A new direction, 1983–1984[edit]At the end of 1983 there was a marked change in Douglas’s thinking. He prepared a caucus paper called the “Economic Policy Package” which called for a market-led restructuring of the economy. The key proposal was a 20 per cent devaluation of the dollar, to be followed by the removal of subsidies to industry, border protection and export incentives. The paper doubted the value of “picking winners” and saw only a limited place for government funding of economic development.
[21] His colleague
Stan Rodger described the paper as a “quite unacceptable leap to the right”. It immediately polarised opinion in the Labour Party.
[22]
Douglas characterised the policy package as restrained and responsible, and an appropriate response to the country’s economic difficulties.
[23] He acknowledged the contribution to the package of Doug Andrew, a Treasury officer on secondment to the parliamentary opposition, among others.
[24] W H Oliver noted the close alignment of the package and
Economic Management,
[25] Treasury’s 1984 briefing to the incoming government.
[26] His assessment was that Douglas was predisposed towards the Treasury view because its implementation required decisive action and because greater reliance on the market solved what Douglas saw as the problem of interest-group participation in policy-making.
[27]
Division in Labour over economic policy crystallised when a competing proposal was submitted to the Labour Party's Policy Council. Its proponents included Rowling and others who had resisted his replacement as leader. It argued for a
Keynesian use of monetary and fiscal policy. It was sceptical about the ability of the private sector to promote economic development. Economic restructuring was to be led by the government, which would act within a consultative framework. In this way, the social costs of restructuring would be avoided.
[28]
There was stalemate in the Policy Council. As the
1984 election drew closer, Labour’s deputy leader
Geoffrey Palmer drafted a compromise that contained elements of both proposals. The Palmer paper was broadly worded, and it made no mention of devaluation. It anticipated some form of understanding between government and unions about
wage restraint. It allowed for extensive consultation about economic policy and stated that necessary structural change would be gradual and agreed.
[29] When Muldoon unexpectedly called an early general election, the Labour Party adopted Palmer’s paper as its economic policy. Lange said that Labour went into the election with an unfinished argument doing duty as its economic policy.
[30]