New Zealand still feels the loss of our full employment economy
This piece was first written for CAFCA in December 2024. It can also be read on Levellers and Revellers
Much discussed in mainstream social commentary—the problems of decay, idleness, and disorder, once unthinkable to prior generations, now constitute a prominent feature of daily life. Despite the pressing nature of these problems, it is often neglected—through deliberate obfuscation or a lack of economic cognisance—that key social issues are resultant of mass unemployment.
Such a blindspot in public policy and analysis did not not always exist. In the wake of the Great Depression and Second World War, full employment played a central role in the post-war consensus that set the parameters for economic organisation and labour relations. ‘Never again’ not only applied to conflict on an industrial scale, but the traumas of insecurity in the Great Depression. Namely, the destabilising and damaging impact of mass unemployment.
The Way Out of the Labyrinth
Ninety years ago, the government of Michael Joseph Savage and Peter Fraser followed interventionist proscriptions aimed at addressing the thread or social and economic relationship that underlies prosperous social health on the macroeconomic level and personal attainment on the microeconomic level. In time, these measures would come to be known as the Keynesian Fordist model of economic management.
In the backdrop of the Great Depression, the question asked and answered by the First Labour Government was a simple one: after decades of ‘drift’ by respective Liberal and Reform governments, whose approach to poverty and economic insecurity was to ebb-and-flow in the generosity of gratuities given by the state, how does a nation prevent privation and insecurity occurring in the first place? Widely available decent work was an obvious aim, but realising that aim without a substantive, alternative economic agenda would render the idea more of a nostrum than a credible focal point. In short, the Government had to gain the initiative by generating wealth, not redistributing it.
Redistributing wealth was one thing, but in reality national wealth had to be generative in order to have the ‘internal buoyant demand’ necessary to lift incomes and living standards. Developmentalism became the new state philosophy. By expanding existing domestic industries and establishing new ones, meaningful, productive work could be provided directly and indirectly (as job opportunities ripple out from secondary industries, through transport infrastructure, components manufacturing, and so forth). Thus, giving earnings to workers substantially higher than any relief work or service occupations ever could. W.B. Sutch and Walter Nash, the architects of New Zealand’s post-war model of economic and social security, emphasised how ‘an expanded social policy with jobs on a reasonable minimum income for all demanded development of New Zealand [goods-producing] industries.’ (Poverty and Progress, 1969)
In other words, industrial policy is central to establishing the conditions for genuine full employment—for without it, an economic boom necessarily would result in incomes rising (as aggregate demand increases), therefore, a greater number of imports, which in turn would produce the contradiction that over-importing results in idleness on the part of those who would assemble or manufacture for a higher labour cost (domestic producers undercut), and raises the indebtedness of the nation.
Further to this, bottlenecks can arise when unused capital is sought to be deployed domestically (by either the state or private actors), and local capability and capacity is found wanting after years of underdevelopment and underinvestment. A recent Treasury information release echoed these concerns (Approach to capital investments in Budget 2024). In the years 2021-23, inflation rose from 1.5% to peak of over 7%—an external economic shock driven by a surge in import prices as the cost of imports increased a staggering 25% in a single year (Stats NZ Table OTP001AA).
Greater demand on domestic suppliers provides the terrain for opportunistic price-setting. According to economists Isabella Weber and Evan Wasner, ‘if sellers’ inflation is tackled by inducing a recession using tools designed for aggregate excess demand, it can aggravate the institutional conditions that gave rise to it in the first place.’ In other words, a supply chain shock is an indication of a failure in the industrial base of a country, and imposing higher servicing costs on businesses that occupy strategic choke points in the economy will result in higher pass-through costs for other firms or consumers directly.
Poor investment in the productive base of the economy—driven by the perverse incentives of shareholder capitalism—cannot be redressed by a financial stabilisation scheme aimed at pumping up those very profits. Thus, without a comprehensive and expansive programme of economic management through industrial policy and public investment, both prices and wages exist in a precarious condition in periods of international economic instability.
Due to supply chain issues, domestic producers perhaps did not feel the full effects of a surge in importing, but what was felt was the final stage in the liberalised economic cycle: a necessary reduction in living standards of working people, so as to alleviate the ‘demand pressures,’ and stabilise the financial situation. Without an industrial policy to absorb expanded incomes and investment, austerity and punitive ‘flat’ taxation become the only tools of financial stabilisation. In these economic parameters, uncertainty of job security, the social ills of mass unemployment, and rent seeking behaviour are baked in. Moreover, such a policy regime—the monetarist orthodoxy of the Reserve Bank and Treasury—in effect, treats pro-worker, bottom-up economic growth as an undesirable outcome to be rectified with the crude instruments of hiking interest rates and other measures referred to herein.
In short, the object of Keynesian industrial policy is to reconcile continued full employment and decent living standards with a balanced, stable economy. It is important to note that in the absence of national planning, which would provide the vehicle for a coherent economic strategy to expand the proactive base of the economy, capital misallocation from private actors chasing the only certainty of short-term returns can also proliferate. With such an environment, our best minds and talent are more likely to be put towards the abstractions of finance capital than any production of social use.
A convincing solution for providing economic equity on the individual level will have to involve the necessary macroeconomic policy to “scaffold” the conditions for secure, continuing work on a long-term scale. That is, one must seriously examine and address how the cycles of crime, despair, and frustration on the individual level are irrevocably tied up with the trends of our economic life. With this in mind, it is worth addressing the various pernicious cascading effects of mass unemployment.
Back in the Labyrinth: Bearing the costs of NAIRU (non-accelerating inflation rate of unemployment)
Above all, full employment itself is a precious good. Conversely, unemployment is possibly the worst social cancer society can develop.
Wolfgang Rosenberg, The Magic Square
To begin with, an overview of unemployment figures across the mid and late 20th century provides a glimpse into the collapse of security that New Zealanders experienced across the 1980s. With levels of true full employment stretching back to the late 1930s, the unemployment rate in New Zealand averaged a world-leading 0.6% from 1964 to 1979 (New Zealand journal of industrial relations, 1989). Whereas from 1985 to 2022, a lamentable 5.8% of New Zealanders seeking work were idle, on average (Trading Economics, 2024).
Rates of Unemployment in New Zealand.
The hidden driver of social malaise: mass unemployment and the limited availability of decent work
While it is generally accepted that Rogernomics—Ruthansaia was socially disastrous with questionable (at best) economic benefits, not all sectors of society have recovered at even pace. In the late 1980s, the youth unemployment rate surged to over 20% while the total unemployment rate for Māori reached 26% in 1992. Such levels of unemployment for the general population would of course constitute a social and economic calamity—a Great Depression—the result was no different for the particular communities most severely affected by deindustrialisation.
Māori and youth unemployment, respectively, has consistently remained at over 10% since the 1990s. This has only aggravated the negative social outcomes associated with prolonged periods of idleness and insecure work—problems that have proven challenging and costly to resolve. That such a dreadful marker of social fragmentation and insecurity has been allowed to persist for so long is an indictment on four decades of failed neo-economically liberal/neo-laissez faire thinking.
One only needs to consider the extreme malaise and social challenges that would grip New Zealand if our unemployment rate was consistently in the double-digits for decades. It is no small wonder, then, how the afflictions of mental and physical ill-health, hopelessness, and crime continue to remain present in communities that are not afforded a meaningful purchase in economic life.
As Dr. Anaru Eketone from the University of Otago put it: ‘Many of our Māori people did not recover from the Hidden Depression [of the 1990s] let alone the GFC … PEP Project Employment Programmes … were rejected as “not being real jobs” .. as a pragmatist I saw the value of them first-hand to get people working, socialising and contributing to the community.’ (The “Hidden Depression” that never really went away, 2020)
Sacrificing a safe, stable society in exchange for safe, stable profits
And perhaps one such social ill that has captured public consciousness is mental health and the ensuing harm from psychological distress. A 2022 Parliamentary Library research report, released in March of 2022, stated: ‘Rising rates of youth suicide occurred alongside [the] rapid economic and social change [of the 1980s and 1990s] together with unemployment.’ During the latter part of the 20th century, some commentators reasoned that there was a link between suicide/self-harm and rising economic insecurity—most obviously represented by unemployment.
A contemporaneous cartoon reflecting the growing opinion that rising youth suicide was linked to unemployment by Frank Greenall
Some disputed the link, however, and considered the rising trend ‘more likely due to the broader social impact of economic difficulties on family and personal relationships [from restructuring].’ (Te Ara, 2011) Yet what goes unexplained in this “critique” is how or why the negative social impact of ‘restructuring’ would be hermetically sealed off from rising joblessness and the decreasing availability of decent work.
The “difficulties” that working people experienced—a sanitised way of referring to the increase in precarity, insecurity, and poverty—was fundamentally related to the amount of the labour force unemployed (and under employed). For rising unemployment transforms an employees’ market into an employers’ market—in the former, employers have to compete with other employers for workers; a buoyant labour market. The result is fundamentally a stronger position for ordinary people to bargain the terms of their livelihood. Conversely, when high unemployment is contrived, then wages can be driven down and conditions worsened. One could suppose the transformation of the 1980s and ‘90s was from an employees economy to an employers one. As one biographer of Norm Kirk put it wistfully:
The government staunchly maintained the Keynesian line, preferring to try and spend its way out of recession rather than retrench. Not the least aspect of this was its insistence on keeping unemployment so low as to be almost invisible. The great switcheroo since 1984 has been to prioritise the reduction of inflation — to levels so low as to be almost invisible — at the expense of full employment. Successive governments have massaged the public into believing that a certain level of unemployment is not only acceptable but desirable. That view was anathema not just to Kirk but to all his Labour predecessors, including Arnold Nordmeyer (leader from 1963 to 1965), who told Parliament in 1967 that 'members on this side of the House reject completely the notion that a measure of unemployment is not a bad thing for the economy. We say that it is morally debasing to a man to feel he is not wanted.'
We Need To Talk About Norm, 2023.
Put another way, one can operationalise security and cohesion as the unemployment rate/employment rate. Low unemployment results in higher wages, easier entry to work, and more decent conditions of work. Conversely, driving up the unemployment rate will grow the ‘reserve army of labour,’ in turn this will weaken the security and confidence of those who remain employed. Resultant of this weakened economic environment for working people — bearing in mind such an unfavourable environment is often achieved with the aforementioned brute measures of austerity, flat taxation, and rising interest rates — are economic pressures—pressures that squeeze and erase security, heightening the risk factors of physical and mental illness, as well as antisocial behaviour.
With “the big squeeze” put on working people, we can see how it is not such a reach that to reduce security in the nation—as represented by the rate of unemployment rising—is to guarantee rising social and personal ills. This will naturally extend to the most extreme social problems, such as suicide. What New Zealanders must confront is how tolerant are we of the degree of precarity that exists in our nation, and if so, are we comfortable with the dark consequences?
We have buried and ignored a clear social, political, and economic analysis of the driving causes of our long-standing social problems out of expediency towards upholding the microeconomic view that national wealth comes from turning the keys of our society over to rapacious commerce. What we need is a progressive moment economically literate and alert to the economic foundations our challenges. As the 1981 Labour Party manifesto declared:
It is all very well to talk of the "rule of law", but what little support National has given the police has always been too little and too late. Labour will attack the root causes of crime. Widespread youth unemployment and economic pressure remain principal causes of criminal behaviour. School leavers who are unemployed are not no-hopers. Just unlucky. That bad luck means the loss of pride and self-respect. Often it leads to frustration ... and to crime and violence. Today's level of unemployment is economically and socially disastrous. Labour's top priority will be to restore full employment.
Mental distress and unemployment: A damning empirical link
In a study One hundred years of suicide in New Zealand published by Acta Psychiatrica Scandinavia, four New Zealand researchers utilised data from the 1890s to the 1990s to bring some empirical weight to this debate. In it they described the link between rising suicide, particularly amongst younger people, and economic insecurity:
… although there may be a psychological predisposition to suicide, the force that determines suicide is social … anomic suicide.
[U]nemployment is now higher than even the 1930s and still rising. It is difficult to deny that the suicide rates and periods of economic recession and unemployment in New Zealand parallel each other … [there] is increasing data that supports the idea that rates of depression are increasing and that it is occurring at younger and younger ages …
In New Zealand, the increase in male suicide rates around the 1930s and 1980s and the lower rates in between is consistent with the prevailing social, economic and employment condition of the society … it is likely that social and economic factors are associated with both the two major rises and the lowest rates of suicide in New Zealand males over the last century…
It is hard to ignore the full employment period of the mid-20th century occupying the lowest point of suicide rates; while since records began, only twice in New Zealand’s history has the suicide rate risen sharply — during the Great Depression and the 1980s. Since, as discussed above, the economic and social disaster imposed by Roger Douglas and Ruth Richardson was, in effect, a selective economic depression for particular sectors of society—one can see how the broken social fabric produced higher rates of psychological distress and harm, the ensuing extreme consequences of that, and why those rates have failed come down to a satisfactory degree. There is empirical and historical precedent.
Unfortunately, during the 1990s, unlike the period 1935-49, New Zealanders were not governed by those who shared the interest of the many, those who would act swiftly acting to address the social crisis of mass unemployment by structuring the economy in such a way as to guarantee decent work for all those able and willing. This was, and still is, the only way to truly contain the epidemic of social ills.
This line of thought is not only confined to our shores. A recent study published in Australia found that:
National rates of unemployment and underemployment were significant drivers of suicide mortality in Australia from 2004−2016. We conclude that economic policies prioritizing full employment … ensuring the availability of adequate employment for every person seeking work may therefore be among the most effective means available of reducing the immense personal, social, and economic costs of intentional self-harm and suicide and should be considered a core goal of any comprehensive national suicide prevention strategy.
Science Advances—AAAS, July ‘23.
Suicide rates have remained high in the wake of the destructive Rogernomics—Ruthanasia social experiment, peaking at a staggering 26.8 per 100,000 in 1998 for males.
For perspective, in 1965, 91 New Zealanders died of suicide—these were overwhelmingly the elderly at a time when the limits of medicine did not necessarily guarantee comfort in old age. In 2015, the number was 527 and predominantly the youth to early-middle aged; but, perhaps more disturbingly, that is a 480% increase in suicide versus a population increase of 74%.
The wider consequences of mass unemployment
It is not only the actual deprivation of losing work and income, not only the humiliation of becoming a dole recipient after having been a person who had to be respected for his contribution to the social production, it is the insecurity of life which may haunt now the majority of working people. This is the factor which should unite them for policies of full employment.
Wolfgang Rosenberg
The view that an unemployment rate above 2% is deliberately maintained by neoliberal orthodoxy to undermine the bargaining power of working people is not solely the providence of left-wingers and trade unionists. Indeed, occasionally an oligarch will air the views of the ruling class with the same degrees of frankness usually reserved for the polite company of the Canterbury Club; such as Tim Gurner, real estate magnate:
Speaking at the Australian Financial Review’s “property summit,” the property developer and CEO — net worth $584 million — complained that the country’s 3.7% unemployment rate was, in fact, a problem. “We need to see unemployment rise. Unemployment has to jump 40, 50%,” said Gurner, because “arrogant” workers aren’t productive enough for his liking. “We need to see pain in the economy. We need to remind people that they work for the employer, not the other way around.”
Watch this multi-millionaire CEO say the quiet part out loud about class warfare. MSNBC, ‘23.
Defined as 4,5, or 6% at various times, the non-accelerating inflationary rate of unemployment (NAIRU) is integral to the maintenance of an extreme, employers economy where the dividend, not socially useful innovation or production, is the primary engine of growth. That it also ensures generational poverty, workers’ incomes untethered to productivity (incidentally a downward pressure on productivity), a winnowing middle class, and stagnant wage growth, therefore, invariably, a stagnant economy, does not seem to be cause for concern amongst our political class.
Of course, assuming an unfettered flow of goods and labourers from the Global South, NAIRU does maintain price stability—if only by cutting the ear off to spite the tinnitus. Retarding aggregate demand by crushing the purchasing power and economic power of working people to achieve a 2% inflation rate is an internecine approach. It does not take much nous to figure out why contriving to make the bottom 90% of the population poorer—the purpose of a Monetarist/NAIRU approach to price stability—will result in a country that is, overall, a less prosperous, attractive place to live.
Accordingly, a political economy that is committed to NAIRU instead of full employment must impose on working people a far more difficult, attritional existence than was the case half a century ago.
No social cohesion without economic cohesion (and security)
A sociological interpretation might be that the unemployment rate in a society is a marker of a lack of social cohesion that in turn is associated with suicide.
Journal of Epidemiology and Community Health, Feb ‘03.
The Paris riots of yesteryear were a sobering reminder of how generalised precarity is a social cancer that can lead to catastrophic consequences—as pressures building below the surface explode into a “sudden point of departure” of violence. But only sudden to those ensconced in the ‘cafe culture’ of cosmopolitan liberalism, far apart from the forgotten realities of day-to-day life.
It is in this we find the wider destabilising dynamics of mass unemployment. When an atmosphere of economic and material security exists, working people can have positive expectations of the future — expectations that can exist as a positive paternalist force — producing the intangible psychological bond between participation, obligation, and reward. Without this, there is no foundation to the social contract. The erosion of a high-trust society of prosocial behaviour is inextricably linked to the artificial structural unemployment required by a singular commitment to profit and price stability under neoliberalism.
On the one hand the system wants to engineer higher unemployment to address inflation (rather than cutting excess profits). On the other hand it supports continued sanctions on the unemployed.The warped capitalist logic punishes individuals for intended outcomes of the system.
Josephine Varghese.
With an unemployment rate of 25% for those aged under 26 (and a general unemployment rate of 18%), the poorest suburbs in Paris were long an area of discontent (France's Social Divide. Statista, 2024). Not dissimilar to the 2011 riots in England, where recurring joblessness produced a community feeling of frustration and low worth (Rioting link to deprivation revealed. Financial Times, 2011). In Tottenham, the site of the initial disturbances, there were 54 unemployed for every job opening. Local authorities concluded that ‘[for the] young people who chose not to riot, their most important reason was that they had a stake in the community: family and community ties, education and job opportunities.’ (Joblessness and 'toxic relations' with police are blamed for Tottenham riot. The Guardian 2012)
The themes presented here are of how economic marginalisation is central to social inequality and lack of social cohesion. As the young people from these communities have themselves attested, without decent work young people lack a focal point in their lives. That is, prolonged unemployment — or a situation where the only employment available is not secure, dignified work — produces a toxic cocktail of social dislocation, idleness, and heightened stress from insecurity, with the potential to spill over into antisocial or violent behaviour (From the Arab Spring to Liverpool? Al Jazeera, 2011).
One such young man from Tottenham presciently described the erosion of social capital and social harmony when social services are cut in an economically deprived area: ‘it cuts kids roots off and links, they don’t have anywhere to go … I think people are going to be trying to find things to do … people want jobs and that’s got to be frustrating, you’ve got a lot of people out here … that’s why there’s more crime on the road because there’s nothing to do … there’ll be riots.’ (Haringey youth club closures: 'There'll be riots.' The Guardian, 2011)
Whilst this reflects the individualised perspective of the consequence of economic marginalisation—as reflected by mass unemployment—the effects can also be explored from a sociological vantage point. Using ‘epidemic theory’ (or social contagion) as an analytical device, Tim Hazledine discusses the impacts of deindustrialisation:
When someone suddenly loses their job, they can do one of two things: go right out the next morning and search for another job or [stay idle]. These modes of behaviour are the two 'attractors' … Now, the neighbourhood is periodically subject to shocks … So long as these shocks aren't big enough to push the employment rate below 90 per cent, the local economy will recover as all the unemployed set out to find new jobs.
But [with deindustrialisation] the employment rate may tip below 90 per cent … [with] the neighbourhood [tipping] into a self-reinforcing high-unemployment regime … We should perhaps not be squeamish about recognising the precariousness of the getting-up-in-the-morning mode of behaviour: a lot can be done [to facilitate placement into decent work] … better than now, anyway. And the resentment against paying off a class of healthy male beneficiaries will not come so much from the rich as from other poor and lower-income people — those who struggle hard to earn their keep. A substantial degree of horizontal inequity is surely not sustainable in the long run.Taking New Zealand Seriously: The Economics of Decency, 1998.
That is, individual behaviour can be influenced by the narratives and expectations formed around the group that individual is a part of; societal expectations. With mass unemployment, especially running into the double-digits, a life of precarity, or worse, attrition becomes normalised—and the phenomenon of ‘self-fulfilling prophecy’ may occur. The same phenomenon the youth of Tottenham described. If the expectation is that young people are poor, will have to struggle to find gainful employment on an entry-level, and may have to “wear it” with respect to periods of unemployment, or exploitive work, then this develops a social horizon that reinforces mental distress and behavioural problems. What kind of horizon are we offering our youth today?
Taken as a whole, the organisation of society—an outgrowth of the organisation of economic life—communicates worth and respect to certain sectors, and less so to others. Being a member of group that suffers from a deficit of economic enfranchisement may lead to mass alienation or disaffection in itself. And for a vulnerable individual, amplify subjective distressing feelings. Moreover, just as an atmosphere of a social contract fulfilled encourages pride, is elevating and incentivising of dynamism, the converse is an active societal depressant and cancer. That is, as was alluded to above, economic inequality undergirds the kind of social tensions that can be exploited by right-wing populism. When people already lack dignified housing, work, quality social services—the frustration from their precarity can be channelled against the other members of the working class.
Furthermore, this line of thought is not solely the providence of antediluvian social democrats. Even during the height of Keyist do-nothingism, recognition of the importance of decent work for all remained. From a Minister in the sixth National Government of all places, Maori Party MP and Associate Minister Tariana Turia recommended the adoption of full employment schemes: ‘[community work schemes] will give young people the opportunity to develop skills … it would seem to me to be a great opportunity to look at how we engage with young people and give them confidence to be able to apply for jobs in the future.’
What is perhaps lacking is not the clear evidence for the individual and macroeconomic—societal benefits of full employment, but the political will to risk drawing the ire of the employing class by prioritising the interests of working people.
Going beyond the social sphere—the political economic implications of full employment
Fascism sprang up in Germany against a background of tremendous unemployment, and maintained itself in power through securing full employment while capitalist democracy failed to do so. The fight of the progressive forces for all employment is at the same time a way of preventing the recurrence of fascism.
Michael Kalecki.
In part two, we will explore the political economy of full employment, the tools the Government needs to avail itself of to address our mounting social crises and national malaise, and what the positive historical experience of full employment can offer in the way of envisioning an alternative form of economic and social management that affords true democracy and justice to the working-class—the people who make our society run.
Harry Robson is a bookseller at Scorpio Books, FIRST Union member, committed socialist and organiser at the Christchurch PSNA. He is involved in a nationwide group looking to form a civil society vehicle – campaigning on universalism, a publicly-owned, democratic economy, and the rebuilding of the social base of mass working-class politics. For further writings on economic justice and democracy, subscribe to levellersandrevellers.substack.com/