1935–49 The Labour Regime
The Labour Party came in on a crest of a wave – a wave that did not finally recede for 14 years. It began with four years of peace and rose to its peak of electoral success in 1938; then followed six war-time years, with a postponed election in 1943 which showed the wave beginning to recede; finally, four difficult post-war years saw the tide turn, and a vigorous National Party take over in 1949. In these 14 years an indelible mark was made upon the country.
Labour expanded State activity until it covered the whole economy and a good deal of social life too. In peacetime to secure its welfare objectives, in wartime to mobilise the country as well, Labour constantly added to the functions of the State. The process was hardly at all doctrinaire; there was simply a conviction that circumstances demanded public action. Certainly Labour ministers suspected the credentials of untrammelled private enterprise and were more than ready to limit its freedom; equally certainly, they had no intention of abolishing private enterprise when it could be supervised so easily. The test of measures was their practicability, not their doctrinal purity. This can be said of the recovery measures and guaranteed price system of 1936, the welfare programme of 1938, the pre-war public works, housing, and education programmes; the import and exchange control mechanisms, prefigured in 1939 and articulated during the war; the wage and price fixing machinery set up during the war together with controlled export marketing; the post-war attempts (ill-starred) to peg land and property values; the long and losing battle against inflation from the war years into the peace. Though the Labour Party made an indelible mark, it did not meet with uniform success. The measure of its achievement is the paradox that it was defeated by a party which had adopted its leading accomplishments. All sections adopted its victories – full employment, public provision of welfare, a controlled economy; by 1949 a majority condemned its failures – inflation, industrial unrest, and the weariness and arrogance that arise from a long tenure of office.
During its first term Labour guided and hastened the return of prosperity. From 1934 overseas prices were recovering and the country could not help but be better off. The Government benefited, too, from a balanced budget, a buoyant public revenue, and a healthy reserve in London, inherited from its predecessor. It made good use of these propitious circumstances. Its initial step was simply a Christmas bonus for the unemployed – a symbolic if small pledge of humanitarian readiness to cut corners. It went on, in the busy session of 1936, to restore wage and pension cuts, to bring in a basic wage, a 40-hour week, and a major programme of public works; it built up the unions by bringing back compulsory arbitration and adding to it compulsory membership of unions; it embarked upon a great housing construction programme; it brought in a price scheme for dairy products which guaranteed the farmer a reasonable income; it tried, without notable success, to encourage secondary industry so that there would be more jobs for wage earners. The Government's opponents never tired of inquiring, “Where will the money come from?”; the Government's answers were never explicit, but in fact a good deal of the money came from State credit created by the Reserve Bank. This institution, by an Act of 1936, had become a fully governmental body; where these expensive programmes could not be financed out of current revenue or overseas funds, the Government simply borrowed from its own bank. Neither the housing programme nor the guaranteed price could have been financed without such credit. Labour had collected most of the Social Crediter's votes in 1935, and this, which was far from their desires, was their reward, a policy a good deal more Keynesian than Douglasite, however.
The cornerstone was set in the arch in 1938. Already the government had shown its concern with public health and welfare; in 1938 the two were integrated into a “social security” system by which the State guaranteed medical advice, medicines, hospital services to all whatever their means, and a wide range of pensions to all likely to suffer hardship. In part the scheme was financed by special taxation, in part from general revenue. It was, among other things, a ready vote winner in 1938; its attractiveness, together with the Government's energetic record and the National opposition's general nervelessness, proved irresistible.
Hard on the heels of the victory came tribulation. Thanks in part to public works construction (which had begun to revolutionise road, rail, and air transport) draining overseas reserves, in part to a flight of private capital from the country, scared by a government that still seemed “socialistic”, in part to a sag in prices for exports jeopardising the guaranteed price system, and in part to the unsympathetic attitude shown by London financiers to some £16 million of debt shortly falling due, things looked ominous in 1939. The debt was converted on rather stringent terms; exchange and import controls were applied. But the real saviour was the war that broke out in September. Once again farm exports were at a priority and the mobilisation of resources for the war effort permitted the introduction of more thorough controls than would have been tolerable in peacetime. The recovery programme had had a narrow squeak, and its ability to withstand adverse economic conditions was not seriously tested. “Insulation” from overseas fluctuations had been talked about; it was New Zealand's good fortune that it did not have to be tried.
Though the war brought New Zealand, by her free decision, to the side of Great Britain, this action did not mean that external policy had not altered considerably since 1914. The Reform Party and Coalition leaders, to be sure, had made rather a fetish of the British race and loyalty, but under the surface Massey, Francis Dillon Bell, the leading Reform Party spokesman on external affairs, and Coates could oppose British policy when they felt New Zealand interests were endangered. Labour spokesmen cared less about the proprieties, and were more internationally minded than their predecessors in office. An idealistic approach came readily from the spokesmen of a small country which lacked the responsibilities of international power. Their idealism took the form of an attachment to the League of Nations and to the cause of the small nations; the League they saw as the defender of small nations against the great aggressors, notably Germany and Italy. The readiness of Great Britain to ignore the League and yield to the aggressors they saw both as wrong in principle and as dangerous in consequences. William Jordan, New Zealand's representative at Geneva, was outspoken in defence of this not impractical idealism. Savage, especially at Commonwealth Prime Ministers' Conferences, made it perfectly clear that he thought the path to international amity lay through economic reform and higher living standards. In these years New Zealand's voice was heard on the international stage in an individual way, in particular as a defender of collective security through the League, at a time when that body was collapsing under the defiance of Italy, Germany, and Japan.