Lee affair

The Lee affair was an event that transpired in the late 1930s in New Zealand revolving around the unequivocally socialist Labour Party MP John A. Lee and his repeated public critiques of his party's leadership. The affair culminated with Lee's expulsion from the Labour Party. Lee then formed his own political party, the further-left Democratic Labour Party, causing a sizeable rift in party membership. The events have been described as the Labour Party's first major crisis of identity, the nature of which and manner of its resolution significantly affecting the subsequent development of the party for decades. Lee's biographer Erik Olssen stated that the Lee Affair "marked a key battle in the triumph of authority over democracy."

In-between the 1931 and 1935 elections a division of opinion began to manifest in the Labour Party caucus as to whether loans or credit should be the primary method of funding economic recovery and end the effects of the Great Depression. As a result, financial affairs were beginning to dominate party policy and general Labour concerns. This led to the development inside caucus of a monetary reform group, mainly from the more militant socialist wing of the party under the leadership of John A. Lee.

Throughout the 1930s many Labour MPs had communicated clumsily on the concept of credit leading to confusion as to the party's exact position. This left Labour in a difficult position when eventually elected.

Lee became something of a Young Turk in the Labour ranks. He seemed impatient with the party leadership which he believed to belong to an older generation. During the selection of his Cabinet, in both 1935 and in 1938, Prime Minister Michael Joseph Savage had ignored Lee's personal appeals for insertion, thinking him too wild and unconventional. Eventually Savage compromised making Lee an under-secretary – a post not previously known in New Zealand politics. Undoubtedly the largest reason for Lee's exclusion was that Savage personally disliked him. The two had a history of opposing each other on policy issues (notably Savage's loan proposals) and Lee opposed his selection as leader in 1933. When Savage announced his cabinet to caucus, it was clear that the caucus felt that Lee had been unjustly treated. More importantly, both of Savage's chief lieutenants Peter Fraser and Walter Nash thought Lee should have a place, and it was they who prevailed upon Savage to include him at the cabinet table on issues related to his role as Under-Secretary to the Prime Minister.

The treatment Lee received turned out to be a great mistake. Some very ordinary men had been included, for geographical considerations, like Jones, or from old loyalties, like Webb. An able and aggressive man like Lee might more justly and more wisely have been given a very demanding job. To make him Under-Secretary to a man with whom he did not get on [Savage] was worse than casting him aside.

At the beginning of 1936 Lee got the impression in cabinet that the government hoped to postpone a pledge to guarantee prices for a year and were abandoning party policy. Typically impatient and resentful, Lee thought cabinet were acting as a brake on financial progress, but Walter Nash thought Lee's views were an illusion born of frustration and boredom, as he was given very little to do. In fact both ministers and public servants alike were proceeding with immense drive, but having a man so disaffected at cabinet meetings was becoming counter-productive. Savage decided that he should instead be put in charge of state housing; and later in the year Lee became Under-Secretary to finance minister Nash instead.

After finally winning the Treasury benches, the initial sense of camaraderie and intra-party democracy which had given such vivacity to Labour, steadily declined as a result of the burdens of office. The senior leadership seemed somewhat inclined to simply disregard caucus decisions that they disliked leaving some MPs feeling begrudged. Credit theory was one such topic where this was prevalent. It was not always the case and in some instances Cabinet accepted public credit measures for projects, but only after being pushed into it by a large caucus majority. Lee and his socialistic allies, were also greatly influenced by social credit theory. They believed that the government needed to immediately take control of New Zealand's financial system. The fiscally conservative Finance Minister Nash opposed this, and blocked Lee's proposals to nationalise the Bank of New Zealand.

Such antagonism between Lee's followers and Nash's highlighted a larger division. The older members enjoyed support of the trade unions. Hence, they were able to drive the party vehicle as they pleased. By contrast, the pro-Lee dissidents were mostly individual members who supported Labour out of their own intellectual morals and principles rather than out of possessing a working-class background. Lee gained allies in the party who had such backgrounds and attempted a backbench revolt after the 1938 election to pressure the election of cabinet by the caucus. After a bitter debate amongst MPs the proposal was successful 26 votes to 23 however Savage over-ruled the vote and proceeded to inform the press that cabinet would remain unchanged.