The
1987 New Zealand election was held at a critical time of change for the island nation. Structural problems in the highly-regulated New Zealand economy had resulted in stagnant economic growth, which began to compound annually as the after-effects of the British entrance into the European Economic Community in 1973 (which deprived New Zealand of its most important import-export market) snowballed. Longtime National Prime Minister Sir Robert Muldoon had led his party to a surprising fourth consecutive victory in 1984, but his bullying conduct and steadfast defense of New Zealand's increasingly strained, expansive welfare state meant it was a Pyrrhic victory. The slim victory was seized upon by Muldoon's opponents within the party and he was toppled in a leadership contest in favor of his deputy, Jim McLay, less than four months into his term.
McLay, eyeing widespread anger on the economic right of the party, began to implement a rapid privatization and deregulation plan, which became known as "Ruthonomics" after Finance Minister Ruth Richardson, who McLay promoted from the backbenches in a bid to bring "fresh faces and new ideas" into a government that was wearing out its welcome with the New Zealand electorate. The whiplash between Muldoon and McLay's economic policies, however, only served to confuse and anger voters, especially National supporters who were closer to Muldoon and Minister of Defence Jim Bolger than McLay and Richardson.
By 1987, National was in trouble, with polls showing plenty of "soft National" support drifting over either to Labour (led by Jim Anderton) or the Social Credit Party, which had continued to survive in its niche as a combination of protest voters as well as genuine supporters of social credit theory. The Kahuta Explosion's impact was soon felt in New Zealand as well. Protests against nuclear-powered ships entering New Zealand waters soon reached fever-pitch. McLay publicly refused to accede to the demands of both Labour and dissident National MPs to make New Zealand a "nuclear-free zone" by saying it would jeopardize New Zealand's national security by not allowing United States Navy vessels (who as a matter of policy, refused to state whether their vessels carried nuclear weapons) to dock in New Zealand ports.
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The result was a swing decisively towards Labour and Jim Anderton, who promised to implement such a ban if Labour was given a majority in the upcoming election. Combined with "Ruthonomic" deregulation causing widespread criticism for both its rapid pace and ensuing layoffs of workers from state-run or formerly state-run enterprises, the result was a solid Labour majority. The presence of Social Credit to act as a spoiler in many suddenly-competitive electorates prevented a Labour landslide, but the damage was done. For most of the 1990s, the fallout from the Muldoon and McLay governments would leave an internally-divided National Party vulnerable to third-party splinters (such as New Zealand First in 1992 & 1995 and Liberal NZ/Liberal Alliance from 1998 until 2005), leaving Anderton and his successor, Helen Clark, to run the country until 2005 and ultimately setting the stage for the current two-and-a-half party system in New Zealand.