By Michael Reddell 26/11/2015


I was having a discussion the other night in the margins of the Goethe Institute event about the extent to which we should think about New Zealand’s economic advantages and opportunities as natural resource based. 

I’ve been running a proposition that the only thing really going for us is the land, its attendant resources (fish, wind, geothermal, as well as pasture, forests, and –  at the low value end –  tourism opportunities), and the technologies and management skills that enable us to sustain reasonably good incomes from them.  Those resources can support really good incomes, but I’m sceptical as to how many people they can support such incomes for.

The person I was talking to posed an interesting angle which I hadn’t thought of before.  What if the North Island and South Island disappeared and New Zealand just consisted of Stewart Island (or the Chatham Islands).  What would 4.5 million people do in such a country?

As I’ve thought about it over the last few days, I’ve increasingly concluded that most of them would leave.  The opportunities would be just so much better elsewhere.

4.5 million people on an area the size of Stewart Island or the Chathams isn’t implausible.  Both are bigger than Singapore or Hong Kong –  Stewart Island (1680 sq kms) has more than twice the land area of Singapore (718 sq kms).

My nine year old daughter recently got fascinated by a book on our shelves about remote islands, so we’ve spent quite a bit of time together learning about some small, remote and very obscure places, such as.

 

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But the total population of all those ten countries and territories is about 4.4 million.  Distance really seems to matter.  It is not that one can’t sustain good incomes in these places, but that not many do. History, revealed preferences, and revealed opportunities seem to have seen to that.

In the Stewart Island thought experiment my interlocutor posed, Stewart Island would be about as remote as the median of my 10 territories above.

Really smart people could choose to live there and with strong pro-market institutions perhaps they could build First World living standards there.  But it wouldn’t be Singapore or Hong Kong, even if it were populated by people from those places.  Geography doesn’t doom a country or territory to poverty, but it can make it a great deal harder.

Last bus stop before Antarctica

Nothing in the global distribution of population or economic activity suggests that a Stewart Island New Zealand would have anything like 4.5 million people –  unless some social engineer, defying logic and history, kept shipping people in  (there are always some places poorer).  If, by some chance, 4.5 million people had ended up on Stewart Island, and governments didn’t interfere, I reckon many or most of them would have subsequently left –  to Australia, back to Britain if they could, perhaps even to South America.  The Falklands Islands does now support quite a high level of GDP per capita, for its 3000 people.   But the fishing and hydrocarbons wouldn’t go far across, say, three million.

Of course, New Zealand is not Stewart Island.  Our total land area puts us the middle of the list of countries of the world.  But we are still incredibly remote.  Last bus stop before Antarctica is unfair  (the Falklands and Kerguelen are closer), but not so very far wrong.  It just is not the sort of place, around the globe, that seems to be able to support First World opportunities for many people[1].

Of course, we have some advantages.  A temperate climate appeals as a place to live.  And northern European, specifically British, institutions and the rule of law have enabled people to secure pretty good livings wherever they have settled.  For perhaps 75 years, after all, New Zealanders had some of the very highest material living standards anywhere in the world.  But it was on the back of land-based industries.  And the overwhelming bulk of our exports still are, but with many more people than we once had.

So long as we don’t completely mess things up, New Zealand will never be what Uruguay is today (not much more than half New Zealand’s GDP per capita, the fruit of decades of really bad economic management last century).  But if, as a matter of policy,  New Zealand continues to  drive up its population quite rapidly, Uruguay might even have  better per capita possibilities in the very long run than New Zealand.   The same could probably be said, with even more force, of Romania (similar incomes today to those in Uruguay –  legacy of decades of even worse economic and political management last century).  They are just nearer where the people are. Locations still seem to matter.

New Zealand just isn’t a great place for many people to do terribly well.  Implicitly, New Zealanders have recognised that in the exodus to Australia that has occurred over the last 40 to 50 years.  The conventional wisdom on the right for a long time was that that was just a reflection of our mad policy regimes from the late 1930s onwards (heavy protection etc).  But it looks to have been more than that.  Decades on from the economic reforms, the average net outflow over time remains large (although it ebbs and flow with the Australian labour market), even as it has become more difficult for New Zealanders to make a smooth and secure transition to Australia.

Across the ditch

One of my commenters is adamant that New Zealand’s immigration policy is “just” a replacement policy.  He is wrong on that.  (Over the last 15 years there has been an average annual net outflow of New Zealand citizens of around 25000 and an average net inflow of non-citizens of around 40000.  And our official target for residence approvals for non-citizens has been 45000-50000 per annum –  although not all who come stay).

But even if he were correct, there is no “just” about it.  What the government is doing is intervening to stymie a self-correcting mechanism that is going on in the private sector.  New Zealanders have seen, and responded to, the better opportunities (as they judge them) for themselves and their families in Australia.  They are moving to a place that –  with similar institutions –  is proving better able to generate high advanced-country incomes for more people.  What possible reason can the government have for interposing its own judgement, deciding that the resulting population and labour market outcomes are unacceptable, and actively seeking to bring in many more from abroad?

Perhaps as a policy approach it was more understandable in the 1950s and early 1960s.  After all, at that time our relative incomes were still high, and New Zealanders weren’t leaving in any appreciable numbers (the total outflow of New Zealand citizens in the 15 years to 1964 was 8283). And in the population discussion in New Zealand post-war, the idea of building up the population for national security reasons was also present.

But this is 2015 not 1950, and the economic signals have been pretty clear for a long time now –  and the central planners keep on ignoring the message.  Perhaps they believe the opportunities here are great.  But where is the evidence?  Remote places tend not to support very many people, and certainly not at the level of incomes New Zealanders aspire to.  Perhaps that won’t always be the case, but the onus should be on the planners to demonstrate that this island is different.

Optimum population?

I’ve occasionally suggested that if “optimum population” meant anything,  New Zealand’s might be two million or 200 million.  With 200 million people, New Zealand would be a very different place, but it seems unlikely that in a world our size 200 million people would ever regard these remote islands as the best place possible to live and generate economic activities with an expectation of advanced country incomes. Peripheries seem, naturally, to be lightly populated places.

(To anticipate comments, I’m not arguing for a “population policy”  –  the idea seems absurd, but that is what we now have de facto –  but for leaving New Zealanders to determine these things for themselves.  In recent decades, the birth rate has been slowing and many New Zealanders see better opportunities abroad (most years), suggesting that their choices would leave us a fairly flat population.  But still one more than ten times that of Iceland –  which has 40 per cent of our land area, and is a great deal closer to prosperous population centres and markets.

[1] Australia faces somewhat similar issues, of course, but just has more natural resources.