New Zealand’s zombie miracle
Twice in the last couple of days, I’ve bumped into the seemingly unkillable zombie idea that the New Zealand economy is doing well and ought to be a model for Australia. Checking Wikipedia to make sure I hadn’t missed anything, I found that, as of 2015, NZ income per person was 30-35 per cent below that in Australia, as it has been ever since the miraculous reforms of the 1980s and 1990s. NZ is down with Italy and Spain on most rankings, while Australia is comparable to Germany (above on some rankings, below on others).
This wasn’t always the case. Before the reform era, New Zealand and Australia had almost identical income levels, among the richest in the world. NZ took a bigger hit from British entry into the EU in the early 1970s but after 50 years, that can scarcely serve as an excuse (and of course, no one is predicted that Brexit will be a gigantic benefit to NZ; rather the reverse)
Then there’s migration. I dealt with this here, but I’ll repost crucial points over the fold.
The current period of approximately zero net migration doesn’t mean New Zealand’s labour market is outperforming Australia’s in any absolute sense. As a result of migration flows over the past thirty years, there are around 650,000 New Zealand citizens living in Australia, equal to around 15 per cent of the citizen population of New Zealand. The number of Australian citizens living in New Zealand is far smaller, at around 65,000.
It may reasonably be assumed that a substantial proportion of expatriates, given comparable economic opportunities, would prefer to live in their home country. So, if the New Zealand labour market offered prospects comparable to those in Australia, we would expect to see a substantial net flow from Australia to New Zealand.
Importantly, New Zealand citizens are not eligible for Australian unemployment benefits. Thus, at any time when the Australian labour market is in a cyclical slowdown, as it is at the moment, the option of moving to Australia is unattractive except for those who have strong employment prospects. Conversely, the option of returning to New Zealand makes sense for unemployed New Zealanders, regardless of their prospects at home.
This cyclical pattern of variation has been observed ever since the opening up of migration in the 1970s. Initially, it was quite common for the long-term net flow from New Zealand to Australia to reverse in response to cyclical conditions. But as the gap between the two economies has widened, the long-term trend has dominated. Even as New Zealand has recorded one of its best performances in years, and Australia one of its worst, the flow has merely paused, with no clear evidence of a reversal.
For much of the twentieth century, Australian political discussion was dominated by the “colonial cringe,” the belief that only ideas from Britain, and later the United States, were worth talking about. Apparently, all that has changed, and now New Zealand is on the list too. In reality, though, Australia has done a far better job of economic management than any of these countries. •