Labour Party in Decline
Domestic politics stagnated early in the war, but from 1942 on are enlivened by the spectacle of a reviving opposition. The National Party which had been formed in 1936 had nothing new to say in the election of 1938 and was easily and thoroughly defeated. Its leader, Adam Hamilton, a Coalition Minister of Reform Party extraction, did not inspire. He was displaced from leadership of the party by Sidney Holland, a young and vigorous politician, who with Hamilton and Coates had become a member of the War Cabinet. This body, far from being a full coalition, had responsibility only for decisions affecting the war, and not even final responsibility for these. In 1942, after a dispute with Labour Ministers, Holland led the National members (all except Coates who thus effectually severed himself from his party) out of the War Cabinet and into a new phase of New Zealand politics. The postponed election was held in 1943; Labour won without much difficulty, but with reduced support. The initiative had passed to the Opposition, even if it took two more elections (1946 and 1949) to bring it to the Treasury benches.
Fraser's Government presided over the readjustments of peace as it had over the stresses of war – in a spirit of paternalism (becoming increasingly rigid and touchy), and with a readiness to intervene in economic life in the interests of stability and welfare. Its members were getting old and the problems were insuperable in any case. The ancient enemy, inflation, still threatened, and counter-measures, unpopular but tolerable in wartime, in peace were merely unpopular. On the one hand farmers clamoured for and secured a greater share of the sharply increasing earnings of their products; on the other the unions grumbled at wage restraint, and the more tough-minded of them, notably the watersiders, secured major increases by strikes or threats of strikes. Less advantageously placed wage earners contented themselves with modest increases through Arbitration Court wage orders, again allowed after 1945. Internal prices climbed high, higher than increasing incomes; housing was short, and there were still scarcities. In brief, stabilisation was crumbling before a popular demand for relaxation of controls and increase of rewards. The Labour Party, traditionally allied to the unions, was weakened by the intransigence of the industrial left wing; the National Party saw power at the end of a road paved with promises to dismantle control, defeat inflation, and reduce taxation. Had not the Labour Party abolished the country quota (a device that had artificially weighted the rural vote) and had not Maori voters stayed faithful, Labour would have been defeated in 1946.
The years immediately before this election saw the successful implementation of a generous rehabilitation policy for returned servicemen. Low interest loans and grants were provided by the State for farm and house purchase, for education, and for setting up businesses. The State bought a good deal of farm land, developed it even to the extent of fencing and building, and passed it on to ballot-selected servicemen. An elaborate, and not wholly successful attempt was made to control property values, both as a measure against inflation and as an aid to rehabilitation. The contrast with the post-1918 programme was striking.
Labour's last three years, 1946–49, were among its most inglorious. Industrial relations, notably on the waterfront, evolved towards the crisis which was to come in 1951. The continued intimacy between political and industrial Labour enabled the Opposition to attack the Government for its softness towards “the wreckers”. The situation was not unlike that of 1911, with Holland and Fraser occupying the positions of Massey and Ward. Fraser, in these years, convinced himself that the international situation required a reversal of Labour's traditional policy towards conscription, and, after arousing dangerous enemies in the Labour movement, had his way through a referendum in 1949.
With his hostility to international communism grew his antipathy to critical left wing elements in his party and in the country at large – and the two were assumed to be not far from identical. Labour was indeed fighting for its life; its majority was so narrow that any dissidence on its left wing would play straight into the hands of the Opposition. In fact the National Party hardly needed such assistance. Popular anger at inflation and impatience with controls (a paradoxical union of antipathies, for the dismantling of controls would only liberate inflationary forces, as the National Party discovered when it exchanged the exuberance of opposition for the sobriety of administration in 1949) were sufficient to carry the day. In 1949 the new men took over. It is probably not too much to say that an era, comparable in its formative character to the Liberal period, had come to an end.