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Economist Brian Easton says migration patterns provide further evidence that wellbeing is not simply measured by income

Economist Brian Easton says migration patterns provide further evidence that wellbeing is not simply measured by income

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.

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18 Comments

For years, I remember being told growing up that wages were better in Australia, but everything cost more, including food. Now we still have the low wages but the price of everything in NZ has sky-rocketed, from basics to discretionary items (don't let the inflation figures fool you, electronics here maybe getting 'cheaper' but they're still massively overpriced compared to the Australian market).

The way out of this is unclear. It's as if the wider population has jumped on the distribution ticket-clipping bandwagon and decided to make the most of a captive isolated market when it comes to housing, while a far-removed capital city added more and more people to Auckland without delivering the infrastructure to go with it. It's been going on for so long that no one seems to know any other way of doing things and, according to Chris Trotter's column, maybe even be directly undermining anyone who want to fix it.

I think it is easy to make generalisations. For example if you are a manual labourer and you move to a mining town in Aus you will be much better off (financially at least). In my case I would prob have to move to Sydney to get a similar job and I don't think I would make much more money and I would have to live either miles from the city or in an apartment/townhouse.
Also Australia has to be one of the best countries in the world for salaries so we are doing pretty bloody well to even get close. In the UK for example the average electrician salary is £33,042 (64k NZD), here it is $75,602 (I just chose electrician because I happened to see the UK salary the other day and was shocked at how low it was).

The UK does have quite a high tax free income threshold of 12,500 pounds though and there is no tax on basic food items.

And for non food items VAT (GST) is 20% instead of 15%. But this further proves the point of this article: some people are much better off (financially) somewhere else, others not so much. Just looking at headline GDP and wages figures don't tell the whole story.
And then there are other factors like weather, beaches, culture, etc. Some may like the weather in Aus, others aren't a fan of 40 degrees. I've notice on video conferences that the NZers seem to have better tans than the Aussies, I assume that is because we can go outside without frying!

I have to agree. Its money in the hand that counts. In my profession...between AU and NZ salaries are pretty much dollar for dollar. But NZs tax rate is lower...even taking into account AUs tax free threshold and if you are lucky enough in NZ the new tax rate for amounts over 180k here in NZ.

In AU...dont forget...salaries are now usually quoted including your regulated superannuation contribution. Which this year goes upto 10% (and which gets taxed as a contribution levy of 15%. So take that out. Also if you do not have medical insurance in AU...you get landed with an additional medicare levy at tax time..add approx 2% to that tax bill depending on your salary level.

Yes food is slightly cheaper, housing is just as expensive for the same thing...but more of it. But other things are almost $ for $.

So there is more to it than GDP per capita. Plus socially, NZ is more inclusive, more tolerant, but also....to myopic and lacks a certain internationalism....just look at our news services..."cat in a tree rescue" anyone?

Live and work in Australia. Most of what you've mentioned isn't a complete analysis.

If you include superannuation (which btw is not typically quoted in salaries unless explicitly stated) the tax efficiency on a nominal dollar comparison is about NZD 350k. If that's what you're earning well done.

Day to day living expenses are materially lower.
Rent is materially lower for considerably higher quality. I pay 600/pw for a 4bed, 3 bath with garden and pool. 20km from Melbourne CBD and close to transport links.
Anecdotally NZ is nowhere near as inclusive and tolerant as Aus. A trope I've heard repeated on many occasions which is just flat out wrong.

Without a well performing economy, cultures depreciate relative to its borders. As far as I know, no one is eager to embrace Venezuelan culture unless they live there.

17
up

My wife and I are planning to move over there now, the reason is purely due to house prices.

Australia's future is looking bleak with wild swings in its climate. Years of droughts, heat waves and bush fires and now major flooding.

Australians are resilient , tough buggers ... wild weather wont bother them ... they have a bright future , connected closely to Asia for trade ... beyond just mining & primary produce , they have good universities , and a thriving science & medical research and product exporting industry ...

treadlightly,
Australia was always a "land of droughts and flooding rains" as captured in the words of Dorothea Mackellar well over a hundred years ago.
KeithW

It does seem to be intensifying though, and their temperatures are definitely rising.

Correct in regard to temperatures. The UAH satellite- measured temperatures for the last 42 years show Australia has warmed at at 0.19 degrees C per decade in the lower troposphere.

Ask yourself, then, why the first comment, Keith?

I've spent years in Australia, dragged an Aussie partner home 40 years ago, been back since.

But I wouldn't live there through what is ahead, for love nor money. They are in trouble, and not just climate.

On a positive note, this is the first time I'm in agreement with Mr Easton. And I can't say I've moved - maybe the discussion is?

Get the $, then keep on buying those cheap Kiwi lands.. let the price inflated... in the end? re-sell it to CCP buyers, before settling somewhere in planet where retirement climate a bit conducive.. just unsure, where?

Uganda

11
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I think many of us will be heading to Australia, once the pandemic situation stabilises.

Here's NZ resiliency lies, all from OZ influenced export: Banks, groceries retailer, unwanted/unruly characters, terrorist, Healthcare standards. Keep Kiwi passport, tread carefully every weak points of their legislation.. then suck them dry. Kiwis collective silent mindset is actually selfish & greed, remember it. Then use for your own advantage.