Thursday, August 19, 2004

League Tables Don't Matter

Don Brash's recent Australian speech (see Just Left and No Right Turn) includes the old chestnut that NZ will become (or already is) a "failed state" because we are slipping down the international GDP league table. I shall leave the questions of whether and why we are, in fact, so slipping to Jordan and Idiot and ask why it, in fact, matters. In the 1950s NZ was near the top of the international league today we're around the middle of the "developed nations". This simply reflects the fact that -

(1) Japan and most of Europe have recovered from the ravages of WWII
(2) We no longer have an automatic high-price market for "all the meat, wool and butter we can grow"
(3) NZ has significant natural disadvantages (eg remoteness from markets) and our major natural advantage (low-cost pastoral agriculture) is undermined by the present world trading order.

In addition a number of former third-world countries (emergent economies) are achieving very high GDP rates as they develop and in the near future we will probably be overtaken (in GDP per capita) by Korea and many of the new EEC members. Further down the track we may be passed by Malaysia and Thailand (Singapore, Taiwan and Hong Kong are already ahead). But this is a good thing. These countries are our friends and neighbours and we should applaud their good fortune. And they'll want to buy food, textiles and timber and they'll want to take holidays to exotic spots where sheep graze in lush pastures, you can ski in majestic snowy mountains, the sky is blue and the air and water are transparent.

Don Brash suggests that our best and brightest will inevitably leave us for Australia (presumably leaving an unskilled rump of our population that will lack the acumen to do any more than join the "failed" Pacific Island states in the queue for AusAID handouts and expatriate remittances). There will, of course, always be those stellar talents that can shine only on a larger stage than NZ can offer and they will inevitably leave us (for Australia or elsewhere) just as others leave Timaru for Auckland, Cairns for Brisbane or Sydney for New York. No doubt our problems in recruiting or retaining nurses or teachers will depend to a considerable degree on the relative rates of pay for their professions on each side of the Tasman. But not directly on the per capita GDP.

The CIA Factbook (www.cia.gov/cia/publications/factbook) gives a "cost of living equivalent" per capita GDP comparison of over 200 countries. According to this source Australia ($28,900) is about 33% richer than NZ ($21,600). This pales into insignificance compared to the range within (the old) European Union which ranges from Luxembourg ($55,100) through Norway ($37,700), Denmark ($31,200), Ireland ($29,800) down to Italy ($26,800) and Spain ($22,000). There is no mass exodus of bright Italians (or Frenchmen) to Luxembourg or of Spaniards to Norway even though the differences in GDP are much greater than that between NZ and Australia.

An even more extreme example is the Cook Islands with a GDP of only $5000 per capita (less than a quarter of NZs). Cook Islanders have an absolute right of entry to NZ and many of them do, in fact, live here. The population movement is, however, in both directions and the population resident in the Cooks is stable. The population density in the Cook Islands is almost 90 per square km, twice the world average, three times that of the USA and about six times that of NZ. If there were no legal barrier to settlement within the combined borders of NZ and the Cook Islands (ie non-Cook Island New Zealanders were allowed to settle in the Cooks) then the population of the islands would, presumably be higher but, even as it is, the population density shows that the Cook Islands are disproportionately preferred as a residence by the combined population.

Evidently money isn't everything.

8 Comments:

Blogger Uroskin said...

Quote: "There is no mass exodus of bright Italians (or Frenchmen) to Luxembourg or of Spaniards to Norway even though the differences in GDP are much greater than that between NZ and Australia."

Actually, there was a mass exodus from Portugal to Luxembourg in the 60s and 70s. When I was in Luxembourg last year, evidence of Portuguese was everywhere, including pubs dedicated to Portuguese soccer teams.

Quote: "The number of foreign workers living and employed in Luxembourg, which stood at 17 000 in 1960, rose to 38 000 in 1985 and to more than 70 000 in 2001. Cross-border workers and immigrants as a whole represent the majority in total employment in the Luxembourg economy. At present, around 35% of wage earners employed in Luxembourg are natives of the country, compared to 70% in 1970."
(URL: http://www.portrait.public.lu/en/economic_development/factors/resource_allocation/demography/index.html

Young people will always seek out new opportunities. Most European bright young people can't get to London fast enough.

23 August 2004 at 10:51 PM  
Blogger Rich said...

I don't think comparative GDP gives a particularly fair picture.

When I lived in London and did an equivalent job to the one I have now, I could afford a tiny studio flat and had a one hour tube ride to work. [Despite being paid much more, even in adjusted dollar terms].

Here in Auckland, I can run to a (relatively) spacious 2 bedroom flat within 1/2 an hour of the office.

24 August 2004 at 2:30 PM  
Blogger Greyshade said...

Hans
I agree there may have been a movement to Luxembourg which represents a substantial fraction of Luxembourg's population but its still pretty small in absolute terms (or as a fraction of the population of Portugal).
Rich -
Good point. Even within a country there's a substantial difference between incomes in smaller and larger centers and this largely reflects different accommodation costs. This effect could account for quite a lot of the supposed $200pw difference between NZ and Australia (or Auckland and Sydney). Comparisons with USA or UK would probably be even more effected.

24 August 2004 at 3:55 PM  
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