeed, many of New
Zealand's leaders "responsible for authoritmian policies in civil libercies, foreign policy, racial and some
social policy were [at the same the] defenders of the welfare state and full emp!oyment."i6 Essentially.
New Zealand's postwar two-party system rested on the confluence of welfare state management and the
maintenance of social conforrnity within a self-avowed colonial society.
What is clear so fiir is that New Zealand as a case study meets the first criterion of the electoral
conditions hypothesis: a first-pst-the-post electoral system producing majoritruian govemments and a
small nurnkr of political parties. Let us now turn to the second criteria of Pierson's proposition. the
fragmentation of the opponents of welfare state retrenchment among political parties.
Fractionalisation within New Zealand's Party System
Evidence of the fragmentation of opponenis to welfare state retrenchment in New Zealand can best
be found in the works of Bruce Jesson and Colin James. Although they corne from opposite sides of the retrenchmcnt debate, both observers provide similar analyses of how the emergence of new
IiberaiAibenarian social attitudes in the 1960s and 1970s broke apm the postwar consensus of social conservatism and welfarism, internally fractured the Labour and National parties, fragrnented supporters of the welfare state. and thereby paved the way to retrenchment in the 1980s."
Essentially, what Jesson and James observe in New &aland is a situation similar to that observed by Herbert Kitschelt in a number of European countries. that king the emergence of a new
"cornmunitarian" dimension to politics that crosses the uaditional left-right or "distributive" politicai dimension of advanced ~a~italisrn.'~In KitscheltS analysis. the success of the Keynesian welfare state in
"~ustafson,"The Labour Party," 265. Also see Jesson. "The Libertarian Right," 32.
ILJesson. Fragrrtents of labour. 2 1.
1- 'James. New Terrirory;lesson, Fragrrrertfs of labour, and Jesson. "The Libertarian Right." AIthough this chapter draws heavily on these works, they are not the only possible sources. Debnam in "Conflict and Reform in the New Zealand Labour Party," mises in passing (pp. 44-45) a similar explanation for retrenchment in the form of the "embourgeoisement" thesis of social democratic party transformation. Aimer, while not moking the exact same case as Jesson or James. suggests evidence that "New Right" protest politics in the 1980s has a generation-specific element to it; see Aimer, "The Rise of Neo-Liberalism and Right Wing Protest Parties in Scandinavia and New Zealand." 11-12.
"~itschelt,Tire Transfonriation of European Social Democracy, Chapters 1 and 7. 54 providing minimum standards of economic security. coupled with growth in service employment and altered
modes of work organisation. have transformeci citizens' preferences and political demands into ones chat
place "more emphasis on individual self-realization and direct political participation than on questions of
econornic incorne distribution and sec~rit~."'~While this does not mean an automatic reduction in popular
support for the welfare scats, it does mean a reduction in the salience of economic distribution as a politicai
issue relative to other issues. In short. Kitschelt observes a "recentering of the political space from purely
distributive conflictsWxbetween social democntic and free enterprise phes into a more complex political
landscape of left-libertarian. right-libertarian. left-authoritarian, and right-authoritarian political preferences.
Both Jesson and James frequently employ these same caregories in their respective analyses.
In the context of New ZeaIand, altered social attitudes on matters of family, race, foreign, and defence policy during New Zedand's "Vietnam generation"" produced a new libertarian-authoritarian axis to political discourse in New Zealand. While Jesson acknowledges that the immediate political impact of this change would prove to be marginal as the protest politics of the 1960s dissipated under a more socially progressive Third Labour Govemment. both Jesson and James suggest that this new generation of social activism ensured that politicat debate no longer focused exclusively on the issue of fine-tuning the welfare state." Instead. politics becarne a battleground for challenging socially conservative ides latent within
New Zealand society and for challenging a state viewed as complicit in sustaining social conservatism through public policy.
Within the Labour Party, new debates emerged over issues of peace. feminism, and relations between New Zealand's indigenous and non-indigenous peoples. Spurred on by the Third Labour
Govemment's decision to withdraw troops from Vietnam and end compulsory military training in the early
1970s. rnany peace activists pushed strenuously for further policy reversais in defence and foreign policy.
"~ewZealandS role in the Vietnam conflict as part of the ANZUS defence alliance was the most prevalent issue of the time and is often usdto characterise that generation of political activists in New Zealand. James, New Territory, 36-46.
* --fbid. and Jesson, Fragments of labour. 30. Increasingly powerful voices couid be found within Labour demanding chat the party abandon its long- standing cornmitment to the ANZUS rnilitriry alliance and ban nuclear warships (pmicularly those of the
US) frorn New Zealand's hrirhurs - a policy that would prove to be highly popular with most New
~ealatidrrs.~
Alongside these voices were others calling for a review of New Zealand's relations with South
Africa, especially after the infarnous Springbok Rios of 198 1 over rugby matches between New Zealand and South Africa. The Riots in particular would become a key element in undemining public confidence in the Muldoon govemment and providing the Labour Party with a new cachet among New Zealanders of the
Vietnam generdtion.'J
Moreover, after conducting a protracted battle over issues such as abortion at numerous party conferences, the women's caucus of the Labour Party. succeeded in moving ferninist issues from the mugins into the mainstream. thereby estabiishing itself as "a cohesive network within the pmy organisati~n"~ capable of playing a major rote in the intemal politics of the iabour Party. As well, despite traditionally strong support for the Labour Party among Maoris. Labour's traditiona1 policy regarding New Zealand's indigenous people came under fire from a new Maon radicalism within the party. The extent of this radicrilism became evident in 1979 when prominent Maori politician Matiu Rata chose to break frorn the
Labour Party to create a new Maori party, Mana Motuhake. to champion Maori cultural identity and fight for "a bicultural social orderWT6in New Zealand.
The increased salience of these new policy issues within the Labour Party in the 1970s also helps account for the observation rnentioned in previous chapters of "widespread ignorance of econornics"" within the Labour Party in the 1980s. With party members pre-occupied with debates over foreign and
3James. New Territoty. 4 1.44-46. 1 12- 1 14. Jesson. Fragments oJla6oicr. 29-30.
24 James, Nerv Terriroty. 40- Jesson. Fragrrienrs of labour, 29.45.7 1.
3Jesson, Fragrrtents of labour. 33. ro James, Nerv Territory. 38. Jesson. Fragnienrs of labour. 3 1.46-47.
3~esson.Fragrnenrs of Labour, 75. See also pages 55-62. defence policy, wornen's rights, race relations, etc., detailed economic policy discussion within the party wu often Ieft to a handful of party activists who were divided into two policy factions.
On the one side, a srnall group of senior party figures led by Roger Douglas won control of the
Economic Cornmittee of Labour's parliamentary caucus and through this comrnittee put forward an
"Economic Policy Package" of market liberalising reforms to serve as the brisis for econornic policy under a
Labour governmeni." Though Be neo-liberal provisions contained within this Package were more modest than the reforms later pursued by Labour while in governrnent. these econornic prescriptions were enough to create tierce opposition wichin the Party from a group of senior party figures who were members of the party's Policy Council. Led by party president Jim Andenon and economist Peter Harris, this faction hastily designed a corporatist economic alternative to counter the proposals of the Caucus' Economic ~ommittee.'~
Attempts at producing a compromise policy proved to be so unsuccessful that Labour3 deputy leader,
Geoffrey Palmer, was forced to draft an interim policy staternent vague enough to satisfy both camps for the purpose of fighting the 1984 general election. Eventually, the gulf between these two camps becme so wide that the party was unable to field a clear economic policy in the 1984 e~ection.'~
Thus. Jesson observes that by 1981 the Labour Party had fractured into four distinct political groups. The first group. led by Roger Douglas. consisted of a small coterie of MPs and party officials exhibiting Libertarian-Right tendencies with respect to public policy. In opposition to this group was
Labour's "Traditional Left" composed of pany members led by Jim Andenon who tended to view themselves more as democratic socialists than social democrats. Third. a large group of "Libertarian-
Centre" members existed which consisted of social liberals "relatively indifferent to issues of social class
!and] the capitalist ec~nom~."~'but who were intensely focused on matters of peace activism. feminism. etc.
Finally. a small number of "Technocrats" existed who were more interested in producing an efficient public
Yhe authors of the Economic Policy Package were Roger Douglas and two economists seconded from the New Zealand Treasury, Doug Andrew and Geoff Swier. Ibid., 60. Afso see James. New Terrirory, 14648; and Oliver, "The Labour Caucus and Econornic Policy Formation," 43-50.
3 Jesson, Fragrnetirs of labour, 6 1; lames, New Terrirory, 146-48. la Jesson. Fragmetirs of labour, 61; Oliver, "The Labour Caucus and Economic Policy Formation," 43-50. administration rather than advancing a specific ideological view. Labour was transformeci frorn a social-
democratic party unified by the drive to advance the welfare state into a fractionalised coalition of political
causes whose unifying factor was restrictsd to the rnutual dislike of the National n art^.^'
At the sarne time, Labour's opponent was also subjected to interna1 fractionalisation. In the case of
the National Party, the 1970s saw the ernergence of two major factions within National. The largest
faction, led by Sir Robert Muldoon. held steadfastly to a policy of blending social conservatism with
economic welfarisrn to produce a populist cenue-right government. In Kitschelt's terminology, this faction can be described as having policy preferences that constituted the "authontxian-centre." Muldoon, remarking that his highest ambition was that he would like to teavc office knowing that he left the economy
"in no worse shape than he had inherited showed liitle reticencz in employing large-scale Keynesian intervention in the econorny. Apart from expanding the state pension system. the Muldoon government also engaged in economic interventionisrn in the form of massive public investments in "Think Big" energy projects and systematic wage and price controls using the broad powers contained in the Ecorioniic
SrabifisarionAcr of 1948.~Al1 the while. Muldoon's government did show great reticence in responding to new "libertarian" policy attitudes in the areas of race relations, abortion. defence policy, etc. MuIdoonS failure to rnove with changing attitudes on peace and the environment, his blockage of policy reforms riffecting women and Maori, and his "coIonial instincts in foreign poli~y"3Sa11 indicate that National under
Muldoon was a conservative pmy in the uuest sense of the word: the government's goal was to sustain the post-war status quo of social conservatism and econornic welfarisrn.
Increasingly. however, the Muldoon government faced opposition from within the National Party in the form of a growing "libertarian-right" policy faction that challenged not only Muldoon's economic interventionism but also the government's relucunce to adapt to changing social attitudes. Feminist thought. for instance. began to make serious inroads into the National Party in the 1970s. During this period, Jesson
"lbid., 76-77.
"As cited in Massey, New Zealand, 5 1.
Y Roberts, "Nats, Fat Cats, and Democrats," 38-39.
15James. New Territos). 94. notes that New Zealandk best-known feminist was National Party MP blarilyn Waring and that the
WomenS Electoral Lobby in New Zealand "was dominated by National Party women such as Sue Wood.
Morcover. not only were these women in the National Party; some of them -- Sue Wood. Ruth Richardson - belonged to the free market ~i~ht"~~and hence possessed preferences for social and economic liberzilism directly opposite to the policy direction of the Muldoon government.
As the Muldoon govemment moved leftwards in terms of economic intervention. these Libertarian-
Right ideas increasingly became prcvalent within National. A group entitled "Libertas" ernerged to keep
National frorn drifting to the econornic lefi." Within the pany's caucus, MP Simon Upton became a persistent intellectual voice for the free market, frequently challenging Muldoon's economic policies by presenting to caucus ideas distillcd from ~a~ek.~'Eventually. this division within the party reached the cabinet level with the expulsion from cabinet in 1982 of Derek Quigley. the Minister of Works and
Development. after his public criticism of the govemment's "Think Big" energy projects. Aussie Mzilcolrn. the Minister of HeaIth rit the time, summed up the Muldoon faction's perspective by declaring Quigley's
"right-wing. free-market politics" as ideas of those "born to privilege" who seek to impede the "human pol itics" of economic management in New ~ealand.~~
The decisive fraciure, however, carne in August 1983 when a numkr of National Party supporters, led by wealthy property magnate and Libertas co-founder Bob Jones. deserted National to establish the New
Zealand Party. a neo-liberal protest pany whose mission wzs to attract voters disgnintled with Muldoon's economic interventionism. Eob Jones' pmy was alone in putting forward a platform openly advocating the roll-back of economic and social activities of the ta te.^ A party of individualism, the New Zealrind Party combined neo-liberal retrenchment policies with socially liberal beliefs such as the inherent right to use marijuana. The New Zealand Party further broke with National in foreign policy advocating "a policy of
Y, Jesson. Fragtrterzrs of labour. 33.
"~poonle~,"Being British," 93.
38James, New Territory. 89; Jesson. "The Libertarian Right," 52.
"%oberts, "Nats. Fat Cats, and Democrars," 39.
Y) Ibid., 46-47; and Aimer, "The Rise of Neo-Liberalism and Right Wing Protest Parties," 3.7. 8. self-interested non-alignment and would have opted for disarmament if Jones had his way."" The fact that
the New Zealand Party was able to siphon off enough voters from National to bring down the Muldoon
government in the 1984 ekction is indicative of the degree to which fragmentation had occ~rred.~'
Thus. the New Zealand experience provides support for Pierson's hypothesis that retrenchment is
facilitatrd by partisan fragmentation of the opponents of retrenchment. Hardline defenders of the postwâr
welfare state in New Zealand were divided across the Labour and National parties in the forrn of the
Anderton and Muldoon factions respectively. The New Zealand case, however, also presents a cornplication for Pierson's hypothesis in that not only were opponents of retrenchrnent fragmented within
New Zeriland's FPTP system. but so too were advocates of retrenchment. Advocates for retrenchrnent in
New Z-aland could be found not only under the Labour and National banners, but aiso in Bob Jones'New
ZeaIand Party. Al1 things being equal. one would expect that the fragmentation of retrenchment supporters would have offset any advantage they rnay have derived from a fragmented opposition. Yet, the ridvantage did go to pro-reuenchrnent forces in New Zealand. Why?
Party Re-alignrnent in the 1980s
The primary reason for the advantage going to pro-retrenchment forces in New Zealand was the failure of those opposed to retrenchrnent to minimise divisions and enhance their electoral voice by shifting their support among politicai parties. In contrast. advocates and beneficiaries of retrenchrnent in New
Zealand displayed Iittle hesitation in re-aligning themselves among political parties as required.
Governments in New Zealand could rely on the mobility of voters to build new bases of electoral support encompassing neo-liberal economic policies. As one student of welfare state reuenchment has cleverly expressed ir. the politics of retrenchment in New Zealand had more to do with govemments "marketing for votes" than with New Zealanders "voting for market^."'^
- --- "Jesson. "The Libertarian Right." 38-39.
"~oberts."Nm, Fat Cars, and Democrats," 46-47; and Aimer, "The Rise of Neo-Liberalisrn and Right Wing Protest Parties," 4.
'fEllis,"~otin~for Markets or Marketing for Votes?". A central element in Labour's retrenchment politics was the use of the "Mexican-style trtctic of
combining a right-wing economic policy with a left-wing foreign po~ic~."~In a dramatic policy reversal
that would bring an end to the postwar ANZUS military alliance. the Fourth Labour Government
implemented alongside ifs programme of retrenchment a widely popular nuclear-free foreign policy banning
nuclear warships from New Zealand's ports. Labour also sought to establish through the LTN an
international ban on nuclem testing in the South Pacific. On another front, in step with the Springbok Riots
of 198 1. Labour broke New ïealand's dipIornatic ties with South Africa in protest of apartheid. Together,
these foreign policies had the effect of offsetting much of the failout that the govemment's retrenchrnent
programme had created within the Labour ~arty."
Furthermore. Labour in its first term also introduced a sweeping series of social reforms that
appealed directly to the new liberal attitudes described above. Highly popular with the party's rank and file
were Labour's decriminalisation of hornosexuality, relaxed laws on censorship and indecency. removal of restrictions on alcohol sales and gambling. and partial decriminalisation of the use of marijuana.& A new
Minisuy of WomenS Affairs was created and the appointment of women to positions of power was increa~ed.~'Mmt dramatic was the restoration under Labour of the Treaty of Waitangi to constitutional pre- erninence and the extension of the Waitangi Tribunal's jurisdiction back to the year 1840. AImost overnight.
Labour had replaced an over one hundred year oId policy of Maori assimilationism with a policy recognising partnership between New ZeaIand's indigenous people and the ~rown."~
The Fourth Labour Government's pursuit of progressive reforms in social and foreign policy in conjunction wirh its policy of retrenchment had the effect of forging a unique coalition of electoral support for Labour. As Jesson describes:
The libertarians of the Right were ailowed a free hand in econornic policy with the liberals of the Left king influentlal in social and foreign policy. A division of labour operated,
U/bid.,10.
4 5 Jesson, Fragnre~rrsof hbortr. 7 1. Also see Roderic Alley, "ANZUS and the Nuclear Issue," 198-2 13. d6James, New Terrirory, 133.
"lbid., 132; and Jesson, Fragments of labour, 7 1. a James, New Territos). 124- 132. with each side doing its own thing, and for a year or two at least there was no direct conflict.... the Labour Party's socially concerned rnernbership tolerated the free market reforms for the sake of the social and foreign policy, md ignored social consequences whose first effect was on the working cla~s.'~
And while social and foreign poiicy reforms rnollified traditional Labour supporters angry over the government's programme of retrenchment. LabourS econornic policy initiatives paid dividends with respect to attracting neo-liberal electoral support. In 1985, Bob Jones announced that since the Labour government was pursuing 3 programme of market deregulation which was essentially the sarne as that advocated by his own party. the New Zealand Party woutd go into recess. Jones then strongly urged his supporters to switch ta Labour in the 1987 general e~ection.~
At the same time. bitter internal confiict had broken out within the National Party between "Rob's
Mob," the socially conservative and economic weIfarist faction of the Party, and the pro-retrenchment
"enterprise" faction composed of MPs Ruth Richardson, Simon Upton, Derek Quigley. and the new party leader. Jim McL~~.''The stniggle between these camps created a impasse sirniirir to the one Labour had faced prior to the 1984 election. With the party king pulied in different directions, National in 1986 chose to dump McLay as party leader in favour of Jim Bolger, who was seen to occupy the middle-ground of the party. Despite the change in leaders, the internal warfare of the National Party continued and the pmy went into the 1987 general election divided on policy. In chat election, National sent out contradictory policy signals. and the public was unable to interpret where exactly National sto~d.'~
Thus. the publicS first opponunity to register a verdict on retrenchment in New Zeatand produced an elecroral endorsernent of the Labour government without a popular end~rsementof retrenchrnent.
Academic studies of flow-of-the-vote matrices for this period indicate that Labour won re-election not on majority public support for retrenching the welfare state, but rather due to the way voters divided their
4Q Jesson. Fragtrretirs of labour. 72.
Y) Aimer. "The Rise of Neo-LiberaIism and Right Wing Protest Parties," 5; Roberts. "Nats, Fat Cats, and Democrats." 46; Johnston. "Voting Shifts in New Zealand between 1984 and 1987," 1; and Walker, "The Politics of Rogernomics." 210-21 1.
"~oberts,"Nats, Fat Cats, and Dernocrats." 40-46; James, New Terrirory, 240-24 1,260-26 1.
"~c~obie."What Happened in 1987," 9.
Labour government nonetheless proceeded to irnplement a number of Douglas' proposais even without his
presence in cabinet?' These actions had the effect of further fracturing opponents of retrenchment in New
Zealand. On the one hand, Douglas' removal from cabinet lent encouragement to many disgruntled party
activists that Labour could, in time, be guided back to its ideological roots. On the other hand. the decision
by the government to proceed with an extensive programme of state asset sales in spite of its promise in the
1987 eiection campaign to not do so led first to the resignation of David Lange as Prime Minister and then
to the defection of Jirn Andenon and other senior party officiais in 1989 to establish a new political party.
NewLabour. cornrnitted ro traditional Labour policies of econornic inter~entionism.'~
Moreover, the removal of Douglas from cabinet in 1988 had a large impact on reuenchment
supporters backing the Labour Party. Because Labour's economic programme between 1984 and 1987 had
been vinually synonymous with the personality of Roger Douglas as Finance Minister, the ejection of
Douglas from cabinet naturally shook the confidence of those supponing Labour's reuenchment
programme.60 This led rnany supporters of reuenchrnent to cast their eyes in search of a more reliable
political vehicie for retrenchment than the Lribour Pany without Roger Douglas. A rejuvenated National
Party offered such a home.
Sy 1989, the internecine warfare thu had plagued National was drawing to a close. Labour's victory in 1987 provided the "more market" faction within National with powerful ammunition against the
Muldoon traditionaiists. Neo-liberals within and outside of the National Party painted "Rob's Mob" as being out of touch with New Zealand voters, citing the electoral success Labour had with its econornic programme. Over the next three years, pro-retrenchment forces within National gradually gained ascendancy within the party hierar~h~.~'The party's president was rernoved in favour of a candidate more sympathetic to retrenchment and key spokespersons for retrenchment within the National caucus secured su Easton, "The Unmaking of Roger Douglas?," 17 1- 185.
Y4 Jesson. Fragmerirs of Labortr, 136, i4O-l41.152. 154-55; Easton. "The Commercialisation of the New Zealand Economy." 123; and James. "After the Divide." 9 1.
"DNot to mention the markets - the NZ Dollar dropped precipitously until the announcement by the new Finance Minister, David Caygill, that Rogernomics wouid continue in a rnodified form. Walker, "The Politics of Rogernomics," 230.
6 1James. New Terrirory, 26 i. 64 appointments to National's front-bench. The most important of these appointments was the selection of the neo-liberal Ruth Richardson as National's shadow finance minister. As personal loyalties to Muldoon began to wane within the party, traditionalists slowly galvanised around the flamboyant and outspoken National
MP Winston Peters instead of Muldoon. Unfortunately for anti-retrenchment forces within National, Peters was demoted from number eight in the party rankings to number thineen, losing his shadow employrnent portfoIio in the process.6'
Despite their increasingly marginalised voices, opponents of retrenchrnent witiiin National were still able to secure some concessions from the "mort: market" faction in party policy. In "a masterpiece of veiled intentions and d~alit~."~~National's leadership pledged in 1989 to continue with retrenchment but to also repeal some of Labour's more unpopular policies, in particular. the income-based clawback of superannuation payrnents and the rneans test for tuition subsidie~.~
National had therefore placed itsrlf in the 1990 election as king opposed to key elements of
Labour's retrenchment programme while at the same tirne indicating that it would continue with other aspects of the retrenchment programme designed to modernise the New Zealand economy. The intention in
National circles appears to have been to crerite an electoral base of support similar to the one that Labour benefited from in 1987. In hindsight, this turned out to be the correct move. National's 1990 policy platform. in conjunction with the fragmentation of Labour supporters into two parties, led to electoral circumstances favourable to undertaking retrenchment initiatives. As Vowles describes,
Between 1987 and 1990 voters. as they always do, tramped across the electorat landscape in al1 directions. But the trails were more crowded than usual. especially those leading away frorn Labour; a large group of these Labour refugees pitched camp on National's patch. but twice as rnany again trekked on to other places - to NewLabour, the Greens, and other more minor parties - or simply folded their tents for this election and cast no vote at a11.~'
"'.James. "After the Divide." 6 1-69-73.
63 James, New Terrirorv. 262.
"1bid.
65 Vowles, Vorers ' Vengeance. 12. National was the beneficiary in 1990 of further fragmentation among retrenchmentk opponents. Not only was National able to secure pro-reuenchment voters, but also attract the support of many critics of Lsibour's retrenchment programme through vague and often confusing pre-election statements. An example of this wris MP Gilbert Myles. who after a life of voting Labour successfully ran for the National Pany in 1990 in order to bring Labour's retrenchment programme to an end.66
Suweying the electoral scene thac the 1990 peneral election produced, the Boiger govemment found itself in a situation similm to that of the Thatcher government in the mid-1980s. The Left in New
Zealand had fragmented into two competing parties and faced a challenge from a resurgent minority Green
~arty.~'Pro-revenchment forces couId therefore feel reasonably confident that major retrenchment of the welfare state could still be pursued without risking defeat in the next election. There was every reason to believe chat pursuing a neo-liberal economic programme after 1990 would reinforce support for the government among swing voters while opponents of retrenchrnent would split themselves between Labour.
NewLabour. and the Green Party.
As it turned out, things went less smoothly than anticipateci. National's programme of deep cuts to social wansfers, re-organisation of the health service, and failure to honour its election promise to repeal the superannuation surcharge and tuition means test led to a series of high-profile defections from the
Fortunately for the govemment, however, these defections did not assist Labour. NewLabour. or the Greens.
Instead. anti-reuenchment defectors from the National Party chose to form new political parties rather than become associated with the "socialist" opposition. Winston Peters. the National Party's leading Muldoonite, was unceremoniously expel!ed from the party after expressing disgust with the government's policy reversals and proceeded to form the New Zealand First Party. Hamish MacIntyre, the son of Muldoon's Deputy
Prime Minister, left National dong with the aforementioned Gilbert Myies to form the Liberal art^.^^ The successful re-election of the National government in the 1993 general election in the face of major public
Ca Ibid., 93.94;and James. New Territos). 256.
"'~evineand Roberts, "The New Zealand General Election of 1990," 13.
IL¶ Levine and Robens. "The New Zealand General Election and Electoral Referendum of 1993," 42. b9 Ibid., 4 1-48; and James, New Terrirory, 256.
Further, even if the presence of an economic crisis had done its job in minimising econornic policy
al ternatives among estrtblished political parties, a PR-based electord systern would also have encowaged
the creation of new political parties. In other words, even if Labour and National had corne to a pro- reuenchment consensus. there would have ken the option under PR of imediately Iaunching a dedicated anti-reuenchrnent Party. It seems reasonrible to suggest chat under PR NewLabour would have been fomed much earlier than it actually did in the 1980s.'~
'"This is a significant point given the renewed interest in electoral refonn in Canada. For funher comrnentary on the potential effects of introducing PR and MMP into Canada, see Milner et al. in Milner, Making Every Vote Counr. Chapter Five
Towards a Theory of Welfare State Retrenchment
Rewsting the "New Politics of the Welfare State": The Conditions for Substantive Retrenchment
As outlined in chapter one. this study set out with two tasks in mind. At a theoreticai level, this
study sought to use New Zealand's experience with welfare state retrenchment to evaluate Paul Pierson's
prototype for a general theory of retrenchrnent. In tescing the applicability of Pierson's "New Politics of the
Welfare State" to the New Zealand case, it was hoped that this study would add to the existing literature on
welfare states in crisis by shedding light on why New Zealand's experience with reuenchment has been so
drarnatic.
At the hart of Pierson's theory is the argument that the contemporary politics of the welfare state is
the politics of blame avoidance. Due to the electoral imperatives inherent in advanced capitalist
democracies. it was theorised that governments wifl onIy undertake progrartunes of retrenchrnent when they
discover ways to negate the political costs involved in making cutbacks to welfare state program. Frorn
this prernise of blame avoidance. Pierson has hypothesised four possible conditions under which substantive
retrenchrnent of the welfare state might occur.
The first of these conditions is the presence of a budgetary crisis that advocates of retrenchment
can exploit to re-frame retrenchrnent as an effort to Save the welfare state. not desuoy it. In doing so.
Pierson posits that politicians can avoid or minimise blame for cutbacks by making the TiNA argument to
the electorate that there is no alternative - to not reuench threatens the entire well-king of the welfare state.
While Pierson has chosen to focus on the occurrence of fiscal shocks to the soundness of the
welfare state, this study found that New Zealand's whdow of opportunity for retrenchment came not in the
form of a budgetary shock but in a currency crisis rooted in speculation over the devaluation of the New
Zealand dollar. More irnponantly, it was also found that because economic crises place political leaders in a situation where bey are forccd to make rapid policy decisions without sufficient time to think through their consequences. economic crises set the stage for political leaders to tum to new types of economic advice frorn both old and new sources - advice which may conwin neo-liberal econornic ideas hostile to the welfare state. as was the case with the New Zealand Treasury. It is in this way that even centre-left leaders can 69 become susceptible to policy "solutions" that would othenvise have been rejected as anathetna to the welfare strite andfor the social dernocratic project.
If handled correctly. advocates of retrenchment who are well-placed in the policy-making process may be able to create a "crisis consensus" arnong the leaderships of major political parties over the fiscal necessity for retrenchment of the welfare state. In the presence of such a consensus view arnong politicai parties, voters unwilling to buy into the consensus that retrenchrnent is a necessary evil are forced into either
( 1 ) choosing the least offensive party among the parties advocating retrenchrnent. (2) refusing to participate iri the electorai process, or (3) waiting for the establishment of a new political party that refuses to sing from the pro-retrenchment hymn book. Until such time that an established party breaks the retrenchment consensus or a new anti-retrenchment political vehicle emerges. there really is no alternative Sut for voters to reconcile themselves to new econornic "realities." The New Zealand experience teaches us that the role economic crises play in the process of retrenchment is not so much the creation of political cover for politicians to avoid blame by the electorate. but instead to truncate the political and electorai aiternatives to rcvenchment among voters.
The importance to retrenchment of tmncating the politicai and electoral options was also found in testing Pierson's hypotheses on the role the design and flexibility of political institutions play in retrenchment. Again theorising that blame avoidance is the most critical component of any successful case of radical retrenchment. Pierson argues thrit succl=ssful retrenchment requires a yuliii~alsuategy that uses the surrounding political institutional environment to minimise governmental visibility in the retrenchment process. In systerns of fragmented political authority, government strategy should focus on using the multiplicity of institutional mors to hide responsibility for negative consequence of retrenchment 0.i the electorate. In systerns of concenvated political authority. where political buck-passing is much more difficult, Pierson argues that a strategy of retrenchrnent musc aIso minimise governmental visibility. though
Pierson does not elaborate as to what such a strategy rnight look like.
Contrary to Pierson's expectrttions. we found that the retrenchment strategies of governrnents in
New Zealand in no way sought ro minimise the visibitity of revenchrnent initiatives or their consequences.
Instead. retrenchrnent programmes in New Zealand were highly visible affairs with the govemrnent of the day taking full responsibility for their implementation. Retrenchment itdvocates in New Zealand saw this 70 bliukreig strategy of openness and visibility as an assec in demonstnting to the public chat reuenchment initiatives were done deais. Opponents of particulrir retrenchment initiatives would rapidiy becorne demoralised and voters, sensing chat policy decisions were basically out of their hands, again reconciled thernselves to "new economic realities."
To work. this strategy requires the closure of institutional veto points char opponents of retrenchment can accsss to slowdown retrenchment initiatives in between seneral elections. In the case of
New Zedand, the powerful concentration of political authority in the hands of a few government leaders provided ideal institutional conditions for reuenchment blitzkriegs. New ZealandS unicameral unitary state, parliamentary legal supremacy, and sirict system of party discipline ensured that pro-retrenchment forces - once in control of the mrichinery of government - could swiftly implemeni retrenchment initiatives with no immediate political fallout.
Political fallout from retrenchment initiatives has to be managed. however, over the electoral cycle as governments approach the ultimate policy veto point: the general election. It is here that Pierson's last hypothesis on the role electoral and party systems play in reuenchment hits the mark. As we saw in the New
Zealand case. because first-past-thr-pst electoral systems aggregate voter preferences not in terms majority preierences but in temof plurality of votes in geographically constituencies, governments in nations possessing a FPTP electoral system need not worry about being blarned by the majority of voters for policy decisions. What counts is avoiding blame for retrenchrnent by a plicraliry of the electorate in a tmjoriry of carzstir~rericies.When opponents of retrenchment are fragmented among political parties, opponunities exist under FPTP for governrnents to re-design their eIectora1 support coalitions to include supporters of neo- tiberal economic policy and thereby avoid electoral fallout from its reuenchment initiatives. New Zealand presents a clrissic example of this, with governments rnaking and re-making winning support coalitions within the electorate despite the absence of widespread enthusiasm for retrenchment.
In sum, this study has found ihat the specific hypotheses presented in Pierson's theory of the New
Politics of the Welfare State are of limited explanatory power with respect to New Zealand's dramatic experience with retrenchment. Indeed. the evidence gleaned in analysing the New Zealand experience demonstrates, 1 believe, the need to make some adjustment to the basic premise of Pierson's theory. namely that the politics of welfare state retrenchrnent is everywhere the politics of blame avoidance. Surveying the
7 1 New Zealand experience. 1 suggest that the politics of radical retrenchment is in fact the polirics of avoiding
This is not just a question of semantics. As recounted here, the experience of reuenchment in New
Zealand has been one of govemments misleading voters in election campaigns. closing off democratic institutional veto points, avoiding meaningful policy input by the general public, pursuing sweeping poticy blitzkriegs between general elections. and using tnincated political choices during such elections to engineer electoral victories out of a pluraiity of voters. In practice, New Zealand's retrenchment exceptionalism resides not so much in the exceptional ability of government to shrewdty devise strategies of retrenchment that minimise being blamed by the electorate for consequences of its initiatives, but rather. New Zeciland's exceptionalism resides in the strucrural Ïrtabiliry of the majority of New Zealand voters to hold their government accountable for its actions.
in chapter one. it was pointed out that the current debate over the impact that retrenchment politics will have on the future of the welfare strite depends to a large degree on the sub-debate over the extensiveness and pervasiveness of welfare state retrenchment throughout the industrialised democracies.
Placing into these debates the concept that the politics of radical reuenchment is the politics of avoiding accountability. this study suggests chat the extensiveness of welfare state retrenchment will depend on the degree to which political institutions in industndised democracies are designed to hold elected officiais accountable and transIate the "general will" of the electorate into public policy. Industnalised democracies that possess deeper, richer democratic practices and institutions are ones that 1 wouId argue are more likely to successfully resist programmes of radical retrenchment. Conversely, industrialised democracies similar to New Zealand with weaker public control over public policy will be likely candidates for blitzkrieg reuenchment initiatives. In short, it is the overaIl degree to which industrialised democracies are
"democratic" that will shape the extensiveness of retrenchment, with corresponding consequences for the future of the welfare sute.
Properly testing this revised proposition would necessitate the creation of comparative indices of the "richness and depth" of democratic systems on the one hand and of the "radicalness" of retrenchmenr experiences on the other. Obviously, this is much easier said than done given the inherent qualitative and subjective nature of these two concepts. Nevertheless. it may bc possible to create at least some type of 72 ordinal ranking based on the presence or absence of populist democntic institutions and institutional veto points. Such institutions would include PR-based electoral systems, bicameral legislatures. free legislative votes. recall and inicative. referenda, access to the courts for judicial review of legislation .etc- Similarly. the drvelopment of a parallel index mesuring the "radicalness" of various reuenchment experiences might inchde a mesure of the scope of the reuenchment programme (How many differe~telernents of a welfare state are being retrenched simultaneously?). the size of the individual initiatives within the reuenchment programme (How luge are the cuts to program spending. privatisations, or asset-sales to GDP?), and the sustriinability of the retrenchment initiatives (How Iong havddid these cutslprivatisations 1st for?). The creation of such indices is the next step in building a general theory of weifare state reuenchment.
Implications for Comparative Public Policy and Theories of the State
New Zealand's experience with substantive retrenchment is a matter not only of interest to students of the welfare state but also for students of both comparative public policy in general and the role of the state in advanced capitalist societies. Sifting through the results of this study, some interesting observations can be made with respect to these broader areas in the study of politics.
First, it is important to note that Pierson's theory of weIfare state retrenchment begins roughly within the perspective of neo-institutionalist public policy and theories of the state. and after revision in this study. it remains in that same intellectual perspective. In building his prototype theory, Pierson stresses that
In contrat to our vast knowledge of the dynamics of welfare state expansion - arguably the most well-tilled subfield of comparative public policy - welfare state retrenchment rernains Iargely uncliarted terrain.. .. This puzziing state of affairs results in part frorn the very success of earlier scholarship. The quality of historical research on the welfare strite has encouraged a simple process of borrowing already developed models for the exarnination of a new environment. 1 would argue. however, chat there are compellin_g reasons to reject such a straightfonvard extrapolation.'
Picrson takes pains to demonstrate the shortcornings of simpIy inverting existing explanations to explain retrenchment. In dernonstrating the limitations of applying explanations such as the Iogic of industrialism and left power resources theory, Pierson also questions the assumption that existing neo-institutionalist explanations for the rise of the welfare state can simply be carried over to explaining retrenchment.' Pierson
'pierson. "The New Politics of the Welfare State," 143. argues for building retrenchment theory from the ground up. from the analysis of specific instances of
retrenchment. It is fiom such analyses of retrenchment that Pierson concludes that "of declining impormce
are some formerly critical factors. such as the role of organized labour. Others. such as the design of
political institutions. are of continuing significance but in new ~a~s."~
The most evident example of Pierson's disagreement with existing neo-institutional explanations is
in the role of govemmentaI cohesion. As Pierson States,
At first glance, one might expect that systems with fewer institutional veto points would be in a stronger position to pursue an agenda of radical retrenchment. Because retrenchment is generally unpopular, however, there are compelling reasons to question this expectation. While cohesive systems concentrate authority. they aiso concentrate accountribility. The former tendency facilitrites reuenchment, but the latter impedes it.. .. Suong governrnents, anticipating the high political cost of retrenchment. may forgo the opportunities provided by concentrated power.'
Yet. in applying Pierson's theory to New Zealand's example of radical retrenchment, we find confirmation no[ of Pierson's expectations. but the expectations of more traditional neo-institutionalkt perspectives on the welfare state. After revising Pierson's New Politics of the Welfare State to cake into account what has ken
learned from the New Zealand experience, WC are left with a theory that is embedded tven deeper in the neo-institutionalist perspective.
Indeed, the conditions outlined in this study for the success of radical reuenchment in New Zealand have notable paraIIeh with curent neo-institutionalist work on explainhg domestic structural change. In their recent work. Cortell and Peterson present a general framework for studying institutional uansformation that accounts not just for radical episodic change, but for incremental change as well. Their framework is entirely consistent with the key conditions this study has shown for radical change to public policy:
First. international and domestic events, including both cises and gradua1 pressures, open windows of opportunity that provide policy oficials with the potencial to transform existing institutions. Large-scale. system-wide changes open large windows. which allow radicai change, while small-scale issue specific problems create more limited opportunities for change. Secondly, whether an institutional change follows a window of opportunity depends on the actions and interests of state oficials. Thirdiy, state officiais' ability to capitalize on a window of opportunity depends on their institutional position or capacity ... In shon. a11 three factors - triggers, change-oriented preferences, and institutional capacity - must be present for institutional change to occur in a dernocratic state.'
In chripter two, we saw the powerful role the cwrency crisis of 1984 played in opening a window of opportunity for state-based actors (as opposed to pressure group-based or class-based actors) to push
substantive reuenchment forward in New Zealand. In chapters three and four, we equally saw the powerful
institutional capacity that stsite-based actors had to push forward radical change in New Zealand. And
finally, chapters tliree and four revealed how state-based actors with change-oriented preferences (in this case, neo-liberal preferences) were able to rise into positions in which they could take advantage of New
&aland's institutionai capacity for dramatic public policy change. We leave this case study then with a solid demonsuation of the utility of the neo-institutional perspective in comparative public policy.
Areas for Future Research: Looking at the Canadian Experience
Alongside the abstract work of developing a methodology for a general theory of welfare state retrenchment. other comparative work in improving and building such a theory needs to be done through the case study process. To be meaningful. further case studies need to focus on instances of dramatic public policy change in favour of neo-liberal policy "solutions" and ideas. New Zealand was onginally chosen for evaluation in this study precisely because it had achieved in the 1990s a reputation for king a trend-setter in welfare state retrenchment. Are there any other candidates that have show signs of being a leader in retrenchment?
One possible area for future research on the relationship between democratic political institutions and raaical reuenchment might be here in Canada. Just as New Zealand achieved its reuenchment reputation in the 1990s based on its activities from 1984 to 1993. Canada may yet build in the next few years a reputation for retrenchment based on a series of policy shifts made in the rnid-to-late 1990s. For instance. looking at the provincial level. Ontario's "Common Sense Revolution" under Mike Harris between
1995 and 1999 arguably presents a prima facie case of radical reuenchrnent. Deep expenditure cuts to social assistance and community gants, combined with declining health care expenditures and the introduction of regressive income tax cuts make the Ontario Conservative government's record a candidate for studying how
S~onelland Peterson, "Altered States." 179. provincial potitical institutions have assisted or obsuucted the Harris govemment's reuenchment
programme. The resort by the Ontario labour rnovement to rnass protest in the form of a series of rotating
strikes under the "Days of Action" and increrisingly violent demonstrations at the provincia1 legislature by
groups such as the Ontririo Coalition Against Poverty suggest that an absence of institutional veto points exists in Ontario berween elections. and that this might be critical to the pursuit of reuenchment by the
Harris govemment. Likewise. the 1999 re-election of the Harris government in the aftermath of the
"Common Sense Revolution", and the calls by some union leaders for their members to vote "suategically" in chat election, suggest that Ontario's electoral and party systems might play an important role in fragmenting politicai opposition to reuenchment.
Also at the provincial level, the broad and deep retrenchrnent initiatives that Ralph Klein's
Conservative govemment implernented in Albena during the 1990s is another Canadian case chat m3y be used for testing the linkages between democratic institutions and radical retrenchrnent. Cuts to health, education. and family services in Alberta and the parallel closures of hospitals. school, and family services offices across the province are only one element of the Klein Revolution. It has ken argued that the Klein government's regressive ta.^ cuts and drainage of the provinces Heritage Fund into tax concessions to major oil companies deliberately created a budget crisis to sel1 Albertans on cuts to provincial social
The sweeping re-organisation of the public sector by the provincial govemment and the rapid growtb in private. for-profit rnedical centres and charter schools in Alberta employing models sirnilar to those in New
&aland has already caught the attention of Schwartz. who had begun comparisons of his own between the
Alberta "model" of retrenchrnent and the New Zealand rnodel.'
Lastly. opportunities for comparative reuenchment research need not be restncted to provincial governments. Despite comrnitments made in their "Red Book" during the 1993 election to protect and improve Canada's welfare state, the federal Liberal govemrnent undertook a serious programme of reuenchment between 1995 and 1999 culrninating in their crowning achievement of the first balanced federal budget since the early 1970s. To meet this goal, signifiant changes were made in 1995 to the
- Vaft. Slzredding the Public Itireresr, 25-3 1. - 'Sec Schwartz. "Reinvention and Retrenchment." cornerstone of Canadian social progams, federal CAP and EPF transfers to the provinces, by replacing the
existing system of transfers with a block Canada Health and Social Transfer (CHST)which cut more than
$7 billion out of social expenditures on health. education, and social assistance. The Liberals also
overhauled the unemployment insurance system. altering eligibility criteria to reduce claims by $8 billion
and transferring the massive EI progrme surplus over to general revenue to balance the budget. As with
the case of Alberta, federal retrenchment initiatives have already begun to produce comparative academic
work on weIfare state retrenchrnent in ana da.^
Should the Klein, Harris, and Chretien retrenchment initiatives be considered as one large case of
radical welfare state retrenchment within a regime of fiscal federalism? Are these various retrenchment
initiatives large and substantial enough to be considered radical? If so, is there a relationship between the extensiveness (or Iack thereof) of democracy within Canadian political institutions and the success of this
retrenchrnent agenda'? Only further research will tell.
8 Sec Bashevkin, "Rethinking Retrenchrnent." The "New Politics of the Welfare State" Applied to New Zealand - A Surnmary
Pierson's Conditions Expected in Conditions Observed in EvaluatiodReformulation Hypo thesis Applying the Hypothesis New Zealand of the Hypothesis Budgetary - a deteriorating fiscal - a deteriorating fiscai - an economic crisis of any C risis situation situation type cmopen a window - an immediate danger to - a cwency crisis generally for retrenchment in a NZS finances triggered b) independent of NZ's fiscal budget deficit situation fiscal deterioration situation - consensus between gov t - use of the TINA argument - repeated use of the TiNA and opposition is not to defend reuenchment argument by advocates of essential for TINA, initiatives retrenchment provided the opposition is divided ori poliq - some degree of political - absence of a clear and earty consensus between crisis consensus between - the appemnce of a crisis political parties over the govemment and opens a left-of-centre existence of a crisis opposition parties govt to policy capture by forcing on it rapid, non- debated fiscd decisions Design of - a reuenchment strategy in - a system of highly - Pierson's assumption on Political New Zealand that concentrated political the necessity of govt Institutions effectively used political authority compared to obscurity in retrenchment institutions ta obscure the other industrialised is contradicted: visibility role of government in democracies is an unavoidable fact of pursuing reuenchment - a retrenchment strategy that radical retrenchment focused on highly visible - Radical retrenchrnent "blitzkrieg" retrenchment requires the minimal veto programmes points that systems of concentrated political authority provide Flexi bility - a political system where it - a systern of concenuated - systems of concentrated of Political is relatively easy for political authority chat authority need not be Institutions -government to change the permits almost uniieteral highly flexible to support political process changes to the political retrenchment - the system - specific changes to political process by govemment is rtlready fertile ground institutions that facilitated absence of changes for retrenchrnent retrenchrnent political institutions to - retrenchment advocates in facilitate retrenchment fragrnented systems will - pressure outside cabinet to likely require institutional make institutional flexibility to facilitate changes that would slow retrenchment doum reuenchment Electoral - fragmentation of opponents - fragmentation of opponents - the ability of govt to create 3ack of retrenchrnent across and sicpporrers of new bases of electoral political parties within a retrenchment across support among volatile FPTP electoral system political parties within a voters in an FPTP system FPTP electoral system (retroactive consensus) is - higher voter mobility essential to sustaining among supporters than retrenchrnent over the opponents electoral cycle References
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