Why is New Zealand poorer than Australia?

Via Craig Newmark, here is one short article. the conclusion:

"Prosperity does not come by accident,” Mr Rennie said.  "Australia has a stronger political consensus around policies for growth, which contributes to investor confidence.”

Sorry but I can’t buy it.  Throughout the 1990s New Zealand economic policy probably "led" Australian policy, yet Australia has gained on New Zealand since that time.  I’ll instead cite booming resource prices (there is more gain in selling minerals to China than agricultural products), economies of scale from having a larger country, and most of all the Kiwi brain drain.  In percentage terms, many more of the smartest New Zealanders leave their home country — often for Australia I might add — than vice versa. 

Comments

I recall seeing some graphs suggesting that immigration restriction slows economic growth. It is my understanding that New Zealand vigorously restricts immigration and that Australia doesn't restrict it anywhere near as much.

Why don't more rich people live in Alabama? The tax rates on the rich there are lower than on the poor, so any rational rich person should move there, right? It's not that remote from Atlanta or New York.

There's a recent article on people leaving Denmark, supposedly due to their high taxes (see Megan McArdle's post.)

Why do people flee the free-market oriented New Zealand and the high-tax oriented Denmark and the low-tax oriented Alabama for the metropolis?

Full paper (as PDF) available from http://www.apo.org.au/linkboard/results.chtml?filename_num=186322

As a New Zealander, I agree with you. The big question for me is what causes the brain drain.

NZ did indeed suffer much needed reform throughout the 1990s, but i don't see that it led Australian policy, but see it more as an parallel movement (about as qualified as TCs claim). Economies of scale does not go far enough. People are attracted here (Australia) by more than net income alone. PPP has a lot to do with it (thought that is changing rapidly). Climate is NOT insignificant either.

Cathryn, your comment tells us virtually nothing, interesting as it is. I've not looked at the numbers, but dare to venture that just as many Aussies make the UK their home for some time as do Kiwi's.

Scale does count for some of the difference no doubt. Educational and travel opportunities are greater, as well as the fact that some large companies have their Asia/Pacific bases (or at least major quarters) here.

The kiwi brain drain, though important, has little to do with the difference IMO. The fact that Australia is one of the most natural-resource-rich countries on the planet is far more important and will remain so for many years to come.

Xmas,

If NZ is "Canada" to Australia's "US," does this mean that kiwis
are "cute" and "little" compared to Ozzies?

So, New Zealand is extremely easy to leave as a citizen and extremely hard to go to as an immigrant.

Strangely, Alabama is arguably the same in that it is a very difficult place for foreigners to fit in, but instead of bureaucracy stopping them it's culture. I have a friend whose family just moved to Huntsville from Denver. Both he and his wife have lived in several places around the country over the course of their lives. They have only been there for 6 months or so and they are already ready to leave.

Even though Huntsville is something of a cultural oasis in Alabama, they find the culture to be unbearable. They are white, mainstream, conservative folks, so it's not an issue of politics or intolerance. They are finding that the institutional standardization of poor results (for those without connections) to be overwhelmingly frustrating. His wife has filed paperwork for their kids' school enrollment several times and it keeps getting "lost". His job with a high-tech company reflects the same culture of "don't care" and "not my money/problem".

New York, on the other hand, despite insane taxes and an astronomical cost of living is a bureaucratically and culturally welcoming place for immigrants, especially those with the resources of youth, talent, or wealth. Those are the kinds of resources that generate economic growth. (I wonder if New York's economic unwelcome for those lacking resources plays a part as well, but I would suspect not.)

So, I still suspect that net immigration as affected by bureaucracy and by culture is a big factor in growth.

Remoteness and resources are important, but I also think that the national character is important.
Compared to Kiwis, Australians like to think of themselves as a bit more rough and ready, aggressive and contentious. These qualities spill over into economic dynamism.

CM

You missed Cathryn's point, I think.

Melbourne, with 4 million people or so, has more cultural opportunities than all of Kiwi-land.

So you would expect Kiwis to move to Australia (they do).

Then you add the fact that they (and Australians) often have British grandparents (more common with Kiwis in my experience) and can move to London which has more cultural and career opportunities than all of Australia (potentially) *and* has Europe on the doorstep...

As to relative wealth, remoteness is a big factor, and so is scale. With the exception of timber and agricultural products, Kiwi-land doesn't have the scale (given the distance) to be competitive on almost any product. Even high value manufacturing is airfreighted these days, and it takes longer and costs more to airfreight from there than almost anywhere else.

SJE

In my experience, Kiwis are harder working and more economically dynamic than Australians. That's a London-centric view, and banking is not the world (fair dues to Macquarie of course).

The Australian economy seems *much* more tied up by trade unions and 'trade union like' practices. There's a real 'let's go to the beach' attitude which North Islanders, at least, don't have.

But, isn't New Zealand the new "Middle Earth"??? :-)

As for lazy unions and a lets go to the beach attitude: there is a lot of that. But there are also those who work very hard to be the best they can be, a skill honed in a very harsh land. Speaking as an (expat) Australian, I think there is certain sort of aggressive, go for the kill, dominate and destroy attitude that makes Aussies a bit nastier and ruder than Kiwis (and certainly than the English). Given that, maybe there is something in it that explains our success. Trevor Chappel's underarm bowling was very bad sportsmanship, and rightly decried, but it did win the Australian's a cricket match against NZ.

"Alabama competes for the mobile wealthy with Florida and Texas, not with New York."

Um, no it does not. Though I agree it also does not compete with New York.

Some immigration statistics:

Aus 3.5 migrants per 1,000 population per year
NZ 9.6 migrants per 1,000 population per year
USA 3.1 migrants per 1,000 population per year

It's not immigration policy that is inhibiting growth.

A major problem is that the NZ business community does not invest enough in R&D - it still expects the goverment to do that for them.

When faced with skill shortages, industry does not take the lead and work with the education sector to train workers, they expect the goverment to step in and solve the problem.

So althought the policies may have changed. Much of the NZ business community is still stuck with pre-reform mentalities.

Another problem - Most exporters are focused on increasing output of low-value commodities which apart from a recent spike have continued a downward real price trend for decades. More NZ business' need to move up the value chain and create new markets and products - this can only happen with increased private R&D (Perhaps NZ needs more venture capitalists?)

But New Zealand must realise that it cannot continue to compete on price with low-value commidities against 2nd world countries with far cheaper land and labour costs.

So in my opinion - the policy is ok: ie. relatively low tax and low regulation - now it's time for NZ business to stop blaming the government and to start innovating products by increasing R&D spend. But industries also need to learn to collaborate to solve issues such as skills shortages.

Greg.

Immigration stats:
http://www.nationmaster.com/country/as-australia/imm-immigration
http://www.nationmaster.com/country/nz-new-zealand/imm-immigration
http://www.nationmaster.com/country/us-united-states/imm-immigration

Wyoming has since joining the Union attempted to cajole anyone and everyone to move here and despite the tax benefits of doing so, the only ones who opt to do it are rich, old white people.

The youth leave in droves to never return and even the Governor laments that his own children tell him "there is nothing for me there..."

Someone mentioning earlier that an increase in VCs would help NZ, is the same thing that would help Wyoming, but it's more than that. And it's difficult to cultivate a climate of growth when one has never existed and when the political climate seems to benefit those who control the closed system aimed at keeping "outsiders" away for fear they might get a piece of the pie.

But why are they so good at rugby?

Phil's paper is tendentious. I tried my best at an objective review here.

http://clubtroppo.com.au/2007/12/20/australia-v-new-zealand-ideology-to-the-rescue-the-essay-and-part-three/

It doesn't help that the current government tightened immigration restrictions rather than loosen land use policy in response to housing price inflation.

There has been a fair bit of policy backsliding since 1998.

NZ has several disadvantages when compared to Australia and 1 (maybe) advantage (its fantastic clean, green, and natural beaty).

In contrast to Australia though it is remote, rural, and cold. It has one major city Auckland which is a planning disaster and th rest are large country towns. For that reason there are very few international business run out of there and most large firms in NZ are simply subsidiaries of Aussie companies.

If you want a high paying job in any sector but agriculture or tourism you got to leave the small country towns and as Australia is pretty close most intelligent young people go there. As australia is pretty similar though they often don't come back.

A couple of other reasons.

Migration benefits Australia more than New Zealand because increasing the population of Australia increases the relative size of its in market and creates economies for new industries to develop.

By contrast, New Zealand’s comparative advantage is in agriculture and tourism. It already has enough labour to produce efficiently so additional immigration merely dilutes their earnings. And because the countries so small additional migration isn’t sufficient to create economies to produce substitute industries. This is very similar to the situation Australia found its self in at the turn of the century when it had a small population living off a commodity earnings; it had to slide down the U curve to surmount this problem.

Secondly I think culture is important. Australia used to see the UK as a role model but after the war turned to the US and increasingly Asia today; these are all positive economic templates to aspire to. New Zealand by contrast seems to have turned away from British aspirations but doesn’t seem to have found a replacement – and as a result has a bit of an identity problem. Interestingly this probably explains why it is at the cutting edge of implementing new economic policies e.g. bank independence. Unfortunately being first mover in the policy sphere is not always advantageous since the policies implemented have not been improved by experience.

Finally there is a bit of a negative fed back – as New Zealand has fallen behind, its essentially had to turn to the immigrants who couldn’t get into Australia while those who see the UK and US as effective role models have drained abroad.

Been in NZ for 8 months and cant wait to get out ! everything the fedup kiwi said is true the place looks real nice and it has some great beaches but not a lot of anything else . My child has now been waiting 6 months for a hearing test and you cant go private because there just is not enough trained people to help.

And it cost us Aprox 20,000 GBP to get here and about a year to get a visa (what a big let down )

We could always just have another drink thats what everyone else seems to do :o(

go to www.expatexposed.com for further commentary.

I'll also add this: Kiwis are the World's No 1. Travellers...Why? Not because of geographical isolation (We are closer to US than Australia) but because we possess an insatiable curiousity about the world and are the BIGGEST Adventurers on the planet!...
Thanks in large part to our world class education!! Latest stats of 2008 have Kiwis residing in OZ at 449,000...a quick stop in the ocean really as there are another ONE million Kiwis living elsewhere on the planet. Remember we were the FIRST country to give Women the vote and lead the World by revolutionizing Social Security before the Rest of World...I live in Australia NOT by choice but because I married an Australian. I've travelled extensively around the world and lived in Asia for 2yrs and also US and believe me...there is no better place than New Zealand!

Haha, I love all these comments from Kiwis about their country -- defensiveness and delusion all mixed up into one sickening package, pasted over with a fake smile. I've lived here for the last six months and am counting the days until I can leave this parochial small town of a country.

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