Labour Party takes a left turn on economic policy (Feature)

By David Barber Oct 18, 2010, 9:37 GMT

Wellington - A quarter of a century ago, New Zealand's Labour Party ditched traditional socialist principles to embrace the free market with a programme of economic reforms that grabbed the attention of economists around the world.

Elected in 1984, Labour deregulated the economy, floated the currency, sold off state assets like the railways and post office, cut farm subsidies, slashed import duties that protected inefficient industries and introduced a consumption tax.

A stunned visiting adviser to British leader Margaret Thatcher said then-finance minister Roger Douglas had gone further with his reforms, dubbed Rogernomics, than the 'Iron Lady' dared when wielding her own axe on Britain's sacred cows.

A generation later, Labour - now in opposition and trailing the conservative National Party, which gleefully adopted its laissez-faire policies on gaining power, in opinion polls - has proclaimed the neoliberal economic experiment well and truly over.

Bent on regaining office at the election due late next year, Labour under leader Phil Goff unveiled a left turn to old-fashioned socialist policies at the party's annual conference last weekend.

Details remain sketchy, but it is clear that under Goff - once seen as on the right of the party and wedded to economic orthodoxy - the next Labour government would be unashamedly interventionist.

He would start by removing the goods and services tax from fresh fruit and vegetables, breaking a Rogernomics shibboleth that to be effective it had to be comprehensive, with no confusing exclusions as Britain and Australia had.

Monetary policy, which directs the central bank to make fighting inflation its sole concern when setting interest rates, would shift to take account of the exchange rate, which has seen the currency soar against the week US dollar, crippling exporters.

Whereas old Labour opened the doors wide to foreign investors, Goff plans tight new controls to ensure their investments create jobs and exports. State-owned utility companies, now charged with making big dividends for the government, would be directed to look after consumers.

Further ensuring that voters will have a real old-fashioned socialist-capitalist choice at the ballot box next year, Goff promised to raise taxes for the rich - a direct contrast to the National Party government which cut taxes all round on October 1.

Labour's turnaround follows a remarkable about-face by one of New Zealand's leading financial commentators, Bernard Hickey, who wrote recently, 'I used to believe in the primacy of markets and economic freedom.

'It's time for me to recant and to say what I've been thinking for months: the economic god of completely free markets and capital flows is not worth believing in anymore and we must look for other things to believe in and do.

'I think the global financial crisis and the preceding decade of debt-driven instability in global capital markets and trade flows have demonstrated the failure of the economic model most New Zealand policymakers have adhered to for nearly three decades.'

Prime Minister John Key, a former foreign currency trader and the richest man in parliament, does not agree. He insisted that 'good orthodox economic policy actually works' and said the Japanese had shown that interventionism did not work.

Foreshadowing the lines of next year's election campaign, he accused Goff of having 'a road to Stalin experience' and adopting 'populist policies.'