FRIDAY GRAPH:NEW ZEALANDAND AUSTRALIAN ECONOMIC PERFORMANCE

Here is a striking comparison of New Zealand and Australian economic performance from the recent OECD economic survey of New Zealand.

 Click to enlarge

 

The OECD comments: 

The global financial crisis has probably resulted in a permanent reduction in most OECD countries’ potential output, in part due to capital decumulation, and it may have also led to a rise in structural unemployment, possible hysteresis in labour supply and a fall in total factor productivity…  In New Zealand, however, potential growth as estimated by the OECD had started to decline well in advance of the crisis, starting around 2003 (Figure 1.5).

The New Zealand chart illustrates both the huge improvement in economic performance following  the economic reforms of the 1980s and early 1990s and the dramatic deterioration, from as early as 2003, with the failed policies of the last Labour government.

Phronesis

At the Mont Pelerin Society General Meeting in Sydney this week, enjoying a feast of ideas and insights from some of the world’s leading classical liberal thinkers.  The broad theme of the meeting is to stimulate new ideas to promote a 21st Century liberal enlightenment. The Society’s president, Professor Deepak Lal, who will be speaking at Business Roundtable functions in New Zealand in late October, introduced the meeting:

At a time when many of the ideas of the Enlightenment that inspired classical liberalism are under threat, it is fitting that we should discuss how these ideas and ideals still retain their relevance, and how they are being refurbished by notable advances in the human sciences, particularly in neuroscience and socio-biology. This is one major theme at this meeting.

Ironically,  just as economic liberalism came to be adopted across much of the globe, the dirigiste impulse was transferred to the personal sphere.  The resultant abrogation of Mill’s “principle of liberty’” poses a serious and growing threat to personal freedom.  This ‘new dirigisme’ is being given succour by new-fangled economic theories, as well as the abrogation of Humean scepticism by many scientists committed to political causes. 

And:

We will be following on from the Society’s special meeting in New York in 2009 by taking stock of the aftermath of the Great Recession.  In particular, the rise of the emerging giants China and India which are now becoming the torchbearers of that economic liberalism which many in the West are abandoning.  This along with the remarkable economic performance of our host country – Australia – will also be a major theme of this meeting.

In one of the opening sessions yesterday on Lessons from the Scottish Enlightenment,  presented by Professor James R Otteson from New York’s Yeshiva University, I learned a fine new word: phronesis, used by Aristotle to describe judgement – the skill of knowing what to do. He affirmed Aristotle’s view that:

 …one develops good judgement by, and only by, using it, which requires the freedom to make choices.  Developing judgement in good directions requires receiving  feedback when one makes choices: good feedback when one makes good choices, bad feedback when one makes bad choices. This accountability is the other side of the ‘freedom’ coin, and its development of good judgement is what can enable not only Kantian dignity but also Aristotelian happiness. The most attractive conception of human morality, I believe, is the one that endorses and protects these two aspects of humanity – freedom and its partner accountability, as well as independent judgement.

Otteson went on to describe political and economic institutions consistent with this conception and one which

…would be a system in which third-party oversight, second-guessing, and – as I see it at any rate – self actualising infantilisation is reduced to an absolute minimum. It would be a system in which we do not bail out unsuccessful enterprises, but rather let natural corrections encourage different enterprises. Such a system would have the triple benefits of (1) respecting people’s dignity as free and responsible agents, (2) enabling them to develop their own good judgement, and (3) leading to economic growth.  Moreover, if the Scots were right, such a system of institutions might also enable human happiness. The entrepreneurial opportunities that commercial societies provide might satisfy the need the Scots believed humans have to struggle and contend, and perhaps their “bourgeois virtues” might substitute for the martial virtues of bygone eras.

I’d happily settle for that.

Friday graph

I thought it might be uplifting – or at least salutary – to end each week with a graph. Here’s the first. I’ll kick off with a comparison with our mates* from across the ditch.

The first point to take from this graph is the well-known one – New Zealand’s per capita income compared to the OECD average (OECD = 100) was declining for many years up to the early 1990s.

The second, less well understood, is that following the economic reforms of the 1980s and early ‘90s we have kept pace with the OECD overall – a vast improvement.

The third point, however, is that Australia has done a little better than the OECD average and our income gap with Australia is wide and not closing. 

      *mates, colleagues, children, grandparents…

Hello Asia

I was in Sydney last week at a Pacific Rim Policy Exchange conference of think tanks in the Asia Pacific region, led by the Property Rights Alliance.  A particular highlight was a dinner speech by Rowan Callick, the exceptionally well-qualified Asia Pacific editor of The Australian who has a deep knowledge of Asia and has lived for some years in China.  He started by reminding delegates of the Western-driven mentality behind the UN’s Millenium Goals:

The goals are worthy targets in themselves, emanating of course from guilt-laden but increasingly broke Europe, and largely devoid of an economic context. They have come to be identified with the affirmation of a certain take on the “development” process – that of kind rich folk developing hapless poor supplicants through noblesse oblige.

Callick noted that the same mentality pervades our ‘world’ view of the GFC:

For you are meeting in the wake of the recent North American-European financial crisis – NOT a GLOBAL financial crisis – and just as this region is taking over, in my view unshakeably, the leadership of economic growth, if not of the global economy itself.

He observed that the example so many Asian countries have set in climbing out of poverty through rapid economic growth has largely gone unnoticed by the Western-dominated world of official aid, but not by the rest of the world.

I was living in Beijing when 43 African heads of state and government almost four years ago attended a summit there, which launched China’s extraordinary burst onto that continent. China wanted resources primarily, and ultimately once Africans begin to spend, its markets too. And as in Latin America and central Asia and the Pacific islands, such economic vitality proved both attractive and contagious. China’s Premier Wen Jiabao said he wasn’t interested in exporting a China Model of development. And I believe him. His priorities are domestic, first second and third. His party’s legitimacy depends on economic health at home.

But Africans who have for generations seen Western taxpayers and NGOs donate $ billions to their kleptocratic rulers are naturally lured to the revolutionary idea coming from the East, that economic growth is good, not merely bad for the planet as they had been told by those sleek Westerners. They are attracted to the notion that shipping, selling and buying stuff provides a better prospect for their families than following anaemic World Bank prescriptions.

A fun formula has it that in 1949 only socialism could save China. In 1979, only capitalism could save China. In 1989, only China could save socialism. And in 2009, only China could save capitalism.

Imagine a Western leader of today proclaiming as Deng Xiaoping did: To get rich is glorious. She or he would be condemned for crass materialism, and for privileging elites.

That determination to get rich is the type of talking dirty that thrills people who are dirt poor – that is, those people who have not already been pre-conditioned towards petty envy and the redistributionist zeal that led so many societies down a false trail, one that ends in the desert – as we see in contemporary Europe.

Callick noted that China has succeeded economically despite hobbling itself with efforts to control its people’s lives – a tribute to Deng Xiaoping’s decision to open manufacturing to foreign investors but also to the Chinese people themselves and their core individualistic culture.

In covering the Beijing Olympics while I was living there, I followed the Chinese teams. When China wasn’t playing, the default country which Chinese sports fans tended to cheer, was the US of A. They feel very much at home in the individualistic American culture.

And they mostly hate paying taxes, and avoid doing so, just as Americans, and I must say Australians, do. When I told a Chinese friend after I had begun working in Beijing, that I thought I should start paying some personal tax, he said I was crazy. Neither he nor any of his pals paid tax, he said. Why should they, when they didn’t choose the government, and mostly disagreed with what it spent money on.

 China also has a huge grey income, and its property and financial sectors are rife with insider trading, market manipulation and much misuse of power for personal gain.

Deng Xiaoping spoke of crossing the river by feeling the stones – cautious progress. He was not referring to taking China from a communist river bank to a liberal democratic one, but taking the party and the country towards prosperity. Where did this great pilgrimage start? With formally conceding the space to do business.

Much of China’s rapid change can be attributed to the determination of its “masses” to carve out better lives for themselves come what may, with the party’s legitimacy relying on its capacity to shift its tactics, even its values, in response to demands from below. 

And with Deng’s contract of 30 years ago beginning to fade, the party is now searching for a new source of legitimacy for itself as, among other roles, the source of security, stability and safety.

And now the party is beginning to use domestic Chinese NGOs to deliver the social services for which the country is increasingly clamouring as it ages, but which the government lacks the structures to deliver. The state’s wealth, including the massive foreign exchange largely still held in $US, was in part built on denying its own citizens a fair share – in the economic as in other realms. But this is proving not to be sustainable. A higher proportion of the economy is steadily being seized by consumers and workers, as part effect and part cause of the structural change from cheap surplus labour and towards domestic services and greater productivity.

In Asia more broadly, the right to do things for yourself, to be an autonomous actor, is coveted more highly than the right to receive support from the state – in part because success in the former will move you up to a higher realm of wellbeing and control over your life.

… I usually tell people who ask my advice on books to read about China today, to start with Charles Dickens. He was also writing of a society that was rapidly urbanising and industrialising, in which ancient extended families were shrinking into nuclear families, a world of casual injustices and astounding coincidences, and of resourceful heroes and, especially, heroines. 

As Callick concludes:

Asia is hardly perfect, it’s a long way from liberal, but for the most part it loves globalization, its people prefer governments to keep out of sight, and… well, welcome to our region.

At the same conference I was invited to speak in a session on free trade and emphasised the case for organisations like the Australian Productivity Commission to shed light on the costs of protectionist policies to consumers and other industries.  I’m a member of the Tasman Transparency Group, a collection of Australian and New Zealand economists and business people who’ve been urging governments to set up transparent agencies of this kind.  A bill to set up a New Zealand Productivity Commission is currently before parliament. 

Also at the conference was Kiwiblogger David Farrar who spoke on the role of social media in debating public policy in an era where there seems to be less and less focus on policy analysis in the regular media.  What was particularly interesting was the representation of the free market institutes from the Asia region, most notably China, Korea and India.  I particularly liked the Mongolian Institute for Fair Taxes and Wise Spending.

It was interesting that none of their preoccupations related to the economic debates raging in the West around things like Keynesian stimulus policies, fiscal deficits and the burden of welfare states.

The increasingly lonely business of leading the world

Watching last night’s Back Benches special on our ETS, I was somewhat bemused to see a British diplomat (chapter 3 online) effusing over New Zealand’s ETS bravery, rather patronisingly assuring us that we are not alone, and challenging New Zealanders to look a Pakistani flood victim in the eye and tell him we’re not willing to raise petrol prices by a couple of cents to save him. If only it was that simple.

 I won’t go into whether it’s appropriate for a British diplomat to be commenting on New Zealand politics on a pub politics TV show.  But it’s timely to reflect on the ETS, now that the next stage has been in place for a couple of months and the costs are beginning to bite.  The decision to proceed when our major trading partners such as Australia and the US still have nothing comparable in place, remains, in my view, a dubious one, as I noted in this article published in The Spectator last March. While the government was wise to ensure the scheme was a relatively low impact one, it has nevertheless pushed up power and fuel costs for consumers, who will also be bracing themselves for the impact of the upcoming GST increase.

 Post election, the Australian position is more uncertain than ever. Both parties appeared to foreshadow little action in this area in this next parliamentary term, although the influence of the Greens may come into play. The major international milestones coming up are the UN meetings in Mexico at the end of this year and South Africa at the end of 2011.  It’s highly unlikely that the Mexico meeting will see important agreements on major issues.  If the same happens at the 2011 meeting in South Africa, there’s a real possibility that there will be no second Kyoto commitment period.  In that event New Zealand politicians will surely think twice about proceeding with further costly stages of their pledge to fight global warming.

 http://www.spectator.co.uk/australia/5831998/kiwis-cant-lead-the-world-on-climate-change.thtml

Elites just don’t get Howard

For a regular fix of first-rate journalism and some serious analysis of Australian politics that goes beyond the length of Julia Gillard’s earlobes, it’s hard to go past The Australian’s Janet Albrechtsen.  Like this piece where Albrechtsen examines the Australian media’s misreading of the role of former Prime Minister John Howard in the current election campaign.

This recent sniffing by Fairfax media elites about the return of “Howardism” betrays one constancy: they just don’t get John Winston Howard. And it’s likely they never will. The reason is simple enough. If you don’t understand mainstream Australia, then Howard is equally mystifying. They cannot bring themselves to admit that Australia is quietly, comfortably conservative by nature. Not in that overtly American way of muscular individualism, flag-waving patriotism or screaming Tea Party opposition to big government. In Australia, public displays of philosophical affection give way to private pragmatism and common sense. Howard battlers are not pining for the past. They have always sought the leader and the government that best represents their values and aspirations.

Even the ‘better minds’ in the media just don’t get it, writes Albrechtsen:

Howard is invariably depicted as an embarrassingly dotty, dribbling old one-trick pony forever shamed from political life by the 2007 election loss. For them, Howard represents everything they, the educated classes, despise: flexible workplaces, strong border control, moderate climate change policies, indigenous intervention. And so on.

They failed to comprehend the differences between Howard’s 2007 election loss and Paul Keating’s drubbing in 1996. Mainstream Australians stood ready with baseball bats to boot Keating, his Italian suits, antique clocks and Mahler CDs out of office in 1996. Meanwhile, the educated classes cried into their chardonnay at the rise of a balding, nerdy chap in thick glasses who espoused family values and torpedoed political correctness.

In 2007, only the educated classes had their baseball bats at the ready for Howard. Most Australians did not harbour visceral hatred towards him. While Australia’s second longest serving prime minister certainly overstepped the mark on Work Choices, his bigger problem was overstaying his time in office. After 11 years as PM, Australians gave the new guy pretending to be Howard-lite a go. When they worked out Kevin Rudd was conning them, the battlers turned away long enough and swift enough for Labor to switch to a new face.

So why, she asks, “if Howard is such a fossil from the past, has Julia Gillard mimicked the former Liberal PM on the critical issues in this election campaign? “

When Gillard shelved the emissions trading system, she signalled she is browner than Howard. Likewise, Gillard copied Howard’s strong borders policy by proposing offshore processing of illegal immigrants and echoed Howard’s policies on Afghanistan and the US alliance. On ABC1′s Q&A on Monday night, Gillard – the architect of waste and mismanagement within the $42 billion schools building program — continued the me-too caper she started early on in the campaign, lining herself as the natural heir to Howard’s record of sound economic management.

In other words, Gillard knows this election will be decided in the homes of Howard battlers. Issues that concern Australians in the sun-belt seats of Queensland and western Sydney are very different to the left-of-centre agendas pursued by those in inner-city seats where our media elites work, live and practise pilates.

So how will Howard’s legacy play out in the polling booths on Saturday?

For much of the media, the prospect of Abbott becoming prime minister on August 21 is as repugnant as Howard winning in 1996. Mesmerised by Labor’s latest messiah, they speak about the “sparkle” in Gillard’s eyes. For them, a secular Gillard who pretends to be a conservative is far more preferable to a Catholic Abbott who is the real thing.

But,

The rest of Australia may beg to differ. In fact, it didn’t take long before Gillard started to look more Titanic than messianic. Witness her embarrassing call for help from Kevin from Queensland. Gillard and the number crunchers now know that Gillard for PM is not winning over voters in those critical Queensland seats no matter how much she talks about understanding the stresses of family life, balancing the family budget, buying that new pram and paying for those music lessons. She now depends on the man who she politically assassinated, a church-going family man, to pull Labor over the line. The question is whether Queenslanders are awake to Labor’s latest conservative con.