Friday, 9 December 2011

The lucky country

New Zealand beats itself up a fair bit over its failure to keep up with Australia.

But we're not alone in it. Possum Comitatus over at Pollytics makes the case for Australian exceptionalism.
So let us take a hard look at our economic reality.

Over the medium term, our broader economic performance has been nothing short of astonishing. Before the resources boom was even a twinkle in the eye of Chinese poverty alleviation, our performance was world beating – that is worth keeping in your thought orbit. Big Dirt has a bad habit of propagandising about their own contributions and the Australian public has a bad habit of believing them when it comes to our own national development of late.
He does a great job showing just how well Australia has been performing. But, I don't think he demonstrates that it isn't largely the resource price boom. Showing growth figures pinned at a 1985 start date, when iron ore was going for $11.50 per metric ton (now $150, both figures nominal), and when the commodity metals price index that normalized to 100 in 2005 was at 50 (now 200) - I'm going to need some convincing that Australia's success is mostly due to policy rather than due to a massive resource boom feeding Chinese growth. As best I understand things, resource royalties accrue to state budgets; this site notes resource royalties in Queensland increased, in nominal terms, from $192 per capita in 2002/03 to $700 per capita in 2010/11. I'd love some numbers on the time path of resource royalties as percentage of all-level government revenues over the last twenty-five years.

Possum lauds Australian policy, which combined a slow push to market liberalization with maintenance of a pretty rigid labour market apparatus with high minimum wages (though a set of minimum wages which vary a lot by industry and by worker's experience). I'm pretty unconvinced that Australian success was underpinned by high minimum wages; the resource boom plus liberalization elsewhere more likely allowed it to happen despite labour market rigidities. I suppose some future resource price crash might provide information.

In the meantime, New Zealand can beat itself up a bit less over failures to keep up with Oz. Nobody's keeping up with Oz. We can do better, but even if we adopted the 2025 Taskforce recommendations in toto and they were effective, I'd be really surprised if it led to our catching Oz. That's not an argument against improving policy but rather for having realistic expectations.


  1. I am generally loathe to make predictions but one prediction that I will make is that we will never 'catch' Australia while we have MMP. There are a few caveats to this of course. In particular if Australis adopts MMP then all bets are off!

  2. Yes, Eric..... but surely a Libertarianz government would scrap any notion of the state owning any resource royalties, wouldn't it? So where would Australia be now without this income stream?

    And where will New Zealand be when the National Socialists have gifted most of our own resouces to the maoris, along with huge swathes of our state-owned assets?

  3. I can't see why resource royalties are in any way inconsistent with libertarianism, so long as the initial property rights in the resources were either encumbered or resided with the state.

    Further, assets in private ownership, whether Maori, Pakeha or otherwise, ought be preferable to state ownership, no?

  4. oh my God, New Zealand is OK says Eric, Where you get your degree in economic Eric, we have the weakest dollar in the second world, and heading south

  5. Yep - Australia's doing OK as a Chinese mining colony

    The miners (and the Chinese) would be doing rather better without paying for Melbourne, Sydney, Brisbane, Adelaide - not to mention Canberra - and the 21 Million Aussies who have nothing to do with mining.