For Europeans, New Zealand appears as a beautiful and remote archipelago—a destination for bucket lists and retirement dreams. Yet for those who call it home, paradise has given way to profound uncertainty. The country’s economic progress, social cohesion and very identity as a state are under immense pressure. What kind of state should New Zealand be? What can it do for the people it ostensibly protects?
A colonial government was established in 1841 and the country’s borders have not been challenged since. In 1900, New Zealand chose independence over joining the Australian Commonwealth, largely due to geographic distance. While the country made its own decision to enter the Second World War, it only acquired full sovereign independence in international relations in 1947.
New Zealand operates as a unitary state with a Westminster-style parliament that first assembled in 1854. The upper house was abolished in 1950 and since 1996 the country has used a mixed-member proportional electoral system similar to Germany’s.
Progressive beginnings
In social policy, New Zealand once led the world. The 1890s brought industrial conciliation and arbitration systems, alongside provisions for workplace accidents and old-age support. Women won the vote in 1893—a global first. Some contemporary observers saw New Zealand as an experiment in state socialism. Following the Great Depression, the first Labour government (1935–49) expanded social security, public healthcare and education, steering the country in a social democratic direction. Even the conservative National Party subsequently preserved progressive policies such as constructing state houses for low-income families.
During the post-war era, New Zealand remained an isolated country roughly the size of Italy but with a tiny population that reached only three million in 1974. Its prosperity depended heavily on agricultural exports, benefiting from favourable trade arrangements with the United Kingdom (before Britain joined the European Economic Community) and from import-substitution policies.
Yet questions about the state’s constitutional legitimacy have haunted New Zealand from the beginning. The foundational national document is Te Tiriti o Waitangi (the Treaty of Waitangi), signed in 1840 between more than 500 indigenous leaders and representatives of the British Crown. This treaty permitted the establishment of a government (kawanatanga), guaranteed the customary authority and properties of the native inhabitants, and extended British law to all residents. Settler governments severely breached these promises in countless ways, however, and the indigenous Māori became a disadvantaged minority in their own land.
From the 1970s, a movement to restore indigenous rights gained momentum. A restitution process, including land transfers, has been underway since the early 1990s. While these settlements face no serious political controversy, a divisive debate rages about the treaty’s expanding constitutional significance. One interpretation holds that Te Tiriti represents an enduring partnership between Māori and the Crown—effectively the state—requiring all public institutions to adopt co-governance structures and honour indigenous self-determination. The opposing view maintains that the treaty (in its English version) established Crown sovereignty, under which all New Zealanders would enjoy equal rights and responsibilities.
These competing visions erupted into open conflict in early 2024 when parliament considered a bill interpreting “the principles of the Treaty” along the latter lines. Though defeated, the bill exposed fundamental disagreements that will not disappear.
The neoliberal experiment
These arguments reveal how many New Zealanders prioritise individual rights and private enterprise. Such ideas triumphed after Labour’s critical 1984 election victory, when New Zealand became neoliberalism’s poster child. “The New Zealand model” of public policy became a talking point for international agencies advancing globalisation. The radical reforms produced mixed results for ordinary New Zealanders, however. Income inequality and unemployment soared in the late 1980s and early 1990s.
Today, the streets bear witness to social and institutional collapse: homelessness, substance abuse, poor health and immiseration afflict many, especially indigenous Māori. At the opposite extreme, a wealthy elite—closely networked and self-perpetuating in such a small population—has consolidated its advantages.
The neoliberal push for a minimal state reached its limits, however; the New Zealand model was never fully implemented. Today, New Zealanders across the political spectrum look to government for improvements in public services and economic performance, though they disagree sharply on methods. The centre-right National Party claims it can “grow the economy” as if it were a garden plant, abandoning any pretence of Hayekian laissez-faire principles.
Economic restructuring has delivered disappointing results regardless. GDP per capita declined by 2.8 per cent in the two years to June 2025. The economy is reeling from strict Covid-19 lockdowns while suffering from a productivity lag that has persisted since the global recession of the early 1970s. With a currency holding minimal relevance in global markets, New Zealand has fallen behind the OECD pack and may be sliding into a long-term debt spiral.
Although most New Zealanders still enjoy relatively high levels of wellbeing in what remains a high-trust society, the official statistician reported declining trust in key public services and parliament in its 2023 social survey. As elsewhere, unfettered social media has exacerbated divisions while rising living costs contributed to Jacinda Ardern’s resignation and Labour’s electoral defeat in 2023.
An uncertain future
Political polarisation, economic inequality, climate change and the Artificial Intelligence (AI) revolution have rendered New Zealand an isolated and fragile state. A divided country facing an uncertain future. No matter how the government attempts to boost productivity and opportunity—through investments in education and research, or smarter or fewer regulations—New Zealand lacks the scale to compete with the digital platforms increasingly driving global growth, especially with AI.
New Zealanders will pay fees and subscriptions to mega-platforms while losing advertising revenues, with little to trade in return beyond traditional land-based products. These exports risk displacement by new agricultural and protein-manufacturing technologies that will produce food closer to the world’s most affluent consumers.
The Tiriti-based politics of grievance make the country both inward-looking and backward-looking. Public discourse about economy and society inevitably centres on the state, yet no consensus exists about its foundations. Political parties lack compelling visions for future prosperity, and trust in them continues declining. Election debates revolve around taxation, transfers and public services—undoubtedly important issues—but New Zealand’s long-term productivity gap will probably widen regardless of who governs.
Caught between high expectations for public service delivery and widespread resistance to central planning, the state lacks the means, legitimacy and foresight to propose and execute politically durable infrastructure and economic development strategies. The state is eroding like a sandcastle, as public confidence and political consensus crumble beneath the waves of global change.
This article is part of a series on global discussions about the state and government, produced in partnership with the Friedrich-Ebert-Stiftung.
Grant Duncan (www.grantduncan.com) is an honorary research associate with the Public Policy Institute, University of Auckland, New Zealand. His most recent book isGovernment and Political Trust: The Quest for Positive Public Administration(Routledge 2024). He writes thePolitics Happensnewsletter on Substack.
