Whaterever Happened to New Zealand? the Great Capitalist Restoration Reconsidered
McClintock, Brent, Journal of Economic Issues
During significant periods of its modern history, New Zealand has been hailed as the "social laboratory of the world." In the 1890s, a Liberal government engaged in a range of "state experiments." The First Labour government (1935-1949) provided the major impetus toward creating the New Zealand welfare state. Most recently, in the period since 1984, the Fourth Labour government (1984-1990) and succeeding governments have attempted to reverse the direction of the earlier state experiments through a process of market liberalization. In this article, Karl Polanyi's account of economic change is used to analyze this dramatic reversal of policies.
Polanyi's Model of Capitalism
At the core of Polanyi's model of capitalism is his concept of "the double movement" in which the expanding reach of the self-adjusting market system is countered by a socially protective response to offset cultural dislocation that results from the spread of the market system [Polanyi 1944]. The treatment of labor, natural resources, and productive organization as if they are fictitious commodities - as if they exist solely to be bought and sold in the marketplace - disrupts social life.
The market mentality or ideology provides the world view driving the effort to disembed or separate the economy from the oversight of the social and political relations instituted to ensure social provisioning. Conversely, the socially protective response that focuses on social values other than market efficiency - values such as equity, economic security, environmental sustainability, and democratic participation - seeks to re-embed the economy in society.
Polanyi reminds us that markets are instituted. In the case of a self-regulating market system as in the nineteenth century, the state is the instituting mechanism. "There was nothing natural about laissez-faire. . . . Laissez-faire itself was enforced by the state. . . . The introduction of free markets, far from doing away with the need for control, regulation, and intervention [by the state] enormously increased their range. Administrators had to be constantly on the watch to ensure the free working of the system" [Polanyi 1944, 139, 140; emphasis added].
While laissez faire was a conscious, deliberate, planned policy of government, the protective response was none of these things. It was a pragmatic, spontaneous, ad hoc reaction to the negative effects of placing lives and livelihoods at the mercy of the market [Polanyi 1944, 141, 150],
Implicit in Polanyi's double movement is his theory of the state. It is a dichotomous state, capable of performing both repressive and integrative functions and fraught with contradictory tendencies. Under capitalism, the repressive function involves enforcing the rule of law and a system of capital accumulation; the integrative function coordinates the socially protective response to the market when it emerges from an undirected mode [Stanfield 1991].
Polanyi's model also provides insight as to the inherent difficulty that supporters of the welfare state face in developing a coherent cultural system that can rival and displace "the obsolete market mentality." What we call the welfare state is a response to market capitalism that is characterized by drift and a lack of coordination; the presence of contradictory elements because of the dichotomous nature of the state; an inadequate positive theory of the welfare state; and a crisis that is cultural in nature [McClintock and Stanfield 1991]. The cultural crisis of the welfare state arises from the struggle between cultural systems - the market mentality and the welfare ideology. The grip of the market mentality on Western thought impedes those who would develop a coherent welfare ideology. Consequently, there is a cultural crisis - a crisis of legitimation, of character, and of confidence.
The Rise of the New Zealand Welfare State
In the mid-1930s, the New Zealand welfare state emerged as a response to the collapse of world markets during the Great Depression. …