Home > Boneheaded stupidity, Economics - General > New Zealand’s zombie miracle

New Zealand’s zombie miracle

September 21st, 2016

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. •

  1. Matt
    September 21st, 2016 at 15:33 | #1

    Presumably, given what you’ve said about the more favourable Australian labour market and the lack of access to unemployment benefits, the 650,000 or so New Zealanders in Australia have above average (for a New Zealander, at least) human capital. There’s an incentive to come here if you have strong chances in the Australian labour market, and a disincentive if you don’t–New Zealand unemployment payments being better than no unemployment payments.

    The NZ expats are also, I assume, disproportionately of working age.

    Given the size of the population of New Zealanders in Australia relative to the total population of New Zealanders, the current situation probably isn’t doing the NZ labour market many favours. It seems like there must be a bit of a brain drain effect of high-human capital New Zealanders flowing into Australia.

  2. rog
    September 21st, 2016 at 15:51 | #2

    As much of the insurance money is from foreign reinsurers the rebuilding of Christchurch is seen as a major boost to gdp.

    On migration, it’s been argued that numerically the outflow of skilled is offset by the inflow of unskilled.

    The relatively high $NZ and the downturn in global dairy markets can’t be helping exports and must hit the economy.

  3. Troy Prideaux
    September 21st, 2016 at 15:56 | #3

    rog :
    The relatively high $NZ and the downturn in global dairy markets can’t be helping exports and must hit the economy.

    Understatement of the day IMHO.

  4. GrueBleen
    September 21st, 2016 at 16:04 | #4

    @rog
    Your #2

    On migration, it’s been argued that numerically the outflow of skilled is offset by the inflow of unskilled.

    Que ?

  5. I am and will always be Not Trampis
    September 21st, 2016 at 16:05 | #5

    they obviously do not read Croaking Casasandra

  6. Newtownian
    September 21st, 2016 at 16:23 | #6

    Checking Wikipedia to make sure I hadn’t missed anything

    Actually John you missed a lot which I would hope you are aware of especially when you have highlighted other’s selective statistics rightly but then used to rebut them….selective statistics.

    Now certainly we do better than NZ on a GDP basis whether it be raw or pp. But……is income a good indicator of economic health. A quick look at https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita shows top of the pops are Bermuda population not much more that Nauru), Macau?! and Qatar – dont go there in summer? GDP isnt useless but isnt it time to start using a Multi Criteria Decision Support approach.

    Lots of people arent happy with this GDP fetish which has spawned a plague of other measures of outcomesyou might expect from having a better economy presuming prosperity and well being rather than GDP is the aim, many of which can be found via https://en.wikipedia.org/wiki/List_of_international_rankings. Comparisons here tell a different story.

    https://en.wikipedia.org/wiki/List_of_countries_by_ecological_footprint says Oz is worse than NZ by 40%….or put crudely we are gobbling up planetary resources at a 40% high rate pp than NZ. Surely this says our economy is not so good.

    Then there is is https://en.wikipedia.org/wiki/Preston_curve and https://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy which shows if its healthy life you want as an outcome GDP is pretty close to irrelevant. Our 30% higher GDP yields it appears just 1 or 2 % increase in life expectancy.

    How about Turnbull’s fetish http://www.economist.com/blogs/graphicdetail/2015/09/global-innovation-rankings?fsrc=scn/fb/te/pe/ed/theinnovationgame Here we are in the OECD camp pretty level with NZ, but we are also judged to be an outlier in being “inefficient” innovators as anyone in an Australian university department could have told you. Wither our economic future?

    Why are we problematic innovators? Here is a possible explanation https://en.wikipedia.org/wiki/List_of_countries_by_economic_complexity We are utterly woeful in our complexity compared to NZ and all other OECD countries – in a group with Kuwait. What’s is going on? It seems our export economy has shrunk to being fossil carbon and iron deposits…..and this was before we euthanased the car industry. Which seems pretty plausible given ‘the budget emergency’.

    Which leads nicely to this related measure https://en.wikipedia.org/wiki/Climate_Change_Performance_Index
    https://germanwatch.org/en/download/10407.pdf Now NZ is not great compared to say Denmark but Oz is THE stand out disaster case. More unsustainable irresponsible economics.

    And what to we get for this rotten decaying economic base. We are reasonably happy https://en.wikipedia.org/wiki/World_Happiness_Report but not statistically signifcantly different from NZ. Our https://en.wikipedia.org/wiki/Human_Development_Index is better by only about 2% higher.

    We’re certainly well fed. Pity we are also running a good race in the obesity steaks as a result http://www.worldobesity.org/resources/obesity-data-repository/resources/tables/ Still finally we are clearly better than NZ or the appalling emerging South Pacific obesity disaster. And possibly related to this is something else we are champions in – cancer rates https://en.wikipedia.org/wiki/List_of_OECD_countries_by_cancer_rate (another Oz winner at No. 2 OECD?)

    What about the national obsession….not football but real estate. There its actually a bit of a tie – http://www.numbeo.com/cost-of-living/compare_countries_result.jsp?country1=Australia&country2=New+Zealand (20 % lower salaries, but also 20% lower house and rental prices).

    In conclusion claims we are better than NZ or vice versa really yet again reduce to Lies Damn lies and statistics.

  7. John Quiggin
    September 21st, 2016 at 16:38 | #7

    ” Our 30% higher GDP yields it appears just 1 or 2 % increase in life expectancy.”

    How big an effect would you expect? Incomes have risen dramatically over the past century, but life expectancy has only gone up by about 10 years (say 15 per cent)

  8. Matt
    September 21st, 2016 at 17:01 | #8

    Now certainly we do better than NZ on a GDP basis whether it be raw or pp. But……is income a good indicator of economic health. A quick look at https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita shows top of the pops are Bermuda population not much more that Nauru), Macau?! and Qatar – dont go there in summer?

    Why would we use nominal GDP rather than PPP GDP? https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita

  9. Apocalypse
    September 21st, 2016 at 17:07 | #9

    the option of moving to Australia is unattractive except for those who have strong employment prospects

    The state with the most New Zealanders is Queensland, a good many of whom will have retired there because of the climate and the beaches – nothing to do with employment prospects.

  10. Alphonse
    September 21st, 2016 at 17:15 | #10

    @Newtownian
    You left out relative numbers of years in possession of Bledisloe Cup.

  11. September 21st, 2016 at 17:31 | #11

    Why not use median income on PPP basis https://en.wikipedia.org/wiki/Median_income
    Now the difference is 15026 versus 12147 – qatar is 5117

  12. paul walter
    September 21st, 2016 at 18:00 | #12

    I’m curious as to a comparison between population growth and economic performance in the three countries mentioned on a graph in the article and wonder if there is some indication that population growth is a driver for an economy.

    Inverting this, would the NZ economy have performed better if its emigration/ immigration levels were higher or lower.

    If population growth in NZ is lower than ours and yet we may have outperformed them economically speaking can we say that our economy worked better because of its nature and structure, if we were able to absorb more people yet maintain living standards.

    I suppose it almost coming back to economies of scale.

    Alphonse’s point is valid..also there is the language problem, they must stop sounding like strangled chooks, to be understood.

    But I do feel it is a bit sad that En Zedders seem on the wrong end of some peculiar government policies here. They are not that much different to us, certainly not any worse .

  13. conrad
    September 21st, 2016 at 21:19 | #13

    I find the migration statistics very hard to evaluate — I’m with Matt on the fact that if you remove a large number of the most talented people from your country, it clearly must have a bad effect (that isn’t entirely true of NZ migration to Aus which tends to be more varied, but it is to other countries that, like Aus, don’t just let anyone in), and that it will simply compound over time. This is a serious brain drain problem.

    I can’t help but think of places like Malaysia vs. Singapore here. Malaysia didn’t get far for lots of reasons, but having stupid policies which led to 700K+ people leaving (500K of whom live in Singapore) could hardly have helped. I have a biased sample and don’t know the statistics for them in Aus, but the Malaysians I know range from hard working professionals to high flying professionals, many of whom are terrible losses for Malaysia. Of those I don’t know David Teoh is Australia’s 11th richest person and a Malaysian expat, and surely the cumulative effect of losing these people must be a lot. I don’t see why NZ isn’t suffering similarly hard to estimate losses over time vs. Aus.

  14. Ikonoclast
    September 21st, 2016 at 21:23 | #14

    The Kiwis don’t care. They are Rugby World Champions. Nothing else matters… to them. 😉

  15. September 21st, 2016 at 21:41 | #15

    Rogernomics phase II when NZ abolished the minimum wage and all forms of collective bargaining stopped productivity growth dead in its tracks for five years. This explains most of the GDP/head difference.

  16. September 21st, 2016 at 22:01 | #16

    John

    I gather it does not help when the reforms placed more trust in speculators rather than true innovators and hard workers
    New Zealand: 35% of offshore speculators paying no tax 
    http://www.scoop.co.nz/stories/PA1609/S00315/35-of-offshore-speculators-paying-no-tax.htm

  17. September 21st, 2016 at 22:04 | #17

    In this context, it might be also bear in mind Mike West’s recent story about offshoring profits and onshoring losses (expenses) http://www.michaelwest.com.au/multinational-expenses-its-all-show/

  18. Ikonoclast
    September 21st, 2016 at 23:55 | #18

    @Don John

    Yep, in the old Soviet state capitalism system (it wasn’t socialism in any shape or form) the saying was “They pretend to pay us and we pretend to work.” We remember how that worked out. Private capitalism decided they would try much the same thing now it rules the world. “We’ll pretend to give you a fair wage and you have to work twice as hard.” And we see how that worked in NZ. A mineral boom gave Australia a boost and a breathing space but what happens now the boom is over?

  19. Nick
    September 21st, 2016 at 23:57 | #19

    @Newtownian

    https://en.wikipedia.org/wiki/List_of_countries_by_ecological_footprint says Oz is worse than NZ by 40%….or put crudely we are gobbling up planetary resources at a 40% high rate pp than NZ. Surely this says our economy is not so good.

    This has to be seen in the context that 15% of NZ’s population [and the high-consumption-potential cohort at that] is over here consuming!
    ..and they are blessed with hydro and geothermal to dream of.
    Also, despite our larger footprint, we have a greater biocapacity and thus a larger ‘ecological remainder’ than NZ.

  20. GrueBleen
    September 22nd, 2016 at 02:34 | #20

    @Ikonoclast
    Your #18

    What percentage of the Australian economy was due to the mining “boom” – now do be sure to separate the mining “norm”, which is still continuing, from the “boom” which was only for a few years.

    Was it 5% maybe ? Remember that at the biggest of the “boom” the mining industry was never more than about 10% of Australian GDP. And, incidentally, even at the biggest of the “boom” what percentage of Australian jobs were in mining ?

  21. Simon
    September 22nd, 2016 at 07:40 | #21

    I would argue that Australia has not done a far better job of economic management but has instead benefited from resource extraction opportunities and economies of scale not available to New Zealand.

  22. jrkrideau
    September 22nd, 2016 at 08:08 | #22

    @John Quiggin
    Incomes have risen dramatically over the past century, but life expectancy has only gone up by about 10 years (say 15 per cent)

    I don’t know about Australia or New Zealand but StatCan says “In 2011, Canadians lived an average of 81.7 years. This is an increase of 24.6 years since 1921.” http://www.statcan.gc.ca/pub/82-624-x/2014001/article/14009-eng.htm

  23. Ikonoclast
    September 22nd, 2016 at 08:47 | #23

    @GrueBleen

    It certainly helped; the mining boom I mean. I don’t know the figures and don’t know how much it helped. Conversely, what other sectors of the Aussie economy and macro-economic policy were better than New Zealand’s in this period? I wonder. I don’t know myself but on the face of it I see little other than that we are bigger, a little more diversified, a little closer to the rest of the world and the Rudd/Swann stimulus after the GFC was almost unique at the time and did help.

  24. Moz of Yarramulla
    September 22nd, 2016 at 09:35 | #24

    It may reasonably be assumed that a substantial proportion of expatriates, given comparable economic opportunities, would prefer to live in their home country

    I’m not entirely convinced. For adults living with immediate family there’s a lot more to it than money. Schools, community ties, location of other family, location of in-laws, the cost of moving, the cost of moving to a smaller market and the difficulty of changing jobs there should that be necessary. I know more than a few people who were faced with moving to Auckland to progress in their career, who moved to Australia instead (a city of 1M vs a city of 3-5M… which will have more opportunities?)

    Getting those people to move back now that they have kids and a mortgage is going take more than “wages are a little higher there at the moment”.

    And it’s all very well to talk about the Oz mining boom, at least that’s largely in rural areas (the attempted fracking in St Peters, Sydney notwithstanding). In NZ the dairy boom has made an awful lot of lakes and river unsafe to wade in, let alone swim. Sure, you can still walk your dog next to it, if the smell doesn’t bother you and you enjoy the lovely green-brown water.

  25. September 22nd, 2016 at 10:06 | #25

    @John Quiggin
    Hey. No. Life expectancy 1910, 57 (55M,59F); life expectancy 2010, approx 82 (80/84); just short of a 25 year gain, or three months a year, virtually uninterrupted through wars, depressions, obesity epidemics, what you will. It’s one of the absolutely fundamental facts about Australian life.

  26. John Quiggin
    September 22nd, 2016 at 10:25 | #26

    @ChrisB

    You’re right. Because I’m working on dependency ratios, I was thinking about conditional life expectancies for those surviving to adulthood, which cuts out the reduction in infant mortality. Still, my main point applies. Australia ranks very highly on this measure, New Zealand not so well.

    http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features10Mar+2011

  27. September 22nd, 2016 at 12:15 | #27

    @John Quiggin
    Life expectancy at 25, 1905 – 42 (41/43) more years, to 67; 2005 – 57 (55/59) more years, to 82; increase – 15 years. It’s not just infant mortality.
    And, fine, we have a smallish advantage over NZ that could well be due to their economic mistakes. But remember, we have an advantage over practically everybody, whatever their economic bias; we’re second only to Japan for (combined both-sexes) life expectancy.
    Sorry to nag, but I always think that the takeaway given those stats is that anybody proposing major changes to our welfare system should have the onus on them to explain why they’re not going to f**k up a world-beating model.

  28. September 22nd, 2016 at 14:41 | #28

    The example of New Zealand, with its heavy reliance on dairy for its economy, has made me wonder more generally whether my impression that small countries with aggressively free market, “business friendly” taxes or policies seem to end up as economic mono-cultures, putting all their eggs in one basket, is correct.
    With other countries it may be financial services, or corporate support of one form or another, with other sectors allowed to die. But this seems obviously risky – just look at NZ and the sudden dairy glut that one recent report says is causing 85% of farmers to be operating at a loss(!)
    I assume that there may have been economic work done on this apparent tendency – or not. Or maybe my impression is wrong. Would be interested to know.

  29. GrueBleen
    September 22nd, 2016 at 15:41 | #29

    @Ikonoclast
    Your #22

    Sure it played a part – for all of 2 – 3 years. Not for 25 years which is the period of time for which Australia has not had two successive quarters of decreasing nominal GDP. But even so, the fiscal perfidy of the Howard government ensured that the Aussie mining boom was – just like the North Sea Oil boom in Britain under Thatcher – completely wasted. Australia isn’t Norway.

    How has Australia been different ? Well, it did actually have a manufacturing industry for a while – which has finally been essentially extinguished by Abbott. But mainly, Australia has had a very high net immigration – and, surprise, surprise, when you have that, you have an ongoing growth industry providing all kinds of ‘people services’ – housing, transport, shops, schools etc etc. Not to mention the GDP increase based on providing a significant percentage of immigrants with employment – which we mostly do, and hence our overall unemployment rate doesn’t climb markedly.

    You see, despite the desire of economists to mystify their subject, an economy is simply people spending money. And thus we soldier on, all making a precarious living taking in each other’s washing.

    But then, we still have to address ProfQ’s key point: how exactly did NZ’s “deforms” screw its economy so that it fell so far behind Australia in GDP per capita in such a short period of time. And why, when this is clearly the case, do the Right Wingnuts and Left Right Outs want us to punish ourselves by copying the NZ failure ? And why are we so eager to do just that ?

  30. Jim Rose
    September 22nd, 2016 at 17:40 | #30

    @Don John

    A long economic boom followed the passage of the Employment Contracts After 20 years of wage stagnation

  31. John Quiggin
    September 23rd, 2016 at 10:06 | #31

    @Jim Rose

    This is false, at least if you’re referring to the 1991 Act. New Zealand had a severe recession in 1997-98 thanks to Don Brash and the Monetary Conditions Index. Australia, equally exposed to the Asian crisis, avoided recession thanks to better monetary policy (and maybe other factors).

  32. John Quiggin
    September 23rd, 2016 at 10:19 | #32

    Sorry to nag, but I always think that the takeaway given those stats is that anybody proposing major changes to our welfare system should have the onus on them to explain why they’re not going to f**k up a world-beating model

    We’re in furious agreement on that one

  33. Jim Rose
    September 23rd, 2016 at 15:27 | #33

    @John Quiggin

    My source is Low Wage Economy | New Zealand Council of Trade Unions – Te Kauae Kaimahi, see slide 3 headed high unemployment.

    The union data shows resumption of real wages growth after 20-years of stagnation soon after the ECA was passed.

    no hyperlink because of spam filter.

  34. John Quiggin
    September 23rd, 2016 at 15:45 | #34

    @Jim Rose

    I was referring to your claim of “a long economic boom”

  35. Jim Rose
    September 24th, 2016 at 09:55 | #35

    @John Quiggin
    You are rather hanging your hat on a short recession greatly intensified by the 2 worst droughts in recent New Zealand history.

  36. John Quiggin
    September 24th, 2016 at 10:58 | #36

    I’m happy to hang my hat on the proposition that a recession is not a boom.

  37. Collin Street
    September 24th, 2016 at 11:53 | #37

    The example of New Zealand, with its heavy reliance on dairy for its economy, has made me wonder more generally whether my impression that small countries with aggressively free market, “business friendly” taxes or policies seem to end up as economic mono-cultures, putting all their eggs in one basket, is correct.

    Redundancy is inefficiency, and [to a certain extent] vice-versa.

    [royal navy ships in the age of sail were what we might call grossly over-manned in normal conditions: but they weren’t designed for normal conditions, they were designed to be operable with half the crew incapacitated. “Conditions might change” is something that some people aren’t properly cognisant of.]

  38. Nicholas Gruen
    October 2nd, 2016 at 18:53 | #38

    I tried to look up the comparative GDP per capita growth but could only get to 2014 easily.

    But it certainly supports your argument John. Hopefully this code will show the graph.

  39. Nicholas Gruen
    October 2nd, 2016 at 18:55 | #39

    Nope – it doesn’t. Try this link. I think they may have grown faster than us in the last couple of years, thanks partly to our intellectually inert central bank.

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