How Labour's economic handling of the Covid crisis created an explosion in inequality – the second of Elliot Crossan's three-part series on Labour's leadership transition.
Three parts: How Labour fell into crisis so soon after historic election win | Every chance at transformational change squandered | An uphill battle for Chris Hipkins
Opinion: Jacindamania. That was the word of the election in 2017, as in just seven weeks as Labour leader, Jacinda Ardern transformed her party’s election chances. From staring down the barrel of a fourth-term National Government in July, to winning enough votes in September that Ardern could become Prime Minister with the support of New Zealand First and the Greens, it was a remarkable story.
Transformational. Empathetic. Kind. These are the words Ardern used to describe how her Government would lead Aotearoa. To many, it felt like real, genuine change had finally come to the country after three decades of unchecked inequality.
As Ardern left office on Wednesday, many of those same people said farewell to a beloved leader, brought down by the stress of leading the nation through five tumultuous, difficult years. But many more felt another emotion: disappointment. It’s hard to sincerely argue that Aotearoa is a fundamentally different place to how the National Government left it in 2017. Inequality and poverty still run rampant in our society.
As her successor Chris Hipkins abandons the moniker of “transformation” altogether, can we really say that Ardern’s tenure in office lived up to the admirable ideas she so eloquently espoused?
'Nothing left in the tank'
In her emotional resignation speech, Jacinda Ardern described how she no longer had “enough in the tank to do it justice”:
"I know there will be much discussion in the aftermath of this decision as to what the so-called “real” reason was. I can tell you, that what I am sharing today is it. The only interesting angle you will find is that after going on six years of some big challenges, that I am human. Politicians are human. We give all that we can, for as long as we can, and then it’s time. And for me, it’s time."
Ardern faced a highly unusual series of events as a peacetime prime minister. A horrific far-right terrorist attack in Christchurch, an eruption from the Whakaari volcano, and, most gruelling of all, the pandemic and the lockdowns. It must have been intense.
Ardern also had to deal with the emergence of an extremely militant street movement opposing all Covid restrictions and the highly successful vaccination programme, which culminated in a convoy to Wellington and protestors camping outside Parliament for 24 days in February-March 2022. While comparisons to the January 2021 attempt by far-right Trump supporters to overthrow the US Government are overblown, there were fascist and other extreme right-wing elements prominent among those in attendance. The protest ended with a riot on 2 March as the police moved in to clear the area.
READ MORE: * Part 1: How Labour fell into crisis so soon after historic election win * Part 3: An uphill battle for Chris Hipkins * Jacinda Ardern’s defining legacy serving NZ during a crisis * It’s not politics, and it’s not OK
This small but extremely vocal movement opposing Covid restrictions was dominated by a vicious, personal antagonism towards Ardern. There is no doubt the abuse she received was misogynistic, and the death threats she received were more numerous and extreme than previous prime ministers have had to face. It is likely this contributed to Ardern’s burnout and early resignation.
Aotearoa has a serious problem to deal with when it comes to the way female politicians are treated – and we face a serious threat from the rise of the far-right, which must be countered by everyone who believes in equality and democracy.
But despite this, it’s hard to believe Ardern would have left office if her Government had remained comfortably ahead in the polls, with a strong chance of another three more years of making a difference. There is, perhaps, a deeper explanation.
Idealism meets reality?
David Seymour, the leader of the right-wing ACT Party had this to say about her resignation: "Jacinda Ardern is a well-meaning person, but her idealism collided hard with reality."
It is ironic that an extremist libertarian ideologue such as Seymour would have the gall to accuse Ardern of being overly idealistic. New Zealanders need only look at the disastrous tenure of Liz Truss as British Prime Minister to see what would happen if Seymour’s idealism collided with reality. Truss introduced a mini-budget last year that sought to borrow vast sums of money to dramatically cut taxes. Her policies crashed the economy, with Sterling plummeting in value, interest rates rising, and the Conservative Party’s popularity collapsing. Truss was forced to resign after just 49 days in office, making her the shortest-serving prime minister in British history. Seymour likely thinks Truss didn’t go far enough in attempting to dismantle the tax system.
However, there is a grain of truth in Seymour’s words.
Ardern was clearly an idealistic leader. Throughout her tenure, she emphasised values of empathy and optimism – her slogan “be kind, save lives” was precisely what we needed to hear during the dark days of lockdown. But that idealism collided with reality when it came to the agenda she attempted to deliver. It was a reality of her own making.
Neoliberalism has been the dominant political and economic consensus in New Zealand and across the capitalist world since the 1980s. NZ’s neoliberal revolution, which lasted from 1984 to 1993, involved privatising or outsourcing state assets, slashing taxes on the rich and raising taxes on the poor, reducing spending on public services, deregulating financial markets, liberalising trade laws, and, most importantly, breaking the power of working people by placing severe restrictions on the trade union movement to organise and strike. It was a highly effective and successful form of class war, which redistributed money from the working class to the wealthy elite.
In the 1990s, responding to widespread defeat and disillusionment, social democratic and centre-left parties in many countries turned to the doctrine of the ‘Third Way.’ Their belief was that, with the downfall of communism in the Soviet Union and the destruction of the social democratic consensus and the labour movement in the west, they should seek to find a third path between socialism and the free market.
Led by Bill Clinton in the United States and Tony Blair in Britain, Third Way governments left neoliberal reforms mostly intact, instead attempting to make free market capitalism "fair" by using the gains from economic growth to fund social programmes. This meant social democratic and labour parties across the west embracing privatisation, outsourcing, free trade, free markets and restrictive trade union laws, while keeping any increases in taxes or government spending to a minimum, only to be funded through growth. President Bill Clinton said: “The era of big government is over. But we cannot go back to the time when our citizens were left to fend for themselves.”
Third Way politics was highly successful in many countries between 1993 and 2008. Clinton won two elections after an era of Republican dominance; Blair won a landslide in 1997 after 18 long years of Tory rule and took three election victories in total, resulting in the longest-serving Labour Government in British history; and in New Zealand, Helen Clark became the first Labour Prime Minister since 1943 to win a third term in office. The gains from economic growth in these countries were used to fund social programmes – often outsourced to the private sector – while cheap credit saw an explosion in household debt, allowing the extreme poverty and inequality created in the 1980s to be somewhat mitigated. Gordon Brown, who succeeded Blair as Britain's Prime Minister in 2007, claimed to have “put an end to boom and bust”, promising endless growth with which to continue this prosperity.
Everything changed in 2008. The Global Financial Crisis hit many countries hard, caused in large part by cheap credit and irresponsible lending by the banks. The era of boom and bust returned with a vengeance. Right-wing governments were elected in many countries, including New Zealand, where voters returned National to power just as the recession began. Further cuts to government spending were imposed, with austerity biting hard across Europe.
The age of neoliberal hegemony began to crack, with challengers to the free market system appearing on the left in the form of socialists such as Jeremy Corbyn in the UK, Bernie Sanders in the US, and Jean-Luc Mélenchon in France. On the other hand, right-wing demagogues emerged who campaigned against economic globalisation but used racism instead of a belief in a more equal society to justify it. Donald Trump was elected US president in 2016; in 2017 and 2022 Marine Le Pen came closer to the French presidency than any candidate from the far-right National Front has before; Italy elected a fascist in Giorgia Meloni last year; far-right Jair Bolsonaro was elected President of Brazil in 2018 … the list goes on.
Ardern and the budget responsibility rules: a continuation of the Third Way
This was the atmosphere in which Ardern became Labour Party leader and then Prime Minister in 2017. The centre-left were jubilant, and even some further to the left were optimistic. Her professed values certainly aligned with everything progressives stand for: kindness, empathy, optimism, fairness. In her first few months as Labour leader, she made bold statements that appeared to signal a clear break from the Third Way – she said neoliberalism had failed, and even went so far as to call capitalism a “blatant failure” in her first interview as Prime Minister-elect, citing homelessness and low wages as evidence.
Ardern’s elevation to the top job in her party was a change of style, not a change of substance
However, the signs were always there that Ardern – who worked as an intern for Blair in 2006 – intended to govern in the style of Third Way leaders such as her mentor Clark.
Andrew Little, Ardern’s predecessor as Labour leader, had abandoned the party’s plans to introduce a capital gains tax in the wake of the party’s worst election result in more than 90 years. This move symbolically signalled a move to the right. A capital gains tax would have reduced speculation in the property market, making housing more affordable, and raised revenue for a left-wing government to spend on public services.
Little went into the 2017 election period with a centrist, minimalist policy programme. Upon Little’s resignation and choreographed anointing of deputy leader Ardern as his successor, Labour’s polling skyrocketed overnight from the mid-20s to 36.9%, enough for Labour and the Greens to take power with the help of “kingmaker” Winston Peters. But Labour’s actual policies barely changed when Ardern replaced Little. The conservatism and lack of ambition that lay under the surface of the party platform remained untouched. Ardern’s elevation to the top job in her party was a change of style, not a change of substance.
In 2019, the Tax Working Group commissioned by Ardern and Finance Minister Grant Robertson recommended a capital gains tax be implemented after all. Deputy Prime Minister Winston Peters effectively vetoed it. Yet instead of using this to campaign for a bigger mandate for Labour so that they could pursue such policies on their own, Ardern decided to rule out the proposal of a capital gains tax for as long as she was Prime Minister.
The same conservatism emerged in the 2020 election campaign when the Green Party proposed the idea of a wealth tax to reduce inequality and redistribute money to those in need. It was a popular policy, and something the left had been demanding for years. Yet Ardern ruled it out for as long as she was in office.
The policy which underlined this Third Way conservatism the best didn’t actually come from Labour – it was the brainchild of the Greens’ centrist co-leader James Shaw. In March 2017, Shaw and Little agreed in a joint statement to a set of Budget Responsibility Rules to be followed by a Labour-Green government, which aimed to keep the government in surplus, reduce government debt, and, most crucially, to do so while maintaining state spending at or below 30 percent of GDP.
These Budget Responsibility Rules were a commitment by the centre-left parties to continue the neoliberal era of small government, low taxes on the rich, and limited wealth redistribution. Ardern recommitted to the policy when she became leader.
Transformational change was needed, and was promised by Ardern in the 2017 election campaign and the early days of her time in office. But that was taken off the table by the self-imposed fiscal straitjacket of the Budget Responsibility Rules, and by the ideology of Third Way social democracy
The Budget Responsibility Rules wisely contained a get-out clause in the event of a major crisis: “We expect to be in surplus every year unless there is a significant natural event or a major economic shock or crisis.”
In 2020, Robertson used this provision to justify government spending hitting 35 percent at the height of the lockdown period.
Once we returned to “normal," the Government could have used the Covid shock as an opportunity to reset, and to admit that the neoliberal consensus has not worked for the majority of people. They could have pointed to the crises of inequality, housing and climate change as reasons why the state needed to step in and address the failures of market forces, just as the state stepped in to avert catastrophe during the pandemic. Unfortunately, with a total lack of political courage, Labour decided to do the opposite.
Was Ardern’s government a total failure?
It is not true that Ardern failed to deliver anything. Aside from her admirable handling of immediate crises such as Covid and the Christchurch attacks, her government reduced child poverty from 22.8 percent in 2018 to 16.3 percent in 2021 – a reduction of over a quarter.
They raised benefit levels above inflation for the first time in decades, increased the minimum wage so that it is closer to a living wage, and introduced a new top tax rate of 39 percent on earnings over $180,000 per year. These reforms certainly made a material difference for working-class people in a way that a National government would not have done.
In late 2022, Labour introduced Fair Pay Agreements (FPAs), allowing unions to organise on an industry-wide level for the first time since 1991. Minimum standards across entire sectors will ensure better conditions for many workers, and may encourage an increase in union membership.
There are limitations – workers cannot strike in order to demand a better FPA. But this reform does represent a shift in the balance of power in favour of workers. FPAs could be the major lasting achievement of the Ardern Government – unless National wins the 2023 election and repeals the legislation.
Ultimately, however, the reforms introduced by the Ardern Government amount to tinkering around the edges. We have a crisis of inequality, a housing crisis, and a low-wage economy in Aotearoa, and a climate crisis upon which every country needs to take radical action. Transformational change was needed, and was promised by Ardern. But that was taken off the table by the self-imposed fiscal straitjacket of the Budget Responsibility Rules, and by the ideology of Third Way social democracy.
House prices continued to balloon under Ardern’s Government, just as they did in the Clark era. The median house value went from $530,000 in October 2017 to $925,000 in November 2021 — a 75 percent increase — and although there was a drop to $790,000 in December 2022 caused by economic uncertainty, there remains a 50 percent increase from October 2017, with prices forecast to start rising again soon.
Instead of implementing rent controls and a capital gains tax while building tens of thousands of state houses to bring down prices and make housing affordable for working class people again, the Ardern Government pursued the KiwiBuild policy, which involves redeveloping state housing property and selling off two-thirds of state land – a third to the private market, a third to the community sector, with just a third remaining for public housing. Privatisation by stealth – straight from the Third Way playbook.
Another major failing of this Government has been its refusal to fully implement the recommendations of the Welfare Expert Advisory Group (WEAG).
Though Ardern and Robertson did raise benefit levels during the pandemic – an admirable decision after 30 years of beneficiary-bashing rhetoric and policy – making the changes recommended by WEAG could have truly transformed lives for people struggling on welfare, and made a much more significant dent in the levels of poverty in Aotearoa.
The traditional conservative voters whom Labour “borrowed” in 2020 will go home to National in 2023, and the Government are failing to inspire younger and lower income voters to back them either
Ardern claimed in 2017 that child poverty was the reason she entered politics. She even appointed herself Minister for Child Poverty Reduction. Once again, her idealism collided with the reality of her politics and her self-imposed limits.
Had the Budget Responsibility Rules been more flexible with the artificial restrictions on government spending, surpluses and government debt – or even had they pledged to match increases in spending with higher taxes on the rich to significantly reduce inequality – Ardern’s government could have raised benefits and removed sanctions in line with the WEAG recommendations. The impact that would have had on poverty and beneficiary wellbeing would have been worthy of the term “transformational”.
There were also broken campaign promises, such as the pledge to make the first three years of university tuition fees-free, which was watered down to the first year only by then-Education Minister Chris Hipkins in 2020. Moves such as these added to a sense of disillusionment among young people who had been swept up in the tide of optimism that was Jacindamania in the early years.
Yet there is one colossal failing of the Ardern government that tops all others. In economic terms, the way Labour handled the Covid crisis, stepping in to help businesses and homeowners but doing much less to protect workers and renters, created an explosion in inequality.
The Government implemented a mortgage holiday without a rent holiday, and gave relief subsidies to businesses rather than directly to workers – only for some companies to pocket that money and lay off staff anyway. There has been too little attention paid to where those subsidies went, and whether businesses needed the full amount they were given. Equally, nothing has been done to redress the fact that landlords were able to keep raking in rent during the lockdowns while their mortgage costs were suspended.
It should be little surprise, therefore, that – as the journalist Bernard Hickey has drawn attention to – Labour’s handling of the Covid economic crisis led to the biggest increase in inequality in recorded history. The previous huge spike in inequality in New Zealand’s recent past was between 1984 and 1993, when the initial introduction of neoliberalism to this country led to the fastest rise in inequality seen anywhere in the OECD during that period.
That was also initiated by a Labour government. It’s darkly ironic that Labour, the supposed party of workers, who were founded to challenge capitalism and the inequality it creates, were at the helm both times in the past 90 years when inequality exploded.
Ardern tied herself into a corner. Her idealism said that she could lead a kind, caring government and tackle issues she cared deeply about, such as poverty and homelessness, once and for all.
These are admirable and eminently achievable goals. But her idealism collided with the reality of Third Way politics. The Government cannot genuinely deal with inequality if it is committed to maintaining the neoliberal consensus.
And without sustained high levels of economic growth – impossible given the boom-bust nature of the capitalist system and the finite resources of our planet – it cannot even fund public services and social programmes adequately enough to enable people to live with dignity.
The kind of Government that matched Ardern’s idealism and empathy would have introduced a wealth tax and a capital gains tax to fund public services properly. It would have raised the minimum wage to the level of the living wage, and raised benefits in line with the Welfare Expert Advisory Report, reducing poverty and hardship for so many people in one go. It would have allowed workers to strike during Fair Pay Agreement negotiations to force bosses to accept better wages and conditions across each sector of the economy affected, empowering unions to organise and fight.
It would have imposed rent controls and built tens of thousands of state houses to make housing affordable. It would have nationalised and significantly improved the quality of our public transport networks, made dental care free, and been much more ambitious in tackling the climate crisis, especially when it came to our enormous agricultural emissions.
Some claim the Covid crisis stopped Ardern from delivering such an agenda. But the pattern of Third Way thinking and artificial limits on government actions was there from the 2017 election campaign and the first two-and-a-half years of Labour in power.
The Covid shock and a one-party majority could not have been a more perfect opportunity for Ardern and Robertson to admit they were wrong with their Budget Responsibility Rules, and instead head in a truly transformational direction. They had unprecedented popularity and political capital. But they squandered the opportunity at every turn.
I am not claiming that this is the conscious reason why Ardern resigned. When she says that “We achieved a huge amount in the last five years. And I am so proud of that”, I am sure she believes it. But a failure to deliver, to make a transformational difference in the lives of working class people across Aotearoa, is a major reason why Labour has lost a third of its supporters in two years, as disappointment and disillusionment sink in for so many. The traditional conservative voters whom Labour “borrowed” in 2020 will go home to National in 2023, and the Government are failing to inspire younger and lower income voters to back them either. Such disenchantment will probably result in lower voter turnout and a victory for Luxon.
If she is truly as idealistic as she presents herself, then Ardern must be aware of this on some level. She must know there was more to be done to create a kinder, fairer country. She must have had a general sense of frustration, just like the voters.
Because ultimately, her ideals are admirable, and she failed to live up to them. Labour are set to be punished for it in October.
Three parts: How Labour fell into crisis barely two years after its historic election win | Every chance at transformational change squandered | An uphill battle for Chris Hipkins