This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
New Zealand’s GDP per person is about 20% lower than Australia’s.
Some think that the difference arises because our economic policies have been inferior.
They then leap to arguing for new policies based on ideology rather than evidence.
Frequently those policies are neoliberal. Their advocates ignore that during the Rogernomics era our extremist policies, compared to the more centrist Hawke-Keating ones, cost us about 15% of GDP.
Yes, the ideologues are ignorant of history; but Rogernomic failures aside, the historical record offers quite a different explanation of the difference.
The levels were much the same in 1966 when two major differences arose and the Australian economy powered ahead of New Zealand’s. First, there was the wool price shock, which set back New Zealand but not Australia because they produced fine wools for fashionwear rather than crossbred wools for carpets. But second, 1966 was also when the Australian minerals boom, which has been at the heart of Australian economic success, took off.
Why do we not have the same mineral resources? I explored the answer in the opening chapter of Not In Narrow Seas which concludes that it is because Zealandia is a young continent, whereas Australia is an old craton so its minerals have risen to the surface from the extra 450 million years of evolution. (However, there may be substantial minerals in Zealandia under the sea yet to be found; New Caledonia, at its northern end, has nickel.)
So countries have different resource bases and that greatly impacts on their economic prosperity. You would hardly have heard of Saudi Arabia had it not been sitting on the world’s biggest oil reservoir, while Russia would not be nearly so bolshie had it been bereft of its hydrocarbon reserves.
However, it is not just resources. There are also economies of agglomeration. Intense industrial centres produce high productivity, so Europe started off with a lead partly based on their coal resources but created an industrial base that reaped agglomeration and its productivity gains. New Zealand is too small to succeed on that path. Australia tries but may be too small too. The big centres of industrial agglomeration involve hundreds of millions of people and often cross national boundaries.
If Australia is doing so much better than New Zealand GDP-wise, why don’t we all go and live there? Before we consider the particularities, observe that Tasmanian Gross State Product is more than 20% below that of New South Wales. Why do not Tasmanians move to Sydney? Despite the relatively open labour markets between the two countries, trans-Tasman migration has additional complications, but that interstate migration is sluggish within Australia means we need to look for a more general explanation than just income.
For that is the hidden assumption in the above discussion; that GDP per capita, or a variation of it, reflects wellbeing. As an earlier column pointed out, this assumption is inconsistent with the evidence on subjective happiness. Supportive of this conclusion is that happiness is lower in countries with incomes well below the level of rich countries. We are not surprised that people from such countries take great risks to sneak past the border restrictions of the affluent – especially Africans to Europe and Latin Americans to the United States. (Another source of migration flows is refugees, reminding us that political instability is ruinous to wellbeing.)
I looked at the migration issue at the beginning of the twentieth century in Chapter 19 of Not In Narrow Seas. The evidence from the economic indicators of the potential source and destination countries of migrants to New Zealand is mixed. Sufficiently chauvinistic, you could argue New Zealand was a smidgeon ahead. But the migrants did not have the data base and there would be numerous personal caveats. So why did they come here?
I concluded that a key element was they saw opportunities that were not there in Europe. The economic ones ranged from the possibility of owning one’s farm to the perception that in the early 1900s New Zealand was a workingman’s paradise (hence Michael Joseph Savage and Peter Fraser coming here). Julius Vogel argued that women came for better marriage prospects – they were probably more adventurous than the sisters they left behind.
Opportunity still drives permanent migration between affluent countries. (Temporary migration may be the adventure of OE; for some it becomes permanent.) Ernest Rutherford and Kiri Te Kanawa could not have made it in New Zealand. Ed Hillary would never have reached the heights he did had he stayed at home. Contrast Katherine Mansfield with Ronald Hugh Morrieson buried in the country churchyard of Hawera. (The Bloomsbury set were a kind of centre of cultural agglomeration; Morrieson worked almost alone.) As a rule, those that leave forever are going to do better than our permanent inflow – although there are many exceptions to that generalisation.
There is no simple policy conclusion to this reality, unlike the prescriptions offered by neoliberals and many at the other end of the spectrum. But clearly, we have to be cautious about the rhetoric which depends upon GDP and its associates. For instance, it is laziness or stupidity to justify many activities in terms of their alleged financial benefits, when there is a more fundamental wellbeing justification (but, of course, we need to be aware of the resource cost).
We need to think through the whole issue of migration; both the outflows and the inflows, instead of leaving it in that muddle called MoBIE with its focus on the economy. Can we improve how we bind our expatriates to New Zealand? (KEAS – the Kiwi Expat Association – is an example of doing this.) Have we been too casual on who we let in? The gift of a passport to a billionaire who has hardly ever lived here was a disgrace.
As my writing shows, I am not xenophobic. (For instance, Chapter 37 and 49 of Not in Narrow Seas.) But I do not think that cultural policy should be driven by the market, just as we should not judge our wellbeing by per capita GDP.
Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.