In another useful reminder as to why I don’t subscribe to The Economist – with a news, politics, and international affairs junkie 15 year old I’m tempted from time to time – it was hard to go past the heading of that magazine’s lead story this week:
What the world can learn from Australia: It is perhaps the most successful rich country
In the text, they make it clear that the “most successful” claim specifically includes economic success.
Okay, I’m happy to grant that Australia has done well around fiscal policy – government revenue and expenditure as a share of GDP have been stable and moderate, and government debt has been kept low. But Switzerland does about as well, and Sweden has much lower net government debt (large net assets), and both those countries manage productivity levels that are reasonably materially higher (almost 10 per cent more) than Australia.
Productivity is, in the old phrase, if not everything in the longer-term about economic performance then almost everything. And here is a simple chart showing two comparisons, using OECD data which start in 1970. The first line compares Australia’s real GDP per hour worked to the median of the top-tier group I’ve used in various posts and articles this year (the US, France, Belgium, Netherlands, Germany and Denmark). And the second line compares Australia to Norway.
Did anyone in The Economist think of Norway – not only does it have much higher average productivity (think oil and gas and few people – and good institutions/smart people) but huge net government financial assets?
Average productivity in that frontier group of six is 20 per cent higher than in Australia. In Norway it is 50 per cent higher. And 50 years ago, Australia outperformed the median member of the six, and was level pegging with Norway. Sure, the last 25 years or so haven’t been too bad, but at that rate of convergence it would take another couple of hundred years (or more) to catch up again to the top tier group. And even the very modest convergence has been supported by massive new natural resource developments. Blessed with those opportunities if a country can’t do better than Australia has done, there looks to be something quite badly wrong.
And here is the ABS measure of real net national disposable income per capita, which takes account of (a) changes in the terms of trade, and (b) the portion of the GDP gains accruing to Australians.
They had a good 15 years, but there has been no growth in this measure of real purchasing power this decade.
What might be so very wrong? Well, I’m sure there are plenty of micro regulatory things Australia – like every country – could do better. But what really stands out about Australia, relative to the other countries, is its rate of population growth. Indeed, this is what The Economist really seems to like about Australia, lauding the country’s “enthusiasm” for immigration. Whether one looks from 1970, or just over the last quarter century or even the last decade, Australia’s rate of population growth has materially outstripped those of the other countries. In the last 25 years, Australia’s population (UN annual numbers) increased by 41 per cent, while the population of the median of those high productivity group of six rose by 13 per cent. The difference isn’t wholly about migration, but immigration is the bit governments make choices about.
In a country with an export base almost entirely dependent on a fixed stock of natural resources – farm products, mineral products, tourism – and actually with foreign trade shares of GDP among the very lowest in the OECD, it is bordering on the insane to be actively importing lots and lots more people (as successive Australian governments have been doing in the last 15 years or so). It is a quite different matter in countries – like most advanced OECD countries now – that are trading the fruit of ideas, or that are tightly bound into sophisticated manufacturing supply chains. But this is Australia – one of the most remote countries on that planet which (like New Zealand) has failed over decades to develop many outward-oriented industries that don’t depend largely on natural resources (or immigration subsidies around export education). The fruit of the (vast) natural resources is, to a first approximation, just spread more thinly. Being based in a global city – the ultimate ideas trading location – in northern Europe I guess these considerations simply never occur to The Economist’s writers, who probably enjoy the beaches and the climate when they jet into Australia without troubling themselves over whether or not the natives are actually earning leading first world incomes. Hint: they aren’t (any longer).
And thus I end up agreeing with The Economist.
“Even more remarkable is Australia’s enthusiasm for immigration”
Truly astonishing in fact, in the specific circumstances of Australia. The enthusiasm of Australian governments for high immigration to Australia is just as wrongheaded – and more culpable – as that of The Economist’s editorial writers. All sorts of daft ideas have had their day over history. This one – at least in modern Australia – seems based more on belief and ideology than any serious evidence that Australians themselves might actually be benefiting from the immigration.
(And that without even considering the house prices, traffic congestion etc – all of which, immigration advocates will note, could – in principle – be fixed separately, but of course in practice aren’t. )
UPDATE: A post from a couple of months back that made similar points, but with some different data and a longer time horizon.
croaking cassandra 
We raise a ruckus when houses and land are sold to foreign buyers but when our top and leading edge high tech industries and intellectual property are sold to foreigners we do not even raise a eyebrow. We just shrug and say Kiwis can’t run companies of this nature, better that they are relocated elsewhere. And then we wonder why we have a productivity problem.
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When I arrived in Australia in the mid-1990s there was a strong consensus that immigration was a Good Thing and Australia was doing it in the right way. People were arriving, getting jobs, settling into society and making a good fist of it. Productivity and wages were rising. Then in the 2000s they increased the rate of immigration by a factor of about 4.
This resulted in a lot of problems:
– congestion and overcrowding
– a decline in the quality of public transport
– high house prices with a breakdown of the egalitarian status quo in favour of a two-tier society
– creation of a class of idiotic property speculators and their attendant lobby group
– high interest rates and exchange rate due to some variant of the Reddell Hypothesis
– total degradation of the tertiary education system
– crush loading of schools and hospitals
– an end to productivity growth
– an end to the common sense of a shared increase in prosperity.
As a result the strong consensus in favour of immigration is slowly breaking down. I still think in the long run Australia could and should support a much higher population, but there is a limit to the rate at which people can be productively absorbed. It also takes time for population growth to get from the cities out to the regional growth centres.
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What populaion Australia can handle is debateable. It certainly is a big country. Tim Flannery though 20 million would be too many because of the draining of natural aquifers. Modest climate change could make much of the country uninhabitable for anyone out of doors – the human body has limits to its temperature control.
I like your phrase “” a limit to the rate at which people can be productively absorbed “”. Immigration rates are similar to speed limts in urban areas; every country has them and there are benefits and disadvantages whichever way you move the limit. No country has open doors however enthusiastic their proponents of immigration. It seems reasonable that a well administered immigration policy may be positively good or at least cause minimal harm whereas high rates of immigration will cause trouble economically and sometimes socially.
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With 600,000 kiwis living in Australia as migrants, I guess Kiwis are in the front end of any Australian immigration concerns.
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A question about exports and natural resources
Would the exports in the following situations be accounted for in full as “export share” of GDP
(a) in an AU context and
(b) in an NZ context
Fortescue Metals, Wholly Australian owned and based, exports Iron Ore to China
Gina Rinehart’s Hancock Prospecting doesn’t do any mining directly, but receives “royalties” from RIO TINTO who mine her tenements
RIO TINTO is foreign owned, based in London, exports Iron Ore to China, and remits profits offshore
BHP-Billiton is foreign owned based in London, exports Iron Ore, and remits profits offshore
BHP and RIO both transfer profits out of AU via a Singapore Finance hub for tax minimisation purposes
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Who owns the company doesn’t affect whether goods produced in a country and sold abroad count as exports (true in both NZ and Aus).
Profits earned here by overseas-owned companies count as an income outflow (in the balance of payments) whether or not a remittance is made. If the profits are reinvested, that reinvestment is recorded as a capital inflow in the BOP data.
The share of profits accruing to foreign shareholders is large for the Aus minerals sector, and is a key reason why national income measures (measuring incomes of Australians) have performed less well than GDP (measuring value-added physically in Australia). The issue is a bit different for NZ, as most of our export sector is domestic owned (the big blocks of FDI here are often in services, notably banking).
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Past growth has been done in a way that was utterly unsustainable – rampant land-clearing, unremediated hole-digging, loss of topsoil, pollution of water. With a long-term strategy to restore degraded lands, harness the custodial capabilities of Aboriginal tribes, re-use water etc, I believe the country could support 100m+ people at a high quality of life. But that is a century-long project.
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I am told that Australia does have 30 million cows compared with our 10 million cows.
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1.6 million Diary Cows Aus. vs 10 million NZ (RSPCA AUS) You can see why we have a major problem with our waterways and aquifers.
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Sorry NZ 6.5 million, still same problem.
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Add in another 3.5 million cows for the meat market and also calf’s would take you to the 10 million cows in NZ.
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This is the kiss of death for Australia. Whenever The Economist has a cover like this, invariably bad things happen. I recall their infamous cover on the end of oil – it rallied 15x in the subsequent decade – and their even worse cover on Time for a Squeeze arguing that tighter credit availability was a good thing, we had the GFC.
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Economist is ghastly – it’s written by and for 25 yos PPE grads in London who think they are very clever. This is what you get.
Good you raise it though – one observation I want to make is – you keep contrasting AU/NZ economies with Northern European ones and make the point that maybe these economies can take large numbers of immigrants because they are fundamentally different. Is this even true?
I’d suggest we don’t really know because they haven’t had the same experience – I live in Germany now which had this controversy about taking many thousands of refugees in 2015/16 (about the same as NZ’s sustained net migration proportionally I like to point out to people here). Before that migration had been rising in Germany, but it is still isn’t anywhere like the sustained AU/NZ experience. I think Austria, Belgium and Netherlands are similar but haven’t checked. I understood that Germany’s productivity growth has also fallen in the last ten years, despite this supposed new Wirtschaftswunder.
The only good comparator is the UK and there it seems even they have suffered poor productivity performance, corresponding to the same period they have opened the gates. There you have a consumer spending driven ‘boom’, supported by house price rises which is promoted as ‘success’.
Outside some very particular scenarios (e.g. Germany bringing in guest workers after the war to replace dead soldiers) it seems there is almost no scenario where large volume immigration doesn’t orient the economy away from sustainable growth.
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Although we like to label international students, temporary foreign workers and long stay tourists as also permanent and long term migrants.
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Thanks for those comments. I have considerable sympathy for your view, and have written critically of some IMF work on the supposed economic benefits (to recipient countries) of migration more generally
https://croakingcassandra.com/2016/10/28/imf-advocacy-for-immigration-some-caveats/
That said, when writing about NZ and Aus specifically I don’t need to take on directly the elite consensus about immigration more generally, so I tend to argue along the lines of “even if the arguments are true for places like northern Europe, there is good reason still to doubt them in the specific circumstances natural resource dependent advanced countries like NZ and Aus have found themselves in.
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Only really individual farmers are natural resource dependent. Farmers only contribute less than 5% of the governments tax revenue so the rest of NZ is not dependent on farmers exports.
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less so after next month, when that particular data series is discontinued…..
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Likely the new Labour government found that the NZ statistics definition of Permanent and Long Term migrant which includes International students, temporary foreign workers and long stay tourists as particularly misleading and unhelpful to the migrant debate. It does muddy the waters as to who and what we are debating about.
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I think the Economist tends (perhaps naturally) to be somewhat Eurocentric and reflects the opinions of what the Hidden Tribes people called in their interesting survey of the state of civic opinion in the US “progressive activists” [“A study of America’s polarized landscape.” https://static1.squarespace.com/static/5a70a7c3010027736a22740f/t/5bbcea6b7817f7bf7342b718/1539107467397/hidden_tribes_report-2.pdf ] These are the 8% (liberal elite, media and influencers shaping current liberal approaches and identity politics in developed countries).
It seems likely that the position presented by these liberals (including the corresponding small group in New Zealand) purports to reflect but is not representative of public opinion on these subjects generally, including on topics such as immigration and PRC influence.
An example is the conclusion from the survey that around 80% of the public are against political correctness – promoted by progressive activists to strengthen acceptance of their views. Only 30% of progressive activists are against PC.
The shift of white voting support to Republicans in the US reflecting anti-latino sentiments [Abrajano and Hajnal: “White Backlash: Immigration , Race and American Politics”] is driven by the current liberal focus on identity politics which is fragmenting and polarizing opinions.
I think we likely have the same thing here on a smaller scale (naturally with different issues). Government positions not reflecting pubic opinion generally; an exhausted middle ground of voters; abhorrence of PC-ness and fear of the implications of excessive or unmanaged immigration, as well as Katherine Cramer’s “rural consciousness” in a urban/rural divide understood and exploited politically by some. [Katherine Cramer: “The Politics of Resentment: Rural Consciousness in Wisconsin and the Rise of Scott Walker (Chicago Studies in American Politics)].
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The Economist isjust globalist neoliberal tool. Australia is far away and so long as there’s no major crisis, the grass is even greener in the eye of distant imaginations. Makes painting pretty propagandistic pictures easier when the nasty details are so far, far away and out of sight. EOS
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The Economist is just a globalist neoliberal ragl. Australia is far away and so long as there’s no major crisis, the grass is even greener in the eye of distant imaginations. Makes painting pretty propagandistic pictures easier when the nasty details are so far, far away and out of sight. EOS
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Getgreatstuff NZ is massively dependent on those farmers because all those sophisticated products and services that NZ has to import to maintain it’s standard of living have to be paid for and agriculture makes a big chunk of NZ’s exports.
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James, in December 2016 NZ had $71 billion in exports of which farming exports contribute around $28 billion which is around 39% of total exports. But the trading in the NZD amounted to around $350 billion a year. Therefore the NZD is supported by speculators because the actual Farmers demand for NZD is only $28 billion. Don’t forget Farmers also import fertilizers, chemicals and secondary feeds of around $10 billion which means that their net demand for NZD is only $18 billion. Net demand of $18 billion does not support the NZD trading of $350 billion a year, the 11th most traded currency in the world. No, NZ is not massively dependent on Farmers exports for its imports. NZ imports is reliant on speculators believing that the NZD has a stable, reliable government and a growing economy with a open currency that is easily exchanged for goods and services.
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Of course also the NZD has an interest rate offering higher than most OECD nations on the planet which adds to the value as a sought after currency. The current exchange rate with NZD/Yuan is 4.4 at the money exchange shops. My recent 2 week holiday in Shanghai was really cheap at NZ$5,000 for 2 adults and a child. The 2 weeks include travel, accomodation and food with visits to 5 other provincial cities.in 5 star hotel accomodation. I certainly do not attribute my ability to spend up big in Chinese Yuan with a high valued NZD, 4.4 times the Yuan to Farmers exports.
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Thanks for this injection of common sense, Michael. Galling was The Economist’s sneer at the ordinary voters, who have seen through the scam, and an increasing majority want an end to ‘Big Australia’.
But they’re up against a very powerful and aggressive growth lobby, which unites ‘left’ and ‘right’, Liberal and Labor, Greens, Treasury and Reserve Bank, unions and business, industry and developers.
In NZ, by contrast, Ardern Labour broke ranks with the Nationals, and went to the polls with a 30-40% migration cut. She’s far from that, but migration is down nearly 15%, on the latest annual figures.
See my recent report (or is it a requiem?) Why Do We Have a Big Australia? at The Australian Population Research Institute, located at tapri.org.au.
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Migration is down because more New Zealanders are leaving and International students have decided not to study in NZ due to fraudulent private institutions. It is also really the immigration tweaks that National did to overseas parents not being able to join their kids and the increase of skilled migrant salaries to around $51,000 applied immediately to all existing and future high skilled residency applications. Nothing to do with the new Labour/Greens/NZFirst government or Taxinda Ardern.
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Thanks. Bear in mind that to the extent migration numbers in NZ have fallen back it is not the result of any policy decisions by the new government (who have left the annual residence approvals target unchanged).
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Gladly I defer to your local wisdom, and that of getgreatstuff. But what then will NZ government actively do to fulfil its clear promise? Something or nothing? Also, where do NZ Treasury and Reserve Bank stand? Any serious Australian government move to cut immigration from record highs would be fought in the trenches by our Treasury and RBA, whose first loyalty is visibly to the market and the GDP, not to the people.
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The “spin” clearly worked on you! There never was a “clear promise” (see this post I wrote just after they took office https://croakingcassandra.com/2017/10/25/the-new-governments-immigration-policy/
and this one when Labour’s own policy was announced https://croakingcassandra.com/2017/06/13/two-sides-of-the-same-coin/
There was only ever a promise to make some modest changes to work visas and student work rights, which might have had a one-year reduction in the rate of immigration, but which would not have altered the baseline permanent inflow (determined in the residence approvals target).
As context, the previous Labour leader appears to have been interested in doing something – altho not much – about immigration, but once Ardern took over the issue was played right down (reflecting her own strongly pro-immigration views). Of the things Labour officially promised not many have yet been done.
On the official agencies, I don’t think the RBNZ would take a particular view. They come and go a bit on the short-term effects of immigration, but have tended to steer clear of taking a view on the longer-term issues. Our Treasury were fairly strongly pro-immigration, and their Secretary (a Brit) still is, but I think there are now competing camps, some persuaded by some of the arguments I’ve been running for some years now, while others still stick to the old-religion, if a little uncomfortable that there is no research evidence of the gains to NZers from large scale migration. Tsy has gone on record expressing concern about some of the low-end immigration (eg working holidays visas and low end work visas) and the potential for those inflows to dampen wages in some sub-sectors of the native workforce.
Defending the status quo is a bit harder in NZ because (a) we’ve been running the large scale migration programme for a decade longer than Aus, and (b) our productivity performance has been so much poorer (and, of course, we have the big outflow of NZers to Aus much of the time).
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Jared Diamond in his 2005 book “Collapse: How Societies Choose to Fall or Survive” has a chapter “Mining Australia” which illustrates starkly how its sustainable natural resource capacity and increased population are incompatible – something recognized by Australians but ignored by decision-makers.
Another issue relevant to the discussion (harking back to the “Economist” thread) is the impact of Tourism. The latest issue has a good article on the current problems in traditional tourist areas, the potential threat from growing tourist numbers and failure to anticipate matters until it creates evident problems. When we talk about immigration it is easy to discount tourism as a temporary phenomenon, but locals in rural and tourist places often don’t see any difference between visiting citizens, tourists or migrants. They just see congestion, pollution and infrastructure inadequacies caused by outsiders and created by governments/urban folks who don’t understand and don’t listen – the rural consciousness thing again.
I see no sign of Government addressing the resource demand/congestion/pollution problems in holiday/tourist places in any fair way – e.g. by adopting the necessary user pays approach. The assumption that local businesses benefit from tourist numbers so having more tourists is always good, ignores the infrastructure problems, seasonality effects on communities, and supports the politics of resentment.
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[…] Economist’s ludicrously Panglossian cover story trumpeting the Australian economy has been comprehensively destroyed by former Reserve Bank of New Zealand special adviser, Michael Reddell, who expertly explains why […]
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