The prewar era saw the advent of party politics, with the establishment of the Liberal Government. The landed gentry and aristocracy ruled Britain at this time. New Zealand never had an aristocracy but it did have wealthy landowners who largely controlled politics before 1891.

The Liberal strategy was to create a large class of small land-owning farmers who supported Liberal ideals. The First Liberal government also established the basis of the later welfare state, with old age pensions, developed a system for settling industrial disputes, which was accepted by both employers and trade unions. In 1893 it extended voting rights to women, making New Zealand the first country in the world to enact universal female suffrage.

To obtain land for farmers the Liberal government from 1891 to 1911 purchased 3.1 million acres of Māori land. The government also purchased 1.3 million acres from large estate holders for subdivision and closer settlement by small farmers. The Advances to Settlers Act of 1894 provided low-interest mortgages, while the Agriculture Department disseminated information on the best farming methods.

The 1909 Native Land Act allowed the Māori to sell land to private buyers. Māori still owned five million acres by 1920; they leased three million acres and used one million acres for themselves. The Liberals proclaimed success in forging an egalitarian, antimonopoly land policy. The policy built up support for the Liberal party in rural North Island electorates. By 1903 the Liberals were so dominant that there was no longer an organized opposition in Parliament.

Major changes occurred during this decade. The economy grew from one based on wool and local trade to the export of wool, cheese, butter and frozen beef and mutton to Britain, a change enabled by the invention of refrigerated steamships in 1882. Refrigerated shipping remained the basis of New Zealand's economy until the 1970s. New Zealand's highly productive agriculture gave it probably the world's highest standard of living, with fewer at the rich and poor ends of the scale.

In the 1880–1914 the banking system was weak and there was little foreign investment, so businessmen had to build up their own capital.

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