Political and External Affairs
CHAPTER 10 — Settling Down
THE insoluble problem of war aims accentuated a cleavage already developing within the government party. Those who asked the most awkward questions in this field were, for the most part, men within the Labour fold who were already somewhat critical of the party's leadership; critical of alleged tendencies to compromise with capitalists, to slacken the drive towards socialism, and to keep party direction in the hands of the ‘Old Guard’. Such men were for the most part younger politicians, leaders of militant trades unions, and independent sympathisers of radical tendency. They carried into a government party something of the language—and the impatience—which had marked their present leaders twenty and thirty years before, and their implicit claim was to represent the true spirit of the Labour Party still unsuffused by the conservatism of age and the temptations towards compromise of high office. The most vocal of the malcontents was J. A. Lee, between whom and the Prime Minister a strong personal antagonism had developed. Lee was an able man who had not reached cabinet rank, and a powerful propagandist of striking personality. He spoke with added authority in wartime as one of the party members most experienced and most interested in modern war. Without touching on communism he claimed to represent the left wing of the party's economic thinking. His ability and ambition and broad, undefined radicalism had long marked him out as a natural spokesman for any serious challenge to Labour's established leadership; and the economic situation in 1939 provided clear-cut issues on which to stand.
The years 1938 and 1939 were marked by a prolonged financial crisis, which Hitler's war masked but intensified rather than resolved. After three years of general prosperity the Government was still spending over £6,000,000 yearly in promoting employment. The State's debt to the Reserve Bank leapt up during 1939, and a big increase in imports nearly extinguished that surplus in her external trade out of which New Zealand paid her way abroad. Moreover, spectacular events had underlined the seriousness of the page 114 situation. In 1938 the sterling balance fell suddenly and in December exchange control was hurriedly imposed to keep New Zealand solvent. A few months afterwards Walter Nash travelled to London to deal with the problem of converting a group of large overseas loans which fell due early in 1940. He could not arrange normal terms and had to promise repayment over a period of five years, a proceeding which would in normal times have been a very severe burden on the national economy. This virtual demand for quick repayment was an entirely new experience in New Zealand's history, for her development had been financed by long-term loans, which neither lender nor borrower expected would be repaid. It showed the power still held by a lender over a community whose credit had been shaken, and underlined a dependence which the development of dominion status—of virtual sovereignty in international affairs—had done little to weaken.
This was the problem that crystallised a sharp difference of opinion within the Labour Party. Cabinet evidently judged that the time had come, if not for credit restriction, at least for a slowing down of the expansionist policy followed since 1935. The 1939 Budget forecast measures to deal with inflation, and was close enough to orthodoxy to give considerable gratification to the Opposition and to infuriate a powerful element in the Labour Party. Belief in the supreme importance of control over credit and currency had become strong and widespread in New Zealand during the depression, and with it the feeling that powers so vital should be in the last resort under public and not private control. Advocacy of something vaguely called ‘social credit’ had played an important part in Labour's victory of 1935, and this line of thinking was strongly represented in the new government. One of its first and most important actions was to take full state control over the new Reserve Bank. By the Act of 1936 the bank operated its extensive powers under the direction of the Minister of Finance, and it was used directly to finance such major schemes as state housing and guaranteed prices for dairy produce. For the orthodox these proceedings were noxious both in principle and in detail; but advocates of ‘social credit’ were still unappeased. In the last months of peace they accused the party leadership and especially the Minister of Finance, Walter Nash, of undue caution and conservatism in the use of his powers, and demanded in effect that social welfare should continue to be vigorously promoted by the use of debt-free credit from the Reserve Bank.
The conversion operations imposed on Nash in 1939 were to Lee an example of the unscrupulous exercise of brutal and impersonal financial power which it was precisely the duty of a socialist government to combat. The correct policy, therefore, was page 115 to answer by continual credit expansion in defiance of the London money market. To the apprehension of his leaders that such expansion would lead to inflation Lee made no answer that has been recorded, but to their acute embarrassment he did not fear to use the dread word ‘repudiation’ in relation to overseas debt. If the screw were turned hard enough to force the issue, New Zealand, he said, should refuse to meet her overseas debts rather than sacrifice the well-being of her own people.
This conflict of opinion within the government party was unresolved in September 1939, and was inevitably accentuated from the outbreak of war. The flow of consumers' goods was further slowed down, and at the same time defence expenditure built up purchasing power. Moreover, long established Labour Party attitudes were very relevant and very embarrassing to the Government's more orthodox advisers. In particular, there was a long-standing promise that conscription of wealth must precede—or at least accompany—conscription of manpower. The origin and general intention of this promise was clear enough, however unprecise its meaning when examined by economists and administrators. Since the first introduction of compulsory training, and particularly during the First World War, the Labour Party had vehemently opposed conscription. It had strongly contrasted the sacrifice of life and limb made by the conscript with the prospering of ‘profiteers’ behind the lines. It had complained that soldiers came home to find that the cost of living had soared—for other men's benefit—and that the war had been financed by loans which they must help to repay; and it suggested that these evils should be avoided by imposing as rigorous a compulsion in economic as in military matters. If wealth could be conscripted it would appear that civilians could be given precisely the same pay and conditions as soldiers, and capital, instead of commanding the high interest rates of the previous generation, could be levied free of interest to the extent necessary for the public good.
1 NZPD, Vol. 256.
The Government, in short, was compromising, as governments must. It would have been administratively as well as politically impossible to have carried out a wholesale, state-directed mobilisation of men and industry in the public interest and in defiance of private wishes. Even a reforming government must use the methods and institutions and men available; wartime haste breeds conservatism rather than radical experiment. That at least was the judgment of those elements in the Labour Party who were already accusing cabinet of far too great a readiness to use instead of to destroy the machinery of a previous era. The war situation thus aggravated an existing struggle for leadership of the powerful Labour Party machine—a struggle which could no longer be postponed, if only because the Prime Minister was mortally ill, and there was no individual whose prestige in party and country stood so high that he could claim unquestioned right to the succession.
1 NZPD, Vol. 256, p. 249.
2 Ibid., p. 231.
The expulsion of Lee from the party and the appointment of Fraser as Prime Minister had implications of first-class importance in the functioning of the Labour Party and in the relations between Government and Opposition during the critical months that followed.
The new trends, therefore, were not unchallenged. Nevertheless, the events of September 1939 to May 1940 certainly strengthened the grip over the party and therefore over national policy of the men who had guided Labour to power.
If these events strengthened the Prime Minister's hand—at the cost of considerable subterranean criticism—they also gave a new aspect to the long search for a broad political unity in face of national danger. They amounted to the defeat of the Labour Party elements least trusted by the Opposition and the victory of the ‘old guard’, whose economic policy, though distasteful to it, was not revolutionary. With Peter Fraser in power it was clear that the war situation would not be used to push doctrinaire ‘socialism’, and that the principle of conscripting wealth would be applied in a form not unduly novel. Wartime economic policy, and the institutions through which it was administered, brought no breach with the past more drastic than that imposed on his reluctant followers by J. G. Coates during the battle against the depression. There was a basis here for subsequent agreement on the general policy of economic stabilisation. Moreover, it had long been known that Fraser himself was personally in favour of closer collaboration between the two parties.1 Nevertheless, the forces within both parties operating against a coalition government proved overwhelmingly strong. Indeed, during the first eight months of war New Zealand became more rather than less pledged to maintain the conventional party form of government.
1 Cf. NZPD, Vol. 256, p. 447, 28 Sep 1939.
1 NZPD, Vol. 256, p. 47.
3 NZPD, Vol. 256, p. 21.
When Parliament reassembled on 12 September there was still an atmosphere of slightly uneasy truce. The Government was not quite ready with detailed plans, but it introduced the Emergency Regulations Bill to replace the Public Safety Conservation Act, 1932, as authority for wartime government by regulation. The new measure was drafted very widely indeed, giving cabinet virtually unlimited power to legislate; but the Opposition contented itself with pointing out dangers of abuse and the need for utmost care in administration. ‘We acquiesce at this time,’ said Adam Hamilton, leader of the National Party, ‘or at any rate we do not intend unnecessarily to obstruct or resist’. His deputy, Coates, said bluntly that ‘our only thought’ must be the successful prosecution of the war, that all must help the Government to get its plans on to a sound basis, and that criticisms should be made ‘not merely for the purpose of criticising but with a real desire that the best should be done in the circumstances in which we find ourselves1.’
1 NZPD, Vol. 256, pp. 94, 98, 13 Sep 1939.
2 Ibid., p. 841.
4 NZPD, Vol. 256, p. 103.
Nevertheless, in spite of friendly valedictions, events had already taken a decisive twist by the time Parliament adjourned on 6 October. It soon became clear that in the view of Adam Hamilton, who among the Opposition leaders was one of those most likely to meet the Government halfway, Peter Fraser had had ill success with his avowed policy of so trimming his party's legislative programme that contentious issues would be postponed or reduced to a minimum. On the contrary, Hamilton pronounced the legislation of the session to have been ‘revolutionary and objectionable’ and to have been introduced deliberately, after full consideration. In his view the Government had rejected his offer of co-operation, and was pushing its normal domestic policy under the guise of wartime emergency.2 On the political side the Emergency Regulations Act, which gave the executive the right to rule by regulation, was perhaps a disagreeable necessity, but its use had to be vigilantly watched, and the Opposition fought tooth and nail against other Government measures. In particular, it took the greatest exception to the Reserve Bank Amendment Act and the Marketing Amendment Act.3 The first extended the powers of the bank and required it without qualification to carry out the Government's decisions. The second gave power to buy and resell any commodities at prices to be fixed by the State. These Acts were regarded by the Opposition as major steps in the direction of autocracy and socialism.
1 NZPD, Vol. 256, p. 840.
2 Hawke's Bay Daily Mail, 14 Nov 1939.
3 Round Table, March 1940, p. 462.
4 Tomorrow, 11 Oct 1939.
This appeal asked much of an opposition which had already denounced leading government measures as being precisely an acceleration of party policy under guise of national necessity. It probably asked more than any virile opposition could concede while the war was still uneventful and rather remote. During the summer of 1939–40, therefore, the Opposition continued strong criticism of the Government's domestic policy in terms that were familiar enough in normal peacetime controversy, but which, as used by less responsible spokesmen, amounted to violent abuse. They were answered in terms equally violent. To those who said that at home ‘we must fight Nash-ism as the men overseas were fighting Nazism’,2 it was retorted that extreme and unscrupulous criticism amounted to sedition and an obstruction of the war effort. Controversies thus phrased showed clearly enough how, in the slack months that followed the fall of Poland, the scale of values in political discussions became disturbed.
2 Standard, 30 Nov 1939; Opotiki News, 20 Oct 1939.
In this atmosphere the two main parties naturally drifted apart, even in respect to war measures. By November, for example, the Opposition chiefs had ceased to consult the policy cables exchanged with the British Government; they could scarcely take advantage of this access to confidential documents while engaged in severe criticism of general government policy.1 In the rank and file of the Opposition a more far-reaching change of tone was taking place which was, in due course, to culminate in the replacement of the existing leadership by one which might be described as more virile or more virulent according to one's political predilections.2 It must remain a matter of speculation as to whether this hardening trend in domestic politics might have been arrested if the war situation had been from the first as tense as it became in May 1940. As it was, the period of relative calm promoted a swing within the Opposition towards more ‘normal’ party behaviour, which in turn would put increasing difficulties on those in both camps who favoured more intimate collaboration.
During the summer of 1939–40 the Government was, then, faced with three currents of discontent: on the left a small noisy minority accused it of betraying the interests of the working-class; on the right, criticism of economic policy overflowed into general denunciation; and small but embarrassingly sincere and active groups of conscientious objectors questioned the whole morality of war. A period of slackness in military operations and an inevitable sense of frustration and ineffectiveness had opened the door to criticism. This in turn made an already sensitive cabinet more sensitive still, and made it more authoritarian both in relation to its own political followers and to the community as a whole.
1 Cf. statement by Hamilton, Hawke's Bay Daily Mail, 14 Nov 1939.
The regulations of February 1940 completed the main structure of a formidable system of censorship and of control over public expression of opinion. They are a reminder, too, that this system had an object much more complex than the straightforward denial to the enemy of military information. Censorship of civilian mail was not regarded, as was censorship in the Army, as a valued means of testing opinion, but it sometimes provided useful information.1 In addition, it was felt that in some circumstances too great publicity in the mere exchange of opinion might gravely impede the war effort; if confidence in the general capacity of the Government to run the war were undermined, whether locally or overseas, damage might well be done. In the early months of the war, therefore, postal censors were apt to cut from letters criticism of government policy, criticism which was mainly aimed at slackness of effort, but which censors regarded as ‘exaggerated’ or ‘likely to mislead’. Such action was naturally resented, and policy was soon modified. Instructions from the controller of censorship in late 1939 and early 1940 did much to remove cutting which was close to the margin of being political in effect, though not in intention.
1 Documents, II, p. 101, note 2.
2 NZPD, 13 Oct 1944.
This last principle would, of course, have been accepted universally, with the vital qualification that in a democratic community men must know the facts necessary to enable them to form responsible judgment. The difficulty arose in that vast area in which the application of principle to individual cases was not axiomatic. In such cases the New Zealand system concentrated the power of interpretation in the hands of the Director of Publicity and his assistants. He and his political chief, the Prime Minister, came from a political party to which the press was almost unanimously opposed. For many the determination to avoid undue encroachments on the liberty of the press was strengthened by irritations of a more partisan kind, and during most of the war the Director of Publicity fought more or less friendly guerrilla warfare with the press.
His powers were in the last resort immense, for he was part of an executive machine clothed with almost unlimited authority under the Emergency Regulations. For instance, it would not have required any high degree of ingenuity to brand almost any political criticism as subversive, since subversive reports included those that were false, or likely to cause disaffection to His Majesty, or likely to disturb the morale of civilians or soldiers.2 However, the Government had taken more powers than it had any intention of using, and in practice the Director of Publicity worked in three main ways: the press was forbidden to publish specified news items, or material bearing on certain subjects, without reference to him; it was invited or exhorted to adopt certain policies; and when it published material which the Director judged prejudicial to the public interest, it was reproved, and in certain cases prosecuted. In addition, the Government held the right, which it occasionally exercised, to suppress a publication altogether. The Director's strong preference was naturally to proceed by co-operation, not compulsion or threat; his own testimony3 in 1943 was that the press normally complied with requests even when there could be no threat of legal action.
1 Circular of 17 Apr 1940.
2 Emergency Regulations 1939/121.
By April 1940 New Zealand was fighting her war in some comfort. Military action had slipped into the well-worn and emotionally satisfying channel of co-operation by expeditionary force. Military discussion amounted essentially to a hot debate on whether or not that force could—or should—be maintained by volunteers. At each extreme in this debate were those with strong prior commitments: Labourites pledged against conscription, and conservatives convinced that it was immoral as well as impracticable to rely on the patriots and allow slackers to escape. For the most part, New Zealanders were content to observe that the existing system was thus far producing the required results. As late as 6 May 1940, Peter Fraser said plainly that if New Zealand were in danger ‘then automatically every man, woman and child and every penny of wealth would be at the disposal of the state’. But he added that up to the present time ‘the voluntary system had been a great success, and the Government adhered to it’.1 None but fanatics, therefore, expected any change in military policy till fighting should flare up.
Similarly, the economic system had adapted itself well enough to the muffled shock of an inactive war. New Zealand's system of economic controls—including control of imports and of overseas exchange—was already well advanced in 1939, and could be adapted with relatively little experimentation to a wartime situation. Overseas trade, the life blood of New Zealand, passed entirely under state management, and dairy produce, meat and wool were sold in bulk to the British Government at prices somewhat above those of the previous season. Income thus remained reasonably high, and though there were awkward interruptions in supply, life was much more normal than could have been expected. Experts somewhat ruefully contemplated long-term dangers. For instance, though patriotic New Zealanders were urged to produce more food, it was by no means clear that Britain would buy without limit; indeed in April 1940 there was a real threat that purchases would be cut down and British larders replenished from Denmark. Again, while New Zealand's policy was—and remained—that of selling at prices approximating to those of 1939, the prices charged for her imports greatly increased. A suggestion that if this went on the prices for New Zealand's exports should be increased, so that her income would remain roughly stable, was received without sympathy in Britain. Further, there was a real threat that two of her staple products—butter and wool—might be displaced by substitutes. For New Zealand, therefore, the war might amount to a slow strangulation of economic life.
2 Round Table, June 1940, p. 721.