As a result of Thatcher’s free market policies, inequality increased in Britain faster than any other industrialised country apart from New Zealand where the free market formula was being applied even more zealously. The tax burden for the majority of households was increased and the poorest no longer benefited from the nation’s economic growth. Between 1977 and 1990 the percentage of the population earning less than average income in Britain trebled.
Union power in Britain was reduced. One rationale behind this attack on trade unions was that they were ‘intermediary institutions standing between workers and the market’. The goal was to create an American style labour market ‘with its high levels of mobility, downward flexibility on wages and low costs for employers’. Indeed the combination of weakened union powers, deregulation of labour laws and the downsizing of the workforces of private and public organizations ensured that many full-time, permanent jobs disappeared for good or were replaced by part-time and/or contract positions. Even those in full-time jobs were often paid less than what was needed to support a family. ‘The diseases of poverty – TB, rickets, and others – returned.’
Those forced into unemployment found that welfare had also been subjected to fundamentalist policies that included reduced entitlements and other ‘incentives’ to ensure the unemployed would accept any job that was offered no matter how poorly paid. The government goal of full-employment that had been thought to be necessary for social stability and cohesion was abandoned.
As a result of the Washington Consensus ‘reforms’ NZ shifted from being one of the most regulated OECD countries to one of the least regulated. By 1995, despite the heavy social costs the ‘experiment’ was exacting, international institutions and the business media were hailing the experiment as a model for the rest of the world.
Moody’s Investors Services described: ‘The reorientation of New Zealand economic policy after 1984 represented one of the most ambitious and comprehensive structural reforms undertaken by any OECD country’. But it nevertheless noted: ‘As it turned out, the reform process has proved somewhat tortuous and quite painful for many segments of New Zealand society…’
Inequality grew in NZ, which had prided itself on being an egalitarian society, faster than any other industrialised country. In contrast to American commentators who were blaming a growing underclass on an overly generous welfare system, there was no underclass in NZ until welfare was cut and citizens subjected to the rigours of the free market.
Yet the pain suffered by the one in six New Zealanders who found themselves below the poverty line by 1993 could not be defended as an unfortunate effect of rapid economic growth. According to Jane Kelsey, who analysed the NZ Experiment in her book Economic Fundamentalism: ‘Between 1985 and 1992 total growth across OECD economies averaged 20 percent; New Zealand’s economy shrank by 1 percent over the same period’ despite an increasing population. At the same time productivity was static, unemployment skyrocketed, inflation soared (around 9 percent per year), investment halved, overseas debt quadrupled and interest rates remained high. People left NZ in droves.
The new pro-market, pro-business agenda was so alien to the ideals of the NZ Labour Party that membership dropped from 100,000 in 1984 to 10,000 in 1988. The gap between the government and the Party also widened, with the government not even being bound by the Party’s Policy Council decisions which were supposed to set Party policy.
The ‘success’ being acclaimed by foreign commentators can be seen, not in social or economic terms, but in ideological terms. Kelsey wrote:
What the self-authorised attestors of success – the major industrial powers, the self-interested players in the capital markets, the evangelical libertarian intellectuals and free-market economists, the financial journalists of trans-national media, the credit rating agencies with their own vested interests, and the like – were really applauding was the unimpeded imposition of a particular ideological model to which they adhered, notwithstanding its economic and social consequences… Constant repetition and mutual reinforcement helped elevate the rhetoric beyond effective critique.
The reinvigoration of the Australian manufacturing sector that was supposed to result from economic restructuring never occurred. The extra money generated in the 1980s by lower corporate taxes, voluntary union wage restraint, higher profits and deregulation was supposed to provide the incentives to business but it was seldom reinvested in productivity. Rather it was squandered on ‘increased executive salaries, increased luxury consumption and a mass of unproductive investment, seeking wealth through shuffling paper, takeover bids and counter-bids.’
The wages share of the economy declined from 62 percent in 1975 to 53% in the late 1980s where it has remained. In the meantime profits have risen from 16 percent of GDP in 1975 to 27 percent today. As in NZ, Australia’s reputation for egalitarianism and equitable distribution of income was destroyed as inequities in Australia began to rival and exceed other countries.
For most of Australia’s history there had been an unwritten social compact aimed at ‘building a workers’ paradise’. Manufacturing industries were protected so that they could pay good wages. A minimum wage was set that would be sufficient to support a family. There was also a view that those who were disadvantaged and vulnerable should be given a helping hand, that mates should help mates, that we were all in this together and should cooperate – pull together, that friendship and family and community and health and environment are just as important, if not more, to quality of life as wealth. In this view government had a clear role which included protecting the weak from exploitation by large powerful commercial interests; ensuring that the economy delivered benefits to the majority of people; and maintaining the egalitarian society that Australians had come to expect.