I’ve seen a few suggestions lately (eg. in the Fin) that Australians should envy the New Zealand economy’s performance. Here are a few charts to keep in mind when comparing the two countries.
Michael Stutchbury, Economics Editor of the Australian, dedicated his column in this weekend’s paper to warning of the economic dangers of multi-party democracy. Apparently minority governments mean “policy drift” as opposed to “decisive policy-making”. Stutchbury doubts that a “splintered duopoly” could deliver “the sort of reform agenda business leaders say Australia needs”. Setting aside the question of whether business leaders’ wishes should trump those of the people, it’s worth having a look at Stutchbury’s claim that multi-party government delivers poor economic outcomes.
New Zealand is held up as a cautionary tale; apparently “business fears a repeat of New Zealand’s policy drift will put us over the edge”. In Stutchbury’s account, New Zealand has “drifted” ever since mixed-member proportional representation (MMP) was introduced in 1996, as NZ has had minority governments that rely on the support of minor parties and independents since that time. I decided to have a look at the data to assess the veracity of his argument.
The first measure we’ll look at is real GDP per capita in Australia and NZ since 1975, expressed in 1990 $US converted at “Geary-Khamis” purchasing power parities, derived from the Conference Board’s Total Economy Database.
It looks to me as if real GDP per capita in New Zealand flatlined during the 1980s and early 1990s, and that’s when the real gap in living standards between the two countries opened up. Since 1996, the introduction of MMP in New Zealand, real GDP has grown at a similar pace to Australia; not closing the gap, but not continuing to fall behind.
Instead of looking at the level of real GDP per capita, let’s have a look at real GDP growth. This, presumably, will make the effects of Stutchbury’s MMP-induced “policy drift” apparent. These data come from the Reserve Bank of New Zealand, who in turn derive them from Statistics NZ.
The economic stagnation doesn’t look too apparent in that graph. You can see the global recession-induced dip in 2008-09; apart from that, NZ’s economy has been growing steadily since the introduction of MMP.
Let’s look at this another way. Here’s a chart of the quarterly “growth gap” between the two countries, Australian real GDP minus New Zealand GDP. Where the line is above zero, that means that Australia outperformed NZ in that quarter; when the line is below zero NZ recorded stronger growth. We’re still looking at the Reserve Bank of NZ data here.
From Q1 1991 to Q2 1996 (inclusive), the median quarterly growth gap between Australia and New Zealand was 0.4%. From Q3 1996 to Q1 2010 (inclusive), the median growth gap between the two countries was 0.3%. It’s hard to see the effects of the supposed “policy drift” there either.
Stutchbury goes further than just claiming that MMP itself has induced this supposedly disasterous “policy drift”. He claims that the National (centre-right) minority government of 1996-1999 was weakened by its post-MMP reliance on minority parties, and that the 1999-2008 Labour minority government was responsible for “backsliding” on policy issues. “Decisive policy making” has apparently now returned under a minority Nationals government.
So, let’s have a look at the average yearly real growth rates during four periods, again using RBNZ data.
|National (majority) 90-96||2.7%|
|National (minority) 96-99||2.1%|
|Labour (minority) 99-08||3.4%|
|National (minority) 08-10||-1.4%|
Stutchbury’s claims of economically disasterous “policy drift” in the post-MMP period, apparently particularly pronounced under Helen Clark’s Labour Government, aren’t apparent in the data. NZ recorded healthy average annual growth of 3.4% in the years of Labour minority government.
So, if Stutchbury’s claims are not based on actual economic performance, what are they based on? Well, it looks like “policy drift” really means “failure to implement policies of which Michael Stutchbury would approve”. His examples of poor performance under Labour include the re-nationalisation of railways and Air NZ. So, MMP and NZ Labour are not assessed by any objective criteria, but rather by the extent to which they’ve delivered policies that match Stutchbury’s own preferences.
The broader point of Stutchbury’s column is to warn of the risks of a “fractured Parliament”, which could allegedly “break us”. NZ is held up as a basket case, a nigh-ungovernable polity with a disastrous economy. The reality, as we’ve seen, is quite different.