The 1870s were dominated by the policies of Julius Vogel , an able Treasurer who started a programme of borrowing on a massive scale to fund public works. Within a decade what had previously been a land of scattered towns in separately governed provinces was transformed into an single country unified by improved roads, an expanding rail system, 7000 kilometres of telegraph wires and numerous public institutions. Almost all the remaining farmable land was bought up or leased from Maori and acclimatization societies sprang up with the express aim of anglicizing the New Zealand countryside and improving farming . New Zealand quickly began to realize the agricultural expectation created by fertile soils, a temperate climate and relatively high rainfall. Arable farming was mostly abandoned and pastoralism was taking hold, particularly among those rich enough to afford to buy and ship the stock. With no extensive market close enough to make perishable produce profitable, wool became the main export item, stimulated by the development of the Corriedale sheep, a Romney-Lincoln cross with a long fleece. Wool continued as the mainstay until 1882, when the first refrigerated shipment left for Britain, signalling a turning point in the New Zealand economy and the establishment of New Zealand as Britain's offshore larder, a role it maintained until the 1970s.

From 1879 until 1896 New Zealand went into the "long depression", mostly overseen by the conservative "Continuous Ministry" - the last government composed of colonial gentry. During this time trade unionism began to influence the political scene and bolstered the Liberal Pact (a Liberal and Labour alliance), which, in 1890, wrested power from those who had controlled the country for two decades and ushered in an era of unprecedented social change. Its first leader, John Ballance , firmly believed in state intervention and installed William Pember Reeves , probably New Zealand's most radically socialist MP, as his Minister of Labour. Reeves was instrumental in pushing through sweeping reforms to working hours and factory conditions that were so progressive that no further changes were made to labour laws until 1936. On his own initiative, with no apparent demand from workers, he introduced the world's first compulsory arbitration system , which went on to award numerous wage rises, so increasing the national prosperity. He had become too radical for most of his colleagues, however, and only remained in office until 1896. When Ballance died in 1892 he was replaced by Richard "King Dick" Seddon , a blunt Lancastrian who became, along with Grey, one of the country's greatest, if least democratic, leaders. Following Ballance's lead he introduced a graduated income tax and repealed property tax, hoping to break up some of the large estates (something eventually achieved much later, as technological changes made dairying and mixed farming more prosperous). New Zealand was already being tagged the "social laboratory of the world", but more was to come.

In 1893, New Zealand was the first nation in the world to enact full female suffrage , undoubtedly in line with the liberal thinking of the time, but apparently an accident nonetheless. The story goes that Seddon let an amendment to an electoral reform bill pass on the assumption that it would be rejected by the Legislative Council (an upper house which survived until 1950), thus diverting the ill will of suffragists. Others contend that female suffrage was approved not for any free-thinking liberal principle but in response to the powerful quasi-religious temperance movement, which hoped to "purify and improve the tone of our politics", effectively giving married couples double the vote of the single man who was often seen as a drunken layabout. In 1898 Seddon further astonished the world by weathering a ninety-hour continuous debate to squeeze through legislation guaranteeing an old age pension . Fabian Beatrice Webb, in New Zealand that same year, allowed that "it is delightful to see a country with no millionaires and hardly any slums".

By early this century, the radical impetus had faded along with the memory of the 1880s depression, and pakeha could rest easy in the knowledge that their standard of living was one of the highest in the world. But things were not so rosy for Maori, whose numbers had dropped from an estimated 200,000 at Cook's first visit to a low of 42,000 in 1896. However, as resistance to European diseases grew, numbers started rising, accompanied by a new confidence buoyed by the rise of Maori parliamentary leadership. Apirana Ngata, Maui Pomare and Te Rangi Hiroa ( Peter Buck ) were all products of Te Aute College, an Anglican school for Maori, and all were committed to working within the administrative and legislative framework of government, convinced that the survival of Maoritanga depended on shedding those aspects of the traditional lifestyle that impeded their acceptance of the modern world.

Seddon died in 1906 and the flame went out of the Liberal torch, though the party was to stay in power another six years. This era saw the rise of the " Red Feds ", international socialists of the Red Federation who began to organize Kiwi labour. They rejected the arbitration system that had kept wage rises below the level of inflation and prevented strikes for a decade, and encouraged strikes , the longest at Blackball on the West Coast, where prime movers in the formation of the Federation of Miners, and subsequently the Federation of Labour, led a three-month stoppage.

The 1912 election was won by William Massey's Reform Party, with the support of the farmers or "cow cockies". Allegiances were now substantially polarized and 1912 and 1913 saw bitter fighting at a series of strikes at the gold mines of Waihi, the docks at Timaru and the wharves of Auckland. As workers opposed to the arbitration system withdrew their labour, the owners organized scab labour, while the hostile Farmers' Union recruited mounted "specials" to add to the government force of "special constables". All were protected by naval and military forces as they decisively smashed the Red Feds. The Prime Minister even handed out medals to strike-breaking dairy farmers. Further domestic conflict was only averted by the outbreak of war